Is California Shadow Banning Bacon?
Last week, I read that Californians would be unable to buy bacon in 2022. That's alarming news for anyone who likes to eat pork. But, is it true?
Background: In 2018, California voters passed Proposition 12 with a 60% majority. This proposition aimed to reduce animal cruelty by specifying the eggs, pork, and veal sold in the state cannot come from animals confined in small spaces. Under this law, uncooked “whole pork” sold in California after January 1, 2022 must come from breeding sows or their offspring that have at least 24 square feet of floor space.
US producers slaughter about 11 million hogs per month, which is 60% more than 35 years ago. Much of this increased production is exported; almost a quarter of US pork is now goes to other countries. US consumption per capita has remained constant at 52 pounds per person per year over the same period.
California produces less than 1% of the US total, yet it consumes about 13% of the nation's consumption. Thus, proposition 12 regulates producers in other states, which has led various industry groups to challenge its constitutionality. Last month, the Supreme Court declined to hear a case arguing that this is unconstitutional, and the ninth circuit ruled last week against another challenge to the law.
Iowa is by far the largest pork producing state, followed by Minnesota and North Carolina.
Hog operations have grown larger in recent years. In 2019, 70% of hogs were on farms containing more then 5000 head, up from 40% in 1997. Only 5% of hogs are now in herds smaller than 2000 head. This change reflects economies of scale in hog production. Large firms typically are able respond better to regulation than small firms because they are more flexible and have access to cheaper capital.
So, how will Proposition 12 affect California pork consumers? First, California consumers will be able to buy pork if they want to. Sometimes supply bottlenecks cause products to disappear from store shelves (e.g., toilet paper during the early stages of the COVID-19 pandemic), but if consumers want a product, firms will figure out how to get it to them. There is no law of physics preventing producers from keeping sows in larger pens; it just costs more.
The real question is how much it will cost and who will pay. My UC Davis colleagues Hanbin Lee, Rich Sexton and Dan Sumner detail these costs in this working paper. They tabulate costs throughout the supply chain, but their key point is that 30% of North American sows are currently kept in group housing. These are the operations that can most easily adapt to Proposition 12 because they can reduce the number of sows per pen. In contrast, facilities that use gestation stalls exclusively would need to rebuild their facility, so they will not be responding to the California regulation.
Lee, Sexton and Sumner estimate that California pork will increase in price by $0.25 per pound, or 7.7%. Californians will respond to the higher price by cutting back on consumption, but those who want their bacon will be able to buy it.
Producers are able to pass most of the cost along to consumers because pork demand is much less elastic than supply. Pork supply is elastic because the industry can expand without pushing up the prices of inputs by much. As I wrote two weeks ago, the ability to pass through regulatory costs depends on the elasticities of customer demand and input supply. The most inelastic components will absorb the impact.
Proposition 12 is part of an ongoing trend to impose animal welfare regulations on animal agriculture. Europe banned gestation crates for sows in 2013. California regulated the size of cages for egg-laying chickens in 2015 and several states have since followed suit (that's a topic for a future article)
Most people say in surveys and at the ballot box that they value animal welfare, yet most of them aren't in a position to do anything about it. Moreover, people often don't put their money where their mouth is --- they vote to ban cages for egg-laying chickens, while simultaneously choosing not to buy the more expensive cage-free eggs. I do not think this is irrational behavior. They are willing to pay extra for animal products, but only if everyone else also does. Their own purchase decisions will have little effect, but collective action can change the system.
I think animal welfare is best viewed as a collective action problem. Most people want to do something and regulation enables them to do something. It is important for economists to continue to quantify the costs of these regulations and for animal scientists to analyze the benefits. Are these hogs better off being able to move even though they may face higher risk of disease? Based on my own preferences, I would say "yes, definitely", but it is important for experts to inform the public to enable smart regulation.
I made the graphs using this R code.