Fowl Play: How Chicken Genetics Barons Created the Egg Crisis
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Fowl Play: How Chicken Genetics Barons Created the Egg Crisis
In part two of “Hatching a Conspiracy,” BIG delves into the obscure world of chicken genetics. Two secretive firms control the global supply of layer hens. And yes, private equity is involved.
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Today’s piece is written by antitrust lawyer Basel Musharbash based on a report he researched for Farm Action. It’s the second part of an investigative series on the egg industry called “Hatching a Conspiracy.” Part one is here.
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As most people in America know, egg prices have gone haywire. Shortages and high prices got a shout-out in last week’s State of the Union, and have prompted the Justice Department to investigate the industry for potential antitrust violations. But while there’s widespread anger in the face of high profits, there’s still little public understanding of how egg production actually works. So, I am writing this series, Hatching a Conspiracy, to describe the power dynamics in the industry.
In part one, I offered a basic explanation of why a dozen eggs — which cost around 70-90 cents to produce — are now so pricey. The short story is that a small number of actors have secured chokepoints at key links in the egg supply chain in recent years, and are now using them to keep egg production throttled even in the face of shortages and high prices — and thereby keep the shortages and high prices going.
In part two, I’m going to get more specific, and explore something most people don’t even realize is a product — chicken genetics for layer hens. But just because most people don’t know this product exists doesn’t mean it’s unimportant. After all, without the hen, you don’t get any eggs! And as it turns out, two secretive European firms — almost out of a Bond movie — now manage the global industry that breeds hens tailored for egg production.
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The EW Group is the namesake of chicken genetics billionaire Erich Wesjohann. This idyllic building is featured on the company’s website, presumably as its headquarters.
To start, let’s briefly go over what kept eggs cheap in America for most of the 20th century — the New Deal model of egg production, which was created by Agriculture Secretary Henry Wallace in the 1940s and lasted until the 1980s, when Ronald Reagan and later Bill Clinton took it apart. This model was based on open, competitive markets, clear divisions among segments of industry, and a strong public infrastructure.
Wallace cross-bred hens to produce better chickens for egg production, and shared these methods with small breeders around the country through U.S. Department of Agriculture (USDA) extension offices at land grant colleges. As I noted in part one, these universities “made breeding know-how and pure-bred stocks widely available and conducted basic research into the field. Within a few years, dozens of other ‘primary breeders’ emerged, creating a dynamic chicken genetics industry with many local and regional players.” Egg production exploded in America, and then globally, as Wallace’s methods went abroad. America was a land of egg plenty.
Until the late 1970s, suspicion of corporate power and legal prohibitions against industrial conflicts of interest kept the egg supply chain decentralized. In the early 1980s, however, Reagan came into office with a philosophy — grafted from the so-called “Law and Economics” school of thought — that the size and power of private corporations weren’t signals for antitrust concern, but a reflection of greater efficiency. If a corporation was big and profitable, the thinking went, it was probably doing something right. Following this neoliberal line of thought, the economists and administrators that Reagan relied on looked at New Deal guardrails on markets and saw only pointless government meddling in private business.
Based on these ideas, Reagan dramatically relaxed enforcement of the antitrust laws. The policy changes his administration implemented fostered consolidation waves in nearly every industry — from retailing to banking to shipping. The egg business was no exception. Two secretive European firms — Erich Wesjohann Group (EWG) and Hendrix Genetics (Hendrix) — soon took advantage of this neoliberal shift in antitrust policy to roll up the layer-hen breeding and hatchery industries and to consolidate power over the genetic resources on which modern egg production depended.
So who are these corporations?
EWG is a private holding company owned and directed by its billionaire namesake Erich Wesjohann and his two sons, whose net worth today is estimated at 5.6 billion euros. From the home of the Wesjohann clan in Visbek, Germany, it facilitates the family’s control over a vast web of subsidiaries in poultry genetics, poultry vaccines and medications, and poultry nutrition. Hendrix is likewise a private dynastic enterprise. Hailing from Boxmeer, The Netherlands, it has been run by the Hendrix family for over a hundred years, but its dramatic growth from a small company into a global giant since the 1990s has been fueled by infusions of capital from a series of private equity funds — Sofiprotéol, NPM Capital, and Paine Schwarz, among others — which have come to own at least 50% of the company.
In 1987, EWG acquired the two largest primary breeders in the United States (H&N and Hy-Line) and the two largest breeders in Europe (PW and Lohmann) in one fell swoop — immediately consolidating an estimated 70% share of the U.S. market for egg-laying genetics. A few years later, Hendrix bought up the remaining American layer-hen breeders — DeKalb, Hubbard, Shaver, and Babcock, among others — to consolidate an estimated 20-30% of the market.
