2120 final report.pdf - Agra CEAS Consulting

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THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSCombined Scenario 420 % reduction tariffs, 20% increase alternatives, 20% increaseother costsUnit Mean SDProducer Surplus Euro (millions) -448.4 10.0Consumer Surplus Euro (millions) 143.6 8.8Total Surplus Euro (millions) -304.8 1.7Quantity Shell % 0.0202 0.0019Quantity Processed % 0.0281 0.0030Quantity Alternative % -0.0628 0.0087Price Shell % -0.0317 0.0011Price Processed % -0.0311 0.0011Price Alternative % 0.2589 0.0119Quantity Shell 3rd Country % 0.0432 0.0043Quantity Processed 3rd Country % 0.0475 0.0040Note: SD = Standard DeviationSource: <strong>Agra</strong> <strong>CEAS</strong>For the combined Scenario 1, (a 10% increase in demand for alternatively produced eggs and acorresponding reduction in demand for shell eggs), there is an increase in producer surplus (of Euro52 million in EU-15 and Euro 41 million in EU-25) as a result of the rise in higher price alternativeproduction but a significantly bigger decrease in consumer surplus (of Euro 337 million and Euro 330million respectively).For combined Scenario 2, we see that for consumers the negative effect of an increase in other costsof egg production (+10%), such as those associated with bird deprecation and the investment cost ofintroducing alternative egg laying systems, is more than compensated for by a reduction in tariffprotection of 20%. This consumer surplus of Euro 133 million in the EU-15 (€156 million in EU-25)is, however, substantially outweighed by the loss arising to producers (of €298 million in EU-15 and€338 million in EU-25) as a result of having to face higher costs and lower import protection.For combined Scenario 3, (a 20% reduction in tariffs and a 20% increase in demand for alternativelyproduced eggs), results in a loss of producer surplus (of €66 million in EU-15 and €98 million in EU-25), but this is much less than the gain in consumer surplus (of €180 million and €196 millionrespectively).Finally, when we extend the third scenario to also include an increase in costs (Scenario 4) we findthat the net overall effect is a reduction in surplus as producer losses are increased by adding inextra costs and consumer gains are reduced.1047.3. SummaryThe extensive range of scenarios for change reviewed above, provide a useful guide to the directionand magnitudes of potential socio-economic impacts in the form of producer and consumer lossesand gains as well as the trade-offs involved in relation to a range of policy and market scenarios. The
THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSmodel used provides a coherent and explicit analysis framework although it inevitably relies onparsimonious assumptions and does not indicate what adjustment path will be taken to arrive at theequilibrium point outlined above. In reality, as a result of the multiple factors which influence anyeconomic sector and specifically the laying hen sector, whatever adjustment processes take place willnot be uniform across the EU 41 .Overall the results we present are as would be expected a priori. In other words, the changes toconsumer and producer surplus from the various exogenous shocks considered do not yield anyunusual or unexpected outcomes. The magnitude of the changes, especially for the 20% scenariosare relatively large (for example up to a €743 million reduction in consumer surplus resulting from a20% reduction in demand for caged shell eggs or a consumer gain of some €574 million from a 50%tariff reduction), but this is to be expected.Specifically as regards the assessment of the likely impact of an increase in costs asmight occur if there were to be a shift into alternative egg production systems as aresult of the implementation of the battery cage ban mandated for 2012 underRegulation 1999/74, the model indicates that for a 20% increase in such costs, which isthe type of percentage increase in terms of variable cost producers are likely to face asa result of switching to free range production, (slightly more than half this (12%) forbarn production), the industry will potentially suffer a loss of producer surplus of €315million (EU-15) and €354 million (EU-25). However, many producers are likely toswitch to enriched cage production which will entail a smaller increase in productioncosts and will therefore mitigate this loss to some extent.It should also be noted that under this scenario as costs increase quantities importedincrease (by up to between 3-4% for a 20% increase in feed costs). This does not,however, significantly affect the overall scenario results because the rise in imports isfrom a very low base or, to put this differently, because the quantity of eggs currentlytraded is very small in relation to the size of the overall egg market.In this context it should be noted that while the model results presented here provide no indicationof the distribution of losses or gains for producers and consumers between Member States, thesewill not ultimately be distributed evenly. In practice, outcomes in this regard will depend on thecurrent structure and cost of production, consumption and trade in each Member State as well asthe nature of the change taking place. Thus, for example, the effect of a reduction in import tariffswill depend on the competitiveness of the sector in each Member State as well as the structure ofdemand.Finally, we note that the magnitude of the results, especially the estimates of change in surplus, needto be considered relative to the potential non-market benefits from changes in animal welfarelegislation. There is a limited literature available on this subject, but estimates to date suggest that41This is evident from the model construction which aggregates Member State detail.105
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