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CHOICESThe magazine of food, farm, and resource issues

3rd Quarter 2006 • 21(3) CHOICES

A publication of theAmerican AgriculturalEconomics Association

3rd Quarter 2006 • 21(3)

©1999–2006 CHOICES. All rights reserved. Articles may be reproduced or electronically distributed as long as attribution to Choices and the AmericanAgricultural Economics Association is maintained. Choices subscriptions are free and can be obtained through http://www.choicesmagazine.org.

Table of Contents3rd Quarter 2006 — Volume 21, Number 3

A Statement from the Editors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

Washington Scene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127Coordinated by Tamara Wagester and Sarah Thomas, C-FARE

Articles

Theme: Resources and the Environment

Invasive Species(Rachael E. Goodhue and Gregory McKee, Guest Editors)Overview: Designing and Implementing Invasive Species Prevention, Eradication, and Control Policies:

Economics, Biology, and Uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129Rachael E. Goodhue and Gregory McKee, Guest Editors

Bioeconomic Modeling of Greenhouse Whiteflies in California Strawberries . . . . . . . . . . . . . . . . . . . . . . 133Gregory McKee, Colin A. Carter, James A. Chalfant, and Rachael E. Goodhue

On the Garden Path: An Economic Perspective on Prevention and Control Policies for an Invasive Species . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139Brooks A. Kaiser

Institutional Uncertainty at Home and Away: The Case of Lemons from Argentina . . . . . . . . . . . . . . . . 143Eduardo Romano and Suzanne Thornsbury

Invasive Species and the Depth of Bioeconomic Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147David Finnoff, Chad Settle, Jason F. Shogren, and John Tschirhart

Theme: Agriculture and Trade

The Future of Animal Agriculture in North America(Walter J. Armbruster, Steve A. Halbrook, and Mary M. Thompson, Guest Editors)

Overview: The Future of Animal Agriculture in North America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153Walter J. Armbruster, Steve A. Halbrook, Mary M. Thompson, Guest Editors

The Future of Animal Agriculture in North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155Steve A. Halbrook, Walter J. Armbruster, and Mary M. Thompson

Economics of Animal Agriculture Production, Processing and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . 159Michael D. Boehlje

CHOICES 3rd Quarter 2006 • 21(3)

Consumer Issues and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165Helen H. Jensen

The Global Competitiveness of the North American Livestock Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . 171Flynn J. Adcock, Darren Hudson, Parr Rosson, Harold M. Harris, and Cary W. Herndon

Environmental Issues in Animal Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177Charles W. Abdalla and Jennifer L. Lawton

Community and Labor Issues in Animal Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183Peter Goldsmith and Philip L. Martin

Policies to Protect Food Safety and Animal Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189H.L. Goodwin, Jr., F. Dustan Clark, Dawn Thilmany, and Sandra J. Hamm

Animal Welfare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195David Blandford

Grab BagComparison of a Fixed and Variable Corn Ethanol Subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Wallace E. Tyner and Justin Quear

Coming Attractions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203Setting the Stage for the Next Farm Bill: No Easy Choices / James Richardson, Guest Editor

Animal Identification / David P. Anderson and Larry Falconer, Guest Editors


3rd Quarter 2006 • 21(3) CHOICES 125


3rd Quarter 2006 • 21(3)


A Statement from the EditorsWelcome to our ninth issue ofChoices (Q3 2006).

In this issue of Choices, we offertwo collections of papers. One coverseconomic issues associated with theinvasion of foreign pest species. Theother addresses the future of the live-stock industry, including possiblechanges, key unknowns, and policy/business strategy alternatives. Thisissue also contains an article on etha-nol subsidies.

Look for future issues where weplan coverage on the Farm Program,Animal ID, Illegal Immigration,Water Quality, Returns to Researchand Extension, Produce Marketing,and Food Quality Assurance. See ourthematic coverage page atwww.choicesmagazine.org for a com-plete list and planned schedule.

In light of the AAEA Board’sdecision regarding Choices’ fundingand the uncertainty as to whetheranother funding source will allowcontinuation, the editors will nolonger accept new thematic propos-als. Our schedule is full through June2007 when our editorship ends. Pro-posals currently in process will bemoved through to publication. Thispolicy will continue unless fundingconditions change. Grab bag submis-sions will continue to be processeduntil all issues through June 2007 arefull. We encourage you to submit sin-gle articles for the “Grab Bag” sectionof Choices. For submission require-ments, see www.choicesmagazine.org

Editorial Staff

EditorsOral Capps, Jr., Bruce A. McCarl (Coordinating Editor), Rodolfo M. Nayga, Jr., Joe L. Outlaw, John B. Penson, Jr., Texas A&M University

Associate EditorLinda Crenwelge, Texas A&M University

Editorial BoardRichard Adams, Oregon State UniversityWalt Armbruster, Farm FoundationJulie Caswell, University of MassachusettsRalph Christy, Cornell UniversityKeith Collins, Chief Economist, USDARoberta Cook, University of California-DavisAllen Featherstone, Kansas State UniversityAllan Gray, Purdue UniversityHal Harris, Clemson UniversityCraig Jagger, US House Committee on AgricultureCarol A. Jones, Economic Research Service-USDAMaureen Kilkenny, University of NevadaJoost Pennings, University of IllinoisLarry Sanders, Oklahoma State University Brent Sohngen, Ohio State UniversityRobert L. Thompson, University of IllinoisSteven Turner, Mississippi State

Choices is the outreach vehicle of the American Agricultural Economics Associ-ation (AAEA) and is designed to provide current coverage regarding economic implications of food, farm, resource, or rural community issues directed toward a broad audience. Choices publishes thematic-oriented groupings of papers and individual papers. The broad themes we will repeatedly visit in Choices are agriculture and trade, resources and the environment, consumers and markets, and agribusiness and finance. Submitted manuscripts are subject to peer review for publication consideration.

Choices is published at the end of each quarter of the year by the American Agricultural Economics Association. Visit our web site at http://www.choices-magazine.org.

Editorial CommunicationsPotential manuscripts, thematic proposals, and comments can be submitted through http://www.choicesmagazine.org/submissions.htm or directly emailed to the editors at [email protected]. Editorial communications can be sent to [email protected].

126 CHOICES 3rd Quarter 2006 • 21(3)




3rd Quarter 2006 • 21(3)


Washington SceneCoordinated by Tamara Wagester and Sarah Thomas, C-FARE

As Congress prepared for the August District Work Peri-od, Washington, DC was busy with activity throughoutthe summer.

ResearchResearch issues remain in the sights of members as Con-gressman Gil Gutknecht (R-MN) introduced HR 5832 onJuly 19 to establish a National Institute of Food and Agri-culture. This legislation is a complement bill to S 2782 in-troduced on May 10 by Senator Jim Talent (R-MO) andSenator Tom Harkin (D-IA). The major difference be-tween the two bills is that H.R. 5832 would provide man-datory funding by using Commodity Credit Corporation(CCC) authorities, while S 2782 authorizes appropria-tions.

The Federal Funding Accountability and TransparencyAct of 2006, or S 2590, was introduced by Senator TomCoburn (R-OK) on April 6. The legislation was approvedby the Senate Homeland Security and Governmental Af-fairs Committee on July 27 and authorized the creation ofa comprehensive Internet database that requires full disclo-sure of all individuals and organizations receiving federalfunds. On June 21, The US House of Representativespassed a similar bill with HR 5060. The House bill doesnot require the database to include information on federalcontracts, which has attracted criticism from watchdoggroups.

Farm BillThe Farm Bill is also of continuing interest to both policymakers and stakeholders. On July 27, 2006 the House Ag-riculture Committee Subcommittee on Conservation,Credit, Rural Development, and Research Subcommitteeheld a hearing on current conservation programs in prepa-ration for the 2007 Farm Bill. The Senate had their firsthearing addressing conservation issues on June 7, 2006.

The Administration is also preparing for the Farm Billdebate. On August 8, Agriculture Secretary Mike Johannsreleased an analysis prepared by USDA economists of thedepartment's renewable energy and energy efficiency pro-grams. This is the fourth in a series of subject areas thatwarranted a comprehensive examination based on com-ments received during last year's nationwide Farm Bill Fo-rum listening tour.

TradeTrade discussions continue to be an important focus inWashington, DC. On July 20, House Agriculture Com-mittee Chairman Bob Goodlatte (R-VA) held a hearing toreview H.R. 3849, which was introduced in September2005 by Congressman Frank Lucas (R-OK). The bill will“amend the Federal Insecticide, Fungicide, and Rodenti-cide Act to implement pesticide-related obligations of theUnited States under the international conventions or pro-tocols known as the PIC Convention, the POPs Conven-tion, and the LRTAP POPs Protocol.” This legislation isnecessary to ratify three international treaties regulatingthe use of chemicals to protect human and environmentalhealth. According to a Committee Press Release, until theU.S. ratifies the treaty, which is dependent on passage ofH.R. 3849, U.S. negotiators cannot participate in the dis-cussions to modify the current agreements. On July 27,2006, the House Agriculture Committee passed HR 3849and sent it to the House floor with a favorable recommen-dation.

Lawmakers were very pleased with the July 27 an-nouncement from Japan that they will resume imports ofU.S. beef from cattle 20 months of age and younger.

Many of the recent Trade and Farm Policy discussionswere led by Dr. J.B. Penn, Under Secretary of Agriculturefor Farm and Foreign Agricultural Services. On August 8,2006, the Secretary of Agriculture announced Dr. Penn’sresignation effective at the end of August.


ConservationSenate Energy Committee Chair-man Pete Domenici (R-NM) intro-duced S.3711, The Gulf of MexicoEnergy Security Act of 2006, on July20. This legislation is designed toopen up between 2.9 million and 8million acres in the Gulf of Mexicoto offshore oil and gas dril l ing.S.3711 passed the Senate on August1 by a vote of 71 – 25.

Meanwhile, on July 19 the HouseResources Committee considered 23bills, focused on wildlife, land, andwater legislation. The Committeevoted support for HR 4857, the “En-dangered Species Compliance andTransparency Act.” This bipartisanlegislation, sponsored by Rep. CathyMcMorris (R-WA), requires PowerMarketing Administrations to list di-rect and indirect cost estimates asso-

ciated with Endangered Species Act(ESA) compliance.

The Secretaries of Agriculture,Interior, Commerce, the Administra-tor of the Environmental ProtectionAgency, and the Chairman of theWhite House Council on Environ-mental Quality announced the datesand locations of the second set of lis-tening sessions on cooperative con-servation and environmental partner-ships.




3rd Quarter 2006 • 21(3)


Overview: Designing and Implementing Invasive Species Prevention, Eradication, and Control Policies: Economics, Biology, and UncertaintyRachael E. Goodhue and Gregory McKee, Guest Editors

JEL Classification: Q18

As discussed in the other contributions to this themed setof articles, invasive species may disrupt trade flows, man-agement of natural resources, and agricultural production.An invader may be used as the justification for erecting abarrier to trade. Fishery stocks can be decimated by aninvader, requiring the recalibration of quotas, seasons, andother policy instruments. Agricultural yields or outputquality may be reduced by an invader. Because of thepotential for deliberate introduction, invasive species pol-icy is even a relevant issue for policymakers addressing ter-rorism.

Invasive species represent a unique challenge for poli-cymakers and for economists analyzing optimal pest con-trol policies because of the uncertainty regarding theeffects of an invasive species on pre-existing biological andeconomic relationships. By definition, an invasive speciesproblem involves the invader’s biological and economicinteractions with the invaded ecosystem and economicagents involved in that ecosystem. The primary themeunifying these articles is that critical mistakes regardingpolicy choices can be made if relevant economic and bio-logical relationships are not incorporated into analyses ofpolicy options. Each article identifies a key lesson for inva-sive species policy analysis.

Modeling the Depth of Bioeconomic IntegrationFinnoff et al. explore the importance of choosing the cor-rect degree of integration within a bioeconomic model. Asin McKee et al., in order to address a bioeconomic policyquestion, feedback between the two systems must be

incorporated into the model. Finnoff et al. introduce abioeconomic model with multiple feedback loops. Theyexamine the effect of imposing quotas on pollock harvestsin the Bering Sea in order to increase populations of theendangered Steller sea lion. Fishing quotas affect the mar-ket for pollock; in order to estimate the net welfareimpacts in this market, the demand for pollock must beincluded in the bioeconomic model.

Limiting the analysis to this set of bioeconomic rela-tionships would distort the overall welfare analysis in animportant way; it does not place any value on the sea lionpopulation, but simply takes it as the source of an exoge-nous biological constraint on the system, which requiresthe imposition of fishing quotas. The authors incorporatea second set of bioeconomic relationships that address thisproblem: the market for wildlife tourism in the Bering Sea,

Articles in this Theme:Overview: Designing and Implementing Invasive Species

Prevention, Eradication, and Control Policies: Economics, Biology, and Uncertainty . . . . . . . . . . . . . . . . . . . . . . . . 129

Bioeconomic Modeling of Greenhouse Whiteflies in California Strawberries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

On the Garden Path: An Economic Perspective on Prevention and Control Policies for an Invasive Species . . . . . . . . 139

Institutional Uncertainty at Home and Away: The Case of Lemons from Argentina . . . . . . . . . . . . . . . . . . . . . . . . . 143

Invasive Species and the Depth of BioeconomicIntegration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147


which benefits from increased popu-lations of the Steller sea lion andother marine mammals. Ignoringthese relationships would have twoeffects: first, the sea lion populationwould either be exogenously speci-fied or chosen as a function of bio-logical relationships alone, and sec-ond, the benefits of quotas would beunderestimated since the value tomarine tourism would be ignored.

The primary lesson from thisanalysis is that all relevant marketsmust be included in the bioeconomicmodel. A further implication is thatall relevant biological relationshipsmust be included in the model.

Integrating Prevention and Control Policies for an Invasive SpeciesKaiser discusses problems stemmingin part from the structure of U.S.invasive species policy. First, respon-sibility for invasive species policy isdivided among a large number ofagencies, which discourages thedevelopment of an integratedapproach to prevention and control.Conceptually, this problem is drivenin part by the tendency for preven-tion efforts to be targeted at prevent-ing the anticipated economic andecological losses that a given poten-tially invasive species may cause,while management and eradicationefforts tend to be driven by the irre-versible changes to ecological systemsthat are realized after the successfulestablishment of an invader. Oneresult of this fragmentation is thatresources are not allocated efficientlyacross species, or across preventionand control efforts for a given spe-cies. Coordinating policy acrossagencies, or consolidating mandateswithin fewer agencies, could increasethe benefit of funds currently allo-

cated to prevention and controlefforts.

The economic and ecologicalcostliness of the fragmentation ofpolicy responsibility can be repre-sented fully only in a bioeconomicframework. Kaiser illustrates thisusing the case of an invader to aclosed ecosystem: the brown treesnake in the Hawaiian Islands. Limit-ing attention to biological factorsmight result in research and policyefforts directed only at preventing aninvasion, in part because an earlierbrown tree snake invasion on Guamhas proven to be ecologically cata-strophic. In the case of the browntree snake, such efforts focus on pre-venting the introduction of addi-tional specimens through materialstransported from Guam. Given thatprevention is by nature imperfect,however, some brown tree snakes willescape detection and enter theHawaiian ecosystem.

Once introduced, the speciesrequires control efforts. Because themarginal cost of control increases asthe population declines, optimal pol-icy requires the net benefit of pre-venting an additional snake fromentering the population equals thenet benefit of removing an additionalsnake from the existing population.Hawaiian expenditures on preven-tion and control are significantly dis-torted, relative to the point wherethis relationship would hold.

Hawaiian efforts regarding thebrown tree snake approximate thecase where only biological parametersare considered. Current annualexpenditures on prevention are about$2.6 million, while expenditures oncontrol are about $76,000. Theselimited control expenditures haveproved insufficient to identify andreduce the existing population tooptimal levels; instead, snakes thathave escaped prevention efforts are

able to reproduce and increase thepopulation. (Of course, the alterna-tive possibility is that preventionefforts have proven perfectly effec-tive and there is no existing popula-tion. However, this seems statisticallyand scientifically unlikely.) The dis-tortion in prevention and controlexpenditures will ultimately result ina larger Hawaiian brown tree snakepopulation than would be the case ifthe same total expenditure was opti-mally allocated.

Value of Information and Methodological Choices in Bioeconomic ModelingMcKee et al. address one manifesta-tion of the heightened uncertaintyfacing policymakers regarding aninvasive species problem, relative toan established pest problem. Often,policy decisions must be made whenrelatively little information is avail-able, be it in the form of experimen-tal data regarding the specific invasivespecies problem or otherwise. In thisevent, methodological choicesbecome critical because the role ofmethod-driven assumptions cannotbe limited by data. Often, due todata limitation, analysts constructsimple reduced-form populationmodels where current population lev-els are estimated based on past popu-lation levels. The authors illustratethe cost of this specific methodologi-cal choice in the context of a specificinvasion: the greenhouse whitefly inCalifornia strawberries.

The authors construct two bio-economic models of the greenhousewhitefly-strawberry relationship. Theeconomic components of the modelsare identical, as is the relationshipgoverning the effect of the whiteflypopulation on strawberry yield. Onlythe models of the whitefly popula-tion differ. One is a reduced-form


autoregressive model that relies onlyon experimental data to predict thedevelopment of the whitefly popula-tion as a function of its previouslyobserved levels. The second is astructural simulation model thatincorporates information regardingdeterminants of the whitefly’s lifecycle from the scientific literature, aswell as the experimental data regard-ing observed population levels.

The two models are compared tothe observed data. While bothdescribe the overall pattern of popu-lation peaks and troughs reasonablywell, the structural simulation modeldoes a more accurate job of repre-senting the magnitudes of the peaksand troughs. This suggests thatincorporating data from othersources and constructing a structuralsimulation model can improve thedescriptive power of bioeconomicmodels, at least in some circum-stances. More critically, the authorsdemonstrate that this difference inthe models causes growers to responddifferently to regulations regardingpesticide use for whitefly control instrawberries. Using the reduced-formmodel, the cost per acre to a growerof the regulation limiting the numberof applications of a specific pesticideto two per season is $2,500, whileunder the structural simulationmodel it is $2,100, a difference of$400 dollars per acre. This differencein the estimate of the cost is substan-tial, equaling about 10% of profitsunder the grower’s unregulatedprofit-maximizing choice. When bal-ancing the costs of the regulationagainst its benefits in terms of reduc-ing the development of resistance,the cost will be overstated.

Institutional Uncertainty and Bioeconomic SystemsOne motivation for the erection ofagricultural trade barriers is the possi-bility of an invasion of a pest or dis-ease that may negatively affect pro-duction in the importing country.Romano and Thornsbury examine aspecific case: a U.S. ban on theimportation of Argentine lemons dueto diseases not present in the UnitedStates. In efforts to get the banremoved, Argentina’s citrus producersdeveloped a set of institutions todevelop and implement a systemsapproach to phytosanitary regula-tion.

A systems approach to invasivespecies policy involves multiple con-trol steps at different stages of pro-duction and marketing. The use ofmultiple, sometimes independent,control steps is intended to reducethe risk of an invasion. Successfulimplementation of a systemsapproach can be technically andpolitically difficult. Technically, a sys-tems approach requires an under-standing of the production and mar-keting chain, as well as the biology ofthe crop and pest in question. Insti-tutions must be capable of masteringthese technical elements and be ableto undertake multiple control steps.Politically, the feasibility of imple-menting a systems approach in orderto enable the removal of a trade bar-rier depends on the credibility of theinstitutions regarding their ability tomaster these technical requirements,as well as on the political influence ofcompeting interest groups and theparameters set by international traderules.

Such political considerations aremade more powerful by uncertainty.When information regarding a bio-economic system is incomplete, thena systems approach to regulation

must be implemented based on theinformation available. Differentstakeholders may assess the costs ofthe resulting risks, or even the risksthemselves, very differently. Romanoand Thornsbury identify U.S. grow-ers’ reluctance to allow imports basedon information provided by U.S. andArgentinian institutions as “institu-tional uncertainty.” Concerns regard-ing the quality and quantity of theprovided information have played animportant role in the still ongoingtrade dispute. Clearly, when decidinghow much information to obtainprior to choosing a policy, the infor-mation collection decision should beguided by the economic conse-quences of making a mistake, and thecost and likelihood of doing so as afunction of the amount of informa-tion collected.

Lessons for Policy AnalysisBioeconomic modeling provides ameans of incorporating known infor-mation into a single decisionmakingframework. There is a great deal ofuncertainty regarding the bioeco-nomic relationships determining theoptimal policy response. The analysesin this set of articles derive four spe-cific lessons regarding the use of bio-economic models in invasive speciespolicy analysis: First, all relevant eco-nomic and biological relationshipsmust be included in the model inorder to get a full picture of the bene-fits and costs of potential policies.Second, a complete analysis of policychoices regarding potential invasionsshould include not only the optimalmanagement, eradication, or preven-tion policy, but a comparison of theseoptimal solutions that balances themarginal benefits of funds allocatedto each activity. Third, methodologi-cal choices will affect estimates ofthese marginal benefits; alternatives


to statistical methods that can incor-porate additional information shouldbe considered. Simulation modelsprovide a means of identifying theunknown parameters that are mostlikely to affect the choice of the opti-mal policy solution. Finally, informa-tion collection efforts should beguided in part by the projected costsand probability of making policymistakes in the absence of this infor-mation.

In sum, invasive species policy-making is a process, rather than a sin-gle decision. Bioeconomic modeling

can play a role at every stage of theprocess, from representing the con-text for choosing the initial policy,identifying missing informationthat’s important for assessing theimpacts of that policy, assessing post-implementation impacts, and provid-ing information for revising existingpolicies. This set of themed articleshas identified guidelines for usingbioeconomic models effectively inthe policymaking process.

Rachael Goodhue is Associate Profes-sor, Department of Agricultural andResource Economics, University of

California, Davis, and a member ofthe Giannini Foundation of Agricul-tural Economics. Gregory McKee isAssistant Professor and Director of theQuentin Burdick Center of Coopera-tives, Department of Agribusinessand Applied Economics, NorthDakota State University, Fargo, ND.This research was supported by theProgram of Research on the Econom-ics of Invasive Species Management(PREISM), Economic Research Ser-vice, U.S. Department of Agricul-ture, under Cooperative Agreement43-3AEM-3-80081. Seniority isshared equally between authors.




3rd Quarter 2006 • 21(3)


Bioeconomic Modeling of Greenhouse Whiteflies in California StrawberriesGregory McKee, Colin A. Carter, James A. Chalfant, and Rachael E. Goodhue


When a species invades an agricultural system, policy-makers and producers need ways to compare the cost andbenefits of control alternatives. In this paper, we examinethe greenhouse whitefly invasion of California strawberriesand a set of control alternatives, along with the effects ofthe information included in the analytical framework.

The greenhouse whitefly invasion into Californiastrawberries has three economic and biological characteris-tics that make it a particularly interesting case. First,restrictions associated with pesticides registered for useagainst the greenhouse whitefly (hereafter called the white-fly) create a complex management problem. Only onechemical was registered for use against whiteflies on straw-berries during the harvest period, pyriproxyfen (Esteem).Furthermore, regulations limiting the number of Esteemapplications to strawberries complicate management.Namely, the Environmental Protection Agency hasimposed a limit that only two applications of Esteem mayoccur per year.

Second, the whitefly’s life cycle can be modeled plausi-bly based on data from a single season. The resultantmodel can be used to study management alternatives andto guide data collection efforts for other invasive species byrevealing key parameters associated with population devel-opment and interactions with economic activities. Third,the whitefly is a significant economic problem in two geo-graphically separate California regions. The climate andother differences across these regions create different hostcycles and whitefly population dynamics, which then leadto differences in decisions concerning whitefly manage-ment.

The biological, economic, and regulatory features ofthe invasion cause grower incentives for whitefly control tovary by region and by week. Therefore, in order to create

economically and environmentally efficient whitefly man-agement policies, an understanding is needed of a grower’sprofit-maximizing response to pest damages. Empirical“bioeconomic” models, which unify information on bio-logical relationships, economic relationships, and interac-tions between them, are useful in developing such policies(McKee, 2006; McKee, Goodhue, Chalfant, & Carter,2006; Eiswerth & Johnson, 2002; Knowler & Barbier,2000).

Also, when doing invasive species modeling it is oftenthe case that limited information is available. In this study,we examine the value of adding information first usingonly data arising soon after the establishment of the white-fly population and then adding other information aboutthe whitefly’s life cycle from the scientific literature.

Models of Whitefly Population Development in California StrawberriesThe whitefly invasion started in the mid-1990s in VenturaCounty and was later observed in the Watsonville/Salinasstrawberry-growing region (Monterey and Santa CruzCounties). Though whiteflies were common in coastalCalifornia prior to that time, strawberries had not beenrecorded as a host.

Strawberries are grown along the California coastalmost year-round. A plant is typically in the ground forapproximately nine months, usually starting in the fall.Weekly yields are relatively small in the early spring,increase very rapidly in mid- to late-spring, and then taperoff during the summer. The population growth rate of thegreenhouse whitefly on strawberries changes throughoutthe season since temperature regulates maturity rate.Whitefly reproduction and population development areslowest during the coolest parts of the growing season and


more rapid during the hotter, springand summer months.

Alternative Approaches to Modeling We use statistical techniques to pre-dict the future whitefly population.Initially, we only use data from theinvasion during the 2002-2003growing season. This requires limitedrelatively immediate data and per-mits rapid model and policy develop-ment. However, it may omit impor-tant biological factors, such asvariations in the population growthrate over time, if no such data areavailable. Later, we augment theapproach with information fromwhitefly studies in similar environ-ments utilizing results on various lifestages. This may also be an attractiveoption since the costs for data collec-tion have already been incurred, andonly an analysis of emerging infor-mation is needed. However, the mainquestion is whether data obtainedfrom outside sources are relevant.

Thus, two models are used. Thefirst estimates a daily adult popula-tion series using egg count data from

the invasion. The second uses inva-sion egg, nymph (juvenile whitefly),and adult whitefly data, along withobservations from other whiteflystudies (Hulspas-Jordaan & van Len-teren, 1989) to inform the modelabout how variations in environmen-tal conditions affect whitefly popula-tion development. The additionalpopulation data were acquired at lit-tle additional cost.

ResultsIn order to assess control alternativeswe compare estimated net revenues,after spraying costs and populationpredictions, under various strategiesusing the two models.

Model Replication of PopulationWe first evaluate the model results tosee which model replicates theobserved data better. If the two mod-els both adequately reflect the white-fly population dynamics, then theestimated population series should becomparable. If they are not, this indi-cates that information is lost whenthe augmenting experimental infor-mation is not used. If a significant

difference is observed, then the addi-tional information allows more accu-rate and effective evaluation of pro-spective whitefly managementpolicies.

The solid line in Figure 1 repre-sents the estimated adult whiteflypopulation series from the firstmodel; the dashed line represents thesecond. The 13 large dots representthe observed sample. As the figureshows, both models reasonably pre-dict the timing of peaks and troughsin the whitefly population.

One way to more precisely com-pare the results of these two models isto measure the area under each curve.This area measures the size of thepopulation and the length of time itpersists, stated in units we call“whitefly-days.” There were 505cumulative whitefly-days observed inthe sample. The first model (case-specific data only) predicts 430whitefly-days (15% error), while thesecond predicts 564 cumulativewhitefly-days (10% error). Based onthis criterion, the second model gen-erates a superior prediction.

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Figure 1. Modeled and observed adult whitefly populations in strawberry plants for a commercial strawberry field, Wat-sonville, CA (2003).


