Can Egg Credits Crack Asia’s Cage-Free Bottleneck?

Around the world, consumers and food suppliers are shifting toward cage-free eggs as an alternative to those from battery cages, where hens are severely cramped and likely to suffer serious health problems. But the transition to cage-free eggs poses a number of economic challenges for farmers and retailers, and it has been especially difficult in Asia. Are cage-free egg credits the solution? 

Singapore-based consulting company Global Food Partners thinks so, and has developed a program that connects cage-free egg producers with food suppliers in the same local markets across Asia.

“The reason why cage-free hasn’t taken off in Asia is because it’s inefficient, and markets abhor any inefficiency,” Jayasimha Nuggehalli, the co-founder of Global Food Partners, tells Sentient. “And we’ve just made it efficient.”

What’s Slowing Adoption of Cage-Free Eggs in Asia?

A growing number of restaurants, grocery stores and other food suppliers are making public commitments to go cage-free, with significant progress in the U.S. and Europe. Much of the headway in these regions is due to laws and policies that ban the production of caged eggs or subsidize the transition to cage-free facilities. 

But in Asia, there are relatively few such laws. This has contributed to a dearth of cage-free egg producers in the region, which in turn makes it challenging for food service providers to commit to going cage-free. 

For instance, a food service provider interested in switching to cage-free eggs could be locked into a long-term contract for caged eggs, Nuggehalli says, or the closest cage-free supplier is too far to offer feasible transportation costs — a common challenge for island-based retailers. Other blockers include political upheavals and natural disasters that disrupt a producer’s ability to provide the eggs.

The cage-free egg industry in many parts of Asia has a literal and figurative chicken-and-egg problem. Retailers struggle to buy and sell cage-free eggs when the industry is small, and conversely, the industry struggles to grow if retailers aren’t buying and selling its products. 

That’s where cage-free egg credits come into play.

What Are Cage-free Egg Credits?

Here’s how it works when a cage-free egg farmer and a restaurant in the same jurisdiction both opt to participate in the egg credit program.

First, the egg farmer sells some portion of their cage-free eggs as caged eggs on the open market. Because cage-free eggs are generally more expensive, they earn less on these sales. To make up the difference, they’ll receive cage-free egg credits from Global Food Partners, which certifies that the sale indeed took place.

Meanwhile, the restaurant owners want to use only cage-free eggs in their products, but they are having difficulty sourcing enough to meet customer demands. Under the egg credit program, they’ll sell as many cage-free eggs as they’re able to source, then supplement the rest with caged eggs. They’ll then purchase cage-free egg credits from the aforementioned farmer at a price the two negotiate, allowing them to financially support the cage-free egg industry while still meeting the demands of their business. 

“The buyer [will] continue to buy as many cage-free eggs that they can,” Nuggehalli explains. “They identify what the gap in their supply chain is, and they bridge the gap by buying credits.”

However, the restaurant is not allowed to claim it’s selling 100% cage-free eggs. Global Food Partners has guidelines outlining the language restaurants are allowed to use to express their participation in the program, which includes phrases such as “supporting certified cage-free eggs.”

For the egg farmer, the credit system offers security against any number of supply chain disruptions, such as adverse weather, transportation difficulties or a buyer going belly-up. Any of these disruptions can result in a farmer having a surplus of cage-free eggs that could go to waste if they can’t find another buyer. Under the egg credit program, they may be able to sell the surplus eggs as caged eggs, knowing they could potentially make up for the loss later by selling egg credits.

The egg credit system has been adopted by a number of major food providers in Asia, like Hyatt Hotels, Club Med and Unilever, as well as a number of Asian universities. It’s also been endorsed by some big names in the animal welfare space, such as the Humane League, Animal Equality and Mercy For Animals. 

Risks, Safeguards and the Future

In the ecosystem Global Food Partners has created, egg credits are bought and sold as commodities, and as with all commodities, there’s a risk of arbitrage: An intermediary could exploit small price discrepancies across markets by buying egg credits from a cage-free egg producer and then reselling the credits at a higher price. Ticket scalping is a classic example of arbitrage.

To prevent arbitrage, Global Food Partners allows only the farmer who was issued the egg credit to sell it and buyers and sellers must be located in the same jurisdiction, so that the exchange occurs within a single market.

Additionally, there may be concern that the egg credit program misses the point for a crucial demographic: Consumers who are ethically motivated may only be interested in eating eggs that physically come from cage-free facilities.

Nuggehalli suggests a different perspective. He argues that without the egg credit system, food providers would continue to sell primarily battery-cage eggs and points out that selling a combination of the two would surely be the better option for a customer concerned about animal welfare.

What’s more, the sale of egg credits bolsters the growth of the cage-free industry by providing farmers with additional funds to invest in their cage-free egg businesses. Because egg farming is an economy of scale, the more eggs a farmer produces, the more profit they make per egg. As a result, farmers have an ongoing incentive to increase production to earn extra profits.

“Your option is either buying from such horrible conditions, or you could buy credits that transition your existing supplier to cage-free,” he says. 

Nuggehalli also argues that activists can use the egg credit program as a tool to pressure food suppliers into making more cage-free egg commitments.

“With credits, advocacy groups have a tool to say, ‘well, we understand that you can’t buy physical [cage-free eggs], but you can now buy credits and fulfill your commitment,” Nuggehalli says. “And a company has no way to get out of it.”

Global Food Partners has been running the cage-free egg credit program for almost six years. Nuggehalli hopes it won’t be around much longer. 

“We want the credits program to become obsolete in three years’ time,” he says. “This program is designed to end on its own.