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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>
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<h1>Proposed Rule</h1>
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<h1>Importation of Live Swine, Swine Semen, Pork, and Pork Products; Estonia, Hungary, Slovakia, and Slovenia</h1>
<h1>APHIS-2008-0043</h1>
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<h2>U.S. Department of Agriculture</h2>
<h2>Animal and Plant Health Inspection Service</h2>
<h2>June 2010</h2>
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<p>i</p>
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<p>This analysis provides a factual basis, as required by § 605 of the Regulatory Flexibility Act, for certification by the Administrator of the Animal and Plant Health Inspection Service, that the proposed rule, if promulgated, would not have a significant economic impact on a substantial number of small entities.</p>
<p>We are proposing to amend the regulations governing the importation of animals and animal products to add Estonia, Hungary, Slovakia and Slovenia to the APHIS-defined EU CSF region.  Swine, swine semen, pork, and pork products may be imported into the United States from this region under certain conditions.  We are proposing to remove one of these conditions, a 40-day holding period for donor boars after the collection of swine semen, based on our determination that it is unnecessary.  We are also proposing to add Estonia, Slovakia, and Slovenia to the list of regions we consider free from SVD and to add Slovakia and Slovenia to the list of regions considered free from FMD and rinderpest.</p>
<p><u>The U.S. Swine Industry</u></p>
<p>The U.S. swine industry plays an important role in the U.S. economy.  Cash receipts from marketing meat animals were about $14.8 billion in 2007 (the average between 2003 and 2007 was $13.8 billion).  Additionally, swine and related products generated over $2.5 billion in sales that year.[footnoteRef:1]  Other agricultural and nonagricultural sectors are dependent on the swine industry for their economic activity.  At present, international trade in U.S. livestock proceeds without CSF- or SVD-related restrictions.  Maintaining such favorable conditions depends in part on continued efforts to prevent transmission of foreign diseases to U.S. swine. [1:  Sources:  USDA, National Agricultural Statistics Service (NASS), 2008; USDA, Foreign Agricultural Service (FAS), 2008.	] 
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<p>As shown in table 1, U.S. pork production increased from 7,835,000 metric tons (MTs) in 1997 to 9,962,000 MTs in 2007, an annual growth rate of about 1.8 percent.  Similarly, consumption increased from 7,631,000 MTs to 8,964,000 MTs.  During the same period, U.S. exports increased from 473,000 MTs to 1,424,000 MTs, by far outpacing imports.  Net exports increased from 185,000 MTs to 985,000 MTs.</p>
<p>Table 1.--<u>U.S. pork production, consumption, price, exports, and imports, 1997-2007</u></p>
<table><tbody><tr>	<td><p>Year</p>
</td>	<td><p>Production</p>
<p>(1,000 MT)</p>
</td>	<td><p>Consumption</p>
<p>(1,000 MT)</p>
</td>	<td><p>Price per</p>
<p>MT</p>
</td>	<td><p>Exports</p>
<p>(1,000 MT)</p>
</td>	<td><p>Imports</p>
<p>(1,000 MT)</p>
</td>	<td><p>Net exports</p>
<p>(1,000 MT)</p>
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<tr>	<td><p>1997</p>
</td>	<td><p>7,835</p>
</td>	<td><p>7,631</p>
</td>	<td><p>$1,562</p>
</td>	<td><p>473</p>
</td>	<td><p>288</p>
</td>	<td><p>185</p>
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<tr>	<td><p>1998</p>
</td>	<td><p>8,623</p>