Information and Costs of Esteem LimitsFundamentally, what matters is notthe existence of a difference in pre-dictive power, but whether or notthere is a substantive economic con-sequence when evaluating a policyoption. To address this question, weexamine net revenue and populationchanges caused by Esteem applica-tion restrictions. The optimal appli-cation program in each model is theone with the largest net revenues.

We first examine the difference inthe model results regarding the devel-opment of the whitefly populationfor the case of a single Esteem treat-ment, illustrated in Figure 2. Whenusing the first model, the optimaldate for a single Esteem application isMarch 29, just after the largestobserved adult whitefly populationpeak. In contrast, the additionalinformation used in the secondmodel changes the optimal pesticideapplication date to March 5th, justbefore the adult whitefly populationbegins to build. Prior to March 5, thepopulations are identical. The popu-lation generated by the March 5application generates smaller popula-tion peaks than the March 29 appli-cation, and higher net revenues. Col-lectively, the more accurate model

results in a difference of approxi-mately 3% of net revenue peruntreated acre.

To provide further perspective,we examine the cost of the Esteemregulation limiting growers to two orfewer applications per season. Usingthe second model, under two appli-cations we get about $7,800 per acre,as opposed to about $9,500 per acrefor three, a regulation cost of about$1,700 per acre. In contrast, underthe simpler model the net revenuesfrom the restricted case are about$4,700 per acre, compared to about$7,000 per acre for the relaxed case,which is a difference of about $2,300per acre.

The added information suggeststhe cost of the regulations is smallerunder more informed pest manage-ment, amounting to 18% versus33% of net revenue. The benefit ispartially due to the difference in theoptimal spraying time, and partiallydue to the more accurate representa-tion of post-treatment populationdevelopment. Based on about 1,000infested acres in 2003, the value ofrelaxing the application limit wouldhave been $1.7 million, in net reve-nue, per year. However, additionalapplications would have increased

the likelihood of resistance, and ifcomplete resistance arose we estimatelosses relative to the two-applicationcase would be about $7.8 million peryear. While this is obviously a verysimplistic view of the implications ofresistance, it illustrates how large thebenefits from preventing or delayingthe development of resistance can bein this specific case.

The weaknesses of the first modelsuggest that for decisionmaking sup-port it would be valuable to mergeexperimental data on pest life cyclestages with other known informa-tion. Of course, if unlimited datawere available, the performance ofthe first model would be augmentedincluding other relevant variables.However, our model comparison wasmotivated by the often limited dataavailable for policymakers examininginvasive species policy options, asexisted in the case study we exam-ined.

What Types of Models should Policymakers and Growers use for Decisionmaking? When a species invades an agricul-tural system, policymakers and grow-ers require integrated bioeconomic

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models in order to evaluate controloptions. When constructing thesemodels, there is an inevitable tradeoffbetween implementing a controlapproach early in the invasion andwaiting to collect data specific to theinvasion in order to make a moreinformed decision. We have exam-ined addressing this tradeoff by com-bining scientific information fromother sources regarding the whiteflywith available data from its invasionof California strawberries. Usingreadily available data and physiologi-cal models to estimate the economicharm the greenhouse whiteflycauses—decreased strawberryyields—generates a more accuratewhitefly population prediction thanone that only uses case-specific data.

We found that the difference inthe population models substantiallyaffected the estimates of the per-acrecost of the Esteem application limitfor growers. Using only data from theinvasion, the cost was $2,300 peracre, or $2.3 million in the infestedarea. Using the augmented model,the cost was $1,700 per acre, or $1.7million in the infested area.

Our analysis of this specific caseillustrates that information on the lifecycle of the pest, when available, canimprove decision making. Namely,the model with more information isbetter able to describe the feedbackbetween grower management deci-sions and the invader/host plantenvironment. Policymakers need todetermine whether or not they needto intervene in the system. In ourcase, regulators were concerned aboutthe possibility of the whitefly devel-oping resistance to the only effectivecontrol treatment prior to the devel-opment of alternative treatments.Using the augmented model resultedin a 26% lower estimated per-acrecost of complying with the require-ment of two or fewer Esteem applica-

tions in order to obtain the benefit ofa decreased likelihood of resistancedevelopment. Of course, the off-set-ting caveat is that the modeler mustmake careful decisions regardingwhich outside information is suffi-ciently relevant.

For Further InformationEiswerth, M., & Johnson, W. (2002).

Managing nonindigenous inva-sive species: Insights from dynamic analysis. Environmental and Resource Economics, 23, 319-342.

Knowler D., &. Barbier, E. (2000). The economics of an invading species: A theoretical model and case study application. In C. Per-rings, M. Williamson, & S. Dal-mazonne, (eds.), The economics of an invading species. Cheltham, UK: Edward Elgar Publishing, Ltd.

Hulspas-Jordaan, P., & van Lenteren, J. (1989). Modeling population growth of the greenhouse white-fly. Wageningen Agricultural Uni-versity Papers, 89-92.

McKee, G. (2006). Pesticide resis-tance, population dynamics, and invasive species management. Doctoral dissertation. University of California, Davis.

McKee, G., Goodhue, R., Chalfant, J., & Carter, C. (2006). Model-ing the effect of spatial externali-ties on invasive species management. Presented at the 2006 AAEA Annual Meetings, Long Beach, CA.

Osborne, L. (1982). Temperature-dependent development of green-house whitefly and its parasite. Encarsia formosa. Environmental Entomology, 11, 483-85.

Perrings, C., M. Williamson, and S. Dalmazonne. (2000). Introduc-tion. In C. Perrings, S. Dalma-

zonne, and M. Williamson, The economics of an invading species, pp.1-16. Cheltham, UK: Edward Elgar Publishing, Ltd.

Sumner, D. (2003). Economics of policy for exotic pests and dis-eases: principles and issues. In D. Sumner (ed.), exotic pests and dis-eases: Biology and economics for biosecurity. Ames, IA: Iowa State University Press.

Gregory McKee ([email protected]) is Assistant Professor andDirector of the Quentin BurdickCenter of Cooperatives, Departmentof Agribusiness and Applied Econom-ics, North Dakota State University,Fargo, ND. Colin Carter ([email protected]) and James Chal-fant ([email protected]) areProfessors and Rachael Goodhue([email protected]) isAssociate Professor, Department ofAgricultural and Resource Economics,University of California, Davis, CA.Carter, Chalfant, and Goodhue aremembers of the Giannini Foundationof Agricultural Economics. Thisresearch was supported by the Pro-gram of Research on the Economics ofInvasive Species Management (PRE-ISM), Economic Research Service,U.S. Department of Agriculture,under Cooperative Agreement 43-3AEM-3-80081. The authors thankFrank Zalom for providing the green-house whitefly population data andthe strawberry yield-greenhousewhitefly population data, which arethe basis of the biological models.This article is based on a portion ofChapter 5 of McKee’s dissertation,supervised by Goodhue, Carter, Chal-fant, and Zalom. The authors thankJeffrey Williams for many useful con-versations regarding this work, andBruce McCarl for his helpful sugges-tions. All mistakes and omissionsremain the responsibility of theauthors.




3rd Quarter 2006 • 21(3)


On the Garden Path: An Economic Perspective on Prevention and Control Policies for an Invasive SpeciesBrooks A. Kaiser

JEL Classification: Q20, Q57

Economists currently use the term invasive species todenote species that arrive in a new ecological setting andspread, creating ecological and economic damages. Theproblem facing invasive policy managers is to select strate-gies that minimize the overall invasive species-related costsover time, including prevention and control expendituresand damages. This article aims to highlight the connec-tion between prevention and control in decisions to bestutilize scarce resources to fight invasive species and arisesfrom a more extensive literature involving this author andothers (Burnett et al., 2006; Olson & Roy, 2005).

Definitions and the Policy EnvironmentAn invasive species generally causes more harm than goodthrough its aggressive spread. Prevention efforts, however,cannot always identify distinctions between harmful, ben-eficial, or benign introductions, nor intercept all introduc-tions, and are thus more risky policies compared to con-trolling a known invader. Thus, risk-averse managers oftenprevent too little (Finnoff et al., 2006, in press).

Opportunities for efficient management of invasivespecies from arrival to adaptation are missed in a web ofoverlapping mandates and complex biological and eco-nomic pathways for the introduction and spread of spe-cies. Historically, the many different avenues for invasivespecies propagation and intervention have led to piecemealpolicy approaches to invasive species. Twenty federal agen-cies, from the Department of Homeland Security toNASA, administer over a dozen major congressional actspertaining to invasive species. Executive Order 13112(Feb. 3, 1999) acknowledged the difficulties presented bythis piecemeal policy and established a coordinating inter-

departmental National Invasive Species Council (NISC),but the agency has no authoritative powers, and policyconflicts and gaps remain.

Consider the differences in legislative policy: • There are acts targeting individual species (Sudden

Oak Death, Pub. L. 108-488, Dec. 23, 2004; Browntree snake, Pub. L. 108-384, Oct. 30, 2004; Nutria,Pub. L. 108-016, Apr. 30, 2003). These exist despitethe fact that there is no definitive reason to believe thatthese invaders are worse threats than all others; how-ever, the targeted legislation may limit attentiontoward other equally damaging prospects.

• There are direct, broad mandates to reduce harm fromnon-native species (Plant Protection Act, Pub. L. 106-224, Jun. 20, 2000; National Invasive Species Act,Pub. L. 104-332, Oct. 26, 1996; Lacey Act, 18 USC§42). Most of these focus on preventing the introduc-tion of new invasive species that are likely to harmagriculture or other markets or quantifiable resources.

• There are statutes that indirectly target invasive speciesprevention and control for the preservation of specificassets (Public Lands Corp Healthy Forest RestorationAct, Pub. L. 109-154, Dec 30, 2005; Endangered Spe-cies Act, 16 USC §1531-1539). These statutes gener-ally apply control measures after invasion as indirectintervention for the protection of non-market ameni-ties such as biodiversity. As such, the biological and economic consequences of

individual species and our awareness of these species andtheir consequences may generate poor allocation ofresources among species. The net benefits or damages ofan introduced species may vary significantly depending on


the state of the existing ecosystem.For example, using exotic plant spe-cies for quick stabilization ofdenuded hillsides might bring signifi-cant benefits by mitigating massiveflooding in one location, whereasintroduction of the same species inanother location may reduce biodi-versity or water supply. Intertemporalconsiderations abound; today’s quickfix may be tomorrow’s bane.

Economic and Biological Considerations in Invasive Species ControlThe problem facing invasive policymanagement is to minimize theexpected net damages and preventionand control costs of new and existinginvasions over time. This problem isalso subject to the biological con-straints of the species. Figure 1 illus-trates how a species whose minimumviable population (Ei) is low and thatgrows rapidly to a large carryingcapacity population (Ki) is mostlikely to invade successfully. Onewhose initial population threshold(En) is higher, requiring a higher ini-tial volume of arrivals, whose growthrate is slower, allowing for more timeto eradicate, control, or contain aspreading population, and whose car-rying capacity population islower(Kn), does not present the samebiological threat. Furthermore, alower initial population threshold,such as (Ei), makes eradication con-siderably more costly as a smallerpopulation must be located andremoved. Research and preventionpolicies might therefore focus onidentifying and stopping species fromentering based solely on their biologi-cal parameters.

However, biologically driven pol-icies may not always target the cor-rect species with the most efficientefforts. The biological potential of a

species must be combined with eco-nomic theory and the expected dam-ages and costs of control for the spe-cies. We discuss how thecharacteristics of damages and costsimpact prevention and control deci-sions.

Damages may be economic orecological. Economic damages aregenerally in the forms of direct dam-ages to facilities, human health, natu-ral resources, and indirect damagesfrom ecological change. Ecologicalchange may commonly include lossesin water or soil quality or quantity,biodiversity and resiliency losses, andproductive resource losses. Theexpected damages are a function ofthe invasion size. In many cases, eco-logical damages may outweigh eco-nomic ones. This is likely when thevalue of the threatened assets is gen-erated from biodiversity, tourism,aesthetics, and the like. Non-marketvaluation techniques may be neces-sary to establish these damages (SeeLoomis, 2005). We can use informa-tion on these characteristics to deter-mine the expected damages from tak-ing no action, or accommodating theinvasion, and the benefits from con-trol across a spectrum of invasion

sizes corresponding to policy choicesand expenditures.

Economic Conclusions Related to Invasive SpeciesThough similar to the harvest prob-lem of any renewable naturalresource (Clark, 2005), in whichmanagement weighs the net benefitsof harvest (removals) today againstthe net benefits of future harvests,invasive species problems are morelikely to involve cases where extinc-tion is optimal policy or whereaccommodation of the damages,without control efforts, is the bestchoice. Determining the appropriatepolicy is particularly complicatedwhen there are significant biologicaluncertainties surrounding the inva-sive species’ capabilities in a new eco-system and when there are difficultiesin measuring resource values, such aswith many non-market amenities. Itis useful, therefore, to determinesome rules of thumb regarding theseparameters.• Control policy must consider the

overall cost of controlling aninvasion.

Figure 1. Role of biological growth.


If the net benefits from the inva-sive species removal (harvest) out-weigh current control costs, conserv-ing the species for tomorrow does notgenerate a net economic benefit, andbiological extinction, or eradication,may well be the optimal policy. If thecosts of harvest outweigh the dam-ages of the population, it may beoptimal to allow the species to invadeunchecked. All other factors equal,lower levels of damages or high costsrelative to the damages will decreasecontrol activities, as will time-delayeddamages. • Control policy must consider the

cost of controlling an invasion asa function of the size of the inva-sion so that the benefits of con-trolling or preventing theinvasion may be weighed againstthe costs of doing so. Once a species is established, we

expect that the per pest cost of con-trol will generally increase as the sizeof the population decreases. This isdue to increased difficulty in detect-ing and removing fewer and fewerspecimens from any given area. Allother factors equal, the higher thecosts of removal, the larger the popu-lation that will be accommodated,once present. • The degree of rise in cost as con-

trol efforts increase also plays animportant part in control policy. A relatively flat cost structure is

more likely to result in accommoda-tion than a cost relation that dropsoff to lower levels at higher popula-tions. On the other hand, fastincreasing costs may favor eradica-tion followed up by prevention of re-introduction. • Policy should also weigh the

intertemporal advantages, interms of present discountedvalue, of preventing or removingan additional invasive specimen

today against those of leaving theproblem for tomorrow. The role of prevention, either

before an initial arrival or after a suc-cessful eradication, should also beintegrated into policy formation. Pre-vention efforts should be based onthe expected outcome if preventionfails. Since prevention is imperfect,over time the cumulative probabilitythat a new species will evade detec-tion and establish itself is nearly one.Prevention expenditures delay thisestablishment, but cannot eliminateit altogether. When prevention fails,the species will establish and begin togrow and cause damages. Thus, pre-vention expenditures for a given spe-cies should continue until the pointwhere the cost of preventing the nextspecimen from entering is equal tothe cost of controlling another speci-men on the ground. • A species’ ability to spread will

significantly impact the costs ofcontrol. For example, if the species needs

a relatively large population to main-tain itself, as visualized by En in Fig-ure 1, reducing the population to thisextinction level, rather than to zero,negates further control costs, thoughthe population is not eradicated.Optimal policy determining effortallocations between prevention andcontrol at small population levelsmay involve only prevention, onlycontrol, or a combination of preven-tion and control, and are quite sensi-tive to the biological and economicparameters of the system.• Across species, the marginal ben-

efits of prevention and the costsof control activities should also beequal. The relationship between preven-

tion and control, therefore, may bequite complicated. For example, it isnot clear whether prevention shouldbe high or low for a species whose

optimal control policy after establish-ment is accommodation; if this is thecase due to control costs that arealways higher than damages, in spiteof high damages, then preventionshould be high, in order to delay thedamages. If, however, accommoda-tion is the policy because the presentvalue of damages is quite low, thenoptimal prevention might also below.

A Case Study: Brown Tree Snake Prevention in HawaiiThe economic reasoning describedhere has been applied to the cases ofthe Brown tree snake in Hawaii withinteresting results (Burnett et al.,2006). The Brown tree snake is a sig-nificant concern to the HawaiianIslands because of its behavior onGuam over the past 50 years. BothGuam and Hawaii were snake-freeislands until the Brown tree snakearrived in Guam sometime in the1950s. Since that time, its uncheckedpredation has led to some of thehighest snake densities known in theworld, caused extirpation of 10 of 13native bird species and caused signifi-cant economic damage to power sup-ply and human health. Eight speci-mens have been intercepted inHawaii in transported materials fromGuam. A small but uncertain num-ber may have escaped detection inHawaii already. The carrying capacityfor Hawaii is estimated at almost 39million snakes and the damages areconservatively estimated at an aver-age of $122 per snake per year fromlosses in biodiversity, power supply,and medical expenditures (Burnett etal., 2006).

It might seem that almost noamount of prevention expenditurescould be too high to avoid thesedamages. The old adage that “anounce of prevention is worth a


pound of cure” comes to mind, butunfortunately, it may not be true. Incases like this where prevention isfocused on a small number ofexpected pathways, while control of asmall population might requiresearching over a large area at highcost, lavish prevention expenditureswill not successfully minimize thethreat from invasion. If one is notactively searching the broader habitatfor the specimens that avoid detec-tion through prevention mecha-nisms, these may rapidly reproduceand grow beyond a stage where theyare eradicable or easily contained.

In the case of the Brown treesnake, such oversight could beextremely expensive. If, for instance,the current mix of prevention andcontrol is pursued without change,$2.6 million per year will be spent onpreventing the species from reachingHawaii, but about $76,000 will bespent on searching for snakes thatevade prevention efforts. Since thesehave proved to be insufficient fundsto catch a snake from a very smallpopulation, under status quo efforts,the existing population will continueto grow until there are enough snakesthat this limited annual expenditureresults in catching a snake, imposingperhaps billions of dollars of silentdamages in the meantime. Instead, ifthere indeed is an existing populationin Hawaii, it would be preferable tospend much more of the preventionmoney on ferreting out that popula-tion and limiting damages directly.An additional avenue for reallocating

the prevention money might betoward joint production of snakeremovals with other conservationactivities, should such a possibilityexist.

Concluding CommentsIn sum, prevention and control deci-sions must be integrated thoroughlyto best utilize scarce resources to fightinvasive species. Policy must considerthat invasive species are a function ofhuman trade and discourse, which isincreasing in even the most remotecorners of the globe. Optimal strate-gies will vary by anticipated biologi-cal growth, economic cost of preven-tion and control activities, andeconomic valuation of potentialdamages as a function of invasionlevel. Assessment of these parametersmay require creative and iterativeinterdisciplinary processes. Closedecosystems like Hawaii provide excel-lent natural labs for study and areimportant purveyors of irreversibleassets, particularly biodiversity, thatdeserve particular attention in thebattle against invasive species.

For More Information:Burnett, K.M., Kaiser, B.A., Pitafi,

B.A., & Roumasset, J.A. (2006). Prevention, eradication, and con-tainment of invasive species: Illustrations from Hawaii. Agri-cultural and Resource Economics Review 35(1), 63-77.

Clark, C. (2005). Mathematical bio-economics: The optimal manage-

ment of renewable resources, 2nd Ed. Hoboken, NJ: Wiley-Inter-science.

Finnoff, D., Shogren, J.F., Leung, B. & Lodge, D.M. (in press). Take a risk-preferring prevention over control of biological invaders. Ecological Economics. Available online: http://www.elsevier.com/locate/ecolecon.

Loomis, J. ed. (2005). Valuing the Quality of the Environment and Human Health, Choices 20(3). Available online: http://www.choicesmagazine.org/2005-3/index.htm.

National Invasive Species Informa-tion Center (2006). Available online: http://www.inva-sivespeciesinfo.gov/.

Olson, L., & Roy, S. (2005). On pre-vention and control of an uncer-tain biological invasion. Review of Agricultural Economics, 27(3), 491-97.

Reimer, N, Beardsley, J.W., & Jahn, G. (1990). Pest ants in the Hawaiian Islands. In R.K. Vander Meer, K. Jaffe, & A. Cedeno (Eds.), Applied Myrmecology: A World Perspective (pp. 40-50). Boulder, CO: Westview Press.

Brooks A. Kaiser ([email protected]) is Associate Professor,Department of Economics, Gettys-burg College, Gettysburg, PA, andAffiliate Graduate Faculty, Depart-ment of Economics, University ofHawaii, Manoa, HI.




3rd Quarter 2006 • 21(3)


Institutional Uncertainty at Home and Away: The Case of Lemons from ArgentinaEduardo Romano and Suzanne Thornsbury

JEL Classification: F13, Q17, Q18

Ultimately, the success of any trade relationship dependson achieving satisfactory levels of trust and confidenceamong trade partners. Uncertainty in such relationshipshas increased with the adoption of World Trade Organiza-tion [WTO] regionalization criteria. An important, andoften overlooked, aspect of these criteria governing inva-sive species regulation is the degree of confidence and trustamong regulatory agencies to conduct pest risk assess-ments, monitor changing conditions, and enforce stan-dards (Thornsbury & Romano, 2002).

One policy response has been increased use of a sys-tems approach; multi-step sanitary and phytosanitary reg-ulations designed to reduce pest risks (USDA APHIS,2002).1 We rely on an ongoing case to illustrate attemptsto alleviate uncertainty and the complexity of negotiationsover policies to manage invasive species risk.2 Specifically,

we examine efforts by Argentina to gain access to U.S.lemon markets illustrating • how private/public partnerships can build institutions

in developing countries to increase the likelihood ofaccess to new markets;

• linkages between institution building and increasedtrust between trade partners; and

• pressures from industries at home.

Pests of ConcernArgentina is currently the largest lemon producer in theworld with approximately 30% of global production(more than 1 million metric tons a year) and a largeexporter (more than 330,000 metric tons annually),mainly to European countries (Figure 1). Despite gainingentry to Europe and Japan, Argentine lemons are bannedfrom U.S. markets. In the 1960s, Argentina was only amodest lemon producer with most orchards concentratedin the humid Northeastern states, where the plant diseasecitrus canker is prevalent. Concern over inadvertent trans-fer of citrus canker was a primary reason for the originalU.S. ban on Argentine citrus (USDA APHIS, 1998b).3

Citrus canker is a highly contagious bacterial diseasethat causes leaf loss, premature fruit drop, and lesions onleaves, stems, and fruit. It is endemic in some major citrus-producing regions of the world (i.e., Brazil), but is gener-ally considered manageable for fruit that will be furtherprocessed. The canker alters exterior appearance with amajor impact on fresh fruit sales.

1. An example includes a requirement to test for pathogen presence (step 1) and mandatory pesticide application (step 2), regardless of the outcome of step 1. These measures are independent and risk reduction is additive: if there is a failure in step 1 (the test is negative when in fact a patho-gen is present), then there is not an automatic failure in step 2 (USDA APHIS, 2002). Such practices are applied to fresh avocado imports from Mexico into the United States (e.g., Orden & Romano, 1996).

2. There are many other examples of disputes over such poli-cies. For example, in 2005, USDA identified 41 trade issues involving potential impediments to U.S. horticul-tural exports (USDA FAS, 2005). In addition, 33 com-plaints were raised in the WTO Sanitary and Phytosani-tary Committee between 1995 and 2002 regarding policies governing trade in horticultural products (Roberts & Krissoff, 2004).

3. Other pests of concern were later identified by APHIS (fruit flies, sweet orange scab, and citrus black spot).


In the early 1990s, a group ofArgentine businessmen hoping toexpand exports planted substantialcitrus acreage in four NorthwestArgentina states free of citrus canker.In 1991, citrus producers, processors,and exporters in this area establishedthe Phytosanitary Association ofNorthwest Argentina (called AFI-NOA), a grower-sponsored institu-tion with a goal of fostering coopera-tion to implement sanitary andphytosanitary [SPS] practices thatwould help promote citrus exports.The investors’ plan was to applymodern technologies to produce fruittargeted towards European andAmerican markets.

A Challenge to Argentine InstitutionsIn 1993 Argentina requested entryfor fresh grapefruit, lemons, andoranges from the Northwest area tothe United States. In 1994, a groupof U.S. Animal and Plant Health

Inspection Service [APHIS] patholo-gists visited to assess conditions. Pre-liminary results indicated that,although the region appeared to becanker-free, it did contain citrusblack spot and sweet orange scab,two citrus fungal diseases not presentin the United States. In 1995, APHISdenied the request for entry unlesscanker-free status could be docu-mented and treatments for the othertwo diseases approved (Harlan LandCo. v. USDA, 2001).4

The Argentine regulatory agencywas neither willing nor able to satisfyU.S. concerns and the process stalledin a political dispute. The U.S. posi-tion requested scientific evidence ofpest-free status. The Argentine posi-tion stated that, since EuropeanUnion-approved policy allowed cit-rus imports from Northeastern pest-free orchards located in nonpest-freestates, the risk of transferring diseasefrom regions deemed pest-free had tobe negligible. The Argentine positionfailed to acknowledge the myriad ofdifferent elements and conditionsthat influence species invasion acrossgeographic areas, as well as differentrisk preferences and thresholdsamong potential importers. Thisillustrates how difficult it is for regu-lators in a developing country tounderstand the importance of follow-ing established sanitary protocols andto demonstrate scientifically provenphytosanitary health.

To some extent, this controversyunderscores the differences in Ameri-can and European approaches toinvasive species management. WhileAPHIS followed the WTO’s region-alization principle to allow importsfrom certified pest-free regions,Europe followed protocols based onlyon identification of pest-free orchards(FVO, 2002). Momentum to breakthe impasse came from the Argentinegrower organization AFINOA. Thisgroup enlisted the academic commu-nity to provide scientific expertise tosatisfy the requests from APHIS. Inaddition, the grower organizationgathered political support from theGovernors of Northwest Argentina toimprove and document phytosani-tary measures insuring separation ofproducts from pest-free regions. Toaddress U.S. concerns over institu-tional uncertainty, the Governmentof Argentina began to elevate the sta-tus of its regulatory and enforcement

4. The United States was not canker-free at this time since the plant dis-ease had been detected in the Miami-Dade County, Florida area during 1995. An aggressive eradi-cation program was underway, and avoidance of additional pest entry was considered critical to success. The U.S. eradication program included quarantine restrictions on movement of domestic product as well.

Russia16%

Spain11%

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18%

Greece8%

Italy10%

Others30%

U.S.7%

Figure 1. Destination of Argentine lemon exports, 2001. Year 2001 was cho-sen to show U.S. participation. For years other than 2001, exports to the U.S.equal zero.


agencies, developing a new institu-tional umbrella (National AgrifoodHealth and Quality Service, orSENASA in Spanish).

Subsequently APHIS, given thescientific surveys and research resultsin 1996, in turn issued a supplemen-tal pest risk assessment, which esti-mated that the median chance forestablishment of pests of concern inthe United States was negligible (1 in3.2 million). In August 1998, APHISpublished a proposed rule thatallowed citrus imports using a sys-tems approach to guard against blackspot and sweet orange scab (USDAAPHIS, 1998a). Included were safe-guards at the grove and post-harvestlevels, a phytosanitary certificate,cold treatment, disease detection pro-tocols, and limitations on distribu-tion and repackaging. Responding tothe need to understand and accom-modate APHIS’ requirements,Argentina was able to move the pro-cess forward despite initial mistrust.As a result, the dispute evolved into aless-trade-restrictive protocol basedon multiple safeguards built into thesystems approach.

