Transcript Slide 1

The Economics of Regulations of
Hen Housing in California
William Matthews
University of California
Agricultural Issues Center
SAEA Annual Meeting
February 8, 2010
Orlando, 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
• 63.5% Yes
• 36.5% No
Date of Enforcement:
January 1, 2015
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
45
10
9
40
8
7
30
6
25
5
4
20
California Laying Hen Population
3
California Egg Production
15
2
10
1
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
Year
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,
personal communication).
2007
Number of Eggs Produced (billions)
Population of Laying Hen (millions)
35
Average annual number of laying hens and eggs produced in
California and the United States, 1997-2007
California
Year
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
1
United States
Average number of
laying hens on hand1
Eggs1
Average number of
Laying hens on hand1
Eggs1
Thousands
25,161
25,526
24,163
23,757
24,165
20,831
20,222
19,336
19,313
20,610
20,272
Millions
6,608
6,606
6,319
6,082
6,257
5,439
5,352
5,082
4,962
5,290
5,272
Thousands
255,832
264,790
270,903
277,964
280,023
279,174
283,671
284,888
289,415
281,211
276,075
Millions
67,545
70,240
71,748
73,299
74,324
74,683
76,384
76,859
78,276
77,659
76,811
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
Iowa
Ohio
Indiana
Pennsylvania
California
Texas
Florida
Nebraska
Minnesota
Georgia
Other States
U.S. Total
1
Average number of
table-egg laying hens1
Thousands
2008
52,588
25,779
23,407
20,400
19,964
13,883
9,961
9,681
9,555
9,300
81,558
276,075
Includes only hens for table-egg production.
Sources: USDA NASS 2008 Chicken and Eggs Summary
2008 Share of U.S.
table-egg laying hens1
(percent)
19
9
8
7
7
5
4
4
3
3
30
100
Estimated Shell Eggs Consumed in
California, 2000-2007
8500
7500
Million Shell Eggs Consumed
6500
5500
4500
Shell Eggs Produced in CA
Shell Eggs Shipped to CA
Total Shell Eggs in CA
3500
2500
1500
500
2000
2001
2002
2003
2004
2005
2006
2007
Year
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
industries. 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.
Comparison of Production Costs Between Cage Production
System and Non-cage Production System in Cost per Dozen
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
0.10
0.14 - 0.17
0.155
0.055
0.05
Feed
0.28 - 0.45
0.365
0.35 - 0.50
0.425
0.06
0.07
Housing2
0.05 - 0.14
0.095
0.09 - 0.37
0.23
0.135
0.04
Labor3
0.03 – 0.04
0.035
0.07 – 0.19
0.13
0.095
0.04
Cage production
system range and
median
Non-Cage
production
system range
and median
Cost Differential Cost differential
Non-Cage minus Non-Cage minus
Cage System
Cage System
using mid-points using low costs
($ per dozen)
Sum of the
itemized costs
and difference at
the mid-points
0.595
0.94
Sum of the
itemized costs
and differences
at the low costs
0.45
0.65
Percentage cost
difference based
on the sum of
items
Total Cost4
Percentage cost
difference
0.57 - 0.92
0.745
0.97 – 1.13
1.05
0.345
0.20
0.345/0.595=
58%
0.20/0.45=
44%
0.305
0.40
0.305/0.745 =
41%
0.40/0.57 =
70%
Market Effects of Layer Hen Housing Restrictions in
California in the National Market for Eggs
Price,
marginal
cost
Demand U.S.
New marginal cost/supply, CA
Marginal cost/supply, CA
Price
Initial Q, CA
Q, U.S.
Q, eggs in the U.S.
Market Effects of Layer Hen Housing Restrictions in
California in the California Market for Eggs
Price,
marginal cost
New marginal cost/supply, CA
producers
Price,
shell eggs
Marginal cost, CA
producers
Shipped into CA
Initial Q,
CA producers
Demand shell eggs
in CA
Q shell eggs consumed, CA
Pshell eggs
CA 2
Pshell eggs
CA 1
Market Effects of Layer Hen Housing Restrictions in
California in the Market for California-produced Eggs
Price,
marginal
cost
New marginal cost/supply, CA producers
Price, CA
shell eggs
Marginal cost, CA producers
Demand, CA
produced shell eggs
Initial Q, California-produced shell eggs
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 producers
η= -20
Supply elasticity
ε=5
Cost shift
dlnC
(percent)
20
Supply elasticity
ε=10
Willingness to
pay shift
dlnB
(percent)
Price effect
(percent)
Quantity
effect
(percent)
Price effect
(percent)
Quantity
effect
(percent)
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 producers
η= -20
Supply elasticity
ε=5
Cost shift
dlnC
(percent)
30
Supply elasticity
ε=10
Willingness to
pay shift
dlnB
(percent)
Price effect
(percent)
Quantity
effect
(percent)
Price effect
(percent)
Quantity
effect
(percent)
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 producers
η= -20
Supply elasticity
ε=5
Cost shift
dlnC
(percent)
40
Supply elasticity
ε=10
Willingness to
pay shift
dlnB
(percent)
Price effect
(percent)
Quantity
effect
(percent)
Price effect
(percent)
Quantity
effect
(percent)
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 elasticity
η= -0.1
Supply elasticity
ε=5
Demand elasticity
η=-0.2
Supply elasticity
ε=10
Supply elasticity
ε=5
Supply elasticity
ε=10
Willingness
Quantity
Quantity
Cost shift
Quantity
Quantity
to pay shift Price effect
Price effect
Price effect effect Price effect effect
dlnC
effect
effect
dlnB
(percent)
(percent)
(percent) (percent) (percent) (percent)
(percent)
(percent)
(percent)
(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 elasticity
η= -0.1
Supply elasticity
ε=5
Demand elasticity
η=-0.2
Supply elasticity
ε=10
Supply elasticity
ε=5
Supply elasticity
ε=10
Willingness
Quantity
Quantity
Cost shift
Quantity
Quantity
to pay shift Price effect
Price effect
Price effect effect Price effect effect
dlnC
effect
effect
dlnB
(percent)
(percent)
(percent) (percent) (percent) (percent)
(percent)
(percent)
(percent)
(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 elasticity
η= -0.1
Supply elasticity
ε=5
Demand elasticity
η=-0.2
Supply elasticity
ε=10
Supply elasticity
ε=5
Supply elasticity
ε=10
Willingness
Quantity
Quantity
Cost shift
Quantity
Quantity
to pay shift Price effect
Price effect
Price effect effect Price effect effect
dlnC
effect
effect
dlnB
(percent)
(percent)
(percent) (percent) (percent) (percent)
(percent)
(percent)
(percent)
(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.' "