I try—and mostly fail—to be what I call a happytarian, which means only eating animal products from humanely raised, happy animals that were slaughtered in as quick and painless a manner as possible.
The main reason this is so difficult is that labeling practices are so illogical. Sometimes the labels don’t mean what you think they mean—“free range” is actually pretty meaningless, because it only means that poultry must have “access” to the outdoors. This could be a door in their cage that’s open for half an hour a day that they never even use. But at least “free range” is a term that’s regulated (though only for poultry). “Cage-free” sounds great, but the term is not regulated. There’s no legal definition and thus no standards for what can or can’t be labeled cage-free. The best labels to trust are “Animal Welfare Approved” and “Certified Humane”—these are both regulated by strict independent regulating agencies. (Most information from AnimalWelfareApproved.org.)
Mostly I limit how much meat I eat, since I can’t really afford the kind of meat I’d like—from small independently-owned farms would be ideal. But the USDA’s regulations on organic certification does actually include some requirements for animal welfare, so eating organic meat from larger brands is a step in the right direction. Organic livestock must have access to the outdoors and sunlight, space to exercise, and a few other things to keep them happy… or at least happy-ish.
As for cheese, butter, milk, and other dairy, again, price is the limiting factor, but I try. I buy mostly Borden cheese, which is an imperfect solution, but their cheese is at least all made from small (?) farms and there is information about those farms available online.
Eggs are, surprisingly, much easier—for some reason my supermarket has a large selection of various brands of eggs. Recently my favorite is Alderfer, since they are actually certified humane (by an outside, nongovernmental certifying institution).
Seafood is a whole other problem that I haven’t even really begun to deal with. There’s a ton of information out there about sustainable seafood, and it’s something Mark Bittman has championed.
This is an ongoing process. I’d love to hear any comments, thoughts, or advice you may have.
Global Animal Partnership
The Cornucopia Institute Organic Egg Scorecard
The Cornucopia Institute Organic Dairy Report
USDA Standards: Free Range
Stop Factory Farms
USDA Organic: Livestock Living Conditions Regulations
Organic Livestock Requirements (PDF)