There has been much talk about why and how to convert gestation-sow housing from crates to pens. Proponents rally around the belief that it’s “better for the animal,” even though there is no scientific data or evidence to support that claim. Or there’s the contention that “consumers demand it” — again, that’s more of a belief than a reality.
There has been little serious talk or data regarding the cost to the producer or consumer. As for the sow, the price it faces literally is in the hands of the person managing the system, regardless if it involves using pens or crates.
Just recently, Brian Buhr, University of Minnesota agricultural economist, turned his attention to finding answers to the cost question. With funding assistance from the National Pork Board and National Pork Producers Council, he performed an economic analysis to measure the impact of transitioning U.S. pork production from gestation-crate housing to group pens under a regulatory mandate. He looked at the capital cost of such a transition, as well as the potential production impacts, and then extrapolated the cost to consumers.
To assess the production sector’s actual physical conversion, he included a trickle-feed system that houses pens of six or fewer sows, and an electronic-sow-feeding system (ESF) with large pens that house 50 to 60 sows. Both systems were scaled to align with commercial production settings of 2,400 and 1,200 sow units.
“The capital replacement costs are modeled so that the additional cost to retrofit or replace an existing barn before the end of its depreciable life (25 years) results in increased capital costs but no improvement in revenue if productivity is changed,” Buhr points out.
To consider a wider, industry view, Buhr considered the number of facilities that would need to be replaced or retrofitted, as well as their age, in order to reflect the buildings’ loss of “useful life.” He used USDA data, which estimates that 1,725 barns with 1,200 sow units would need to be converted, along with 1,370 barns that house 2,400 sows. “No information is available on barn age, so that was assumed to be uniformly distributed over 25 years,” Buhr adds.
He then considered three scenarios:
The conversion from crates to pens involved no productivity costs, leaving capital costs the sole consideration.
In addition to capital costs, he assumed some decline in productivity for a two-year transition period. “That’s the most likely scenario,” Buhr says.
Finally, he extended the productivity decline for the life of the facilities. “This would be the worst-case scenario,” he adds.
Tally it all up, and Buhr projects that losses to the U.S. pork production sector would range between $1.87 billion and $3.24 billion.
“The shorter the transition period, the greater the losses will be,” he notes. “If productivity losses are permanent, depending on the producers’ ability to manage pen facilities, then the losses will increase.” Buhr says the best option is to let producers convert gestation barns at the end of a facility’s useful life — and encounter no productivity loss.
Even under that scenario, there will be competitive differences among producers and regions, as those with facilities of an older average age will benefit more than those with newer facilities.
To further evaluate the impact of sow productivity, depreciable life of facilities and the transition period, Buhr ran a sensitivity analysis reflecting a 10 percent change in these key variables and the “net present value producers will receive after the transition.” Not surprisingly, the results showed that variables such as farrowing rate, pigs born per litter and litters farrowed per breeding female annually have the greatest impact on profitability. “Capital costs are not as crucial because the one-time transition is eventually amortized from the production system,” Buhr points out.
Regarding market impact, there will be supply and demand adjustments, at least during the transition. The anticipated decline in pork production also can be expected to push prices up. That, in turn, will influence domestic and export pork purchases, and Buhr expects beef and chicken to benefit as customers look for pork substitutes.
“The key implication is that pork producers would lose $1.5 billion — less than half the approximate $3.2 billion they would lose if you don’t account for market adjustments,” Buhr says. “As is typical of commodity market increases, consumers bear the greatest increases, resulting in an estimated $5 billion loss to consumers.”
In the export market, gestation-sow housing restrictions would definitely place U.S. pork producers at a competitive disadvantage if other countries’ producers don’t adopt similar standards.
Proponents of gestation-sow housing regulations often point to consumers “demanding” such change, and they contend that consumers will pay for it. However, the free market currently does not compensate producers adequately for such actions. “To fully compensate pork producers would require consumers to willingly pay an additional 25 percent more for pork products from sows housed in gestation pens,” Buhr points out.
Research has shown that only a small subset of consumers is willing to commit that level of extra cash. Essentially all others would be “taxed by a regulation that mandates such a costly production practice,” he says.
Buhr concludes that the best approach is to allow producers to convert from gestation-sow crates to pens at the end of a facility’s useful life. “But only if it can be determined that there are no declines in productivity or animal welfare,” he adds, both of which will require additional research in real-world settings.
“Perhaps the best alternative is to develop labeling and certification programs that would allow producers and consumers to more effectively participate in the effort,” Buhr says. “This would avoid the aggregate cost impacts of a large-scale, mandatory transition and allow consumers to target their spending to preferred animal-rearing methods and products.”