### U n i t ed S t a

t e s

D e p a r t m e n t of

A g r i c u l t u re

A ni m al a nd

P l a n t H e a l t h

I n s p e c t i o n

Ser v i ce

April

2 01 3 Regulat o ry I mp act Anal ys is &

I niti a l Reg u lat o ry Flexibil i ty A n al ys is

P ropo s ed Rule

A PH I S

- 2009

- 0 0 17

R I N 057 9

- AD 4 1

I mpo r tati o n of f re s h ( ch i lled o r f roze n ) b e ef

f rom a reg i on o f Brazil

P o l i cy & Pr og r am D e v e lo p m e nt

P o l i cy A n a l y si s & D e v e lo p m e nti



### S ummary

This a n a l y sis e x a min e s p ot e nti a l ec onomic imp ac t s of a p r opos e d r ule t h a t would a llow

fre sh ( c hill e d or fr o z e n) b ee f f r om a d e s i g n a t e d r e g ion in B ra z il to be impo r t e d into the Unit e d

S t a t e s p r ovid e d cer t a in c onditions ar e m e t. E x p ec t e d b e n ef its a nd c osts ar e e v a lu a t e d in

acc o r d a n c e with E x ec utive O r d e r s 12866 and 13563 . E x p ec t e d ec onomic imp a c ts f or sm a ll

e ntiti e s ar e a lso c onsid ere d, a s re qui r e d b y the Re g ul a t o r y F l e x ibili t y A c t. E c onomic ef f ec t s of

the r ule f o r both U. S . p r odu cer s a nd c on s um er s ar e e x p ec t e d to be v e r y sm a ll. P r odu cer s ’

w e l fa r e would be n e g a tiv e l y a f fec t e d, but n ot si g ni f

i ca nt l y . G a ins f

o r c onsum er s would

out w e i g h p r o d u c e r loss e s, re sulting in a n e t b e n ef it to the U. S

. ec ono m y

.

The Unit e d S t a t e s is the l a r g e st b e e f p r od u ce r in t h e wo r ld, a nd y e t still imports a

significant quantity . U. S . b e e f impo r t volum e s ov e r the 10 y ea r s, 2002

- 2011, w e r e e quiv a l e nt

to a bout 1 1 p e r ce nt of U. S . p r odu c tion. Most of the b eef impo r t e d b y the Unit e d S t a t e s is fr om

g ra ss

- fe d ca ttl e

, a nd is p r o ce ss e d wi t h t r immin g s fr om U. S

. g r a in

- fe d ca ttle to m a ke g r ound

b e ef . Aust r a l i a

, C a n a d a

, a nd N e w Z e a l a nd ar e the m a in f o re i g n suppli er s of b ee f to the Unit e d

S t a t e s.

E ffec ts of t h e p r opos e d r ule ar e e stim a t e d using a p ar ti a l e quilib r ium mod e l of the U. S

.

a g r i c ultu ra l s e c to r

. E c o n omic imp ac ts ar e e stim a t e d b a s e d on int e r ac tions a mong the g ra in,

liv e sto c k, a nd liv e sto c k p r odu c t s ec to r s. Ann u a l impo r ts of fre sh ( c hill e d or fr o z e n) b e e f f r om

B ra z il ar e e x p ec t e d to r a n g e b e tw e e n 20,000 a nd 65,000 m e t r ic tons ( MT )

, with volum e s

a v er a g i n g 40,000 MT. Q u a nti t y , p r i c e a nd w e l fa r e c h a n g e s a r e e stim a t e d f o r th e se th r e e impo r t

s ce n ar ios. T h e re sults a r e p re s e n t e d a s a v er a ge a n nu a l ef f ec ts f or the five

- y ea r p e r iod, 201 4

-

201 8 . The mod e l indi ca t e s th a t a bout two

- thi r ds o f the b e e f impo r t e d fr om B ra z il would displ ace

b ee f th a t would oth e r wise be impo r t e d fr om oth e r c ount r i e s. Thus, the n e t in crea s e in b ee fii

i mpo r ts c o rre sponds to a

bout on e

- thi r d of the qu a nti t y suppli e d b y B r a z il und e r e a c h of the th r e e

s ce n ar ios.

The mod e l shows th a t if the Unit e d S t a t e s w e r e to impo r t 40,000 MT of b ee f fr om B ra z il,

tot a l U. S . b ee f i m po r ts would in crea s e b y l e ss th a n 1 p e r ce nt. Due t o the in crea s e in supp l y , it is

e stim a t e d th a t the whol e s a le p r i c e of b eef , the re t a il p r i c e of b ee f

, a nd the p r i c e of ca ttle ( st e e r s)

would d e c line b y 0.1 1 p er c e nt, 0.0 4 p erce nt, a nd 0.1 4 p e r ce n t

, re sp ec tiv e l y

. C h a n g e s in U. S . b e e f

p r o du c tion, c onsumption, a nd e x po r ts in re sponse to th e se v e r y sm a ll p r i c e d ec lin e s would be

in c on s e qu e nti a l: b ee f p r odu c ti o n would d ecr e a se b y 0.01 p erce nt, b ee f c onsumption would

in cr e a se b y 0.0 6 p e r ce nt, a nd b ee f e x po r ts would in cr e a se b y 0.1 1 p e r ce nt. The 20,000 MT a nd

65, 0 00 MT impo r t s ce n ar ios show simil ar l y sm a ll qu a nti t y a nd p r i c e e f fec ts.

The fa ll in b e e f p r i ce s a n d re sulting d e c line in U. S . p r odu c tion would t ra nsl a te into

re du ce d re tu r ns to c a pit a l a nd m a n a g e m e nt f or p r o du cer s in the liv e sto c k a n d b ee f p r o ce ssi n g

s ec to r s. Und e r the 40,0 0 0 MT impo r t s ce n ar io, ca ttle p r odu cer s a nd b e e f p r o ce sso r s a r e

e stim a t e d to in c ur d ec li n e s in w e l fa r e of 0. 68 p er c e nt a nd 0. 14 p e r ce nt, r e sp ec tiv e l y

.

The shi f t b y c onsum er s t o b ee f due to the p r i c e d e c line would ca use d o w n w ar d p r e ssu r e

on the p r i ce s of p o r k a nd oth e r m ea ts. The l a r g e st of th e se m ar k e t d ec lin e s, thou g h still v e r y

sm a ll, would be f

or swi n e a nd po r k. I

t is e stim a t e d f

or the 40,000 MT impo r t s ce n ar io th a t the

w e l fa r e of swine p r odu ce r s a nd po r k p r o ce sso r s w ould d ec line b y 0.0 2 p e r c e nt a nd 0.01 p e r ce nt,

re sp ec tiv e l y

.

The d ec line in b e e f p r i c e s b eca use o f impo r ts fr o m B ra z il would b e n ef it c onsum er s. I

t is

e stim a t e d f

or the 40,000 MT impo r t s ce n ar io th a t the w e l f a r e of b ee f c ons u m er s would in cr e a se

b y 0.1 6 p e rc e nt . Consumers of pork and other animal products would b e n ef it n e g li g ib l y

.3

The mod e l indi ca t e s th a t w e l f a r e g a in s of beef consumers net of producer s’ welfare losses

would be e quiv a l e nt to a

b out $1 8 5 million

, whereas pork producer welfare losses would slightly

outweigh pork consumer gains

. F or a ll modeled s ec to r s, the n e t w e l fa r e c h a nge would be

positive

, with c onsum e r g a ins of $ 354 million outw e i g hing p r od u ce r loss e s of $1 6 5 million.

