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California’s Prop 12 brings uncertainty to hog producers

Article-California’s Prop 12 brings uncertainty to hog producers

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Pig farmers face high costs to transition barns and consumers will pay higher costs for pork.

The uncertainty surrounding California’s Proposition 12 mandating space requirements for all gestating hogs creates a costly and unknown path forward for U.S. hog producers and higher food costs for California consumers.

On April 14, the National Pork Producers Council and the American Farm Bureau Federation gave oral arguments before the U.S. Court of Appeals for the Ninth Circuit, asking the court to strike down California’s Proposition 12 as unconstitutional under the dormant commerce clause. Proposition 12, set to begin implementation on Jan. 1, 2022, imposes what they claim is arbitrary animal housing standards that reach far outside of California's borders to farms across the country, and bans the sale of pork that does not meet those standards.

NPPC Assistant Vice President and General Counsel Michael Formica says Proposition 12 “is a clear regulatory overreach and a violation of the Commerce Clause of the U.S. Constitution.” NPPC anticipates a court ruling by mid-summer. Formica says they’re “cautiously optimistic” as they wait for resolving the court case, but they’re also engaged with the state of California if it must be implemented.

“One of our big concerns beyond just Prop 12 itself is that under Prop 12, California was supposed to release final regulations back on September 1, 2019. It's now April of 2021,” says Formica. He says NPPC has been deeply engaged with the state of California to help educate them about the hurdles Proposition 12 causes.

Originally when Proposition 12 was contemplated, it was expected pork producers would have over two years after those regulations came out to figure out how to comply. Formica says many producers haven’t started making investments in changing housing barns because they don’t know what the final regulations will require.

During a recent press call, Formica referenced a new RaboResearch report, “U.S. Pork Supply Chain Locked in Limbo as Producers Await Legal Ruling,” which shows less than 4% of the U.S. sow housing currently meets the new standards. RaboResearch estimates that compliant pork supplies could fall 50% short of California’s needs on January 1, 2022.

According to Christine McCracken, senior analyst of animal protein at Rabobank, ordinarily an ‘average barn might cost $1,600 to $2,500 per sow, or $3 million to $4.5 million in total.” Under California’s animal-confinement rules, however, some compliant barns are “averaging as much as $3,400 per sow,” with the decision to convert operations becoming increasingly difficult in light of recently “elevated building costs,” according to a friend of the court brief filed by state attorneys general.

Related: California’s Prop 12 Supreme Court challenge supported by 20 states

The Rabobank report discusses the reluctance by hog producers to make the costly investments needed to comply with the new regulation while the legality of Proposition 12 has continued to be challenged in courts.

“With a shrinking number of legal options available and the deadline for compliance now less than a year away, however, the industry is faced with a daunting challenge,” writes McCracken.

Jen Sorenson, NPPC president and Iowa hog farmer, says making barn changes will cost individual hog producers millions of dollars to make these changes. Sorenson says the uncertainty presents a tremendous risk and financial burden to hog producers.

And the ones who are least able to bear that cost are smaller family farms. “Loss of this market will put many hog farmers out of business and ultimately lead to further industry consolidation,” she warns.

California, with nearly 40 million residents, represents approximately 15% of the U.S. pork market. The state has a majority Latino and Asian population, both of which have long-standing cultural preferences for pork. Proposition 12 will dramatically reduce the supply of pork for Californians, driving up prices for consumers and disproportionately affecting low-income households, NPPC says.

Formica says California also has the highest number of individuals in the state living under the poverty level. With the economies in shambles, Proposition 12 is going to remove the protein of choice for 55-60% of California residents today as pork will no longer be a low-cost option and will be significantly more expensive in the state.

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