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Supply Chain and Economic Supply Chain and Economic Effects of RegulationsEffects of Regulations
National Institute of Animal AgricultureDenver, CO March 27, 2012
David P. AndersonProfessor and Extension EconomistLivestock and Food Products
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OverviewOverview
• Defining the Issue • Types of Regulations• Costs and Benefits• An Attempt at Analysis
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Alternative TitleAlternative Title
“The Cost of Excess Regulation”
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Defining the IssueDefining the Issue
“I shall not today attempt to define the kinds of material I understand to be embraced within that shorthand description, and perhaps I could never succeed in intelligibly doing so. But I know it when I see it…”
Supreme Court Justice Potter Stewart
Jacobellis v. Ohio, 1964
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Reasons for RegulationReasons for Regulation
• Market Rules of the Road• Resolve Market Failures
– Public goods– Externalities– Market Power
• Protect Consumers– Health and welfare
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Sources of RegulationSources of Regulation
• One or More Segments of Industry See a Need
• Established Bureaucracy Interest• One or More Segments of Society See
a Need– Growing source– Interest group pressure
• Non-government Regulation
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Types of RegulationsTypes of Regulations
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New Types of RegulationsNew Types of Regulations
• Animal Welfare– Activist driven– Science based?
• Process Certification or Verification– Sometimes a choice whether to participate
or not
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Other IssuesOther Issues
• Are we Seeing the Cumulative Effects of a lot of, Seemingly, Small or Insignificant Regulations?
• Unintended Consequences of Other Policies or Regulations– Ethanol and Renewable Fuels
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CostsCosts
• Difficult to Quantify– Paperwork, hassle, time lost– How do you value your time?– What $ do you put on it?– Is it a $ expense or do you just have to
work harder for what’s left over at the end of the year and accept a lower rate of return
• Are There Environmental Compliance Costs on a Rancher’s Financial Statement?
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CostsCosts
• Incidence of Costs– Many of the costs of regulation fall
disproportionately on one segment
• Who Pays the Costs?
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BenefitsBenefits
• Don’t Forget That There are Often Benefits– I’m Guilty
• Are there Regulations that Cause Costs for Which There Are No Benefits?– Or benefits < costs
• Incidence of Costs and Benefits– Who pays what and who gets the benefits
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Past LiteraturePast Literature• Disappointing
– Not very useful, difficulty with “excess”
• Many Studies on Individual Reg’s– Cost industry $XXX, XX lost jobs, cost
focused – Lobbying, COOL for instance
• HACCP– Economic effects shown to include fewer
firms, loss of small packers
• No Follow-up on Actual Effects– Move on to next issue– Never know if it was correct
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AnalysisAnalysis
• Econometric Model of Industry– Inventory, Production, Demand, Imports– Equilibrium displacement model
• Small Effect of Cost Increases on Production– If quantify cost of regulation, then project
impacts of cost of regulation
• Inelastic Demand and Supply– Increase in costs results in relatively small
production decline– Small production decline yields larger
price increase
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Two ScenariosTwo Scenarios
• Increase Costs by 1 percent– Cost increase assumed
• Eliminate Public Land Grazing– Lose about 25 percent of U.S. ewe
flock
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-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
Mature Ewes Production Imports Lamb Price
Perc
ent Cha
nge
Estimated Short Term Impact of Cost IncreaseEstimated Short Term Impact of Cost Increase
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-30
-20
-10
0
10
20
30
40
Mature Ewes Production Imports Lamb PricePerc
ent Cha
nge
Estimated Longer Term Impact of Grazing LossEstimated Longer Term Impact of Grazing Loss
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Implications of Regulation Implications of Regulation LevelLevel
Farm Wholesale Retail
Costs + + +
Production - - -
Farm Price + - -
Whlsle Price + + -
Retail Price + + +
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One More QuoteOne More Quote
“…Cattlemen have witnessed a … proliferation of regulations, which producers claim have hampered efficiency and increased costs to consumers…the beef industry and entire food industry may be suffering from regulatory overkill…”
W.R. Poage, Chair, House Ag Committee
Impact of Government Regulations on the Beef Industry, 1979
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ConclusionConclusion
• I Don’t Know– Costs of excess regulation– Demand growth?
• Great Need for a Lot More Research– The effects or costs of regulation