The rendering industry collects and processes over 47 billion pounds of by-products each year from the slaughter and meatpacking industries and transforms them into useful and valuable feed and industrial materials. Rendering adds nearly one billion dollars in value to the livestock production sector in the form of protein materials and also removes the need to dispose of by-products in landfills or by other methods that might pose potential health risks or strain existing landfill space. The 47 billion pounds of raw material processed by the rendering industry each year would make a truck convoy four lanes wide from Los Angeles, CA, to New York City, NY.
Today the industry is under severe threat of new regulations that could greatly decrease the value of its output. The spread of “mad cow” disease in Europe has attracted intense media attention and has led U.S. regulators to become increasingly conscious of livestock feeding practices here, even though the disease has never been detected in the United States. The concern is that feeding certain animal-based protein substances to livestock might spread mad cow disease, but many of the proposed restrictions go far beyond science-driven requirements. Currently, the use of most ruminant-based proteins in ruminant feed is prohibited, and this appears to have abated any real risk of the disease in the United States. But several proposals have surfaced threatening to impose further restrictions on feeding practices, such as extending the current regulation to include all farm animals, or removing current exceptions concerning ruminant blood and other substances commonly used in ruminant feed.
Rendered animal proteins are especially valuable to the livestock and feed industry because of their high protein content, digestible amino acid levels (especially lysine), mineral availability (especially calcium and phosphorous), and relatively low cost in relation to their nutrient value. They have few close substitutes in most rations, although specific feeding characteristics of animal products can be reproduced to some degree using vegetable protein sources (e.g., soybean meal) supplemented with minerals and synthetic amino acids where necessary, but often at significantly higher cost. For most feeding applications, animal proteins currently provide the lowest cost nutrient balance compared to plant-based or synthetic alternatives. For other applications, the natural forms of amino acids (e.g., lysine in blood meal) are the only effective source. In these instances, a significant loss in feeding values must be anticipated, which will reduce production efficiency and raise production costs.
Additional regulation of livestock feeding practices in regard to the use of animal proteins will create economic dislocations by reducing the demand for rendered material, increasing costs of feed, and incurring disposal costs for material which no longer can be fed. These shocks would resonate throughout the livestock production sector in the form of higher production costs for certain livestock, lower values for slaughtered animals, reduced profitability for renderers, packers, and especially livestock producers, and perhaps higher prices for meat in retail stores.
The size of these market shocks and their distribution across the livestock sector depend upon the nature and extent of proposed future regulations. This study examines the economic impact of several possible future feed regulation scenarios. The analyses are based on the current market value of rendered animal proteins to the feed industry, and potential disposal costs of these substances if they can no longer be fed. The regulatory proposals examined here are as follows:
Scenario I. Total animal protein feed ban to all ruminant animals
Scenario II. Total ban on the feeding of ruminant protein to all farmed animals, including:
a. Ruminant meat and bone meal to swine and poultry
b. Ruminant blood meal and plasma to dairy, beef, swine, and poultry
Scenario III. Total animal protein ban to all farmed animals
Economic Impact of Banning Animal Proteins to Ruminants
The bulk of the impact from this scenario results from the elimination of all porcine (and equine) meat and bone meal (MBM) and blood meal from ruminant diets. Unlike in Europe, the total amount of MBM used in ruminant rations has always been fairly low. However, blood meal is an extremely important component to ruminant feed rations, especially dairy cattle.
The ban would immediately result in a sharp reduction (or complete elimination) of the price premium for non-ruminant (e.g., porcine) MBM. The market price for MBM would also fall as the total quantity demanded is reduced by at least 10 percent from current levels.
Impacts on the market for blood meal would be larger since ruminants currently consume the major proportion of all mammalian blood meal. Up to 100 million pounds could require disposal in landfills at an expected cost of $60/ton in tipping fees plus additional transportation costs.
The total reduction in revenue to the rendering industry plus costs of disposal resulting from scenario I is estimated to be $100.13 million per year.
Economic Impact of Banning Ruminant Proteins to Farmed Animals
Scenario II has several components that add to its cost: removal of ruminant-based MBM from the feed rations for swine and poultry, and removal of ruminant blood meal and plasma from the diets of ruminants, swine, and poultry.
The scenario would result in significant reductions in the value and sales of all ruminant-based and mixed species animal proteins, and cause tremendous costs of disposal of the restricted materials.
The price for non-ruminant MBM (and non-ruminant blood meal) might increase somewhat as more feed manufacturers compete for a smaller supply of approved material, but the amount of this price increase will be constrained by the price of substitute products, particularly the lowest-cost ration of equivalent quality that can be developed without using animal proteins.
