1 Animal and Plant Health Inspection Service Preliminary Regulatory Impact Analysis and Initial Regulatory Flexibility Analysis
Interim Rule: Restrictions on the Importation of Poultry and Poultry Products from Regions Affected with HPAI
Docket No. 2006

- 00 74 (06

- 074

- 1)
October 25 , 2007

INTRODUCTION
Interim Rule

. APHIS is amend ing the current regulations related to highly pathogenic avian influenza (HPAI) to include subtypes other than H5N1. Currently, HPAI subtype H5N1 is regulated under the U.S. Code of F ederal Regulations (9 CFR 94.6), which is included in the section regulating e xotic Newcastle d isease (END). These regulations prohibit the importation of live poultry and poultry products for human consumption from any country where H5N1 is known to exis t. However, unprocessed carcasses and parts or products of unprocessed carcasses may be imported for scientific, educational, or research purposes with the appropriate permit. The subtypes subject to regulation under the interim rule will be allowed entr y into the United States following guidelines similar to those for birds, poultry
, and bird and poultry products from
countries known to have END. APHIS is also adding restrictions to prohibit the importation of live poultry and birds that have been vacci nated for avian influenza 1 or that have moved through regions affected by avian influenza

. 2 In addition to regulating additional subtypes of HPAI, the rule will (1) maintain
the list of HPAI

- affected regions on the i nternet rather than in the CFR ; ( 2 ) es tablish the conditions, consistent with World Organization for Animal Health (OIE) guidelines for notifiable HPAI, under which restrictions can be relieved when a region becomes
disease

- free; and ( 3 ) establish a process for relieving restrictions that stre amlines the regulatory process by allowing APHIS to publish a Federal Register notice, instead of a proposed rule, to announce the availability of a document for public comment showing that the region ha s met the conditions for disease

- free status.

1 This includes hatching eggs that were laid by birds or poultry vaccinated for avian influenza. 2 This includes hatching eggs.2 In acco rdance with the requirements of the Office of Management and Budget for significant rulemaking, this document examines expected economic impacts of the interim rule and considers effects for small entities, as required by the Regulatory Flexibility Act. T he following section presents the expected benefits and costs of the rule for U.S. producers and consumers, and alternatives to the rule considered by APHIS

. In the third section, we discuss the expected effects on small entities. We conclude with a

summ ary statement on the expected benefits and costs of the rule, including effects on
small entities.

EXPECTED BENEFITS AND COSTS OF THE RULE Because of the current substantial overlap between existing restrictions to prevent the importation of articles that could introduce END and the new restrictions to prevent the importation of articles that could spread HPAI, this rule is not expected to cause significant economic effects. The effects it does have benefit domestic poultry producers
and the associated co sts should be borne largely by importers of poultry and poultry products.
United States’ poultry production. The poultry industry has become increasingly vertically integrated over the last four decade s , with broiler production dependent on contracting a rrangements rather than the traditional livestock production system. In addition to supply chain integration, NAFTA has led to a somewhat more economically integrated market in North America than existed previously , particularly for the United
States and Mexico due to an easing of Mexican trade restrictions that has allowed the United States to expand exports (Hahn, et al 2005). Since the 1960s, the poultry and egg industry has undergone substantial structural change. Before this time, poultry meat was a residual of the production of eggs. Meat tended to come from older fowl and was a seasonal product. The move to consolidation
in the 1960s and related price declines contributed to an increased demand for chicken.
B roilers began to be produced strictly for meat rather than meat being a residual product (ERS 1999). Before the consolidation of the industry beginning in the 1960s, most farms raised chickens and many families kept them as backyard flocks. The focus of this practice was3 on egg production to meet a family’s needs. Consolidation/integration in the broiler industry then accelerated, with feed dealers lending capital to independent producers. This eventually progressed into a contract growing arrangement to hedge risk on the part of the grower. These changes to the poultry industry have transformed it into a complex agribusiness rather than a sideline enterprise (ERS 1999). Poultry production essentially includes three broad categories: (1) broiler production; (2) turkey production; and (3) egg production. Broiler production is
concentrated in S tates along the Eastern Seaboard and the Gulf Coast, with most production in the top five broiler producing S tates of Georgia, Arkansas, Alabama, Mississippi, and North Carolina. The majority of broiler production occurs under contractual arrangements with a processor. Turkey production is not concentrated in a defined area within the United States