Still, increased trust among regu-latory agencies had not been trans-ferred to U.S. growers and publiccomments to the proposed rulerevealed continued opposition. Con-cerns were raised about the scientificbasis and execution of the systemsapproach. Meanwhile, regulatoryofficials were confident in the scien-tific merits of the proposal andAPHIS moved forward with otheraspects of the process. In late 1998,an economic analysis determinedthat the rule “[would] not have a sig-nificant economic impact on a sub-stantial number of small entities”(USDA APHIS, 2000). An environ-mental assessment was published,which concluded there was negligibleenvironmental risk but if the systems

approach failed, the subsequent envi-ronmental impact would be “consid-erable” (USDA APHIS, 1998b).

Despite institutional confidence,domestic industry concerns led U.S.officials to be cautious in rule-mak-ing. Argentine officials eventuallycomplained about unnecessary delaysand APHIS published a final rulingon June 15, 2000, which allowedimmediate entry (Magalhães, 2001;USDA APHIS, 2000). Regardless,opposition in the United States con-tinued as growers questioned theability of trade partner institutions toadequately monitor and carry-out thesteps of the systems approach. Legis-lative representatives from Californiathreatened APHIS with a withhold-ing of fiscal year 2001 funding untilafter a review of the Argentine citrusrule and associated risk assessmentwere commissioned (NAWG, 2000;Costa, 2000).

To address grower concerns,APHIS personnel conducted anunannounced review in March 2001.Regulatory officials visited SENASAoffices to verify the presence of suffi-cient technical personnel, examineagency records, and visit a laboratory.Throughout the review, APHIS didnot discover any irregularities or vio-lations and, despite strong continuedopposition from California, lemontrade continued.

A Challenge to U.S. InstitutionsOn March 30, 2001, California andArizona citrus growers filed a lawsuitdirectly challenging APHIS’ scientificprocedures and asking that the finalrule be overturned (Harlan Land Co.v. USDA, 2001). Complainantsargued that the final rule was unlaw-ful because of its inconsistency withthe Plant Quarantine Act of 1912.On May 12, 2001, arguments were

An Extract of the Court Ruling

1. “Having reviewed the Risk Assessment, the court concludes that the final rule is arbitrary and capricious because it is based on a faulty risk assessment. The uncertain nature of the Risk Assessment is illustrated by the fact that the risk of citrus black spot introduction increased significantly under the revised Risk Assessment from one chance in 3.2 million to one chance in 763,000 for the mean and from one chance in 840,000 to one chance in 189,000 for the 95 percentile. Although the risk is still lower than the risk of fruit fly introduction, where there is one chance in 350,000 for the mean and one chance in 93,000 for the 95 percentile value, the fact that there was a four-and-a-half fold increase in the risk of citrus black spot introduction at the 95 percentile because of faulty assumptions made by the APHIS scientists suggests that APHIS needs to reevaluate the Risk Assessment.”

2. “Although the Risk Assessment take (sic) human error into content (sic), it may have understated human error in light of SENASA’s failure to report the foot-and-mouth disease. Frankly, the court is concern (sic) about whether SENASA can be entrusted to enforce the mitigation measures used by the sys-tems approach.”

ACCORDINGLY, IT IS SO ORDERED that plaintiffs be granted summary judgment and defendants be denied summary judgment. IT IS FURTHER ORDERED that the Argentine citrus rule is suspended until a new rule is in place. The final rule is remanded to APHIS to address the concerns raised by the court.”

Source: Harlan Land Co. v. USDA (2001).


heard in an Eastern District of Cali-fornia court. Institutional uncer-tainty surrounding both APHIS andSENASA was raised as prosecutorsargued that the risk assessment wasconfusing and internally inconsis-tent. Further concerns were relianceon a foreign regulatory institution(SENASA) to implement, verify, andenforce part of the systems approachsince, in the recent past, this institu-tion had concealed an outbreak offoot-and-mouth disease for severalmonths. The distrust of Californiagrowers for international regulatoryofficials had been extended toinclude domestic scientists and regu-lators. The court ruled in favor of theprosecution and entry of Argentinelemons was again banned as of Sep-tember 29, 2001.

The Story ContinuesWith imports to the United Stateshalted, Argentina announced in Feb-ruary 2002 that citrus canker hadbeen detected in the Northweststates. Continued discussionsbetween the two countries postponedan official APHIS site visit until theweek of March 10, 2003. The goalwas to demonstrate that, despite theloss of canker-free status, systemsapproach safeguards were rigorousenough to meet phytosanitary stan-dards. This argument was not funda-mentally different than that positedby Argentina in the 1990s. By 2003,however, the Argentine claim hadbeen strengthened by additional sci-entific and institutional evidence.Based on results of the visit, APHISformally recognized the appropriate-ness of the systems approach in place,but criticized the Argentine govern-ment for not implementing a cankereradication program (Wager-Page etal., 2003). Growers and policymakersin Argentina rejected the demand for

such a program and the processremained stalled.

A new development in this storytook place in January 10, 2006, whenUSDA officials declared defeat intheir own canker eradication processannouncing that Florida hurricaneshad “so widely distributed [the dis-ease] that eradication is infeasible”(Conner, 2006). There is a senseamong Argentine officials that thisannouncement may induce APHISto abandon the request for an eradi-cation program in Northwest Argen-tina and instead develop a new proto-col along the lines of the systemsapproach policies currently in placefor Europe and Japan. In early 2006,a group of APHIS and SENASA offi-cials met to further discuss the issue(Enright, 2006).

Lessons LearnedThe Argentine lemon case revealsimportant lessons regarding trust andconfidence among trade partners andthe difficulties involved in decreas-ing institutional uncertainty. There isa demonstrated need for developingcountries seeking access to interna-tional markets to organize and estab-lish strategies based on scientific evi-dence and enforcement programs.Sanitary and phytosanitary policiesbased on multiple safeguards appearto be a valid tool to decrease regula-tory uncertainty while achieving areduction in pest risk, allowing tradepartners to build mutual trust andconfidence.

Phytosanitary measures must beconsistently enforced over time bythe exporting country to reduce dis-trust from the importing country;however, the regulatory agency in theexporting country is not the soleplace where such uncertainty mayarise. The dynamics of the lemoncase shifted attention to credibility of

domestic, as well as foreign, institu-tions. In this case, while trust andconfidence between regulatory agen-cies has been slowly building, thesame cannot be said for the industriesinvolved. Although institutional andscientific adjustments in the develop-ing country were crucial to buildmutual trust and facilitate advance-ment of the regulatory process, someadjustments are still needed to over-come political pressures at home andabroad.

AcknowledgmentsWe would like to thank DavidOrden, Everett Peterson, and threeanonymous reviewers for helpfulcomments and suggestions. Thisresearch was supported by the Pro-gram of Research on the Economicsof Invasive Species Management(PREISM), Economic Research Ser-vice, U.S. Department of Agricul-ture, under Cooperative Agreement43-3AEM-3-80087.

For More InformationConner, C. (2006). Letter to Charles

H. Bronson, Florida Commis-sioner of Agriculture. Available online: http://www.doacs.state.fl.us/pdf/Can-ker%20-%20Bronson.pdf.

Costa, J. (2000). Importation of Argentine Citrus. Bill Number: SJR 38. Adopted in Senate on August 31, 2000. Available online: http://info.sen.ca.gov/pub/99-00/bill/sen/sb_0001-0050/sjr_38_bill_20000920_chaptered.html.

Enright, C. (2006). Letter to Carlos Horacio Casamiquela, Vice-Presi-dent Servicio Nacional de Sanidad y Calidad Agroalimentaria (SENASA), January 27. Docu-ment retrieved from the Embassy


of Argentina, Washington, DC, in March 2006.

Food and Veterinary Office [FVO]. (2002). Final Report of a Mission Carried out in Argentina from 10-14 September 2001 in Order to Evaluate the Inspection Procedures for Citrus Fruit Originating in Argentina and Exported to the European Union. European Com-mission - Directorate-General Health and Protection of the Consumers. DG (SANCO)/3403/2001 - MR FINAL. Avail-able online: http://ec.europa.eu/food/fs/inspections/pi/reports/argentina/pi_rep_arge_3403-2001_en.pdf.

Harlan Land Co. v. USDA. (2001). Court Ruling. Eastern District of California. Factual Background. Available online: http://www.thecre.com/pdf/Citrus_vs_usda.pdf.

Magalhães, J. (2001). Sanitary and phytosanitary issues and the SPS Agreement. Presented at China/FAO Citrus Symposium, Beijing, China. Available online: http://www.fao.org/DOCREP/003/X6732E/x6732e13.htm.

National Association of Wheat Growers [NAWG]. (2000). NAWG joins opposition to citrus limits. NAWG newsletter. Avail-able online: http://www.small-grains.org/dtnfiles/081100.htm.

Orden, D., & Romano, E. (1996). The Avocado Dispute and Other Technical Barriers to Agricultural

Trade Under NAFTA. Presented at NAFTA and Agriculture: Is the Experiment Working? San Anto-nio, TX.

Roberts D. & Krissoff, B. (2004). Regulatory Barriers in Interna-tional Horticultural Markets, (WRS-04-01). Washington D.C.: USDA Economic Research Service. Available online: http://www.ers.usda.gov/publications/WRS04/jan04/wrs0401/.

Thornsbury, S., & Romano, E. (2002). Scientific Capacity and Institutional Adjustments for Stan-dard Development. Presented at Free Trade of the Americas, the WTO, and New Farm Legisla-tion, San Antonio, TX.

United States Department of Agri-culture [USDA APHIS]. (1998a). Importation of Grape-fruit, Lemons, and Oranges from Argentina. Proposed Rule. Fed-eral Register 63(155): 43117-43125.

United States Department of Agri-culture [USDA APHIS]. (1998b). Proposed Rule for Impor-tation of Grapefruit, Lemons, and Oranges from Argentina, Environ-mental Assessment. Available online: http://www.aphis.usda.gov/ppd/es/pdf%20files/argentea.pdf.

United States Department of Agri-culture [USDA APHIS]. (2000). Importation of Grapefruit, Lem-ons, and Oranges from Argen-

tina. Final Rule. Federal Register 65(116): 37608-37669.

United States Department of Agri-culture [USDA APHIS]. (2002). The Role and Application of the Systems Approach. A Scientific Review coordinated by The National Plant Board. Available online: http://www.aphis.usda.gov/ppq/system-sapproach/.

United States Department of Agri-culture [USDA FAS]. (2005). FAS Guide to World Horticultural Foreign Agricultural Trade: U.S. Specialty Crops Trade Issues. (Cir-cular Series FHORT 1-05) Wash-ington D.C.: Foreign Agricultural Service. Available online: http://www.ers.usda.gov/publications/WRS04/jan04/wrs0401/.

Wager-Page, S.,Van Dersal, J.M., Robertson, S., Demarino, Y., & Gaskalla R. (2003). Trip Report. Site Review of Northwest Region Proposed for Citrus Exports from Argentina. March 9-14. Docu-ment retrieved from the Embassy of Argentina, Washington, DC, in March 2006.

Eduardo Romano ([email protected])is Associate Research Scientist, PacificInstitute for Research and Evaluation(PIRE), Calverton, MD. SuzanneThornsbury ([email protected]) isAssistant Professor, Department ofAgricultural Economics, MichiganState University, East Lansing, MI.Senior authorship is shared.




3rd Quarter 2006 • 21(3)


Invasive Species and the Depth of Bioeconomic IntegrationDavid Finnoff, Chad Settle, Jason F. Shogren, and John Tschirhart


An established species is not considered invasive unless ittriggers costs that outweigh any attendant benefits. Num-bers of invasive species are increasing worldwide. In theUnited States alone, Pimentel et al. (2000) estimated that50,000 non-native species have been introduced. Of theseabout 5,000 have become established and about 500 havebecome invasive.

Invasive species are a leading cause of biodiversity lossin ecosystems, and especially in lakes. Invasive species pro-mote large ecosystem changes, and they interact withmany other drivers of global environmental change.Although agriculture has been long plagued by invasivesand a voluminous literature on cost effective pest controlexists, only relatively recently has the problem of invasivesin natural systems been examined in a bioeconomic con-text.

In the past, researchers have used an approach thatassumes the economic system and the ecosystem affecteach other in a one-sided way, which causes them to sepa-rate risk assessment from risk management. A change inthe economic system is viewed as only changing the pres-sure on the ecosystem, or a change in the ecosystem isviewed as only changing the economic system. Thisapproach does not address the idea of co-evolution – thetwo-way interactions and feedbacks between human andnatural systems. Ecosystem changes alter human behaviorand productivity in the economic system. People recognizethe change in their productivity, and they adapt to thischange, either by adapting the environment or by adapt-ing to the environment. When people adapt, they alter thepressure they put on the ecosystem leading to furtherchanges in the ecosystem. The co-evolutionary cycle con-tinues.

Co-evolution can be addressed by integrating ecologi-cal and economic modeling into a single cohesive frame-work. The motivation behind integration is to get moreprecise estimates of invasive species damages on humanand natural systems. Integration accounts for interdepen-dencies, or feedback loops. Traditionally, economists havecaptured the notion of feedback loops using dynamicmodels. With a few exceptions, most standard bioeco-nomic models consider at most one or two feedback loopsand operate at a relatively aggregate level. In many casessuch models provide the needed insight into the underly-ing problem at hand. In other cases, however, more eco-logical or economic detail is needed to help avoid theunintended consequences of poorly advised policy. Thischallenge of balancing model tractability with more real-ism is not new in science, but it hits with full force whenaddressing the economics of invasive species management.

Herein we address two common questions that arisewhen doing integrated bioeconomic modeling for invasivespecies management: (1) what do we gain by integratingthe web of life into economic analysis? and (2) if integra-tion is worthwhile, how deep should we go?

What do we gain by integrating the web of life into economic analyses?Our work over the last decade has addressed whether anexplicit accounting of these feedback links yields differentpolicy-relevant results than does non-linked analyses.Consider three examples of linked systems.

i. Yellowstone Lake Settle and Shogren (2006) constructed an integrated bio-economic model to examine how invasive lake trout affectnative cutthroat trout in Yellowstone Lake. The two key


items included in this model are thestocks of lake trout and cutthroattrout. Their results showed howintegration of the economic and bio-logical systems lead to different pop-ulation results compared to treatingthe systems as separate. Three scenar-ios were considered, each with andwithout feedbacks between the eco-nomic and ecological systems. Thebest-case scenario eliminates laketrout immediately and without cost.The worst-case scenario leaves laketrout without any interference fromthe Park Service, and both lake andcutthroat trout are left to reach theirsteady-state equilibriums. The mid-dle-ground scenario has the Park Ser-vice expending a fixed budget toreduce the risk to cutthroat trout bygill netting lake trout, assuming theService’s current level of expendituresis continuous and perpetual.

Using the population of cutthroattrout as a yardstick, we found thatignoring feedbacks biases risk esti-mates by overestimating cutthroatpopulations in the worst case andunderestimating them in the bestcase. The difference arises from fish-ermen behavior. Without feedback,fishermen continue to fish as before.With feedback, fishermen adapt byfishing less and visiting other attrac-tions more. Interestingly, the findingsalso revealed a troubling result from aspecies protection perspective in thatonly a small difference arises betweenthe net benefits between the best-and worst-case scenarios, which sug-gests that gill netting for lake trout isinefficient. People preferred improve-ments in other park amenities (e.g.,roads, wildlife viewing) relative toincreased populations of cutthroattrout.

ii. Zebra musselsFinnoff et al. (2005) studied an eco-nomic system, composed of a Mid-

west lake ecological system experi-encing a zebra mussel invasion with aresource manager and a powerplant,to determine whether integrating thesystems is worth the effort. Two feed-backs were considered—one betweenthe biological system and powerplants based on the stock of zebramussels, and one between the powerplants and the manager based on themanager’s expectations over the plantbehavior. For both loops, the deci-sion maker’s beliefs about invasionsare central. In the absence of the linkbetween the biological system andpower plants, a plant behaves as if itsactions cause no change in the bio-logical system. The consequencesdepend on whether there is an inva-sion in the initial period, andwhether the power plant acknowl-edges the presence of the invader. Forexample, with no initial invasion, thepower plant neither controls noradapts, and as the biological systemchanges, the power plant either usestoo few or too many inputs relativeto the optimal baseline. In turn, out-put correspondingly either under- orover-shoots its targeted level; eitherway this results in opportunity costlosses from production shortages orsurplus, determined ex-post.

The second dimension is thefeedback between the resource man-ager and power plant. Removing thefeedback causes the manager to act asif the power plant does not respondto changes. For example, following asuccessful invasion, the managerignores the private control actions ofthe power plant. This has direct wel-fare consequences as resources maynot be allocated efficiently, but themagnitude of the consequencedepends on the actual response of thepower plant. The results suggest thatfeedbacks can matter for this case—but not in every dimension and invarying degrees. Both biological and

economic consequences of notaddressing feedbacks are sensitive tothe initial environment, behavioralperceptions about the state of theenvironment, and the completenessof the manager’s beliefs.

iii. Leafy spurgeFinnoff et al. (2006) developed anintegrated model of a grazing landecosystem and cattle ranching. Theecosystem consists of native grasses,leafy spurge (an invader noxious tocattle and wildlife), and cheatgrass(another invader). This model con-siders the stocks of each plant andcattle. Plants in these three species areassumed to behave as if they are max-imizing their photosynthetic energyintake minus energy lost to respira-tion. To photosynthesize, they growgreen biomass that provides themaccess to light; however, the plantsare competitors for space. Over timeone species eventually will win thecompetition by driving out the othertwo.

The results show that withouthumans, the native grasses are mostlikely to win. When humans enterand introduce cattle to the grazingecosystem, the native grasses areplaced at a competitive disadvantage,and leafy spurge generally becomesdominant depending on grazingintensity. The model illustrates theimportance of accounting for grazingdecisions when forecasting the fur-ther spread of leafy spurge.

If integration is worthwhile, how deep should it go?Integrating ecological detail into eco-nomic models raises many issues ondifferent levels. The fundamentalissue is deciding how deep the inte-gration should go within andbetween the economic and ecologicalsystems. The tradition in economics


is to represent ecological systems as atechnical constraint, usually in theform of population growth for a sin-gle or aggregate species. The influ-ence of all other species and othercomponents of the ecological systemare represented by a fixed carryingcapacity. If the policies prescribed bythese models do not impact othercomponents of the ecological system,this representation may be appropri-ate. But if the policies do impactother components of the ecologicalsystem, the system can be “bumped”to different results with unintendedconsequences (Crocker & Tschirhart,1992). Models not addressing theseother components may miss impor-tant linkages between humans andnature and provide misguided policyprescriptions.

Deciding just how deep to digwithin and between the economic

and ecological systems depends onthe number of contact pointsbetween the systems and the indirecteffects within the systems. For caseswith one or two points of contact, ashallow, or abridged form of integra-tion might suffice. But in cases withmultiple contacts or important indi-rect effects, a deep integration is nec-essary. But in doing so it is necessaryto make other simplifying assump-tions. Such deeply integrated modelsmay not be more realistic if the feed-back loop or other representations donot conform accurately to reality.Addressing the challenge of addingmore realism and being forced tosolve a problem computationallyrather than analytically requires oneto work with a solid theoreticalframework that guides the depth ofintegration.

We illustrate the depth of integra-tion challenge by using an examplebased on Finnoff and Tschirhart(2005) that examines the Alaskaneconomy and a marine ecosystemcomprising Alaska's Aleutian Islands(AI) and the Eastern Bering Sea(EBS). Figure 1 shows the ecosystemand economic interactions and illus-trates the thirteen key ecologicaldescriptors and the feedback loops.The economy consists of Alaskanhouseholds and producing sectorslinked to one another and the rest ofthe world through commodity andfactor markets. All species in the foodweb are linked through predator-preyrelationships and several species pro-vide inputs to economic production.The prominent groundfish of the sys-tem, pollock, support a substantialfishery, and marine mammals includ-ing Steller sea lions (an endangered

Figure 1. Bering Sea web of life.


species), killer whales, blue whales,sperm whales, northern fur seals andsea otters. All of these species providenon-use inputs to the state’s recre-ation sector. For a policy issue, wefocus on the endangered Steller sealion recovery via alternative pollockharvest quotas.

The first level of analysis is tounderstand the behavior of the actorsin Figure 1. Economists study thebehavior of individual consumersand producers. Consumer behaviorhas people within the household sec-tor box making choices over combi-nations of goods and services. In Fig-ure 1 this is a focus. Producerbehavior is likewise captured by indi-vidual firms within the fish harvest-ing sector box choosing both theiroptimal mix of inputs and their opti-mal output level. Alternative quotalevels are interpreted as changes inthe prices faced by the households orproducers. Similarly, ecologists studythe behavior of individual animals;they would consider an individualpollock’s optimal foraging behavior,and how foraging changes impactpollock populations as depictedwithin the pollock box. The alterna-tive quotas would be interpreted aschanges in the pollock populations.

The next level of analysis is tointegrate all economic and ecologicalagents directly affected by pollockquotas through a bioeconomic har-vesting model. In the economic sys-tem, individual consumer demandsfor pollock are aggregated to derivemarket demand, required for produc-ers’ decisions. Producer supplies arein part determined by the availabilityof pollock, which is derived from theaggregation of individual pollockbehavior and population dynamics.Therefore, this level requires integra-tion across the household, fish har-vester, and pollock components.Linking these three components

allows the derivation of marketdemand and pollock supply, whichallows an assessment of how alterna-tive quota policies impact the wholesystem.

But this level of integration isinsufficient if we are interested inhow the repercussions of the policiesimpact all of Alaska. In this case,deepening the analysis a further stepwithin the economic system is neces-sary to include the other producingsectors of the Alaskan economy (rec-reation and composite goods in Fig-ure 1), all other household demands,and trade flows into and out of theregion. A complication arises, how-ever, because the recreation industrydepends on the marine mammals.Still further depth of integration isneeded to increase depth within theecosystem to account for the preda-tor-prey relationship shown in Figure1.

Finally, another level of integra-tion is needed with nonmarket valua-tion. Nonmarket valuation involvesassessing the total values (e.g., exist-ence values) associated with scenariosof reduced human and environmen-tal damages posed by some invasivespecies so we can better understandthe net benefits of policy. The idea isthat valuation work needs integrationmodels to develop credible valuationscenarios. In turn, integration modelsneed the parameters as defined byvaluation work to capture the fullrange of benefits associated with theweb of life. For instance, in the Yel-lowstone Lake case, Settle andShogren (2006) integrated a valua-tion experiment within their bioeco-nomic model. They developed theYellowstone Interactive Survey to askpeople to value alternative scenariosdesigned to inform their integratedmodel. They determined the valuefor seeing/catching each species andused these estimates to parameterize

the value to see/catch each species inmeasuring the visitor’s welfare fromYellowstone National Park. The dis-quieting result that people preferredfixing the roads to protecting thenative cutthroat trout emergeddirectly from this integration. Bothvaluation and bioeconomic modelingcan likely be more relevant for policyif the scenarios people are asked tovalue are valid and if the scenarioscreated were informed by valuesstated by actual people. There aregains from joint production of valuesand feedback loops between eco-nomic and ecological systems.

Concluding Comments Over the years, traditional bioeco-nomic modeling has improved envi-ronmental and natural resource deci-sion making. Today researchers areexploring the next level of integrationby expanding the number of feed-back loops within and between sys-tems and by making a better link tononmarket valuation work. Thismessage applies in general to naturalresource economics and in particularto invasive species economics. Theopen question is how to determinethe appropriate level of integrationfor the problem at hand? Is a tradi-tional damage function approach suf-ficient? Does a one or two state vari-able optimal control model provideenough guidance, or do we requirean even deeper integration betweenand within disciplines that may onlybe solved computationally? Address-ing these questions requires one tojudge a method based on results, notby preconceived methodologicalprinciples. Our decisions on thedepth of integration in invasive spe-cies economics should evolve fromour experience about what works andwhat does not work.


For More InformationBrock, W., & Xepapadeas, A. (2002).

Optimal ecosystem management when species compete for limit-ing resources. Journal of Environ-mental Economics and Management, 44, 189-220.

Crocker, T., & Tschirhart, T. (1992). Ecosystems, externalities, and economies, Environmental and Resource Economics, 2, 551-567.

Finnoff, D., Shogren, J.F., Leung, B., & Lodge, D. (2005). The impor-tance of bioeconomic feedback in invasive species management. Ecological Economics, 52, 367-381.

Finnoff, D., & Tschirhart, J. (2005). Linking dynamic economic and ecological general equilibrium

models. Working Paper, Univer-sity of Wyoming.

Finnoff, D., Strong, A., & Tschirhart, J. (2006). Preventing the spread of multiple herbaceous invaders across rangeland. Work-ing Paper, University of Wyo-ming.

Perrings, C., & Williamson, M., eds. (2000). The Economics of Biologi-cal Invasions. Northampton, MA: Edward Elgar Publishing, Inc.

Pimentel, D., Lach, L., Zuniga. R., & Morrison, D. (2000). Environ-mental and economic costs of non-indigenous species in the U.S. Paper. BioScience, 50, 53-67.

Settle, C. & Shogren, J. (2006). Does the integration of biology and economics matter for policy? The case of Yellowstone Lake. Topics

in Economic Analysis and Policy 6(1), Article 9. Available online: http://www.bepress.com/bejeap/topics/vol6/iss1/art9.

David Finnoff ([email protected]) isAssistant Professor, Department ofEconomics and Finance, Universityof Wyoming, Laramie, WY. ChadSettle ([email protected]) isAssociate Professor, Department ofEconomics, University of Tulsa,Tulsa, OK. Jason Shogren ([email protected]) is the Stroock Distin-guished Professor and JohnTschirhart ([email protected]) is Pro-fessor, both at the University of Wyo-ming, Laramie, WY. The authorsthank the Economic Research Service(USDA), National Science Founda-tion, and the Environmental Protec-tion Agency for funding support.




3rd Quarter 2006 • 21(3)


Overview: The Future ofAnimal Agriculture in North AmericaWalter J. Armbruster, Steve A. Halbrook, Mary M. Thompson, Guest Editors

Animal agriculture in North America is undergoing sig-nificant change. As new products are developed to meetchanging consumer preferences, new production systemsare being put in place to reduce costs, and contracts areincreasingly replacing open markets and redefining rela-tionships among stakeholders in the system. Technologicaldevelopments have increased productivity and efficiency atthe producer level, and in processing, distribution systemsand marketing. Participants throughout the animal agri-culture supply chain, from genetics to retail to food serviceoutlets, are adjusting to ongoing changes which bringopportunities but also controversy and challenges.

The issues arising from the various factors impactinganimal agriculture go beyond matters of supply anddemand, cost of production and transportation, and othereconomic factors. They include the structure of basic insti-tutions, customs of trade and social factors that underliethe production, distribution, transformation, sale and con-sumption of animal products. These articles reflect theshifting forces of change, anticipate some of the directionand impacts, and identify options that will allow farmersand ranchers, meat processors, food retailers, policy mak-ers, and consumers to make more informed decisionsabout the future.

Farm Foundation led an 18-month project–The Futureof Animal Agriculture in North America. The goal was todevelop a comprehensive, objective overview of the rangeof issues that will shape the industry over the next decade.This partnership of industry, government agencies, aca-demics and nongovernment organizations explored theopportunities and challenges facing North America’s live-stock sector, the driving forces behind them, and theirpotential consequences. Funding for this effort was pro-vided by industry, government agencies and foundationsthroughout North America.

