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Animal Welfare as a Field of Economics

Tyler Cowen recently posted a good question: Why isn’t there an economics of animal welfare field. As someone who has conducted research on this topic for more than a decade, I found the two sentences in Cowen’s post a bit amusing:

“I do understand there is plenty about animal welfare in ag econ journals and departments, but somehow the way the world is tiered that just doesn’t count. Yes that is unfair, but the point remains that this subfield remains an underexploited intellectual profit opportunity.”

My sense is that he means this work doesn’t “count” in the academic status game. Maybe so, but I can assure you that the work agricultural economists have done on the issue has “counted” in the real world of policy, law, farming/ranching, and agribusiness.

If you’re curious about this topic and want an intro to the topic, I can offer some of my co-authored work (mostly led by my colleague Bailey Norwood who suggested we get into this area more than a decade ago).

We have published many, many more papers on this topic, but the above gives a good sense of the theoretical and empirical contributions that currently exist. And, of course other economists such as Dan Sumner, Nicolas Treich, Glynn Tonsor, John Bovay have made many excellent contributions as well.

P.S. While not often considered a book on “animal welfare,” I’ve long enjoyed this 1995 book by Kagel, Battalio, and Green entitled Economic Choice Theory: An Experimental Analysis of Animal Behavior

Animal Welfare vs. the Environment

“Global population is projected to reach 9 billion by the year 2048. Increased global affluence will result in an increase in global protein requirements per capita. With more people wanting to consume meat, production of animal protein will need to increase by 70% from 2005 to 2050. Increased global demand for animal protein has the potential to exacerbate environmental problems associated with climate change and biodiversity loss. Meat-containing diets worldwide have been estimated to require 6 times more land than wheat-based diets, calling into question the ability of animal agriculture to efficiently meet growing caloric needs. One potential way to meet protein demand while mitigating environmental damages is to intensify animal agriculture, which can reduce the environmental impact per unit of food produced. However, intensification practices (e.g., battery cages, gestation crates, feedlots) are often argued to decrease farm animal well-being.”

That’s from the opening paragraph of a recently released a paper I co-authored with now PhD student, Jacob Schmiess in The Journal of Agricultural and Resource Economics (references removed for clarity).

Jacob and I invested this issue from the consumers’ point of view by looking at the tradeoffs consumers were willing to make between different attributes when buying ground beef with different environmental and animal welfare characteristics and claims. We surveyed over 1,500 consumers who were randomly assigned to choices that varied by how the welfare and environmental outcomes of beef were communicated (text only, text+visual cues, or via label claims) and by what information was presented to respondents (none, pro-welfare, or pro-environment).

Here is a summary of our results excerpted from the paper:

Across all presentation designs and information treatments, participants are far more willing to pay for animal welfare attributes than for environmental efficiencies. The three attributes representing animal welfare (particularly grassfed and AGH [added growth hormone] free) elicited higher overall WTP [willingnes-to-pay] than the three attributes representing environmental sustainability. Results indicate that [presentation format] can have a significant impact on consumer responses. Participants shown the purely informational presentation (text design) disregarded all numerically presented attributes (land use, water use, CO2 emissions, mortality rate). Instead, they chose options solely on price and whether the beef was grassfed with no AGH. The visual presentation incorporated color and size to illustrate the numeric attributes more intuitively. This group had significantly higher WTP for environmental attributes than those in the other presentations, although still lower than their WTP for animal welfare attributes. The label presentation was designed to more realistically mimic a grocery store setting, using images of packages of ground beef with labels representing each attribute besides price. Participants shown the label design had the lowest variance across attributes for WTP and relatively lower attribute WTP overall. Somewhat surprisingly, the land protection certified label produced slightly higher WTP than the grassfed label.

The use of pro-animal welfare information in the text design produced a significant increase in WTP for animal welfare attributes as well as lower preference for [beef overall]. Pro-environment information had no effect on any design.

