### United States

Department of Agriculture Animal and Plant Health Inspection Service May 2011 **Analysis in Support of Certification that the** 

**Rule will not have a Significant Economic Impact on a Substantial Number of Small**  **Entities**
**Final Rule**  **APHIS -**  **2008 -**  **0043 RIN 0579**  **- AD20**  **Importation of Live Swine, Swine Semen, Pork, and Pork Products; Estonia,**  **Hungary, Slovakia, and Slovenia** 

Policy & Program Development Policy Analysis & Developmenti



### Summary
The rul e will allow the importation of live swine, swine semen, pork, and pork products from Estonia, Hungary , Slovakia, and Slovenia. Pork imports from these countries will compete with imports from Canada and Denmark, currentl y the United States’ largest suppliers of pork. Given the United States’ position as one of the largest pork exporters in the world, the market impacts resulting from the small amount of imports expected to come from the four countries will likely

be minimal. We analyze the potential effects of the rule b y modeling three levels of pork imports from Estonia, Hungary , Slovakia, and Sl ovenia. Estimated impacts include annual changes in U.S. consumption, production, the wholesale price, consumer welfare, producer welfare, and net welfare. We estimate that p ork imports of about 10,000 MT per ye ar from the four countries

— 10 percent of th eir combined global exports

— would result in a decline of $0. 93 per MT (0.06 percent decrease) in the wholesale price of pork and a fall in U.S. production of 5,350 MT (0.05 percent decrease) . Consumption would increase by 4,836 MT . Producer welfare would decline by about $ 7.8 million and consumer welfare would increase by about $ 8.2 million, yielding an

annual net welfare benefit of about $0.4 million. For each of the assumed levels of pork imports, consumer welfare gains would outweigh producer welfare l osses. Even in the described scenario , the decline in producer welfare would represent less than six

- hundredths of one percent of cash receipts from the sale of hogs in 200 9

. A majority

of enterprises that could be affected by the regulation are small entities. Entities in the category

Hog and Pig Farming (NAICS 112210) are considered small if their annual sales do not exceed $750,000. According to the 2007 Census of Agriculture, over 89 percent of swine operations are classified as small and had average yearl y sales of about$44,680. Entities in the category Animal (Except Poultry) Slaughtering (NAI CS 311611) are considered small if they

have not more than 500 employees. As reported in the 2007 Economic Census, over 90 percent of 1,597 establishments in the industry classification that includes hog slaughtering facilities had fewer than 100 emplo yees. The impact of the rule for the U.S. pork industry is expected to be insignificant; we estimate that the average decrease in welfare for small

- enti ty producers for the highest assumed level of imports (about 10,000 MT) would be less than $15 per small entity, that is, about 0.03 percent of average annual sales. Based on the factors presented, the rule will not have a significant economic impact on a substantial number of small entities.

### Introduction

This analy sis provides the basis, as required by the Regulatory

Flexibility

Act, for certification by

the APHIS Administrator that the rule will not have a significant economic impact on a substantial number of small entities. This analy sis examines impacts for U.S. small entities of potential pork imports from four countries

—Estonia, Hungary , Slovakia and Slovenia

— newl y recognized as low

- risk regions for cl assical swine fever (CSF) and as free of swine vesicular disease (SVD), but subject to the restrictions listed in 9 CFR 94.13. The rule will also recognize Slovenia as free of foot and mouth disease, but subject to the restrictions listed in 9 CFR 94.11. Quantities of swine, swine semen, ruminants, and ruminant products imported from these countries, if such imports were to occur, are likel y to be very small. Therefore, this anal ys is addresses only expected effects of the rule with respect to pork. We provide an overview of the swine and pork industries in the United States and in the four subject countries. In support of the certification statement, we estimate price and welfare effects of the rule based on assumed levels of pork imports. The U.S. Swin e Industry The U.S. swine industry

play s an important role in the U.S. econom y. Cash receipts from marketing meat animals were about $14.4 billion in 2009 (average between 2004 and 2009 was $14.8 billion). 1 Additionally , swine and related product export s generated over $2.5 billion in sales that year (USDA/NASS 2010, USDA/FAS 2010). At present, U.S. livestock exports proceed without CSF or SVD restrictions. Maintaining such favorable conditions depends in part on continued efforts to prevent transmissi on of foreign diseases to U.S. swine.

