Over-regulation Threatens Domestic Production

US - Animal housing, environmental, drug, trading and labour regulations all threaten to move US livestock production offshore, according to a new report.

6 March 2012

3 minute read

North America

The United States is a leading global producer and exporter of animal products. In 2010, this production led to $283 billion in economic output and 1.8 million jobs. But the farmers, ranchers, and the innumerable companies involved in manufacturing and delivering the meat, egg, and dairy products that make up a key part of the American diet operate in a regulated world. And they are threatened by additional potential regulatory measures that would further constrain or control the manner in which livestock and poultry products are produced.

According to the report, prepared for the United Soybean Board, laws and regulations imposed by federal, state, and local governments can make domestic farmers and ranchers uncompetitive with competitors overseas and drive them out of business. Just as manufacturing and service jobs have been “offshored” to Mexico, China, South Korea, India, and other countries, excessive regulation could eventually cause animal agriculture to move offshore. This could lead to higher consumer prices.

The cost of regulation

The five regulatory areas most likely to generate increased costs for US producers in the near term are animal housing, environmental regulations, the use of antimicrobials and other drugs, livestock trading, and labor regulations. The report found that leading the charge on adopting new regulations that impact production costs is often followed by a substantial decline in production that tends to increase consumer costs.

Using a conventional economic model, the consumer cost impact of higher production costs was estimated for pork, beef, chicken, turkey and eggs that could result from an increased regulatory burden from various sources. Two scenarios were looked at – increases of 10 per cent and 25 per cent in production costs for each product.

Taking into account supply and demand elasticities and the share of the retail price represented by producer costs, it was estimated that the additional cost to US consumers would be $6.8 billion and $16.8 billion per year, respectively, for the two scenarios. In addition, in the 25 per cent scenario, there would be a reduction in net exports of $1.1 billion that would in turn imply the elimination of about 9,000 jobs.

Food safety implications of greater import dependence

The second part of the assignment was to examine the food safety implications of greater dependence on imported animal products. Unfortunately, international data on food safety are severely limited. Of the markets under review in this assessment, the United States has the most detailed tracking capabilities, yet even US data are inadequate: the cause of 80 per cent of all foodborne illnesses cannot even be attributed to a specific food, much less whether it is domestic or imported.

Consequently, there is a lack of concrete evidence that food safety would worsen, with additional costs to consumers, with a shift from domestically produced to imported meat, poultry, and eggs. Evolving food safety specifications and testing technologies could make food even safer, but only if funding is adequate for ongoing monitoring, testing, and inspections.