Though Reagan was the instigator of the shift in antitrust policy, Bill Clinton continued it, as his administration bought the basic argument that size meant efficiency. In the 1990s, for instance, his Council of Economic Advisors wrote that “[l]arge size is not the same as monopoly power. For example, an ice cream vendor at the beach on a hot day probably has more market power than many multi-billion dollar companies in competitive industries.”
With a green light from both parties, egg industry consolidation continued rapidly. By the end of the 1990s, we had gone from there being a dozen or more primary breeders of layer chickens active around the world in 1980 — with most of them being based in the United States — to there being only two who control an estimated 90% of the market, both of whom are based in Europe.
Beyond acquisitions, Hendrix and EWG also proceeded to lock up much of the critical information about breeding methods, strain lineage, genetic markers, and other matters involved in breeding or multiplying layer chickens behind patent, copyright, and trade-secret protections. Simultaneously, in the 1990s, the Clinton administration eliminated what remained of funding for poultry research and the maintenance of public poultry stocks at land-grant universities. With public know-how gone and private know-how consolidated into two firms, it became extremely difficult for independent companies to enter into poultry genetics and breeding.
As one would expect, the industry stagnated. A post-consolidation study (1996) found that the layer genetics industry spent only $16-20 million a year on R&D — or 5 cents out of every $100 the industry earned globally. In 2006, even an executive at EWG had to admit that “independent sources of new germplasm” for breed development had become “very scarce,” and that “[e]very merger between breeding companies [was] result[ing] in the elimination of lines” of poultry stock important to the breeding of new and competing strains of layer hens.
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Chart of M&A among poultry breeding companies. Source: Sumayya Goga and Simon Roberts, Multinationals and Competition in Poultry Value Chains in South Africa, Zambia, and Malawi (August 2023) (Univ. of Johannesburg, CCRED Working Paper 2023/11). EWG and Hendrix control the breeding of egg-laying chickens. Tyson is listed because it is the dominant breeder of broiler chickens (chickens used for meat production) worldwide, but it has no involvement in egg-layer genetics.
The Barons Take Over the Hatcheries
By the mid-2000s, the breeder duopoly of Hendrix and EWG were dominant in layer hen genetics, but they still did not have total control over the layer-hen supply chain, for at least two reasons. The first was that they faced a couple of new competitors. On the one hand, there was TETRA, a Soviet breeding institution that was privatized by Hungary in 2005; it was not a particularly strong competitor. On the other hand, there was another poultry genetics consolidator, Groupe Grimaude, which used the resources of some of the firms it had rolled up to launch its own layer-hen breeding venture called Novogen in 2008. Unlike TETRA, Novogen quickly became an aggressive competitor for sales around the world, gaining around 6% of the global layer-hen genetics market by 2012. To ensure distribution, Novogen even built its own giant hatchery in the United States, PennOVO, which quickly became the second largest hatchery in the country.
The second impediment EWG and Hendrix faced in their efforts to control the supply of egg-layer hens to American producers was that independent hatcheries could play them off against each other. EWG directly owned most of the hatchery capacity it needed in the United States, but Hendrix relied exclusively on contract hatcheries to multiply and distribute its breeds of layer hens to American producers. If those hatcheries became unhappy with Hendrix, they could jump ship and try to buy from EWG (or perhaps even Novogen). As a result, independent hatcheries — including a cooperative of 16 egg producers called Midwest Foods and several family-owned hatchery operations — all retained significant discretion over the volume of chicks they produced from the parent stock they received from Hendrix, the prices they charged for those chicks, and who they sold them to. This was particularly the case for a hatchery firm called Centurion, which was the largest independent hatchery in the U.S. at the time, with the capacity to produce over 50 million chicks annually.
In response to these impediments to their control over the layer-hen supply chain, EWG and Hendrix moved to lock down the market and make it hard for independent hatcheries to switch between breeders. Each firm in the duopoly restricted access to its parent stock only to hatcheries that agreed to market that firm’s genetics exclusively. By leveraging their control over the most popular layer-hen strains in this way, they made it much harder for Novogen, TETRA, or any other breeder who might arise, to access independent hatcheries as customers and distributors for their breeds.