In the label design, participants’ WTP for a meat option over a “purchase neither” option was 1.5–2 times higher than that of participants the other designs. This group was also the most heavily influenced by price and had relatively low attribute WTP overall. One potential reason for this is that the label design does not display a “less desirable” level of each attribute, only the absence of a desirable label. It is possible these labels are seen as bonuses to an already desirable product rather than as a better alternative to an explicitly “undesirable” quality.

You can read the whole thing here.

Effects of Prop 12 in California

Back in November 2018, 63% of California poll-goers voted in favor of Proposition 12. The effect of the passage of Prop 12 is to require shell eggs sold in the state to come from cage free production systems. For pork, Prop 12 would impose certain space requirements and effectively ban the use of some housing practices like gestation crates. Prop 12 was slated to take effect on Jan. 1, 2022.

Prior to implementation, many good economic studies were conducted to estimate the potential impacts of Prop 12 on the prices and consumption of eggs and pork in California. For example, this excellent paper by Sohae Eve Oh and Tom Vukina, which was just released by the American Journal of Agricultural Economics, projected that because of Prop 12 in California, “the new marginal costs of what used to be conventional eggs would increase, on average, by 56%. The prices of originally conventional eggs would increase by 65%.” Other studies by Barry Goodwin and by Dan Sumner and Rich Sexton and by Christine McCraken have provide estimates of the cost of Prop 12 on the pork industry.

Now that January 1, 2022 has come and past, what’s actually happening?

For eggs, it appears that the rules around Prop 12 have taken place and are in force. To get a sense of what impact the policy is having, I took a look at the data reported by the USDA in the National Shell Index Price Report. Because the report lists 5-day rolling averages of wholesale prices, I looked at the Friday report of egg prices in California and for the U.S. for the weeks just before and after the first of the year.

Unsurprisingly egg prices in California are higher than in the rest of the U.S. What’s more relevant to the debate around Prop 12 is how that price premium has changed. The average gap between California and U.S. egg prices jumped from 70 cents/dozen prior to Jan 1st to 142 cents/dozen after Jan 1st. As we and others have done in other studies of the effects of prior California egg policies (e.g., see here, here, or here), we can calculate the so-called difference-in-difference, which in this case amounts to 142-70=72 cents/dozen.

That is, California egg prices are 72 cents/dozen more expensive after the 1st of the year than they would have been if the California price-premium had staid at 2021 levels. The California premium jumped 103%. If I apply this changed to premium to the average national egg prices after the 1st of the year, it implies an increase in egg prices in California of about 85%. Why is this observed jump (85%) higher than the projections by Oh and Vukina (65%)? Hard to know, but as Dan Sumner pointed out in a comment on my paper with Conner Mullally on the effects of a prior California animal welfare regulation, legal and regulatory uncertainty can have effects above and beyond the direct effect of the policy itself. Whatever the causes, the evidence here suggests Prop 12 is having significant price impacts on the prices of eggs in California, at least in the initial month following implementation.

Speaking of regulatory uncertainty, let’s turn now to pork. It appears implementation of Prop 12 for pork has been put on hold for at least a few months because the state of California has yet to release final rules, and a state judge pushed off enforcement until final rules are released. So for now, we’ll have to satisfy ourselves with the aforementioned ex ante projections of the potential impacts of the policy on pork prices. For what it’s worth, here’s a slide I prepared for a talk yesterday where I used some of the previous pork demand estimates from an analysis with Glynn Tonsor, coupled with an economic model, to project potential of Prop 12 if it is conceptualized as a tax.

Finally, in case you missed it, my University President, Mitch Daniels, recently weighed in on Prop 12 in an op-ed in the Washington Post.

