That’s the title of a new article I’ve published in the American Journal of Veterinary Research.
A couple months ago, the FDA approved the use of genetic engineering to gene edit pigs to make them resistant to a disease that has ravaged the industry for decades: porcine reproductive and respiratory syndrome (PRRS). Pork producers have a number of key questions and concerns about the new technology. One fear is that the technology will “flood the market” with pork and depress prices. Another concern is that consumers will reject the new technology, resulting in lower consumer willingness-to-pay for pork or trade barriers placed on countries that adopt. This paper addresses both concerns.
I constructed an economic model to calculate the potential economic impacts of the release of PRRS-resistant pigs using data on PRRS-prevalence rates and data pigs-per-sow-per-year and mortality rates of pigs in different PRRS health statuses, provided by the Pig Improvement Company (PIC) which is commercializing the PRRS-resistant pig. More specifically, a model linking hog supply to consumer pork demand in 6 global regions, Canada, China, Japan, Mexico, the US, and the rest of the world, was constructed and parametrized using pork production and trade statistics, published supply and demand elasticities, PRRS prevalence rates, and productivity metrics by PRRS health status. The model projects changes in pork prices, production, trade, and producer profits in each country. I model a scenario in which global adoption of PRRS-resistant pigs increases over a 10 year period, with PRRS-resistant pigs ultimately reaching 70% of the swine herd in adopting countries by the 10th year.
Consistent with many producers’ concerns, I find that adoption of PRRS-resistant pigs is projected to increase pork production and reduce pork prices. However, it is also the case that the increase in pork productivity and the concomitant reduction in marginal costs of pork production are sufficient to increase pork producer profitability despite lower prices. The new technology allows producers to sell more pork at a higher net margin. Net margins rise because although pork prices fall, marginal costs fall even more.
The results also suggest that although demand reduction and trade barriers can offset some of the benefits of the technology, it all depends on the magnitudes. For example, even in an extreme scenario where retail consumers’ willingness to pay for pork from locations adopting PRRS-resistant pigs falls by 10% in every location after initial adoption (i.e., before any productivity gains are fully realized), the demand reduction initially has a detrimental effect on profitability in most locations up until about year 5, when the beneficial productivity effects of additional adoption of PRRS-resistant pigs begins to outpace the effects of the 10% reduction in willingness to pay.
From the abstract:
“In the baseline scenario (70% adoption over 12 years), assuming no change in pork demand or additional cost of swine genetics, the marginal cost of production declines and pork prices fall while pork production increases in adopting countries by 11% in China to 7% in the US and Canada, and pork production falls in nonadopting countries. In the 15th year after initial adoption, profits for pork producers increase, ranging from $33/head in China to $15/head in Canada relative to preadoption baseline. Producers in the rest of the world, who are assumed not to adopt, are less profitable.”
There is a lot more in the paper, including discussions on additional benefits, risks, and costs of the technology.