The potential effects of implementing California Proposition 12 in the swine industry

Abstract

The inclusion of animal welfare requirements in U.S. livestock production may be argued to have started with the Animal Welfare Act of 1966, a federal law regulating animal treatment. However, animal welfare concerns have expanded in complexity over the past several decades due to the pressure of activists and lawmakers and the support of sympathetic judges. The effect of this complexity and activism is significant uncertainty in the livestock industry about its ability to sustain profitability and ensure continuous growth. While a lot of the recent activism is emanating from states with relatively small livestock production, there are implications of some of the emerging regulations for livestock producers across the country. One of such recent regulations in a small swine producing state is California’s Proposition 12, which required minimum confinement areas for farm animals, including veal calves, breeding pigs, and egg-laying hens. This research sought to evaluate the economic feasibility of implementing the confinement requirements stipulated by California’s Proposition 12 on a small swine farm. The lessons from the study are applicable across U.S. swine farms selling into the national processing system the products of which are distributed across the country. The study sought to assess how changing the space requirements could affect profitability of small swine operators assuming they are retrofitting their current production barns and not starting brand new production facilities. The implementation of Proposition 12 will immediately reduce the sow herd size. For a hypothetical swine farm currently with 500 sows, the law will reduce sow numbers to 350 for the same production facilities the farm currently has. The current labor utilization rates on swine farms are such that labor costs per sow with the reduction in sow numbers will increase because of the lumpiness of labor use. This arises from the standard allocation of one full time labor to 250 sows, and the lumpiness of labor implies that 350 sows will require as many labor employed as 500 sows. Labor productivity is not the only performance indicator affected. Transportation and logistics efficiencies are also expected to go down, and along with these productivity losses is increased cost of production per sow. The study shows that as a result of the productivity losses emanating from the 32.1% scale loss, profitability also declines. It was estimated that the financial loss from implementing Proposition 12, holding the stated production conditions constant, may be ameliorated with at least 7.2% increase in hog prices over the average price over the past decade. Since it is not expected that the legislation will trigger premiums for compliance, it is going to put pressure on producers who are unable to significantly reduce their production costs to overcome the economies of scale loss. For all intents and purposes, the legislation is more likely to have higher adverse effects on small swine producers who are already struggling with increasing feed costs, labor costs, and downward pressure on prices.