W e l far e e ff

e c ts f or the 2 0,000 MT a nd 65,000 MT impo r t s ce n ar ios a r e s i mil a r to those

d e s cr ib e d. F or a ll th re e s ce n ar ios, w e l f a r e g a ins a r e shown to be g r e a t e r th a n w e l fa r e loss e s,

with the n e t b e n ef

its in c r ea sing b r o a d l y in p r opo r t ion to the qu a nti t y of b ee f impo r t e d fr om

B ra z il; c onsum er s b e n ef

i t mo r e a nd p r odu c er s in c ur l a r g e r w e l f ar e loss e s, t he g rea t e r the volume

of impo r ts. W hile most of the e st a blishm e nts af f ec t e d b y this r ule would be sm a ll e ntiti e s, b a s ed

on the re sults of this a n a l y s is, A P H I S do e s not e x p ec t the imp ac ts to be s i gni f i ca nt. A P H I S

w e l c om e s in f

o r m a tion t h a t the public m a y p r ovide r e g ar di n g pot e nti a l ec o n omic eff e c ts of the

p r opos e d r ul e

.4



### T able of Con t e n ts

S umm a r y

............................................................................................................................. . i

I nt r od u c tio n

......................................................................................................................... 1

U. S

. B e e f P r odu c tion a n d T ra de

......................................................................................... 1

An a l y ti c a l App r o a c h

........................................................................................................... 3

E x p ec t e d E ff

e c ts of the R ul e

............................................................................................... 5

I niti a l Re g ul a to r y F l e x ibili t y An a l y sis................................................................................ 8

R ea sons A c tion is B e i n g C onsid ere d

.............................................................................. 9

Obj ec tiv e s of a nd L e g a l B a sis f or t h e R ule

.................................................................... 9

P ot e nti a l l y A f

f ec t e d S m a ll Entiti e s

............................................................................... 10

S m a ll B usin e ss Adminis t ra tion S t a nd ar ds

................................................................ 10

S m a ll Fa mi l y F ar ms a nd Far ms with Op e ra to r s w h o b e long to S o c i a l l y

Dis a dv a nt a g e d G r oups

.............................................................................................. 10

O r g a nic Far m s

........................................................................................................... 12

P r oj ec t e d R e po r ti n g

, R e c o r dk ee pi n g

, a nd Oth e r C ompli a n c e R e qui re m e nts

............... 12

Dupli ca tion, Ov er l a p, o r C on f li c t with Existing R ul e s a nd Re g ul a tions

...................... 12

Alt er n a tiv e s to minimi z e S i g ni f i ca nt E c onomic I

m p ac ts of the R ul e

........................... 13

R efere n ce s

......................................................................................................................... 14

App e ndi x

........................................................................................................................... 151



### I ntr o ducti o n

The B r a z ili a n Gov er nm e nt h a s re qu e st e d th a t A P H I S a llow fre sh (c hill e d or fr o z e n) b e e f

to be impo r t e d into the Unit e d S t a t e s fr om a d e s i gn a t e d r e g ion in B ra z il

. 1 B a s e d on the r e sults of

a r isk a ss e ssm e nt c ond u c t e d b y A P H I S , the A g e n c y h a s c on c lud e d th a t fre s h b ee f c a n be s afe l y

impo r t e d p r ovid e d c e r t a i n re qui re m e nts a r e m e t to e nsu r e th a t the m e a t do e s not h ar bor f oot

- a nd

mouth dis ea se (F M D )

.

E x p ec t e d b e n ef

its a nd c o sts of the p r opos e d r ule a r e e x a min e d in acc o r d a n c e with

E x ec utive O r d e r s 12866 and 13563, which direct agencies to assess all costs and benefits of

available regulatory alternatives and, if regulation is necessary, to select regulatory approaches

that maximize net benefits (including potential economic, environmental, public health a nd

safety effects, and equity). Executive Order 13563 emphasizes the importance of quantifying

both costs and benefits, of reducing costs, of harmonizing rules, and of promoting

flexibility. E x p ec t e d ec onomic imp a c ts f or sm a ll e ntiti e s ar e a lso e v a lu a t e d, as re qui re d b y the

Re g u l a to r y F l e x ibili t y A c t.

E c o n omic eff

e c ts of the r

ule f or both U. S . p r odu cer s a nd c onsum er s ar e e x p ec t e d to be

v e r y sm a ll. P r o du cer s’ w e l f a r e would b e n e g a tiv e l y a f fec t e d, but not si g ni f

i ca nt l y . G a ins f

or

c onsum er s would outw e i g h p r odu c e r loss e s

, re sulting in a n et b e n ef it to the U. S

. ec on o m y

.

I n the f ollowing s ec tion, we p r ovide a b r i e f o v er v i e w of the U. S . b e e f indu s t r y . T h e

mod e l us e d to e stim a te e x p ec t e d imp ac ts of the r u le is th e n d e s cr ib e d a nd the re sults of the

a n a l y sis ar e p re s e nt e d. L a st l y

, e x p ec t e d ef f ec ts f o r sm a ll e ntiti e s ar e c onsi d ere d.



### U

. S . Beef P r o d u ction a n d T rade

The Unit e d S t a t e s is the l a r g e st b e e f p r od u ce r in t h e wo r ld, p r odu c i n g p r im ar i l y h i g h er

g r a de b e e f f

o r the dom e s t ic a nd e x po r t m ar k e ts. I n 20 11

, the Unit e d S t a t e s p r odu ce d a b o ut 11. 92

million MT, a qu a nti t y little di ffere nt fr om the a v e r a g e qu a nti t y p r od u ce d o v e r the 10

- y e a r

p er iod, 2002

- 2011 ( t a ble 1 ) . D e spite the l a r ge qu a nti t y p r odu ce d, t h e Unit e d S t a t e s has until

very recently been a net importer of beef

.

1 T h e d e s i gn ated e x por t r e g i o n is c o m po s ed o f t h e B r azili a n S tates o f B a h ia, D i s t r ito Fe d e r al, E s p i r ito Sa n t o

, G o ia s

, M ato G ro ss o

, Mato G ro ss o d o S u l, M i n as Ge r ai s

, P a r a n a, R i o G r a n d e d o S u l, R io d e J a n ei ro

, R o n do n ia, Sao P a u l o

, Se r g i p e, a n d T o ca n ti s

.3

with U. S . b ee f i mpo r t volum e s ov e r the 10 y e ar s, 200 2

- 20 11

, e quiv a l e nt to a bout 1 1 p erce nt o f

U. S . p r odu c tio n

.