. T he top five S tates are Minnesota, North Carolina, Missouri, South Carolina, and Virginia. The United St ates is the world’s largest turkey producer , as well as the largest per capita consumer of t urkey (ERS 2006). Egg production in the United States serves two sources of demand: the demand for table eggs for consumption and the demand for hatching eggs for r eplacement birds for the egg

- laying and broiler production firms (ERS 2006). Approximately 75 percent of egg production is destined for human consumption with the remaining 25 percent going into the hatching market. The top five S tates in egg production are Iowa, Ohio, Pennsylvania, Indiana, and California. United States’ trade in poultry and poultry products. Historically, the United States has been a net exporter of poultry and poultry products (Table 1). The United States is one of the top ten export ers of live poultry. Approximately 68 percent of U.S. live poultry exports are destined for Canada and Mexico. The remaining exports are
divided among the Caribbean, Asian, and Central and South American markets. U.S. broiler exports are second only to those of Brazil. Russia, China, and Mexico are the largest importers of U.S. broiler products, accounting for more than 50 percent of U.S. exports (ERS 2006). The United States surpasses all other counties in exports of turkey products, with Mexico the l argest importer. Egg exports are divided into three4 Table 1. United States Net Trade (Exports minus Imports) in Poultry and Poultry Products, 2000

- 2005
2000 2001 2002 2003 2004 2005 2006 Live Poultry (1,000 Head)

Chicken s 40,035 46,515 43,472 36,197 29,440 33,088 36,750 Turkeys 896

- 4,419

- 2,294

- 236

- 1,886

- 580 1,124 Ducks, Geese, Guineas 248 1,604

- 341

- 403

- 150

- 974

- 293
TOTAL 41,179 43,700 40,837 35,558 27,404 31,534 37,581

Meat (Metric Tons)

Chic ken

Fresh/Chilled 217,457 150,392 163,093 180,761 248,158 266,717 211,949 Frozen 2,384,281 2,631,261 2,158,437 2,252,481 2,076,171 2,187,468 2,336,901 Turkey

Fresh/Chilled 44,392 48,780 52,727 71,932 80,800 116,736 101,418 Frozen 150,571 151,681 125,657 118,051 92,784 111,914 119,274 Ducks, Geese, Guineas

Fresh/Chilled 27 92 397 366 489 974 1,074 Frozen 3,239 4,123 1,203 1,508 1,417 8,745 4,234 TOTAL 2,799,967 2,986,329 2,501,514 2,625,099 2,499,819 2,692,554 2,774,850

Eggs

In Shell (1,000 Dozen) 89,008 85,448 82,971 80,882 99,621 103,394 102,962 Not In Shell (Metric Tons) 17,418 15,218 15,161 11,417 15,702 20,327 20,588

Poultry Products (Metric Tons)

Feathers and Down

- 22,149

- 22,709

- 26,132

- 22,170

- 20,546

- 18,624

- 14,715 Skin with Feathers 24,636 39,917 35,004 40,548 39,208 40,383 25,452 TOTAL 2,487 17,208 8,872 18,378 18,662 21,759 10,737

Edible Poultry Meat Preparations (Metric Tons)

Animal Livers 1,052 2,299

- 280

- 247

- 21 10,071 251

Prepared/Preserved Chicken Meat 40,928 61,808 36,852 36,304 39,723 57,885 57,145

Meat or Meat Offal of Chickens, Turkeys, Ducks, Geese, and Guineas 17,405 36,923 42,396 38,613 30,874 31,286 21,855 TOTAL 59,385 101,030 78,968 74,670 70,57 6 99,242 79,251

Source: U.S. Department of Commerce Statistics, Census Bureau, U.S. Trade Statistics5 categories: table eggs for consumption, shell eggs for hatching, and egg products (ERS 2006). 3

Imports of poultry and eggs are small in relation to domestic production. Imports of broiler products are equal to less than one percent of production (ERS 2006). The majority of imports of turkey products come from Canada. However, these imports are extremely small at less than 0.02 percent of domestic production. Finally, egg imports

are only 0.2 percent of domestic production. Overall, the United State s exports a large amount of eg gs and is the second largest egg exporter in value terms. Canada and Mexico are the primary importers of table eggs, while most shell eggs are destined for Canada and Hong Kong. Egg products,
which include dried and nondried albumin and dried and nondrie d yolk, are primarily used in the restaurant and baking industries. Major importers of these products are as follows: Japan, Spain, and Israel of dried albumin; Canada of nondried albumin; Japan, Mexico, and Canada of dried yolk; and Japan, Canada, and So uth Korea of nondried yolk (ERS 2006).

