Reconfiguring the US Meat Industry: How Politicization is Beginning to Trump Economics

     The U.S. swine industry is about to be reshuffled in some extraordinary ways.  For the first time we are witnessing political ideas at work in the world and in this country which are gaining the upperhand in their attempt to slow down the natural execution of comparative advantage based on efficiency and market economics.  Since 1995 the US industry has enjoyed a steady and sometimes dizzying increase in total demand as net exports rose year after year.  This is a testament to the global effciency of the industry and its ability to deliver a consistent, safe and high quality product.  At the same time, the desire to slow down the expansion of the industry in the US has been building because of a long list of issues which have been slowing gaining political strength. 

     Since we do not live in a country where the national level of meat production is set by central planners, the move to slow down the gradual expansion of the industry over the years has taken an indirect tack.  By positioning a large number of issues which allow the industry to grow into its potential world demand as cost externalities, governments at the local, state and federal level are slowly pulling the support structures which have enabled growth.  Cost externalities justify the intervention of government in a market based economy since in their presence, the market will not automatically achieve the societally optimal level of production.  Cost externalities occur when conditions somehow prevent a firm from having to pay all of its costs.  When this occurs, the firm will produce too much output.  To put it in farm terms, what would be your response to receiving 25% of your feed inputs for free?  Of course, you would expand production if possible.

     By gradually defining most of the key enablers of growth as externalities, governments in developed countries have paved the way to enter the market mechanisms and "internalize" these costs, with the resulting planned reduction of output.  At the present time the EU is well ahead of us but we are catching up fast.  Some of these cost externalities are now becoming the conventional wisdom thanks to a growing host of politicized research and "commission" reports.  These failures to pay full costs are positioned as arising from antibiotic use, manure management, packer ownership, animal welfare, odor control and management, greenhouse gas emissions, a host of other environmental issues including particulate matter releases, fear of food safety (peppers, peanuts and soon just about everything you eat), energy use, water use (including all the water that is consumed by the entire meat production chain from corn to processing to retail delivery and final cooking), the encouragement of obesity, mounting "food miles" associated with shipping exports hither and yon, etc.   Are you getting the picture yet? 

     If you can convince people that issues surrounding these things all represent places where meat producers have either unjustifiably cut costs or were simply not required to pay the true societal costs of their resource use in these areas, then you justify a government intervention to "calculate the costs" and push them back onto the meat industry.

     The most efficient way to slow down the growth of just about any major U.S. agricultural production is to negatively affect its exports.  Without the demand from export markets (which is about 20% of total demand for U.S. pork), the industry will shrink dramatically.  Right now of course, the global demand for just about anything is shrinking due to the collapse of the credit markets and the resulting global recession, but the government can institutionalize the reduction of meat exports by various means and the reopening of the MCOOL rules is certainly one of them.  If our final rules invite an extended trade war with some of our most important export markets, it will not take long, in an environment where shrinking balance sheet equity and wary agricultural credit market officers wind up achieving the proposed "societal optimum" pork  and other U.S. meat production.  Medium and smaller sized family producers are always more severly hurt by these optimizations. 

     Lots of things can be cost externalities when you want to get creative.  A second child can impose costs on a society that its parents do not have to pay directly, which has led China to consider children as externalities in its current "one child" policy http://www.cnn.com/2008/WORLD/asiapcf/03/10/china.onechild/index.html with fines, forced sterilizations and forced abortions for those who can't seem to "contain their costs".