The Future of Animal Agriculture in North America - Farm Foundation

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these systems have higher mortality rates. As a result of these
factors, the total costs of production of eggs raised under
alternative systems are higher than traditional systems (Figure
2). Production costs per unit for barn eggs are roughly 12
percent higher, and those for free-range eggs are roughly 20
percent higher. This is less than the 50 percent estimate quoted
earlier, but the increase in cost is still significant. Estimates
given in the report for the United States suggest that the
variable costs of producing a dozen free-range eggs are 12
percent to 30 percent higher than under conventional
production systems. The total cost difference is likely to be
greater than this because of increased fixed costs, particularly
for housing, under the free-range system.
There is limited evidence on the cost impact of changes in
standards and production practices in other areas. Recent
research in Switzerland suggests the labor and building costs for
loose housing systems for dairy cattle compare favorably with
tie-stalls, and that group housing of gestating sows can be more
profitable than individual housing in stalls (Wyss et al., 2004).
However, it appears that relatively little economic analysis has
been done of many alternative production systems, so no
definitive conclusions can be drawn.
Increases in production costs due to higher animal welfare
standards will not be borne solely by producers in the form of
lower profits. At least part of the costs will be passed through to
consumers in the form of higher prices. It has been argued that
because most of the historical cost reductions from
technological progress have been passed through to poultry
consumers in the United States in the form of lower prices, any
cost increases resulting from higher welfare standards will have
the reverse effect (Gardner, 2003). In the long run, this is likely
to be true. But in the short term, consumers may adapt by
switching to domestically produced or imported competing
products, the prices of which are not affected by higher
standards, thus placing more of the economic burden of
adjustment on domestic producers. This would suggest that to
minimize any potential distorting effect on consumption,
higher welfare standards should be applied broadly across subsectors
of the animal industry, rather than being limited to one
or two sectors. The issues raised by non-conforming imports are
significant and are discussed in more detail below.
Long term, producers might be able to adapt to any higher
costs imposed by standards through the adoption of new
technology and production techniques. Changes in the
structure of costs facing an industry typically stimulate the
search for cost-reducing solutions. Farm mechanization, for
example, was stimulated by the increasing cost of labor. Any
increase in costs resulting from higher animal welfare standards
is likely to generate similar responses in research and
development. However, new technologies are unlikely to negate
the adverse effects of higher standards on costs in the short run,
Animal Welfare
and the potential implications for competitiveness. Increased
costs due to higher standards will put North America at a
competitive disadvantage to producers in regions that have
lower standards. If higher standards are adopted globally, there
will still be a smaller industry if consumers respond by buying
less of the higher priced products.
Producers will be able to absorb the higher costs associated with
higher welfare standards if consumers actively demand
conforming product. For this to happen, consumers must not
only want to purchase the product and be willing and able to
pay a price premium, but they also must be able to identify it,
i.e., it must be differentiated from non-conforming products.
This is the rationale behind the use of labeling to identify
welfare-friendly products. Often figures are quoted showing
consumers’ willingness to pay higher prices for products that
meet certain standards. Willingness-to-pay estimates are
typically derived by presenting selected groups of consumers
with hypothetical choices among various products and asking
them how much they would be willing to pay for products with
various attributes. European experience shows that willingnessto-pay
estimates typically overstate substantially the amount
that consumers are actually prepared to pay for higher animal
welfare standards when they are presented with real choices in
the marketplace (Blandford et al., 2002). Recent research
conducted at Cardiff University in the United Kingdom also
indicates that European consumers are generally confused by
wide variations in the labeling of animal-friendly products
(Cardiff University, 2005). Such results suggest that the identity
and nomenclature used to describe products need to be
uniform and clearly understood in order for the market to
reflect differences in products that are important in consumer
choice. Consumer welfare may decline if a proliferation of
information makes informed choice difficult.
Because consumers may find it difficult and time consuming to
ensure that each product they buy meets all their requirements,
they may rely on food retailers or restaurants to do this for
them. Some suppliers may limit themselves to niche products
with particular characteristics to satisfy this need. Suppliers may
indicate that they specialize in animal-friendly or free-range
products in order to cater to the segment of the market that
demands these characteristics.
Individual producers that adopt higher welfare standards can
determine whether this differentiated market will yield at least
as much profit as an undifferentiated approach. If the higher
standards and any resulting higher costs are imposed on all
farms, there is no product differentiation. Producers seeking a
premium for doing something different are disappointed
because they are like all other firms. Consumers more
concerned about affordable food than higher welfare standards
are also hurt because prices will eventually rise to reflect the
higher cost of production.