Saturday, March 17, 2012

More government regs may drastically impact food prices

A study by a  food industry trade group says increased regulation of America's agricultural industries may lead to skyrocketing food prices.

The study released this month by the United Soybean Board summarizes, in part:

The United States is a leading global producer and exporter of animal products. In 2010, this production led to $283 billion in economic output and 1.8 million jobs. But the farmers, ranchers, and the innumerable companies involved in manufacturing and delivering the meat, egg, and dairy products that make up a key part of the American diet operate in a regulated world. And they are threatened by additional potential regulatory measures that would further constrain or control the manner in which livestock and poultry products are produced. 
Laws and regulations imposed by federal, state, and local governments can make domestic farmers and ranchers uncompetitive with competitors overseas and drive them out of business. Just as manufacturing and service jobs have been “offshored” to Mexico, China, South Korea, India, and other countries, excessive regulation could eventually cause animal agriculture to move offshore. This could lead to higher consumer prices. 
The cost of regulation 
The five regulatory areas most likely to generate increased costs for US producers in the near term are animal housing, environmental regulations, the use of antimicrobials and other drugs, livestock trading, and labor regulations. We found that leading the charge on adopting new regulations that impact production costs is often followed by a substantial decline in production that tends to increase consumer costs. 
Using a conventional economic model, we estimated the consumer cost impact of higher production costs for pork, beef, chicken, turkey and eggs that could result from an increased regulatory burden from various sources. We looked at two scenarios – increases of 10% and 25% in production costs for each product. 
Taking into account supply and demand elasticities and the share of the retail price represented by producer costs, we estimate that the additional cost to US consumers would be $6.8 billion and $16.8 billion per year, respectively, for the two scenarios. In addition, in the 25% scenario, there would be a reduction in net exports of $1.1 billion that would in turn imply the elimination of about 9,000 jobs.
If you think such talk is fantasy, merely a scare tactic by an industry group seeking to preserve its status quo, think again. New regulations over the egg industry in the European Union went into effect earlier this year.  One British newspaper reports wholesale egg prices are up by 98 percent as a result. And eggs in Europe are in short supply.

Among the areas of new regulation proposed by government for U.S. agriculture are new restrictions on  youth involvement in running family farms. The Saratogian, a newspaper in Upstate New York, reports under newly proposed U.S. Department of Labor rules, 14 and 15-year-olds would not be allowed to operate even the most basic power equipment, such as battery-operated screwdrivers.

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