This strategy by the dominant breeders was also a function of legal changes in antitrust. It used to be illegal for powerful businesses to use exclusivity agreements, but they are now pervasive. Exclusive deals are the basis, for example, of the antitrust case against Google in search, which signed deals with Apple, Mozilla, Verizon, and a host of other distributors to be the default search engine on their devices. Another example would be independent pharmacies, who have to sign exclusive deals with pharmaceutical distributors where they pledge to buy 90% of their supplies from one distributor. An exclusive dealing arrangement is not always unlawful, but it is when used by a dominant firm to lock up a market and foreclose rivals from selling into it.
And that’s exactly what EWG and Hendrix were doing. As a 2012 study of the dominant breeders’ strategies found, EWG and Hendrix “use[d] their corporate power to pressurize the [hatcheries] with the aim of increasing their market share[s] and superseding their competitors.” The owner of a hatchery at the time described what was happening more plainly: “We are currently still a free grower. There are not many of us left. We will probably join a group [referring to EWG or Hendrix] now, because nowadays they do not like it anymore when somebody is active on the free market and offers [multiple] products.”
In 2015, Hendrix — powered up by a large investment from a private equity fund — decided to eliminate the power of these independent hatcheries altogether by acquiring its way into the hatchery business and beginning to supply egg producers with chicks and hens directly. Seeking to control multiple layers of production and distribution like this is called “vertical integration,” and it’s something that laissez faire-minded antitrust enforcers across the administrations of Reagan, Clinton, Bush, and Obama saw as especially efficient. To offer some context, from the 1970s until the Trump administration challenge of the AT&T-Time Warner merger in 2017, enforcers didn’t bring a single vertical merger to trial. Hendrix’s serial acquisitions of hatcheries in the 2010s was just one more vertical M&A scheme among thousands that took place during this era, barely noticeable in the deluge of monopolization.
In this permissive legal environment, Hendrix closed an acquisition of Novogen’s PennOVO in 2015, gaining with it the capacity to produce 24 million chicks a year. It also acquired Midwest Food’s hatchery operation, likely the third largest in the country at the time, with the capacity to produce 19.2 million chicks a year. And it started selling layer chicks and hens directly to U.S. egg producers. In tandem with this move, Hendrix took away the distribution of its most productive egg-layer breeds from its remaining contract hatcheries — putting them at a severe disadvantage — and cut Centurion out completely. By 2022, EWG bought out Novogen, the last remaining challenger in chicken genetics — completing the consolidation of the industry.
Since then, EWG and Hendrix have bred — either directly or through contract hatcheries — an estimated 90% of the commercial egg-layer hens in the world (except China, where a state-backed firm dominates the domestic market). Beyond these two firms, the only primary breeder that remains active in the West is TETRA, which barely offers a competitive brown-egg layer strain and does not offer a decent white-egg layer hen at all. Practically, it is now impossible for a commercial producer of eggs in the United States to establish or expand a competitive flock without relying on EWG or Hendrix.
As a result of these moves, by the 2020s, all of the safeguards to collusion and restraint of trade in the breeder and hatchery stages of the egg supply chain had disappeared. Hendrix had eliminated its dependence on independent hatcheries and entered the business of selling layer hens directly to egg producers alongside EWG, aligning the two firms’ economic incentives. Centurion, the only independent hatchery operator that was big enough to push back on the dominant breeders, had been successfully blackballed by both EWG and Hendrix and excluded from serving the bulk of the U.S. market for layer hens. All of the remaining independent hatcheries were turned into marginal players, existing solely at the sufferance of the dominant breeders.
The Aftermath: A Throttled Hen Supply — and Lots of Money for the Barons
Since the onset of the 2022 epidemic, hatcheries — now under the exclusive control of EWG and Hendrix — have seemingly done everything they can to throttle the supply of chicks to egg producers rather than expand it. The size of the flock of “parent” hens — the hens used by hatcheries to produce layer chicks for egg producers — plummeted from 3.1 million hens in 2021, to 2.9 million in 2022, to 2.5 million hens in 2023 and 2024. To make things worse, hatcheries have been hatching significantly fewer parent chicks to replace aging ones — nearly 380,000 (or 12 percent) fewer in 2022 compared to the year before, and even fewer parent chicks in 2023 and 2024 — leaving the parent flock older and more likely to produce eggs that fail to hatch. While a typical parent hen can keep laying eggs at a high rate for up to 80 weeks, the likelihood of its eggs actually hatching tends to decline precipitously after the hen reaches ~45 weeks of age. That could explain why, although hatcheries have reportedly produced 125-200 million more fertilized eggs in each of the last three years compared to 2021, the number of eggs they’ve placed in incubators and the number of chicks they’ve hatched from those eggs has either declined or barely increased from 2021 levels in every year since.