The final report was released in April 2006 and isavailable on the Farm Foundation Web page, www.farm-foundation.org. It was organized around seven WorkingGroups headed by academic experts and composed ofindustry, government, nonprofit and academic leaders.More than 150 individuals from Canada, Mexico and theUnited States actively participated in the development ofthe Working Group reports. The objective was to give allstakeholders a clear understanding of the current state ofthe industry, a glimpse into the future, ideas for changeand their potential consequences, and an inventory ofissues that need further research, industry actions or gov-ernment policy.

These articles have been prepared by leaders of theWorking Groups. The authors have drawn heavily, but notnecessarily exclusively, on the Farm Foundation report.

In the first article, we identify a number of cross-cut-ting issues that will affect the future of animal agriculturein North America. These are topics on which we need to

Articles in this Theme:Overview: The Future of Animal Agriculture in

North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153

The Future of Animal Agriculture in North America. . . . . .155

Economics of Animal Agriculture Production, Processingand Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159

Consumer Issues and Demand. . . . . . . . . . . . . . . . . . . . . . . .165

The Global Competitiveness of the North AmericanLivestock Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .171

Environmental Issues in Animal Agriculture . . . . . . . . . . . .177

Community and Labor Issues in Animal Agriculture . . . . .183

Policies to Protect Food Safety and Animal Health . . . . . .189

Animal Welfare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .195


know more to understand the long-run competitiveness of the animalagriculture industry in North Amer-ica.

Boehlje’s analysis of the econom-ics of production, processing andmarketing summarizes implicationsof consumer demand, cost drivers,changes in market structure and gov-ernment policy, and regulation forcompetitiveness in the North Ameri-can livestock industry over the nextdecade. This leads to some criticalfuture challenges and opportunitiesthat merit further analysis andresearch.

Jensen addresses consumer de-mand and the related forces drivingchanges in animal agriculture. Devel-opments in the production, process-ing, and distribution system aredesigned to meet evolving consumerdemands worldwide. She looks athow these trends from both sides ofthe market may play out. The paperalso examines some policy optionsfor helping shape the future competi-tiveness of the industry in NorthAmerica.

Rosson et al. look at global com-petitiveness and trade in the livestockeconomy, including a significantincrease in market integration amongthe three NAFTA countries. Various

segments of the animal agricultureindustry are affected by differentforces. To improve efficiency of theNorth American animal agriculture,harmonization of policies, programs,and regulations across NAFTA coun-tries will be required.

Abdalla and Lawton address envi-ronmental issues in animal agricul-ture associated with new technologiesand restructuring of the productionand marketing system. Resulting pri-vate disputes and public issues con-cerning animal agriculture and theenvironment are leading to new costsand benefits. To resolve the complexissues involved requires increasedunderstanding and involvement byall stakeholders.

Goldsmith and Martin look atcommunity and labor issues in ani-mal agriculture, finding them to besignificant but very diverse. The ani-mal agriculture processing industryhas shifted from urban to rural loca-tions and relies on substantial num-bers of immigrants from Latin Amer-ica to provide labor. The authorslook at community and socialimpacts, explore some future options,and emphasize the need for animalprocessors to partner with the com-munities in which they locate.

Goodwin et al. address policies toprotect food safety and animalhealth, noting that these issues areclosely related, yet in some cases,require separate strategies. Theauthors identify a number of possiblepolicy measures and their implica-tions for assuring sound food safetyand animal disease prevention sys-tems to keep North American animalagriculture prosperous and competi-tive.

Blandford addresses the increas-ing role of animal welfare issues inwealthy countries. There are increas-ing initiatives in states, as well in theU.S. Congress, to pass animal welfarebills. Many of the practices beingquestioned are associated with animalconfinement, and there is increasinginterest in developing voluntary stan-dards within the industry. Theauthor considers economic impactsof various approaches and identifiessome options for the future.

Walter J. Armbruster ([email protected]) is President, Steve A.Halbrook ([email protected]) is Vice President, and MaryM. Thompson ([email protected]) is Communications Direc-tor, Farm Foundation, Oak Brook,IL.




3rd Quarter 2006 • 21(3)


The Future of Animal Agriculture in North AmericaSteve A. Halbrook, Walter J. Armbruster, and Mary M. Thompson


Animal agriculture in North America constantly adaptsto changes in markets in order to remain competitive forthe future. New products are developed to meet changingconsumer preferences. New production systems reducecosts. Private contract arrangements replace open marketbids in public arenas and redefine the relationships amongthe stakeholders in the system. Technological develop-ments increase farm-level productivity, processing effi-ciency, distribution systems, and marketing. Every facet ofthe animal food chain—from genetics to retail and foodservice outlets—is facing rapid change, accompanied bycontroversy and challenges.

Exploring opportunities in this environment requiresgoing beyond matters of supply and demand, cost of pro-duction and transportation to examine basic institutions,customs of trade, law, and social factors, which underliethe production, distribution, transformation, and sale andconsumption of animal products.

Farm Foundation recently completed a comprehensiveanalysis, The Future of Animal Agriculture in North Amer-ica. The report examined the opportunities and challengesfacing the livestock sector, the driving forces behind them,and the potential consequences of those forces over thelong term in the United States, Canada, and Mexico. Thefocus of this analysis was on major animal segments of theNorth American food system—beef, pork, dairy, andpoultry.

The report proposed key policy alternatives and busi-ness strategies for change and analyzed the potentialimpacts on key stakeholders. It identified gaps in knowl-edge, identifying potential research and policy questionsfor the future. The objective was to give all stakeholders aclear understanding of the current state of the industry, aglimpse into the future, ideas for change and their poten-

tial consequences, and an inventory of issues that need fur-ther research, industry actions, or government policy.

This analysis was unique in that it resulted from apartnership between Farm Foundation, government agen-cies, industry groups, other nonprofit organizations andfoundations, and the academic community. More than150 individuals from Canada, Mexico, and the UnitedStates actively participated in the development of thisreport. The project was divided into seven WorkingGroups, which are the basis for the reports that follow.

Farm Foundation’s Future of Animal Agriculture inNorth America project identified a number of cross-cuttingthemes, strategies, and policy issues, as well as areas wherethe knowledge base is thin or nonexistent.

Markets, Structure, and CompetitionTraditional open bid commodity markets for animals arefading in importance, but there will always be competitionamong different value chains offering a variety of productsto consumers. The sale barn with multiple buyers and sell-ers is rapidly disappearing and most animals are marketedthrough contracts, cooperatives and a variety of arrange-ments that link production with processing and retailingof final products. Cooperatives play a key role in dairy.

Current production technologies and marketingarrangements have significant economies of scale thatencourage large units for production and processing ofbeef, pork, poultry and milk. The result is that productionunits are getting larger across the board. Fewer large firmsdominate the animal-processing industry in North Amer-ica. While small, traditional production units are still amajor factor in Mexico, the number of large-scale produc-tion units similar to those in Canada and the United Statesis growing rapidly in dairy, swine, and poultry.


This economic environmentchallenges small- and mid-size pro-ducers. But opportunities do exist,and others are evolving. Because dif-ferent consumers place different val-ues on various product attributes,there will be markets for animalproducts with specific characteristicsfor which consumers are willing topay premiums. For example, demandfor niche-market products like certi-fied organic products is growing rap-idly. Many small- and mid-size pro-ducers can flourish if they are able toposition themselves to competitivelyprovide products that command pre-mium prices in the marketplace.

The North American animalagriculture industry also faces com-petitive challenges from other worldproducers and processors, in part dueto the transferability of technologiesand increasing worldwide demandfor animal products. This has impli-cations for trade, labor, and the envi-ronment.

What we need to know about thefuture of markets, structure, andcompetition in animal agricultureincludes: Who receives the valuefrom technological and businessmanagement innovations such assupply chains and traceability sys-tems? How is this value distributedamong producers, processors, retail-ers and consumers? Are there betterways to identify relationships amongparties in these systems? What are thelong-term impacts of increasedenergy production from corn, otheranimal feeds, and animal waste onanimal agriculture? To better under-stand the competitiveness of theNorth American livestock industry, acomparative analysis is needed of thecost of producing and processing var-ious animal products in differentgeographic locales in the world. Thisanalysis must use a standardizedmethodology to measure costs and

analyze potential value of both com-modity products, as well as higher-valued differentiated products.

Value in Integrated MarketsThere is economic value in an inte-grated North American market foranimal products. The dairy industryremains protected to differentdegrees in all three countries, and theCanadian poultry industry remainsprotected. But, there is significantevidence that NAFTA benefited thebeef and swine industries in all threecountries. Open borders allowed theindustries to specialize with live ani-mals, carcasses and processed prod-ucts moving back and forth across allborders. The disruptions caused bythe closing of the U.S.-Canadianborder because of BSE demonstratedthe degree of market integration inthe cattle sector that had developedin recent years. While some parts ofthe livestock industry benefited fromthe border closing, the North Ameri-can industry as a whole lost. Institu-tional mechanisms are needed toreopen borders quickly to preventlong-term economic disruptions.

What we need to know about thefuture of integrated markets includes:What are the true costs of border dis-ruptions? Who benefits and wholoses because of these disruptions?Have the “temporary” BSE-relatedborder closings permanently alteredanimal trade flows in North America?

Increasing DemandDemand for animal protein dependsprimarily on income and populationgrowth. Predicted increases inincome in developing countries, par-ticularly in Asia and Latin America,will increase global demand for ani-mal products during the next genera-tion. In high-income regions likeNorth America and Europe, consum-

ers are demanding animal productswith specific characteristics related tonutrition and health concerns andspecific production practices. Asnoted previously, demand for organicproducts is growing rapidly.

What we need to know about thefuture of demand includes: Whatreally influences consumer purchasesof meat and animal products? Howdo consumers react to health andfood safety concerns and to concernsabout animal welfare? What are theeconomic impacts of consolidation inthe food processing and food retail-ing sectors, especially impacts onfarmers and on consumer choice?

Environmental Regulation and LitigationEnvironmental regulations can be asignificant cost factor for the industryand will likely be a major factor infuture investment decisions by theindustry. While predictions of a “raceto the bottom” are made, the increas-ing variability of regulation fromlocation to location will impact deci-sions concerning the location offuture animal production and pro-cessing units. Differences in environ-mental regulation across countries,states, and provinces are problematicfor animal agriculture. Broadermulti-jurisdictional regulatoryapproaches may represent an oppor-tunity for more efficient environ-mental management and lowerindustry costs.

Litigation related to environmen-tal issues is a growing problem in theUnited States. While litigation is asymptom, not a cause of conflict,continued litigation can be expectedunless there is meaningful legalreform that provides the industrywith some “safe harbor” legal param-eters in exchange for assuminggreater responsibility for environ-


mental concerns. Litigation or legis-lative outcomes must provide legalrights and responsibilities that bal-ance business practices with environ-mental concerns to resolve the issues.In the environmental arena, uncer-tainty is a greater problem than thelevel or type of environmental regula-tion.

What we need to know about thefuture of environmental regulationincludes: What are the costs and ben-efits of various regulatory systems?What are the impacts of regulationon different size operations? Whatare the public health impacts of pos-sible pathogens in air emissions fromanimal production facilities? How dowe best measure the level of patho-gens and their impacts?

Immigration and LaborMany segments of animal agricul-ture in the United States and Canadadepend on a foreign-born labor force.In the United States, many of theseworkers are from rural Mexico orCentral America and are undocu-mented. The legal uncertainty associ-ated with this undocumented workforce has consequences for the work-ers and the companies for which theywork. Workers may not receive fulllegal protections and may be reluc-tant to complain about working con-ditions. Employers are vulnerable toa variety of legal sanctions and riskthe loss of a significant portion oftheir work force if immigration lawsare strictly enforced. This legaluncertainty creates a “cost” that canbe mitigated with revised govern-ment policies.

What we need to know about thefuture of labor and immigrationincludes: What are the labor marketneeds for animal agriculture? Howwill specific immigration reform leg-islation impact the industry?

Animal Identification and Traceability SystemsAnimal identification and traceabilitysystems have a key role to play in thefuture of the North American animalagriculture industry. Whether theunderlying issue is animal health,food safety, animal welfare, processassurance, or quality attributes, ani-mal identification and traceability arenecessary. Canada is well ahead of theUnited States and Mexico on thisissue. Identification and traceabilitysystems will emerge rapidly duringthe next few years to enhance theindustry’s ability to respond to natu-ral and intentional disease outbreaks,improve food safety, and provideassurances of food quality and whole-someness. Some elements of thesesystems will be developed and man-aged by government, other parts maybe purely private, and some elementsmay require public/private partner-ships.

What we need to know about thefuture of animal identification andtraceability includes: How couldinformation generated by traceabil-ity systems be utilized to developrisk-management strategies to mini-mize impacts of animal disease out-breaks?

Community ImpactsThere are no simple answers to thecomplex issues facing rural commu-nities affected by animal agriculture.The issues are multi-faceted and linkproducers, processors, retailers, con-sumers, and the people living andworking near farms and processingfacilities. Reaching workable solu-tions requires patience, partnerships,information, and clear communica-tion. Solutions may require the coop-eration of industry and multiple lev-els of government.

What we need to know about thefuture of community impactsincludes: What are the economic andsocial consequences of alternativeregulatory systems for making siting/zoning decisions about animal pro-duction and processing facilities?What incentives or regulations can beinstituted to encourage cooperationamong industry, government, thepublic, and the various elements ofthe food supply chain? What are theactual economic multiplier effects ofanimal agriculture production andprocessing facilities on rural commu-nities?

Shaping the FutureWhile it remains competitive in theworld market, the North Americananimal agriculture industry faces sig-nificant challenges and opportuni-ties. This series of articles offers acomprehensive look at the opportu-nities and challenges facing animalagriculture in North America today.How industry, government, and aca-demia use the information compiledhere will help shape the future of thisindustry in North America andaround the globe.

For More InformationFarm Foundation.(2006). The future

of animal agriculture in North America. Available online: http://www.farmfoundation.org/projects/04-32ReportTranslations.htm. Oak Brook, IL.

Steve A. Halbrook ([email protected]) is Vice President, WalterJ. Armbruster ([email protected]) is President, and Mary M.Thompson ([email protected]) is Communications Direc-tor, Farm Foundation, Oak Brook,IL.




3rd Quarter 2006 • 21(3)


Economics of Animal Agriculture Production, Processing and MarketingMichael D. Boehlje


The North American livestock industry (beef, pork, dairyand poultry) has and continues to undergo major struc-tural change due to rapid evolution in product characteris-tics, worldwide production and consumption patterns,technology, size of operation, and geographic location.Production, once dominated by independent, family-based, small-scale firms, is now led by larger firms that aretightly aligned across the production and distributionchain, as evidenced for U.S. pork production in Figure 1and U.S. beef production in Table 1. Slaughter of livestockis also increasingly dominated by larger firms, as indicatedfor the United States in Table 2.

Contracts, vertical integration and other types of mar-keting arrangements are increasingly important acrossnearly every market level—from input supply and seedstock to finished food product markets, as reflected forU.S. pork in Figure 2. Niche markets for differentiatedproducts that may command a premium from some con-sumers are growing. Similar trends characterize the Cana-dian and, to a lesser extent, the Mexican livestock industry.As the industry has become more industrialized, special-ized and managerially intense, production and processingplant location options have expanded beyond traditionalproduction regions, with increased emphasis on globalsourcing and selling.

There is great diversity in how livestock is produced inNorth America and the world, but common themes areemerging. As in North America, many countries are expe-riencing major structural changes in their production sec-tors, and environmental concerns in production are nearlyuniversal. Technology adoption is rapid, and a “worldstandard” is evolving to greater commonality of technol-ogy, size of production units, processing and quality, par-ticularly in the case of pork and poultry. This is less so for

68

10 139

139

19

59

0

10

20

30

40

50

60

70

80

<5,000 5,001-10,000

10,000-50,000

50,000+

Annual marketings

Mar

ket s

hare

19912003

Figure 1. Change in market share by pork producer sizefor 1991 and 2003.Source: Boessen, Lawrence and Grimes, 2004 Pork Industry Structure Study, June-July, 2004.

0%10%20%30%40%50%60%70%80%90%

100%

1994 1996 1998 2000 2002 2004 2006

Figure 2. Percent of hogs sold under contract or verticalintegration.Source:1994 and 1997 studies by University of Missouri, Pork Magazine, PIC, DeKalb Choice Genetics, National Pork Producers Council, Land O’Lakes. 1999-2006 studies by University of Missouri, NPPC, National Pork Board. 2002-06 USDA/AMS data.


beef, in large part because of its reli-ance on forage. Differences do existacross species and parts of the worldthat differentiate competing suppliersof animal proteins.

This article draws on a muchlonger report, The Future of AnimalAgriculture in North America (FarmFoundation, 2006). It summarizesthe implications of the fundamentalforces of consumer demand, costdrivers, changes in market structure,and government policy and regula-tion for the competitiveness of theNorth American livestock industryduring the next decade. Initialemphasis is on the expected futurethat would result from no majorchanges in public policy or privatesector business strategies. Then alter-native futures are described whichwould require public sector interven-tion or new private sector initiatives.Finally, some of the critical futurechallenges and opportunities areidentified and discussed.

The Expected Future The trend to fewer and larger live-stock and poultry production, pro-cessing and marketing firms isexpected to continue. The economiesof scale in production and processingare significant and will drive largerscale optimal size of the facility, aswell as the firms. Firm-level econo-mies will be captured through effec-tive supply chain management thatimproves cost efficiency and control,food safety and quality, and the abil-ity to respond to consumer demands.

Quality concerns will also drivemore systematic, micro-managedproduction and distribution pro-cesses to reduce product variability,and improve conformance with qual-ity standards and consumer expecta-tions of uniform product attributes.Technology, including genomics,nutritional advances, RFID andother tracing systems, will providenew efficiences and information tobetter manage the system. Concernsabout food safety and a drive to qual-ified suppliers and traceback willincrease pressures for and payoffs of

tighter coordination along the pro-duction and distribution chain.

Successful small and mid-sizedproducers face serious survival chal-lenges in determining how they fitinto integrated supply chain struc-tures. Higher revenue may be possi-ble in value-added niche marketswhere consumers pay high enoughpremiums for differentiated prod-ucts to offset the increased cost ofproducing, processing and distribut-ing in small quantities. Small andmid-sized producers may be able tocapture the market access and costadvantages of larger producers byjoining a network or alliance that actslike a large producer. Both theseoptions require a high level of coop-eration and interdependence amongproducers.

The larger scale processing plantsthat will continue to be the normrequire significant capital outlays andadequate supplies of live animals forefficient operations. Producers andtheir lenders are not expected toinvest in production capacity if accessis not assured to processing plantsthat can pay competitively for prod-ucts. This interdependence will resultin development of production-pro-cessing centers and supporting infra-structure as the optimal strategy forgrowth and expansion in the indus-try. The geographic location of suchexpansion will continue to be influ-enced by economics of scale andscope and the logistics of bringingfeedstuffs to livestock and shippinglivestock products to retailers. Butcapital and technology are increas-ingly mobile, and global livestockfirms that locate production-process-ing capacity in different countrieswill increasingly dominate the indus-try. The implication is that the NorthAmerican livestock industry will faceeven more competition in the future.

Table 1. Cattle marketings by size of feedlot.

Head

2004 2005

% of Annual Slaughter

<1000 14.7 14.0

1-16,000 33.7 16.2

16-24,000 9.0 8.6

24-32,000 9.0 9.2

32-50,000 16.7 26.2

50,000 or greater 16.9 25.8

Source: USDA Cattle on Feed, NASS, February 2006.

Table 2. Four (4) firm concentration ratio for cattle, sheep, and hog slaughter.

1980 1990 2000 2004

% of Annual Slaughter

Cattle 28.4 58.6 69.6 70.9

Sheep 55.9 70.2 69.8 66.9

Hogs 33.6 40.3 57.1 61.3

Source: USDA, Packers and Stockyards Statistical Report, G1PSA SR-06-01, February 2006.


Alternative FuturesAlternative futures for the NorthAmerican livestock industry include: • changed global cost competitive-

ness resulting from regulatoryreform;

• greater emphasis on differentiatedanimal protein products, ratherthan commodity production anddistribution; and

• less concentrated, smaller firms,independent, open-market coor-dination, and more diversifiedproduction/distribution systems.

Regulatory Reform. Regulatory reformmight include added restrictions onbusiness models such as contract pro-duction or vertical integration, morerestrictive immigration policies orworker safety rules, increased envi-ronmental regulation, or restrictionson use of feed ingredients/additives –all of which would generally increasecosts for the North American live-stock industry. Regulations can createbenefits, as well as costs. For exam-ple, increased inspection, individualanimal identification and other mea-sures to monitor animal health andfood safety will likely increase costs,but are increasingly critical to main-tain and expand foreign marketaccess. In general, regulatory reformthat limits economic activity and/orincreases private-sector costs will bedisadvantageous to small-scale firms;decrease the innovation and adapt-ability of the industry to a changingbusiness climate; discourage the pri-vate sector from investing andexpanding; and undermine theindustry’s global competitivenessunless other countries or localesadopt similar regulations.

Differentiated Product Focus. Consum-ers have diverse preferences. Manyaffluent consumers are demandingextrinsic food attributes above and

beyond food safety or federal gradingstandards. These attributes includeanimal welfare, organic, socialresponsibility, environmental respon-sibility, free-range production,locally-grown, and no use of antibi-otics, synthetic growth hormones, orgenetically modified organisms.Many of these differentiated produc-tion practices increase productioncosts relative to traditional commer-cial production methods. Differenti-ated markets and different pricing/product valuation structures are nec-essary to encourage such productionpractices.

In general, differentiated productor process markets originate as nichemarkets. These are generally smallmarkets meeting particular consumerdemands. Success in developingniche markets may provide market-based opportunities for some, but isunlikely to accommodate a largenumber of growers. Public supportfor the development and implemen-tation of certification and verificationprograms (i.e., USDA Organic andPVP) may provide the necessaryinfrastructure. Niche markets mayoffer growth opportunities for inde-pendent, small producers and proces-sors; however, at some volume ormargin, these markets will likelyattract investment from large-scaleoperators.

Maintaining Open Markets and IndustryDiversity. There are concerns thatmarketing agreements, contracts andsimilar business arrangements aremore conducive to larger operations;reduce spot market liquidity; reducethe availability of market informationneeded for efficient price discovery;and adversely affect smaller opera-tions. The substantial horizontal con-tracting growth in hog production,for example, suggests contacts enablelarge production operations to get

larger. However, numerous other fac-tors contribute to horizontal (as wellas vertical) integration in livestockproduction, including profits thatattract external capital, and advancesin genetics, health, nutrition andproduction management thatincrease economies of scale.

Contracting has enabled manysmaller operations to remain viableby focusing on production andallowing integrators to provide ser-vices, capital, and risk management.For small and modest-sized opera-tions, networking with other produc-ers in a cooperative or other form ofalliance is one way to increase com-petitiveness; increase access to mar-kets and market premiums; andaccess high-quality genetics and otherinputs, including genetics and betterinformation and management skills.Public-sector interventions that limitbusiness arrangements or size wouldmake it difficult to capture the effi-ciency and other benefits of thesebusiness strategies.

A key argument for public-sectorinterventions is concern aboutmonopoly or monopsony power inthe livestock industry value chains.Assessments of market power in theU.S. livestock industry have generallybeen inconclusive, or indicate limitedimpacts. If the structural changes arethe documented result of marketpower or similar behavior, aggressivepursuit of remedies under anti-trustor other regulations is appropriate.

There is a compelling argumentthat consolidation and vertical coor-dination in the livestock industry aredriven by fundamental economicforces. Government regulations orinterventions to recreate a smallerscale, independent firm, diversifiedlivestock industry are likely to beineffective unless carefully craftedand quite restrictive. If effective, theobjectives or anticipated benefits of


consolidation and coordination willnot be achieved, undermining theglobal competitiveness of the NorthAmerican livestock industry.

Future Challenges and OpportunitiesWe identify here some key issues thatwill impact the global competitive-ness of the North American livestockindustry and merit further analysisand research.

Coordination and Value Chain Structures.Development of value chain coordi-nation strategies and systems is acostly, time-consuming endeavor,requiring considerable cooperationamong vertical partners and custom-ers. More information is neededregarding attributes of effective coor-dination strategies; anticipated cus-tomer demands; and implications ofvarious forms of vertical coordinationstrategies on economic efficiency,competitiveness, market access, andrisk shifting.

Source Verification, Identity Preserva-tion and Food Traceability Systems. It iscritical to better understand the ben-efits, costs and functionality of foodproduct traceability and identitypreservation systems. In the absenceof government edicts, economics willdictate the type of traceability systemused in each segment of each indus-try. Developing technology continuesto reduce costs and increase the tech-nical feasibility of enhancing infor-mation collection and product andanimal tracking. Increased assess-ment of market implications of gov-ernment mandated vs. market-drivenanimal and/or meat product trace-ability systems is needed.

New Markets/Niche Markets. The scopeof niche and highly differentiatedmarkets for meat products is yet

uncertain. Understanding consum-ers’ willingness to pay for extrinsicattributes is critical to assess theimplications of differentiated prod-uct markets on the competitive posi-tion and growth opportunities forNorth American producers and pro-cessors.

Regulatory Costs. The significant imp-act that regulatory costs have on costcompetitiveness, relative to size offirm and location, is essential tounderstanding the global competi-tiveness of the North American live-stock industry. Uniform regulationsare not size-neutral because it is gen-erally less costly per unit of outputfor larger firms to comply than it isfor small firms. Different regulationsin various communities or localeswill differentially impact costs.Empirical estimates of regulatorycosts by size and geographic locationare generally unavailable; furtherwork is clearly needed.

Cross Border Animal/Product Movement.Border disruptions in the NorthAmerican animal and animal productmarkets change margins, and thushave an impact on investment loca-tion, production levels and trade pat-terns. Such changes are frequentlymore permanent than temporary.Reopening borders is a lengthy andcomplicated process, even when thefoundation for international agree-ment is science-based. New rules andplanning for such disease-relatedevents are important to facilitaterapid restoration of trade, efficientinvestment decisions, and greater cer-tainty in returns.

Energy Costs and Ethanol Production.Rising energy costs will have a signif-icant impact on the North Americanlivestock industry. Higher energycosts increase costs of livestock pro-

duction, but also increase the value ofmanure as a fertilizer source. Energyfrom manure may be feasible.Another unknown is what will hap-pen to corn prices and net feed costsas ethanol production increases. Thepotential for distiller’s grains as acompetitively priced and effectivefeed ingredient is substantial. Trans-portation costs for grain, distiller’sgrain and ethanol will be importantfactors impacting the location ofboth energy plants and the animalagriculture industry.

A Final CommentNorth America enjoys highly effi-cient livestock production systemsthat have adapted and evolved tomeet changing conditions. Newproducts are available to meet chang-ing consumer preferences. New pro-duction systems reduce costs. Con-tracts are replacing open markets andredefining the relationships amongthe stakeholders in the system. Tech-nological developments increasefarm-level productivity, processingefficiency, distribution systems andmarketing. Every facet of the animalfood chain—from genetics to retailand food services outlets—is adjust-ing to the rapid pace of change. TheNorth American animal agricultureindustry remains competitive todayin the world market, but the compet-itive pressures will increase with theevolution of increasingly global live-stock production, processing andmarketing firms and systems.

For More InformationDickinson, D.L., & Bailey, D.

(2002). Meat traceability: Are U.S. consumers willing to pay for it? Journal of Agricultural and Resource Economics, 27, 348-364.

