Texas COVID-19 egg price gouging lawsuit revived by appellate court

Dive Brief:

• An April 2020 case filed by Texas Attorney General Ken Paxton accusing egg producer Cal-Maine Foods of pandemic-era price gouging was revived by a Texas appeals court.
• The case was initially dismissed in August 2020, but the appeals court reversed that judgement on Tuesday, ruling that more evidence would be needed to sustain a dismissal. The case returns to the trial court. Cal-Maine and Paxton’s office did not respond to requests for comment.
• This was one of three state-level court cases filed in the first months of the COVID-19 pandemic. Egg prices increased across the board — which producers and analysts said was mainly caused by a sharp and unexpected increase in consumer demand — and the states of Texas, New York and Minnesota took legal action. 

Dive Insight:

It’s been more than two years since the COVID-19 pandemic upended the food industry, and a lot has happened since then — especially where eggs are concerned.

In the last several months, the egg industry has been roiled on two fronts: inflation and an avian influenza epidemic. According to the USDA, more than 40 million birds were impacted by the outbreak, which hit its peak this spring. While the worst of the avian influenza outbreak appears to be over for commercial flocks, the price impact is still strong. According to the Bureau of Labor Statistics’ Consumer Price Index for July, egg costs were 38% higher last month than a year before.

But all that is the present. Yesterday’s court ruling deals with the past, when an early-pandemic-inspired run on eggs led retail prices to jump as much as 300% in a short period of time. In those days, consumers were stocking up on groceries, preparing for a long period of home isolation to stop the spread of COVID-19.

Eggs are a commodity priced on a complex index that takes into account supply, demand and valuation by traders. Urner Barry, a business publisher that reports daily market news, publishes the baseline egg prices that the industry uses to sell eggs. The unexpected increased demand for retail eggs, coupled with the complexities of a system that grades and processes eggs differently for foodservice and as liquids for ingredients, was the main driver of the early 2020 price increases, according to analysts. As retail demand settled down, so did prices.

But Texas and other states didn’t wait for demand to calm down and instead took legal action. The Texas case accused Cal-Maine of unfairly raising prices and sought to recover consumers’ funds and stop the company from continuing to sell pricey eggs.

“On information and belief, Cal-Maine has not experienced any supply issues or other disruptions that are driving it to charge more for eggs,” the lawsuit says. “It is simply charging more because it can, or, more specifically, because the pandemic caused market demand to jump. In summary, Cal-Maine is taking advantage of a disaster by offering for sale, and/or selling, eggs at exorbitant or excessive prices.”

The case was dismissed by a judge in August 2020 with a quick order that offered no explanation to the decision’s rationale. 

The appellate court said this week that more evidence needs to be examined before the case could be thrown out. Cal-Maine appeared to be able to set its own prices, the ruling said, because it is a vertically integrated business and the Urner Barry price report is not the same as a publicly traded commodity market. At the point in which the case was dismissed, Cal-Maine had not submitted detailed information about its business practices and finances to show that the higher prices were necessary.

The other cases involving pandemic egg prices are long settled. In Minnesota, egg producer Forsman Farms settled with the state in April 2020, after the attorney general’s office started a targeted investigation. In a statement, Forsman denied price gouging and said it sets its prices using the Urner Barry index. The company retroactively reset prices to a lower threshold, changed invoices and offered refunds to retail customers.

In August 2020, the New York Attorney General’s Office sued egg producer Hillandale Farms, accusing the company of price gouging during the first months of the pandemic. Hillandale denied all wrongdoing, but settled the lawsuit in April 2021 by promising to refrain from excessive pricing and donating 1.2 million eggs to food banks in New York.

It’s unclear what will happen next with this case. Texas may decide to drop it, considering that short-lived price increases from more than two years ago could be seen as moot, especially in the midst of other present issues facing the egg market. If the state continues the case, Cal-Maine could appeal to the Texas Supreme Court.

Or Cal-Maine could pursue a settlement similar to those taken by Forsman and Hillandale — admitting no wrongdoing, but committing to charitable donations. A settlement would also close out the dispute, leaving Cal-Maine free to spend its efforts on other initiatives around pricing and sustainability.