Based on the domestic production and trade volumes, the interim rule is likely to
bene fit producers, while effects on consumers are expected to be negligible. The interim
rule is intended to regulate imports from countries known to have HPAI of any subtype

. Th e rule will benefit producers by protecting domestic flocks against the introduc tion of
HPAI

. Since imports are miniscule compared to domestic production, consumers are not likely to be affected by any changes in imports that may result because of the rule

. However, the interim rule will help safeguard domestic production
, which wou ld be negatively affected if HPAI were introduced . Th e rule will help ensure a steady supply of poultry and poultry products on the market, reducing the likelihood of disease

- related price impacts for consumers

. C osts of complying with the requirements of the rule will largely be borne by persons importing poultry and poultry products in to the United States. For regions for which importers must already comply with restrictions because of END or HPAI subtype H5N1, the interim rule will have little or no co mpliance impacts. Compliance costs will be incurred only with respect to imports from affected regions for which there are not

3 Although egg exports are divided into three separate categories, Table 1 does not distinguish between table eggs for consumption and shell eggs for hatching. Shell eggs are aggregated in this table.6 concurrent END or HPAI subtype H5N1 import restrictions. If in the future APHIS restricts poultry or products from a region wit h HPAI other than subtype H5N1, and that region does not already have END or HPAI subtype H5N1, the additional requirements would generate new compliance costs. O ne technical change to the import requirements, that cooked poultry carcasses or parts or pro ducts of carcasses imported into the United States must be cooked to a minimum temperature of 74°C for both HPAI and END, will not impose any significant additional costs; the current standard requires that articles

must “have a thoroughly cooked appearanc e throughout.”
Alternatives to the rule. Alternatives to the interim rule considered by APHIS
concerned specific aspects of the rulemaking more so than its overall purpose and approach. Two examples are options evaluated by the Agency for notifying chang es in
disease status and in deciding the minimum cooking temperature requirement for cooked poultry carcasses or parts or products of carcasses imported into the United States. The Agency determined that maintaining the list of countries known to have case s of HPAI on the APHIS website is preferable to maintaining this list in the CFR. Listing
the regions on the website will facilitate notification of a change in a region’s disease

status. The rule also provides that APHIS will make a risk assessment avai lable to the public prior to removing a region from the list of regions known to have cases of HPAI. This will ensure that the public has opportunity to comment on any pending action to remove a region. Alternatives for codifying the required cooking te mperature at which chicken is “fully cooked” were also considered by the Agency

. APHIS reviewed various cooking temperature requirements, including standards required by various countries for human food safety purposes and research results that documented the efficacy of various cooking temperature/time combinations in destroying infectivity. APHIS determined that the new OIE recommended standard for HPAI of a minimum internal temperature of 74 degrees
Celsius is effective, and when used for both HPAI and END allows for a margin of error
and better control disease risks. APHIS considered listing separate temperature requirements for the two diseases, but decided that requiring a single temperature of 74°C
will be more practical for many producers, will not pose undue additional costs to7 producers, and will offer more uniform assurances that either virus is inactivated if present.

INITIAL REGULATORY FLEXIBILITY ANALYSIS The Regulatory Flexibility Act requires that agencies consider the economic impact of ru le changes on small businesses, organizations, and governmental jurisdictions. Section 603 of the Act requires agencies to prepare and make available for public comment an initial regulatory flexibility analysis (IRFA) describing the expected impact of pr oposed rules on small entities. Sections 603(b) and 603(c) of the Act specify the content of an IRFA. In this section, we address these IRFA requirements for this
interim rule

.

Reasons for Action APHIS is taking these actions based on the determination that the amendments will more closely align APHIS regulations with OIE guidelines. The agency has
concluded that to prevent the introduction of HPAI into the United States it is necessary to impose certain restrictions on birds, poultry
, and bird and p oul try products imported from regions where HPAI is known to exist

. Restrictions on the imports of live poultry and birds that have been vaccinated for avian influenza or that have moved through regions affected by avian influenza will also minimize the pote ntial risks of an
introduction of avian influenza into the United States

. Additionally, APHIS has determined that maintaining the list of countries affected by HPAI on the APHIS website
rather than in the CFR and publish ing a Federal Register notice, inst ead of a proposed rule, to announce the availability of a document for public comment showing that a region ha s met the conditions for disease

- free status will be advantageous due to the
timeliness of the release of such information to the public. These a ctions will also

stre amline the regulatory process.