Farm Foundation. (2006). The future of animal agriculture in North


America. Available Online: http://www.farmfoundation.org/projects/04-32ReportTranslations.htm. Oak Brook, IL.

Grimes, G., & Plain, R. (2005, Janu-ary). U.S. Hog Marketing Con-tract Study. Department of Agricultural Economics Working Paper No. AEWP 2005-01, Uni-versity of Missouri. Available online: http://agebb.mis-souri.edu/mkt/vertstud05.htm.

Herath, D.P., Weersink, A.J., & Car-pentier, C.L. (2005). Spatial and temporal changes in the U.S. hog, dairy, and fed-cattle sectors, 1975-2000. Review of Agricul-tural Economics, 27(1), 49-69.

Lawrence, J.D., & Hayenga, M. (2002, June). The U.S. pork and beef sectors: Divergent organiza-tional patterns, paradoxes and conflicts. In J.H. Trienekens and S.W.F. Omta (Eds.), pp. 512-521. Paradoxes in Food Chains and Networks, Proceedings of the

Fifth International Conference on Chain and Network Manage-ment in Agribusiness and the Food Industry. Noordwijk, The Netherlands: Wageningen Aca-demic Publishers.

Ochoa, V., & Zahniser, S. (2003). The Mexican hog industry: Mov-ing Beyond 2003. Paper prepared for the Policy Disputes Informa-tion Consortium’s Ninth Agricul-tural and Food Policy Workshop Farm Policy Developments and Tensions with NAFTA, Montreal, Quebec.

Purdue University Cooperative Extension. (1997). Food System 21. Purdue University Coopera-tive Extension. Available online: http://www.agecon.purdue.edu/cab/research/articles/FS%2021%20 Hog_Pork%20Sector.pdf.

Schroeder, T.C., & Kovanda, J. (2003). Beef alliances: Motiva-tions, extent, and future pros-pects. The Veterinary Clinics of

North America Food Animal Prac-tice, 19, 397-417.

Sutton, A.L., Kephart, K.B., Verste-gen, M.W.A., Canh, T.T., & Hobbs, P.F. (1999). Potential for reduction of odorous compounds in swine manure through diet modification. Journal of Animal Science, 77, 430-439.

Tonsor, G.T., & Schroeder, T.C. (2005). Livestock Identification: Lessons for the U.S. Beef Indus-try from the Australian System. Working Paper, Department of Agricultural Economics, Kansas State University, Manhattan, KS.

Michael D. Boehlje ([email protected]) is Professor, Department ofAgricultural Economics, Purdue Uni-versity, West Lafayette, IN. Theauthor wishes to thank Mike Duffy,Joseph Molnar, Janet Perry, WarrenPreston, Ted Schroeder, Alan Sutton,and Doug Hedley for their assistancein the drafting of the original reportfrom which this synopsis was devel-oped.




3rd Quarter 2006 • 21(3)


Consumer Issues and DemandHelen H. Jensen

JEL Classification: D12, F13

Consumers worldwide are driving changes in animalagriculture. Rising consumer income, changing demo-graphics and lifestyles, and shifting preferences due to newinformation about the links between diet and health allcontribute to new demands for foods. At the same time,technological changes in production, processing and dis-tribution, structural change and growth in large-scaleretailing, and expansion of trade worldwide have contrib-uted to a rapidly changing market for food products.Changes in demand for meat and other animal productsreflect these developments.

Current SituationPopulation growth in North America and the rest of theworld is a major factor that drives demand for livestockand meat products. Population growth is expected to slowduring the next 15 years (Table 1). Although in-migrationand increased ethnic diversity have reduced the generalslowdown of population growth in Canada and the UnitedStates, with slower natural population growth, futuredemand for North American food products will increas-ingly come from other parts of the world.

In addition to population growth, household incomeis also an important determinant of the amount and typesof foods purchased. Higher income allows consumers tospend more on food and have greater discretion in spend-ing, especially on such preferred foods as animal proteinsources and specialized food products. On average, U.S.consumers spend only about 10% of disposable personalincome on food; Canadian consumers spend approxi-mately 14% of personal disposable income on food; and inMexico, consumers spend an average 27% of total expen-ditures on food.

In general, higher income consumers have diets thatare more varied and have a higher share of protein fromanimal sources. Higher income also leads to increased

demand for other food attributes, such as variety, addedfood preparation and convenience, and intrinsic character-istics of the product, such as taste and how the food wasproduced and processed. Although per capita consump-tion of meat in Canada has remained relatively stable since1990, consumption in the United States has increased byabout 12% (Figure 1). The largest share of meat is fromred meat sources. In contrast, consumption of meat inMexico has increased more than 50% since 1990, andconsumption of poultry has increased in importance (Fig-ure 1). Demand for small-serving muscle cuts is the com-mon preference in industrialized, urban regions. In con-trast, demand for roasts, legs and quarters, especially ofsheep and lamb, is strong by consumers with more timeand less income available to purchase more processed mus-cle cuts. The global nature of the food market todayexpands market opportunities and allows markets to takeadvantage of consumers’ varied preferences for meat cuts.

Major changes are occurring in retail markets. Twentyyears ago, traditional groceries in the United States repre-sented 90% of at-home food purchases; today, they repre-sent less than 70%. Wal-Mart is the largest food retailer inboth the United States and Mexico. In Canada, increasedconsolidation and concentration in retail food markets has

Table 1. 2005 Population and recent and projected growth.

2005 Population Million 1990-2005 (%) 2005-2020 (%)

NA 438 19 14

Europe 728 1 -2

Africa 906 43 36

Asia 3905 23 17

SA 561 27 19

Oceania 33 24 18

Source: Population Division of the Department of Economic and Social Affairs of the United Nations.


meant that the large retailers controla larger share of retail sales than inthe United States or in Mexico. Theincreased power of nontraditionalgrocery retailers, combined with con-sumer preference for convenience,easy-to-handle, prepackaged meatand other food products, haveresulted in low-cost, nearly-identical-quality products available to all cus-tomers. In addition, the food serviceindustry has increasingly demandedprepackaged products and cuts tosubstitute for costly labor input atthe service end.

Food retailing through the food-away-from-home category has alsogrown to meet the needs of higherincome and time-starved consumersin North America who demand moreconvenience with their meals. In theUnited States, nearly 50% of foodexpenditures today are for food eatenaway from home; in Canada theshare of food expenditures spent onmeals away from home has risen to34% today (USDA-ERS, 2005;Zafiriou, 2005). In Mexico, con-sumption of traditional foods, suchas tacos and tortas, has declined, andconsumption from fast-food places

has risen, especially in the rapidlygrowing urban areas.

Although the major change inretailing has been the dominance oflarge retail giants in the food retailingindustry, new segmentation of theretail market is reflected in smallretail units becoming an increasinglyvigorous segment of the food retailmarket. Specialty stores, Internet-based markets, smaller-sized retailmarkets, and direct marketing meth-ods for meats have strengthened thepresence of this niche market seg-ment of food retailing. Organics havebecome one of the fastest growingsegments of the food market and,although organic meat and poultryhave lagged behind in other areas,organic dairy and eggs are sold widelyin conventional markets.

Forces and Drivers of ChangeSeveral major trends affect consump-tion of animal products and areworth noting.

Income. As income levels increase,consumers buy more food andchange the form and quality of foodthey purchase. The entry of women

into the labor force contributes to therise in consumer income. Consumersdevote less time and effort to foodpreparation and reallocate spendingaway from raw food products tofoods that are easy to prepare, requirelittle preparation, and are convenientto eat.

Rising Obesity Rates. Prosperity,increased amounts of food, and lessphysical activity involved in workhave contributed to the major dietaryand health challenge today: obesity.Over 30% of adults in the UnitedStates, 14% in Canada, and 24% inMexico are obese. Although theproblem, and likely solutions, arevery complex, the health problem hasled new dietary guidelines, nutritionand health policies to focus on guid-ance that includes encouragement toconsume fruits and vegetables,increase variety in the diet, increasewhole grain consumption, and uselow-fat dairy products. Other recom-mendations are to limit fats, espe-cially saturated fats and transfats.The recommendations and relatedpolicies are likely to affect theamount and type of animal productsconsumed.

Population Growth and Changing Demo-graphics. With a slowdown in popula-tion growth and aging of the popula-tion, aggregate demand for food isslowing in North America and otherdeveloped countries. Increased labormarket participation of women hasbrought significant social and eco-nomic change and reduced theamount of time women have avail-able in households for meal prepara-tion. More than 60% of women arein the labor force in the United Statesand Canada today, and time-use sur-veys estimate that the averageamount of time that meal preparersspend in food preparation and

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Figure 1. Meat consumption in Canada, Mexico, and the U.S. (1990–2005).Source: USDA Foreign Agricultural Service (Production, supply & distribution data -- PS&D data). Note: Poultry is in RTC (ready to cook equivalent).


cleanup during a week is less thanone hour a day (Zafiriou, 2005; Sta-tistics Canada, 1999; U.S. Depart-ment of Labor-Bureau of Labor Sta-tistics, 2005). Consumers continueto look for ways to cut time in foodand meal preparation. In Mexico,traditional homemade corn tortillashave given way to commercially pro-cessed corn tortillas. Roasts andbroiler chickens have been replacedby steaks, ground beef, and chickenbreasts.

During the next two decades,population growth in the UnitedStates and Canada will be stronglyinfluenced by immigration. Thegrowth of more ethnically diversepopulations in the United States andCanada will result in new demandfor different types of meat, includinglamb and goat, and introducechanges in the types of foods andfood preparations consumedthroughout the population both athome and away from home.

Changing Food Markets and Foods.Increased consolidation and concen-tration in retail food markets andchanges in food distribution channelsmean retail food stores are larger,offer more variety and services, andare open more hours. At the sametime, retail chains exert increasingcontrol in the market, especially inCanada where the five largest super-market chains have 90% of super-market sales (Conference Board ofCanada, 2005).

While the retail shopping experi-ence seems to be losing its diversity,there is some evidence of an increasein market segmentation across a vari-ety of products. In many markets,though primarily in metropolitanareas, there is growth in specialtystores for breads, coffees and deliitems. Farmers’ markets, which offerfruits, vegetables, and some animal-

sourced products, meet the prefer-ences of some consumers for localsuppliers, organic foods, or otherfresh products.

Technological innovations, aswell as improved information andtransportation technologies, have sig-nificantly changed the way food isproduced, processed, transported,and delivered to consumers. Buyersare now associated with large retailfood networks, where reputation,quality, and delivery are importantattributes of the transactions. Larger,more coordinated systems enablefood retailers to track food inputsthrough supply networks anddemand products with more specificattributes. In such systems, retailerand brand name are often used toassure consumers of attributes thatare difficult to observe or measure.

Fundamental attributes that driveconsumer demand for animal prod-ucts are that the foods are safe andprovide nutrition, taste good, providevariety in the diet, are convenient,and contribute to good health. Ingeneral, consumers in both theUnited States and Canada are confi-dent in the safety of their own coun-try’s food supply. Changes in retailfood marketing are likely to lead to amore diverse market for animal prod-ucts. Growing populations andincomes in developing economieswill increase demand for safe, whole-some, and affordable animal proteinproducts. Developed economies withhigher, but still rising, incomes areexpected to fuel demand for nichemarket products that are producedand marketed to deliver specificattributes for the consumer.

ImplicationsWhere will these forces take NorthAmerican animal agriculture?

1. Food safety will continue to be a para-mount consumer expectation. Whilebeing relatively uninformed abouthow safe food is produced, consum-ers are intolerant of food safety fail-ures. Regulation and product pro-cessing and packaging will continueto evolve to provide more guaranteesof food safety. For many consumers,information on and the ability totrace product attributes (product andprocess) will substitute for food safetyin product selection, leading to awider variety of food safety/qualityindicators—from home-grown, localfarm, or animal welfare-friendly tocontracted international suppliers.Although consumers in the UnitedStates and Canada have relativelyhigh expectations for the safety ofproducts and generally considerdomestic production to be safe, Mex-ican consumers, especially those withless income, are less sensitized toissues of food product safety andchoose animal products primarily onthe basis of price. This may changewith continued growth of supermar-kets, greater control on marketingchannels, and standardized inspec-tion services (TIF), especially if thepricing differences in markets beginto narrow.

2. As North American incomes continue toincrease, consumers will choose productson the basis of varied attributes, includ-ing taste, variety and convenience. Ani-mal-sourced food product and pro-cess attributes have become veryimportant for North American con-sumers. Though consumers may notbe familiar with production methods,higher income consumers are likelyto choose products on the basis ofattributes related to production pro-cess, such as natural, organic or “fam-ily-farm,” associating that processwith product quality. Productionmethods, especially at the producerlevel, have become a shortcut for


consumers to high-quality attributesand safe food products. However,despite relatively high incomes andeducation levels, U.S. and Canadianconsumers still demand low-pricedfood.

Labeling is an important tool tocommunicate product attributes,including food safety. To someextent, increased use of labels reflectsthe public’s interest in informedchoice regarding complex, and some-times controversial, new agriculturaltechnologies and the growing marketfor imported foods. Informing con-sumers may be a complicated andcostly task. If labels provide largeamounts of product information, orwhen the information is complex orrequires understanding of nutri-tional and other science-based rela-tionships, consumers may not befully informed. Complex food ingre-dients or processes would requireconsumers to become more sophisti-cated in understanding product com-parisons.

3. Continued concentration of large-scaleprocessing, food distribution and retail-ing may reduce consumer choice in mar-kets. Today’s producers and proces-sors are well-equipped to meet con-sumers’ demand for quality, low-price food. Transnational firms havebeen growing and have advantagesfor providing lower costs and stan-dard food quality sourced fromaround the globe. Large retailers willoffer a variety of foods, though theirmarket power presents the potentialto restrict consumer choices andincrease prices. Some newer retailers,such as Whole Foods and Wild Oats,have increased market share by offer-ing alternative products to some—often high-end—consumer seg-ments. In some markets, large firmswill dominate food retailing and fooddistribution. At the same time, it is

important to recognize that not allstores will be larger stores; small pro-ducers and retailers may serve specificmarkets, especially in urban areas.Where smaller store formats exist, thestores may be owned by large retail-ers, raising the potential for lack ofcompetition in food markets.

Policy OptionsThere are four options for addressingthe challenges facing the NorthAmerican animal agriculture industryrelative to consumer issues anddemand.

1. Make product standards and certifica-tion programs more uniform across NorthAmerica. Food safety is a public goodacross national borders. As produc-tion, processing, and distribution sys-tems for animal-sourced foodsbecome more integrated, food safetyproblems in one country can quicklypose problems in another country.One approach is to strengthen gov-ernmental regulation and publicinvolvement in setting product stan-dards, mandating testing, certifica-tion, and process control. Harmoni-zation of standards across NorthAmerica would enable firms withinthe three nations to operate on a levelplaying field with greater markettransparency and maintain credibilitywithin the integrated food systems.At the same time, increased govern-mental regulation imposes costs anddoes not allow firms the flexibility todevelop their own food safety sys-tems.

Alternatively, the growth ofstrong retailing chains can supportprivate systems for food safety andquality control through internalmechanisms, e.g., vertically inte-grated food supply chains or privatemechanisms such as brand names,contracting arrangements, animalidentification and tracking systems.

New technologies have allowed morerapid measurement of productattributes (e.g., fat content, drug resi-due) allowing the buyer to specifyattributes of interest and bettermatch consumers’ tastes. It is impor-tant to recognize consumer prefer-ences for food products are differentin the three countries. Mexican con-sumers prefer animal cuts and prod-ucts that differ from those preferredin Canada and the United States.Trade that takes advantage of differ-ences in consumer preferences islikely to benefit consumers in allthree countries.

2. Enhance the ability of consumers toobtain information on products and makeuse of labeling information. There isincreased competition in providingvarious product and process foodattributes, but consumers may notunderstand the attributes. Lack of orimperfect information leads to mar-kets that do not work well and con-sumers who may lose confidence andtrust in the quality of the food sys-tem. A challenge is to present a largeamount of information, both inquantity and variety, to consumers informs they can understand. Thisincludes information on health andnutrition attributes, food handlingand warnings, and product attributessuch as country of origin. New meth-ods and technologies (e.g., electronicinformation in the retail store envi-ronment) may provide alternatives totraditional media for educating con-sumers and allow highly motivatedconsumers to move from summaryinformation on the label to morecomplete information availablethrough the internet, for example.Although much of the information isregulated through federal agencies,private companies and brands alsohave incentives to promote desiredfood attributes through labels and


advertising. Public agencies mayserve the role of deciding what typeof information to provide to the gen-eral consumer.

3. Educate consumers about productionagriculture. Consumers have becomedistant from production agriculture.Lack of information can lead to con-sumer misconceptions about produc-tion methods and techniques. At thesame time, production agriculture isunder increasing scrutiny from con-sumer groups. Both sources maythreaten continued growth in animalproduct consumption and perpetuatelack of understanding about issuessurrounding production agriculture.Educating consumers about com-mercial agriculture and enhancingthe public’s knowledge and awarenessof food production methods mayhave long-term benefits in maintain-ing consumer confidence and growthin demand for animal food products.

The challenge is to use effectivemethods for communicating aboutthe increasing scientific complexityof food production and processing,and to help consumers in makingchoices concerning more complexissues regarding nutritional contentand health when there is scientificuncertainty.

4. Promote a competitive retail and dis-tribution environment. Different foodretailing environments exist withinthe North American market. Thedominance of four or five large firmscharacterizes both the Canadian andU.S. markets, and nontraditionalretailers are having a significant effecton retailing. This type of environ-ment provides increased consumerproduct choice at low prices; how-ever, it may reduce consumer choiceover other products (or cuts) thatmay serve smaller consumer seg-ments. In some markets, the presenceof large merchandisers co-exists with

smaller, niche segments. In othercases, the presence of large firms maylimit the ability of smaller marketsegments, such as specialty meat mar-kets with store-based operations, tosurvive. Some suggest that govern-ments be more aggressive in prevent-ing concentration in food retailing topreserve consumer choice. However,it is not clear that government actionwould actually result in more choicethan is produced by an industry inrapid transition.

In addition to weighing policyoptions, there are continuing needsfor information to allow informedpolicy choices. In an increasinglycompetitive and global environment,do consumers benefit or lose withconsolidation of retailing? Consolida-tion among food retailers is relativelyhigh in Canada and the United Statesand is increasing in Mexico. Yet,compared to other nonfood indus-tries, concentration is not very high.Can smaller niche markets co-exist inthe current retail environment, andunder what conditions?

Many consumers have indicated awillingness to change eating habits toreduce weight, but so far the effortshave been relatively short-lived.What are the most effectiveapproaches to reining in weight gain?How can long-term gains be madethat meet consumers’ preferences forvariety, as well as food that is safe,tastes good, is convenient and meetsmore limited calorie requirements?Understanding how consumersobtain and process information is amajor challenge. What will improvethe consumer’s ability to balance newinformation and conflicting messagesfrom many different sources aboutcomplex scientific information?

For More InformationAgriculture and Agri-Food Canada.

(2005, September). An overview

of the Canadian agriculture and agri-food sector. Available online: http://www.agr.gc.ca/cb/apf/pdf/bg_con_overvu_e.pdf.

Conference Board of Canada. (2005, Spring). Canada’s retail trade industry: Industrial outlook. Can-ada: The Conference Board of Canada. ISSN 1713-7594.

Farm Foundation (2006). The future of animal agriculture in North America. Available online: http://www.farmfoundation.org. Oak Brook, IL.

Statistics Canada. (1999). Overview of the time use of Canadians in 1998, Catalog No. 12F0080XIE. Ottawa, Canada.

U.S. Department of Agriculture - Economic Research Service (USDA-ERS). (2005). ERS Briefing Room on food cpi, prices and expenditures. Available online: http://ers.usda.gov/Brief-ing/CPIFoodAndExpenditures/.

U.S. Department of Labor-Bureau of Labor Statistics. (2005). Ameri-can time use survey – 2004 results announced by BLS. Available online: http://www.bls.gov/tus/home.htm#news.

Zafiriou, M. (2005, May). Food retailing in Canada: Trends, dynamics and consequences. Agri-culture and Agri-Food Canada. Paper presented at the Pacific Economic Cooperation Meet-ings, Pacific Food Systems Out-look. Kunming, China.

Helen H. Jensen ([email protected]) is Professor, Department of Eco-nomics, Iowa State University, Ames,IA. I would like to thank JenniferGrannis, Wendy Umberger, andMargaret Zafiriou for their contribu-tions and suggestions on the materialpresented here.




3rd Quarter 2006 • 21(3)


The Global Competitiveness of the North American Livestock IndustryFlynn J. Adcock, Darren Hudson, Parr Rosson, Harold M. Harris, and Cary W. Herndon

JEL Classification: F14, Q17

North American animal agriculture has undergone dra-matic changes during the past two decades. Among themost important is the increased degree of market integra-tion among all three NAFTA countries. Prices and tradeflows are increasingly impacted by events, policies, andforces outside the continent. Global animal product mar-kets are consumer-driven with product safety, wholesome-ness, quality, and price being key determinants of interna-tional competitiveness. Processors, retailers, and foodservice corporations are expanding and integrating thisglobal market, bringing efficiency and lower-cost food toboth developed and developing countries around theworld.

This article draws on a much longer report, The Futureof Animal Agriculture in North America (Farm Foundation,2006). Sources for figures and charts cited can be found inthat report.

Three key global forces will shape the future of NorthAmerican animal and product trade: animal disease out-breaks and discoveries, income growth in developing econ-omies, and trade liberalization. Impacts of disease out-breaks, such as high-pathogenic avian influenza, havecertainly disrupted trade in poultry meat and could havelonger term consequences affecting consumption in somecountries. Diseases such as bovine spongiform encephalopa-thy (BSE) may cause structural change in the industry.Consumer income growth in the United States and otherdeveloped countries has slowed, as has the growth rate inconsumption of most animal products. In developingcountries, however, there is a strong linkage betweenincreased demand for animal proteins and consumerincome growth. Expanded trade can also result from mul-tilateral trade negotiations in the World Trade Organiza-tion (WTO) that reduce the effects of trade-distorting

domestic policies used by developed countries, and resultin much lower tariffs in developing countries and moreconsistently applied and science-based sanitary and phy-tosanitary (SPS) product standards.

North America is both a leading exporter and importerof animal products. The European Union (EU) is a largerexporter, but most of that trade is intra-EU. While Canadaand the United States are important markets for eachother’s animal products, they also compete for export mar-kets. Brazil is a rapidly growing export competitor in poul-try, but competes less directly in beef and pork. China andRussia have significant potential as export customers, butinconsistent SPS regulations and policies have impededthe development of these markets.

Worldwide, demand for North American animal prod-ucts is likely to continue to grow if consumer incomes riseand trade barriers are lowered. Meanwhile, both govern-ments and the private sector face increasing pressure toassure consumers of product safety and quality. Marketinstitutions, such as the World Organization for AnimalHealth, that help harmonize SPS regulations, may lessenthe confusion about trading rules and facilitate more tradeopportunities.

Beef and Beef Cattle TradeAmong the most significant trends in the North Americancattle industry during the past 25 years has been thegrowth of the Canadian and Mexican cattle and beef mar-kets relative to that of the United States. The period from1980 to 1985 marked the high point for the U.S. beef cat-tle inventory, relative to Canada and Mexico; the numberof U.S. cattle has trended downward ever since. Duringthat same period, Mexican and Canadian beef cattle num-bers increased.


Historically, North America hasaccounted for nearly 25% of worldbeef exports in retail weight equiva-lent, and 50% of that trade was intra-NAFTA (Figure 1). The BSE inci-dent in 2003, however, reducedNAFTA’s world beef market share to13% in 2005 and increased intra-NAFTA beef trade to 95%. Beforethe BSE case was identified in Can-ada in May 2003, 85% to 90% ofCanadian beef exports were shippedto the United States and Mexico. Fora period of months after the BSEincident, Canadian beef exports vir-tually stopped due to completeimport bans by major customers.

Primary markets for U.S. beefexports before the BSE scare wereJapan, Korea, and Mexico, account-ing for about 80% of the total, with asmaller amount going to Canada.Post-BSE, the majority of U.S. beefexports are destined for Mexico andCanada. With Japan and Koreareopening their markets to U.S. beef,there is some optimism that a largeshare of those markets will be recap-tured, but the United States is facingsignificant competition for thosemarkets from other exporters, includ-ing Australia.

North America accounted for42% of world beef imports in 2005,a level similar to that of the past fiveyears. The United States accountedfor about 81% of North Americanbeef imports in 2005, Mexico 14%,and Canada 5%. The large U.S.share is due in part to a slight rise inU.S. beef demand, lower beef sup-plies, and more imports of beef trim-mings to service the ground meat andfast-food markets.

Brazil has become a major beeftrader, with exports of 1.1 millionmetric tons (mmt) in 2004 and 1.3mmt in 2005, compared to 178thousand metric tons (tmt) in 1996.Brazil’s major export markets are the

Middle East, the EU, and Russia.Other major beef exporters includeAustralia and New Zealand, whichon average have exported a combined1.3 mmt during the past five years,mainly to the United States, Japan,Korea, Taiwan, and Canada.

Before 2004, the main competi-tor for U.S. beef in the Japanese mar-ket was Australia. U.S. exports cap-tured about 47% of the volume ofthe Japanese beef import market andAustralia 45%. U.S. beef sells at apremium because it is grain-fed beef,which is generally considered to be ofhigher quality than the predomi-nantly leaner, grass-fed Australianbeef.

The United States dominated theKorean market prior to the BSEscare, typically capturing more than65% of the market. Australia andNew Zealand have both been able toincrease beef exports to Korea follow-ing the ban on U.S. beef.

Mexico typically buys more than90% of its imported beef from theUnited States and Canada, with U.S.beef dominating. Mexico mainlyimports U.S. boneless beef, as well asabout one-third of all U.S. beef offalexports.

The United States has morerecently imported significantamounts of beef. Australia and Can-ada each typically account for 30% to40% of total imports, with NewZealand in the 20% to 30% range.U.S. beef imports have increased dueto more beef demand spurred by thelow-carbohydrate diets and the popu-larity of fast-food.

Hog and Pork TradeThe most significant North Ameri-can hog trend during the past 25years is growth in the size of theCanadian hog herd relative to that ofthe United States. The period from

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Figure 1. World beef exports.Source: Production, Supply and Demand Database, www.fas.usda.gov/psd and Eurostat.


1990 to 1995 marked the high pointfor the U.S. hog inventory whencompared to Canada and Mexico.The North American industry hasbecome more efficient in producingpigs as the sow inventory hasdeclined, while the pig crop contin-ues to increase.

In 2005, Canada exported 812tmt of pork, and the United Statesexported 907 tmt (Figure 2). About750 tmt of the 1.8 mmt in NorthAmerican pork exports were toNAFTA partners. Since 1995, morethan half of Mexico’s imports havecome from the United States andCanada. Canada’s main export mar-ket has been the United States andJapan. In 2005, the major U.S.export markets were Japan (343 tmt),Mexico (202 tmt), and Canada (113tmt). The main competition forNorth American pork in the Japanesemarket is the EU, which exportsslightly more than the United Statesor Canada. U.S. exports capturedabout 30% of the Japanese market,Canada 20%, and the EU 40%.

