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transcript
The Economics of Regulations of Hen Housing in California
William Matthews University of California
Agricultural Issues Center
SAEA Annual Meeting February 8, 2010Orlando, Florida
The Economics of Regulations on Hen Housing in California
Prepared for Presentation at the 2010 annual meeting of the Southern Agricultural Economics Association
Daniel A. Sumner, William A. Matthews, Joy A. Mench and J. Thomas Rosen-Molina
Daniel A. Sumner is the Frank H. Buck, Jr. Professor in the Department of Agricultural and Resource Economics, University of California, Davis and Director of the University of California Agricultural Issues Center
William A. Matthews is post-doctoral scholar with AIC.
Thomas Rosen Molina is a research associate with AIC.
Joy Mench is a professor in the Department of Animal Science at UC Davis.
Outline of Presentation
• California Treatment of Farm Animals Act• Egg production and consumption in California• Production costs of different hen housing
systems• Effects of new regulations on California shell
egg industry.• Effects of national regulations.
California Treatment of Farm Animals Act (TFAA)
• November 2008 general election.– California Proposition #2
“Shall certain farm animals be allowed, for the majority of every day, to fully extend their limbs or wings, lie down, stand up and turn around?”
– Passed Date of Enforcement:
• 63.5% Yes January 1, 2015• 36.5% No
Administration of TFAA
• Regulations (California Health and Safety Code Section 25990-25994) “a person shall not tether or confine any covered animal, on a farm, for all or
the majority of any day, in a manner that prevents such animal from: (a) Lying down, standing up, and fully extending his or her limbs; and (b) Turning around freely.”
• For laying hens in California "Fully extending his or her limbs" means fully extending all limbs without
touching the side of an enclosure, including, in the case of egg-laying hens, fully spreading both wings without touching the side of an enclosure or other egg-laying hens. “
“Turning around freely" means turning in a complete circle without any impediment, including a tether, and without touching the side of an enclosure.”
California Laying Hen Population and Egg Production, 1963-2008
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
10
15
20
25
30
35
40
45
1
2
3
4
5
6
7
8
9
10
California Laying Hen Population
California Egg Production
Year
Pop
ula
tion
of
Lay
ing
Hen
(m
illio
ns)
Nu
mb
er o
f E
ggs
Pro
du
ced
(b
illio
ns)
Source: USDA NASS Chicken and Eggs Annual Summary. Note: Egg production includes hatching and liquid eggs, estimated to be about 2 percent and 5 to 8 percent of total output, respectively (Don Bell, per-sonal communication).
Average annual number of laying hens and eggs produced in California and the United States, 1997-2007
Year
California United States
Average number of laying hens on hand1 Eggs1 Average number of
Laying hens on hand1 Eggs1
Thousands Millions Thousands Millions1998 25,161 6,608 255,832 67,5451999 25,526 6,606 264,790 70,2402000 24,163 6,319 270,903 71,7482001 23,757 6,082 277,964 73,2992002 24,165 6,257 280,023 74,3242003 20,831 5,439 279,174 74,6832004 20,222 5,352 283,671 76,3842005 19,336 5,082 284,888 76,8592006 19,313 4,962 289,415 78,2762007 20,610 5,290 281,211 77,6592008 20,272 5,272 276,075 76,811
1 Includes hens and eggs for hatching purposes. Current estimates put hens and eggs for hatching at 2% of California egg production.
Top 10 Egg Producing States by Number of Laying Hens 2008
State
Average number of table-egg laying hens1 2008 Share of U.S.
table-egg laying hens1
Thousands (percent)2008
Iowa 52,588 19Ohio 25,779 9Indiana 23,407 8Pennsylvania 20,400 7California 19,964 7Texas 13,883 5Florida 9,961 4Nebraska 9,681 4Minnesota 9,555 3Georgia 9,300 3Other States 81,558 30U.S. Total 276,075 100
1 Includes only hens for table-egg production.Sources: USDA NASS 2008 Chicken and Eggs Summary
Estimated Shell Eggs Consumed in California, 2000-2007
2000 2001 2002 2003 2004 2005 2006 2007500
1500
2500
3500
4500
5500
6500
7500
8500
Shell Eggs Produced in CAShell Eggs Shipped to CATotal Shell Eggs in CA
Year
Mill
ion
Sh
ell E
ggs
Con
sum
ed
Sources: Shell egg consumption comes from USDA NASS data and CDFA data compiled by Don Bell in "Annual Egg Industry Statistics." Note: Total shell egg consumption is the sum of shell eggs produced in California plus total out of state shipments of shell eggs into California. Shell eggs are those table eggs marketed in the shell. Breakers are those table eggs marketed in liquid form most often to the food processing or food service in-dustries. There are no spearate data on shell eggs in California, but based on industry sources and Table III.2 we estimate that, currently, about 95 percent of California table eggs and about 93 percent of all California eggs are marketed as shell eggs. The data in this figure have been adjusted accordingly.
