The egg industry is concerned cheap cage-free eggs being sold by a major supermarket are 'unrealistic' and leading to unfair prices amid a nationwide supply shortage.

Key points: Western Australia is in the midst of an egg supply shortage

Western Australia is in the midst of an egg supply shortage Farmers say the low pricing by supermarket chain Coles on caged eggs is "unrealistic"

Farmers say the low pricing by supermarket chain Coles on caged eggs is "unrealistic" The industry says the low prices could hinder moves away from caged egg production

In March, Coles stopped selling caged eggs in Western Australia ahead of a commitment to a nationwide phase-out of caged eggs by 2023.

Now its cheapest product line is home-brand barn laid eggs for $3 per dozen, which is on par or cheaper than caged egg prices sold elsewhere.

Commercial Egg Producers Association of WA president Ian Wilson said the price did not meet the expected cost of production of barn-laid eggs.

Costly egg production

Mr Wilson said the supply chain was also grappling with a nationwide egg shortage, brought on for several reasons.

Egg producers have had to downsize their flocks because of high feed costs associated with drought in eastern Australia.

"Cost of production for farmers has increased a lot and we've been unable to recoup a lot of those increases from supply chains," Mr Wilson said.

"We've gone from a surplus to a shortage [and] we haven't been able to restock some of the sheds and produce the extra eggs that are needed."

Supply from other states has more recently been interrupted by the destruction of hundreds and thousands of hens following an outbreak of a rare strain of salmonella in Victoria, New South Wales, South Australia, and Tasmania.

Peter Bell, managing director of one of WA's largest egg producers, Golden Eggs, said the market conditions warranted better prices for primary producers.

"You'd think, in the free market, that supply and demand would kick in," Mr Bell said.

"In smaller markets it's always easier to make a price adjustment, people understand it.

"The major retailers have a philosophy of 'no, we don't accept any increases', and it takes a long time to achieve them."

Golden Eggs managing director, Peter Bell questions how eggs could be sourced for such a low price. ( ABC News: Erin Parke )

'Unrealistic' egg prices

When Coles axed its cage eggs sales in March, Mr Bell lost his supply contract and is now calling out Coles for what he called "unrealistic" prices for barn-laid eggs.

"From our point of view, and most other egg producers nationally, a $3 shelf price indicates no-one anywhere else in the country has been able to supply at that price," Mr Bell said.

"You'd have to question how they can obtain a source like that."

He said the price set a poor example for other retailers.

"Even the majors always look over the fence at their competitors, the other supermarkets, and say 'well, we can't pay you because there are barn eggs sitting on the shelf at $3 a dozen'," he said.

WA's Minister for Agriculture and Food, Alannah MacTiernan, said while Coles' move to bring forward its phase-out of caged eggs in its stores reflected consumer sentiment, its pricing structure on cage-free eggs was concerning.

"One thing that did concern me about the decision by Coles is the marketing of $3 [cage-free] eggs," Ms MacTiernan said.

"It is difficult to see how it is possible for a producer to provide cage-free eggs at that price."

The pricing concerns come as the Australian Competition and Consumer Commission (ACCC) investigates allegations of egg substitution and mislabelling within WA's egg industry.

Expensive eggs

Mr Wilson said delays in price increases for farmers would ultimately hamper efforts to move the industry away from caged egg production.

"For farmers to continue to build new farms and new barn and free range facilities, they need to be able to make a profit on what they're doing," he said.

"That's not happening at the minute so pretty much, expansion is being stalled."

Not all egg producers are battling against the supermarkets for a fair price.

The shortage has put some producers in a position of power as price makers not takers, as wholesalers scramble to secure consistent supply.

Andrew Taylor is manager of Country Pak Wholesalers, which supplies about 100 retailers across WA.

He said farm gate prices had risen two-fold in recent weeks and were expected to rise even further.

"Farms have lifted their pricing because they are primary producers and they have said, for many years, they are struggling to make ends meet," Mr Taylor said.

"We're not in this situation alone, and there are a lot of wholesalers out there and a lot of awareness about what is going on."

Depending on the winter grain crop yields in drought-affected parts of the country, Mr Wilson said the shortage could continue into the new year.

The ABC has contacted Coles for comment who are yet to respond.