### Analysis in Support of Certification that the Rule will not

have a Significant Economic Impact on a Substantial

Number of Small Entities

Final Rule National Poultry Improvement Plan and Auxiliary Provisions
09 - 031 - 2

U.S. Department of Agriculture Animal and Plant Health Inspection Service

December 2010

### SUMMARY

The Regulatory Flexibility Act requires that agencies consider the economic impact of their rules on small entities. The Small Business Administration has established guidelines for determining which types of firms are to be considered small under the Regu latory Flexibility
Act. The main entities that will be affected by the rule are those engaged in production of poultry breeding stock. Currently there are three major firms that produce primary breeding stock of egg

- type chickens, three breeders of meat

- type chickens, two breeders of turkeys, and one firm producing breeding stock of both egg

- type and meat

- type chickens. All of these are large facilities headquartered in the United States that operate in domestic and international markets, and will not be considered small entities. Few, if any, small producers would be directly affected by this proposed rule.
B roiler operations (NAICS 112 320), turkey operations (NAICS 112330), hatcheries (NAICS 112340), and other poultry operations (NAICS 112390) may be positively affected indirectly by the supply of improved and healthy breeding stock. All of these farms are considered to be small if the y have annual sales of $750,000 or less. Commercial egg producers (NAICS 112310) are considered small if they have annual sales of not more than $11.5 million. This rule would introduce a set of minor changes to the NPIP and would not involve significant changes in program operations. These changes are in line with the industry’s best practices and would likely involve no additional costs in order to meet these requirements. Additionally, the NPIP is a voluntary program established between the industry a nd State and Federal governments. Any person producing or dealing in products may participate in the NPIP when he or she has demonstrated that his or her facilities, personnel, and practices are adequate for carrying out the applicable provisions of the N PIP. NPIP participation allows for greater easein moving hatching eggs/live birds within a State, across State lines, and into other countries.

M ost countries will not accept hatching eggs/live birds and commercial poultry from a U.S. operation unless i t can be shown to be a NPIP participant. The poultry industry plays a very important role in the U.S. economy and the amendments will help to ensure the safety of the industry and benefit the economy. APHIS does not expect the rule to have a significant

e conomic effect on a substantial number of small entities.

### Introduction

This analysis provides the basis, as required by the Regulatory Flexibility Act, for certification by the APHIS Administrator that the proposed rule, if promulgated, would not have

a significant economic impact on a substantial number of small entities. This proposed rule will amend the provisions of the National Poultry Improvement Plan (NPIP) to reflect the changes approved by voting delegates at the Plan’s 2008 biennial
conference in Portland, Oregon. This rule is designed to introduce a series of minor changes to the NPIP and does not involve significant changes in program operations. The changes include new or amended language in the following areas: definitions, the U.S. Avian Influenza Clean and U.S. H5/H7 Avian Influenza Clean program s for breeding poultry , adding pullets to the U.S. H5/H7 Monitored program for table

- egg layers, and updating testing and laboratory procedures for Mycoplasma and Salmonella . The changes also est ablish provisions specific to meat

- type breeding waterfowl. These changes are in line with the industry’s best practices and would likely involve no additional costs in order to meet these requirements. Additionally, the NPIP is a voluntary program estab lished between the industry and State and Federal governments. Any person producing or dealing in products may participate in the NPIP when he or she has demonstrated that his or her facilities, personnel, and practices are adequate for carrying out the a pplicable provisions of the NPIP. NPIP participation allows for greater ease in moving hatching eggs/live birds within a State, across State lines, and into other countries. M ost countries will not accept hatching eggs/live birds from a U.S. operation un less it can be shown to be a NPIP participant. The poultry industry plays a very important role in the U.S. economy and the proposed amendments would help to ensure the safety of the industry and benefit the economy.As background, we provide a brief ove rview of the U.S. poultry and egg industries and

trade in these products. We then describe the expected impact on small entities. 

