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Animal ID: Costs and Benefits.

Gary Brester and Vince SmithMSU Department of Agricultural Economics and Economics

FPCC

May 21, 2009

Poplar, MT

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OUTLINE

1. Animal ID Issues

2. Animal ID Systems

3. NAIS Project Objectives

4. Research Strategy

5. Findings

6. Questions

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OUTLINE

1. Animal ID Issues

2. Animal ID Systems

3. NAIS Project Objectives

4. Research Strategy

5. Findings

6. Questions

Animal ID Issues

1. What are the benefits of a National Animal Identification System (NAIS)?

2. What technology and data management system should be utilized?

3. What are the costs of an NAIS?

4. Does an AIS need to be a national AIS

5. If the key benefit of an NAIS is improved access to export markets, what NAIS technologies and data management systems are acceptable to those markets? 4

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OUTLINE

1. Animal ID Issues

2. Animal ID Systems

3. NAIS Project Objectives

4. Research Strategy

5. Findings

6. Questions

Animal ID Systems

1. Premises Registration: a first step that provides little information other than who is a producer.

2. Bookend System: identifies the animal (or, in the case of hogs, poultry and sheep, a group or lot of animals) at place of birth and place of slaughter. Estimated cost per cow for a ranch in the U.S. is $3.92. (Dairy cows are less expensive)

3. Full Tracing System: records places of birth and slaughter and also recording animal movements through their lifetime as they change ownership (and, in Europe, place). Estimated cost per cow in the U.S. is $4.22.

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Animal\Stage of production

ID System (estimated cost per animal)

Bookend Full Tracing

Dairy Cow (on the farm) $2.47 $3.43

Beef Cow (on the ranch) $3.92 $4.22

Backgrounding $0.23 $0.71

Feedlot $0.20 $0.51

Auction Markets $0.00 $0.23

Beef Packers $0.10 $0.10

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OUTLINE

1. Animal ID Issues

2. Animal ID Systems

3. NAIS Project Objectives

4. Research Strategy

5. Findings

6. Questions

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NAIS Project Objectives

1. Comprehensive economic assessment of the benefits and costs

of the National Animal Identification System (NAIS)

2. Determine benefits/costs of NAISby species

3. Determine benefits/costs of NAIS by sector and scale

4. Determine societal benefits of NAIS among producers, intermediaries, consumers, and government

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OUTLINE

1. Animal ID Issues

2. Animal ID Systems

3. NAIS Project Objectives

4. Research Strategy

5. Findings

6. Questions

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NAIS Research Strategy1. Determine benefits and costs of NAIS

by adoption scenarios

a. Premise registration

b. “Bookend” identification

ID at birth and record at animal termination

c. Full traceability

Animal/group movement

2. Varying adoption rates of each

a. 30%, 50%, 70%, 90%

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NAIS Research Process1. Literature review

a. Synthesized more than 250 benefit/cost publications

2. Industry stakeholder meetingsa. More than 50 meetingsb. Over 100 stakeholdersc. Elicited a variety of information

Anticipated costs Perceived benefits Challenges Opportunities

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NAIS Research Processd. Partial list of groups included in the stakeholder interviews

National Cattlemen’s Beef Assoc.

Livestock Marketing Assoc.

U.S. Meat Export Federation

Superior Lamb

National Livestock Producers

R-CALF U.S.A

Pro Rodeo Cowboys Assoc.

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NAIS Research Process3. Direct cost estimation

a. Developed methodologies to measure direct industry costs

4. Evaluate governmental costs and benefits

5. Estimate the benefits that would have to occur to offset the direct costs

6. Allocate benefits across

a. Species

b. Consumers

c. Producers

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Schematic of Research Process

- Literature- Expert opinions- Industry meetings- Private and public data- Statistical analyses

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Schematic of Research Process

- Literature- Expert opinions- Industry meetings- Private and public data- Statistical analyses

Direct Cost Estimates

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Schematic of Research Process

- Literature- Expert opinions- Industry meetings- Private and public data- Statistical analyses

Direct Cost Estimates

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Schematic of Research Process

- Literature- Expert opinions- Industry meetings- Private and public data- Statistical analyses

Direct Cost Estimates

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Economic Model Net Benefit/Costs:

- Producers

- Wholesale

- Retail

- Consumers

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Direct Cost Estimates1. Estimate annual costs of NAIS

a. Bovine (individual RFID tags)

b. Porcine (group hogs; tag culls)

c. Poultry (group)

d. Ovine (group lambs; tag culls)

e. Equine (individual microchip)