Annual quantities of U. S . b ee f e x po r t ed , 2002

- 2011, v ar i e d wid e l y , d e c l ining sh ar p l y in

2004 b ec a use of e x po r t re st r i c tions due to the D e ce mb e r 2003 dis c o v e r y o f bovine spon g i f o r m

e n c e ph a lop a t h y ( B S E )

. N e t impo r ts w er e a t th e ir hi g h e st l e v e ls a t that ti m e

. B e e f e x po r ts now

exceed p re

- B S E l e v e l s.

T a ble 1. U. S . b e e f p r od u c tion, c onsumption, e x p o r ts, impo r ts, a nd n e t impo r ts,

2002

- 20 11 , million m e t r i c tons

Y ear P r odu c tion C onsumption E x po r ts I mpo r ts N e t I mp o r ts

2002 12.3 12.7 1.1 1.5 0.4

2003 11.9 12.3 1.1 1.4 0.3

2004 11.2 12.6 0.2 1.7 1.5

2005 11.2 12.6 0.3 1.6 1.3

2006 11.9 12.7 0.5 1.4 0.9

2007 12.0 12.7 0.7 1.4 0.7

2008 12.1 12.4 0.9 1.2 0.3

2009 11.8 12.2 0.9 1.2 0.3

2010 12.0 12.0 1.0

7 1.0 0.0

2011 11.9 11.6 1.2 0.9

- 0.3

T e n

- y e ar

a v er a ge 11. 8 12. 4 0. 9 1. 3 0. 5

S o u r ce s : P rod u cti o n

, e x por t s

, a n d i m por ts

– L i v e s t o c k M a rk eti n g In f o r m ati o n C e n te r ; c on s u m p ti o n

–

h tt p :/ / ww w .b l s

. g o v / op u b / m l r / 2005 / 0 5 /a r t 3 f u ll .pd f a n d h t t p : // ww w

. e r s .u s d a

. g o v / n e w s / B S E C o v e r a g e

. h t m

.

Outlook for U.S. Agricultural Trade/ AES

- 75/August 30, 2012 ERS, USDA APHIS

Most b ee f impo r t e d b y t h e Unit e d S t a t e s i s fr om g r a ss

- fe d ca ttl e

, a nd is p r o c e ss e d with

t r immin g s fr om U. S . g ra i n

- fe d c a ttle to m a ke g r o u nd b eef . Aust r a li a

, C a n a d a

, a nd N e w Z ea l a nd

ar e the m a in f

o re i g n sou r ce s, with Aust ra lia a nd N e w Z ea l a nd e a c h p r ovid i ng a bout o n e

- thi r d of

U. S . b ee f impo r ts over the 10 years, 2002

- 2011

, a nd N e w Z ea l a nd supp l y i n g m ost of the re st

( t a ble 2 )

. U r u g u a y a nd Ni car a g u a h a v e ac qu i re d sm a ll e r U. S . m ar k e ts. B ee f impo r ts fr om

B ra z il would p ar t l y displ a ce4

impo r ts fr om e x isting sou rce s. I n 2011, d ec lining ca ttle inv e nto r i e s a nd r e du ce d c ow sl a u g ht e r

in the Unit e d S t a t e s suppo r t ed l ar g e r impo r ts of ca ttle a nd b e e f

. 2

T a ble 2. P er c e nt a g e s h a r e s of U. S . b e e f impo r ts, by sou r c e c oun t r y , 200 2

- 2 0 11

Y ea r Aust ra lia C a n a da N e w

Z e a l a nd U r u g u a y Ni car a g u a Oth er

2002 38.3 38.7 20.3 < 0.1 1.4 1.3

2003 41.8 28.2 23.7 2.9 1.8 1.6

2004 33.7 32.1 19.2 11.6 2.0 1.4

2005 27.8 34.1 18.4 16.1 2.0 1.6

2006 32.7 31.9 20.7 10.2 2.3 2.2

2007 33.1 30.3 18.9 11.7 3.2 2.8

2008 29.1 37.8 23.0 2.6 4.4 3.1

2009 33.1 34.8 21.3 2.8 3.7 4.3

2010 25.6 35.7 22.6 1.7 6.4 2.2

2011 22.8 36.7 22.6 1.7 6.4 2.2

T e n

- y e a r

a v er a ge 3 1.8 3 4.4 20.9 6. 2 3 .2 2. 2

S o u r ce: U

. S. B u r eau o f t h e C e n s us

, as r e por ted b y Gl ob al Tr a d e I n f o r m ati o n Se r v ice s

, I n c

. , f o r HS c od es 0 2 0 1

( f r e s h o r c h i l led m

eat o f bo v i n e a n i m a l s ) a n d 020 2 ( f ro zen m eat o f bo v i n e a n i m al s )

.



### Anal y tical App r

oach

P ot e nti a l imp ac ts of the p r opos e d r ule a r e e x a min e d using a p ar ti a l e quilib r ium mod e l of

the U. S

. a g r i c ultu ra l s e c to r

. P r in c ip a l c h a r ac t e r isti c s of the mod e l a r e d e s c r ib e d in the a pp e ndix

to this a n a l y sis. A mo r e in

- d e pth dis c ussion of the mod e l, a s a ppli e d in e s t im a ting the e c onomic

imp ac ts of outb rea ks of l i v e sto c k dis ea s e s, is f ou n d in P aar lb e r g e t a l. ( 20 0 8 )

.

The mod e l m a ps int er a c tions a mong the g ra in, liv e sto c k, a nd liv e sto c k p r o d u c t s ec to r s.

I mp a c ts a r e e stim a t e d b a s e d on the int er a c tions. The mod e l t a k e s into a cc ount substitution

a mong liv e sto c k p r odu c t s in re sponse to re l a tive p r i c e c h a n g e s a nd i n c o rp o ra t e s f o r e i g n t ra d e.

C onsumption l e v e ls f

or f in a l g oods ( b eef , p o r k, p oult r y m ea t, l a mb a nd s h ee p m ea t, e g g s, milk,

wh ea t, c o ar se g r a ins, r i c e a nd s o y b ea n oil) a r e b a s e d upon c u r r e nt popul a tion a nd p e r c a pita

2 US D A E R S / F A S. “ O u tl oo k fo r U

. S. A g r i c u l t u r al T r a d e

, ” A E S

- 67

, A u g u s t 31

, 20 1 0.

h tt p :/ / us d a

. m a n n li b. c or n ell

. e d u / u s d a/c u rr e n t

/ A E S / A E S

- 08

- 31

- 2010. p df5

c onsumption. P r odu c tion of m ea ts, e g g s, a nd mi l k is a ssum e d to o cc ur du r ing the c u rre nt

qu ar t er , while p r odu c tion of a nim a ls a nd cr ops ar e l a gg e d a c c o r di n g to biolo g i c a l limit a tions.

M ar k e t

- c l ear i n g id e ntiti e s ar e k e pt c onsist e nt acr o ss tim e

, g iv e n the biol o g i ca l l a g s. The mod e l

us e s m ar k e ti n g m a r g ins t o link far m p r i ce s f o r cr o ps a nd liv e sto c k, whol e s a le p r i ce s f o r m ea ts,

milk a nd e g g s, a nd re t a il p r i ce s f or a ll f in a l g oods. B e e f is mod e l e d a s a sin g le c ommodi t y (as

ar e the oth e r a g r i c ultu ra l p r odu c ts ) . The mod e l d o e s not distin g uish b e tw e e n t y p e s of b e e f b y

g r a de or c ut, or w h e th e r i t is c hill e d or fr o z e n. The p r i c e e l a sti c iti e s of su p p l y a nd d e m a nd f or

b ee f th a t a r e us e d a r e 0. 3 4 a nd

- 1.52 1

, re s p ec tiv e l y

.

