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 ID: 647010
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Slide1
The Economics of Regulations of
Hen Housing in California
William Matthews
University of California
Agricultural Issues Center
SAEA
Annual Meeting
February
8, 2010
Orlando
, FloridaSlide2
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.Slide3
Outline of Presentation
California Treatment of Farm Animals Act
Egg production and consumption in CaliforniaProduction costs of different hen housing systemsEffects of new regulations on California shell egg industry.
Effects of national regulations. Slide4
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, 201536.5% NoSlide5
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.” Slide6
California Laying Hen Population and
Egg Production, 1963-2008Slide7
Average annual number of laying hens and eggs produced in California and the United States,
1997-2007
Year
CaliforniaUnited States
Average number of laying hens on
hand
1
Eggs
1
Average number of
Laying
hens on
hand
1
Eggs
1
Thousands
MillionsThousandsMillions199825,1616,608255,83267,545199925,5266,606264,79070,240200024,1636,319270,90371,748200123,7576,082277,96473,299200224,1656,257280,02374,324200320,8315,439279,17474,683200420,2225,352283,67176,384200519,3365,082284,88876,859200619,3134,962289,41578,276200720,6105,290281,21177,659200820,2725,272276,07576,811
1
Includes hens and eggs for hatching purposes. Current estimates put hens and eggs for hatching at 2% of California egg production. Slide8
Top 10 Egg Producing States by Number of
Laying Hens 2008
State
Average number of table-egg laying hens12008 Share of U.S. table-egg
laying
hens
1
Thousands
(percent)
2008
Iowa
52,588
19
Ohio
25,779
9
Indiana 23,4078Pennsylvania 20,4007California 19,9647Texas 13,8835Florida 9,9614Nebraska9,6814Minnesota 9,5553Georgia 9,3003Other States 81,55830U.S. Total 276,0751001 Includes only hens for table-egg production.Sources: USDA NASS 2008 Chicken and Eggs Summary Slide9
Estimated Shell Eggs Consumed in
California, 2000-2007Slide10
Cage
production system range and median
Non-Cage production system range
and medianCost Differential Non-Cage minus Cage System using mid-points
Cost differential
Non-Cage minus Cage System using low costs
($
per dozen)
Pullets
1
0.09 - 0.11
0.14 - 0.17
0.055
0.05
0.10
0.155
Feed
0.28 - 0.450.35 - 0.500.060.070.3650.425Housing20.05 - 0.140.09 - 0.370.1350.040.0950.23Labor30.03 – 0.040.07 – 0.190.0950.040.0350.13Comparison of Production Costs Between Cage Production System and Non-cage Production System in Cost per DozenSlide11
Sum of the itemized costs and difference at the mid-points
0.595
0.94
0.345Sum of the itemized costs and differences at the low costs0.450.65
0.20
Percentage cost difference based on the sum of items
0.345/0.595= 58%
0.20/0.45= 44%
Total Cost
4
0.57 - 0.92
0.745
0.97 – 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 medianCost Differential Non-Cage minus Cage System using mid-pointsCost differential Non-Cage minus Cage System using low costs($ per dozen)Slide12
Market Effects of Layer Hen Housing Restrictions in
California
in the National Market for
EggsPrice,marginal cost
Demand U.S.
Price
Marginal cost/supply, CA
Initial Q, CA
Q, U.S.
New marginal cost/supply, CA
Q, eggs in the U.S
.Slide13
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
P
shell eggs CA 2
P
shell eggs CA 1
Shipped into CASlide14
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, CA
shell eggs
Marginal cost, CA producers
Initial Q, California-produced shell eggs
New marginal cost/supply, CA producersSlide15
A Bit of Log Linear Algebra
(1)
dlnQd = η(dlnP - dlnB)(2) dlnQs = ε(dlnP - dlnC)(3)
dlnQ
d
=
dlnQ
s
=
dlnQ
(4)
ηdlnP
–
ηdlnB = εdlnP – εdlnC(5) dlnP = [-ε/(η-ε)](dlnC) + [η/(η-ε)]dlnB)(6) dlnQ = [-ηε/(η-ε)](dlnC – dlnB)Slide16
Q
d
-
quantity of eggs demanded Qs - quantity of eggs suppliedP - price of eggsη - price elasticity of demand facing egg producersε - 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 systemSlide17
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
Supply elasticity
ε=10
Cost
shift
dlnC
(percent)
Willingness to pay shift
dlnB
(percent)
Price effect
(percent)
Quantity effect(percent)Price effect(percent) Quantity effect(percent)2004.00-80.006.67eliminate58.00-60.0010.00eliminate1012.00-40.0013.33eliminateSlide18
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
Supply elasticity
ε=10
Cost
shift
dlnC
(percent)
Willingness to pay shift
dlnB
(percent)
Price effect
(percent)
Quantity effect(percent)Price effect(percent) Quantity effect(percent)3006.00eliminate10.00eliminate510.00eliminate13.33eliminate1014.00-80.0016.67eliminateSlide19
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
Supply elasticity
ε=10
Cost
shift
dlnC
(percent)
Willingness to pay shift
dlnB
(percent)
Price effect
(percent)
Quantity effect(percent)Price effect(percent) Quantity effect(percent)4008.00eliminate13.33eliminate512.00eliminate16.67eliminate1016.00eliminate20.00eliminateSlide20
Price and Quantity effects of a 20% cost increase with different elasticities and willingness to pay for eggs, United States
Demand elasticity
η
= -0.1Demand elasticity
η=-
0.2
Supply elasticity
ε=5
Supply elasticity
ε=10
Supply elasticity
ε=5
Supply elasticity
ε=10
Cost
shift
dlnC
(percent)Willingness to pay shiftdlnB(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)20019.96-1.9619.80-1.9819.23-3.8519.61-3.92519.97-1.4719.85-1.4919.42-2.8819.71-2.941019.98-0.9819.90-0.9919.62-1.9219.80-1.96Slide21
Price and Quantity effects of a 30% cost increase with different elasticities and willingness to pay for eggs, United States
Demand elasticity
η
= -0.1Demand elasticity
η=-
0.2
Supply elasticity
ε=5
Supply elasticity
ε=10
Supply elasticity
ε=5
Supply elasticity
ε=10
Cost
shift
dlnC
(percent)Willingness to pay shiftdlnB(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)30029.41-2.9429.70-2.9728.85-5.7729.41-5.88529.51-2.4529.75-2.4829.04-4.8129.51-4.901029.61-1.9629.80-1.9829.23-3.8529.61-3.92Slide22
Price and Quantity effects of a 40% cost increase with different elasticities and willingness to pay for eggs, United States
Demand elasticity
η
= -0.1Demand elasticity
η=-
0.2
Supply elasticity
ε=5
Supply elasticity
ε=10
Supply elasticity
ε=5
Supply elasticity
ε=10
Cost
shift
dlnC
(percent)Willingness to pay shiftdlnB(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)40039.22-3.9239.60-3.9638.46-7.6939.22-7.84539.31-3.4339.65-3.4738.65-6.7339.31-6.861039.41-2.9439.70-2.9738.85-5.7739.41-5.88Slide23
Results of TFAA on
California Egg Industry
Majority of egg production will leave CaliforniaJanuary 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.' "