1 http://usda.mannlib.cornell.edu/usda/current/MeatAnimPr/MeatAnimPr

- 04

- 29

- 2010.pdfAs shown in table 1, U.S. pork production increased from 8,596 thousand metric tons

(MT) in 2000 to 10,437 thousand MT in 2009, an annual growth rate of about 2.1 percent. Similarly, consumption increased from 8,455 thousand MT to 8,975 thousand MT. During the same period, U.S. exports increased from 584 thousand MT to 1,872 thousand MT, far outpacing imports. Net exports increased from 146 thousand MT to 1,494 thousand MT

.
Table 1

. U.S p ork p roduction, c onsumption, p rice, e xports and i mports, 2000

- 200 9
Year Production

in 1,000 Metric Tons Consumption

in 1,000 Metric Tons Price

per Metric Tons Exports in

1,000 Metric Tons Imports in

1,000 Metric Tons Net

Exports in 1000 Metric Tons 2000 8,596 8,455 $1,413 584 438 146 2001 8,691 8,389 $1,473 707 431 276 2002 8,929 8,685 $1,179 731 486 245 2003 9,056 8,816 $1,298 779 538 241 2004 9,312 8,817 $1,621 989 499 490 2005 9,392 8,671 $1,562 1,207 464 743 2006 9,559 8,640 $1,491 * 1,359 449 910 2007 9,962 8,964 $1,489* 1,424 439 985 2008 10,599 8,806 $1,462* 2,117 377 1,740 2009 10,437 8,975 $1,270* 1,872 378 1,494 5

- Year Average (200 5

- 200 9 ) 9, 983 8, 815 $1,4 55 1, 596 4 21 1,175

Sources: USDA/FAS, PS&D Online, < http://www.fas.usda.gov/psdonline/circulars/livestock_poultry.pdf; prices, reported as $/100 pounds for yearly pork carcass cut

- out values, are converted to dollars per metric ton, and are taken from Red Meat Yearbook (94006), <http://usda.mannlib.cornell.edu/usda/ers/ 94006/wholesaleprices.xls

. * These prices are from ERS/USDA, Agricultural Outlook: Statistical Indicators, http://www.ers.usda.gov/pu blications/agoutlook/aotables/2010/04Apr/aotab16.xls (accessed on 7/13/10). http://www.ers.usda.gov/publications/ldp/2009/08Aug/ldpm182tables.pdf Net exports are calculated as the difference between exports and imports for each year.
The Swine Industry in Estonia, Hungary , Slovakia and Slovenia Estonia, Hungary , Slovakia and Slovenia together produced an average of 720,500 MT of pork between 2003 and 200 9 , with shares of 7 percent, 69 percent, 16 percent , and 8 percent,respectivel y. 2 Estonia, Slovakia and Slovenia are net importers of pork, while Hungary is a net exporter. Altogether, they had a five

- year (2003

- 200 9 ) average level of global pork exports of 101,863 MT and an average level of imports of 165,212 MT , yielding average net imports of 63,349 MT. 3 Impact of Potential Pork Imports We estimate the impact of pork imports from Estonia, Hungary , Slovakia and Slovenia on U.S. production, consumption, and prices using a net trade welfare model. The data for 2008 used were obtained from the USDA Foreign Agricultural Service, the Global Trade Atlas, USDA Economic Research Service Meat Yearbook and FAOstat. The demand and supply elasticities used are

- 0.86 and 1, respectivel y. 4 We model three potential levels of pork exports to the United States from Estonia, Hungary , Slovakia and Slovenia, based on the four countries’ combined average annual global exports of 101,863 MT (2003

- 200 9 ): (1) an amount proportional to the percentage of the EU

27’s pork exports sent to the United States ( 1.06 percent); (2) an amount proportional to the percentage of Denmark’s pork exports sent to the United States (3. 51 percent); 5 and (3) an amount equal to 10 percent of total global pork exports by the four countries. Amounts of pork shipped to the United States under the three scenarios would be 1,080 MT , 3, 575 MT , and 10,186 MT

. Table 2 presents the changes resulting from the assumed U.S. pork imp orts from Estonia, Hungary , Slovakia and Slovenia. These include annual changes in U.S. consumption,

2 UN/FAO, http://faostat.fao.org/ 3 The Global Trade Atlas 2010 4 Sullivan, J., J. Wainio, and V. Roningen. A Database for Trade Liberalization Studies . Washington, DC: USDA Economic Research Service, 1989. 5 Denmark’s pork industry is export

- oriented, and it is the second largest supplier of pork products to the United States, after Canada. Although we use this basis for our middle level of hypothetical imports, it likely overstates potential shipments to the United States from the four countries.production, wholesale price, consumer welfare, producer welfare, and net welfare. Our medium

level of pork imports of 3, 575 MT (assuming pork imports pro portional to those received from Denmark) would result in a decline of $0.3 3 per metric ton in the wholesale price of pork and a fall in U.S. production of 1, 878 MT . Consumption would increase b y 1, 679 MT . Producer welfare would decline b y about $ 2.7 mil lion and consumer welfare would increase b y about $ 2.9 million, yielding an annual net benefit of about $0.2 million. Table 2. Potential impacts of pork imports from Estonia, Hungary , Slovakia and Slovenia on the United States economy, based on three hypo thetical levels of importation Column 1 Column 2 Column 3 Assumed pork imports, metric tons 1,080 1 3, 575 2 10,186 3 Change in U.S. consumption, metric tons 513 1, 679 4, 836 Change in U.S. production, metric tons - 567

