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How California Egg Rules Could Affect Everyone's Breakfast

Californians ... and maybe the rest of us ... may end up paying more for breakfast
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It's 2015, and that means that eggs sold commercially in California now must come from chickens that have twice as much room to move around than they've had traditionally.

The state's Proposition 2, which took effect on Thursday, was actually passed back in 2008. But California gave egg producers years to invest in operations to make sure that every hen would have at least 116 square inches of space, or about a square foot. One thousand laying hens, for example, now require a facility measuring more than 800 square feet.

It all may add up to Californians paying more for breakfast.

A report by the University of California, Davis predicts that egg prices could rise from between 10 and 40 percent in 2015 as a result of the law. A henhouse still costs the same to maintain and operate even if a producer can have only half as many hens inside producing half as many eggs.

But it's not just California egg producers who have to abide by the new law. An estimated 20 million eggs a day are imported into California, and any producer shipping product in from outside of the state will have to comply with the new rules.

Six states sued in federal court, arguing that California was violating the U.S. Constitution's interstate commerce clause. They lost, but the case is being appealed, and a hearing is set for February.

Out-of-state producers

In the meantime, there are concerns that some out-of-state producers may not yet be in compliance.

"That could create an egg shortage in California, driving up prices," reported Modern Farmer magazine. "Other markets, however, would then become oversaturated, suppressing prices."

The new rules are kicking in as egg prices have already been rising, partly in anticipation of the new law. Dave Heylen of the California Grocers Association pointed to other reasons as well.

"We had increased demand for eggs due to the arctic vortex in November," he said. "People stayed indoors and wanted to eat better—hot meals—so egg consumption spiked." The U.S. Department of Agriculture reports egg consumption is at a seven-year-high, possibly as people eat more eggs instead of meat, which has seen prices rise even faster.

The largest egg producer in the country is publicly traded Cal-Maine Foods, which boasts 32 million "layers," or hens that lay eggs. Shares were up nearly 40 percent in 2014, and Stephens analysts believe the Mississippi-based company will have 1 million hens in Texas and Utah producing in California-compliant compounds.

Still, during an earnings call this week, Cal-Maine Chairman and CEO Dolph Baker said California's new law "could have a significant impact on egg production throughout the country. While it is too early to determine the outcome for our operations, we will continue to manage the aspects of our business we can control."