Objectives and Legal Basis for Rule APHIS is taking these actions to prevent the introduction of HPAI into the United States. This rule would amend 9 CFR parts 93, 94, and 95. The legal basis for this r ule8 may be found in the Animal Health Protection Act of 2002, which authorizes the Secretary of Agriculture to promulgate regulations to prevent the introduction into the United States or dissemination of any pest or disease of livestock. The objective of the interim rule is to establish requirements that allow the safe importation of birds, poultry
, and bird and poultry products from countries where HPAI of any subtype . Importation of the se products will be allowed on the condition that they
follow the im port regulations pertaining to countries affected with END with the additional stipulation that certain poultry products be cooked to a minimum internal temperature of 74 °C and be accompanied by a certificate verifying compliance with this requirement

. Th e importation of live commercial birds or poultry vaccinated for avian influenza, including hatching eggs that were laid by birds or poultry vaccinated for avian influenza, and the importation of live birds or poultry, including hatching eggs, that
transit regions where HPAI of any subtype is known to exist are prohibited. APHIS believes these mitigations will prevent the importation of HPAI of any subtype

. An additional objective of the rule is to streamline the regulatory process by allowing APHIS to tak e timely action to close and reopen markets in response to detection and eradication of HPAI in foreign regions. This change will benefit APHIS, but will have no effect on other federal agencies or state or local governments . I t will be accomplished by m aintaining a list of regions affected by HPAI on the internet

.

Description and Estimated Number of Small Entities Regulated
The interim rule may affect domestic poultry producers, as well as firms that import poultry and poultry products

. T he intent of t he rule is to safeguard the health of domestic poultry flocks and protect producer interests against economic losses that may
result from an outbreak of HPAI of any subtype. It is likely that the entities affected will be small according to Small Business Administration ( SBA ) guidelines.
Most U.S. poultry and egg producers are small
, based on 2002 Census of Agriculture data and SBA guidelines for entities in the farm categor ies Broilers and Other Meat Type Chicken Production ( NAICS 112320 ) , Turkey Produc tion (NAICS 112330), Poultry Hatcheries (NAICS 112340), and Other Poultry Production (NAICS 112390)

. The SBA classifies producers in these categories with total annual sales of not more than9 $750,000 as small entities. For entities in the farm category C hicken Egg Production (NAICS 112310), the SBA classification for small e ntities is substantially higher, with
the standard of total annual sales not exceeding $11.5 million. According to the 2002 Census of Agriculture, 4 there were a total of 83,381 farms producing poultry and eggs in that year . Of these farms, the percentage breakdown between those producing poultry and those producing eggs is not known. However, using the more restrictive SBA classification to define a small entity, approximately 83 per cent had annual sales in 2002 of less than $500,000, which is well below the SBA’s threshold of $750,000 for most of
the listed categories

. 5 I t is reasonable to assume that most poultry and egg producers that may be affected by this rule would qualify as small. If the substantially higher threshold of $11.5 million is used , 100 percent of the 83,381 farms would be considered small
entities based on the 2 0 02 Census data. In the case of live poultry merchant wholesaler s (NAICS 4244401) and poultry and poul try product (except live) merchant wholesalers (NAICS 4244402), establishments with not more than 100 employees are considered small by SBA standards. In 2002, there were a total of 37 live poultry wholesale trade
establishments in the United States

. 6

T he interim rule will help safeguard these predominantly small firms, particularly producers, from potent ial HPAI outbreaks and resulting economic losses. P roducers will benefit from the establishment of these requirements. Wholesalers are not likely to be greatly impacted by the rule and may benefit from the additional regulatory basis for Of these firms, 35 firms operated for the entire year. Of those firms that were in operation the entire year, 35 or 100 percent employed fewer than 100 employees and were, therefore, considered small by SBA standards. There were a total of 711 poultry and poultry product wholesale trade establishments in
the United States in 2002. Of these firms, 634 firms operated for the entire year. Of those firms that were in operation the entire year, 614 or 96.8 percent employed fewer than 100 employees and were, th erefore, considered small by SBA standards. Thus, domestic producers and importers that may be affected by the rule are predominantly
small entities.

