Winner | Asian Digital Media Awards 2020

Can offsets help resolve a chicken-and-egg problem with cage-free eggs?

The trading of credits is already used to spur sustainable production of palm oil, soy and other commodities. Can it do the same for cage-free eggs in Asia?

In efforts to promote the adoption of cage-free eggs—laid by hens that are not confined to cages so small that they cause immense suffering to the birds—advocates often run into a proverbial chicken-and-egg situation.

Without the certainty of demand, producers are unwilling to invest in cage-free production. And without the promise of steady supplies with minimal risk of disruption, buyers are reluctant to make the switch.

Could a platform that allows the buying and selling of credits for cage-free eggs help accelerate the movement in Asia?

Multi-national consulting firm Global Food Partners thinks so, and is launching a credit trading platform touted as a tool for Asian companies to work towards the production and consumption of cage-free eggs.

Right now, food businesses face a binary choice—either they buy cage-free eggs, or don’t, said Jayasimha Nuggehalli, chief operating officer of Global Food Partners.

The big problem that we are facing is the low quantities of cage-free production…the economies of scale do not work in favour of cage-free egg producers.

Jayasimha Nuggehalli, chief operating officer, Global Food Partners

Credit trading, like offsets, aims to offer them another option and a path forward. By buying cage-free credits, food businesses are paying a premium to support the production of cage-free eggs, which cost 20 to 30 per cent more than cage eggs. While credit buyers may still use eggs from caged hens in their operations, the credits support a farmer that produces cage-free eggs, who may sell the eggs without a premium at markets nearer to his farm.

Over time, as the volume traded and demand for cage-free eggs grow, economies of scale in farm certification and production will kick in, making it easier for food businesses to switch to actual purchase of cage-free eggs.

“The big problem that we are facing is the low quantities of cage-free production … the economies of scale do not work in favour of cage-free egg producers,” said Jayasimha, who previously worked at animal protection group Humane Society International. At low volumes, segregation of cage and cage-free eggs is a challenge, and the lack of infrastructure and transportation costs also pose problems.

To ensure the credits achieve targeted impact, trading will be restricted by jurisdiction, such that a food business can only buy credits from countries where it would eventually be able to source the eggs, said Jayasimha.

The platform is currently in its beta phase and Global Food Partners aims to launch it by the end of this year or early next year. For starters, it will be available to traders in eight countries: Singapore, Indonesia, Malaysia, Thailand, China, Philippines, Japan and South Korea.

The credits, a first for cage-free eggs in the world, will be called Impact Incentives. They will be offered through the Impact Alliance, a collaboration between Global Food Partners and sustainability standard organisations including Textile Exchange (leather and cotton), the Global Roundtable for Sustainable Beef and Proterra (soy).

What credits have achieved for soy and palm oil

The concept of credit trading to promote sustainable production is not new, and exists for commodities such as palm oil and soy.

Observers have called credit trading an interim step before actual sourcing of more sustainably produced commodities.

The Roundtable on Sustainable Palm Oil (RSPO) told Eco-Business that trading of RSPO Credits in PalmTrace, the industry-led body’s traceability system for certified oil palm products, was launched in January 2017. Prior to that, it was done under different trading platforms.

RSPO Credits trading peaked in 2015/2016, and has been decreasing in recent years due to more physical volumes available in the market, a spokesperson said. From about 1.91 million credits traded in 2018, the figure decreased to about 1.77 million last year. One credit is equivalent to a tonne of certified oil palm product.

In the first half of this year, there were 430 sellers and 745 buyers of RSPO Credits.

RSPO said the demand for physical certified oil is now higher. From 2.18 million tonnes in 2018, demand grew to 2.24 million tonnes last year. There are many companies that have transited from buying credits to physical certified sustainable oil, it said. They include PepsiCo, which has moved in the last four years from primarily credits to nearly 100 per cent mass balance oil, which is a mix of certified and non-certified palm oil.

Once the volumes are high enough, physical sustainable sourcing becomes affordable at a reasonable price, and it happens automatically.

Lieven Callewaert, third vice-president, Round Table on Responsible Soy Association

Purchase of the Round Table on Responsible Soy Association’s (RTRS) credits, launched in 2011, has increased in recent years. From 947,363 credits purchased in 2014, the figure rose to nearly 3.4 million last year. One credit is equivalent to a tonne of soy.

Approximately 1 per cent, or four million of the 350 million tonnes of soy produced globally each year, is RTRS-certified, said the association’s third vice-president Lieven Callewaert. But it is more important to look at the proportion of certified soy in critical areas that are under heavy deforestation pressure, he said.

In Brazil’s Maranhao and Piaui states in the threatened savannah region of Cerrado, for instance, about 40 per cent of the 1.6 million tonnes produced a year is RTRS-certified.

“Cerrado is under huge pressure from deforestation—so the impact of RTRS is very important,” Callewaert said. “We aim to become mandatory for the soy sourcing out of this region and it is gradually happening. Now, we are looking to other critical areas (like Gran Chaco) and we aim to achieve similar figures.”

The Gran Chaco region is largely shared by Argentina, Paraguay and Bolivia, and contains South America’s second-largest forest, behind only the Amazon.

Callewaert said a credit system can start a transition. “Once the volumes are high enough, physical sustainable sourcing becomes affordable at a reasonable price, and it happens automatically,” he said. Professional facilitators that handle the contracts and trading processes also help increase the sale of credits, he added.

Cage-free potential in China

A company that is set to participate in Impact Incentives is Orient Agrotech (China), China’s largest cage-free egg producer. A farm solutions provider in other markets before it began cooperating with Chinese farmers on cage-free production in 2018, Orient Agrotech’s daily cage-free output is currently 23,000 to 24,000 eggs a day.

From about 25,000 cage-free hens, it is aiming for up to one million birds in the next three years, said general manager Sun Weiming.

Sun believes credit trading will offer the producer access to international food businesses with cage-free commitments in a flexible way.

The “beauty” of such a platform is that it saves egg producers the effort of reaching out and convincing individual food businesses, while ensuring that supply chains remain intact for both producers and buyers, he said.

One of every three eggs produced globally is from China, according to the International Egg Commission.

Cage-free demand has the potential to account for up to 40 per cent of China’s production, Sun reckoned. He estimated that cage-free production now makes up roughly 5 to 10 per cent of China’s total, but said many producers are small, traditional farms that do not operate efficiently.

Most popular

View all news

Industry Spotlight

View all

Feature Series

View all
Asia Pacific's Hub For Collaboration On Sustainable Development
An Eco-Business initiative
The SDG Co