Weekend Special: The Hidden Costs of CAFOs

by Bill Powers

An unfortunately old report (http://www.ucsusa.org/sites/default/files/legacy/assets/documents/food_and_agriculture/cafos-uncovered.pdf, 2008) by the Union of Concerned Scientists (UCS) asks why is it that CAFO numbers are increasing dramatically. They argue studies by the USDA indicate that CAFOs are no more efficient than medium sized operations. Instead they suggest that the benefit CAFOs accrue are due to farm policy, among these including processing contracts. Most CAFOs rely almost exclusively upon purchased feed. Alternative livestock operations will rely much more upon their own pasture and crop production. As such, the significant Federal subsidy for grain production indirectly favors CAFO operations.

UCS (2008) estimates are that there is a $3.86 billion/year grain subsidy to the livestock industry by crop subsidies. Other indirect costs that they consider are reductions in property values ($26 billion), and manure remediation costs $4.1 billion totals as of 2008. These external costs are paid for by the US taxpayer.

Optimum efficiency (cost/unit of production) is reached well below CAFO (2008 measures) size. They argue that studies have shown that economies of scale is not a signifcant factor favoring larger livestock operations. Fro example, one study showed that the optimal size for hogs was about 120 sows, producing about 2400 hogs/year. CAFOs do benefit from the more efficient use of fodder for weight gain since it is not expended in moving around pastures or adjusting to changes in climate. These gains, however, have to be offset by considerable increases in other costs. After all, the much higher cost of creating and maintaining CAFO environmentally controlled buildings, in addition to the added cost associated with animal health and manure management have to be offset somehow. The UCS argues that this is primarily offset by low grain costs. They note:

Low-cost inputs spread the high fixed costs of confinement infrastructure
(such as the buildings that contain the animals) over many units of production. CAFOs can compensate for low profit margins per animal by producing large numbers of animals. By contrast, small and diversified producers often have relatively lower fixed costs and higher variable costs, and may attempt to lower their costs by reducing production when prices are low. In this way, CAFOs may expand at the expense of smaller operations.

In effect, then, it is the US taxpayer who is indirectly subsidizing CAFOs. The UCS argue that there are alternative livestock operations that may be more efficient than either CAFOs or medium sized farms. Because of the significant external costs to CAFOs, it would seem that seeking such alternatives are well worth pursuing by publicly funded institutions.

The UCS consider, too, the affect of anti-competitive processing practices, a violation of the Packers and Stockyard Act (PSA). Processing facilities require governmental inspections. It may be that this requirement favors larger processing facilities. With the concentration of processing in the hands of a few, and contract relationships between larger producers and processing facilities favored, access of medium sized livestock operations to consumers is hampered, even when their production costs are competitive. This situation favors both the concentration of processing facilities and livestock operations.

What needs to be asked is why processing operations favor contract relationships with larger livestock operations. We could imagine that there might be vertical integration gains if the processing facilities owned their own livestock operations. While this is the case for some, it is not generally true. One possible problem is that while the cost/unit of production is the same (or even better) for smaller operations, they may require a higher marginal profit to remain in business than a CAFO. A small farmer might be able to competitively produce a profit of $10,000, but could not remain in business long because of external costs, viz., himself and family. A larger operation, employing more people, can simply lay off a whole person. I’m not being overly clear here, but it does seem that large facilities may be able to survive at a lower margin of profit than a smaller unit.

In any case, it appears that for the most part it is only the largest producers than sell their produce under contract.

Since feed costs represent something like 50% of the cost for CAFOs, they are sensitive to feed costs. To determine the subsidy to CAFOs through crop support programs, one would have to be able to determine what the cost of grains would have been without such supports. Starmer and Wise (http://www.ase.tufts.edu/gdae/Pubs/wp/07-04LivingHighOnHog.pdf, 2007) examine the cost of production of beans and corn and the market price of both. Because of Federal supports make up the difference to keep farmers solvent, the Federal subsidy enables CAFOs to purchase grain at a cost below the cost of production, an advantage that a livestock producer who grows his own grain and pastures his livestock cannot take advantage of. Starmer and Wise estimate that between 1998 and 2005 this translated into about a 15% savings in costs for hog CAFOs. Smaller sized livestock operations that produced their own grains after 1990 can also take advantage of these subsidies even if they do not sell the grain. However, studies have shown that the subsidies do not fully compensate farmers for the difference between production costs and market prices. As a result, there is a “subsidy gap,” one that benefits the CAFO and disadvantages the smaller livestock producer.

