### United States

Department of Agriculture Anim al and Plant Health Inspection Service February 2012 Analysis in Support of Certification that the

Rule will not have a Significant Economic Impact on a Substantial Number of Small Entities
Final Rule 2011 - 0030 RIN 0579 - AD43 Require Horse Industry Organizations to E nforce Minimum Penalties for Violations

Policy & Program Development Policy Analysis & Developmenti



### Summary The Horse Protection Act (HPA) is a Federal law that prohibits horses subjected to a practice called soring (intentional injuring of a horse’s limbs to produce a high

- stepping gait) from participating in shows, sales, exhibitions, or auctions. Walking h orses are prized for th is distinc tive high

- stepping gait

. Horse Industry Organizations (HIOs), groups formally engaged in the promotion of shows and similar activities, are responsible for licensing Designated Qualified Persons (DQPs), who are authorized to enforce the prohibition on participation of horses subjected to soring. Participants found to be in violation of the Horse Protection Act are
assess ed penalties by

the DQPs, as set by

the HIOs. E fforts to eliminat e s oring have been hindered b y the non

- uniform assessment of penalties f

or Horse Protection Act violations. Th e rule will provid e USDA with clear authority to require a uniform minimum penalty protocol

. Also, the rule will give USDA the authority to decertify HI Os that refuse to implement the minimum penalty protocol. Since the HIOs alread y administer a penalt y protocol for violations of the Horse Protection Act, the proposed rule is not expected to impose additional costs upon HIOs or show particip ants ( other than those individuals who incur penalt ies for violating the HPA )

. The uniform p enalt y protocol may benefit the walking horse industry by :

 Helping to e nsur e more humane treatment of the horses;  Reducing uncertainty about penalties for infractions of the Horse Protection Act ;  Enhancing the reputation and integrity of th e walking horse industry ;  Providing for more fair competit ion at shows , which may positively impact attendance and region al econom ies ; and  Improving the value of the walking horse breeds. The Small Business Administration’s small

- entity standard for business associations that promote horses through the showing, exhibiting, sale, auction, registry , or any activity whichii

contributes to the advancement of the horse is not more than $7 million in annual receipts (North American Industry

Classification Sy stem (NAICS) 813910). The SBA small

- entity standard for entities involved in Horses and Other Equine Production is $750,000 or less in annual receipts (NAICS 112920) , while the small

- entity standard is $7 million or less in annual receipts for business es classified within Support Activities for Animal Production (NAI CS 115210)

. B usinesses in these industries that may be affected by

this rule are likel y to be small

. T he 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.iii



### Table of Contents **Summary**
................................ ................................ ................................ ............................. i Introduction

................................ ................................ ................................ ......................... 1 Potentially

Affected Industries

................................ ................................ ........................... 2 Th e U.S. Horse Industry

................................ ................................ ................................ . 2 Show and Competition Horse Industry

................................ ................................ ........... 4 The Walking Horse Industry

................................ ................................ ........................... 5 Potential Impact on Small Entities

................................ ................................ ...................... 61



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

Flexibility

Act, for certificatio n by

the APHIS Administrator that the rule will not have a significant economic impact on a substantial number of small entities. The Horse Protection Act (HPA) is a Federal law that prohibits horses subjected to a practice called soring (intentional ly in juring a horse’s limbs to produce a high

- stepping gait) from participating in shows, sales, exhibitions, or auctions. Horse Industry Organizations (HIOs), that is, groups formally engaged in the promotion of shows and similar activities, are responsible f or licensing Designated Qualified Persons (DQPs), who are authorized to enforce the prohibition on participation of horses subjected to soring. Currently , p articipants found to be in violation of the Horse Protection Act
are assess ed penalties by

the DQPs , as set b y the HIOs. There are 12 Horse Industry Organizations (HIOs) certified b y the USDA and APHI S. HI Os are organizations with formal structures engaged in the promotion of walking horses through the showing, exhibiting, sale, auction, registry , or any activit y which contributes to the advancement of the horse breed. HIOs are primarily non - profit organizations or associations and the size of their memberships and the scope of their programs and shows vary

. In September 2010, USDA’s Office of Inspecto r General (OIG) released an audit report that found APHI S’ program for inspecting horses for soring was not adequate to ensure that these animals we re not being abused. 1 Due to this in adequate inspection sy stem, the report stated, the Act was not being sufficientl y enforced , and the practice of abusing show horses