C onsum e r w e l f

a r e c h a n g e s ar e c omput e d a cc o r di n g to the t ra dition a l c ons u m e r su rplus

d ef inition, n a m e l y , the d i ffe r e n c e b e tw e e n wh a t c onsum er s would be willing to p a y f or a

c ommodi t y a nd the p r i c e th e y ac tu a l l y do p a y

. P r o du ce r w e l fa r e c h a n g e s a r e ca ptu r e d in t er ms

of c h a n g e s in re tu r ns to c a pit a l a nd m a n a g e m e nt.

Annu a l impo r ts of fre sh ( c hill e d or fr o z e n) b ee f f r om B ra z il ar e e x p ec t e d to ra n g e

b e tw ee n 20,000 a nd 65, 0 00 m e t r ic tons ( MT ) , wi t h volum e s a v er a g i n g 40

, 000 MT. U. S

.

p r odu ce r a nd c onsum e r w e l fa r e c h a n g e s a r e e st i m a t e d f or th e se t h re e im p o r t s ce n ar ios. T h e

re sults ar e p r e s e nt e d a s a v er a g e a nnu a l e ff e c ts f or the f ive

- y e a r p er iod, 20 1 4

- 201 8 , using a s

b a s e lin e s f

or eac h o f the y ea r s the p r o d u c tion l e v e ls a nd p r i ce s a s f ound in U S DA A g r i c ultu ra l

P r oj ec tions to 20 22 ( U S DA O C E 201 2 ) . The m o d e l indi ca t e s th a t a bout t wo

- thi r ds of the b e e f

impo r t e d fr om B r a z il would displ ac e b e e f th a t w o uld oth er wise be impo r t e d fr om oth e r

c ount r i e s. Thus, the n e t i n crea s e in b e e f impo r ts c o rre sponds to a bout on e

- thi r d of the qu a nti t y

suppli e d b y B ra z il und e r eac h of t h e th r e e s ce n ar i o s.

1 Source of elasticities is Paarlberg (2008)

.6



### E xpected Ef

f e c ts of the Rule

The re sults of the a n a l y sis in t er ms of p r i c e a nd q u a nti t y e f f e c ts ar e shown i n t a bl e s 3. I f the

Unit e d S t a t e s w e r e to impo r t 40,000 MT of b ee f fr om B ra z il, tot a l U. S

. b ee f impo r ts would

in crea s e b y l e ss th a n 1 p e rce nt. Due to the i n cr e a s e in supp l y , it is e stim a t e d th a t the whol e s a le

p r i c e of b eef , the re t a il p r i c e of b e ef

, a nd t h e p r i c e of ca ttle ( st e er s) would d ec line b y 0.1 1 p erce nt,

0.0 4 p er c e nt, a n d 0.1 4 p erce nt, re sp e c tiv e l y

. C h a n g e s in U. S . b e e f p r odu c tion, c onsumption, a nd

e x po r ts in re sponse to th e se v e r y sm a ll p r i c e d ec lin e s w o uld be in c ons e qu e nti a l: b e e f p r o du c tion

would d ecr e a se b y 0.01 p e rce nt, b ee f c on s umption would in crea s e b y 0.0 6 p e r ce nt, a nd b ee f

e x po r ts would in crea s e b y 0.1 1 p e rce nt. The 20,000 MT a nd 65,000 MT impo r t s ce n a r ios show

simil ar l y s m a ll qu a nti t y a nd p r i c e e ff e c t s

.

T a b le 3

. B a s eli n e le v e l s o f a v e r a g e a n nu al b e e f prod u cti o n

, c o ns u m p ti o n

, i m por t s

, e x por t s

, a n d pr ice s

, 201 4

- 2 0 1 8

, a n d e s t i m ated q u a n titi e s

, pr ice s

, a n d p e r ce n ta g e c h a n g es r e s u l t i n g f r o m b eef i m

por t s f r o m B r azil7

o f 20,0 0 0 M T

, 4 0, 0 0 0 M T

, a n d 65

, 00 0 M T ; q u a n titi e s in 1,00 0 M T

, b eef pr ices in do lla r s p er M T

, a n d cattle

pr ices in do lla r s p er hun dr e d wei g h t

20 14

- 2 0 1 8

A v e r a g e

A n nu al

B a s eli n e

Q u a n ti t y o r

P r ice 2 20,0 0 0 M T I m port

Sce n a r io 40,0 0 0 M T I m por t

Sce n a r io 65,0 0 0 M T I m por t

Sce n a r io

Q u a n ti t y

o r P r ice P e r ce n t

Ch a n ge Q u a n ti t y

o r P r ice P e r ce n t

Ch a n ge Q u a n ti t y

o r P r ice P e r ce n t

Ch a n ge

B eef

prod u cti on 11, 738 11, 737

- 0.01% 11, 737

- 0.01% 11, 737

- 0.0 1 %

B eef

c o ns u m p ti o n 11, 807 11, 811 0.0 3 % 11, 815 0.0 6 % 11, 819 0.1 0 %

B eef i m por ts 1,3 62 1,3 67 0. 34 % 1,3 7 1 0. 69 % 1,3 77 1. 12 %

B eef e x por ts 1, 292 1, 293 0.0 64 1

, 294 0.1 1 % 1, 295 0. 18 %

B eef pr ices

W h o le s ale 4,266 4,264

- 0.0 6 % 4,262

- 0.1 1 % 4,259

- 0.18 %

0.18% 00.180

.18 0. 18 % R etail 1 2,912 1 2,909

- 0.0 2 % 1 2,906

- 0.0 4 % 1 2,903

- 0. 07%

C attle pr ices

( s tee r ) 115.46 114.39

- 0. 06% 114

. 32

- 0.1 4 % 114.23

- 0.2 0 %

E x p ec t e d w e l fa r e e ff

e c ts of the r ule a r e shown in t a ble 4 f or the th r e e impo r t s ce n ar ios. The fa ll in

b e e f p r i ce s a n d d ec line in U. S . p r odu c t ion would t ra nsl a te into re du ce d r e tu r ns to ca pit a l a nd

m a n a g e m e nt f

or p r odu c er s in the liv e s to c k a nd b e e f p r o c e ssing s ec to r s. Und e r the

40,000 MT impo r t s ce n a r io, ca ttle p r odu c e r s a nd b ee f p r o ce sso r s ar e e stim a t e d to in c ur d ec lin e s

in w e l fa r e of 0. 68 p e rce n t a nd 0. 14 p er c e nt, re sp ec tiv e l y

.