2. Estimate costs across

a. Production sectors

b. By size of operation

c. By various adoption rates

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Direct Costs: Cattle Sectors1. Cattle sectors considered

a. Breeding herd operations

b. Backgrounding operations

c. Finishing operations

d. Auction markets

e. Slaughtering operations

2. Estimate costs across

a. Identification system

b. By size of operation

c. By various adoption rates

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Direct Costs: Cattle Sectors3. Cost categories

a. Tagging-related costs Tags and applicators Labor/chute costs Shrink Injury (human and animal)

b. Tag reading costs Capital investments Labor/chute Shrink/injury

c. Premise registration Management time

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Direct Costs: Cattle Sectors4. Direct cost depreciation and interest

a. Capital equipment with more than one year of useful life

b. Annual interest costs for portion of year that costs are

incurred

c. Annual premise registration costs include initial cost and 3-

year renewal costs

d. Assumed interest rate of 7.75%

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Direct Costs: Cattle Sectors

5. Direct cost RFID componentsa. Five categories

Electronic reader Data accumulator Software Data storage Other (labor, internet, etc.)

b. Custom reading charges based on brand inspection fees

c. Assumed that custom reading would be used if it were less expensive than owning equipment

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Costs/Productivity/Interactions1. Use an economic model of the meat

industry to allocate costs, changes in productivity, and interactions across sectors

a. Four species Beef Pork Lamb Poultry

b. Consider multiple sectors for each species

c. Include import and export sectors

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Inclusion Of Benefits1. Multiple benefits could occur

a. Better animal health

b. Export market access

c. Facilitate MCOOL requirements

d. Increase product branding

e. Improve food safety assurance

f. Faster response to disease issues

g. Reduce costs of disease mitigation

h. Improve cattle production efficiency

i. Ownership verification

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Inclusion Of Benefits2. Difficult to quantify all of these

a. The major issues seem to center on export markets and domestic

demand

3. So, we asked two questions:

a. How much improvement in export access would we need to completely offset these additional costs?

b. How much improvement in domestic demand would we need to

completely offset these costs?

4. We used our economic model of the meat industry to answer these questions

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OUTLINE

1. Animal ID Issues

2. Animal ID Systems

3. NAIS Project Objectives

4. Research Strategy

5. Findings

6. Questions

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Cattle/Beef Industry Drives The Results1. Cattle/Beef sector has the largest costs

2. The Cattle/Beef industry has the most to gain in terms of market access

3. Increased export/domestic demand raises beef/cattle prices

a. Pork and poultry are beef substitutes

Higher beef prices increases the demand for both

Pork and poultry prices rise enough to offset their “relatively” small NAIS costs quickly

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Cattle/Beef Industry Costs

1. Full Tracing/90% Adoption

a. Cow/Calf: $4.91/head

b. Background: $0.70/head

c. Feedlot: $0.51/head

d. Auctions: $0.23/head

e. Packers: $0.10/head

2. Total beef industry: $6.46/head

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Export Market AccessChange in Beef Export Demand That

Offsets Producer Costs

34.9%

23.7%

14.9%

8.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

30% 50% 70% 90%

NAIS Full Traceability Adoption Rate

Ex

po

rt D

em

an

d I

nc

rea

se

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Domestic DemandChange in Domestic Beef Demand That

Offsets Producer Costs

0.98%

0.69%

0.44%

0.25%

0%

0%

0%

1%

1%

1%

1%

30% 50% 70% 90%

NAIS Full Traceability Adoption Rate

Do

me

sti

c D

em

an

d

Inc

rea

se

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Summary1. Comprehensive NAIS benefit/cost study

a. Stakeholdersb. Detail cost breakdownsc. Productivity impactsd. Governmental costs

2. Benefits are difficult to quantify

a. Estimate export/domestic demand increases that offset producer

costs

3. If we re-acquire export markets to pre-2003 levels because of NAIS

a. Producer economic well-being will be improved

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Summary

4. APHIS has released the NAIS study

a. 500 page document

b. APHIS produced media products

5. http://animalid.aphis.usda.gov/nais/ naislibrary/factsheets.shtml

a. An overview of the project

b. Targeted Fact Sheets

c. A dozen brochures

d. Documents that are “hot linked” to the major report

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QUESTIONS?

Picture Courtesy of Clint Peck