Welfare Improvements and Economics: A Case Study in The Netherlands
Increasing public concern over animal welfare in factory farming has led to a lot of changes in recent years. Some countries in the European Union have adopted higher standards based on this concern, such as the Netherlands where several initiatives were introduced to set higher animal welfare standards. From this effort, three distinct market segments emerged that seem to conflate animal welfare with “organic” products. These segments include “conventional,” which complies with minimum legal standards; a “middle-market” segment, which supplies products that go beyond conventional, but don’t meet organic standards; and a “top-market” segment, which supplies organic products or products with similar welfare standards.
While the majority of existing studies on different production systems have looked at an economic evaluation of animal welfare, Dutch researchers conducted this study with the aim of comparing the “economic feasibility of alternative production systems with higher levels of [welfare]” for broiler, laying hen and pig farms, and to analyze the riskiness of implementing changes. The paper also analyses the risk of implementing entirely different production systems, with particular attention paid to the “reversibility of the investment.” To accomplish this, they conducted a multi-step analysis of the various systems using data and models to hash out the various benefits and problems of each approach.
So, what did they conclude? The researchers found that the main determinant of economic feasibility was the producer price. This means that “when price premiums are absent, farmers will only convert to those systems which are economically feasible. Conversion should not increase production costs because farmers are not willing to accept negative income effects.”
The economic feasibility of switching to higher welfare systems varied by type of farming. In the pig sector, the feasibility of different systems hardly differed, which means that farmers have no financial incentive to convert to an alternative system. Options to increase the attractiveness of alternative systems, say researchers, “include, (1) charge a higher price premium for products with higher levels of welfare, and (2) provide conversion subsidies to farmers.” Oddly, the researchers note that “the laying hen sector presented no financial incentives to farmers to convert” and that alternative systems performed worse than the conventional one. They also noted that “a ‘true’ middle-market segment did not exist, as conversion to all the alternative systems would mostly involve irreversible changes.” According to their modeling, the broiler sector showed the best prospects for developing an alternative animal welfare market because of a relative high price premium. All of these things, note the researchers, are contingent on the consumer’s willingness to pay and to maintain that willingness over time.
Obviously, this study is another that focuses primarily on economic outcomes and not ethical ones. When the researchers here say that there are no financial incentives to convert to a different system, they mean just that, and it should not dissuade advocates from pushing for change based on ethical incentives for animals. While the economics of animal welfare are no doubt important for the future of animals on farms, there is clearly an ethical cost to conventional animal production that also needs to be addressed.