The d ec line in the p r i c e o f b ee f a nd re sulti n g shi f t b y c onsu m er s to b e e f a nd a w a y f r om

po r k a nd oth e r m e a ts w o uld ca use down w ar d p r e s su r e on the p r i c e s of th e s e b ee f substitut e s. The

l a r g e st of t h e se d e c lin e s, thou g h still v e r y s m a ll, would be f or swine a nd po r k. I

t is e stim a t e d f

or

the 40,000 MT impo r t s ce n ar io th a t the w e l f a r e of swi n e p r o d u cer s a nd p o r k p r o ce sso r s would

d ec line b y 0.0 2 a nd 0.01 p e r ce n t

, re sp ec tiv e l y . T h e d ec l i ne in U. S . b ee f p r odu c tion would a lso

a f fec t the p r od u c tion of oth e r liv e sto c k a nd liv e sto c k p r odu c ts a nd would ca use a d ec line in the

d e m a nd f or liv e sto c k f

ee d. I t is e stim a t e d th a t the i m p ac t of the r u l e f or th e se oth e r c ommodi t y

2 Baseline quantities and prices are averages for the years 2014

- 2018, as found in “USDA Agricultural Projections to

2019.”8

s ec to r s would be n e g li g ib l e . The c ombin e d w e l f a r e loss f or a ll of th e se g r oups o f p r odu c er s is

e s tim a t e d to be 0.0 4 p er c e n t, e quiv a l e nt to $1 6 5 mil l ion. B y f a r , the l ar g e st sh a r e of the w e l f a r e

loss would be in c u r re d b y c a ttle p r odu c er s, a t $ 1 43 million.

The d ec line in b e e f p r i c e s b eca use o f the impo r ts fr om B r a z il would b e n ef i t c onsum er s.

I t is e stim a t e d f

o r the 40

, 000 MT impo r t s ce n ar io th a t the w e l f a r e of b ee f c onsum er s would

in crea s e b y 0. 16 p e r ce nt Consumers of pork and oth e r a nim a l p r odu c ts w o uld b e n ef it n e g l i g ibly

.

I t is e stim a t e d th a t the c ombin e d c on s um e r w e l f ar e g a ins und e r this s ce n ar io would be 0.0 3

p er c e nt, e quiv a l e nt to $ 354 million.

Estim a t e s of the n e t w e l f

ar e imp ac ts of t h e r ule a r e shown a t the bottom of t a ble 4. The

mod e l indi ca t e s th a t w e l f a r e g a ins of beef consumers net of producers’ welfare losses would be

e quiv a l e nt to a b out $1 8 5 million, whereas pork producer welfare losses would slightly outweigh

pork consumer gains. F or p r o du cer s a nd c onsum er s of oth e r a nim a ls a nd a nim a l p r odu c ts, the

re sults show a sli g ht w e l fa r e g a in. F or a ll s ec to r s, the n e t w e l fa r e c h a nge would be a g a in of

0.0 2 p erce nt, with c onsum e r w e l f ar e g a ins of $ 354 million outw e i g hing p r od u ce r w e l f a r e loss e s

of $1 65 million.

The w e l f ar e ef f ec ts und e r the 20,000 MT a nd 65

, 000 MT impo r t s ce n ar ios ar e simil a r to

those d e s cr ib e d. I n a ll th re e c a s e s, w e l fa r e g a ins a r e g r e a t e r th a n w e l f ar e l o ss e s, with the n et

b e n ef its in cr e a si n g b r o a d l y in p r opo r tion to the q u a nti t y of b e e f impo r t e d f r om B ra z il; c onsum er s

b e n ef it mo r e a nd p r odu c er s in c ur l a r g e r w e l f a r e l oss e s, the g rea t e r the vo l ume of impo r ts. F or

none of the s c e n ar ios, h o w e v er

, ar e t h e imp ac ts s h own to be si g ni f i c a nt. A P H I S w e l c om es

in f o r m a tion th a t the public m a y p r ovide r e g ar di n g pot e nti a l ec onomic e f fe c ts of the p r opos e d

r ul e

.9 B a se 20

, 0 0 0 M T I m po rt S ce n a r i o 40

, 0 0 0 M T I m po rt S ce n a rio 65

, 0 0 0 M T I m po rt S ce n a rio

N e t C h a n g e N e t C h a n g e N e t C h a n g e

P e r ce n t P e r ce n t P e r ce n t

P r o d u cer

w e l f a re

c h a n ge s 1

B e e f 12,828 12,819

- 9

- 0.07 12,810

- 18

- 0.14 12,797

- 31

- 0.24

C a ttle 20,943 20,858

- 85

- 0.41 20,800

- 143

- 0.68 20,667

- 276

- 1.32

Po rk 41,372 41,371

- 1 0 41,370

- 2

- 0.01 41,368

- 4

- 0.01

S w i n e 19,103 19,101

- 2

- 0.01 19,100

- 3

- 0.02 19,095

- 8

- 0.04

Ot h e r a n i m al

p r o du c ts 97,529 97,529 0 0 97,529 0 0 97,530 1 0

Cr op s 201,046 201,047 1 0 201,047 1 0 201,048 1 0

P r o d u cer

w e l f a r e, a ll

s ec t o rs 392,821 392,725

- 96

- 0.02 392,656

- 165

- 0.04 395,505

- 316 0.08

C on s u m e r

w e l f a re

c h a n ges

B e e f 219,444 219,612 168 0.08 219,790 346 0.16 219,989 545 0.25

Po rk 156,258 156,260 2 0 156,262 4 0 156,266 8 0.01

Ot h e r a n i m al

p r o du c ts 476,972 476,974 2 0 476,975 3 0 476,978 6 0

Cr op s 275,993 275,993 0 0 275,994 1 0 275,994 1 0

8

8 C on s u m e r

w e l f a r e, a ll

s ec t o rs 1,128,667 1,128,839 172 0.02 1,129,021 354 0.03 1,129,021 560 0.05

N e t w e lf a re

c h a n ges

B e e f a n d

ca ttle 253,215 253,289 74 0.03 253,400 185 0.07 253,453 238 0.10

Po rk a n d

s w i n e 216,733 216,732

- 1 0 216,732

- 1 0.08 216,729

- 4

- 0.16

Ot h er

a n i m a ls a n d

a n i m al

p r o du c ts 574,501 574,503 2 0 574,504 3 0 574,508 7 0

Cr op s 477,039 477,040 1 0 477,041 2 0 477,041 2 0

N et w e lf a r e, a ll

s ec t o rs 1,521,488 1,521,564 76 0.01 1,521,677 189 0.02 1,521,731 243 0.04 T a b le 4

. W el f

a r e e ff ec t s o f b e ef i m

por ts f r o m B r azil o f 20, 0 00

, 4 0,0 0 0

, a n d 6 5,0 0 0 m et r ic t o n s; m illi o n do lla r s

1 R et u r n s to ca p ital a n d m a n a g e m e n t.



### I niti a l Reg u lat o ry Flexibil i ty A n al ys is

The Re g ul a to r y F l e x ibili t y A c t re qui r e s a g e n c i e s t o e v a lu a te the po t e nti a l e ffec ts of t h e ir

p r opos e d a nd f

i n a l r ul e s on sm a ll busin e ss e s, sm a ll o r g a ni z a tions a nd sm a l l g ov er n m e nt a l

ju r isdi c tions. S ec tion 6 0 3 of the A c t r e qui re s a g e n c i e s to p re p a r e a nd m a k e a v a il a ble f or public10

c omm e nt a n initi a l r e g ul a to r y f l e x ibili t y a n a l y sis th a t d e s cr ib e s e x p ec t e d i mp ac ts of a p r opo s e d

r ule on sm a ll e ntiti e s.