Following the implementation ofthe Canada-United States Free TradeAgreement (CUSFTA), Canadianexports of live hogs to the UnitedStates increased to 8.2 million headin 2005 from 1.1 million head in1989. Canada accounts for all but afew hundred head of U.S. hogimports. North American live hogtrade is more than 75% of world hogtrade. Since 1995, Canadian exportsof fed hogs to the United States havegrown to 2.9 million head from 1.1million head. Even more dramaticgrowth has occurred in U.S. importsof feeder pigs from Canada, increas-ing from 700,000 head to 5.6 millionhead over the same period. Canadianfinishing capacity is limited whencompared to advances in farrowingcapacity and efficiency. The U.S.pork industry has a comparative

advantage in hog finishing due tolower feed prices and lower transportcosts of finished hogs to slaughterfacilities. As a result, increased tradein live hogs between the UnitedStates and Canada has spurred thedevelopment of a well-integratedNorth American pork industry.

Poultry TradeNorth America accounted for 35% ofthe 63.6 mmt world poultry meatproduction in 2005, down from ahigh of 39% in 1995 (Figure 3). Themain reason for the decline in NorthAmerican global market share was a12.2 mmt increase in Chinese andBrazilian production combined.These increases are substantiallymore than the 7.7 mmt increase inpoultry meat production that NorthAmerica experienced during the sameperiod. The other leading world sup-plier is the EU, producing 9.6 mmtin 2005, up 61% from 1990. Broilermeats account for 92% of worldpoultry meat production, up from89% in 1990.

North American countriesaccounted for one-third of worldpoultry meat consumption in 2005(19.9 mmt). Chinese and EU poultrymeat consumption is balanced withproduction. North American andBrazilian production exceeds con-sumption by 2.1 mmt and 2.9 mmt,respectively.

Brazil has increased poultry meatexports by taking advantage of favor-able exchange rates, disease outbreaksin other exporting countries, sanitarynegotiations with Asian countries,and aggressive market promotion.Brazil is cost efficient in poultry pro-duction, but has limited transporta-tion infrastructure. In 2005, Braziland the United States exported 2.9mmt and 2.6 mmt of poultry meat,respectively. The United States has a36% market share of world poultrymeat exports, Brazil 40%, and theEU, excluding intra-EU trade, 11%.

Historically, the majority of U.S.poultry exports have gone to Russia,China/Hong Kong, and Mexico.While Russia and Mexico haveremained consistent markets duringthe past decade, China/Hong Kong

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began decreasing imports of U.S.poultry in 1999, when it was thelargest market for U.S. exports.Ukraine, Turkey, Cuba, Lithuania,and Japan are important poultrymeat export markets for the UnitedStates, as well.

Milk and Dairy Products TradeNorth American milk productionwas 98.1 mmt in 2005, compared tototal world output of 483.7 mmt.The United States is the world’s larg-est single country producer of cow’smilk and accounts for 82% of NorthAmerican milk output. Mexico pro-duces 10.2%, and Canada 7.9%.During the past two decades, Mexi-can milk production has increased by40%, while the output of the UnitedStates grew 23.6% and Canadadeclined 1.2%. These increases inoutput have generally come fromfewer cows, except in Mexico whereextensive dual-purpose productionsystems still predominate.

The EU makes up 75% of worlddairy trade, followed by NewZealand and Australia. Most EUdairy exports are intra-EU, with only

an estimated 16% of exports sold tonon-EU countries. North Americadairy exports totaled only 900 tmt in2004, with the United Statesaccounting for 75% of these ship-ments. U.S. dairy product exportswere shipped to a large number ofcountries, including Mexico andCanada, in 2004. After removingintra-EU dairy exports, New Zealandwas the largest single-countryexporter, with nearly 15% of theworld’s total.

North America imported only7.3% of the world’s total volume ofdairy imports in 2003. Of that, Mex-ico accounted for 48%, the UnitedStates 38%, and Canada 13%. Worlddairy product import volumes haveincreased by more than 50%, grow-ing to 75.6 mmt in 2003 from 50.0mmt in 1985. New Zealand has con-tinued to increase dairy productexports and may be reaching itscapacity to expand its dairy cattleherd. New Zealand simply may nothave enough land area to furtherincrease its dairy herd and milk out-put.

Strategies and ImplicationsSeveral strategies to increase the glo-bal competitiveness of North Ameri-can animal industries emphasize theimportance of economic growth indeveloping countries and the impor-tance of having access to those poten-tial markets. Others focus on ways tomitigate the negative impacts of ani-mal disease outbreaks. The final twostrategies emphasize the importanceof industry efficiency and the needfor regulatory consistency to enhancethe overall competitiveness of theindustry.• Consumer income growth in

developing countries may be thesingle most important factor inincreasing North American meatexports during the next decade.The long-term payoff for theindustry of policies aimed atgrowing the economies of devel-oping countries is likely to bequite high. Such policies may becontroversial since some may beaimed at improving the produc-tive capacity of agriculture in thedeveloping world as a first step inraising consumer incomes,because a large share of the popu-lation is employed in productionagriculture. This strategy workedwith four customers for NorthAmerican animal products—Japan, Korea, Mexico, and Tai-wan. However, improving agri-culture in developing countrieswill be viewed by some industryparticipants as creating competi-tors.

• Brazil, and to a lesser extent itsneighbors, is likely to remain amajor force in world animalproduct trade. Brazil, in fact, maycontinue to increase its share ofbeef and poultry markets duringthe next decade. But periodicoutbreaks of Foot-and-Mouth

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Figure 3. World broiler meat exports.Source: Production, Supply and Demand Database, www.fas.usda.gov/psd


Disease, should they occur, willlimit this potential. However, ifBrazil’s per-capita income growsfast enough, a large proportion ofits increasing production will beabsorbed internally rather thanabroad. Further, pursuit of a FreeTrade Area of the Americas(FTAA) or other regional agree-ments will give the NAFTAcountries the opportunity to inte-grate markets with Brazil, Argen-tina, Paraguay, and Uruguaywithin the MERCOSUR tradingbloc. As has been learned fromNAFTA, dealing with trade dis-putes and issues of competitionwithin an established frameworkis often more productive.

• To maintain and improve theefficiency of the North Americananimal industry, greater harmoni-zation of policies, programs, andregulations among countries isrequired. This may include, but isnot limited to, animal and planthealth, farm programs, environ-mental regulations, productsafety, and animal identificationrules. Regular meetings ofNAFTA country agricultural andfood agencies and legislative poli-cymakers to discuss regulationsand rule making may helpimprove transnational harmoni-zation, but requires a commit-ment on the part of these groupsto achieve a greater degree of pol-icy harmonization as a means toincrease efficiency of the entireNorth American industry.

• While it is important to mitigatethe real risks of animal diseases,one of the greatest potential bar-riers to international trade in ani-mal products is the perceived riskof such events. The temporaryrepercussions of short-termactions against another country’sproducts may become permanent

obstacles. Implications includethe need for adherence to science-based principles, improved trace-ability from farm or feedlot to theconsumer, and enhanced regula-tory coordination amongNAFTA countries.

• Large supplies of inexpensivefeeds creating production effi-ciencies have been a major factorin the growth of animal productexports from the United Statesand Canada. However, changesin policy as a result of WTOcommitments or budgetary pres-sures that reduce feed produc-tion incentives may serve toreduce the competitive advan-tage held by North Americathrough increased raw commod-ity prices. Increased ethanol andbio-diesel production may fur-ther increase feed costs. To offsetthis, the development of newtechnologies and increased effi-ciency are important to maintainthe competitiveness of the NorthAmerican animal agricultureindustry.

• Future growth in animal producttrade will depend on industrysuccess in creating branded/pack-aged, value-added productsbecause local processing capacityin many developing countries islimited. Tapping into these mar-kets will require creative market-ing and packaging and will retainthe value-added componentswithin North America. Toenhance the competitiveness ofthe products, government regula-tors and trade negotiators need towork closely with the food manu-facturing and food service indus-tries to assure a sound policy andregulatory framework to supportfuture trade growth.North American trade in live ani-

mals is largely intra-NAFTA, while

trade in animal products relies onmarkets outside NAFTA. The NorthAmerican livestock industry’s future,therefore, is at least partly reliant onthe competitiveness of meats and ani-mal by-products production andtrade. The extent to which the indus-try can compete globally will beshaped by the ability of the industryto mitigate the effects of animal dis-ease outbreaks and discoveries, con-sumer income growth in developingcountries, and the success of tradeliberalization efforts to open marketsand develop more consistent SPS reg-ulations with current and future trad-ing partners.

For More InformationDiakosavvas, D. (1995). How inte-

grated are world beef markets? The case of Australian and U.S. beef markets. Agricultural Eco-nomics, 12(1), 37-53.

Farm Foundation (2006). The future of animal agriculture in North America. Available online: http://www.farmfoundation.org. Oak Brook, IL.

Foreign Agricultural Service (FAS), USDA. (1995-2005). FAS Agri-cultural Attaché Reports Section. Reports for Livestock, Poultry, and Products, selected issues, 1995 to 2005. Available online: http://www.fas.usda.gov/scriptsw/attacherep/default.asp.

Hahn, W.F., Haley, M., Leuck, D., Miller, J.J., Perry, J., Taha, F., & Zahniser, S. (2005, May). Market integration of the North American animal products complex. Elec-tronic Outlook Report from the Economic Research Service, USDA. Report No. LDP-M-131-01. Available online: http://www.ers.usda.gov/Publications/ldp/may05/ldpm13101/.


Market integration of the North Amer-ican animal products complex. (2005). Available online: http://www.ers.usda.gov/publications/ldp/may05/1dpm/13101/ldpm13101.pdf.

Regmi, A., & Gehlhar, M. (2005, February). New directions in glo-bal food markets. Agriculture Information Bulletin No. AIB794. Available online: http://www.ers.usda.gov/publications/aib794/.

Rosson, C. Parr, & Adcock, F.J. (2005, July). Food chain disrup-tions and trade: The importance of North American market integra-tion. Choices, 2nd Quarter, 20(2),

149-155 (in pdf version). On-line journal of the American Agricultural Economics Associa-tion. Available online: http://www.choicesmagazine.org/2005-2/WTO/2005-2-11.htm.

Zahniser, S. (Ed.). (2005, February). NAFTA at 11: The growing inte-gration of North American agricul-ture. Electronic Outlook Report from the Economic Research Ser-vice, USDA. Report No. WRS-05-02. Available online: http://www.ers.usda.gov/briefing/nafta/mandated.htm/.

Flynn J. Adcock ([email protected]) is International Program Coor-

dinator, Texas Agricultural Experi-ment Station, Texas A&M UniversitySystem, College Station, TX. DarrenHudson ([email protected]) is Professor, Mississippi StateUniversity, Mississippi State, MS.Parr Rosson ([email protected]) isProfessor and Extension Economist,Texas Cooperative Extension, TexasA&M University System, CollegeStation, TX. Harold M. Harris([email protected]) is Professorand Agricultural Extension Econo-mist, Clemson University, Clemson,SC. Cary W. Herndon ([email protected]. edu) is Profes-sor, Mississippi State University, Mis-sissippi State, MS.




3rd Quarter 2006 • 21(3)


Environmental Issues in Animal AgricultureCharles W. Abdalla and Jennifer L. Lawton

JEL Classification: Q0, F2, Q25, Q30, R52

The evolution of animal agriculture in North America isfocusing increased attention on its impacts on water andair quality. The adoption of new technologies and the re-structuring of the food and agricultural system are generat-ing new economic and environmental impacts and influ-encing public perception about animal agriculture. Theexpansion of livestock and poultry production, particular-ly larger confined animal operations, is increasingly lead-ing to private disputes and public issues concerning agri-cultural production and the environment. These disputesare leading to new patterns of costs and benefits and, insome cases, public policies that are affecting competitive-ness of this sector. The issues and options to resolve themare complex and require increased understanding and in-volvement by all stakeholders. While new technologies toimprove environmental performance and monitorprogress will be developed, constraints on resources maylimit implementation.

This article draws on a much longer report, The Futureof Animal Agriculture in North America (Farm Foundation,2006).

Current SituationLivestock and poultry farms generate manure, bedding,milk-house wash water, spilled feed and dead animals that,if not properly managed, can impact water quality. Animalmanure and related byproducts contain elements that, un-der certain circumstances, might reach surface or groundwater and cause pollution. The location of an animal oper-ation plays a role in how pollutants may reach water andthe magnitude of environmental damage. Animal produc-tion in grain deficient regions may generate manure nitro-gen or manure phosphorus in excess of the assimilativeability of nearby land for manure application.

Air quality issues associated with confined animal op-erations are traditionally nuisance concerns, such as odors,but there is increasing focus on possible links between dustand other particulates, ammonia and hydrogen sulfidefrom animal operations and human health. Concerns in-clude the possible effects of ammonia and particulates onrespiratory systems (e.g., asthma) and prolonged exposureto odors on mental health effects (e.g., depression). Onlya relatively few studies (e.g., Thu et al., 1997; Wing &Wolf, 2000) have attempted to measure health impacts ofodors and air emissions on nearby residents.

There are scientific concerns about bioaerosols—tinyairborne particles that contain microorganisms or theirbyproducts—due to their potential for causing human andanimal disease and microbial toxins. Bioaerosols may bereleased into the air by such practices as land applicationof animal biosolids, livestock wastewater spray irrigation,livestock wastewater injection or animal pen scraping.Other sources of bioaerosols include exhausted air fromlivestock confinement buildings, high winds that carrybioaerosols from open livestock wastewater systems anddust blown from outdoor livestock pens. Much moreneeds to be known about the possible connections be-tween air emissions from animal operations and health ofrural residents. The results from scientific studies of theselinkages are likely to drive future environmental policiesfor animal agriculture in the United States.

In addition to direct emissions from cattle, the anaero-bic decomposition of manure during storage producesmethane, a greenhouse gas (GHG). GHG emissions fromfarm animals have increased during the last decades due tothe overall increase in the number of livestock and the rel-atively low rate of adoption of technology to reduce emis-sions.


Forces of Changes and Their Implications

Industry Concentration and Specializa-tion. Economic forces influence theexpansion in operations’ size andgeographic concentration of the ani-mal industries. Regional clustersform around economic advantages,such as climate, processors, transpor-tation access and costs, infrastruc-ture, and proximity to inputs. In ad-dition, industry marketing practices,such as contracting, have resulted inhigher concentration of poultry andswine production in a few geographicareas (Vukina, 2001). Expansion intoareas with existing nutrient surplusesmay exacerbate the region’s waterquality pressures and possibly otherenvironmental problems. Wherecontracting has become prevalent,producers have been responsible formanure management and dead ani-mal disposal since these activities arenot typically covered by the contract(Vukina, 2001). Thus, contractinghas raised questions about produc-ers’ ability to afford and be rewardedfor good environmental managementand what role integrators should playin helping with such managementand its costs.

Uncertainty about Human HealthImpacts. As in many other environ-mental and public health issues, tech-nology for detecting contaminants inthe environment outpaces our abilityto understand the human health im-plications. There are also emergingconcerns over possible effects of en-docrine disruptors, antibiotic resis-tance and air emissions from animalfacilities. In the United States, theEnvironmental Protection Agency(EPA) is researching emissions fromConcentrated Animal Feeding Oper-ations (CAFOs), and the transportand fate of Food and Drug Adminis-

tration-approved pharmaceuticalsused in animals. It has called for Na-tional Pollutant Discharge Elimina-tion System (NPDES) permits to in-clude best management practices(BMPs) for pathogens.

Weak Federal Leadership and/or PolicyImplementation Failures. In the Unit-ed States, the responsibility for pro-tecting the environment from the ef-fects of animal agriculture has beenshared between government levels.For example, in principal strong fed-eral oversight has existed over permit-ting CAFOs under the federal CleanWater Act since the mid 1970s. Inpractice, however, the federal leader-ship role has been slow in developingand unevenly applied across theUnited States. It was also largely in-effective in dealing with emergingwater quality problems from changesin animal industry structure and lo-cation in the last 20 years. To fill thevoid, some states and local govern-ments have developed their own wa-ter and air laws. A patchwork of statepolicies and capacities for implemen-tation now exist across the nation, re-sulting in difficulties for the industryin meeting differing rules, differencesin the competitive economic envi-ronment of states, and an incentiveto the industry to locate in stateswith less stringent environmentalpolicies. While recent proposals bythe federal government have attempt-ed to improve and update its ap-proach, they have been delayed dueto court cases. Available evidence in-dicates that Mexican environmentalrules also suffer from implementationshortcomings.

Technological Advances. New and im-proved technologies have historicallygenerated tools to mitigate environ-mental problems in the animal agri-culture industry. New treatments for

manure can help reduce the loss ofnutrients to the environment. Ani-mal-feeding strategies have been de-veloped to reduce nutrient excre-tions, emissions and odor from ma-nure. Attention is being turnedtoward economically viable uses formanure that reduce the environmen-tal impact. New methods have learn-ing and adjustment costs, as well assome risks. Without a focused strate-gy for implementing new technolo-gies, adoption may be slow.

Environmental Activism and Use of Infor-mation Technologies. Advances in in-formation technologies have allowedneighbors of proposed large animaloperations to communicate effective-ly. The Internet allows local groupsto communicate, obtain informationabout issues and legal or politicalstrategies, form alliances with groupsacross longer distances, and selecttheir own sources of information touse in discussions and debates. In theUnited States, these developmentsadd to the challenges of public policydecision-making and increase the po-tential for decision-making gridlockand delay.

Litigation. Litigation is a commonstrategy to settle disputes in the Unit-ed States, but much less so in Canadaand Mexico. Neighbors or environ-mental groups may continue to uselitigation as a strategy to force imple-mentation of regulations in the Unit-ed States. Concerns regarding litiga-tion relate to costs, delays, uncertain-ties, loss of control and loss ofrepresentation for all stakeholders.These problems may impact the sizeand number of animal operations, assmall- and mid-size farms may nothave the resources to challenge a law-suit. Increasingly, a community’s ac-ceptance of animal agriculture is akey factor in where the industry can


expand. It may also impact the com-petitiveness of regions within theUnited States. If other countries, in-cluding Canada and Mexico, do nothave these costs and uncertaintiesdue to more stable regulatory re-gimes, an incentive exists for U.S. an-imal firms to relocate.

Perceptions of Agriculture. Farmers aretraditionally viewed as good stewardsof the land and the environment, andenjoy a large amount of good willamong the public. The public maybe less tolerant of environmental andnuisance impacts of animal agricul-ture, especially larger units. Improvedscientific understanding of the im-pacts certain management practiceshave on the environment and humanhealth may change public percep-tions.

Environmental Monitoring. It is oftendifficult to attribute specific efforts offarms implementing BMPs to envi-ronmental outcomes. Measurementchallenges include time delays, influ-ences of weather, and difficultiesmeasuring and monitoring smallerand diffuse sources of pollution. Ad-vances in measurement technologyhave the potential to drasticallychange our understanding of pollu-tion sources and to create new sys-tems of accountability. Such advanceswill reduce monitoring costs andlikely make resulting information ac-cessible to watershed and/or othergroups concerned about the environ-ment. Bacterial source tracking hasbeen proposed as a method to deter-mine not only the species, but also topinpoint the specific flock, herd orcommunity causing any contamina-tion. These developments can helpinform the debate about the relativecontributions of farming or otherland uses (e.g., lawn fertilization orseptic tanks) to pollution. Increased

requirements for monitoring, alongwith decreased costs of doing so, willlikely be a major driver of environ-mental policy for animal agriculturein the future.

Resource Constraints. Resource con-straints have for some time been alimit in conservation and environ-mental programs affecting animal ag-riculture. These resources includepersonnel and funds for cost-sharing,research, technology developmentand technical assistance/education.There will be increased need for gov-ernment agencies to set priorities.There may be an increasing role forthe private sector, private-publicpartnerships, and multi-state andmulti-national programs. Regardlessof the origin of the resources, the pri-ority must be on actively seekingpractical solutions.

Uncertainty about Global Agreements,Kyoto Implementation. It is expectedthat the Canadian and Mexican ef-forts to implement the Kyoto Proto-col for reduction of GHG emissionswill continue to evolve. In Canada, acommitment exists to ensure thatpollution credits can be supplied byprojects under its offset system dur-ing at least the next eight years. Asthis system evolves, animal agricul-ture has the potential to be an impor-tant contributor by reducing itsGHG emissions. Moreover, uncer-tainty exists about the future of Ca-nadian and Mexican GHG reductionprograms because the Kyoto agree-ment period ends in 2012. However,there is potential for a continuationbeyond that date.

The Kyoto agreement on globalclimate change created a market forthe reduction of GHG emissions. If asuccessful pollution credit tradingmarket is established, there may begreater potential to reduce animal ag-

riculture emissions than to do sothrough cropland management andcarbon sinks. However, there are anumber of important obstacles to thedevelopment of trading for GHGemissions. One of the major impedi-ments is the need for the establish-ment of a regulatory limit or “cap” ontotal emissions in a particular regionor air basin. If obstacles to market-based programs can be overcome, thepotential may develop to create in-centives for producers to adopt tech-nologies and reduce overall environ-mental abatement costs.

Options for the FutureFive potential options for addressingenvironmental issues are discussedbelow. When making choices involv-ing the five options below, it is im-portant to recognize that none aloneoffer a single solution to address allenvironmental issues. The bestchoice may not be between differentoptions, but deciding on the rightmix of policy options.

Strengthen the public-sector role. Thefirst option is establishing strongerfederal, state or provincial policies toencourage responsible growth of theanimal industry in locations with lessenvironmental risk. A uniform regu-latory playing field across countries,states and provinces could reduceoverall environmental risk. This op-tion could include increasing com-mitment to implementing regulatoryand incentive programs, includingadequate funding for staff.

Expand systems research. There is aneed for more systems-oriented re-search by the public and private sec-tors on the environmental impacts ofagriculture. Increased public fundingfor this type of research would givedecision-makers better informationabout the interrelationships of envi-


ronmental/health, social, economicand legal/policy implications of ani-mal agriculture. Results could identi-fy solutions for different scales offarming and regional environmentsthat take social/behavioral factorsinto consideration. There should bean emphasis on performance-basedsolutions to assure accountability.This research should be regional, na-tional and global in scope, future-ori-ented and anticipatory of emergingchallenges, multidisciplinary, and in-clude agricultural universities, medi-cal schools, and public and privatepartnerships. There is a need for in-formation to reduce uncertainty con-cerning the relationship between ani-mal agriculture and human health.Private research, with appropriateoversight to ensure objectivity, wouldbe one way to fill this critical infor-mation gap.

Target best management practices to thehighest priority environmental concerns.This approach would target efforts toareas and farms with the greatest wa-ter or air quality problems. Sometypes of animal agriculture provide aflow of goods or services that societyvalues, including ecological servicesand possibly amenities. Paymentsfrom government to producers toprovide ecological services—knownas “green payments”—have been sug-gested as a major new direction forfarm policy. This targeted policy op-tion could utilize the green paymentsidea to integrate ecological goods andservices into agri-environmental poli-cy to reach desired broader environ-mental outcomes. Because the focusis on implementation, this optionwould use existing social and eco-nomic research knowledge on imple-mentation and adoption, includingincentive-based tools. It would re-quire improved coordination amongagencies and possibly other water or

air quality monitoring groups, anddevelopment of information systemsto assure cross-compliance with exist-ing farm programs.

Use market-like mechanisms to “get theprices right”. This option involvespublic and private cooperation to ex-plore and foster promising innovativearrangements that internalize exter-nal costs of the fair, i.e., off-farm im-pacts on neighbors, communities andthe environment. Such arrangementscould more accurately reflect the off-farm costs of animal production inmarket prices, providing incentives tobetter manage manure and animalbyproducts. Changes in governmentpolicies, such as new regulations orclarification of property rights, maybe needed to help start a market inwhich the prices of agricultural com-modities reflect true costs to the envi-ronment incurred in their produc-tion. This might provide an incen-tive for producers and processors toadopt systems that maximize profitswhile being environmentally friendly.This option could benefit from thetrend among consumers and food re-tailers to demand products that areenvironmentally friendly. Public andprivate efforts to inform producers,agribusinesses, food wholesalers andretailers, and consumers about prod-ucts produced in such a mannerwould complement such policychanges.

Legal reform. Many legal reform pro-posals have been put forward to pro-vide the industry with some certaintyor a “safe harbor.” These reform ef-forts generally fail because they areperceived as taking rights from onegroup and giving them to anotherwithout compensation or requiredaction by the industry. The crux ofthis policy approach is the need formultiple parties—industry, scientists

and the public through govern-ment—to act together. In exchangefor some protection against complexand costly litigation, the industrysupply chain would take specific re-sponsibility for the handling of ani-mal manure and other environmentalimpacts using recognized science-based methods.

A second opportunity area for le-gal reform relates to the division ofresponsibility for manure manage-ment and dead animal disposal be-tween the integrator and producer.Research indicates that the socialbenefits of greater sharing in respon-sibility of environmental manage-ment by the integrator depends onthe relative bargaining power of thetwo parties (Vukina, 2001).

SummaryThe expansion of animal productionis increasingly leading to public poli-cy issues concerning the environ-ment. The options to resolve these is-sues are complex and require under-standing and involvement by allstakeholders. While new technologiesto reduce or eliminate the environ-mental impacts of animal agriculturewill be developed, resource con-straints of government agencies orproducers may limit successful im-plementation of these technologies.

As animal agriculture evolves inNorth America, it faces new chal-lenges and opportunities. Uncertain-ty in the face of possible regulation atthe national, state/province or locallevel may hinder new developmentsor cause the industry to seek to locatein areas where environmental regula-tions are less stringent. New policiescan create financial and technicalburdens for producers and otherfirms and increase uncertainty. At thesame time, successful policies willcreate benefits to farmers, neighbors


and more broadly, those in the com-munity and society who benefit fromimproved water or air quality. It willbe necessary to address environmen-tal issues related to animal agriculturein a way which promotes stewardshipof the environment and the well-be-ing of the industry.

For More Information:Farm Foundation. (2006). The future

of animal agriculture in North America. Available online: http://www.farmfoundation.org/projects/04-

32ReportTranslations.htm. Oak Brook, IL.

Thu, K., Donham, K., Ziegenhorn, R., Reynolds, S., Thorne, P.S., Subramanian, P., Whiten, P., & Stookesberry, J. (1997). A control study of the physical and mental health of residents living near a large-scale swine operation. Jour-nal of Ag Safety and Health 3, 13-26.

Vukina, T. (2001). The relationship between contracting and livestock waste pollution. White Paper. National Center for Manure and Animal Waste Management. Raleigh, NC.

Wing, S., & Wolf. S. (2000). Inten-sive livestock operations, health, and quality of life among Eastern North Carolina residents. Envi-ron. Health Perspectives 108(3), 233-238.

Charles W. Abdalla ([email protected]) is Associate Professor, Agricul-tural and Environmental Economics,and Jennifer L. Lawton ([email protected]) is former GraduateResearch Assistant, Department ofAgricultural Economics and RuralSociology, Pennsylvania State Uni-versity, University Park, PA.




3rd Quarter 2006 • 21(3)


Community and Labor Issues inAnimal AgriculturePeter Goldsmith and Philip L. Martin

JEL Classification: Q13, R11, J61, J43, J28

Animal agriculture is undergoing fundamental change,driven by new production technologies, changing con-sumer demand, genetic improvements, new retailing pres-sures, and globalization. One significant outcome is achange in the relationship between farms and rural com-munities. Much production has shifted from independentoperators to larger production units, which are more tech-nologically advanced, using supply chains and marketingchannels to link to the economy at large. These vertically-coordinated operations largely bypass community link-ages. However, new operations may bring new resources,opportunities and economic growth to local economies.Large production or processing operations require a con-centration of workers, who may not be highly paid andmay have to be recruited from other locales. All this chal-lenges the socio-economic structure of communities wherethese enterprises are located. New economic opportunitiesmay impact the community’s autonomy, norms, tradi-tions, pace, culture, and control. These impacts include:(1) a diversification of the population that will add cul-tural richness to the area, but also increase demands onlocal government and institutions with regard to servicesfor an expanding resident population; (2) creation of newjobs, but many that will place workers at the lower tier ofthe wage structure; (3) local entrepreneurial opportunitiesthat could build on new value-added market niches; and(4) increasing possibility of conflicts arising from a differ-ent set of values associated with the changing compositionof the population, or with animal agriculture-related prac-tices.

