A Legal Scramble over Egg Prices

Earlier this year, Steve Ribbing, who runs a family-style restaurant south of Buffalo, got fed up with the growing dent in his company's bottom line. The culprit? Egg prices, which have jumped nearly 50% over the past two years. Ribbing griped to his attorney, an act that ultimately led to a lawsuit against more than a dozen egg producers and the industry's trade group.

Critics say the price jump since 2006 was not particularly mysterious: egg producers, the plaintiffs contend, conspired to restrict supply as part of a broad scheme to boost prices. Ribbing's complaint moved from his lawyer to a large national firm, finally becoming a sweeping lawsuit that recently gained class-action status on behalf of restaurants, grocers, and other direct buyers nationwide. The litigation's targets include 13 of the nation's biggest egg producers, including Cal-Maine Foods (CALM), Pilgrim's Pride (PPC) and Rose Acre Farms, as well as a Georgia-based industry association, the United Egg Producers (UEP).

Justice Dept. Is Investigating

The average retail price of a dozen eggs, which had been stable for the better part of a decade, soared to $2.20 per dozen in March, after climbing from $1.63 in 2007 and $1.30 in 2006, according to the Bureau of Labor Statistics. Egg producers blame the increase on surging feed and fuel costs, although prices have retreated 15% since March, to $1.85 per dozen. The restaurant lawsuit filed three weeks ago in U.S. District Court in Philadelphia is one of six separate suits facing the egg industry. Some name a handful of companies while others, like the T.K. Ribbing's restaurant suit, target 16 major producers and interest groups. The suits generally allege similar schemes to raise prices, but the detailed Ribbing suit delves deepest and covers the broadest part of the industry.

The swift rise in egg prices has also caught the attention of the Justice Dept., which is "investigating the possibility of price fixing in the egg products industry," says DOJ spokeswoman Gina Talamona, declining further comment. All of the major egg producers either refused comment or didn't respond to BusinessWeek's requests for comment.

The producers all belong to the United Egg Producers cooperative, which in 2000 enacted an Animal Care Certified Program to improve hens' conditions by giving them more space in cages. Plaintiffs say the program was designed solely to lift egg prices by curtailing egg supplies. The total U.S. supply, which grew steadily from 7.1 billion dozen eggs in 2000 to a peak of 7.6 billion dozen in 2006, is down to 7.5 billion dozen this year, according to the U.S. Agriculture Dept. "The only portion of the program which they enforce are the ones restricting the total number of hens and production," says Jonathan Lovvorn, vice-president and chief counsel of the Humane Society of the U.S. "You violate that, they kick you out immediately." He says the co-op ignores "all kinds of other things you can do to animals—not providing proper veterinary care, letting animals die without proper food or water. Those are things we've seen."

UEP spokesman Mitch Head calls allegations that the welfare program was aimed at trimming hen numbers "ludicrous." "There's no provision for any farmer to not build more houses, add more conventional cages, add cage-free or free-range [hens]; they could've added as many as they wanted to," Head says. The program results in fewer hen diseases and lower mortality, and improves food safety, he said. "This is not what was better for the farmer. It was better for the hens and for our consumers."