Study Examines Cost of New US Organic Egg Programme Options07 April 2014
US - Proposed changes to the National Organic Program from egg producers could worsen the economic prospects for larger organic egg producers and cause them to leave the organic sector, according to new research from North Carolina.
In study of the economic effects of proposed changes in living conditions for laying hens under the National Organic Program, one of the options was found to be welfare-neutral as the conditions are already met by the majority of egg producers.
Another option appears to be economically beneficial but it may cause larger producers to exit this sector of the market.
In this paper, published in Journal of Applied Poultry Research, Tomislav Vukina of North Carolina State University and co-authors report their study to estimate the costs and benefits of implementing the proposed National Organic Program for laying hens compared with alternatives.
For the regulatory proposals under option 2, the regulatory cost will be zero because most producers are already in compliance with the proposed regulation. The anticipated benefits of this regulation will be zero as well because the current market prices already reflect consumers’ willingness to pay for the existing animal welfare conditions.
For the regulatory proposals under option 3, before market adjustments, the average regulatory burden for the entire organic egg industry will amount to $0.09 per dozen eggs, with extreme variations between $0 for small operations and $2.30 per dozen for large operations.
Based on the average price of organic eggs - $2.69 per dozen - and assuming a maximum estimated benefit associated with improved animal welfare conditions, that consumers would be willing to pay of about 30 per cent above the current market price, the estimated benefit of regulation amounts to $0.81 per dozen eggs.
Based on the findings, the North Carolina group concludes that option 2 is welfare-neutral and could be easily adopted because it already has been adopted by representative producers.
For option 3, the benefit-cost ratio is larger than 1, which indicates that the proposal passes the benefit-cost ratio test.
However, they warn that the result requires interpretation with serious reservation because of the differential effect that the proposed regulation would have on different industry participants.
Under option 3, the effect of the proposed changes on small organic egg producers is negligible because most small producers are operating under conditions similar to the proposed living standards.
However, Vulkina and co-authors add that costs will increase substantially for large organic egg producers and likely cause a substantial number of producers to exit organic production and switch to conventional production, which would cause a substantial decline in the prices of conventional eggs and organic feed in the short run.
Vukina T., K. Anderson and M.K. Muth. 2014. Economic effects of proposed changes in living conditions for laying hens under the National Organic Program. J. Appl. Poult. Res. (March 2014) 23:80-93. doi: 10.3382/japr.2013-00834
You can view the full report (fee payable) by clicking here.