Understanding the economics behind India’s egg prices

In today’s Finshots, we take you on a tour of India’s egg industry and explain how the eggs many of us consume are priced. Seats are filling fast, so click here to register https://ditto.webinarninja.com/series-webinars/7095/register?in_tok=61665c2a-d6f5-4e8a-9005-756e808b3f74&utm_source=Finshots&utm_medium=Newsletter while seats last.

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  Hello there folks, you're tuned into Finshots Daily. In today's episode, we take you on a tour of India's egg industry and explain how the eggs many of us consume are prized.

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• 0:56Speaker 00

  Now, on to today's story. Namakal, a district in Tamil Nadu is widely recognised as the egg capital of India. It produces about 6 crore eggs every day and over 10% of these are exported. And prices of eggs in the egg capital have hit the 6 rupee mark for the very first time. For context, each egg now costs 6.05 rupees at Namakal's poultry farms versus last year's highest rate of 5.95 rupees. This means that buying eggs next time might cost you a little extra. So we thought, why not dive into how eggs are prized in India and why egg prices have hit record highs right now?

• 1:36Speaker 00

  And before you think, "Why should I know all this?", remember, the egg industry is central to India's economy and export story. The country ranks second globally in total egg production, producing over 14,200 crore eggs annually. And Namakal accounts for a large share of India's egg exports, close to 80 to 90% depending on the year. Which is why the story matters. At the centre of this entire pricing puzzle is the N E C C. That's National Egg Coordination Committee. A non-government, farmer-driven, cooperative-style body that plays a huge role in prize discovery. And if N E C C doesn't ring a bell, maybe the ad jingle from the 1990s will. Sunday ho ya Monday, roz khao anday.

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  Which translates to whether it's Sunday or Monday, eat eggs every day. This jingle was pushed out by the advertising agency working with N E C C. All in the hope that Indians would warm up to eggs and eat them more often. And there's even a fun little backstory behind why N E C C even felt the need to popularise eggs in the first place. Back in the late 70s and early 80s, egg prices in India had fallen below production costs. At the time, traders, not farmers, determined prices. They often ignored production costs or demand-supply realities and would buy eggs at artificially low rates. They then dumped them into cold storage and released them during peak season. And when farmers would try to raise prices during high-demand months,

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  traders would simply refuse to buy from them because they already had stockpiles. With no price-stabilising mechanism, farmers were stuck in a vicious cycle. For context, between 1979 and 81, the cost of inputs, especially feed, shot up by over 250%. But the price of eggs barely moved. Thousands of poultry farmers went bankrupt and many had to shut shop. Enter Dr. B V Rao, the founder of Venkateswarahatcheries, or as you probably know it, Venkeys. Inspired by how Dr. Vargus Kurian revolutionised India's dairy industry, he wanted to do the same for eggs. He travelled across the country, brought farmers together, helped them meet traders and policymakers, and tried to unite a fragmented sector.

• 3:48Speaker 00

  His goal was simple: create collective bargaining strength to prevent catastrophic price collapses. This eventually led to the creation of a common platform called the N E C C. In 1982, N E C C declared its first official egg prizes. And from that day, it became a prize-discovery platform that protected farmers from manipulation and helped ensure they received fair and stable prices. But fairness wasn't enough. Back then, Indians weren't eating enough eggs due to myths like they were heaty, or unhealthy, or not meant for summers, and so on. So, NECC also took on the job of boosting consumption. The ad campaign that followed, Sunday Hoya Monday, became iconic and many countries later replicated the model.

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  All of this helped NECC become the industry's central price-stetting voice. As of 2022, NECC had over 25,000 farm members and it set prices through a zonal system. Zonal committees met frequently and considered supply, demand, input costs such as feed, labour, electricity, veterinary costs and local consumption patterns to arrive at daily price declarations. But, here's the catch. Even though NECC revolutionised the industry, it wasn't the government body. It had no legal authority to fix prices. Its prices were meant to be advisory and not binding. But that wasn't how things turned out. In 2022, the Competition Commission of India, or CCI, pulled up NECC for exactly this reason.

