California’s Proposition 12, which prohibits the sale of uncooked meat or eggs from producers that don’t comply with new state requirements, has been finalized after years of uncertainty, unclear wording and lawsuits.
What’s next? Well, according to California Grocers Association President Ron Fong, there’s likely “going to be a shortage in the marketplace.”
“The [California Department of Food and Agriculture] did finally write the regulations,” he said. “And that law went into effect July 1, 2023…even though we’ve had plenty of time to think about it, pork producers and retailers are still a little caught off guard.”
Effective Jan. 1, 2024, livestock farmers and retailers must comply with the regulations, which set housing standards for livestock such as pigs, cows and calves and egg-laying hens. As a result, Fong suspects state’s retailers’ access to pork may be limited.
“[Retailers] are selling through the pork products they have on hand now,” he explained. “The issue is your farmers and your distributors will now have to sell compliant pork under the new regulations. They have to grow those pigs differently and in different cages. That’s going to take a little while for the market to catch up.”
Michael Formica, chief legal strategist for the National Pork Producers Council, said the organization worked to secure grandfather clauses for some products.
While that may provide some relief, Fong still expects obstacles. Retailers in the state are working with suppliers to secure sufficient amounts of compliant pork.
“Everbody is looking for manufacturers,” he said. “You just got to work with the contacts that you have.
“That’s why I think there’s going to be a shortage for a short amount of time, because you only have so many manufacturers making compliant pork. California, as large as our marketplace is, everybody’s trying to buy from the same people.”
Manufacturers are at the mercy of suppliers, according to Formica. And in California’s case, the majority of pig farms are in other states.
“Practically none of them are in California,” he said. “Let’s say you need 750,000 sows (female pigs) to produce the piglets needed to feed California. And there’s probably 1,500 total sows in the state. They are almost all located outside of California. This is going to be pretty disruptive.”
Formica expects the change to affect small farmers the most, saying large operations will have the capital required to make their operations Prop 12 compliant. However, he did note that many large livestock farms are feeling the economic strain.
“We’re in the midst of one of the worst generational economies that farmers have dealt with. At one point this year, they were losing upward of $60-$70 in every case they sold,” he explained.
“For a normal-sized farm, we’re talking $50 million to $60 million to build a new one that’s Prop 12 compliant.”
Likewise, all farmers will have to deal with the law’s timing. Even those that began making structural changes prior to July must contend with nature. According to Formica, it takes about a year for a pig to mature to market weight, which “squeezes the amount of available sows.”
“The way California is implementing the law, only the sows that were bred once they were in compliant condition can produce pork for the market…it becomes a timing issue,” he said. “We don’t know how many of the farms that have been converted.”
The CGA is working to educate retailers and consumers on the upcoming changes and how it will affect them.
Likewise, the organization has to prepare its members for the state’s bottle bill change. Also beginning in 2024, retailers must charge a California Refund Value on wine and spirits bottles. That change won’t require much from them, though Fong said they can expect an influx in recyclable material.
“All of a sudden, you’re bringing in many more bottles of liquor and wine into the recycling mix,” he said. “That’s going to cause some need for attention and infrastructure. How do we take those bottles back?”
At the same time, retailers are preparing their POS systems to “flip the switch” when the change takes effect.
In other association news, CGA held its first Food Industry Economic Forecast on June 27. The event featured presentations from an economist and consumer trends expert.
“Even though inflation is high and gas prices have ticked up, there’s still much optimism in retail,” Fong said. “Volume and purchases are still at a very high level.
“People are not pulling back much in the way that they’re shopping…consumer behavior has largely remained optimistic.”
Another takeaway from the presentations, according to Fong, is that consumers are more conscious of what makes up their food. And technology is making that information more readily available.
“You can’t possibly see all you want on that little tiny print label on the back of the can or the back of the box. The idea is to have a QR code affixed to the label,” he said. “Just take your QR code off of that label, and it will give you as much detail as you want.”
The association is preparing for its Sept. 24-26 Strategic Conference at the Palm Springs Convention Center in Palm Springs, as well as the CGAEF Top Shot on Oct. 19.
The CGA Leadership Summit and Store Leaders Seminars remain on track for this year, though exact dates have not been set.
Read more market profiles from The Shelby Report.