- 1, 878

- 5, 350 Change in wholesale price of pork, dollars per metric tons - $0. 10

- $0.3 3

- $ 0.93 Change in consumer welfare $ 867,509 $ 2,871,808 $ 8,183,900 Change in producer welfare

- $ 825,336

- $2, 731,802

- $ 7,781,924 Annual net benefit $ 42,173 $ 140,006 $ 401,976 Note: The baseline data used are five

- year annual averages for production, consumption, price, exports and imports as reported in the last row of table 1. The demand and supply elasticities used are

- 0.86 and 1, respectively. 1 Calculated by multiplying the total global exports of Estonia, Hungary, Slovakia, and Slovenia, 101,863 MT, by the proportion (1.06 percent) of EU

- 27’s global export sent to the U.S. EU

- 15 countries including Denmark exported 48,075 MTs to United States from their global exports of 4,521,555 MT. 2 Calculated by multiplying total global pork exports of Estonia, Hungary, Slovakia and Slovenia by the proportion (3.51%) of Denmark’s export sent to the United States, 40,174 MT out of 1,143,900 MT. 3 Ten percent of the total global pork exports for the four countries. In all cases consumer welfare gains would outweigh producer welfare losses. Even in the third scenario in which we assume imports would equal 10 percent of the combined global exports of the four countries, the decline in producer welfare would represent less than six

-hundredths of one percent of cash receipts from the sale of hogs in 200 9

. 6 As noted above, the

four countries as a group are large net importers of pork, so it is unlikely that the rule, by

itself, will generate significant growth in the four countries’ hog and pork industries. Based on this anal ys is, the rule will not have a significant economic impact on a substantial number of U.S. entities, large or small. 

### Potential Impact on Small Entities
Based on dat a from the 2007 Census of Agriculture and Small Business Administration (SBA) standards, we expect a majority of the enterprises that could be affected b y the regulation to be small entities. 7 Entities in the category Hog and Pig Farming (NAICS 112210) are considered small if their annual sales do not exceed $750,000. 8 Over 89 percent of swine operations (66,798 farms) are classified as small and had total sales of 25.9 million (about 12.5 percent of animals sold) and an average inventory of 388 hogs . L arge operations (7,991 farms ) had sales of 180. 9 million hogs (about 87.5 percent) with an average inventory of 22,637 hogs. Based on inventory share, small operations had annual sales of $ 3 billion and an average income of $ 44,680 , while large operations had sales of $15 billion with an average income of $1,886,150. Entities in the category

Animal (Except Poultry) Slaughtering (NAI CS 311611) are considered small if they

have not more than 500 employees. As reported in the 2007 Economic

6 $7.8 million divided by $14.8 billion equals less than 0.06 percent. 7 The 2007 Census of Agriculture is available online at http://www.agcensus.usda.gov/Publications/2007/Full_Report/index.asp . The SBA Table of Small Business Size Standards is also available online at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf. pdf

. 8 SBA, Small business Size Standards matched to North American Industry Classification System 2007, Effective August, 2008, (<http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf, accessed on 8/4/10).Census, over 90 percent of 1,597 establishments in the industry classification that includes hog slaughtering facilities had fewer than 100 emplo yees. 9 , 10 As shown in table 3, the impact of potential pork imports on U.S. producers as a result of this rule will be small. The decrease in producer welfare per small entity for the highest assumed level of imports is estimated to be about $15, that is, about 0.03 percent of average annual sales by small entities. Table 3. Economic impact of potential pork imports from Estoni a, Hungary, Slovakia and Slovenia for small

- entity

producers, 2009 dollars. Change in producer welfare 1

- $ 7,781,924 Decrease incurred b y small entities 2 $972,740 Average decrease per head of inventory , small entities 3 $0.04 Average decrease per small entity 4 $14.60 Average decrease as % of average sales, small entities 5 0.03%

1 From t able 2

. 2 Change in producer benefit multiplied 12.5 percent (see text). 3 Decrease in producer benefit for small entities divided by 25

. 9 million (see text). 4 Average decrease per head of inventory multiplied by 388 (see text). 5 Average decrease per small entity divided by $44,680 (see text). The 2007 Census of Agriculture also contains data on certain sub