</td>	<td><p>8,305</p>
</td>	<td><p>$1,170</p>
</td>	<td><p>558</p>
</td>	<td><p>320</p>
</td>	<td><p>238</p>
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<tr>	<td><p>1999</p>
</td>	<td><p>8,758</p>
</td>	<td><p>8,594</p>
</td>	<td><p>$1,178</p>
</td>	<td><p>582</p>
</td>	<td><p>375</p>
</td>	<td><p>207</p>
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<tr>	<td><p>2000</p>
</td>	<td><p>8,596</p>
</td>	<td><p>8,455</p>
</td>	<td><p>$1,413</p>
</td>	<td><p>584</p>
</td>	<td><p>438</p>
</td>	<td><p>146</p>
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<tr>	<td><p>2001</p>
</td>	<td><p>8,691</p>
</td>	<td><p>8,389</p>
</td>	<td><p>$1,473</p>
</td>	<td><p>707</p>
</td>	<td><p>431</p>
</td>	<td><p>276</p>
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<tr>	<td><p>2002</p>
</td>	<td><p>8,929</p>
</td>	<td><p>8,685</p>
</td>	<td><p>$1,179</p>
</td>	<td><p>731</p>
</td>	<td><p>486</p>
</td>	<td><p>245</p>
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<tr>	<td><p>2003</p>
</td>	<td><p>9,056</p>
</td>	<td><p>8,816</p>
</td>	<td><p>$1,298</p>
</td>	<td><p>779</p>
</td>	<td><p>538</p>
</td>	<td><p>241</p>
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<tr>	<td><p>2004</p>
</td>	<td><p>9,312</p>
</td>	<td><p>8,817</p>
</td>	<td><p>$1,621</p>
</td>	<td><p>989</p>
</td>	<td><p>499</p>
</td>	<td><p>490</p>
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<tr>	<td><p>2005</p>
</td>	<td><p>9,392</p>
</td>	<td><p>8,671</p>
</td>	<td><p>$1,562</p>
</td>	<td><p>1,207</p>
</td>	<td><p>464</p>
</td>	<td><p>743</p>
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<tr>	<td><p>2006</p>
</td>	<td><p>9,559</p>
</td>	<td><p>8,640</p>
</td>	<td><p>$1,4911</p>
</td>	<td><p>1,359</p>
</td>	<td><p>449</p>
</td>	<td><p>910</p>
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<tr>	<td><p>2007</p>
</td>	<td><p>9962</p>
</td>	<td><p>8,964</p>
</td>	<td><p>$1,4891</p>
</td>	<td><p>1,424</p>
</td>	<td><p>439</p>
</td>	<td><p>985</p>
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<tr>	<td><p>5-year average (2003-2007)</p>
</td>	<td><p>9,456</p>
</td>	<td><p>8,762</p>
</td>	<td><p>$1,493</p>
</td>	<td><p>1,152</p>
</td>	<td><p>478</p>
</td>	<td><p>674</p>
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<p>Sources:  USDA/FAS, Production Supply and Distribution Online, 1997-2005, http://www.fas.usda.gov/psdonline/psdquery.aspx; prices, reported as $/100 pounds for yearly pork carcass cut-out values, are converted to dollars per MT, and are taken from Red Meat Yearbook (94006), http://usda.manlib.cornell.edu/ers/94006/wholesaleprices.xls; net exports are calculated as the difference between exports and imports for each year.</p>
<p>1 These prices are from http://www.ers.usda.gov/publications/agoutlook/aotables/2008/12Dec/aotab16.xls.  Net exports are calculated as the difference between exports and imports for each year. </p>
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<p><u>The Swine Industry in Estonia, Hungary, Slovakia, and Slovenia</u></p>
<p>The four countries together (Estonia, Hungary, Slovakia, and Slovenia) produced an average of 747,288 MTs of pig meat between 2003 and 2007, with shares of 5 percent, 66 percent, 20 percent, and 9 percent, respectively.[footnoteRef:2]  Estonia, Slovakia, and Slovenia are net importers of pork, while Hungary is a net exporter.  Altogether, they had a 5-year (2003-2007) average level of pork exports of 98,830 MTs and average level of imports of 142,500 MTs, yielding average net imports of 43,670 MTs.[footnoteRef:3] [2:   Source:  United Nations, Food and Agriculture Organization, 2008.	]  [3:   Source:  Global Trade Atlas, 2008.] 
