The Supreme Court Relies on IAMECON Research in Prop 12 Ruling, Paving Way for More Humane Animal Farming

In May, the Supreme Court sided with California in a suit brought by the nation’s pork industry, clearing the way for the implementation of Proposition 12 (“Prop 12”), which will disallow the sale of uncooked pork products in the state that do not meet certain humane farming standards.¹ In its opinion, the Court cited our Amicus brief, a proud moment for all of us here at the IAMECON team,² and we are proud that our contributions to the case and expertise in animal farming will pave the way for a healthier, more robust industry for farms, consumers, and animals. It was the culmination of years-long work by our team as we first filed a declaration on behalf of California and Prop 12 when the pork industry initially challenged it in U.S. District Court back in 2019.

The National Pork Producers Council argued that the implementation of Prop 12 would negatively affect the entire U.S. pork industry, forcing steep compliance costs on pork producers nationwide, and that it would drive smaller farms out of business, leading to greater industry consolidation. Having done years of research on the animal farming industry, and as experts analyzing the consequences of regulatory changes within the applied industrial organization field, we felt obliged to opine on the pork industry’s claims, ones we found meritless from an economic perspective. 

In our Amicus brief to the Court, we detailed why Prop 12 will benefit all parties involved, both pork producers and consumers, and why the pork industry’s assertions to the contrary are implausible.³ Now that the Court has cleared the way for its implementation, we summarize what we predict will be the likely outcomes of Prop 12.

First of all, participation in the market for welfare-enhanced pork products is voluntary for all farms except those located in California. In other words, only market forces will determine which operations choose to offer Proposition 12-compliant products in the state. 

There will be costs associated with updating facilities for many larger farmers who currently use confined farming techniques, but even with increased costs to offer compliant products that meet the welfare standards California consumers have demanded, economic theory predicts these producers will be able to recover their costs by selling their products at higher prices. This has been seen with egg producers—who have already had to meet Proposition 12’s cage-free requirements—as they are already passing their costs on to California consumers.⁴ In competitive markets, when firms are price takers—i.e., when the market dictates their prices—they will pass any increased variable costs through to their consumers entirely.⁵

Pork production today is mainly dominated by large operations; in fact, the largest 40 producers  accounted for two-thirds of all sows.⁶ Proposition 12 offers small family farmers, who, unlike large producers, are already less likely to use extreme confinement like gestation crates, the opportunity to sell their products in the California market, with a price premium. Small farmers are the ones already providing high-quality “niche” pork products that consumers increasingly prefer, and what California voters demanded with the passing of Proposition 12.⁷ Therefore, this regulatory evolution will give many small farmers, whose operations are either already consistent with Proposition 12 or who can become consistent at a relatively low cost, a first-mover advantage to monetize their existing production techniques for the California market. Yet, this opportunity will not cause large producers no harm, as long as there is demand for their non-compliant products outside of California, which make up 91% of the North American market. And if they choose to enter the new market, they can do that anytime by investing their fair share of production facilities that consumers would prefer.

Consumers will pay a higher price for these products that align with their preferences. Organic and pasture-raised beef, for example, is sold on average for a 67% higher price than beef that was farmed in a confined environment.⁸ Pasture-raised chicken meat and eggs,  likewise, sell for significantly higher prices. Thus, markets have already proven their ability to reward farmers that enhance their farming practices to reflect these changes in consumer preferences and who are able to signal their product quality to their customers. This is exactly the mechanism that would enable an industry to evolve towards a long-term welfare efficiency point, where suppliers will need to adjust to meet the demand. That’s exactly how product differentiation benefited many other industries before, allowing the best firms to lead the way to a better equilibrium.

Overall, some pork producers will rationally choose to produce compliant products in order to access the premiums that California consumers are willing to pay and will benefit from this new market. Others will rationally choose to stay out if there is no benefit to them. California consumers will absolutely benefit from the increased product differentiation that will provide a farming ecosystem better aligned with their preferences and one that will promote a more dynamic and competitively healthy pork industry in the long run.