Significant amounts of material would require disposal in landfills as important markets for many rendered products are eliminated.
Cattle producers are especially impacted under this scenario, with a possible reduction in the value of their livestock of up to $15.50 per head.
Total net reduction in revenue to the rendering industry, plus costs of disposal, under scenario II is estimated at $636.4 million per year.
Economic Impact of Complete Ban of Animal Proteins to all Farmed Animals
A total animal protein ban to all farmed animals is the worst case in terms of cost to the livestock production sector from additional regulation of animal proteins. All use of animal proteins in commercial livestock feeds would be ended, necessitating the disposal of nearly all mammalian and poultry by-product feed ingredients in landfills or by some other method. Pet food and export markets are highly likely to follow suit and eliminate their use of animal proteins as well.
As much as 47 billion pounds of slaughter by-products could accumulate each year – 64 thousand tons per day – straining the capacity of existing landfills and incinerators and risking the spread of disease as it decays.
The material likely would be rendered prior to disposal to reduce the volume of waste and to reduce environmental impacts. The value of animal by-products at the slaughter facility would become negative, requiring packers to pay renderers to accept the product and cover the costs of rendering, handling, and disposal.
All livestock sectors are expected to share in the costs imposed under this scenario. Estimates on the price of livestock range from $3.22 per hog, $15.50 per head of cattle, seven cents per broiler, and 33 cents for each turkey sold for slaughter.
Total costs incurred by the rendering industry under scenario III are estimated at $1.519 billion per year.
Distribution of Economic Impacts
Although the rendering industry will be the initial recipient of cost shocks resulting from future regulation of livestock feeding practices, these impacts will quickly be distributed across the marketing chain for livestock and derived products – affecting cattle producers, meat packers, meat processors, renderers, and even consumers in the form of higher meat prices.
Many of the costs under each scenario will be quickly passed back to the slaughter facilities, where they will be felt directly as reductions in revenue (if the value of by-products falls but remains positive) or increases in costs.
Significant costs will be passed to livestock producers. A reduction in the value of by-products directly reduces the price packers are willing to pay for livestock, directly reducing revenues and profitability of livestock operations.
Consumers will bear some of these costs. If the value of livestock is reduced, production will inevitably decrease, reducing the total supply of meat in the retail market. Reduced supply always leads to higher prices.
Feed prices will rise. Current feed rations are based on delivering the maximum nutrition at the lowest cost among all alternative formulations. Since the current amount of animal proteins included in rations reflects the lowest cost formulations available, this amount will certainly increase if animal proteins are no longer a feeding option.
Higher feed expenses would further erode the profitability of livestock production and lead to reduction in the amount of livestock produced over the long-term.
Costs of waste disposal in landfills could increase. Any substantial increase in the amount of material entering landfills will quickly boost the value of landfill space. This could be reflected in higher tipping fees for waste from all sources, and create the need to expedite construction of new landfills or incinerators.
Conclusion
The feeding regulations instituted in 1997 impacted the rendering industry by eliminating key markets and reducing the value for some animal protein feed ingredients. This has resulted in lost revenues and reduced prices and returns that remain today in many of the animal protein markets.
Additional regulations for U.S. livestock feed will add to the costs already placed on the livestock production complex. The costs will reflect reduced prices in key markets for animal proteins and the need to pay for disposal of unusable material. The result will be reduced returns for the rendering industry and higher costs of meat production. Most of these costs will eventually be borne by livestock producers and meat consumers. The total costs imposed on the meat production sector under each of the feeding regulation scenarios examined in this study are listed in table 1.
This study concludes that additional regulation of animal protein feed ingredients will cause real and significant economic shocks and dislocations throughout the livestock complex. Many of these would have initial catastrophic effects on individual rendering firms, since their current revenue structure depends directly on the value of rendered products for feed.
Ultimately, as markets adjust, costs will be distributed over the entire production and marketing chain. Even though these costs will be distributed widely, their impacts will not disappear; they are more likely to be amplified in the forms of reduced meat supplies to consumers and reduced profitability to firms in the livestock sector.
|
Table 1. Total Costs to the Rendering Industry Under Each Regulatory Scenario (in millions)
|
|||
|
Scenario 1
|
Scenario 2
|
Scenario 3
|
|
| Lost Revenue from Reduced Sales |
$ 96.38
|
$ 442.56
|
$ 1,100.97
|
| Disposal Costs for Material No Longer Fed | 3.75 | 193.80 | 418.16 |
| Total Costs | $ 100.13 | $ 636.36 | $ 1,519.13 |
December 2001 Render