In Japan, hen egg, that had been “Price Honor Student” for a long time and its supply had been stable, but recently, its price is soaring. Compared to before the coronavirus pandemic, its wholesale price is three times last four years and its retail price at super markets is over 300 yen per pack (ten eggs).
In the background, over fifteen million chickens were culled owing to avian influenza, and among them, ninety percent were considered as laying hens. Furthermore, there is great affect caused by soaring feed costs too, so the price is expected to be a high level for a while. In the situation of hen egg, there was a history that its futures transaction had been listed on an exchange in Japan.

Price fluctuation risk “Egg cycle”behind price honor student

The history of hen egg futures trading in Japan dates back in 1965 if it traces to consideration period of its listing. In those days, Japan Poultry Egg Industry Association (JPEIA), that is an actual user group, appealed for necessity of its exchange to the Ministry of Agriculture, Forestry and Fisheries (MAFF) in 1965. At that time, JPEIA put all one’s energy to undertake making installation guidelines and transaction outline, but opposing voices were raised from users, resulting in not realizing it.
The reason that JPEIA appealed for necessity of its market was as follows.
Egg sellers had been exposed to risk of its wholesale price fluctuation, and as the result, they had been lacking for stable management.
Egg wholesale price had been fluctuated greatly and its fluctuation had been called “Egg cycle”in which specific variables had affected. This causes not only by seasonal factors such as molting period, etc. but also by human factors mainly, namely, it points a repeating cycle when wholesale price is high, poultry egg farmers increase number of chickens for increasing of revenue, and as the result, price goes down owing to its oversupply, and then, as number of chickens is suppressed, price goes up again.

Meanwhile, hen egg price had been called“Price Honor Student”since the price had been stable for about seventy years from 1950s to recent although there were some price increases. According to the retail price survey by the Statistics Bureau, the Ministry of Internal Affairs and Communications, as hen egg price per kilogram in the wards of Tokyo was 219 yen on average in 1965 when JPEIA appealed for necessity of hen’s egg futures transaction, the price hasn’t changed so much compared to before the high price at present. Also, according to MAFF, hen egg self-sufficiency rate in Japan is ninety six percent (FY 2019, based on weight) , very high level. As well as rice, only domestic eggs are basically sold at retail stores in Japan.

On the contrary to fluctuation of wholesale price, retail price for consumers is stable. The reason is that compensation due to production adjustment is paid. The production adjustment for poultry egg is called “Poultry egg farmer management stability measures project” and in the case that egg price goes down than the base price for compensation, ninety percent of the difference between the actual price and the base price comes to compensate to the farmers.

Furthermore, in the case that the actual price goes down than the stable base price, the measures that number of chickens and number of poultry coops are reduced come to be taken, and as the result, in accordance with period of empty coop, a bounty from 210 to 620 yen per reduced chicken comes to be paid. The work to empty coops is called “Renewal” and it means the following procedure: chickens that are too late to produce eggs will be marketed for food and new chickens will be replaced. Over 5,000 million yen is allotted to production adjustment for poultry egg annually.

Long awaited voice for hen egg futures from the industry group－not keeping pace and deadlocked

Back to 1965, the final goal of agricultural policy in Japan at that time was generally price stability and many related organizations were established newly toward the policy for compensation and they prepared their stability funds. Therefore, it was natural that the free market concept by JPEIA was eliminated.
However, as to the collection of poultry eggs in those days, National Federation of Agricultural Cooperative Associations (JA) and its affiliates occupied 30－35 percent and distributors occupied 65－75 percent, and in the distributor route, two large distributors occupied the most. Management of small and medium-sized distributors was severe because they were caught in the dilemma between the inflexible price quoted by JA, etc. and the wholesale price that was fluctuated greatly. In fact, when election of the president of JPEIA was done, conflict between large-sized distributors and small to medium-sized distributors occurred. At that time, election of president went into a severe election campaign and resulted in victory of small to medium-sized distributor side, giving birth to a president who had the idea of establishing an exchange.

Backed up by such a movement, in November 1973, JPEIA requested to Japan Economic Research Institute and recommended consideration of an organized market (exchange) for modernization of poultry egg trade. Receiving the recommendation, the livestock product committee of Japan Institute of Food Distribution Systems set up its poultry egg subcommittee in July 1974 and the subcommittee started a study of hen egg exchange. At the subcommittee, thirteen meetings and three sub-meetings were held. In October 1975, “The report on hen egg futures transaction and its futures trading”was completed and it raised the problem of listing on futures market of hen egg. At the same time, the concerned persons on poultry egg such as members of JPEIA, etc. visited the hen’s egg futures market at Chicago Mercantile Exchange and some exchanges in Japan. They received guidance on futures trading from Tokyo Grain Exchange in those days.

However, five organizations relating to poultry egg such as JPEIA, JA, etc. had different way of thinking about futures trading and four organizations except JPEIA hadn’t done concrete consideration of futures trading and the concept of hen egg futures market suffered a setback.

A local exchange focuses on hen egg futures trading－survival or abolition?

In 1981, spotlight was hit on hen’s egg futures again. It wasn’t from the hen egg industry but from a commodity exchange. Concentrating in Tokyo of futures trading, management of local exchanges was getting severe, therefore, Toyohashi Dry Cocoon Exchange began to move toward listing hen egg futures transaction for survival. The investigative committee on hen egg trading system was set up at the exchange and five meetings were held at the committee by April 1982, The report that wrote “Its listing is appropriate”was completed.

（to be continued）

（Futures Tribune・issued April 25, 2023・no.3211）