### The Poultry and Egg Industries

Production The United States is the world's largest poultry producer, the second

- largest egg producer, and largest exporter of poultry meat. Cash receipts (see table 1) from sales of poultry and eggs (broilers, farm chickens, eggs, turkey, ducks, and other poultry) w ere $ 32. 5 billion in
200 9

. 1 Of this total, 6 7 percent was from the sale of broilers, 19 percent from eggs, 1 1 percent from turkeys and 3 percent from other poultry. In terms of tonnage, poultry production and trade exceeds that of beef or pork. For instance, in 200 9 , the U.S. produced 4 1 billion pounds of poultry meat compared with 26 billion pounds of beef and 23 billion pounds of pork. Additionally, the U. S. also produced 6.4 billion dozen eggs. Poultry meat per capita consumption ( 97 2 pounds in 200 9 ) exceeds per capita consumption of both beef ( 61.2 pounds) and pork ( 50.1 pounds). Furthermore, the U.S. exports more poultry meat ( 7.4 billion pounds) than beef and veal (1.9 billion pounds) or pork (4. 1 billion pounds). 2
Table 1

-- Cash receipts for Poultry and Eggs, United States, 2004

- 200 9

Commodity 2 004 2005 2006 2007 2008 2009 $ Millions Total poultry and eggs 29,514, 28, 727 26,459 32, 607 36, 771 32.463 Broilers 20,446 20,877 17,739 21,460 23,112 21,813 Farm chickens 58 65 54 51 62 65

1 USDA/ERS, Farm Income/ Cash receipts, 2000

- 200 9, http://www.ers.usda.gov/Data/farmincome/FinfidmuXls.htm

. 2 USDA/ERS, Livestock, Dairy, and Poultry Outlook. http://www.ers.usda.gov/Publications/LDP/2010/11Nov/ldpm197tables.pdfChicken eggs 5,239 4,007 4, 432 6,678 8, 226 6,156

Turkeys 2, 996 3, 108 3, 574 3, 711 4,478, 3,573 Ducks 21 22 13 14 17 15 Other poultry 755 648 648 693 864 842 Source: USDA/ERS, USDA/ERS, Farm Income/ Cash receipts, 2000

- 200 9, http://www.ers.usda.gov/Data/farmincome/FinfidmuXls.htm

. Broiler production is concentrated in a group of States stretching from Delaware, south along the Atlantic coast to Georgia, then westward through Alabama, Mississippi, and Arkansas. The top broiler

- producing State is Georgia, followed by Arkansas, Alabama , North Carolina, Mississippi, and Texas. Operations in these States account for over 65 percent of broiler cash receipts. Most U.S. broiler production is conducted under contract with broiler processors. The grower normally supplies the grow

- out house wi th all the necessary heating, cooling, feeding, and watering systems. The grower also supplies the labor needed in growing the birds. The broiler processor supplies the chicks, feed, and veterinary medicines. The processor schedules transportation of the b irds from the farm to the processing plant. In many cases, the processor also supplies the crews who place broilers into cages for transportation to the slaughter plant. The U.S. turkey industry produces over one

- quarter of a billion birds annually, with t he live weight of each bird averaging over 25 pounds. Production of turkeys is somewhat more scattered geographically than broiler production. The top five turkey

- producing States are Minnesota, North Carolina, Missouri, Arkansas, and Virginia. The United States is by far the world's largest turkey producer, followed by the European Union. Even though exports are a major component of the U.S. turkey industry, the United States consumes more turkey per capita than any other country.U.S. egg operations produce over 77 billion eggs annually. Over three

- fourths of egg

production is for human consumption (the table

- egg market). The remainder of production is for the hatching market. These eggs are hatched to provide replacement birds for the egg

