Effect of New California Laws on Egg Prices

A number of recent articles have reported on California's new egg law.  Here's a summary of what's happening if you're unaware:

To recap, in 2008 California voters passed Prop 2 which essentially outlawed the use of “battery” cages in egg production in the state. California producers, fearful they would be put out of business by cheaper eggs from out of state, then secured passage of a state law in 2010 that also banned grocery stores from selling eggs that didn’t meet the new California standard. Several state attorney generals challenged the law, on the grounds that it violated the interstate commerce clause, but their initial attempt was unsuccessful.

In any event, all this finally went down on January 1, 2015.

Now that the new law is in place, there has been much interest in the effects on California egg prices.  I've seen a large number of articles written on the topic either before the law went into effect on Jan 1 which speculated on the potential change in egg prices or articles reporting on the effects after the fact.  I previously showed a picture taken in a grocery store that one of my students from California sent me suggesting that California consumers were taking note of rising prices.

Most of what I've read in these stories, however, is anecdotal.  They often only indicate what happened to egg prices in California without comparing to prices elsewhere (how to we know there isn't an overall price increase in every location due to some other factor besides the new law?).  As a result it has been difficult to get a sense of whether the increase in egg prices in California is due to the new law or some other factor.

To delve a bit into the issue, I was able to locate some data from the USDA, Agricultural Marketing Service (AMS).  Almost every day since the first of January, the AMS has released the National Shell Egg Index Price Report, which reports egg prices nationally and in California. Because this is a new report in 2015, I had to contact the AMS to get the data going back into 2014. To make things simple, I only focus on the prices of large eggs and the data are reported in cents per dozen.  

Here's a graph of the two price series over time, with the bold black vertical line indicating when the new CA law went into place. 

The first thing to note is that beginning in November, egg prices started increasing in California, but they were also increasing in the rest of the US.  Thus, attributing the November price increase to the new CA law (as many news stories did) seems misplaced.  

However, toward the end of November, and especially after the 1st of the year, the two price series begin to diverge.  After almost a year of moving up and down in tandem, something clearly happened around the first of the year that caused a divergence, and that "something" is almost certainly the new CA law.

One way economists try to sort out the effects of a policy such as this is to calculate a "difference in difference."  The reported price premium for CA eggs may be due to the way the AMS is measuring these data relative to the National price series, making us skeptical of the reported premium at any point in time.  However, we can be more confident in how this premium changes over time, because a "difference in difference" nets out these measurement effects, among other factors.  

Before Jan 1, 2015, the average price difference between the California price series and the National price series was 17.54 cents/dozen.  After Jan 1, the California premium over National prices increased 10 fold to 175.62 cents/dozen.  Thus, as of the date of this writing, it appears the new CA law has caused a 175.62-17.54 = 158.08 cent/dozen increase in the price of eggs in CA.  Given that the average price of large eggs in California in 2014 was 131.05 cent/dozen, we can thus say that the new law caused a (158.08/131.05)*100 = 120.6% increase in the price of California eggs.  

Now, as we can see from the figure above, the price series appears to be coming back together at the beginning of February, so we don't yet know how much of this price increase is due to a temporary shock (partially resulting from CA producers reducing flock size) and how much is a long-term price increase due to increased marginal costs of producing eggs.  The only way to answer that question is to wait and see what happens to egg prices.