National and subnational regulation of farm practices for consumer products sold within a jurisdiction: California's Proposition 12

Abstract

This article studies the economic effects of regulations that restrict farm practices used to produce products sold within a regulating jurisdiction, regardless of where the product was produced. We apply this analysis to the impact of California's law on sow housing and the North American hog/pork supply chain. California's Proposition 12 requires that specified pork products sold in California come from hogs whose mothers were housed according to California requirements. Such regulations, whether imposed by national or subnational authorities, have unique impacts on production, demand, prices, and economic welfare both within and outside the regulating jurisdiction. Our model identifies these effects and quantifies their impacts within a calibrated equilibrium framework. Results show that California consumers will buy less pork under Proposition 12 because retail prices of regulated cuts of pork will rise by about 7%. Compliant hog producers will, on average, earn greater profits, while impacts on prices and quantities of products sold outside of California are minimal. Regulations like Proposition 12 are especially costly ways to affect farm animal treatment because they impose costs throughout the supply chain. We consider a simple alternative policy that would achieve far more change in animal housing at lower cost.