There are a number of issues that are worth investigating with regard to commodity prices and CAFOs. It would be interesting to find out what has happened to this “subsidy gap” since 2007. Farmers who rely upon these supports might simply argue for higher supports. By reducing this gap, it would help the smaller livestock producer. The recent bump in corn prices due to increased ethanol production dramatically increased corn prices. It would be worthwhile to consider at what commodity price the operation of CAFO style production would be less profitable than a livestock operation that grows its own feed.

Well enough said and researched for now.

The DENR’s Report to the Legislature

At the beginning of the legislative session, each administrative department gives a report to the corresponding legislative committee. Thursday, the Department of Environment and Natural Resources presented to the House and Senate Agriculture and Natural Resources Committees.

The paper copy of the report is below. Largely, there are three takeaways:

  1. The DENR continues to take on more work without raising the budget or additional employees. Generally speaking this is a good thing; however, we’ve run into instances where the DENR has said things like “we don’t have the expertise to regulate uranium mining,” and then allowed the legislature to hand over control of waste disposal wells to the EPA. Hiring additional expertise is not always a bad thing, particularly when it allows the state to have more local control.
  2. And on that note, takeaway #2 is the litany of grievances the DENR has against the Federal government and its agencies (like the EPA) for what it sees as over-regulation. There is certainly some truth to this, but one must question unquestioned resistance to Federal regulation. One example: Secretary Pirner stated in the hearings, and states on page 17 of the report below, that there is no reason for South Dakota to do perchlorate testing in ground water because it isn’t a problem in this state. However, percholrates were found in groundwater in 2005 and in soil tests in 2008. So clearly it is something that exists in South Dakota, yet the DENR maintains we should be exempt from the rule.
  3. The third takeaway has to do with the development of the CAFO general permit, the one the DENR has not updated since it expired in 2008. The DENR maintains it was waiting for the “dust to settle from litigation” before they updated SD’s general permit, though the most recent significant challenge to the revised CAFO rules passed in 2008 was settled back in 2011. Whatever the reason, the DENR did not begin the process of updating SD’s general permit until 2015.In April, the DENR brought together “interested parties” to start talking about updating the permit. Despite knowing Dakota Rural Action and the SD Farmer’s Union would be interested in participating in the process, neither organization was invited to the discussions. What that resulted in was Dakota Rural Action intervening in the process when it finally went public (long after the DENR had spoken to who knows what other “interested parties”). Unfortunately, DRA’s lawyer had a conflict with the date set by the DENR, a date set without discussing options for a hearing date with any of the parties, and DRA requested a later date in a Motion to Continue. This is relatively standard procedure, and considering DRA was not invited to participate in previous discussions about the general permit, it would have been inappropriate for the DENR to not grant DRA’s motion.Despite those facts, the statements put forth by the DENR strongly suggest DRA was unprepared and is responsible for the DENR not meeting its goal of approving a new general permit in 2015. To the contrary, had DRA been involved in discussions from the beginning, it is highly likely there would be a current CAFO general permit in South Dakota. The organization has been pushing for well over a year for the DENR to update their permit; unfortunately, though the DENR knew that, DRA and its farmer and rancher members were shut out of the process.

You can listen to the presentation given to the House here and the Senate here. And for your enjoyment, here is the report:

DENR Report

CAFOs, family farms, and our unique way of life

The South Dakota Legislature has introduced three bills designed to chill citizens participation in local zoning decisions, make it easier for Confined Animal Feeding Operations (CAFOs) to get approval from County Boards of Adjustment, and remove the Family Farm Act restrictions to corporate ownership of hog operations.