- categories of swine operations , namel y, small family farms including limited resource farms, and farms having operators who belong to socially disadvantaged groups. 11 Most farms that produce swine qualify as small family

farm s (gross farm sales of less than $ 250 ,000), and many of the small family farms also quali fy

as limited resource farms (gross farm sales of not more than $100,000 and low

9 The 2007 Economic Census is available online at http://factfinder.census.gov/servlet/DatasetMainPageServlet?_program=ECN&_tabId=ECN1&_submenuId=datasets _4&_lang=en&_ts=264361774447 . Note the detailed statistics by employment size for the Manufacturing sector have not been released for the 2007 Economic Census. 10 2002 Economic Census is available online at http://www.census.gov/econ/census02/

. 11 For definitions and information, see : USDA ERS. Structure and Finances of U.S. Farms: Family Farm Report, 20 10 edition , EIB

- 66, July 2010

. http://www.ers.usda.gov/Publications/EIB66/EIB66.pdfhousehold income). Categories of sociall y disadvantaged operators are women , persons of

Hispanic origin , American Indian or Alaska Native , Asian , African American , and Native Hawaiian or other Pacific. As described above for small swine farms generally , any economic impacts of the rule for operations categorized as small family farms or farms having operators who belong to socially

disadvantaged groups will be insignificant , given the small quantity of pork expected to be import ed from Estonia, Hungary , Slovakia and Slovenia compared to domestic production and current imports. Table 4 shows that among the 74,789 farms that produced swine in 2007 , 48,943 (over 65 percent) were small family farms. It is notable that the combined number of retirement farms ( 8,532 farms) and residential/lifestyle farms ( 21,256 farms) accounted for almost 40 percent of all swine farms. Table 5 shows the number and percentage of swine farms that had operators belonging to socially disadvantaged groups in 2007. There were 7,230 swine farms ( 9.7 percent) for which the principal operator was a woman. In terms of ethnicity , 1,545 swine farms ( 2.1 percent) were operated b y Hispanics and 1 ,747 swine farms ( 2.3 percent) had an operator who was American Indian or Alaskan Native. The percentage of swine farms operated b y African Americans was 1.8 percent. Although most swine operations are small family farms and there are swine operators who belong to socially

disadvantaged groups, economic effects of the rule for these farms are not expected to differ from the effects for swine producers generall y. We do not expect the rule to have any appreciable impact on U.S. swine and pork producers regardless of the size of operation or operator classification.Based on the above information and anal ys is , the rule will not have a significant

economic impact on a substantial number of small entities . The quantity of pork expected to be imported from Esto nia, Hungary , Slovakia and Slovenia is not significant; and any effect on prices will be insignificant.Table 4 . Number and percentage of small famil y swine farms, 2007 Li mited R esource F arms Retirement F arms Resi

dential/ lifestyle Farms Farming

Occupation/Lower

Sales Farming

O ccupation/ Higher

S ales All

S mall F amily Swine F arms All

Swine Farms

Number 9,006 8,532 21,256 7,635 2,514 48,943 74,789

Percent age 12.0 11.4 28.4 10.2 3.4 65.4 100% Source: USDA NASS, 2007 Census of Agriculture. Note: A l imited resource farm is a small family farm that has gross sales of less than $100,000 (indexed after 2003), and a household income less than the poverty level for a family of four with two children or less than half the county median income. A r etirement farm is a small family farm whose operators report they are retired (excludes limited resource farms operated by retired farmers). A r esidential/lifestyle farm is a small family farm whose operators report a major occupation other than farming (excludes limited resource farms who se operators report a major occupation other than farming ). A f arming occupation/lower

- sales farm is a small family farm with sales less than $100,000 whose operators report farming as their major occupation (excludes limited resource farms whose operators report farming as their major occupation). A f

arming occu

pation/higher

- sales farm is a small family farm with sales between $100,000 and $249,000 whose operators report farming as their major occupation.1 Table 5 . Number and percentage of swine farms with operators belonging to socially disadvantag ed group s , 2007

Farms where the P rincipal Operator is F emale Farms where an Operator reports Spanish, Hispanic, or Latino origin Farms

where an Operator reports race as Am erican I

ndian or Alaska Native Farms where an operator reports race as Asian Farms

where an operator reports race as Black or African American Farms where an operator reports race as Native Hawaiian or Other Pacific I slander All Swine Farms

Number 7,230 1,545 1,747 248 1,372 117 74,789

Percentage 9.7 2.1 2.3 0.3 1.8 0.2 100% Source: USDA NASS, 2007 Census of Agriculture. Note: For the ethnic/racial categories, farms reported for their top

- three operators. An operator may report as belonging to more than one ethic/racial category, and a farm may report having operators belonging to more than one category.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities.