the economics of regulations of hen housing in california

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

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1980

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10

15

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25

30

35

40

45

1

2

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9

10

California Laying Hen PopulationCalifornia Egg Production

Year

Popu

latio

n of

Lay

ing

Hen

(mill

ions

)

Num

ber

of E

ggs P

rodu

ced

(bill

ions

)

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

Shel

l Egg

s 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 - 0.920.745

0.97 – 1.131.05 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 supplyB - 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


Cost shiftdlnC

(percent)

Willingness to pay shift

dlnB(percent)

Price effect(percent)

Quantity 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





Cost shiftdlnC

(percent)


dlnB(percent)


Quantity effect

(percent)


Quantity effect

(percent)

30

0 6.00 eliminate 10.00 eliminate


10 14.00 -80.00 16.67 eliminate





Cost shiftdlnC

(percent)


dlnB(percent)


Quantity effect

(percent)


Quantity effect

(percent)

40




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





Cost shiftdlnC

(percent)


dlnB(percent)


Quantity effect

(percent)


Quantity 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








Cost shiftdlnC

(percent)


dlnB(percent)


Quantity effect

(percent)


Quantity effect

(percent)


Quantity effect


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








Cost shiftdlnC

(percent)


dlnB(percent)


Quantity effect

(percent)


Quantity effect

(percent)


Quantity effect


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.' "

the economics of regulations of hen housing in california

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