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Animal and Plant Health Inspection Service Economic Anal ys is and Certification Statement Proposed Rule: Recognition of the Brazilian State of Santa Catarina as free of foot

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mouth disease, rinderpest, swine vesicular disease, classical swine fever, and African swine fever to allow importation of live ruminants, live swine, and their products from Santa Catarina Docket No.: 09

- 034

- 1 July 1 , 2009
This analy sis provides a factual basis for certification by the Administrator of the Animal and Plant Health Inspection Service, as required by section 605 of the Regulatory Flexibility

Act (RFA) that the proposed rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. APHI S currentl y recognizes the Brazilian S tate of Santa Catarina as an area where foot

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- mouth disease (FMD), rinderpest, swine vesicular disease (SVD), classical swine fever (CSF), and African swine fever (ASF) exist. However, APHIS is proposing to amend the regulations in 9 CFR part 94 to add Santa Catarina to the list of regions considered free of FMD, rinderpest, SVD, CSF, and ASF

. A risk anal ys is conducted by APHI S concludes that Santa Catarina is free of these diseases. Based on this conclusion, the proposed change would allow the import ation of live ruminants, ruminant semen, ruminant meat, ruminant products, live swine, swine semen, pork meat, and pork products from Santa Catarina

. T he proposed rule is not expected to have a significant economic impact on a substantial number of small entities due to the fact that it is not expected to result in beef or other ruminant meat exports to the United States of any appreciable quantity , and trade effects for pork products are likel y to be insignificant. As noted in the risk evaluation for this rule, Santa Catarina contains less than three percent of Brazil’s cattle, most of which are dairy animals. Brazil’s sheep and goat populations are also concentrated in parts of the country

other than Santa Catarina, and their products are nearl y entirel y destined for the domestic market.2 Santa Catarina account s for approximately one - fourth of Brazil’s pork production and one

- third of Brazil’s pork exports. As projected by ABIPECS, the Brazilian Pork Industry and Export er Association, the rule is expe cted to result in average pork exports from Santa Catarina to the United States of 10,000 metric tons (MT) per ye ar over five ye ars. This level of U.S. pork imports by the United States would be equivalent to about two percent of Brazil’s annual pork expo rts (51 0 ,000 MT), three percent of annual U.S. pork imports (3 0 9,000 MT), and one

- tenth of one percent of annual U.S. pork production ( 10 , 281 ,000 MT), based on d ata averaged over the years 2007 and 2008 . As underscored by the last statistic in particular, we do not expect economic impacts of the proposed rule to be significant.

Pork Production in the United States Consolidation in the pork industry has resulted in a shift in the size and number of operations. Compared to historical production, more pigs are being produced by fewer operations. Additionally , this industry has been marked by

increased concentration (vertical integration) in that many slaughter firms own the pigs from the time they are born until slaughter , rel yi ng on contracting arrangement s with growers to manage the daily care of the animals throughout the different production phases

. Most hogs are produced in some type of confinement facility , which allow s for ye ar - round production

. Approximately

53 percent of all production sites are c lassified as total confinement. 1 The United States is a net exporter of pork (table 1) and has been the second largest exporter of pork, trailing the European Union, in recent ye ars. In 2008, the United States surpassed the European Union as the largest p ork exporter. Other major exporters include Canada and Brazil. Historically , Japan, Mexico and Canada are the primary markets for U.S. pork exports (table 2) , accounting for 6 3 percent of average exports from 2004 to 2008

. However, U.S. pork export marke ts may be shifting. In 2008, Hong Kong and Russia together received 20 percent of U.S. pork exports, accounting for a larger share than Canada , whereas the five

- year average market shares for Hong Kong

1 APHIS

- VS

- CEAH

- NAHMS. October 2007. Part I: Reference of Swine Health and Management Practices in the United States, 2006, National Health Monitoring System. #N475.1007. Fort Collins, CO.3

and Russia were five percent and seven percent, respe ctivel y. The marked increase in exports to these countries is likely due to beneficial trade agreements and market forces.

Table 1

– U.S. pork production, exports, and imports, 2004

- 2008

Production Exports Imports

1,000 Metric Tons 2004 9,311. 80 989.07 498.71 2005 9,391.18 1,209.33 464.41 2006 9,558.96 1,358.55 448.91 2007 9,962.02 1,424.82 439.28 2008 10,599.05 2,117.51 377.32 Source: L ivestock Marketing Information Center Database, USDA data compiled b y LM IC, converted to metric tons.

Table 2

– U.S. pork exports by country , 2004

- 2008
2004 2005 2006 2007 2008 Average 1,000 Metric Tons, Carcass Weight Equivalent Japan 417.7 474.4 460.6 486.6 600.4 488.0 Mexico 241.6 244.1 276.2 204.8 305.7 254.5 Canada 106.3 137.1 147.4 16 6.7 191.6 149.8 Russia 30.4 42.7 94.7 110.8 195.1 94.7 Hong Kong 14.6 10.6 22.6 57.6 222.2 65.5 Source: ERS CWE calculations using data from U.S. Department of Commerce, Bureau of the Census, converted to metric tons. Potential Impacts Imports of pork from Santa Catarina are expected to be 50,000 MT over a five

ye ar period, assuming imports of 10,000 MT on a yearly basis. This annual level of imports would be equivalent to approximately two percent of average U.S. imports over the period 2004 to 2008. Additionally , imports from Santa Catarina would compete with imp orts of pork from Canada and Denmark, the United States’ two largest suppliers of pork. The proposed rule would have potential implication s for swine producers and slaughter facilities . Bas ed on data from the 200 7 Census of Agriculture and Small Business Administration (SBA) guidelines, we expect a majority of those affected b y the4

proposed regulation to be small entities. 2 Entities in the category hog and pig farming (NAICS 112210 ) are con sidered small if their total annual sales do not exceed $750,000. Data from the Census of Agriculture indicate that 82 percent of hog and pig operations are classified as small; of the 74,789 farms classified under the hog and pig farming category , 61,101 operations had annual sales of less than $500,000. Entities in the category hog feedlots are considered small if they have total annual sales of not more than $750,000. These operations are classified under the same code as hog and pig farming (NAI CS 11 2210). Thus, we expect the majority of entities classified as hog feedlots are small. Entities classified as animal (except poultry) slaughtering (NAICS 311611) with not more than 500 employees are considered small by SBA stan dards. The 2007 Economic Census reports 1, 597 establishments in this category

. 3 Of this number, 1,466 establishments (92 percent) had fewer than 100 employees. In similar data from the 2002 Economic Census, 96 percent of 1,869 establishments had fewer than 500 employees. 4 Thus, the majority of slaughter establishments are considered small under SBA guidelines.
Summary The rule is not expected to result in beef or other ruminant meat exports to the United States of any appreciable quantity, and trade effects for pork products are likel y to be insignificant. T he United States is a net exporter of pork. Pork imports from the State of Santa Catarina in Braz il are expected to be equivalent to approximately three percent of average U.S. fresh pork imports. T hese imports would compete with imports from Canada and Denmark , currentl y the United States’ largest suppliers of pork

. Taking into consideration probabl y partial displacement of pork imported from these countries by

2 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 o nline at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf

. 3 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. 4 2002 Economic Census is available online at http://www. census.gov/econ/census02/

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projected pork imports from Santa Catarina , the net increase in imports is expected to be less than three percent

. The majority

of swine producer and slaughter facilities are considered small under SBA guidelines. However, 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 expect ed to come from Santa Catarina are likel y to be minimal. Based on the factors presented above, APHI S certifies that the proposed rule, if promulgated, will not have a significant economic impact on a substantial number of small entities

.