- laying flocks and broiler chicks for grow

- out operations. The top five egg

- producing States are Iowa, Ohio, Pennsylvania, Indiana, and California. 3 A measure of the industry’s changing structure has been the decreasing number and increasing size o f chicken hatcheries. In 1973, there were 989 facilities that hatched all chickens in the United States. Those hatcheries had the combined capacity to incubate 436 million eggs at one time, for an average capacity of 440,849 eggs. 4 In 200 9 , there were 3 1 7 chicken hatcheries, with a combined incubator capacity of 898 million eggs and an average capacity of 2.8 million eggs. Similarly, there were 203 turkey hatching facilities in 1973, with the capacity to incubate 45 million eggs at one time and an avera ge capacity of 221,675 eggs. In 200 9 , there were 5 1 turkey hatcheries, with an incubator capacity of 38 million eggs and an average capacity of 745,000 eggs. 5
Trade The United States is the world's largest exporter of poultry meat. Annual poultry meat

ex ports totaled about 7. 4 billion pounds in 200 9 , which is about 18 percent of U.S. production. (All trade statistics in this and the following paragraph are for 200 9 .) Demand for U.S. poultry meat products has fluctuated over the last several years due to changing economic conditions and currency exchange rates in major importing countries. The U.S. exported 8,217 million pounds

3 USDA/ERS, Livestock, Dairy, and Poultry Outlook. http://www.ers.usda.gov/Publications/LDP/2010/11Nov/ldpm197tables.pdf

4 USDA/Statistical Reporting Service, Hatchery Production, Annual Revisions 1974 ( http://usda.mannlib.cornell.edu/usda/nass/HatcProdSu//1970s/1975/HatcProdSu

- 03

- 18

- 1975.pdf ) 5 USDA/NASS, Hatchery Production 2009 Summary, April 2010 ( http://usda.mannlib.corn ell.edu/usda/current/HatcProdSu/HatcProdSu

- 04

- 16

- 2010.pdf ).of poultry meat in 2009. Exports are widely distributed. The top ten importers of U.S. broiler

products are China, Russia, Mexico, Hong Kong, Cuba, Canada, Iraq, Ukraine, Angola, and Taiwan. Together, these markets accounted for over 73 percent of U.S. poultry meat exports, on a quantity basis. The United States imported 1 3 0 million pounds of poultry meat and represents less than three

- tenths of a percent of domestic production. Over 84 percent of imports came from Canada in 200 9

. The rest came from Chile, Israel, and France. As in the case of poultry meat, U.S . exports of live poultry and exports of fresh shelled eggs are widely distributed and significantly outweigh imports of these products. The U.S exported 1, 504 million eggs and imported 50 million in 2009

. Top destinations are Canada, Hong Kong, Jamaica, M exico, United Arab Emirates, Trinidad and Tobago, China, Russia, and Guyana. They together imported about 7 5 percent of U.S. egg exports. All of U.S. egg imports were from Canada, Chile , Israel and France. The U.S. exported 73.7 million live poultry and imported 11 .1 million live poultry. The top ten destinations include Canada, China, Mexico, Brazil, Indonesia, Thailand, Peru, Dominican Republic , Philippines , and Egypt . These countries accounted for 70 percent of U.S. total live poultry exports. All U.S. live poultry imports came from Canada, and the United Kingdom. 6 

### Potential Impact on Small Entities
As a part of the rulemaking process, APHIS evaluates whether regulations are likely to have a significa nt economic impact on a substantial number of small entities. The Small Business Administration has established guidelines for determining the number of firms considered small under the Regulatory Flexibility Act. The main entities that would be affected

6 Global Trade Atlas, 2010 ( http://www.gtis.com/gta/secure/gateway.cfm )by the rule are those engaged in production of breeding stock , hatcheries , and table

- egg layers

.