1 Office of the Inspector General. Animal and Plant Health Inspection Service Administration of the Horse Protection Program and the Slaughter Horse Transport Program

. Office of Inspector General, USDA, Washington, D.C., Audit Report 33601

- 2

- KC , September 2010

.2

continues. One of the recommendations in the audit report was that APHIS d evelop and implement protocols to more consistently negotiate penalties with individuals who are found to b e in violation of the Act. This rule , in response to the OIG recommendation , will clearl y establish USDA ’s authority to require DQPs to assess and enforce minimum penalties for violations of the Horse Protection Act

. HI Os could still impose penalties that are more severe than those in the penalty protocol. In addition, the rule will give USDA the authority to decertify HI Os that refuse to implement the minimum penalty protocol. Requiring HIOs to implement a minimum penalty protocol will strengthen the enforcement of the Act and the regulations b y ensuring that minimum penalties are assessed and enforced consistently by all HIOs that are certified by the Department. Following, we present background information on the U.S. horse industry , generall y, and in increasing detail on the show and competition horse industry and the walking horse industry

. We then address expected effects of the proposed rule for small entities

. 

### Potentially Affected Industries The U.S. Horse Industry T here are approximately

9.2 million horses in the United States , of which about 4 million are located on farms and ranches, according to survey s conducted by Deloitte Consulting LLP in 2005 for the American Horse Council, and the National Agricultural Statistics Ser

vice, respectively

. 2 T here are horses in every S tate , with 45 States each having at

2 Deloitte Consulting, LLP

. National Economic Impact of the U.S. Horse Industry . American Horse Council Foundation, 1616 H Street NW, Washington, D.C., 2005. http://www.horsecouncil.org/nationaleconomics.php USDA

-NASS, Census of Agriculture, 2007. Washington, D .C.: National Agricultural Statistics Service. http://www.agcensus.usda.gov/Publications/2007/Full_Report/Volume_1,_Chapter_2_US_ State_Level/st99_2_015_3

least 20,000 horses. About 2 million Americans own horses and another 2 .6 million are involved in the horse industry as service providers, employ ees , and volunteers. One out of every 63 Americans is involved with horses and the horse industry

. T he American Horse Council survey and a 2010 study

by the University

of Kentucky for the American Horse Publication found that while about 42 percent of the respondents indicated that their association with the horse industry was through recreational and leisure riding, almost
one - third of the respondents were involved in show and competitive riding. 3 The studies found that approximately

46 percent of horse owners had incomes betw een $25,000 and $75,000. Although the majorit y of horses (57 percent) are concentrated in communities with less than 20,000 people, 26 percent of horses were located in areas with populations over 50,000. Seventy

- two percent of the horse owners are betwe en the ages of 35 and 64, with 56 percent over 45 y ears of age

. The U.S. horse industry supports a wide variety

of equine

- related activities in all regions of the country, including racing, showing, competition, sport, breeding, recreation and work (table 1).

**Table 1**

**– Number**  **and Percentage of**  **H orses**  **in the United States,**  **by A**  **ctivity ,**  **2005 Activity**  **Number Percent**  Racing 844,531 9 Showing 2,718,954 30 Recreation 3,906,923 42 Other 1,752,439 19 Total 9,222,847 100 Source: American Horse Council Foundation, 2005

. Note: “Other” activities include farm and ranch work, rodeo, carriage horses, polo, police work, informal competitions, etc.

015.pdf 3 C. Jill Stow e. 2009

- 2010 AHP Equine Industry Survey American Horse Publication , Department of Agricultural Economics, University of Kentucky, 2010. http://www.americanhorsepubs.org/resources/AHP

- Equine

- Survey

Final.pdf4

The horse industry combines the primarily rural activities of breeding, training, maintaining and riding horses with the more urban activities of operating racetracks, off

- track betting parlors, horse shows and public sales. Direct and indirect economic effects of h orse related activit ies derive from the purchase of goods and services from a variety of businesses and individuals. According the Deloitte Consulting LLP study , the horse industry contributes about $3 9 billion directly

to the gross domestic product (GDP) and another $ 6 3 billion indirectly (table 2)

. In addition, it was estimate d that the horse industry generate d around 460,000 direct full

- time equivalent (FTE) jobs and another 700,000 indirect FTE jobs. Independent studies by universities in the major horse industry S tates show similar results concerning the industry’s contribution to S tates ’ econom ies and employ ment. **Table 2** 

