The Cost of Animal Welfare Regulations

I was interviewed by Joshua Miller for a story in Boston Globe about an upcoming voter initiative in Massachusetts that would ban the sale of animal products that come from production systems that do not allow the animals to turn around or fully extend their limbs.  As is usual in these stories, there is a lot of back and forth and speculation about the potential cost implications.  

I'm happy to report that we don't have to speculate nearly as much.  We now have some solid research on the topic related to the impacts of the animal welfare laws that went into place in California at the first of this year.  

The first is a paper with Conner Mullally, where we use grocery store scanner data in California and non-California locations to study the change in egg prices caused by the new animal welfare laws in that state.  We find the new laws increased egg prices in California by about $0.75/dozen. The abstract:

New animal welfare policies on the horizon in many states have prompted debates
about the cost of achieving happier hens and hogs. A recent policy change in California
offers a unique opportunity to measure the economic repercussions of minimum space
requirements for egg-laying hens. Using retail scanner data from large California and nonCalifornia markets, we use difference-in-difference estimators to identify the effect of
minimum space requirements on retail egg prices, quantity sold, and sales value, while also
estimating impacts of the policy change on consumer welfare and egg producer net
revenue. We estimate that the law increased egg prices by about 22%, decreased quantity
sold by around 8%, and increased the value of sales by about 12%; the price and sales
effects are statistically significant at conventional levels. In the three California markets
included in our data set, consumer welfare losses amount to approximately $30 million
over the 16 weeks immediately following implementation of minimum space requirements
while net revenue from eggs sold in the three California markets increased by between 11%
and 15% over the same time horizon. Positive impacts on producers may have been short
lived, however, and were likely concentrated among producers located in California. Our
results are robust to several tests of our identifying assumptions. Overall, our findings
indicate that the potential economic costs of mandated improvements in farm animal
welfare should be taken seriously when considering such policy changes.

And a key graph:

The second paper, with Trey Malone, looks at price changes in California relative to the US overall using price reports from the USDA Agricultural Marketing Service (this data set doesn't have quantity or sales data).  The abstract:

California voters passed Proposition 2 in 2008, which outlawed the use of battery cages. Subsequent legislation also outlawed the sale of eggs from battery cages in the state. While a number of ex ante studies have attempted to project the effects of the housing prohibitions, the ultimate ex post effects are unknown, in part because the law was only recently implemented. Using a new price series reported by the USDA Agricultural Marketing Service, we study the movement of daily egg prices in California and the rest of the United States from January 2014 until July 2015. Using two different methods, we calculate difference-indifference estimates to identify the effect of Proposition 2’s implementation on egg prices.
Depending on the method and model specification used, we find that Californians now pay $0.48 to $1.08 more for a dozen eggs. The estimates suggest that the laws result in a reduction in consumer surplus of between $400 million and $850 million annually.

A key figure from the paper.  Unlike the data directly from the retail level used in the first paper, these USDA-AMS data show CA and non-CA prices rising before the January 1 implementation date, though the gap between the two widens afterward.

It's comforting when you have two different papers using two different data sets and different methods that yield similar results.  And it appears that the removal of the so-called battery cages in California have led to a price increase of $0.50 to $1.00 per dozen eggs.  Given that our first study shows little movement in quantities, the data suggest the price change is a result of increased cost (or reduced supply) not because consumer demand for eggs increased as a result of the change in hen living conditions.