The cost of regulations and shrinking herds

Shrinking livestock inventories threaten the U.S. food economy, and excessive regulations on agriculture exacerbate the problem threatening our export markets, according to a new report from the United Soybean Board (USB).

The report, titled “The Consumer and Food Safety Costs of Offshoring Animal Agriculture,” documents how the costs of regulation on production agriculture result in higher prices for consumers and weaken the ability of U.S. producers to compete in international markets.

Speaking from the Commodity Classic in Nashville last week, Lewis Bainbridge, a South Dakota farmer and cow-calf producer who serves as USB’s domestic marketing chair, said the study shows current and proposed regulations could raise U.S, livestock and poultry production costs by as much as 25 percent, resulting in consumers paying up to $16.8 billion more annually for meat, milk and eggs.

For eggs alone, he says, requiring cage-free housing for laying hens would increase the cost from $1.68 to $2.10 per dozen, a total cost of $2.66 billion per year to U.S. consumers. Eggs, he notes, serve as an important, inexpensive protein source, and these increases could significantly limit access for lower-income consumers.

Among the researchers’ conclusions:

1. Added regulations increase costs and reduce demand. In the five areas reviewed (animal housing, environmental mandates, subtherapeutic antimicrobial and other drug use, labor supply, and livestock marketing), studies and evidence show that increased regulation will lead to higher producer and consumer costs.

• Animal housing regulations would require both one-time capital costs, as well as ongoing operational costs due to lower production density. Capital costs may range from as low as 1 percent more for new pork production facilities, to 5 to 10 percent for retrofits.  
• The cost of environmental regulations is likely to be high, where enacted. Potential costs would be greatest where regulations are placed on waste disposal and emissions. Colorado’s experience regulating CAFOs is telling: pork production there has declined by 50 percent since 1999, when the rules were put in place.
• Limits or bans on the usage of subtherapeutic antimicrobials would have varying levels of impact. Studies on consequences of these regulations in the EU show a modest increase in production costs, and an overall increase in the usage of therapeutic antibiotics as more animals become sick. In addition, given their widespread international usage despite the added cost, antimicrobials most likely provide efficiency gains that are understated in these studies – in which case regulations in this area might drive production costs higher than the studies suggest.
• Increased costs to farmers and ranchers from a tightening and enforcement of legal and/or illegal immigrant labor rules would, in turn, be passed on to consumers.
• New rules on livestock marketing would have an impact on meat prices – as much as a 3.3 percent increase according to one study financed by the American Meat Institute.

1. The aggregate impact of more regulation would be greater than the impact of any single measure or type of regulation. The study evaluated two different scenarios – 10 percent and 25 percent increases in production costs due to excessive regulation. The consumer cost impacts would be $6.8 billion and $16.8 billion, respectively, for the two scenarios. In addition, under the 25 percent scenario, a reduction in exports would cost 9,000 jobs.
2. The researchers found that leading the charge on adopting new regulations that impact production costs is often followed by a substantial decline in production. This impact appears to be magnified when nearby jurisdictions with less additional market-access costs are able to step in and fulfill demand. In other words, production moves to a less-restrictive environment. “The causal effect between the regulations and drop in production is not well documented,” the authors note, “but we simply note that from our research, where we have data, the two coincide more often than not. Regulations should be adopted no faster than absolutely necessary or as dictated by the market.
3. In the short term, production for the domestic market is unlikely to move overseas, due to the established infrastructure and feed-production capacity of the United States. Production  could, however, continue to relocate domestically.
4. There is no clear evidence that food safety would worsen with a shift from domestically produced to imported meat, poultry, and eggs. Data on food safety are poor, the researchers note. Of the markets reviewed in this assessment, the United States has the most detailed tracking, but even here, the cause of 80 percent of all foodborne illnesses cannot be attributed to a specific food, much less whether it is imported.
5. The more likely threat for U.S. farmers and ranchers from excess regulation comes from reduced competitiveness in export markets. Much of the growth in output in U.S. animal agriculture is driving exports rather than fueling internal demand, which has flattened on a per capita basis. Much of the growth potential for our food products is in international markets.
6. Increased costs are a clear negative to farmers and ranchers, but the researchers add there could be some small benefit from certain changes in production methods. Many overseas markets have different standards from our own, potentially requiring production changes in exchange for market access.
7. Consumer and foreign markets could dictate change regardless of new regulations. Market participation requires both profitable production and product demand, the authors note. Some costs imposed upon farmers and ranchers could be consumer-driven, and there could be a competitive risk in deflecting or delaying regulatory costs that are truly driven by consumer concerns.