**– Horse Industry’s Direct and**  **Total Contributions to Gross Domestic**  **Product ,**  **by Activity , 2005** 

**Activity Direct**  **Total**

--- Billion Dollars

--- Racing 10.6 26.1 Showing 10.8 28.7 Recreation 11.8 32.9 Other 5.5 14.6 Total 38.7 102.3 Source: American Horse Council Foundation, 2005. Note: “Other” activities include farm and ranch work, rodeo, carriage horses, polo, police work, informal competitions, etc. Show and Competition Horse Industry The show and competition horse industry comprises about 30 percent of the U.S. horse industry , provid ing economic benefits to the local communities that host the shows. A recent study by the University

of Kentucky found that over 81 percent of th e responding shows5

involved more than 50 competitors, and almost half involved more than 100 competitors

. 4 Respondents competed on average five times in 2009, although respondents in Arkansas , Louisiana , O klahoma , and T exas competed more frequentl y, on av erage. Income and age were positively correlated to the number of times the respondents competed each y ear. The Universit y of Kentucky stud y found that all shows charge entry fees , which consist of gate fees, per class or horse fees, or a combination . Mo st shows distribute some sort of prize money from sponsors, entry fees, or some other source. T he shows spend money for announcers, show managers, staff, farriers, emergency personnel (medical and fire), securit y, and musicians. Also , shows often purchas e or rent services from local vendors such as for food , advertising , hotel services , and show equipment. The Walking Horse Industry The walking horse industry represents a relativel y small niche within the show and competition horse industry. Although the Tennessee walking horse is probably the best known, there are other walking horse breeds as well. All walking horse breeds are known for their unique smooth gaits, but Tennessee w alking horses also are prized for their distinctive high

steppi ng gait, known as the “big lick.” The exaggerated gait can be achieved with proper training and considerable time and effort, but some horse exhibitors, owners, and trainers attempt to shorten the training time by using soring. “Soring” is the practice of intentionally injuring a horse’ s front legs to cause pain so intense that the horse instantly jerks its legs up to relieve the pain when the horse’s hooves come into contact with the ground , thereby producing the “big lick.” Similar results also are achi eved b y using certain ty pes o f mechanical devices. Since an

4 C. Jill Stow e and Kenny Burdine. Understanding the Impact of Horse Shows and Competitions in Kentucky. Department of Agricultural Economics, University of Kentucky, Lexington, Kentucky, Extension No. 2009

- 29. September 2009. http://www.ca.uky.edu/cmspubsclass /files/cjstow e/Horse%20Shows%20AEC%202009

- 29.pdf6

exaggerated "big lick" gait is highly rewarded by

the judges at walking horse show events, there is an incentive to use soring to gain a competitive advantage

. O f the 210,000 show and competition horses in Tennessee estimated b y the Tennessee Agricultural Statistics Service in 2004, 62,000 or about 30 percent were Tennessee w alking h orses and the primary

use for the breed was for pleasure/sport ( 40 percent ), followed by competition ( 25 percent ), b reeding ( 24 percent ), and other ( 11 percent )

. 5 Thus , even in a State that is known for its walking horses, onl y about 15,000 to 17,000 horses compete in shows. Although it is difficult to determine the number of Walking Horse competitors in the United States or enterprises that support them , horse shows provide an economic benefit for the communities where these events are held. The shows are often used to raise money for local charities. The Tennessee Walking Horse National Celebration is a premier event, where some 20 World Champions are named and more than $650,000 in prizes are awarded. 6 The event has a large economic impact on the entire middle Tennessee region. Winning the Celebration enhances the value of the horse and the reput ations of the trainers and owners. In 1996, there
were more than 2,170 entries at the Tennessee Walking Horse National Celebration from throughout the United States and an attendance of more than 150,000. In 2010, there were 3,216 entries with nearl y 500 ,000 in attendance at the Celebration. 

