By DOUG SCHMITZ
Iowa Correspondent WASHINGTON, D.C. — A new study released last week by the National Chicken Council (NCC) revealed the newly proposed USDA regulations on the broiler chicken industry would cost its producers more than $1 billion over five years in reduced efficiency, higher costs for feed and housing, and increased administrative expenses.
“The proposed rule changes are likely to slow the pace of innovation, increase the costs of raising live chickens and result in costly litigation,” said Thomas Elam, president of FarmEcon, LLC, an agricultural economics consulting firm, and author of the study.
“Higher costs would put upward pressure on chicken prices, and economic theory strongly suggests that consumers would ultimately bear most of these costs,” he added.
Elam said that wouldn’t even count the potential costs of litigation, lost export sales and increased consumer prices, according to the FarmEcon study, which was the first to specifically analyze the impact the new rules would have on the meat chicken industry.
First established in 1954 in Richmond, Va. as the National Broiler Council, the NCC represents integrated chicken producer-processors, which account for more than 95 percent of the chicken sold in the United States.
Under the rules proposed by the USDA’s Grain Inspection, Packers & Stockyards Administration (GIPSA), the relationship between the nation’s chicken companies and the independent farmers growing chickens under contract would dramatically change, which would also impose similar modifications in the production and marketing system for cattle and pigs.
While the GIPSA claimed the changes would have little economic impact on the industry, Elam said the proposed rules would most certainly alter long-standing contractual and business relationships between chicken companies and independent growers.
“The changes that are proposed are, in part, designed to broaden the scope of GIPSA authority, reduce the latitude to pay growers based on their performance, limit the ability of chicken companies to seek grower investments, and set new requirements for cessation or reduction of delivery of birds to growers,” he said.
“The most likely economic effects would be a reduction of performance-based competition among growers, a reduced rate of capital investment, a reduced rate of efficiency gains, higher chicken prices, and reduced chicken exports,” he added.
In the study, Elam wrote that the cost burden from all identified sources would increase over time, reaching about $337 million per year in 2015, with the total identified cost over the first five years targeted at about $1.03 billion. Despite the chicken industry achieving what Elam called “exemplary” efficiencies, as well as technological and management improvements that have lowered production costs, consumer prices, and increased chicken production and exports, he said the new rule would introduce inefficiencies into the system, which would increase production costs.
For example, although companies don’t normally run technical analyses, called “assays,” on every load of feed delivered to chicken farmers, the rule could require a feed analysis to be available for each load of feed delivered to a grower, eventually costing more than $20 million per year, Elam said.
Elam also said less efficient use of what he referred to as “growout houses” in which chickens are raised would lead to “a need for about $150 million over five years in costs to operate additional space, and could cause the chicken companies to consider building their own growout houses.”
More than 95 percent of chickens are now raised in growout houses owned by the farmers rather than the companies.
By changing the system under which farmers are paid by the companies to grow their chickens, Elam said the rule would also reduce the incentive for farmers to improve their facilities.
Without the level of upgrades normally expected, Elam added that more feed would be needed to produce the chickens, costing an extra $644 million from 2011-15.
Mark Dopp, senior vice president of regulatory affairs and general counsel at the American Meat Institute (AMI), said the study confirmed the findings of a recent AMI economic impact analysis: that the USDA rule’s impact would be significant and that “the USDA erred in concluding that its impact was below the $100 million threshold that triggers additional government economic impact assessments.”
“Couple the studies’ findings with the recent letter from 115 members of the U.S. House who noted the absence of a thorough economic analysis, and asked USDA Secretary Tom Vilsack to conduct such a study, and it seems to me that the Department’s marching orders are clear,” he said.
To view the full FarmEcon study, visit www.nationalchickencouncil.com |
