How will California’s Proposition 12 impact the U.S. pork industry? An analysis by Barry Goodwin, an economist at North Carolina State University, predicts dramatic changes–including the loss of small farms and further consolidation of the industry–as a result of Proposition 12 compliance costs. [Source: Farm Journal’s Pork 1 June 2021, by Jennifer Shike]
In short, Goodwin says the costs to producers will be catastrophic. He explains that the stresses placed on the entire production and marketing chain will favor larger processors, thereby leading to ever-increasing consolidation and concentration of the industry.
California Issues Proposed Rules for Implementing Prop 12
On May 28, the California Department of Food and Agriculture issued its proposed rules for implementing Proposition 12. The rules were required to be finalized by Sept. 1, 2019. Now, nearly two years later, the proposed rules are out and open to public comment.
The public comment period ends July 12. Any person may submit written comments regarding this proposal according to the instructions contained in the Notice of Proposed Action. The National Pork Producers Council (NPPC) is currently reviewing the proposed rules and plans to file comments.
NPPC President Jen Sorenson sent a letter to USDA Secretary Tom Vilsack on May 27 requesting assistance for the pork industry as it faces these "catastrophic" costs to implement Proposition 12.
"The challenges U.S. hog farmers face from Proposition 12 are daunting and come on top of the ravages of trade retaliation in 2018-19 and the shock of COVID-19 in 2020," Sorenson wrote. "Hog farmers are also faced in 2021 with a federal district court decision which, if left unchecked, will result in a loss of 2.5% of national pork harvest capacity — handing pork packers more market power at the expenses of hog farmers, especially smaller producers."
Proposition 12, set to go into effect on Jan. 1, 2022, will impose animal housing standards that reach far outside the state’s borders to farms across the country, NPPC commented in Capital Update, while driving up costs for both pork producers and consumers.
NPPC and the American Farm Bureau Federation have filed a lawsuit in the U.S. Court of Appeals for the Ninth Circuit, asking the court to strike down Proposition 12 as unconstitutional under the dormant commerce clause. Oral arguments were held in mid-April and a court ruling is anticipated by mid-summer.
Shockwaves Won’t Be Limited to California
"Rabobank estimates that California, which consumes 15% of the U.S. pork supply, will see supplies cut by more than 50%. Much of the pork that was previously destined for California will likely be diverted to other states, causing the value of pork in other states to crash. So, while California consumers will see astronomical increases in the price of pork, pork markets outside of California will be forced to absorb a wave of surplus pork and crashing values for market hogs from noncompliant sows," Sorenson wrote to Vilsack.
While this is happening, hog farmers will be forced to incur the costs of extensive renovations or the construction of new facilities – currently estimated at $3,500 or more per sow, she noted in her letter. Hog farmers will also face losses in productivity as they move to new production and management systems.
"This lost productivity will be especially acute in the short run, as new systems are mastered. The new production systems will lead to increased stress on breeding sows, which in turn will lead to lower fertility and embryo survival rates. The industry will be required to take on new identity and market segmentation procedures. This will involve considerable changes in the logistics of pork product distribution," she explained in her letter.
NPPC requests assistance from the USDA and the Biden administration to help hog farmers address the harm caused by Proposition 12.
Watch Farm Journal’s PORK’s webinar with industry experts Hyatt Frobose of Gestal, Christine McCracken of Rabobank and William J. Friedman of EarthClaims LLC, weigh in on California’s animal welfare regulation, Proposition 12, from an economic, production and compliance perspective.