### Potential Impact on Small Entities The Small Business Administration’s (SBA) small

- entity standard for business associations that promote horses through the showing, exhibiting, sale, auction, registry , or any

5 Debra Kenerson and Joel Moore
. A Tennessee Tradition, Equine 2004 , T ennessee Agricultural Statistics Service , Nashville, Tennessee, p. 13, 2004
. http://www.nass.usda.gov/Statistics_by_State/Tennessee/Special_Surveys/2004equine.pdf 6 Bob Womack. Walking Horse National Celebration. The Tennessee Encyclopedia of History and Culture, Version 2. The Tennessee Hi storical Society, Nashville, Tennessee Middle Tennessee State University February 28, 2011. http://tennesseeencyclopedia.net/entry.php?rec=14557

activity which contributes to the advancement of the horse is not more than $7 million in annual receipts (North American Industry Classification Sy stem (NAICS) code 813910). The SBA small

- entity

standard for entities involved in Horses and Other Equine Producti on is $750,000 or less in annual receipts (NAI CS 112920) , while the small

- entity standard is $7 million or less in annual receipts for businesses classified within Support Activities for Animal Production (NAICS 115210)

. 7 According to the 2007 Census of Agriculture, the average market value of livestock sales by

farms classified within Horse and Other Equine Production was about $12,300. 8 Also according to the Agricultural Census, 93 percent of farms with horse inventories had sales of less than $250,000 and of these, 65 percent of the farms had sales less than $10,000, well below the SBA threshold for small entities. 9 We do not have an estimate of the average income for enterprises classified within the industry , Support Activities for Animal Production

. For those industries for which we have information, clearl y the majority of entities that may be affected b y the rule are small. R iding stables and other equestrian recreational facilities are not included as horse farms; the Census of Agriculture defines a horse farm as an operation that sells at least $1,000 of agricultural products in a y ear and generates 50 percent or more of its sales from horses. While

m ost of the horses in the United States are privately owned and not located on farms and ranches, all horses that compete are subject to the Horse Protection Act.

7 Ta ble of Size Standards based on NAICS 2 002 [ Horses and Other Equine Production : NAICS code 112920] and [ Support Activities for Animal Production: NAICS Code 115210] Washington, D.C.: U.S. Small Business Ad ministration, effective October 1, 2007. 8 2007 Census of Agriculture, Table 46: Special C haracteristics of Farms by North American Industry Classification Sy stem: 2007, http://www.agcensus.usda.gov/Publications/2007/Full_Report/Volume_1,_Chapter_1_US/st99_1_046_046.pdf 9 USDA

-NASS, 2007 Census of Agriculture: Small Farms . Washington, D.C.: National Agricultural Statistics Service. http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/Fact_Sheets/small_farm .pdf8

Numerous comments were received on the proposed rule regarding potential economic impacts of the regulation. A principal concern was that the regulation would destroy the walking horse industry (i) by

creating an environment that diminishe s the appeal and status of this industry and reduce s the value of walking horses , and (ii) by imposing additional costs or burdensome requirements that will severel y limit or restrict shows, exhibits, sales and auctions. We believe these expectations are without basis in theory or fact. It is unrealistic that enforcement of a minimum penalty protocol for violations of the HPA would have an impact so great that the walking hor se industry would end

. Participation by some entities may

decline in the short run, given sentiments expressed by certain commenters, but we expect the industry to grow over time, based on past trends. We expect that many owners and trainers will continu e their memberships and want to compete in an industry that is perceived to be fairer for competitors. The shows and associated charitable organizations will benefit as well

. Records show that there are owners who continue to engage trainers that violate the HPA and continue to participate in events. S everal commenters argued that since owners incur substantial costs in order for their horses to compete, they will not retain trainers whose practices could result in their horse s being repeatedl y disallowed from competing. The rule is intended to deter the soring of horses, and is expected to require changes in horse training practices b y those individuals who rely

on soring techniques. P rizes and awards are not very large for individual walking horse events, unless it is a premier event such as the Tennessee Walking Horse National Celebration . B ased on information from the HIOs, cash prizes for walking horse shows ty picall y range from $2 5 to $500 . R ibbons, trophies, or saddles and tack sometimes are awarded. A c cording to a Kentucky study of horse shows and competitions, between 2005 and 2008, the average prize money distributed per show9

was $10,399 and the median amount was $3,987 , excl uding the value of ribbons, trophies, buckles, or saddles that are often given as prizes. 10 It is apparent that in most instances potential monetary gain is not a major motivation for event participants. Although p eople who do not violate the HP A will be unaffected b y the minimum penalty protocol , m any

commenters expressed concern that requiring HIOs to assess and enforce minimum penalties will encourage owners and trainers to show their horses at events that are not affiliated with a HIO . While the exact number of these unaffiliated shows is not known, many commenters believed an increas e in the number of un affiliated shows because of this rule will detract from HIO events and reduce participation in the HIO events