R ea s on s A c ti o n i s B e i n g C on s i de r e d

I n re spon s e to a re q u e st fr om the Gov e r nm e nt of B ra z il th a t fre sh (c hill e d or fr o z e n) b e e f

be a llow e d to be impo r t e d into the Unit e d S t a t e s fr om a r e g ion within th a t c ount r y

, A P H IS

c ondu c t e d a r isk a n a l y sis of the p r opos e d e x po r ti n g r e g ion r e g ar di n g the st a tus of F MD. The

Ag e n c y f ound t h a t B r a z il h a s the in fra st r u c tu r e a n d e m e r g e n c y re spon s e c a p a biliti e s a d e qu a te to

eff e c tiv e l y c ont a in F MD in the e v e nt of a n outb r e a k, a s w e ll a s m ee t a ll oth e r impo r t

re qui re m e nts. I n o r d e r f

or impo r ts to re sume f

ollowing a n out b rea k, B r a z il would h a ve to cer ti f y

th a t the b ee f d o e s not o r i g in a te in a n y a r e a th a t h a s b ee n pl a c e d und e r re st r i c tion f or F MD until

12 months af

t e r the l a st c a se in the a r e a h a s b ee n e ra di ca t e d.

O b j ec ti v e s o f an d Lega l B a s i s f o r t h e R u l e

W ith fe w e x ce ptions, the r e g ul a tions in 9 C F R p a r t 94 p r ohibit the impo r t a t ion of fre sh

(c hill e d or fr o z e n) m ea t o f r umin a nts or swine th a t o r i g in a t e s in or t ra nsits a r e g ion wh e r e F M D

is c onsid ere d to e x ist. E x ce pt f or the S t a te of S a n ta C a t ar in a , A P H I S do e s not c onsid e r B ra z il to

be fr e e of F MD b e ca use i t v acc in a t e s liv e sto c k a g a inst this dis ea s e . The p r o pos e d r ule would

m a ke qu a r a ntine d ec isio n s b y B ra z il ’ s v e t er i n a r y a utho r iti e s the b a sis f or d e t er mining wh e t h er

b ee f impo r ts fr om B ra z il should be a llow e d. I n ac c o r d a n c e with the Anim a l H ea lth P r ot ec tion

A c t ( 7 U. S

. C . 8301 e t s e q. ) , the S ec r e t a r y of A g r i c ultu r e h a s the a utho r i t y t o p r omul g a te

r e g ul a tions a nd t a ke m e a su re s to p re v e nt the int r o du c tion of c ont a g ious a n i m a l dis ea s e s into the

Unit e d S t a t e s b y m e a ns o f impo r t re st r i c tions.11

P o t en ti a ll y Aff ec t e d Sm a l l E nt iti e s

Sm a l l B u s i ne ss A d m i n i s t r a ti o n S t anda r ds

As shown in the a n a l y sis, e ntiti e s th a t would be most affec t e d b y this r ule a r e ca ttle

p r odu cer s a nd b e e f p r o c e sso r s. B a s e d on t h e S m a ll B usin e ss Administ ra tion ( S B A) sm a ll

- e nti t y

st a nd ar ds a nd d a ta fr om t he 2007 C e nsus of A g r i c ultu re , a m a jo r i t y of the e ntiti e s th a t m a y be

aff e c t e d b y the p r opo s e d r e g ul a tion a r e sm a ll. Av er a g e s a l e s of the 656,4 7 5 far ms c l a ssi f i e d

und e r the b e e f c a ttle ra n c hing a nd far mi n g c a t e g o r y ( N A I C S 112111) w a s l e ss th a n $42,000 in

2007, w e ll b e low the SB A sm a ll

- e nti t y st a nd a r d o f $750,000. C a ttle fee dl o ts ( N A I C S 112112)

ar e c onsi d ere d sm a ll if t h e y h a ve tot a l a nn u a l s a l e s of not mo r e th a n $2.5 million. I n 2009, mo r e

th a n 97 p er c e nt of c a ttle fee dlots ( 80,000 out of 8 2,170 e st a blishm e nts) h a d ca p a c iti e s of l e ss

th a n 1,000 h ea d a nd a v e r a ge a nn u a l s a l e s of f e w e r th a n 50 h ea d, c l ear l y m e e ting the sm a ll

- e nti t y

st a nd ar d. Entiti e s c l a ssi f

i e d a s a nim a l (e x ce pt po u lt r y ) sl a u g ht e r i n g ( N A I C S 311611) with not

mo r e th a n 500 e mpl o ye e s ar e c onsid e re d sm a ll. T he 2002 E c onomic C e n s us re po r ts 1,869

e st a blishm e nts in this ca t e g o r y

. 3 Of this numb er , 1,796 e st a blishm e nts ( 96 p erce n t ) h a d f e w e r

th a n 500 e mpl o y e e s. T h us, the m a jo r i t y of sl a u g h t e r e st a blishm e nts ar e a l s o c onsid ere d sm a ll

und e r S B A g uid e lin e s.

Sm a l l Fa m i l y Fa r m s an d Fa r ms w it h O pe r a t o r s w h o be l on g t o

S oc i a ll y D i s ad v antage d Gr oups

The C e nsus of A g r i c ultu r e a llows f u r th e r e x a min a tion of sm a ll e ntiti e s th a t c ould be

aff e c t e d b y the p r opo s e d r ul e , n a m e l y , sm a ll fa mi l y c a ttle op e r a tions a nd c a ttle op era tions f or

3 20 0 7 E c o n o m

ic C e n s u s d ata f

o r t h e m a nu f

act u r i n g s ect o r h a v e n o t b een r elea s e d

.11

whi c h one or mo r e of the p r in c ip a l op e r a to r s b e l o ng to a s o c i a l l y dis a d v a n t a g e d g r oup. S m a ll

fa mi l y f ar ms a r e d e f

in e d b y U S DA a s fa mi l y f a r ms with g r oss s a l e s o f l e ss th a n $250,000

. 4 In

2007, n ear l y 88 p e rce nt o f far ms with c a ttle a nd ca lf inv e nto r i e s w e r e sm a ll fa mi l y f ar ms.

S m a ll fa mi l y far ms ar e f

u r th e r divid e d into re ti r e m e nt far ms ( op e ra to r s r e po r ting th e y a re

re ti re d )

, re sid e nti a l/ li fe s t y l e f ar ms ( o p era to r s re p o r ting a m a j o r o cc u p a tion oth e r th a n f a r ming )

,

a nd far mi n g

- o cc up a tion f ar ms ( op e r a to r s r e po r ting far mi n g a s th e ir m a jor o cc up a tion )

. Far mi n g

o cc up a tion f

a r ms a r e c l a s si f

i e d a s low

- s a l e s sm a ll fa mi l y f ar ms ( s a l e s l e ss th a n $100,000) a nd

hi g h

- s a l e s sm a ll fa mi l y f ar ms ( s a l e s b e t w ee n $1 0 0,000 a nd $249,999 ) . A f i f th ca t e g o r y o f sm a ll

fa mi l y f ar ms a r e limit e d re sou r c e f a r ms, whi c h h a ve s a l e s of not mo r e t h a n $100,000 a nd a tot a l

hous e hold in c ome a t or b e low the n a tion a l pov er t y l e v e l f or a fa mi l y o f f

our or l e ss th a n 50

p erce nt o f c oun t y m e di a n hous e hold in c om e

.