4 Available online at http: //www.nass.usda.gov/Census_of_Agriculture/index.asp

. 5 Source: SBA and 2002 Census of Agriculture

. 6 Source: SBA and 2002 Economic Census

.10 ensuring that co nsumers receive disease

- free product s

. APHIS welcomes public comment on these potential effects.
APHIS also will streamline the regulatory process for relieving restrictions by publishing a notice in the Federal Register announcing the availability of a d ocument for public comment showing that a region has met the conditions for disease

- free status. In addition, APHIS will maintain a list of regions known to have HPAI of any subtype on the internet rather than in the CFR, which will provide timely notice for protecting the
health of U.S. poultry. E ntities , large and small, will benefit from the availability of more timely information related to the disease status of countries or regions.

Description and Estimate of Compliance Requirements Firms wishing to export carcasses and parts or products of carcasses from a region
where HPAI is considered to exist will be required to obtain a certificate signed by a salaried veterinarian of that region’s national government, specifying that the articles
were cooked to a minimum internal temperature of 74 °C prior to shipment to the United States. However, the burden of this requirement will be on the foreign firm rather than on the domestic import firm. Domestically, t his rule does not entail reporting, recordkeepi ng, or other compliance requirements beyond those already required for the importation of poultry and poultry products

.

Duplication, Overlap, and Conflict with Existing Rules and Regulations APHIS has not identified any duplication, overlap, or conflict of the interim rule
with other Federal rules.

Significant Alternatives to Rule It is the position of APHIS that there are no alternatives to the interim rule that would satisfactorily accomplish the stated object ives and minimize any significant impacts on small entities. We do not expect small entities to be significantly affected by the interim rule, other than to benefit from the reduced risk of introduction into the
United States of HPAI of any subtype

.11 SUMMARY This rule amends the regulations con cerning the importation of animals and animal products to prohibit or restrict the importation of bird and poultry products from regions where any subtype of highly pathogenic avian influenza is considered to exist.
The rule also adds restrictions concern ing importation of live poultry and birds that have been vaccinated for avian influenza, or that have moved through regions where any subtype of HPAI is considered to exist. These restrictions supplement existing restrictions on the importation of live bi rds and poultry, and bird and poultry products and byproducts from regions where exotic Newcastle disease or HPAI are considered to exist. They are necessary to prevent the introduction of HPAI into the United States.

Because of the current substantial o verlap between existing restrictions to prevent the importation of articles that could introduce END and the new restrictions to prevent the importation of articles that could spread HPAI, this rule is not expected to cause significant economic effects. T he effects it does have benefit domestic poultry producers and the associated costs should be borne largely by importers of poultry and poultry products.

Based on the domestic production and trade volumes, the interim rule is likely to benefit producers by protecting domestic flocks against the introduction of HPAI, while effects on consumers are expected to be negligible. The costs of complying with the requirements of the rule will largely be borne by persons importing poultry and poultry products into the United States. We do not expect small entities to be significantly affected by the interim rule, other than to benefit from the reduced risk of introduction into the United States of HPAI. Overall, the restrictions placed on imports of birds, poultry , and bird and poultry products will closely follow those already in place for END.
One change will affect certain cooked poultry products , the requirement that cooked poultry carcasses or parts or products of carcasses be heated to a minimum internal

tem perature of 74°C before shipment to the United States. The current requirement is12 cooking that achieves an internal temperature of 70 o C for 5 seconds The change should result in negligible additional cost, for several reasons. The primary costs for coo king vary with the time and amount of fuel involved. Cooking operations for exported poultry products in most countries are not precision operations that barely meet the minimum requirement. Rather, they are bulk operations designed to ensure the require ment is met with minimal supervision. For this reason, many of these operations routinely use a time/temperature system with an ample margin of error, so that batches routinely exceed the new requirement. Second, the new requirement is based on an OIE re commendation that is already being followed by many countries, independent of the APHIS regulatory requirement.13 REFERENCES Economic Research Service (ERS) of USDA. Broiler Farms’ Organization, Management, and Performance . Online publication: http://www.ers.usda.gov/publications/aib748/aib748.pdf
, March 1999

. Downloaded May 2006.

ERS. Poultry and Eggs: Background . Online publication: http://www.ers.usda.gov/Briefing/Poultry/Background.htm
, updated May 3, 200 6

. Downloaded May 2006.
Hahn, William F., Mildred Haley, Dale Leuck, James J. Miller, Janet Perry, Fawzi Taha, and Steven Zahniser. Market Integration of the North American Animal Products Complex

. U.S. Department of Agriculture, Economic Research Service, Electronic Outlook Report, LDP

- M

- 131

- 01, May 2005. Available online at: http://www.ers.usda.gov/publications/ldp/may05/ldpm13101/ldpm13101.pdf

.