Avian Flu Continues to Spread, Causing Major Food Manufacturers to Look Elsewhere

Takeaway: USDA reported that the avian flu has forced the extermination of roughly 41 million infected birds.

AVIAN FLU UPDATE

As of the last detection period on 5/21/15, the USDA reported that the avian flu has forced the extermination of roughly 41 million infected birds. Iowa, the largest egg producing state is also the hardest hit by the flu with roughly 27 million birds affected, 5.7 million at one farm alone. This amount of loss has started to affect egg prices, and manufacturers are starting to rethink their supply chain and ingredient sourcing.

 

The big question is, how long will this last? The U.S. EPA sets strict guidelines on the disposal of infected birds, and states that it will take roughly 3 months from disposal to cleaning the facility. Then the birds themselves take 4-5 months to get to size at which they begin to lay eggs.  So, some of this facilities won’t be able to get back in full production mode for at least 7 months.  I would say that is an optimistic timetable given it doesn’t take into account the risk of infection re-occurring.  

 

ALTERNATIVE INGREDIENTS

Hampton Creek a company that focuses on plant-based egg alternatives is supplying General Mills (GIS) and many other food suppliers with their powdered egg substitute. A product Josh Tetrick, CEO of Hampton Creek claims is cheaper, healthier and far better for the environment than traditional eggs. Josh was recently quoted in saying that about a dozen major companies have contacted him trying to get their hands on Hampton Creek products.

 

Archer Daniels Midland (ADM) has also received many inquires about its plant-based egg substitute.

 

This is not an easy switch for food manufacturers, as they switch ingredients it requires testing, recipe changes and label changes, all of which take time and cost money.

 

INTERNATIONAL SUPPLY

U.S. based companies have also started to look abroad to meet their egg needs. The strong dollar is making it possible for U.S. based manufacturers to look over to Europe to find alternatives. This has never been an option before given how efficient the U.S. is at making eggs.

 

WHAT ARE COMPANIES SAYING

One of the biggest winners in all of this is Hampton Creek, who's product line began with egg-free mayonnaise and has begun to branch out into egg free baked goods and various mixes. Josh Tetrick CEO stated, “We are prepared for this moment…and we are going to take advantage of it…this is a moment to make this dang food system better.”

 

As we previously reported, Post Holdings (POST) has stated, “…the ongoing AI outbreak constitutes a force majeure event in respect to its Michael Foods egg business…” The flu will be at least a $20 million impact to them, and we expect this number to rise as a large number of company owned hens were infected in Nebraska after this number was reported.

 

Spokesperson for IHOP a unit of DineEquity (DIN) stated, “At present, we have not had any issues regarding the availability of eggs for our restaurants, but like the rest of the industry, we continue to monitor this situation closely.”

 

McDonald’s (MCD) spokeswoman spoke of her company’s preparedness, “we proactively developed contingent supply plans, and we do not anticipate an impact in our ability to supply eggs to our restaurants and serve our customers.”

 

Dunkin’ Brands (DNKN) said it will let franchisees decide whether to swallow cost increases or pass them on to customers.

 


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