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<p><u>Potential Costs of Classical Swine Fever, Swine Vesicular Disease, and Foot and Mouth Disease</u></p>
<p>CSF, also known as hog cholera or swine plague, is a highly contagious and often fatal disease of pigs.  Young animals are more severely affected than older animals.  Mortality rates may reach up to 90 percent among young pigs.  SVD is less severe and does not usually cause death.  The overall cost of control and eradication depends on the mitigation methods used to control and eradicate the two diseases.</p>
<p>Potential costs include disease control measures such as imposing quarantine measures and movement controls, indemnity payments, vaccination costs, surveillance, and laboratory testing.  CSF was eradicated in the United States in 1976 at a cost of about $550 million in 2006 dollars.  Several EU countries experienced small- and large-scale CSF outbreaks between 1990 and 1997 and suffered heavy economic losses.  One large outbreak cost producers $917.6 million, the national governments $296.9 million, and the EU $1,040.6 million in 2006 dollars.  The cost of a small-scale outbreak was $14 million, and the cost of a medium outbreak was $268.8 million.[footnoteRef:4] [4:   Source:  Saatkamp, H.W., P.B.M. Berentsen et al., “Economic aspects of the control of classical swine fever outbreaks in the European Union,” Vet Microbiology, 73 (2000):  221-237; Stegeman, A., A. Elbers et al., “The 1997-98 epidemic of classical swine fever in the Netherlands,” Vet Microbiology, 73 (2000): 183-196.] 
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<p>The above costs are direct costs of disease outbreaks and do not include indirect costs such as losses caused by trade restrictions.  Little information exists on the cost of control and eradication of SVD in a previously free region.</p>
<p>FMD is a contagious viral disease that affects cloven-hoofed animals.  Cattle, pigs, sheep and goats are highly susceptible to FMD.  Although the death rates are low, it has serious lasting negative effects on infected animals that survive the disease.  It causes decreased milk production, decreased pregnancy rates, weight loss, and lameness.  In addition to these losses, an FMD outbreak can lead to economic sanctions, including the loss of export markets.  Any outbreak of FMD in the United States could result in a loss of billions of dollars for agriculture and related industries as indicated by the most recent FMD outbreak in the UK.  According to the OIE, over 6 million cattle, sheep, swine, and goats were slaughtered to stop the spread of the disease and the epidemic is estimated to have cost the UK economy about $12.9 billion.[footnoteRef:5] [5:   D. Thompson, P. Muriel, D. Russell, P. Osborne, A. Bromley, M. Rowland, S. Creigh-Tyte, and C. Brown, “Economic costs of the foot and mouth disease outbreak in the United Kingdom in 2001,” Rev. sci. tech. int. epiz., 21 (2002):  675-687. ] 
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<p><u>Impact of Potential Pork Exports</u></p>
<p>In this section, we estimate the impact of pork imports from Estonia, Hungary, Slovakia, and Slovenia on U.S. production, consumption, and price using a net trade welfare model.[footnoteRef:6]  The demand and supply elasticities used are -0.86 and 1, respectively.[footnoteRef:7]  [6:  The data used were obtained from FAS, Production, Supply, and Design database (http://www.fas.usda.gov/psdonline/psdquery.aspx); USDA/ERS, Red Meat Yearbook (94006), http://usda.manlib.cornell.edu/ers/94006/wholesaleprices.xls; The Global Trade Atlas:  Global Trade Information Services, Inc., country edition, June 2006; and UN/FAO, FAO stat data (http://faostat.fao.org).]  [7:  John Sullivan, John Wainio, Vernon Roningen, A Database for Trade Liberalization Studies, #AGES89-12, March 1989.] 
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<p>Based on the four countries’ combined average annual global exports of 98,830 MTs (2003-2007), we model three potential levels of pork exports from Estonia, Hungary, Slovakia, and Slovenia:  (1) An amount proportional to the percentage of the EU-27’s pork exports sent to the United States (0.82 percent); (2) an amount proportional to the percentage of Denmark’s[footnoteRef:8] pork exports sent to the United States (3.78 percent); and (3) an amount equal to 10 percent of the total global pork exports by the four countries.  Amounts of pork shipped to the United States under the three scenarios would be 810 MTs, 3,736 MTs, and 9,883 MTs.   [8:  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 Estonia and Slovenia.] 