Cage production system range and
median
Non-Cage production
system range and median
Cost Differential Non-Cage minus
Cage System using mid-points
Cost differential Non-Cage minus
Cage System using low costs
($ per dozen)
Pullets1 0.09 - 0.11 0.14 - 0.17 0.055 0.050.10 0.155
Feed 0.28 - 0.45 0.35 - 0.50 0.06 0.070.365 0.425
Housing2 0.05 - 0.14 0.09 - 0.37 0.135 0.040.095 0.23
Labor3 0.03 – 0.04 0.07 – 0.19 0.095 0.040.035 0.13
Comparison of Production Costs Between Cage Production System and Non-cage Production System in Cost per Dozen
Sum of the itemized costs
and difference at the mid-points
0.595 0.94 0.345
Sum of the itemized costs
and differences at the low costs
0.45 0.65 0.20
Percentage cost difference based
on the sum of items
0.345/0.595= 58%
0.20/0.45= 44%
Total Cost4 0.57 - 0.92
0.7450.97 – 1.13
1.05 0.305 0.40
Percentage cost difference
0.305/0.745 = 41%
0.40/0.57 = 70%
Cage production system range and
median
Non-Cage production
system range and median
Cost Differential Non-Cage minus
Cage System using mid-points
Cost differential Non-Cage minus
Cage System using low costs
($ per dozen)
Market Effects of Layer Hen Housing Restrictions in California in the National Market for Eggs
Price,marginal cost
Demand U.S.
PriceMarginal cost/supply, CA
Initial Q, CA Q, U.S.
New marginal cost/supply, CA
Q, eggs in the U.S.
Market Effects of Layer Hen Housing Restrictions in California in the California Market for Eggs
Price,marginal cost
Demand shell eggs in CA
Price, shell eggs Marginal cost, CA
producers
Initial Q, CA producers Q shell eggs consumed, CA
New marginal cost/supply, CA producers
Pshell eggs CA 2
Pshell eggs CA 1
Shipped into CA
Market Effects of Layer Hen Housing Restrictions in California in the Market for California-produced Eggs
Price,marginal cost
Demand, CA produced shell eggs
Price, CAshell eggs
Marginal cost, CA producers
Initial Q, California-produced shell eggs
New marginal cost/supply, CA producers
A Bit of Log Linear Algebra
(1) dlnQd = η(dlnP - dlnB)
(2) dlnQs = ε(dlnP - dlnC)
(3) dlnQd = dlnQs = dlnQ
(4) ηdlnP – ηdlnB = εdlnP – εdlnC
(5) dlnP = [-ε/(η-ε)](dlnC) + [η/(η-ε)]dlnB)
(6) dlnQ = [-ηε/(η-ε)](dlnC – dlnB)
Qd - quantity of eggs demanded
Qs - quantity of eggs supplied
P - price of eggs
η - price elasticity of demand facing egg producers
ε - elasticity of supply
B - additional willingness to pay for eggs produced using a non-cage housing system.
