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Market Incentives for Animal Welfare

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On Valentine's Day McDonald's controversially announced that it would require its pork suppliers to phase out the use of gestation stalls in a move intended to improve a sow's quality of life. While the Humane Society praised the move, the National Pork Producers Council claims that pens and gestation stalls have the same quality of life impact on the animal. This came not long after the July announcement that the United Egg Producers and The Humane Society teamed up to create new quality of life standards in the egg industry.

Animal welfare issues have been a longstanding debate in the United States, and they continue to be. Policy changes elicit different reactions and cause financial distress to all producers, but especially small producers. Jayson Lusk, from the Department of Agricultural Economics at Oklahoma State, discusses the lack of current market incentives and potential future ones in The Market For Animal Welfare, published in the April 2011 issue of Agriculture and Human Values. Lusk talks about how the market price of a product does not reflect the social cost when an externality exists. In economics, the social cost includes the cost society bears in the transaction. In this case, some believe animal suffering is considered to be a negative externality in the production of animal products, and therefore is over supplied. Rational choice theory assumes this is because those involved in the transaction only consider personal costs, which are less than the social costs. In this example, the cost to the animals well-being may be ignored.

Lusk states the traditional solution to deal with a negative externality is by levying a tax on producers and consumers to reflect the true cost of production. In this case, however, he argues taxation would not curb meat consumption and thus, wouldn't increase animal welfare. A tax, he states, focuses on the quantity of animals rather than the quality of their lives. The article also states that implementing policy bans on certain practices often has counter-intuitive effects, as new regulations often don't specify what kind of alternative system must be adopted. Lusk also talks about how labeling is ineffective since it is only the 'compassionate carnivores' who will pay for the negative externality and their market is too small to compensate for the social costs.

The solution Lusk offers is 'a market for animal welfare.' This would give farmers certain amounts of animal well-being units (AWBUs) that they could buy or sell outside of the meat market. It is argued that AWBUs would not have the same problems as taxes and policy bans because instead of the government determining the social costs, the market would determine them in a dynamic way, adjusting as demand changes. Those who want more animal welfare can pay for it if they value it (i.e. vegetarians and 'compassionate carnivores'). He also says the market would be directly tied to the well being of the animal, unlike forced policy changes.

The foundation of the AWBU system is using the power of the market to achieve a means. Lusk argues that while AWBUs seem strange, "as an economic concept it differs little from the standard economic approach that has been successfully used to mitigate environmental pollution." He hopes that one day producers and activists can use the market rather than courtrooms and ballots to settle their differences.

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About this Entry

This page contains a single entry by Sadie Dietrich published on February 16, 2012 2:22 PM.

Time is Money was the previous entry in this blog.

Are People Willing To Pay for Milk Production Attributes? is the next entry in this blog.

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