Back in November 2018, 63% of California poll-goers voted in favor of Proposition 12. The effect of the passage of Prop 12 is to require shell eggs sold in the state to come from cage free production systems. For pork, Prop 12 would impose certain space requirements and effectively ban the use of some housing practices like gestation crates. Prop 12 was slated to take effect on Jan. 1, 2022.
Prior to implementation, many good economic studies were conducted to estimate the potential impacts of Prop 12 on the prices and consumption of eggs and pork in California. For example, this excellent paper by Sohae Eve Oh and Tom Vukina, which was just released by the American Journal of Agricultural Economics, projected that because of Prop 12 in California, “the new marginal costs of what used to be conventional eggs would increase, on average, by 56%. The prices of originally conventional eggs would increase by 65%.” Other studies by Barry Goodwin and by Dan Sumner and Rich Sexton and by Christine McCraken have provide estimates of the cost of Prop 12 on the pork industry.
Now that January 1, 2022 has come and past, what’s actually happening?
For eggs, it appears that the rules around Prop 12 have taken place and are in force. To get a sense of what impact the policy is having, I took a look at the data reported by the USDA in the National Shell Index Price Report. Because the report lists 5-day rolling averages of wholesale prices, I looked at the Friday report of egg prices in California and for the U.S. for the weeks just before and after the first of the year.
Unsurprisingly egg prices in California are higher than in the rest of the U.S. What’s more relevant to the debate around Prop 12 is how that price premium has changed. The average gap between California and U.S. egg prices jumped from 70 cents/dozen prior to Jan 1st to 142 cents/dozen after Jan 1st. As we and others have done in other studies of the effects of prior California egg policies (e.g., see here, here, or here), we can calculate the so-called difference-in-difference, which in this case amounts to 142-70=72 cents/dozen.
That is, California egg prices are 72 cents/dozen more expensive after the 1st of the year than they would have been if the California price-premium had staid at 2021 levels. The California premium jumped 103%. If I apply this changed to premium to the average national egg prices after the 1st of the year, it implies an increase in egg prices in California of about 85%. Why is this observed jump (85%) higher than the projections by Oh and Vukina (65%)? Hard to know, but as Dan Sumner pointed out in a comment on my paper with Conner Mullally on the effects of a prior California animal welfare regulation, legal and regulatory uncertainty can have effects above and beyond the direct effect of the policy itself. Whatever the causes, the evidence here suggests Prop 12 is having significant price impacts on the prices of eggs in California, at least in the initial month following implementation.
Speaking of regulatory uncertainty, let’s turn now to pork. It appears implementation of Prop 12 for pork has been put on hold for at least a few months because the state of California has yet to release final rules, and a state judge pushed off enforcement until final rules are released. So for now, we’ll have to satisfy ourselves with the aforementioned ex ante projections of the potential impacts of the policy on pork prices. For what it’s worth, here’s a slide I prepared for a talk yesterday where I used some of the previous pork demand estimates from an analysis with Glynn Tonsor, coupled with an economic model, to project potential of Prop 12 if it is conceptualized as a tax.
Finally, in case you missed it, my University President, Mitch Daniels, recently weighed in on Prop 12 in an op-ed in the Washington Post.
