Are animal welfare and profits well aligned?

I recently ran across a claim I've heard many times in the past about animal protein production and animal welfare.  It goes something like the following: happier animals put on weight more efficiently because they aren't stressed by disease and discomfort. So, a producer can't make money unless they takes care of their animals, meaning the profit motive and improving animal welfare are aligned.  

There is an element of truth to this line of reasoning.  But, it's not the whole story.  I discussed this issue in a paper entitled Animal Welfare Economics published back in 2011 with Bailey Norwood.

Here is a key paragraph describing the problem:

“It is instructive to consider the trade-off between animal well-being, productivity, and profitability using a simple example. Imagine an egg producer facing the short-run problem of deciding how many hens to stock in a barn with a fixed amount of space. Suppose the animal scientists’ arguments are correct and each hen tends to produce more eggs when they are happier and fewer eggs when sadder. If hens are too densely stocked—for example, so tightly caged that they cannot move or turn around—they will clearly be unhappy and unproductive. Thus, providing a bit more space per hen will increase both welfare and output. At some point, however, too much space is undesirable from both a production and a welfare standpoint. A single isolated hen is likely to be lonely (visitors to egg farms will notice that hens often prefer to flock in groups even in a free-range environment), and as chickens expend energy roaming about, they will be less productive compared to hens more tightly confined. Of course, productivity and welfare are not perfectly aligned and it is probably true that hens would prefer more space than would maximize their individual egg output.”

We then walk through a numerical example showing that even when animal welfare and animal output are very highly correlated, a producer will tend to stock hens more hens than would be given by the stocking density that would maximize animal welfare. The main insight is that the producer aims to maximize the profit from the BARN not the ANIMAL.  

The figure below shows the particular example we walk through.  The rest of the details are in the paper.

We write:

“Though many producers care passionately about the well-being of the animals under their care, few would argue that the goal of commercial agriculture is to maximize animal well-being. Nevertheless, many in the agriculture community want to argue that animals are most happy when producers are most profitable. A little economic reasoning shows that this is not the case. In a competitive environment, producers who wish to stay in business face incentives to adopt production systems and practices that maximize profit, and profit-maximizing outcomes are not the same as animal welfare-maximizing outcomes. Thus, the real question of interest is not whether profitability must be sacrificed to achieve higher levels of animal welfare, but rather how much.”

Market Potential for Cage Free Eggs

Many food manufacturers and retailers have made pledges to go "cage free."  In fact, if all the pledges are maintained, about 75% of the entire egg laying flock will have to be converted to cage free by the year 2025, as the graph below suggests.     

Is there sufficient consumer demand to support this level of commitment (particularly when one acknowledges that, according to USDA data, cage free eggs are currently selling at about a $1/dozen (or 68%) premium to conventional)?

I recently completed a study for the Food Marketing Institute, Animal Agriculture Alliance, and the Foundation for Food and Agricultural Research on the market potential for cage free eggs to help provide some insights into these issues.

The study was conducted with more than 2,000 consumers.  The core of the study involved people making a series of simulated retail shopping choices like the one below.  

Answers to these questions allow us to infer consumer willingness-to-pay, market shares, and more.  In fact, if you want to run your own market share simulations, I created this handy downloadable spreadsheet.

The main finding is the following:

“When provided no additional information, choices imply half of consumers are willing to pay no more than a $0.30/dozen premium for cage free eggs; however, the mean premium is $1.16/dozen, suggesting a small fraction of consumers are willing to pay sizeable amounts for the cage free label. Almost 60% of consumers have a willingness-to-pay for cage free less than $0.40/dozen, but 33% have a value greater than $1.00/dozen.”

and

“Ultimately, the results suggest there is potential for the market-share for cage free eggs to rise above the current state even at premiums as high as $1.00/dozen. However, even at much more modest price premiums, the potential for cage free eggs to attain majority market share is unlikely, particularly if conventional eggs advertise other desirable attributes. Completely removing more affordable conventional eggs will significantly increase the share of consumers not buying eggs.”

Here are a couple key graphs:

and

There is much, much more in the full report, and you can also download the market share simulator here.

I Will Give You My Vote but Not My Money: Preferences for Public versus Private Action in Addressing Social Issues

That's the title of a paper by Bailey Norwood, Glynn Tonsor, and myself that was just released by the journal, Applied Economic Perspectives and Policy.

