Economic effects of proposed changes in living conditions for laying hens under the National Organic Program

In this paper, we estimate the costs and benefits of implementing the proposed National Organic Program for laying hens compared with alternatives. For the regulatory proposals under option 2, the regulatory cost will be zero because most producers are already in compliance with the proposed regulation. The anticipated benefits of this regulation will be zero as well, because the current market prices already reflect consumers’ willingness to pay for the existing animal welfare conditions. For the regulatory proposals under option 3, before market adjustments, the average regulatory burden for the entire organic egg industry will amount to $0.09 per dozen eggs, with extreme variations between $0 for small operations and $2.30 per dozen for large operations. If we rely on the average price of organic eggs, $2.69 per dozen, and assume a maximum estimated benefit associated with improved animal welfare conditions, that consumers would be willing to pay of about 30% above the current market price, the estimated benefit of regulation amounts to $0.81 per dozen eggs. Based on the findings, we conclude that option 2 is welfare neutral and could be easily adopted because it already has been adopted by representative producers. For option 3, the benefit-cost ratio is larger than 1, which indicates that the proposal passes the benefit-cost ratio test. The obtained result, however, has to be interpreted with serious reservation because of the differential effect that the proposed regulation would have on different industry participants. Under option 3, the effect of the proposed changes on small organic egg producers is negligible because most small producers are operating under conditions similar to the proposed living standards. However, costs will increase substantially for large organic egg producers and likely cause a substantial number of producers to exit organic production and switch to conventional production, which would cause a substantial decline in the prices of conventional eggs and organic feed in the short run.