BCI Research Update: Restrictive Farming Practices

Increasingly, some food companies are responding to perceived consumer preferences or activist groups by restricting certain production practices and offering products produced only under specific processes. Similarly, policy makers domestically and globally are assessing food production practice market access restrictions. A recent study published in the American Journal of Agricultural Economics estimates the economic impacts of such practices. The study estimates the impact on producers and consumers of downstream buyers of pork products restricting pork production by prohibiting use of antibiotics for growth promotion or disease prevention. If such restrictions do not result in overall consumer demand increases, both pork producers and consumers in aggregate suffer economic losses as a result of such downstream buyer restrictions. Costs associated with such practices exceed just the incremental cost of supplying products meeting the restrictions because in general only a portion of the restricted production would be sold in such a segmented market. If consumer demand does not increase overall following such restrictions, producers lose ($18 million to $60 million annually) by having higher costs of production and they end up selling less total pork in the market due to higher retail prices. Consumers lose from $150 million to $534 million annually because of higher retail prices. Furthermore, customer demand growth of 2-4% would be needed to result in no overall producer economic loss. Such studies are important as they demonstrate economic impacts of alternative food industry or policy decisions. There is an obvious dearth of comparable recent studies in the beef industry and they are desperately needed given the current market environment.

“What Happens When Food Marketers Require Restrictive Farming Practices?

American Journal of Agricultural Economics 97(4):1021-1043.

Saitone, T.L., R.J. Sexton, and D.A. Sumner (2015). Link to full article.