California Animal Welfare Laws Impacts Egg Prices Nationwide

The American Journal of Agricultural Economics just released an interesting new paper entitled “Piecemeal Farm Regulation and the U.S. Commerce Clause” by Colin Carter, Aleks Schaefer, and Daniel Scheitrum. The paper builds off some previous work I’d published with Conner Mullally and Trey Malone about the impacts of California’s animal welfare laws, which require more space for hens, on egg prices. The new paper by Carter, Schaefer, and Scheitrum goes further in answering some important questions. Namely, what impacts have California laws had on consumers and producers in other states?

They write:

“The balance between a state’s power to regulate food production within its borders and the impacts of such governance initiatives on consumers and producers in other states is the subject of intense policy debate. The food movement in America has generated piecemeal state laws that—in effect (and possibly by design)—influence how farms in other states operate. ”

Here’s a summary of their findings.

“Our results indicate that the policy had widespread effects across the U.S. In the months following implementation of AB 1437, wholesale egg prices in the Midwest, Northeast, Southeast, and South Central U.S. experienced a dramatic increase. Since then, prices have continued to trade at a 7¢–10¢ premium over their former long‐term equilibrium. AB 1437 has also increased the share of laying hens housed in California‐compliant enclosures across the U.S and led to increased concentration of out‐of‐state firms shipping eggs to California. Between January 2015–December 2017, California hen housing requirements cost U.S. consumers almost $2.7 billion. The majority of these costs ($1.98 billion) were borne out of state.”

They also found that California’s laws:

“shut many small producers out of the California market and led to more concentrated interstate trade. ”

Of course, some people really value improvements in animal welfare, and there may be “external benefits” that aren’t captured in market prices and transactions. Another externalities, that this paper reveals is that that Californians are imposing higher egg costs on consumers in other states who didn’t vote in their animal welfare referendum. The authors calculate:

“if we evaluate the policy from a U.S.‐wide perspective, the annual per‐capita external value would need to range between $35.61 and $108.57 per capita to be cost effective”

On a couple different occasions attorney generals from other states have tried to sue California over these laws based on arguments that they violated the U.S. Interstate Commerce Clause. The suits have failed, as I understand it, not necessarily on the merits of the case per se but because the courts have decided the attorney generals don’t have “standing” to bring the case because they aren’t egg producers. These issues are unlikely to go away. California recently passed new animal welfare standards that go beyond the space requirements for hens and will ultimately require all hens be cage free. California isn’t alone in passing cage free standards, and other states such as Massachusetts and Washington have similar measures being implemented. Moreover, these issues are unlikely to only relate to eggs. GMO labeling standards were going down the same route until a federal policy was ultimately passed. Might we see similar state-by-state regulations on pesticides, labor standards, or preservatives?

Milk - Differentiation and Substitution

This article in the Wall Street Journal has some interesting data and anecdotes about the rise of Fairlife Milk - an ultrafiltered, branded milk product that has more protein and less sugar than regular milk. Apparently sales of Fairlife are up 30% over the past year, and that’s in spite of some negative publicity about some animal welfare issues over the same time period. What’s interesting about the article is that we are likely to see similar trends in mean animal protein markets in the coming years - the push to differentiate and the rise of unexpected competitors.

As the article makes clear, the rise of Fairlife has been quick and surprising. Fairlife now commands about 3% of the dairy-milk market, just a bit less than Horizon, the largest organic milk brand, which has been on the market for 30 years and has a market share of 3.7%. I suspect not many would have guessed 5 to 10 years ago, that the hottest selling milk brand would make its mark based on a technology-enabled nutritional profile as opposed to sustainability/animal-welfare claims.

As for unexpected competition, I’m heard folks in the dairy industry complain about competition from plant-based sources such as almond milk and soy milk, but according to the article:

“... in the last four years, when milk sales fell by 330 million gallons, plant-based milk sales increased by only 60 million gallons.

The sector lost 270 million gallons elsewhere.

The likely culprit? Water.

“We’re losing over 50% to bottled water,” Mr. Ziemnisky said. “No. 2 is ready-to-drink coffee.” In addition, Americans are eating less breakfast cereal, accounting for about 25% of milk’s decline.”