The C e nsus of A g r i c ultu r e indi ca t e s th a t in 2007, 40 p erce nt o f sm a ll fa mily c a ttle

op era tions w e r e r e sid e nti a l/li fe s t y le f ar ms. A n y n e g a tive e f

f e c ts of the r ule f

or th e se c a ttle

op era tions would be of e v e n l e ss c ons e q u e n c e th a n is indi ca t e d b y the a n a l y s is b e c a use the

own er s h a v e a m a

jor so u rc e of i n c ome oth e r th a n th e ir far ms. W ith r e g ar d to the oth e r ca t e g o r i e s

of sm a ll fa mi l y c a ttle op e ra tions, ov e r on e

- f ou r th o f the own er s re po r t e d th a t th e y h a d a l r e a d y

re ti re d, limit e d re sou r c e f ar ms a nd the low

- s a l e s f

a r min g

- o cc up a tion f

ar ms eac h c omp r is e d a bout

15 p erce nt o f the op e r a tions, a nd a bout 6 p e r ce nt w er e h i g h

- s a l e s f a r ming

- o cc up a tion f

a r ms.

S o c i a l l y dis a dv a nt a g e d g r oups ar e o n e s th a t histo r i ca l l y h a ve b e e n subj ec t e d to bi a s a nd

p re judi ce . T h e y in c lude wom e n, p er sons of His p a nic o r i g in, Am e r i ca n I ndi a ns or Al a ska

N a tiv e s, Asi a ns, A f

r i ca n Am er i ca ns, a nd N a tive H a w a ii a ns or oth e r P ac i f ic I sl a n d er s. T h e se

4 A n y f a r m w h e r e t h e op e r at o r a n d p e r s o n s r elated to t h e op e r at o r o w n a m a j or i t y o f t h e bu s i n e s s i s c o ns i d e r ed a

f a m i l y f a r m

. F o r d e f

i n i t i o n s a n d i n f

o r m ati o n

, s ee: US D A E R S. S t r u ct u r e an d F i nan ces o f U .S

. Fa r m s : Fa mily

Fa r m R e po r t, 20 1 0 e d iti o n

, E

I B

- 66

, J u ly 2 0 10

. h tt p :/

/ ww w

. e r s

. us d a

. g o v / P u b licati on s / EI B 66 / EI B 66. p d f12

far m op e r a to r s, th e ms e l v e s, m a y n ot h a ve e x p er i e n ce d bi a s or p re judi ce

, b ut id e nti f

y with one or

mo r e of th e se g e nd er

, e t h ni c

, a nd r a c i a l g r oups.

F or mo r e t h a n 8 p e r ce nt of ca ttle op e ra tions in 2007, the p r in c ip a l op e r a tor w a s a wom a n.

About 5 p erc e nt of ca ttle op era tions h a d a p er son o f Hisp a nic h er it a ge a nd/ o r a n Am er i can

I ndi a n o r Al a s k a n n a tive a s one of th e ir top

- th r e e op era to r s. Fe w e r th a n 2 p erce nt o f ca ttle

op era tions h a ve a n A f

r i c a n

- Am er i ca n a s a top

- th r e e op e r a to r

.

Most ca ttle op era tions a r e sm a ll fa mi l y f ar ms a nd m a n y of t h e op e r a to r s b e l ong to so c i a l l y

dis a d v a nt a g e d g r oups. E c onomic ef f ec ts of the r ule f

o r th e se f ar m s ar e not e x p ec t e d to di ffe r

f r om the e f

fec ts f o r ca ttle p r odu c er s g e n era l l y

. W e do not e x p ec t the p r opos e d r ule to h a v e a

si g ni f i c a nt imp ac t on U

. S

. ca ttle p r odu c e r s r e g a r dl e ss of the si z e of op era t ion or a n op e r a to r’s

g e n d er

, e thni c

, o r r a c i a l c l a ssi f i ca tion.

Or gan i c Fa r ms

I n 2008, 586 far ms sold 7,213 h ea d of o r g a nic b e e f ca ttle th a t h a d a tot a l v a lue of a bout

$6.1 million. Most o r g a nic b ee f o p era tions a r e s m a ll in c omp ar ison to c on v e ntion a l op era tions.

The b e e f impo r t e d fr om B ra z il is not e x p ec t e d to be o r g a ni c , so th e s e op e r a tions should not be

aff e c t e d b y the p r opo s e d r ul e

.

P r o j ec t e d R epo rti ng , R eco r d k eep i n g , an d Ot he r C o m p l i ance

R equ ir e m en t s

R e po r ting a nd rec o r dk ee ping re qu i re m e nts a sso c i a t e d with the p r opos e d r u le ar e

dis c uss e d in the r ule un d e r the h e a ding " P a p er w or k R e du c tion A c t."

D up li ca ti on , O v e r l ap , o r C on f li c t w i t h E x i s ti n g R u l e s an d R egu l a ti ons

A P H I S h a s not id e nti f

i e d a n y dupli c a tion, ov er l a p, or c on f li c t of the p r opos e d r ule with

oth e r Fe d e r a l r ul e s.13

A lt e r na ti v e s t o mi n i m i z e S i gn i f i can t E cono m i c Im p a c t s o f t h e R u le

B a s e d on o u r re v i e w of a v a il a ble in f o r m a tion, A P H I S d o e s not e x p ec t the p r opos e d r ule

to h a ve a s i g ni f

i ca nt ec o n omic imp ac t on sm a ll e ntiti e s. I n the a bs e n c e of s i g ni f

i c a nt ec onomic

imp ac ts, we h a ve not id e nti f i e d a lt er n a tiv e s th a t w ould minim i z e su c h imp ac ts.14



### Re f e r ences

P aar lb e r g

, P hilip L ., Ann Hillb er g S e it z in g e r

, J ohn G. L ee

, a nd K e n n e th H . M a th e ws, J r

. E c onomic I mp ac ts of F o r e i g n Anim a l Dis e a s e

. E c onomic R e s earc h R e po r t Numb e r 57. U S DA

E RS , M a y 2008.

