The Eclectic Economist

The Eclectic Economist

What do zombies, pandemics and the price of eggs have in common?

They’re coming to get you. Centers For Disease Control and Prevention

What would you do if a zombie apocalypse occurred? I recommend going to the Centers for Disease Control’s (CDC) zombie website for information. It is incredible (see it here).

While the zombie website is real, the CDC is not actually concerned about an outbreak of the undead walking around the country. Instead, it uses the website to help create awareness for what to do in pandemics and other emergencies.

Most people don’t realize a pandemic just swept across parts of the US. Before you panic, the last recorded new case was detected in the middle of June. More importantly, this particular pandemic did not affect humans, but was a bird flu that attacked primarily chickens that lay eggs.

This particular bird flu is named HPAI for Highly Pathogenic Avian Influenza, and it was first reported in December. To date, an astounding more than 48 million birds have died. Unlike humans who get the flu, birds that contract this particular strain typically die quickly from the disease or are promptly killed by a farmer to prevent the disease from spreading.

Farmers cull their flocks

Iowa has killed more than 30 million infected or suspect chickens, and Minnesota has killed more than nine million. Farmers in the other 13 states where the outbreak has occurred have killed about nine million birds. Combined, the death toll eliminated about 10% of all chickens that lay eggs.

The impact of millions of chickens dying in a very short time was quick and very dramatic on the US egg market: prices soared. The average supermarket price for grade A large eggs was US$1.96 per dozen in May, but just a month later it spiked to $2.57, a rise of 31%. This rise was so dramatic the government sent out a press release stating it was the largest price increase in eggs since 1973.

The impact isn’t chicken feed

The large increase in egg prices is expected to cost consumers a lot of money. One analyst from Goldman Sachs estimated that US consumers will pay about $8 billion more this year than in 2014 to buy eggs – a sum that is hardly chicken feed. In response to the price increase, families and businesses are cutting back consumption or boosting prices of products that use eggs. One of my children is a counselor at an overnight camp that last summer served about a thousand eggs per day. Because of the price increase, eggs are now served at the camp once a week, instead of daily.

Surprisingly, while egg prices have risen, those of some types of chicken meat have actually fallen. The average price of boneless chicken breasts has gone down steadily every month since February, when it was a $3.52 a pound. By June, the price per pound had fallen to $3.39.

This means the $8 billion figure quoted above is overestimating the total impact on families, since consumers are spending more on eggs but less on chicken meat. It is not just boneless breasts that are saving consumers money, since whole chickens are also cheaper per pound in June than back in February.

Why prices of eggs going up but chickens going down

How can chicken meat prices be falling at the same time as egg prices are soaring? The reason is not that farmers are selling chickens off before their flocks get infected. Laying chickens are bred to produce eggs, not to be tender and tasty. Meat from laying chickens is tough and is primarily used as stew meat. Chickens intended for eating are called broilers and are grown to be plump and flavorful.

There are two main reasons for the divergence between egg and broiler prices. First, egg production comes from a different part of the country than broiler production. Broilers are grown (see map here) primarily along the East Coast from Maryland to Georgia and along the Gulf of Mexico from Texas to Alabama. Egg layers are concentrated in a swath across the middle of the country from Pennsylvania to Iowa (see map here).

HPAI has primarily stayed west of the Mississippi, which means almost all major broiler farms have been spared the disease, unlike giant egg farms in Iowa and Minnesota.

The second big reason is that the discovery of HPAI in the US resulted in numerous countries, like Russia, Canada and the entire European Union, barring particular US states and counties from exporting any kind of chicken to their citizens. The result of these bans has been a plunge in chicken exports, thus a jump in local supply. Chicken meat that normally would have been sent abroad is instead being sent to your local supermarket, pushing prices down.

Pandemics have an uncertain impact

This strange result of egg prices rising and chicken prices falling is an example of why the economic impact of pandemics is very hard to predict. Pandemics that have struck humans have also had the same kind of uncertain impact.

When Ebola spread across Liberia in 2014, food prices jumped sharply upward. Farmers could not or would not bring food into the cities, causing prices to skyrocket as low supply met desperate demand.

In March and April of 2009, Mexico had a very different economic experience when a swine flu infection jumped from pigs to people. During the beginning of the infection, Mexico’s Consumer Price Index rose by an annual rate of 4.2%. However, at the end of the infection, consumer prices were falling by a 3.5% annual rate as restaurants, clubs and many other places cut prices to coax people to leave their homes, and pork prices plummeted because consumers were afraid of anything associated with pigs.

I took my family to Mexico after the CDC declared the country free of infection. My family still talks about getting to stay in a set of adjoining penthouse rooms in a fancy beachfront hotel for roughly the same price as dumpy motel rooms back home.

When the next pandemic strikes humans, the economic impact will not hurt everyone. Just like eggs going up in price and chicken meat going down, some people will be made economically better off while others will be devastated. While I can’t predict the specific economic impacts of a pandemic, I am certain a zombie pandemic will not be striking soon.

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