Chart by Basel Musharbash. Data Source: USDA/NASS QuickStats.
For comparison, in 2015 and 2016, hatcheries responded to the outbreak of avian flu by sprinting to grow more chicks and pullets for egg producers. Compared to the year before the 2015 epidemic struck, hatcheries expanded their parent hen flocks, produced nearly 80 million (or ~8%) more fertile eggs, and incubated and hatched nearly 50 million (or ~10%) more production chicks for delivery to egg producers. In 2016, hatcheries increased their output even more, producing an additional 60 million fertile eggs and incubating and hatching an additional 10-20 million production chicks. This response wasn’t a fluke. Hatcheries responded in much the same way to the 1983-84 avian flu epidemic. Starting just after the beginning of avian flu outbreaks in the fall of 1983 and continuing through the summer of 1984, hatcheries continuously hatched 10-31 percent more chicks per month than they did the year before.*
Chart by Basel Musharbash. Data Source: USDA/NASS Quickstats.
As can be expected for a duopoly that is — apparently — restricting the pipeline of hens to egg producers in a time of exceedingly high egg prices, EWG and Hendrix have seen their revenues from the U.S. market skyrocket since the mid-2010s without much increase in their volume of production.
EWG’s North America operations went from earning €492 million in the 2015-16 fiscal year to €929 million in the 2020-21 fiscal year. The next fiscal year, covering the period from July 2021 to June 2022, included only the first four months of the avian flu epidemic, but saw EWG’s North America revenues rise by more than a third (€336 million) to reach an unprecedented €1.26 billion. That is the last year for which public financial reports are available, but we can guess from the trajectory of EWG’s revenue growth that the avian flu epidemic was enabling the company to rapidly increase turnover.
Hendrix has experienced similar growth in its turnover on U.S. operations. In 2015, Hendrix’s layer genetics division earned €116 million, and 34% of Hendrix sales came from its operations in North and South America. In 2021, Hendrix’s layer division earned €195 million in 2021, and 44% of Hendrix’s total sales came from the Americas. After the onset of the avian flu epidemic the next year, Hendrix’s layer division increased turnover to €224 million in 2022 and €254 million in 2023 — the last year for which financial reports are available. We can guess much of that increase is coming from the U.S. market because the percentage of Hendrix’s total sales coming from the Americas increased to 49-50% in those years.
Considering the total number of egg-layer chicks hatched in the United States has increased by less than 10% since 2016, it stands to reason that the vast majority of the increase in Hendrix and EWG’s revenues from the U.S. market has come from higher selling prices for their eggs, chicks, and hens. Meanwhile, the total number of actual hatcheries equipped with parent stock in the United States declined from 299 in 2015 to 262 in 2024 — a 12.4% loss.
It’s well-understood in antitrust law and economics that a more concentrated market with fewer players makes it easier to collude and restrict supply. The chicken genetics and hatchery industries likely offer a textbook example of that dynamic, though because the two companies running it are secretive private firms in Europe, we just don’t have the data to understand exactly what they are doing. However, the data we do have — which shows that hatcheries have not only failed to expand output in response to increased demand for pullets over the last three years but even curtailed their production capacity — suggests that they are, in fact, acting in concert. Indeed, the consolidation of control over the layer-hen pipeline by the EWG-Hendrix duopoly over the past decade may well explain the difference between all previous avian flu epidemics — and the one we’re dealing with today.
But EWG and Hendrix aren’t the only dominant players in the egg supply chain. There is one more. In the final issue of this investigation, we’ll talk about the Saudi Arabia of egg producers — Cal-Maine Foods.
Stay tuned for part three of Hatching a Conspiracy. Hatching a Conspiracy is part of a new BIG project where we do deep investigative journalism on specific industries. If you’d like to support this work, sign up as a paid subscriber for BIG, or if you are already a paid subscriber, give a subscription to someone who you think would like it.
* The disparity in the hatcheries’ response to the current avian flu epidemic in comparison to past ones is not attributable to bird flu hitting breeder or pullet farms over the past 36 months, at least according to the available data from USDA. Since 2022, only 123,600 breeder hens (roughly 3-4% of the U.S. breeder flock any given time) have been culled due to avian flu — and all of them were culled way back in 2022. Only 5 million pullets have been culled because of avian flu outbreaks in the three years since the epidemic began in 2022, a rounding error in comparison to the total U.S. pullet flock of at any given time (over 120 million) — especially considering the pipeline of pullets hatcheries are capable of producing.
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