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<h1>Analysis in Support of Certification that the Rule will not have a Significant Economic Impact on a Substantial Number of Small Entities</h1>
<h1>Interim Rule</h1>
<h1>Removal of Japan from the list of foot and mouth disease (FMD) free regions.</h1>
<h1>APHIS-2010-0077</h1>
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<h2>U.S. Department of Agriculture</h2>
<h2>Animal and Plant Health Inspection Service</h2>
<h2>July 2010</h2>
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<p>Summary</p>
<p>This analysis provides the basis, as required by the Regulatory Flexibility Act, for certification by the APHIS Administrator that this interim rule, if promulgated, will not have a significant economic impact on a substantial number of small entities.  In April 2010, the Japanese Ministry of Agriculture, Forestry, and Fisheries announced a series of foot and mouth disease (FMD) outbreaks in Japan.  The interim rule will remove Japan from the list of regions considered free of FMD and restrict the importation into the United States of live ruminants and swine, as well as fresh meat from these species, from that country.  </p>
<p>The cattle and swine industries in the United States are becoming increasingly concentrated.  However, the cattle industry is still characterized by numerous farms with a few cattle or calves.  Most beef cattle and hog and pig operations are well below the Small Business Administration’s small-entity standard of $750,000 or less in annual receipts.  In 2007, almost 89 percent of all cattle operations were family farms, but only 19 percent were classified as small family.  Family farms made up 85 percent of hog and pig operations, but less than 5 percent were classified as small family farms.</p>
<p>Japan exported less than $6 million of fresh beef to the United States in 2009, compared to total U.S. fresh (chilled or frozen) beef imports of over $2.3 billion.  While we expect the interim rule to have negligible economic effects for U.S. entities generally, we note that beef imported from Japan is a unique product that serves a high-priced specialty markets for "Wagyu beef."   Although entities that purchase Wagyu beef from Japan will be affected by the rule, farms in the U.S that raise Wagyu cattle may benefit from the prohibition of beef from Japan. </p>
<p>APHIS does not expect the interim rule to have a significant economic impact on a substantial number of small entities producing cattle and hogs.</p>
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<p>Introduction</p>
<p>In April 2010, the Japanese Ministry of Agriculture, Forestry, and Fisheries announced there was a series of Foot and Mouth Disease (FMD) outbreaks in Japan.  The proposed interim rule would remove Japan from the list of regions considered free of FMD and prohibit export of live ruminants and swine, as well as fresh meat from these species to the United States.  The Animal Health Protection Act authorizes the Secretary to prohibit the importation of animals or animal products when necessary to prevent the introduction or dissemination of livestock diseases.  Therefore, this action is necessary to prevent the introduction of FMD virus in the United States via affected commodities from Japan.</p>
<p>  The outbreak of FMD already has had an impact on the major beef and swine producing regions of Japan.  However, Japan exported less than $6 million of fresh beef to the United States in 2009, compared to total U.S. fresh (chilled or frozen) beef imports of over $2.3 billion—less than 0.3 percent of the total.  While we expect the interim rule to have negligible economic effects for U.S. entities generally, we note that beef imports from Japan are a unique product that serves a high-priced specialty market.  The specialty meat, called "Wagyu beef," is obtained from purebred Japanese cattle genetically predisposed to intense marbling, and is produced according to rigid standards.  The term “Kobe beef” refers to Wagyu beef that is produced in the Kobe area of Japan.  Entities that purchase Wagyu beef from Japan will be affected by the rule.    </p>
<p>As cattle and swine are culled due to FMD outbreak and supplies of beef and pork products become tighter in Japan, there may be an increase in the demand for U.S. beef and pork products.   Meats are the largest component of Japan's agricultural imports, accounting for about 20 percent of imports in recent years.  Japan was the world’s largest importer of pork in 2009, with the United States supplying more than 40 percent of Japan’s pork imports.  Existing restrictions could limit the extent to which quantities of U.S. beef and pork exported to Japan may be indirectly affected by this rule.  </p>
<p>Cattle and Swine Industries</p>
<p>According to the 2007 Census of Agriculture, of the 963,669 farms with cattle and calf inventories, about 766,350 were classified as beef cow operations.  Overall, the U.S. cattle industry is characterized by numerous farms with a few cattle or calves. Farms and ranches specializing in beef cattle were the most common type of all agricultural operations in the United States, accounting for 31 percent of all operations and 21 percent, by value, of all agricultural products sold in the United States.  The average beef cow herd has about 40 head; about 50 percent of the total cattle inventory in the United States is managed by cattle operations with herds of 100 or fewer head. </p>
<p>	However, the cattle industry is concentrated with more than 50 percent of the total value of U.S. sales of cattle and calves coming from five States: Texas, Kansas, Nebraska, Iowa, and Colorado.  In addition, of the 766,350 beef cow operations, approximately 35,000 farms (5 percent) produced around 75 percent of the total value of U.S. sales of cattle and calves.[footnoteRef:1]   The total cash value of the U.S. cattle inventory exceeded $89 billion in 2007 and the average value per head of cattle sold in the United States was $922.[footnoteRef:2]   [1:  USDA-NASS, 2007 Census of Agriculture: Cattle Production. Washington, D.C.: National Agricultural Statistics Service.]  [2:  USDA-NASS, Agricultural Prices 2007 Summary. Washington, D.C.: National Agricultural Statistics Service, Agricultural Statistics Board, Pr 1-3 (08) a, P.68, July 2008.] 