These bills reflect the state’s push to site more CAFOs in eastern South Dakota, a policy that plays loose and fast with our water, air, and quality of life. As the citizens of this state, we do not support these measures. Moreover, we do not support any measure that removes or makes more difficult citizen involvement in our government, whether it is through challenging decisions made by counties or by citizen initiative on a state-wide level.

We are asking the legislature to reject the following bills. Please click here to sign our open letter to stop these bills:

HB 1173 – Introduced by Representative Qualm (R-21) and Senator Cammack (R-29), this bill would penalize citizens appealing land zoning decisions seen as frivolous. Since courts already have the authority to award damages in frivolous or malicious suits (SDCL 15-17-51), this bills is clearly targeted at preventing citizens from challenging zoning decisions made in their county.

SB 127 – Introduced by Senator Rusch (R-17) and Representative Rasmussen (R-17), this bill would create an exemption to South Dakota law allowing non-family farm corporations to own and operate hog confinements in South Dakota.

HB 1201 – Introduced by Representative Mickelson (R-13) and Senator Cammack (R-29), this bill would reduce the number of votes needed on a county board of adjustment to allow a conditional use permit from 4 out of 5 to 3 out of 5, making it easier for CAFOs to get these permits and move forward. Dakota Rural Action supports family agriculture, and we believe community members should be encouraged to participate in decisions that will affect their water, air, and quality of life.

“These three bills are intended to increase the number of CAFOs, especially hog CAFOs run by outside corporations; lower the standards used by county boards in voting on conditional use permits for CAFOs; and deter citizens from exercising their already severely limited opportunities for recourse,” says Dakota Rural Action member and farmer Nancy Kirstein. “The result will be increasing pressure on the water supplies, increased pollution of water and air, decreased quantity and quality of resources for South Dakota farmers and residents, and degradation of the environment.”

Confined Animal Feeding Operations

Environment

  • Most of the environmental concerns come from the makeup and amount of manure produced by Confined Animal Feeding Operations (CAFO).
    • Large farms can produce more waste than some U.S. cities.  For example a CAFO with 800,000 pigs could produce over 1.6 million tons of waste per year.  More than 1.5 times the annual sanitary waste production of the city of Philadelphia, PA. (1)
    • The contamination of both surface water and groundwater are concerns for citizens facing the siting of new CAFO’s.  These concerns should demand the stringent oversight of both federal and state agencies.  In 2005 the Government Accountability Office (GAO) issued a report finding two major flaws with the EPA’s efforts to regulate CAFO’s
      • allowing an estimated 60% of animal feeding operations to go unregulated.
      • A lack of federal oversight of state governments to insure they are adequately implementing required federal regulations for CAFO’s (2)

Economic

  • CAFO’s focus on short term economic gain for the few at the expense of long term gain for the community.  University of Missouri Professor Emeritus John Ikerd, says “There is no short run economic benefits for investing in healthy rural communities. … there is no short run economic benefits from protecting the natural environment.”(3)
  • Studies going back to 1978 have shown that the economic concentration of agricultural operations tends to remove a higher percentage of money from rural communities than communities where agriculture is in the hands of smaller farms. (4)

Developer’s Agenda

  • South Dakota Government and CAFO developers are pushing hard for the creation of new CAFO’s in eastern South Dakota.  These three bills are part of a larger body of work focused on the fast, short term economic gains these developments offer at the expense of the long term health of our state, our communities and our people.

______

1. Government Accountability Office , Concentrated Animal Feeding Operations: USEPA Needs More Information and a Clearly Defined Strategy to Protect Air and Water Quality from Pollutants of Concern, GAO-08-944, (Sept. 2008)

2. Government Accountability Office, Livestock Market Reporting: USDA has Taken Some Steps to Ensure Quality but Additional Efforts are Needed. GAO-06-202 (Dec. 2005)

3. Presentation at Annual Meeting of Jefferson County Farmers and Neighbors Inc. Fairield, IA October 7, 2009.  http://web.missouri.edu/ikerdj/papers/Fairfield%20IA%20-%20Economics%20of%20CAFOs.htm

4. Goldschmidt W. 1978 Agribusiness and the rural community. In as You Sow: three Studies in the Social Consequence of Agribusiness.

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