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<p>Table 2 presents the changes resulting from the assumed U.S. pork imports from Estonia, Hungary, Slovakia and Slovenia.  These include annual changes in U.S. consumption, production, wholesale price, consumer welfare, producer welfare, and net welfare.  Our medium level of pork imports of 3,736 MTs (import scenario 2, assuming pork imports proportional to those received from Denmark) would result in a decline of $0.35 per MT in the wholesale price of pork and a fall in U.S. production of 1,967 MTs.  Consumption would increase by 1,789 MTs.  Producer welfare would decline by about $2.9 million and consumer welfare would increase by about $3.1 million, yielding an annual net benefit of about $200,000. </p>
<p>Table 2.–<u>The impact of pork imports from Estonia, Hungary, Slovakia, and Slovenia on the United States economy</u>.</p>
<table><tbody><tr>	<td><p></p>
</td>	<td><p>Import Scenario 1</p>
</td>	<td><p>Import Scenario 2</p>
</td>	<td><p>Import Scenario 3</p>
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<tr>	<td><p>Assumed pork imports, MTs</p>
</td>	<td><p>8101</p>
</td>	<td><p>3,7362</p>
</td>	<td><p>9,8833</p>
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<tr>	<td><p>Change in U.S. consumption, MTs</p>
</td>	<td><p>386</p>
</td>	<td><p>1,789</p>
</td>	<td><p>4,707</p>
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<tr>	<td><p>Change in U.S. production, MTs</p>
</td>	<td><p>-424</p>
</td>	<td><p>-1,967</p>
</td>	<td><p>-5,176</p>
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<tr>	<td><p>Change in wholesale price of pork, dollars per MT</p>
</td>	<td><p>-$0.08</p>
</td>	<td><p>-$0.35</p>
</td>	<td><p>-$0.93</p>
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<tr>	<td><p>Change in consumer welfare</p>
</td>	<td><p>$669,790</p>
</td>	<td><p>$3,106,100</p>
</td>	<td><p>$8,174,300</p>
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<tr>	<td><p>Change in producer welfare</p>
</td>	<td><p></p>
<p>-$633,310</p>
</td>	<td><p></p>
<p>-$2,936,390</p>
</td>	<td><p></p>
<p>-$7,724,900</p>
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<tr>	<td><p>Annual net benefit</p>
</td>	<td><p></p>
<p>$36,480</p>
</td>	<td><p></p>
<p>$169,710</p>
</td>	<td><p></p>
<p>$449,400</p>
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<p>Note: Welfare and benefit are used interchangeably. The baseline data used is a 5-year annual average 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.</p>
<p>1 Calculated by multiplying the total global exports of Estonia, Hungary, Slovakia, and Slovenia, 98,830 MT, by the proportion (1.87 percent) of EU-27’s global export sent to the U.S.  EU-15 countries including Denmark exported 50,742 MTs to United States from their global exports of 2,719,698 MTs.</p>
<p>2 Calculated by multiplying total global exports of Estonia, Hungary, Slovakia, and Slovenia by the proportion (3.99 percent) of Denmark exports sent to the United States, 42,915 MTs out of 1,135,903 MTs.</p>
<p>3  Calculated by multiplying total exports of Estonia, Hungary, Slovakia, and Slovenia by 10 percent.</p>
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<p>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 exports of the four countries, the decline in producer welfare would represent less than one-twentieth of 1 percent of cash receipts received from the sale of hogs in 2007.[footnoteRef:9]  As noted above, the four countries as a group are large net importers of pork, so it is unlikely that the proposed rule, by itself, would generate significant growth in the four countries’ hog and pork industries. [9:  $7.7 million divided by $14.8 billion equals 0.05 percent.] 
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<h1>Impact on Small Entities</h1>
<p>The Small Business Administration (SBA) has established guidelines for determining which type of firms are to be considered small under the Regulatory Flexibility Act.  The SBA standard for agricultural producers is annual sales of not more than $750,000.  We now examine the possible impact of this rule on such producers.</p>
<p>Most hog and pig operations are small entities, but sales are dominated by large entities. According to the 2007 Census of Agriculture, there were 74,789 hog and pig operations with sales of 206.8 million hogs and pigs valued at $18 billion.  Over 89 percent of these operations (or 66,798) were considered to be small and had sales of less than 5,000 hogs and pigs.  Small operations had a total inventory of 25.9 million (about 12.5 percent) with an average inventory of 388 hogs, while large operations (or 7,991 operations) had sales of 180.894 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 about $44,680, while large operations had sales of $15 billion with an average income of about $1,886,150.</p>
<p>Because, even in a scenario in which quantities of swine, swine semen, and other pork products imported into the United States from Estonia, Hungary, Slovakia, Slovenia total 10 percent of the aggregate exports of these countries as a direct result of this rule, the total amount of commodities imported from these four countries would nonetheless be very small, the impact on the U.S. pork industry, and small producers as a subset of that industry, is expected to be negligible.  </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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