This article draws on a much longer report, The Futureof Animal Agriculture in North America (Farm Foundation,2006). It provides a factual backdrop to the communityand labor impact question, and suggestions for researchers

and policy makers to help improve the relationshipbetween animal agriculture and their communities.

Situation and ContextThe community and labor impacts associated with live-stock and poultry production and processing are signifi-cant, but very diverse. Labor is more mobile than is indus-try infrastructure and inputs that give a particular region acomparative advantage in animal agriculture. Livestockand poultry production adds value to local resources bycreating jobs directly and indirectly as producers andworkers purchase goods and services. The local economicimpact of this industry will depend in part on the commu-nity’s ability to meet the needs of producers or processors.In some rural communities where animal production andprocessing has expanded, there are more jobs than avail-able local workers; immigrants increasingly fill these gen-erally unskilled jobs. Regions of the United States andCanada are sometimes challenged to integrate new peopleand new cultures into existing communities. Mexico,whose rural communities often supply the immigrantworkers to U.S. and Canadian companies, benefits fromthe remittances sent to families. However, the out migra-tion, and subsequent reduction of human recourses to fillthe jobs in the North, creates challenges in rural Mexico.

Over the last 20 years, four significant trends occurredin the U.S. livestock sector: growth and concentration,shifting geographic location, increasing scale, and, in meatprocessing, movement of employment to rural areas fromurban locales. The share of meat processing employees innon-metro areas rose to 60% (300,000) by 2000, from lessthan half in 1980. Rural plants are larger. Estimates arethat more than 85% of the beef, pork and chicken comesfrom large plants with more than 400 employees. Lower


land and labor costs, less stringentenvironmental restrictions, anddeclining transportation costs explainthe shift of meatpacking from urbanto rural areas.

This portends an important pol-icy issue on the horizon for policymakers and communities: the poten-tial movement of meatpacking over-seas in search of lower costs/less bur-densome regulation. In recent years,U.S. foreign direct investment in thepoultry and swine industry in LatinAmerica has been increasing. Upuntil 1990, less than 6% of globalpoultry and pork production wastraded internationally. Now almost14% of poultry and 9% of pork istraded, and the portion is increasingrapidly. The next phases of the porkand poultry industry may involve sig-nificant offshore production. Thiswould have important implicationsfor local communities currentlydependent on meatpacking and live-stock for jobs and economic activity.

The makeup of the industry’slabor supply has changed with theinclusion of a significant number ofimmigrants from Latin America. It isestimated that 10.3 million unautho-rized foreigners live in the UnitedStates, including 1.7 million childrenless than 18 years of age (Passel,2005). Fifty-seven percent comefrom Mexico and 24% from otherLatin American countries. Unautho-rized migrants represent an estimated5% of the general U.S. workforce,but account for 29% of farm, 19% offood preparation, and 27% of animalslaughter workers.

The percentage of young peopleless than 34 years of age continues torise in Mexico. These demographicconditions, combined with a rela-tively weak Mexican economy, havecreated a strong labor export marketwithin the NAFTA community. Thesizeable new supply of labor from

Mexico complements the high rate ofjob growth over the last 10 years inthe United States. The highly flexiblelabor market allows the United Statesto absorb a lot of immigration.Within the NAFTA context, it wasexpected that trade barriers wouldfall, allowing resources to be effi-ciently allocated. The labor exodusfrom Mexico though was not antici-pated because of expectations forexpanded foreign direct investmentin Mexico. Most United States policymakers had concerns about oppositejob flows, from the United States toMexico. This raises an importantpolicy question of what is pre-ferred—a well-functioning NAFTAwhere capital and labor move freely,or somehow differentiating capitalfrom labor in order to address impor-tant short-term social issues arisingfrom migration.

The situation in Canada differssignificantly from that of Mexico andthe United States. In the past 30years, immigrants have accounted fora progressively smaller share of a farmpopulation in Canada. Today, inCanadian agriculture, an immigrantis likely to be a farm operator fromthe Netherlands, Britain, Switzer-land or Germany. The number ofimmigrants moving to rural Cana-dian communities is still small inabsolute terms.

Economic Impacts In communities across North Amer-ica, the economic benefits generatedby the animal agriculture sector gobeyond producers. Communities andregions where business is conductedreceive indirect economic benefitsthrough job expansion and enhancedentrepreneurial activity to serve theindustry.

Economic multipliers reflect theeffect of changes in one sector across

a whole regional economy. Each dol-lar generated by economic activity inanimal agriculture generates addi-tional economic activity—directlythrough job creation, indirectlythrough the procurement of goodsand services, and from increases inincome and spending resulting frommore active markets. While the mag-nitude of these effects differs by sec-tor, animal agriculture has highereconomic multipliers than such sec-tors as mining, textiles, forestry orcrop agriculture (Goldsmith andIdris, 2001).

Jobs, taxes and other economicbenefits of animal agriculture arerealized beyond the local level. Glo-bal trade liberalization—includingthe inputs that supply livestock farmsand products from animal agricul-ture—opens communities to outsidecompetition, new market opportuni-ties, and greater access to newresources and input supplies. Thismay affect economic multipliers bychanging historical patterns in whichinputs are sourced locally. As U.S.businesses compete globally, theirsuppliers and the business environ-ments in which they operate mustalso be globally competitive. Thisimplies that a community seekingindustrial investment needs to assureits business environment is competi-tive with other communities aroundthe globe. For example, informationand communication technologiesand infrastructure, critical for mod-ern animal agriculture and processingbusinesses, have historically lagged inrural communities. Communitiesmay receive technological spilloversthat benefit other industries and con-sumers as they upgrade informationinfrastructure to better serve animalagriculture and processing.

Specialized support occupationsin such areas as accounting, law, vet-erinary medicine, breeding, and mar-


keting may develop clusters of exper-tise surrounding communities thatengage in new higher-technologymeat and livestock businesses. Theseclusters of expertise create benefitsfor communities that include high-income employment and additionaldemand for information and com-munication technologies and infra-structure. Entrepreneurship in theform of technical services in the areasof veterinary care, nutrition, environ-mental and human resource manage-ment, construction and mainte-nance, information management,transportation and logistics, andmarketing may add even more eco-nomic growth within the surround-ing region.

Community/Social ImpactsThe siting of large animal productionoperations can generate considerablelocal controversy at the same timeeconomic activity expands. Issues ofcontention are: potential odor prob-lems, water availability and use,manure disposal, and the desiredstructure and size of farm businesses.Common complaints are that:• recipients of economic benefits

are not local,• jobs associated with animal agri-

culture are of poor quality,• changed demographic makeup of

the workforce is problematic,• there is a negative impact on

property values,• there are negative health conse-

quences for nearby communitiesdue to changes in air and waterquality,

• there will be a deterioration ofinfrastructure, specifically roadsand bridges, and

• there will be traffic congestionand increased manure and dirt onthe roadways.

In the United States, meatpack-ing attracted newcomer immigrantswith relatively little education andsometimes few English languageskills a century ago, but the meat-packing labor force was mostly U.S.-born as recently as 1970, whenimmigration was at historic lows.Since then, immigration hasincreased sharply, and a third ofmeatpacking workers today may beforeign-born. Hispanics were 15% ofthe U.S. meat industry’s labor forcein 1990, and 35% in 2000. Thearrival of Hispanic or Asian workersquickly changes the face of rural areasthat have not experienced significantimmigration in recent years. Mostareas, especially those losing peopleand jobs, welcome new residentsbecause they buy homes and shop atlocal markets. But there are also ten-sions which accompany demographicchange.

Positive impacts on communitiesfrom an influx of immigrant workersinclude:• most workers are married, and

while not known with any cer-tainty, it is thought that increas-ing numbers of spouses are also inthe United States since crossingthe border has gotten more diffi-cult,

• a higher proportion of Hispanicor Asian men participate in theworkforce than from other popu-lation groups,

• workers do unwanted jobs thatare necessary in today’s society,

• repopulation of rural areas,• a younger workforce, and• replacement for aging baby

boomers.Potential negative issues with the

changing labor force include:• increased demand for social ser-

vice resources in the community,

• increased need for bilingualworkers in public safety, healthand other key sectors,

• more students with limitedEnglish proficiency,

• low propensity to continue edu-cation because of English being asecond language, a low educa-tion level, or limited access toeducational resources,

• increased poverty among unau-thorized migrants,

• greater demand for health care atlocal clinics and emergencyrooms,

• lack of health insurance placing astrain on limited health resourcesin rural areas,

• a higher prevalence of infectiousdisease, diabetes and maternalhealth issues,

• fiscal stress on local governmentsas increased tax income may notkeep pace with increased serviceneeds, and

• strain on local housing stock as aresult of an influx of immigrants(which at times results in immi-grants being placed in poor, over-crowded housing).

Future Options and Implications

Economic DevelopmentRural communities in North Amer-ica compete in a global environment.Provinces, states, regions and com-munities seeking investment need toassess how their location will poten-tially make animal agriculture opera-tions globally competitive. This cre-ates challenges in a world of variedwage and regulatory conditions.

Industry has a responsibility tothe community in which it does busi-ness. Industry needs to be proactiveand a responsible citizen, providingleadership in creating positive experi-ences for communities. The inabilityto create these positive community


experiences will only limit their abil-ity to site or expand.

This phenomenon, wherebycommunities oppose the siting orexpansion of livestock and meat facil-ities, is no longer unique to theUnited States. The opposition isstructural and can be found in manycommunities around the globe. Itreflects both direct concerns aboutchanges to their neighborhoods andlarger concerns about globalization,new technologies, large farms, andmultinational food companies. At itsheart, communities feel a loss of localcontrol and see rapid change in theface of these large and sometimesunfamiliar neighbors.

As a result, the industry needs tocomplement the numerous economicbenefits it brings with a set of posi-tive social impacts. Some communi-ties will always oppose the industry,but many would welcome a partnerto help them socially and economi-cally develop.

By no means inclusive, this articlehas highlighted some of the needsthat industry can help address: thepositive incorporation of immigrantsinto the fabric of the community,expansion of IT infrastructure,investment in entrepreneurial activi-ties that add value to the current ani-mal agriculture component of ruralcommunities, and expansion ofopportunities for education andtraining in order to strengthen thecommunity’s human capitalresources.

There is potential for the animalagriculture sector to use many of thetools employed in industrial sectoreconomic development:

General Tools. • Government bodies should con-

sider homogenized industrial pol-icies, so animal agriculture is notsingled out. Homogeneity of pol-

icy minimizes multiple levels ofindustry performance, improvesefficiency in regulatory oversight,and ensures equal treatmentacross industries.

• Focus on rural economic devel-opment, not just animal agricul-ture development. Localcommunities should avoid tryingto pick winners, but instead useevaluative tools and policies thatare conducive to an overallhealthy business environmentthat is attractive to a variety ofindustries and their suppliers.

• Develop industry strategies tocreate positive communityimpacts. Active communicationabout respective needs and strate-gies to address those needs is crit-ical for a healthy industry-community relationship.

• Use provincial, state or regionaleconomic development resourcesand streamline the regulatoryprocess.

• Conduct research to betterunderstand the type of contribu-tions animal agriculture and pro-cessing makes to a community.

Specific Industry Offsets. • Property tax reductions for neigh-

bors.• Service and infrastructure

improvements for the commu-nity.

• Fiduciary bonds to dissipate riskborne by communities, such asnew demands industry mightplace on water resources.

• Appropriately scaled public infra-structure investments, such asupgrading roads and bridges,increasing utility capacities, andaugmenting highway access.

• Compensation for harmed partiesfrom confined animal feedingoperation impacts as is done withother industries.

LaborLocal, regional, and national govern-ment officials need to consider main-taining immigrant worker programsthat ensure adequate labor supply tothe animal agriculture industry.Helping immigrant workers adjust toa new location and culture and help-ing communities adjust to newimmigrant populations can be advan-tageous to employers. For example,communities and industry can worktogether helping immigrants learnEnglish, navigate the social servicessystem, establish bank accounts andcredit, obtain affordable housing,and adapt schools and their curricu-lum to an English-as-a-second-lan-guage student body.

Mexico and the United States areexamining options to improve thelegal movement of workers betweenthe two countries. As workersattempt to earn a livelihood, theyneed to be able to take advantage ofwork opportunities without runningthe risk of violating the law. Potentialoptions include illegal immigrantlegalization, a guest-worker pro-gram, and exempting Mexico fromvisa quotas. The United States mightconsider a program similar to Can-ada’s Seasonal Agricultural WorkerProgram (SAWP) to address seasonalworker shortages, though seasonalityof work is not as common in the live-stock sector. At the same time, Mexi-can and U.S. officials have also dis-cussed improving conditions forunauthorized Mexicans in the UnitedStates by ensuring their humanrights, access to health care and edu-cation resources, and providingopportunities to obtain legal status(Rodriguez-Scott, 2002).

For More InformationFarm Foundation.(2006). The future

of animal agriculture in North


America. Available online: http://www.farmfoundation.org/projects/04-32ReportTranslations.htm. Oak Brook, IL.

Goldsmith, P.D., & Idris, H. (2001, November). The economic impact of Illinois’ livestock industry. Spe-cial Report # 94, College of Agri-cultural, Consumer, and Environmental Sciences, The Uni-versity of Illinois at Urbana-Champaign.

Passel, J.S. (2005). Estimates of the size and characteristics of the Undocumented Population. Avail-able online: http://pewhis-panic.org/files/reports/44.pdf.

Rodriguez-Scott, E. (2002). Patterns of Mexican migration to the United States. The 82nd annual meeting of the Southwestern Social Science Association, New Orleans, Louisiana, March 27-30.

Peter Goldsmith ([email protected]) is Associate Professorand NSRL Fellow in AgriculturalStrategy, Food and AgribusinessManagement Group, Department ofAgricultural and Consumer Econom-ics, University of Illinois Urbana, IL.Philip L. Martin ([email protected]) is Professor,Department of Agricultural andResource Economics, University ofCalifornia, Davis, Davis, CA.




3rd Quarter 2006 • 21(3)


Policies to Protect Food Safety and Animal HealthH.L. Goodwin, Jr., F. Dustan Clark, Dawn Thilmany, and Sandra J. Hamm

JEL Classification: Q16, Q17, Q18

Protecting food safety and animal health is critical formaintaining public health, consumer confidence, andprofitability of animal agriculture. Several developments inNorth American animal agriculture have an increasingimpact on food safety and animal disease risks and themethods used to manage these risks.

Demand for animal food production is increasing asworld population increases and developing countries havemore disposable income. Increased production to meetthis demand has led to more confined, concentrated andintensified systems all over the world. In North America,this intensification is regional, especially with poultry,swine and cattle feedlots. Dairies are becoming fewer andlarger and are concentrating in geographic areas not tradi-tional to dairy production. As animal production costsincrease without assurances of sector profitability, enter-prise numbers continue to decline.

Driving forces in food safety and animal health acrossNorth America include questions about feed additives,biotechnology, foodborne diseases, links between animaland human diseases, and traceability. Animal health andfood safety issues are closely related, yet in some casesrequire separate strategies. Even if there are similarities inthe approaches that address animal diseases and foodsafety, it is important to recognize that objectives anddesired outcomes are often different. Policies and practicesmeant to protect domestic food supplies and herd/flockhealth (breeding stock and egg/chick quarantines) mayserve as “trade barriers,” though they are not intended assuch.

Food Safety DimensionsFoodborne microbial pathogens, which may result inhuman illnesses, will continue to be the major focus of

food safety concerns. Estimates of the costs of human ill-nesses and costs to the food industry attributed to food-borne pathogens are well-documented (Buzby et al., 1996;Crutchfield & Allhouse, 1998; Goodwin & Shiptsova,2002; Unnevehr, 2003). Detailed treatment of this topic isbeyond the scope of this paper, the purpose of which is toraise both new and ongoing issues related to food safetyand animal health and the interface of the two. This paperdraws on a much longer report, The Future of Animal Agri-culture in North America (Farm Foundation, 2006).

Food safety and assuring consumers their food is safewill continue to be a challenge for the industry. Privatesector efforts to minimize risks of recalls and protect brandequity are part of an effective food safety strategy. The pro-cessing sectors have adopted process control strategies(Hazard Analysis and Critical Control Point or HACCP)to reduce the risks of microbial contamination duringslaughter and processing. The production sector is adopt-ing quality assurance programs to address specific productquality and food safety issues, such as measures to reducethe presence of harmful microbes in the live animal beforetransport and slaughter.

The incidences of bovine spongiform encephalopathy(BSE) and E. coli contamination have brought demandsfor adoption of traceability and quality assurance systemsto manage the animal products supply chain. The domi-nance of international food retailers has been a key factorin wide use of such systems, even when not demanded byregulations. The rapid growth of supermarkets in develop-ing countries and trade agreements are also driving foodsafety concerns.

Globalization of food trade provides greater foodchoices, but presents the potential for confusion if consis-tent standards in safety and labeling do not exist. Increased


consumer sophistication andadvanced information technologypose both a challenge and an oppor-tunity for firms and government toinform consumers and address theirconcerns. Maintaining consumerconfidence requires not only mini-mizing the risk of foodborne illness,but responding to consumer con-cerns through increased educationregarding safety of some practicesand/or labeling policies.

Animal Health DimensionsAnimal health is closely linked tofood safety and consumer confi-dence, but is also central to the prof-itability of the livestock and poultryproduction sectors, and in somecases, even national economies. Inaddition to increased productioncosts and lower revenues for farmswith a disease, trade restrictions dueto the presence of particular diseaseshave an economic impact on all pro-ducers in the industry. One cow test-ing positive for BSE in the UnitedStates resulted in the immediate lossof $3 billion in annual beef exportsfrom 2003 to 2004 (Doud, 2006).

Joint efforts between researchuniversities and public agencies havecontrolled and eradicated many ani-mal diseases through advances in vet-erinary medicine, basic research, edu-cational programs, and animalhousing. However, without vigilanceand effective surveillance systems,even eradicated diseases can return.Vigilance is also necessary to guardagainst potential terrorist attacks tothe food system.

Several developments will play animportant role in meeting the chal-lenge of protecting animal health.Animal identification and trackingsystems would potentially allowrestricted animal movement withinor between countries while control-

ling disease, thus minimizing tradedistortions. Farm-level biosecuritymeasures to reduce disease risk anddevelopments in vaccine research arealso providing new tools to lessen thethreat and impact of animal diseasesto farmers.

Globalization has increased bothexport opportunities for NorthAmerican livestock and poultry andthe risk of introducing foreign ani-mal diseases that could be economi-cally devastating to these industries.Even if the disease is not deadly andis quickly contained, its presence canhave a prolonged economic impactby disrupting exports and tradewithin North America. To protectanimal industries and consumersfrom importing disease or food safetyproblems, sanitary and phytosani-tary standards have become part ofmost trade agreements. Phytosanitarystandards can be trade distorting andprotectionist, accentuating the needfor harmonizing standards and theirenforcement within the North Amer-ican Free Trade Agreement(NAFTA).

Providing traceability of animalsthrough production, processing andmarketing is an example of interac-tions between efforts to protect bothfood safety and animal health.Advances in information technologyand improved infrastructure to traceanimal disease threats will provide avehicle to share more product infor-mation through the supply chain.Individual firms may utilize theinformation infrastructure as part ofan enhanced process control system.Advanced supply chain managementsystems also allow for traceability offood products, which facilitatesfaster, more targeted recalls whenneeded.

Policy Measures and ImplicationsAnimal health and food safety areimportant components of nationalsecurity in each of the North Ameri-can countries. They are public goodsrequiring public intervention or col-laborative industry efforts rather thanindividual producer actions (Unn-evehr, 2004). The challenge is todevelop and implement policies thatmost effectively protect a safe andsecure food supply and a competitivelivestock and poultry sector in NorthAmerica, given increasing concentra-tion and intensification of animalagriculture. Some components of acomprehensive strategy for govern-ment, business and research efforts toprotect food safety and animal healthare identified here. Many of thesewill require additional resources.There are various vehicles for financ-ing these measures that will help pro-ducers and consumers; check-off pro-grams and reallocation of existingprogram funds are one possibility.Economic pressure in the industrycould make it more difficult toobtain such funding, but increasedconcentration in the industry mightmake it easier to implement newmeasures because a smaller numberof industry decision makers controlmore of the supply. Larger firms maybe better able to cover the fixed costsassociated with protecting food safetyand animal health. Further, they havegreater incentives to provide foodsafety, given that a bad publicityevent that erodes a firm’s reputationor brand could have a significantmonetary effect. However, largerfirms may be better able to weathertemporary drops in revenue orincreased costs, somewhat reducingthis incentive.

Establish a NAFTA-wide, high-level, authoritative, and accountablecoordinating mechanism for food safety


and animal health. Animal healththreats go beyond impacts on singleprivate entities to affect the entireanimal production value chain andeven the economy as a whole, underthe right circumstances. Nationalstructures coordinated acrossNAFTA countries and appropriate toorganizational and financial con-straints faced by each could serve as afocal point for engaging and enhanc-ing partnerships among local, state,and federal agencies and the privatesector (National Research Council,2005). In the United States, severalfederal and state agencies and variousanimal and human health organiza-tion programs are responsible forfood safety and animal health policy,but there are implementation gaps,ineffective communications, and fail-ures in information sharing. The2005 report by the National Acad-emy of Sciences National ResearchCouncil says the United States needsa new high-level mechanism to coor-dinate research and informationexchange and dissemination effortson new and emerging animal-bornediseases, such as BSE, avian influ-enza, and West Nile virus.

Strengthen publicly-funded basicresearch efforts. In the United States,state and federal government agenciescould re-emphasize the practice ofsupplying formula funding on anintermediate or long-term basis tosupport ongoing basic researchefforts. The recent migration towardpredominately competitive fundingtends to emphasize hot-button issuesof an applied nature, rather than sup-porting long-term, system-wideinnovations that would address theanimal health and food safety issuesoutlined in this report. However, thisbase funding should not be suppliedat the expense of Extension and pub-lic education programs necessary to

effectively disseminate appropriateinformation.

As the risks to animal healthevolve, so must mechanisms toaddress them. To develop and imple-ment effective and efficient tools,work is needed to assess and predictthis evolution of risks, evaluate thecurrent system’s response capabili-ties, identify areas where improve-ments may be warranted, and com-municate them effectively. Attentionshould be given to risk research andassessment, as well as communicationcapacity among all stakeholders.

Develop a comprehensive NAFTA-wide diagnostic, monitoring and sur-veillance network. Such a cooperativeand functional network would multi-ply the efficacy of networks in theUnited States and Canada and estab-lish a comparable functioning net-work in Mexico. The network couldshare access to stockpiles of vaccina-tions and treatment agents for manyof the most probable and virulentdiseases and also serve as a clearinghouse for methods to limit diseasespread by effectively utilizing quaran-tine and animal disposal protocols.Past cooperative eradication pro-grams have set precedent and serve asmodels for such a network. Eradica-tion programs established jointlybetween Mexico and the UnitedStates for Foot-and-Mouth Diseaseand screw worm successfully endedthe extensive and adverse impacts ofboth animal health issues in NorthAmerica.

Enhance capabilities for rapid andwidespread information disseminationto industry and the public. Both gov-ernment and the industry wouldbenefit from fast and widespreadaccess and dissemination of informa-tion when dealing with food safety oranimal health hazards. This informa-tion is essential to retain consumerconfidence in the food system at

home and abroad. Establishment ofnational traceability systems isimportant. Increased public and pri-vate investment could help reducedisease transmission and enhancepublic and animal health. Publicawareness supported by educationand training programs is critical tofood safety and animal disease pre-vention. It may be possible todevelop training for the animal agri-culture industry, including local,regional, or national associations,which focuses on strategic and tacti-cal cooperation in the event of foodsafety, animal health, or biosecurityemergencies.

Increase government-sponsored,food-animal veterinarian positions. ANational Academy of SciencesNational Research Council reportcalls for stronger efforts to recruitmore veterinarians and other scien-tists into veterinary research, notingthat a growing shortage of veterinarypathologists, lab animal scientists andother veterinary researchers is makingit more difficult to meet mountingchallenges. These positions could becomprised of more private practicefood-animal veterinarians, more gov-ernment public health veterinarians,and more government veterinariansin research. Sufficient economicincentives attached to these positionswould increase attraction and reten-tion of qualified personnel. Food-animal veterinarians would bedirectly involved in import inspec-tions, live animal auctions, and mon-itoring concentrated animal feedingoperations.

Encourage and provide ongoingsupport for developing new scientifictools and technologies to enhance ani-mal disease prevention, detection, anddiagnosis in North America. The cur-rent animal health framework shouldevaluate, validate, and implementrapid prevention strategies to protect


the health of the nation’s animal pop-ulations. A gap in the current borderprotection system is importation orunnoticed transfer of animals pro-duced under nonstandard commer-cial conditions (exotic animals, back-yard livestock, and poultry). There isa documented lack of inspection pro-tocols and procedures involvinghealth of these animals. Animals pro-duced out of the mainstream putnational herds and flocks at riskbecause they are not integrated intothe food security network.

Establish indemnity insurance foranimal agriculture. Although thereare provisions for indemnity pay-ments to producers for animals withvalue under $3,000, there are cur-rently no government-backed insur-ance programs for animal agriculturethat parallel those for crop agricul-ture. Consequently, livestock produc-ers are subject to absorbing cata-strophic losses (destroyed animals,market loss or collapse, businessinterruptions) that may be associatedwith animal health events, particu-larly for breeding animals with valueover $3,000. Financial risk manage-ment of animal diseases is an issuethat government and industry musteffectively address in partnership toensure that effective and efficientfinancial risk management tools arein place to deal with future animaldisease outbreaks. A revised andstrengthened indemnity programcould address this issue, reducing pri-vate sector uncertainty, and thusincreasing reporting compliances andcooperation. A broader productioncertification program addressing foodsafety, animal health, and emergencymanagement could also be devel-oped.

Gain international approval forfull equivalency of food safety and ani-mal health standards for trade. Thepresent lack of consistency in inter-

national standards and their enforce-ment creates inequities in tradeamong potential partners and maywell limit trading arrangements. It isnecessary to eliminate this artificialtrade barrier so that competitivenessmay be accurately evaluated andgains from trade may be more fullyrealized. There are currently pre-scribed events and standards that sig-nal conditions for which trade inter-ruptions commence, but such signalsto recommence trade are not readilyapparent. A functioning mechanismestablishing “triggers” to allow tradeto resume once food safety and ani-mal health concerns were alleviated,could be implemented.

SummaryProtecting the safety of the food sup-ply is essential to all countries. Can-ada, Mexico, and the United Statesspend significant resources to assurethat food is safe to eat and whole-some. Animal health is closely linkedto food safety and consumer confi-dence and is also central to the profit-ability of the livestock and poultryproduction and processing sectors.The options discussed here offer arange of public-sector involvementand discretion on how to efficientlyutilize scarce government resources.Many of these options will requireincreased funding, but the benefits ofimproved protection likely outweighthe costs. Because producers and pro-cessors all benefit from reduced risks,developing funding mechanisms toshare the costs will be important.Successful financing approaches mustalso take into consideration the effectof cost pressures, consolidation, andvertical integration on incentivesfaced by both producing and process-ing firms.

For More InformationBuzby, J.C., Roberts, T., Jordan Lin,

C.-T., & McDonald, J. (1996). Bacterial foodborne disease: Medi-cal costs and productivity losses. AER-741. USDA Economic Research Service, Washington, DC.

Crutchfield, S., & Allhouse, J. (1998). The economics of improv-ing food safety. USDA Economic Research Service. National Public Policy Education Committee. Farm Foundation, Oak Brook, IL.

Doud, G., & McWright, J. (2006). 2005 beef exports – is that a light at the end of the tunnel? Available online: http://www.beef.org/uDocs/2005beefexports.pdf.

Farm Foundation. (2006). The future of animal agriculture in North America. Available online: www.farmfoundation.org/. Oak Brook, IL.

Goodwin, Jr., H.L., & Shiptsova, R. (2002). Changes in market equi-libria resulting from food safety regulation in the meat and poul-try industries. International Food and Agbusiness Management Review, 5, 61-74.

National Research Council. (2005). Animal health at the crossroads preventing, detecting and diag-nosing animal diseases. National Research Council, Committee on Assessing the Nation’s Framework for Addressing Animal Diseases Report. Washington, D.C.

Unnevehr, L. (2003). Food safety: Setting enforcement standards. Choices, 18(1). Available online: http://www.choicemagazine.org/2003-3/2003-1-03.htm.

Unnevehr, L. (2004). Mad cows and BT potatoes: Global public goods in the food system. American


Journal of Agricultural Economics, 86(5), 1159-1166.

H.L. Goodwin, Jr. ([email protected]) is Professor, and F. DustanClark ([email protected]) is Profes-

sor and DVM, Center of Excellencefor Poultry Science, University ofArkansas, Fayetteville, AR. DawnThilmany ([email protected]) is Professor, Department ofAgricultural & Resource Economics,

Colorado State University, Fort Col-lins, CO. Sandra. J. Hamm ([email protected]) is Research Specialist,Department of Agricultural Econom-ics & Agribusiness, University ofArkansas, Fayetteville, AR.




3rd Quarter 2006 • 21(3)


Animal WelfareDavid Blandford

JEL Classification: Q13, Q17, Q18

Animal agriculture in North America has undergone arevolution since World War II. Productivity has increasedenormously through the use of animal confinement,genetic selection, scientific feed formulation, and produc-tivity-enhancing pharmaceuticals. There has been a shiftto larger production units taking advantage of economiesof scale. Critics contend that these changes have reducedthe welfare or well-being of farm animals. Proponentsargue that the system reduces mortality due to predators,the weather and the risk of disease.

Farm animal welfare is an increasingly prominent issuein many wealthy countries. Concerns are expressed abouthow farm animals are kept, some management practices,and transportation and slaughter. There is increased legis-lative activity and more buyer requirements for productionand marketing practices.

This article draws on a much longer report, The Futureof Animal Agriculture in North America (Farm Foundation,2006).

Current Rules and Regulations

LegislationMuch of the legislation in North America deals with petsor companion animals, animals used for research, andthose kept by zoos or circuses. Regulations for farm ani-mals address humane slaughter and transport, but there isno comprehensive animal welfare law. A comprehensivebill was introduced in Mexico in 2004, but has not passed.

Canada has a federal law prohibiting cruelty to all ani-mals and regulations dealing with the transportation andslaughter of animals for food. Each province has its ownlegislation dealing with animal welfare, which typicallyrecognizes accepted humane production practices. Indus-try guidelines have been developed for each type of ani-mal.

The United States has federal regulations dealing withthe slaughter of livestock, but not poultry, and for thetransportation of animals. Each state has an anti-crueltystatute, but most do not target farm animals or there is anexemption for accepted farming and ranching practices.

There has been a marked increase in the number ofanimal welfare bills introduced in the U.S. Congress inrecent years. There is also much activity at the state level,although relatively few bills have been passed. Recent stateinitiatives include proposed prohibitions on the tail dock-ing of cattle and on the use of stalls for sows and vealcalves.

Codes of Practice and Third-Party AuditingCodes of practice have been developed by the animalproducts industry, particularly in Canada and the UnitedStates. In Canada, codes have been defined for all majorspecies of farm animals. The National Farm Animal CareCouncil was created in 2005. Several U.S. producergroups have introduced welfare programs, for example, theNational Pork Board for swine and the United Egg Pro-ducers (UEP) for laying hens. Both of these are voluntaryand rely on independent auditing by third parties. Thecosts are borne by the audited firms.

A major U.S. initiative has been spearheaded by theFood Marketing Institute and the National Council ofChain Restaurants. An expert advisory group developed aseries of standards for production and processing. Thefocus is on the application of objective, measurable charac-teristics that can be audited. Suppliers to the food retailingand restaurant industry can voluntarily request an audit.The results can then be made available to retailers or res-taurant chains who can determine whether their ownrequirements are being met.

Several animal welfare advocacy groups have developedwelfare schemes. The Animal Welfare Institute promotes


voluntary standards for a range offarm animals. Certification pro-grams have been developed by theAmerican Humane Association andby a consortium of animal welfareorganizations through Humane FarmAnimal Care.

Drivers of Change

Consumer and Public AttitudesU.S. surveys of public attitudes gen-erally show that there is substantialconfidence in farmers and ranchers inthe treatment of animals. However,there appears to be increasing con-cern about some practices, such ashousing systems for veal calves, andintensive confinement for pigs andpoultry.

Animal welfare issues are champi-oned by a range of interest groups.Some of their views may not bewidely shared, but the groups havebeen effective in raising the profile ofanimal welfare issues. Protection ofthe reputation and value of brandedproducts is a key concern in the foodindustry, and firms respond to publicpressures that threaten their interests.

International DevelopmentsThe European Union (EU) has beenvery active in the development ofanimal welfare standards, primarilythrough legislation. New rules willeventually result in the elimination oftraditional cage systems for layinghens, and individual pens or stalls forcalves and pigs, and may reduce thestocking density for broilers.

Key Issues for Change

Practices Being QuestionedMany of the practices being ques-tioned are associated with animalconfinement. Confinement can ben-efit animals by allowing better envi-ronmental control, but raises issues,

particularly in terms of the ability toexpress “natural behaviors.” The sizeof cages and whether these allow fornests or perches is central to thedebate on the welfare of laying hens.The issue for swine centers on stallsthat restrict the movement of sowsduring gestation or farrowing, andthe provision of bedding material,such as straw.

Some management practices,such as restricting feed for layinghens to induce molting and a subse-quent egg-laying cycle, and dietsdeficient in iron to produce whiteveal have been questioned. Otherpractices such as beak trimming andtoe clipping for poultry, and taildocking, dehorning, branding, cas-tration and early weaning for live-stock are criticized.

The length of time animals aretransported, the duration of rest peri-ods, loading densities and the han-dling of non-ambulatory animals areissues. Concerns are also expressedabout animal slaughter, particularlymethods for stunning and handling,and culling to control disease out-breaks.

Finally, a range of issues relate tolivestock breeding, particularly theimpact of genetic selection on thereproductive efficiency, health andviability of farm animals.

The Development of StandardsA central question is what constituteshumane treatment for farm animals.The answer depends partly on beliefsand values that differ across individu-als. Nevertheless, there is increasingacceptance of the Five Freedoms –freedom from hunger and thirst; dis-comfort; pain, injury, and disease;fear and distress; and any constraintson the ability to express normalbehavior – as a basis for developingobjective methods for evaluating ani-mal well-being.

Public opinion will exert a majorinfluence on the future developmentof standards in North America. Acentral issue is whether this will resultin more legislation or if the industrywill respond by developing andapplying higher standards.

Legislation versus Collective ActionThe use of mandatory standards,supported by legislation, has been theprimary approach adopted inEurope. Public attitudes and percep-tions about animal welfare are chang-ing, and the science of animal welfarecontinues to evolve. Consequently, itis difficult to develop and applydetailed legal codes for productionpractices for farm animals.

The alternative is to develop vol-untary codes which evolve as more islearned. The model that has beenadopted so far in North America—the involvement of animal welfareexperts in the development of stan-dards and the use of independentaudits—can address public concernsif those in the industry fully acceptthe process. Producers are the key toanimal welfare practices and must beactively involved in developing stan-dards.

Economic ImpactsLow animal welfare standards do notimpose an economic cost on societyunless they result in lower productiv-ity and efficiency or pose a threat tohuman health. In fact, there may begains if the prices of animal productsare lower. Some argue that animalwelfare is a public good, or that thereare external costs not reflected in cur-rent prices of animal products. Butthere is little evidence of market fail-ure. The decision to impose higherwelfare standards in farming cannotbe based solely on economic criteria.


Production Costs and Consumer ResponseSome changes in practices can be rel-atively inexpensive to implement, butothers are likely to increase produc-tion costs. Changes in confinementoperations, particularly increasedspace requirements, may require themodification or construction of facil-ities. Extensive production systemsrequire more land. Operating costsmay increase due to higher laborrequirements, increased energy con-sumption in larger facilities, andreduced feeding efficiency. Higherstandards may also increase the costsof transporting and processing ani-mals.

There may also be cost savings.Morbidity and mortality may declineand expenditures on disease controland treatment may fall. Greaterreproductive efficiency may lead tocost savings. Product quality mayimprove through reduced stress.

It is difficult to generalize aboutthe net effect, but available economicstudies indicate a net increase incosts. A recent study of EU egg pro-duction suggests that unit costsunder new systems are roughly 12%to 20% higher than conventional sys-tems. Over the long term, producersmight be able to adapt by adoptingnew technology or production tech-niques. However, this is unlikely tonegate the adverse effects on costsand competitiveness, particularly ifproducers in other countries uselower standards.

Increased production costs will bereflected in higher product prices.Some consumers may be willing topay a price premium for productsthat meet higher standards, othersmay respond by switching to prod-ucts whose prices are not affected.European experience shows that esti-mates of willingness to pay for higher

standards typically overstate actualwillingness to pay in the marketplace.For welfare-friendly products to com-mand a price premium, they must beclearly distinguishable. Labels needto be uniform and clearly under-stood. Research indicates that Euro-pean consumers are confused by widevariations in labeling of animal-friendly products. Consumer welfaremay decline if a proliferation ofinformation makes informed choicedifficult.

Welfare Standards and CompetitionIf all producers are required to adhereto a particular standard, they will allbe on an equal basis in terms of com-petitive position. Product prices willtend to rise as higher costs are passedthrough to the market. Consumerresponse could affect the marketshare of individual products and theirprices. Exporters will face a deteriora-tion of their competitive position ifother countries supply non-conform-ing products.

Producers who have difficultydifferentiating their product face par-ticular risks from non-conformingproducts. Domestic or foreign pro-ducers operating at lower costs mayincrease their market share. Domesti-cally, this problem can be solved byrequiring that all producers meet thestandard. When non-conformingsupplies originate from other coun-tries, the situation is more compli-cated.

The General Agreement on Tar-iffs and Trade (GATT) and its associ-ated agreements contain no specificprovisions for animal welfare. TheAgreement on Technical Barriers toTrade requires that imported prod-ucts should be treated as “like” prod-ucts of national origin. The Sanitaryand Phytosanitary Standards agree-ment is limited to the protection ofanimal health and recognizes stan-

dards developed by the World Orga-nization for Animal Health (OIE). In2005, OIE agreed on four interna-tional standards for animal welfareand is currently working on others.This could go some way to address-ing concerns over unfair competitionfrom non-conforming products.

Options for the FutureThe North American livestock indus-try is taking steps to address some ofthe concerns about the impact of cur-rent practices on animal well-being.Much of the effort centers on the vol-untary development of standards andcodes of practice. This is in contrastto Europe, where legislation andmandatory standards are playing amajor role. Pressures for legislationare likely to intensify in North Amer-ica if the general public perceives thatself-regulation is not effective. Anumber of options could be used tostrengthen the process.

1. Improve the flow of information to the general public.Industry policies on animal welfareare not always visible. All stakehold-ers could develop a statement of prin-ciples and make this publicly avail-able. Industry groups could supportthe development of educationalmaterials.

2. Develop codes of practice.The industry could ensure that stan-dards and codes are developed for alltypes of livestock. Information dis-semination and support for trainingcould be made a high-priority activ-ity. The industry could lend supportto the development and applicationof appropriate science-based stan-dards internationally.


3. Increase research and education.Higher priority could be given to ani-mal welfare issues in publicly fundedresearch. Particular emphasis couldbe placed on developments that areboth practical and economically via-ble. A further step would be to ensurethat all educational programs in ani-mal science, veterinary medicine, andrelated fields incorporate material onanimal welfare—biological issues aswell as ethical and socio-economicaspects. Animal welfare could bemade a priority in public extension

programs, particularly for the train-ing of farmers and ranchers, andemployees in the animal productsindustry.

The extent to which the industryvoluntarily addresses animal welfareissues successfully will determinewhether legislation will eventuallyrequire certain practices in animalhusbandry. The above options insome combination may go a longway to quieting concerns about ani-mal welfare.

For More InformationFarm Foundation. The Future of Ani-

mal Agriculture in North America. 2006. Available online: http://www.farmfoundation.org/projects/04-32ReportTranslations.htm. Oak Brook, IL.

David Blandford ([email protected]) is Professor, Department of Agri-cultural Economics and Rural Sociol-ogy, Pennsylvania State University,University Park, PA.




3rd Quarter 2006 • 21(3)


Comparison of a Fixed and Variable Corn Ethanol SubsidyWallace E. Tyner and Justin Quear


When the government subsidizes a commodity, it nor-mally intends to promote production and/or consumptionof that commodity for either political, environmental, oreconomic reasons. Today one major subsidy is the ethanolprogram, currently with a $0.51 per gallon subsidy, whichwill in the near future amount to a bill of over $3 billionannually on 6 billion gallons of production. This paperinvestigates the effectiveness of the subsidy and askswhether a cheaper alternative could be developed.

Like any government expenditure, the value of a sub-sidy must be judged on how well it achieves its intendedobjective – in this case, stimulating the production/con-sumption of ethanol, and thereby increasing corn demand.How well the objective is achieved can be measured by thestimulus to production versus the cost to the government.Stimulus to production should be tied to the effect of thesubsidy on expected profitability and the change in risk forinvestors.

A fixed subsidy could change the expected profitabilitysimply by adding to the expected profit without the sub-sidy. However, if profit without the subsidy were alreadyhigh, as at present, the subsidy might have a small impacton investment decisions and ethanol production. On theother hand, a subsidy that was larger with lower ethanolprices or higher input costs could reduce risk substantiallyand stimulate greater production through that risk reduc-tion.

Today with ethanol prices near $3 per gallon, theindustry is very profitable without a subsidy, and theadded profit from the subsidy likely induces little addi-tional investment. However, if wholesale gasoline and eth-anol prices were to fall below $1 per gallon again, the sub-sidy would provide substantial incentive for additionalinvestment. So, while we cannot predict the change in

investment for any given subsidy approach, we can esti-mate the change in profitability and risk and compare thatwith the government cost for each approach.

The current ethanol subsidy is a flat 51 cents per gal-lon of ethanol paid to the agent that blends ethanol withgasoline. In the past it took the form of a partial or totalgasoline excise tax exemption, but today it is a tax creditfor the ethanol blender (Renewable Fuels Association,2006). The subsidy is paid regardless of ethanol price orproduction cost.

It is possible to develop a subsidy that falls as the priceof ethanol increases and increases as the price of corn falls.Here, we develop such a subsidy and compare it with thecurrent subsidy, examining the difference in governmentcost, and ethanol producer risk and profitability withmonthly data from the past ten years. As shown below, wefind that government cost and ethanol producer risk isalways lower with the variable subsidy, and expected prof-itability can be the same or lower compared to the fixedsubsidy, depending on one of the subsidy parameters. Therest of this paper provides more details on the design of thevariable subsidy program and the empirical comparison.

Subsidy DesignIn order to set up a variable subsidy, we need to examineethanol profitability under a wide range of corn and etha-nol prices. Tiffany and Eidman's (2003) spreadsheet wasused to estimate profitability. Ethanol production usescorn and generates byproducts and ethanol. That spread-sheet model provides a profitability estimate given an etha-nol price, a corn price, and a price for byproducts. Oneitem needed was a price for the main ethanol byproduct,distillers dried grain with solubles (DDGS). DDGS can beused in feeding to replace corn and soybean meal, and thus


its price is highly correlated withcorn and soybean meal prices. Usinghistoric data, we estimated a relation-ship between those prices thatexplains 73% of the DDGS pricevariability:

DDGS Price = -9.205 + 1.037(CornPrice) + .135 (SoyMealPrice),

where all prices are dollars per ton. We then used the model to simu-

late profitability given corn and etha-nol prices holding the soybean mealprice at $223.42 per ton. In turn, theprofitability data were used to esti-mate the dependence of ethanol prof-itability on corn and ethanol prices.

The results for profits per gallon pro-duced are

Profits = -.723 + 1.00* EthanolPrice -.243 * CornPrice,

where profits and ethanol price are inunits of $/gallon, and CornPrice is $/bushel. The regression explainsalmost all the variance in the data(99.9%), which is a reflection of thelinear formulas involving these pricesin the spreadsheet.

Next, we develop a variable sub-sidy scheme. To do that, we intro-duce a profit level per gallon in excessof the standard 12% rate of returnassumed in the Tiffany/Eidmanmodel simulations (Profitpergallon),

and calculate the subsidy needed toachieve that profit. The equation forthe subsidy then becomes:

Subsidy = -.723 – Profitpergallon+1.00EthanolPrice - .243CornPrice.

Converting the subsidy to a positivevalue and rearranging terms, the sub-sidy equation becomes:

Subsidy = Profitpergallon – (Ethanol-Price - .723 - .243 * CornPrice).

Thus, the subsidy is the differencebetween the above-normal profitlevel assumed (Profitspergallon) andthe returns from the market (ethanolprice less production costs). The vari-able subsidy with this formulation isconstrained to be greater than orequal to zero.

Magnitude of the Subsidy in the FormulaTable 1 provides the expected profitfrom the Tiffany/Eidman model,plus the profit under the current 51cents per gallon fixed subsidy and thevariable subsidy (assuming the etha-nol producer receives the entire sub-sidy).1 If corn were $2.50/bu., etha-nol $1.50/gal., and the specifiedabove normal profit (Profitpergal-lon) 20 cents per gallon, then thevariable subsidy would be equal to 3cents per gallon. In other words, asubsidy of 3 cents per gallon isrequired to maintain profitability at

1. It is unlikely that the ethanol pro-ducer receives the entire subsidy, since there are other economic actors in the system. However, there is no basis for calculating the share the ethanol producer receives. In addi-tion, there is no reason to believe that the share, whatever it is, would differ between the two systems.

Table 1. Expected ethanol profit under the two subsidy systems over a range of corn and ethanol prices.

Corn Price Ethanol Price

Profit per gallon of ethanol

Without Subsidy

With Subsidy

Fixed Variable

2.00 1.25 0.04 0.55 0.20

2.00 1.50 0.29 0.80 0.29

2.00 2.00 0.79 1.30 0.79

2.00 2.50 1.29 1.80 1.29

2.00 3.00 1.79 2.30 1.79

2.50 1.25 -0.08 0.43 0.20

2.50 1.50 0.17 0.68 0.20

2.50 2.00 0.67 1.18 0.67

2.50 2.50 1.17 1.68 1.17

2.50 3.00 1.67 2.18 1.67

3.00 1.25 -0.20 0.31 0.20

3.00 1.50 0.05 0.56 0.20

3.00 2.00 0.55 1.06 0.55

3.00 2.50 1.05 1.56 1.05

3.00 3.00 1.55 2.06 1.55

4.00 1.25 -0.45 0.07 0.20

4.00 1.50 -0.20 0.32 0.20

4.00 2.00 0.31 0.82 0.31

4.00 2.50 0.81 1.32 0.81

4.00 3.00 1.31 1.82 1.31

Source: Author’s calculations.


Table 2. Ethanol profitability, risk reduction, and government cost.

ItemFixed

Subsidy

Variable Subsidy with Alternative Levels of Profitpergallon

$0.20 $0.30 $0.38

Average producer profit/gallon $0.39 $0.21 $0.31 $0.39

Reduction in producer profit -46% -21% 0%

Variability of producer profit (CV) 0.43 0.34 0.23 0.18

Change in profit variability (CV) -21% -47% -58%

Government cost per gallon $0.51 $0.32 $0.42 $0.50

Change in government cost -37% -18% -2%

Note: CV is the standard deviation of profits divided by the mean.

20 cents above standard economicreturn (assumed to be 12% onequity). The subsidy could be muchhigher. For example, if corn were$4.00 and ethanol $1.25 like in1996, and Profitpergallon = 0.20, thesubsidy would be 65 cents per gallon– higher than the current subsidy.Clearly, the variable subsidy reducesprivate sector risk by stabilizingreturns.

When Would We Have Zero Subsidies?Figure 1 illustrates the combinationof corn and ethanol prices that resultin zero subsidy with the above stan-dard return (Profitpergallon) setequal to 20 cents per gallon and 38cents per gallon. In Figure 1, any

combination of corn and ethanolprices below the line will result in asubsidy, with the amount dependingon corn and ethanol prices. Anycombination of corn and ethanolprices on or above the line will resultin no subsidy. In the no subsidy zone,a subsidy is not needed to maintainethanol profitability at the given 20or 38 cents per gallon level, and anysubsidy provided by government is asubstantial, perhaps excess, paymentto producers.

Historical Comparison with the Fixed SubsidyWe also calculated private profitabil-ity and government cost with thevariable and fixed subsidies usingdata on corn and ethanol prices over

the past ten years. We did the analysisusing a subsidy that changed quar-terly and was based on either ethanolor gasoline prices. Table 2 summa-rizes the results of this analysis fordifferent levels of above-standardprofit (Profitpergallon).

The results show • The variable subsidy reduces gov-

ernment cost uniformly acrossthese data.

• The lower the value of Profitper-gallon, the higher the cost savingsfor the government and the lowerthe expected profitability.

• The variability in private sectorprofitability (a measure of risk) asmeasured by the coefficient ofvariation (CV) of profit is alwayslower with the variable subsidy ascompared with the fixed subsidy,as would be expected.

• Expected profitability is reducedor held constant depending onthe value of Profitpergallon.

In other words, we can hold expectedprofit and government cost about thesame and significantly reduce pro-ducer risk, or we can lower expectedprofit, government cost, and pro-ducer risk all at the same time, but todiffering degrees. Figure 2 illustratesthe results of this analysis with Profit-pergallon set at 20 cents and Figure 3with Profitpergallon equal 38 cents.

Concluding CommentsIn 2007, ethanol production may beabout 6 billion gallons. With the cur-rent fixed subsidy, the cost to thegovernment of the ethanol subsidywill be at least $3 billion (6 billiongallons times the 51 cent per gallonsubsidy). With the variable subsidy,and under current market prices forgasoline, ethanol, and corn, the vari-able subsidy cost would be zero, sav-ing the government over $3 billion.At the same time, the private sector

$1.20$1.30$1.40$1.50$1.60$1.70$1.80$1.90$2.00$2.10$2.20

$1.50 $1.75 $2.00 $2.25 $2.50 $2.75 $3.00 $3.25 $3.50 $3.75 $4.00

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Etha

nol p

rice

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al)

Subsidy zone

No subsidy zone

Profitpergallon = .20

Profitpergallon = .38

Figure 1. Locus of zero subsidy ethanol and corn prices.


would have in place a mechanism toguarantee against any future adversechanges in corn or ethanol prices.

The variable subsidy clearly offersadvantages over the current fixedsubsidy. In our model, the additionalprofitability parameter, Profitpergal-lon, can be viewed as a politicalchoice variable. The higher one setsProfitpergallon, the higher the indus-try profitability, the higher govern-ment cost, and the lower private sec-tor risk. Under no circumstance wasthe variable subsidy more costly thanthe fixed subsidy over this historicperiod. To the extent there is a trade-

off between expected profitabilityand risk reduction (that is, producerswould give up some profit to lowerrisk), the government would be ableto set Profitpergallon low enough toreduce expected government costsand substantially reduce private sec-tor risk at the same time – a clearwin-win. In a few years, the expectedproduction of ethanol will be 8 bil-lion gallons or more. The annual costto the government with the fixedsubsidy would be $4.08 billion. If oilprices remain high, the variable sub-sidy would cost nothing, but would

provide a safety net for ethanol pro-ducers.

As described above, this variablesubsidy would apply only to corn-based ethanol. This mechanismwould need to be applied to a limitedvolume of corn ethanol or graduallyconverted to a subsidy that varieswith gasoline prices alone. A differentmechanism would need to be devel-oped for cellulose-based ethanol andbio-diesel, probably based on gaso-line and diesel prices. The point isthat it would be relatively easy toextend the corn-based variable sub-sidy to the other products.

For More InformationQuear, J., & Tyner, W.E. (2006).

Development of a Variable Etha-nol Subsidy. Purdue University working paper available from the authors.

Renewable Fuels Association (RFA) (2006). From niche to nation: Ethanol industry outlook 2006. Available online: http://www.eth-anolrfa.org/.

Tiffany D.G., & Eidman, V.R, (2003). Factors associated with the success of fuel ethanol pro-duction (Staff Paper P03-7). Department of Applied Econom-ics, University of Minnesota. Available online: http://www.agmrc.org/NR/rdonlyres/CB852EC6-0DB7-4405-944F-59888DD6D344/0/ethanolsuc-cessfactors.pdf.

Wallace E. Tyner ([email protected]) is Professor, and JustinQuear ([email protected]) is aGraduate Student, Department ofAgricultural Economics, Purdue Uni-versity, West Lafayette, IN 47907.

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Figure 3. Fixed and variable subsidy profitability (Profitpergallon = 38 cents).




3rd Quarter 2006 • 21(3)


Coming AttractionsResources and the Environment

Setting the Stage for the Next Farm Bill: No Easy Choices

James Richardson, Guest Editor

The economic and political environment for debating andwriting the 2007 farm bill has changed significantly sincethe 2002 bill was enacted. The changes and their probableimpacts on the next farm bill are described by StephanieMercier and Vince Smith. Pat Westhoff and Scott Brownpresent a FAPRI analysis of what U.S. agriculture wouldlook like if the next farm bill is a continuation of the 2002bill, but with a substantial and real reduction in federalspending. Joe Outlaw and Otto Doering review previousarguments for justifying farm programs and address thequestion of what are valid justifications for continuation offarm programs. Mike Dicks reviews current land steward-ship programs and suggests how a new farm bill that relieson stewardship, rather than price and income, supportswould operate.

Agriculture and Trade

Animal Identification

David P. Anderson and Larry Falconer, Guest Editors

A comprehensive animal identification system continuesto be a controversial subject. While plans have been devel-oped and put forward, some continue to fight their devel-opment. This upcoming theme examines an overview ofthe issue, animal identification in other countries, legalissues, and some broader perspectives on the issue in theUnited States.

We are working on future theme coverage on IllegalImmigration, Water Quality, Returns to Research andExtension, and Produce Marketing. See our thematic cov-erage page for a complete list and planned schedule.

choices magazine, 3rd quarter 2006keith collins, chief economist, usda ... nouncement from japan...

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