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Analysis of the Economic Impacts of Banning Conventional Cage Egg Production
The gross value of production for the Australian egg industry in 1997/98 was $279.3 million (achieved by 14 million hens on 520 farms). Australia's imports and exports of eggs and egg products represent an insignificant proportion of the total domestic market for eggs.
The Australian Bureau of Agricultural and Resource Economics ABARE was asked to provide a briefing to the Working Group on the impacts of banning egg production under the battery cage system in Australia. The ABARE analysis estimated the costs of a ban to consumers and the adjustment cost to producers (the value of capital assets in the battery system that would be redundant). It made no attempt to determine the net benefits that may arise from animal welfare considerations.
In the event of a ban on the conventional cage system of housing layer hens, the barn system of egg production would be the most feasible replacement, reflecting its significantly lower production cost compared to free range production.
The total economic cost of a ban on conventional cage production of eggs comprise two main components:
- the loss to consumers due to higher prices under alternative modes of production and the cost of forgone consumption due to reduced availability; and
- capital costs to producers due to early retirement of productive assets when production ceases in the conventional cage system (adjustment costs).
Under the most likely scenario, production costs and retail prices of barn eggs relative to conventional cage are assumed to decline in the future. Based on this assumption
- the retail prices of barn eggs would be about 13 per cent higher than conventional cage egg prices in the first year into a ban i.e. a price increase from around $2.49 to around $2.81 per dozen based on current prices
- the decline in barn egg prices would continue over time until they level off at about 6 per cent above the conventional cage egg prices ten years later.
Costs to consumers are estimated using predictions for future consumption in the absence of a ban and likely movements in prices outlined above, together with an assumed consumer responsiveness to a price change (demand elasticity) of -0.15.
Long run costs to consumers are estimated to be around $45 million per year.
The value of assets lost due to a switch from a conventional cage system to a barn system of production, or the cost of adjustment to producers is estimated at $400 million. Over the long run the discounted capital loss amounts to $28 million per year.
Total economic cost of a ban, ie. consumer plus adjustment cost is therefore estimated to be $73 million per year (with future costs discounted at an annual rate of 7 per cent).
Australia's imports and exports of eggs and egg products currently represent an insignificant proportion of the domestic market for eggs but this could change, especially if a ban on conventional cages was introduced.
ABARE made no attempt to determine the net benefits that may arise from animal welfare considerations.