

Eggspensive. (AFP PHOTO /ANP REMKO DE WAAL Netherlands out REMKO DE WAAL/AFP/Getty Images)

Breakfast lovers, be warned.

A new regulation is set to take effect in California at the beginning of next year that will force hen houses to allocate significantly more room to each egg-laying chicken.

Birds, long afforded a minimum of only 67 square inches a piece, will now need roughly 116 square inches—a more than 70 percent increase—if eggs are to be sold in the state. That extra space won't come free of charge, a cost that will almost certainly fall on consumers.

Egg prices could jump by as much as 20 percent in California as a result of the the new rules, Dermot J. Hayes, an agribusiness professor at Iowa State University in Ames, told Bloomberg.

The mere anticipation of the change has already driven prices up by more than $0.25 over the past month in California. And that increase comes on the heels of what has already been a pretty unkind year for omelette prices across the country: wholesale egg prices are averaging nearly $2.30 per dozen, up almost 35 percent since the start of the 2014.

But California's new regulations could lead to more expensive eggs nationally, too.

Nearly a third of the eggs Californians consume are laid elsewhere. And Californians consume a lot of eggs—the state is home to more than 10 percent of the country's population, and, as a result, a sizable chunk of U.S. egg consumption. The state's inability to meet that demand is only expected to grow more severe as a result of the new regulation.

"There aren't enough birds in California to meet the state's egg demands," said Brian Moscogiuri, an egg market reporter at commodity market news and analysis firm Urner Barry. "This could reduce the already short supply, and create an egg shortage locally."

It could also lead chicken farmers elsewhere—primarily those in big egg producing states, like Iowa—to adjust and comply with California's new rule, either by increasing the amount of land designated for raising chickens, or decreasing the number of chickens they raise.

"Iowa has way more birds than it needs to produce the eggs consumed locally," said Moscogiuri. "There's an incentive to meet California's regulations, especially if eggs sold in California are that much more expensive. If that's the case, that's going to compel a lot of egg producers to comply."

The result could mean the loss of some 10 million egg laying chickens (or roughly 3.3 percent of all egg laying chickens in the country), according to Scott Ramsdell, who owns Dakota Layers LLP, an egg farm in Flandreau, South Dakota. Meanwhile, this isa time of particularly high egg demand—egg consumption is up by about five to seven eggs per person this year, after increasing by roughly three eggs per person last year, according to Moscogiuri. The consequence of that duality—the decrease in egg laying chickens and increase in egg demand—could mean a much broader egg shortage that extends well beyond California.

"I think we’re going to have a shortage starting January 1, and it’s going to get worse until production meets the needs of demand," Ramsdell told Bloomberg on Friday.

But there's another possible scenario. If egg producers outside of California instead decide to shun the state because of its new rule, the result could be quite different. Farmers would then flood the rest of the national market with eggs that were once being delivered to California, creating a surplus around the country, and deepening the shortage in California.

"That would likely lead to cheaper eggs nationally," Moscogiuri said. "But that's assuming the price gap doesn't compel farmers to sell eggs in California at a higher price."

A similar episode unfolded in Europe in 2012, when almost identical regulations first took effect. Egg prices rose quickly in response—by more than 40 percent that year. The following year they fell by 20 percent, to the chagrin of some farmers, including many in France, who claimed that the decrease was so significant that egg prices no longer covered egg production costs. A few farmers, particularly outraged by the gap, publicly smashed hundreds of thousands of eggs in protest.

California's new legislation, which was first approved in 2008 and applies to all eggs sold in shell, is part of what appears to be a growing effort to move away from industry practices that have been accused of valuing production efficiency over animal welfare. An effort to pass a similar law nationally was proposed in 2013, but failed.