. This assumption is unfounded . M anage rs of unaffiliated shows , like managers of affiliated shows, assume liability under the Act for any

sore horses that are shown, exhibited, sold, or auctioned. O wners and trainers risk penalties if they show a sore horse at the

unaffiliated shows. This is no advantage or disadvantage to owners ’ participati on in unaffiliated shows ; unaffiliated show prizes are much the same as those awarded at affiliated shows

. C lassical economists believe d that people pursue their own interests and , in doing so, some individuals choose to violate the law. Their decision to violate the law is guided b y their perception of the gain s they hope to obtain compared to their potential loss if they are caught and punished for the violation. 11 , 12 Inthe late 1960’s, Gary Becker stated that the decision to violate the law was influenced by the same factors that motivate all other behavior . That is, p eople

10 C. Jill Stow e and Kenny Burdine. Understanding the Impact of Horse Shows and Competitions in Kentucky. Department of Agricultural Economics, University of Kentucky, Lexington, Kentucky, Extension No. 2009

- 29. September 2009. http://www.ca.uky.edu/cmspubsclass/files/cjstow e/Horse%20Shows%20AEC%202009

- 29.pdf
11 Beccaria, Cesare. Dei delitti e delle pene (Of Crimes and Punishment), originally published 17 64. Reprint Philadelphia (No. 175, Chesnut St.): Published by Philip H. Nicklin: A. Walker, printer, 24, Arch St., 1819. http://www.constitution.org/cb/crim_pun.txt 12 Bentham , Jeremy, An Introduction to the Principles of Morals and Legislation

. (Originally published 1789) 1907. Library of Economics and Liberty. 6 October 2011

. http://www.econlib.org/library/Bentham/bnthPML. html10

chose criminal over noncriminal alternatives in the same way that they chose strategies as consumers in the marketplace. 13 E conomic theory assumes that individuals are rational (although not necessarily logical) play ers who, if not motivated by profit, are motivated to maximiz e the expect ed net benefits (gains over losses ) of their actions. For owners of walking horses who knowingl y violate the HPA, these benefits may not be monetary , but may

be intangible benefits such as the pride and satisfaction of their horse winning or placing in a competition. P otential losses also may not be monetary and could include loss of reputation or emotional and psychological distress

. On the other hand, trainers probabl y are more motivated by

profits and want to ensure their continued income by establishing and maintaining a reputation for producing horses that are competitive. O wners who condone soring may be less risk

- averse than other owners or even risk

seeking. T he decision to violate the law is influenced by a person's tolerance or enjo ym ent of taking risks. O wners and trainers who enter a sore hors e in a show believe the risks are worth the potential benefits (winning or placing). Among comments received from horse owners in favor of the rule, it was observed that uniform enforcement of the HPA will attract people who are interested in training an d showing sound horses and competing on a level playing field. These commenters recognize that enforcement of minimum penalties for soring will help create a fairer environment for all participants. A uniform penalt y protocol will benefit the walking hors e industry by helping to ensure more humane treatment of the horses

. Soring intentionally injur es the horses to produc e the “big

13 Becker, Gary S. Crime and Punishment: An Economic Approach

. The Journal of Political Economy, Vol. 76, No. 2. (Mar.

- Apr., 1968), pp. 169

- 217
.11

lick” gait. A uniform minimum penalty removes uncertaint y for show participants and the administrative burden for HIOs of setting penalt y amounts. Reduction in soring due to the foreknowledge of uniform penalties will help create a more level playing field for show participants and enhance competition. A uniform minimum penalty should enhance the reputation of the walking horse industry and help to restore the integrity of the walking horse shows and breeds. Competitive shows encourage more competitors and draw enthusiastic fans. Successful walking horse shows can have a positive impact on a region’s econom y. Horses with the natural ability to produce the distinctive high

- stepping gait will be more highl y prized for breeding, thereby improving the overall value o f the breed. T he proposed rule will not impose costs on the HIOs or show participants, other than for those individuals who incur penalt ies for violation of the HPA. Individuals that do not violate the HPA will be unaffected by the minimum penalty

protoco l. An y costs of administering the regulations alread y are directl y or indirectly passed along to all participants that compete in the walking horse shows. T he Administrator of the Animal and Plant Health Inspection Service has deter mined that this action will not have a significant economic impact on a substantial number of small entities.