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<p>Similarly, the U.S. swine industry reflects structural changes in production practices that have occurred in the past 20 years.  The number of farms declined more than 70 percent as hog enterprises have grown larger and more specialized.[footnoteRef:3]  Although there were 74,789 farm operations with hog and pig sales, 30,546 or about 41 percent were classified as hog and pig operations and accounted for about 87 percent of the total hog and pig inventory according to the 2007 Census of Agriculture.  More than 50 percent of the total value of U.S. sales of hogs and pigs comes from 3 states: Iowa, North Carolina, and Minnesota. [footnoteRef:4]  The 2007 Census of Agriculture shows U.S. sales of hogs and pigs totaled $18.1 billion and accounted for 6 percent of all agricultural products sold in the United States during 2007.   [3:  Nigel Key and William McBride. The Changing Economics of U.S. Hog Production. Washington, D.C.: USDA-ERS,  Economic Research Report No. (ERR-52) 45 pp, December 2007. ]  [4:  USDA-NASS, 2007 Census of Agriculture: Hog and Pig Farming. Washington, D.C.: National Agricultural Statistics Service, 45 pp, December 2007.] 
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<p>  Small Entities</p>
<p>The Regulatory Flexibility Act requires agencies to consider whether a rule will “have a significant economic impact on a substantial number of small entities.”[footnoteRef:5]  The Small Business Administration’s (SBA) small-entity standard for Beef Cattle Ranching and Farming and Hog and Pig Farming is $750,000 or less in annual receipts.[footnoteRef:6]  According to the 2007 Census of Agriculture, average annual sales for beef cattle operations and hogs and pigs were about $100,396 and $241,439, respectively, well below the SBA standard.   [5:  SBA-Office of Advocacy, A Guide for Government Agencies: How to Comply with the Regulatory Flexibility Act. Washington DC, U.S. Small Business Administration, p. 8, September 2009.]  [6:  Table of Size Standards based on NAICS 2002 [Beef Cattle Ranching and Farming: NAICS code 111211]. Washington, D.C.: U.S. Small Business Administration, effective October 1, 2007.] 
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<p>Small family operations, defined by USDA as family farms with gross sales of less than $250,000, are at the lower end of SBA’s small-entity standard.[footnoteRef:7]  These farms are further divided into two subcategories: operations with lower sales (gross sales less than $100,000) and operations with higher sales (gross sales between $100,000 and $249,999).  Based on the 2007 Census of Agriculture, family farms made up almost 89 percent of all cattle operations, but only 19 percent were classified as small family farms.  Thirteen percent of the family farms were in the lower sales category, while 6 percent were in the higher sales group.[footnoteRef:8]  Family farms made up 85 percent of hog and pig operations, but less than 5 percent were classified as small family farms.[footnoteRef:9] [7:  Any farm where the operator and persons related to the operator own a majority of the business is considered a family farm.  The National Commission on Small Operations selected $250,000 in gross sales as the upper boundary for small operations.  USDA, ERS. Structure and Finances of U.S. Family Operations: Family Farm Report, 2007 edition, EIB-24.]  [8:  USDA-NASS, Census of Agriculture, 2007.  Washington, D.C.: National Agricultural Statistics Service.]  [9:  USDA-NASS, 2007 Census of Agriculture: Hog and Pig Farming. Washington, D.C.: National Agricultural Statistics Service.
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<p>Impact</p>
<p>Although the outbreak of FMD already has had an impact on the major beef and swine producing regions of Japan, the interim rule prohibiting the importation of live ruminants and swine or fresh, chilled, or frozen  ruminant and swine products from Japan should not have a significant economic impact on the cattle or swine industries in the United States.  In 2009, Japan only exported about 154,324 pounds (70,000 kg) of fresh and chilled beef valued at about $6 million to the U.S, while Japan imported about 77 million pounds (35 million kg) of fresh or chilled beef valued at over $212 million.  In addition, the US exported around 635 million pounds (288 million kg) of fresh, chilled, or frozen pork valued at $1.6 billion to Japan.  The prohibition of ruminant and swine from Japan should not affect the supply of domestic beef or pork for U.S. consumers.  </p>
<p>While we expect the interim rule to have negligible economic effects for U.S. entities generally, we note that beef imports from Japan are a unique product that serves a high-priced specialty market.   The specialty meat, called "Wagyu beef," is obtained from purebred Japanese cattle genetically predisposed to intense marbling, and is produced according to rigid standards.  The term “Kobe beef” refers to Wagyu beef that is produced in the Kobe area of Japan.  Farms in the U.S that raise wagyu cattle may benefit from the prohibition of beef from Japan, but entities that purchase Wagyu beef from Japan will be affected by the rule.   </p>
<p>The interim rule is not expected to have an immediate, significant economic impact on small entities producing beef and swine products in the United States.  In the longer term, we expect there to be potential benefits for small entities attributable to the rule.  As cattle and swine are culled due to FMD outbreak and domestic supplies of beef and pork products become tighter in Japan, there may be an increase in the demand for U.S. beef and pork products.   Meats are the largest component of Japan's agricultural imports, accounting for about 20 percent of imports in recent years.  Japan was the world’s largest importer of pork in 2009, with the United States supplying more than 40 percent of Japan’s pork imports.  </p>
<p>Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action would not have a significant economic impact on a substantial number of small entities.</p>
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