Currently there are four major firms that produce primary breeding stock of egg

- type chickens, three breeders of meat

- type chickens, two breeders of turkeys, and one firm producing breeding stock of both egg

- type and meat

- type chickens. 7 All of these are large facilities headquartered in the United States that operate in domestic and international markets, and would not be considered small entities. Few, if any, small producers would be directly affected by this proposed rule. The SBA defines small poultry processing plants as those plants with no more than 500 employees. 8 It is unclear how poultry processing plants may be indirectly affected by the rule,

an d of those, the number that would be considered small entities. Broiler operations (NAICS 112320), turkey operations (NAICS 112330), hatcheries (NAICS 112340), and other poultry operations (NAICS 112390) may be positively affected indirectly by the supply of improved and healthy breeding stock. All of these operations are considered to be small if they have annual sales of $750,000 or less. 9 Commercial eggs producers (NAICS 112310) are considered small if they have annual sales of not more than $12.5 million. The broiler industry has evolved from small backyard flocks to less than 50 highly specialized agribusiness firms. The poultry companies/integrators that own the birds are all large, vertically integrated companies that do not meet the Small Business Administration (SBA)

7 Mary E. Delany, Genetic Diversity and Conservation of Poultry, p.261, in W.M. Muir and S. E. Aggrey, Poultry Genetics, Bre eding and Biotechnology, August 2003; Susanne Gura, Livestock Genetics Companies: Concentration and Proprietary Strategies of an Emerging Power in the Global Economy (hhtp://pastoralpeoples.org/docs/Livestock_genetics.pdf) 8 Small Business Administration, http://www.SBA.gov/size . Small poultry processing operations (NAICS 311615) include establishments engaged in slaughtering poultry and small game and/or preparing processed poultry and small game meat. 9 U.S. Small Bu siness Administration Table of Small Business Size Standards ( http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf )
.small

- entity criterion. According to the 2007 Census of Agriculture, 24,971 farms sold 195

million layers. 10 Of these, 21,323 (or 85 percent) sold fewer than 3,200 layers 20 weeks old and older. Farms with sales of fewer than 3,200 birds accounted for a total of 1,272,433 birds sold, or 0.7 percent. In 2007, a total of 27,091 farms sold 8.9 billion broilers. Of these, 9,743 (or 36 percent) sold fewer than 2 ,000 broilers and other meat

- type chickens. Out of the 8.9 billion broilers sold, farms with sales of fewer than 2,000 broilers accounted for 1.2 million birds sold or approximately 0.001 percent. These figures give a rough estimate of the numbers of farm s that might qualify as small entities. Many of the farms that would be indirectly affected by this rule are likely small according to SBA guidelines, while bearing in mind that vertically integrated markets account for about 90 percent of poultry producti on. 11

. Participation in National Poultry Improvement Plan (NPIP) program is a voluntary decision. I ndividual producers will continue to participate in the NPIP program only if the benefits they receive from participation outweigh the costs. Over 99 pe rcent of poultry breeders and hatcheries are plan participants. The benefits of flock participation include: member recognition in the official NPIP Directory of Participants ; an approval number that may be used on shipping labels, certificates, invoices, and other documents for identification purposes; free listing in various State fair brochures; and automatic notification of emergency disease management updates. Furthermore, being a member of NPIP allows for greater ease in moving hatching eggs/live bird s within a State, across State lines, and into international markets. As noted, most countries will not accept hatching eggs/live birds and commercial poultry unless they can be shown to be from a NPIP

10 http://www.agcensus.usda.gov/Publications/2007/Full_Report/Volume_1,_Chapter_1_US/st99_1_027_028.pdf 11 By 1977, contracts and vertical integration accounted for over 85 percent of broiler, turkey, and egg production. Today, these arrangements account for over 90 percent of production in each of the three sectors. ( http://www.ers.usda.gov/AmberWaves/June03/fin dings/USHogandPoultry.htm )participant. Importers can be confident that commodit ies traded by NPIP participants have been

produced following international animal health guidelines. Any increased cost to NPIP participants due to the proposed rule would be minor compared to the expected benefits of the proposed program changes. The prop osed rule would codify in the CFR activities already practiced by the industry. Most of the participants have already been implementing the proposed changes for several years. Even if additional testing were required, the number of birds affected would be very small compared to the average size of flocks in the industry. Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action would not have a significant economic i mpact on a substantial number of small entities.