Since the last time I posted on the issue, avian influenza has continued to spread, particularly in flocks of egg-laying hens, and the price impacts are becoming more apparent.
Here's what I wrote back in April:
Now, here's what Kelsey Gee wrote in the Wall Street Journal just yesterday:
The actual price impacts aren't that far off from what were predicted from my very simply supply/demand model. In the very short run, supply is predetermined, so the price impacts of a reduction in supply are determined entirely by the shape of the demand curve. A very simple demand curve is Q = e*P, where Q is the proportionate change in quantity, P is the proportionate change in price, and e is the own-price elasticity of demand. Changes in price are thus given by: P=Q/e.
Thus, if the change in quantity is about -10% as indicated in the WSJ article, and the elasticity of demand is about -0.15 as I previously suggested, the expected short-run price change is P = 0.1/0.15 = 0.667, or a 66.7% increase.
The 85% price increase cited in the WSJ is larger than the projected 66.7% increase. This could be because consumer demand for eggs has fallen among some consumers worried about bird flu (see my recent survey for evidence on that), so we may be witnessing not only movements along the demand curve but also a shift in the demand curve. Or, it could simply be that demand for eggs was more inelastic that I previously assumed. An own-price elasticity of egg demand of -0.117 rather than -0.15 would imply an 85% price increase in response to a 10% reduction in quantity supplied.
But, no matter the cause of the price increases, it certainly isn't good for consumers who are harmed by having to pay higher prices for a smaller number of eggs. Producers who have lost flocks are certainly worse off. The only beneficiaries are those egg producers who've (at least so far) avoided the outbreak.