C - additional cost of producing eggs using a non-cage system
Price and Quantity effects of a 20% cost increase with different elasticities and willingness to pay for eggs, California
Demand elasticity facing CA producersη= -20
Supply elasticityε=5
Supply elasticityε=10
Cost shiftdlnC
(percent)
Willingness to pay shift
dlnB(percent)
Price effect(percent)
Quantity effect
(percent)
Price effect(percent)
Quantity effect
(percent)
20
0 4.00 -80.00 6.67 eliminate
5 8.00 -60.00 10.00 eliminate
10 12.00 -40.00 13.33 eliminate
Price and Quantity effects of a 30% cost increase with different elasticities and willingness to pay for eggs, California
Demand elasticity facing CA producersη= -20
Supply elasticityε=5
Supply elasticityε=10
Cost shiftdlnC
(percent)
Willingness to pay shift
dlnB(percent)
Price effect(percent)
Quantity effect
(percent)
Price effect(percent)
Quantity effect
(percent)
30
0 6.00 eliminate 10.00 eliminate
5 10.00 eliminate 13.33 eliminate
10 14.00 -80.00 16.67 eliminate
Price and Quantity effects of a 40% cost increase with different elasticities and willingness to pay for eggs, California
Demand elasticity facing CA producersη= -20
Supply elasticityε=5
Supply elasticityε=10
Cost shiftdlnC
(percent)
Willingness to pay shift
dlnB(percent)
Price effect(percent)
Quantity effect
(percent)
Price effect(percent)
Quantity effect
(percent)
40
0 8.00 eliminate 13.33 eliminate
5 12.00 eliminate 16.67 eliminate
10 16.00 eliminate 20.00 eliminate
Price and Quantity effects of a 20% cost increase with different elasticities and willingness to pay for eggs, United States
Demand elasticityη= -0.1
Demand elasticityη=-0.2
Supply elasticityε=5
Supply elasticityε=10
Supply elasticityε=5
Supply elasticityε=10
Cost shiftdlnC
(percent)
Willingness to pay shift
dlnB(percent)
Price effect(percent)
Quantity effect
(percent)
Price effect(percent)
Quantity effect
(percent)
Price effect(percent)
Quantity effect
(percent)Price effect(percent)
Quantity effect
(percent)
20
0 19.96 -1.96 19.80 -1.98 19.23 -3.85 19.61 -3.92
5 19.97 -1.47 19.85 -1.49 19.42 -2.88 19.71 -2.94
10 19.98 -0.98 19.90 -0.99 19.62 -1.92 19.80 -1.96
Price and Quantity effects of a 30% cost increase with different elasticities and willingness to pay for eggs, United States
Demand elasticityη= -0.1
Demand elasticityη=-0.2
Supply elasticityε=5
Supply elasticityε=10
Supply elasticityε=5
Supply elasticityε=10
Cost shiftdlnC
(percent)
Willingness to pay shift
dlnB(percent)
Price effect(percent)
Quantity effect
(percent)
Price effect(percent)
Quantity effect
(percent)
Price effect(percent)
Quantity effect
(percent)Price effect(percent)
Quantity effect
(percent)
30
0 29.41 -2.94 29.70 -2.97 28.85 -5.77 29.41 -5.88
5 29.51 -2.45 29.75 -2.48 29.04 -4.81 29.51 -4.90
10 29.61 -1.96 29.80 -1.98 29.23 -3.85 29.61 -3.92
Price and Quantity effects of a 40% cost increase with different elasticities and willingness to pay for eggs, United States
Demand elasticityη= -0.1
Demand elasticityη=-0.2
Supply elasticityε=5
Supply elasticityε=10
Supply elasticityε=5
Supply elasticityε=10
Cost shiftdlnC
(percent)
Willingness to pay shift
dlnB(percent)
Price effect(percent)
Quantity effect
(percent)
Price effect(percent)
Quantity effect
(percent)
Price effect(percent)
Quantity effect
(percent)Price effect(percent)
Quantity effect
(percent)
40
0 39.22 -3.92 39.60 -3.96 38.46 -7.69 39.22 -7.84
5 39.31 -3.43 39.65 -3.47 38.65 -6.73 39.31 -6.86
10 39.41 -2.94 39.70 -2.97 38.85 -5.77 39.41 -5.88
Results of TFAA on California Egg Industry
• Majority of egg production will leave California
January 10, 2010 Wall Street Journal (Lauren Etter ) “A year after Californians approved stricter rules on the treatment of farm
animals, Idaho and other states are trying to lure away the Golden State's poultry and egg farmers with promises of friendlier regulations and lower costs.”
“In Idaho, where there's currently little poultry production, Doug Manning, economic-development director of the town of Burley, said he wanted to offer incentives to poultry farmers as a way to increase jobs and tax revenue in the area. He has heard from a few California farmers who "are looking at some options," Mr. Manning said. "We said, 'When you're ready, give us a chance.' "