S m a ll B usin e ss Adminis t ra tion. T a ble of S m a ll B usin e ss S i z e S t a nd ar ds m a t c h e d to No r th

Am er i ca n I ndust r y C l a ssi f i ca tion S y st e m C od e s.

http://www.sb a

. g ov/id c / g r oups/publi c /do c um e nts/sb a _hom e p a g e /s e r v_sstd_t a bl e pd f .pdf

S m a ll B usin e ss Adminis t ra tion. R e g u l a to r y F l e x ibili t y A c t.

http://www.sb a

. g ov/ a dv o /l a ws/ r e g f l e x .html

U. S

. C e nsus B u r e a u. E c onomic C e nsus, 2002. http://www. ce nsus. g ov / ec o n/ ce nsus02/

U S DA NA SS

. C a ttle on Fee d, Fe b r u a r y 19, 201 2

U S DA NA SS . 2007 C e nsus of Ag r i c ultu re

. http://www. a g c e nsus.us d a

. g ov/ P ubli ca tions/2007/ F ull_ R e po r t/ind e x

. a sp

U S DA NA SS . 2008 O r g a nic S u r v e y

. http://www. a g c e nsus.us d a

. g ov/ P ubli ca tions/2007/Onlin e _Hi g hl i g hts/O r g a n i c s/

U S DA O C E. U S DA A g r i c ultu ra l P r oj ec tions to 20 22

. L o n g

- t er m P r oj ec t i ons R e po r t O C E

2010

- 1, Fe b r u a r y 2010.

http://www.usd a

. g ov/o c e / c ommodi t y / arc hiv e

_ p r oj ec tions/U S DA A g r i c ultu r a l P r oj ec tions2022.pd

f15



### Appendix

C h arac t e r isti c s of the M o d el

D e t a ils of the p ar ti a l e quilib r ium mod e l us e d f or this a n a l y sis a r e p r ovid e d i n P aar lb e r g e t

a l. ( 2008 ) . This a pp e nd i x hi g hli g hts some of its p r im a r y c h a rac t er isti c s. I n m a pping int e r ac tions

a mong the g ra in, liv e sto c k, a nd liv e sto c k p r odu c t s ec to r s, the mod e l a ssu m e s p r i ce

- t a king

ec onomic d e c ision

- m a k e r s who m a x im i z e w e ll

- d e f in e d obj ec tive f

u n c tions. Utili t y

m a x im i z a tion f

or c onsum er s y i e lds a s e t of p e r c a pita d e m a nd f u n c tions. P r odu cer s c hoo s e

inputs a nd p r odu c ts th a t m a x im i z e p r o f its using f our t y p e s o f f a c to r s of p r odu c tion:

• inputs th a t ar e mobile a mong p r od u c tion ac tiviti e s (e

. g ., l a bo r

, f u e l) a nd f or whi c h p r i c e

is t rea t e d a s g iv e n ( p e r f

e c t l y e l a stic supp l y )

• s ec to r

- sp e c i f

ic int er m e di a te g oods (e

. g ., swi n e a s the int er m e di a te g ood in the p r odu c tion

of po r k)

• s ec to r

- sp e c i f

ic p r im a r y f ac to r s (e

. g

., p h y s i ca l a nd hum a n ca pit a l) a nd

• l a nd, whi c h is mobile ac r oss cr opping ac tiviti e s.

The num er i c a l solution of the mod e l is obt a in e d b y l o g ar ithmi ca l l y di f f er e nti a ting the

b e h a vio ra l e q u a tions f

or the liv e sto c k, m ea ts, a nd cr op p r odu c tion st r u c tu r e s. E ac h c ommodi t y

h a s a m ar k e t

- c l e ar i n g c o ndition f or whi c h the tot a l di ffere nti a l in c lud e s d e r iv e d d e m a nds f or

a nim a ls a nd f

e e d ing re d i e nts. L

ink a g e s a r e m a in t a in e d th r o u g h the tot a l di ffe r e nti a ls of the

m ar g i n

- m ar kup e q u a tions. The log ar ithmic di ff e r e nti a l fra m e wo r k h a s the a dv a nt a g e o f re l y i n g

on e l a sti c iti e s, whi c h a r e ea si e r to obt a in th a n sp ec i f ic f un c tion a l f

o r ms, m o r e intuitive th a n

p ar ti a l d er iv a tiv e s, a nd c a n be a ppli e d to b a s e line v a lu e s.

Th re e s e ts of p a r a m e t er s d r ive the mod e l: the liv e sto c k fee d

- b a l a n c e c a l c ul a to r , the

re v e nue s h are s f

or a ll in d ust r i e s, a nd e l a sti c iti e s u s e d in the mod e l solution. The liv e sto c k f e e d

b a l a n c e ca l c ul a t o r s a r e c r iti ca l b eca use t h e y re l a t e the sto c ks a nd f lows of a nim a ls f

or each16

qu ar t e r to the f

ee d suppl i e s a v a il a bl e

, f

o r ming t h e cr iti ca l v er ti c a l link a ge b e tw ee n the a nim al

a g r i c ultu r e c ompon e nt a n d the cr op c ompon e nt.

Output c ommoditi e s ar e a lso link e d th r ou g h the r e l a tionship b e tw ee n re v e n ue a nd f a c tor

sh are s. Un d e r the a ssu m ption of p erf e c t c omp e tition, fac tor p a y m e nts e x a c t l y a c c ount f

or the

s ec to r s’ tot a l re v e nu e s. Thus the unit re v e nue s h are s a r e the p r opo r tion of unit re v e nue ( p r i c e )

re p re s e nt e d b y the c ost o f eac h f a c tor of p r od u c tion. F or live a nim a ls, the m a jor re v e n u e sh a r e is

a llo ca t e d to f

e e d c osts, f

o llow e d b y the re sidu a l r e tu r n to ca pit a l a nd m a n a g e m e nt. I n g e n e ra l,

m ea t indust r i e s show low re sidu a l re tu r ns to c a pit a l a nd m a n a g e m e nt b eca u se the bulk of

re v e nue is a llo ca t e d to a n im a l c osts. C r ops show fa i r l y e qu a l a llo c a tions a mong e x og e nous

inputs, l a nd, a nd the re s i du a l c ost of ca pit a l a nd m a n a g e m e nt.

El a sti c iti e s ar e c r iti ca l p a ra m e t er s a nd a r e g r oup e d into s e v era l s e ts. Most own

- a nd

cr oss

- p r i c e e l a sti c iti e s of re t a il d e m a nd a r e b a s e d o n e stim a t e s fr om ec ono m e t r ic mod e ls. C r oss

p r i c e e l a sti c iti e s a r e non

- n e g a tiv e

, imp l y i n g th a t t he c ommoditi e s involv e d ar e substitut e s.

S ubstitu t ion e l a sti c iti e s d e s cr ibe d er iv e d d e m a nd b e h a vio r s a nd af f ec t su p pli e s of the

output c ommoditi e s in t h e e qu a tion fr om wh i c h th e y ar e d er iv e d. S ubstitution e l a sti c iti e s ar e

e ith e r obt a in e d f

r om the lit era tu r e or g e n e ra t e d c o nsist e nt with c ommon l y ac c e pt e d supp l y

e l a sti c i t y v a l u e s.

I nt r a

- s e c tor t ra d e is mod e l e d using e x ce ss d e m a n d a nd supp l y f u n c tions. E x ce ss d e m a nd

e l a sti c iti e s f

or m ea ts ( b e e f , po r k, a nd poult r y m ea t )

, c o ar s e g ra ins, w h ea t, a nd s o y b e a ns a nd

p r odu c ts ar e fr om poli c y simul a to r s. W ith s o me e x ce ptions, the oth e r t ra de e l a sti c iti e s ar e

a ssum e d a nd s e t a t e ith e r 0 or 1.