• 5:16Speaker 00

  CCI found that while NECC called its prices declared rates, the industry treated them as mandatory. Zonal heads coordinated on WhatsApp and phone calls, farmers were discouraged from selling below NECC rates, and there were even informal threats of penalties. NECC also urged farmers to cull flocks early, that's essentially reducing the number of birds, sometimes even healthy ones, to cut supply, or hold back eggs in storage during low-demand periods to prevent prices from falling. And CCI wasn't having any of this. It concluded that these actions amounted to cartel-like price fixing, which is illegal. After which, NECC could continue sharing price data but had to clearly state that its prices were only suggestions and farmers were free to choose their own rates. The thing, however, is this.

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  When 25,000 farmers in a concentrated sector follow the same pattern, suggested prices naturally become de facto market prices. Retailers can't really buy outside NECC-aligned sources without losing access to bulk of the supply. Sure, some regions operate outside NEC's ecosystem and some commercial or small farms independently set prices. But broadly, NEC still shapes the market. And now that you know exactly how egg pricing works in India and why it works this way, that brings us back to Namakal. Namakal is technically the export hub with over thousand producer members. Even though Andhra Pradesh is India's largest egg producer, contributing nearly eighteen percent of the country's output. And that's simply because Namakal sits much closer to its ports like Thuthukudi and Kochi.

• 6:46Speaker 00

  Its eggs reach Middle Eastern markets in about four days, far quicker than the roughly two weeks it takes from Andhra Pradesh. Which is also why the benchmark price from Namakal carries weight. And right now, Namakal's benchmark price has hit record highs for a few reasons. For one, production has dropped. Continuous rains this year moisten and damage feed, especially maize brought in from neighboring states, causing fungal infections. Since feed quality directly affects output, production fell by roughly seven to ten percent. At the same time, demand has shot up. Winter naturally pushes people to eat more eggs, everyday consumption rises and bakeries ramp up production for cakes, cookies and festive desserts. Adding another twenty to thirty lakh eggs a day during Christmas and New Year.

• 7:28Speaker 00

  And that's enough to push prices up, especially when production is already struggling. And maybe the protein craze in India has added a bit of the fuel to the fire too. Eggs are still the cheapest source of protein around. One regular egg gives you about five to six grams of protein, which works out to roughly one rupee per gram. Far more affordable than pricey protein powders that not everyone can buy. And with nearly a quarter of India eating eggs, that extra demand definitely shows up. But while this benchmark price rise is great on paper for poultry farmers, it's not exactly a windfall. Their production cost in Namakal sits around four and a half rupees to four point seven five rupees per egg. Which means they're still operating on pretty thin margins even at the six rupee per piece price. So, how do we improve their margins, you ask?

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  One way is to reduce volatility in feed costs. Feed accounts for sixty to seventy percent of total production expenses with maize and soybean meal as the core ingredients. Unlike farmers in developed markets who hedge feed prices through commodity futures, basically advance contracts that let them lock in today's feed prices for future use, Indian farmers have no hedging mechanisms. If the government creates support frameworks or stabilization policies for feed, similar to minimum support price style, systems used for grains in some states, it could help protect farmers during volatile seasons. Another problem with need to tackle is disease management. India follows a detect and cull policy for avian influenza rather than preventive vaccination unlike Europe or the US.

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  This means every outbreak risks mass culling and productivity loss. Vaccination can mitigate this and the government has begun moving in this direction. And hopefully, these measures will finally give farmers some breathing room with better margins, steadier incomes and the comfort of knowing that they're getting a fair price for the eggs they work so hard to produce. Alright folks, I will see you in the next one. Until then, have a fabulous Friday.

• 9:24Speaker 00

  Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected]. Until next time.