We start the paper as follows:

“Social issues in agriculture such as animal welfare and food insecurity pose two primary concerns: whether any action is going to be taken and, if it is, the extent to which action is taken in the private or public realm. Those who are concerned about animal welfare in conventional egg production can take private action by purchasing cage-free eggs, or they can encourage public action by voting for bans on the use of cages in egg production. Private action to mitigate food insecurity includes donating to food banks, while its public counterpart is government programs like the Supplemental Nutrition Assistance Program”

A summary of the study and findings:

“This study explores the extent to which individuals will support public action but, in its absence, will not commit their own voluntary efforts. An internet survey was administered to over 3,500 individuals with hypothetical scenarios in which they could donate their own money toward a cause and/or support government action. When asked to choose between public or private action, most chose a combination of the two, suggesting that public and private partnerships are the preferred vehicle for solutions to social problems. Close to 20% indicated they would vote for laws to confront an issue but not contribute their own private donations.”

Should Retailers be Required to Stock Conventional Eggs?

According to the Des Moines Register: 

“The Iowa Senate gave final passage Monday to a controversial bill requiring Iowa grocers in a supplemental food program to offer conventional eggs if they sell eggs from chickens housed in a cage-free, free-range or enriched colony cage environment.

House File 2408 was approved 32-17, sending it to Republican Gov. Kim Reynolds for her consideration. It was approved in the House last week on an 81-17 vote.

Sen. Herman Quirmbach, D-Ames, opposed the bill, complaining that it’s clearly contrary to free enterprise, anti-regulation policies espoused by Republicans. “This is really direct interference in the marketplace,” he said.

But Sen. Dan Zumbach, R-Ryan, who farms in northeast Iowa, lauded the legislation for assuring that a low-cost choice for protein is available when many low-income Iowans head to the grocery store. Free-range or cage-free eggs are typically more expensive than conventional eggs from large farming operations.”

The background context here is that many retailers have made pledges to only stock cage free eggs, and some states have passed laws banning the sale of eggs from hens in the most confined cages. 

As readers of this blog likely know, I'm a big fan of consumer choice, and have done a fair amount of research on the costliness of policies that would remove products from the marketplace.  I've also routinely pointed to the benefits of practices and technologies that increase agricultural productivity.  Thus, one might suspect I'd be a proponent of the new law.  While I'm not necessarily opposed to it, I'm less sanguine about the long-run potential benefits.   

I suspect the bill will largely be interpreted as a producer protectionist measure.  One concern with a bill like this is that it might raise an issue to the attention of consumers that wasn't previously on the radar screen and might create a PR problem for the industry and invite threat of future disadvantageous legislation.  A consumer who wasn't thinking about this issue now sees a bill supported by the egg industry requiring sellers to offer a certain option.  What is their reaction?  It could be: "What's the egg industry trying to do that retailers are forced to stock an option they don't want to stock?" Or, maybe even: "I now need a bill requiring that cage free is also provided."  If one is skeptical that issue like this might create PR problems, the failure of the question 777 "right to farm" initiative in Oklahoma is instructive.

I'm not sure there are many other parallels for policies that would force sellers to provide an option.  That is, shouldn't freedom work both ways? Freedom for consumer to choose from what is offered but also freedom for producers/retailers to decide what to produce and sell?

If consumers really won't bear the cost of retailer pledges to go cage free, there will be a pretty strong incentive for retailers to reverse course.  I view retailer pledges to go cage free in fundamentally different light than a law to ban conventional eggs; one is a market-based decision and the other is not.  If retailer A pledges to go cage free and most consumers aren't willing to pay the higher cost, then there will be an incentive for retailer B to offer a lower-cost conventional version for people who are more price sensitive.  No such option is available if there is a blanket ban.

The egg industry is surely trying to "fight fire with fire" by using the political process in a way that animal advocacy organizations have to advance their interests.  If animal advocacy organizations can convince voters or a legislature to ban conventional egg production, then the egg industry can use a similar process to require conventional egg sales.  In that sense, perhaps all is fair in love and war.  What I'd rather see both sides do, however, is to try to convince consumers (and the retailers who sell to them) of the the merits of their cause rather than to get to a desired end by fiat.     

Willful Ignorance

“Wilful ignorance is a documented human behaviour whereby people deliberately avoid information. Although much work has documented consumer attitudes toward farm animal welfare, few studies have questioned whether people even want to know how farm animals are raised. Using an internet survey of 1,000 subjects from the US state of Oklahoma, it is shown that around one-third admit to being wilfully ignorant regarding pork production. One-third also chose to look at a blank screen rather than a picture of how pregnant hogs are housed. Avoidance of guilt is shown to be a motivator for this behaviour.”

That's the abstract of a paper by Eryn Bell, Bailey Norwood, and me that was just published in the journal Animal Welfare.