Benefits and Costs Associated With an Animal Identification
System for Cattle in the United States

By DeeVon Bailey, Ph. D.
Department of Economics and
Cooperative Extension Service
Utah State University
Logan, Utah
dbailey@econ.usu.edu

Final in the series on a National Animal Identification System

Estimated Costs of Implementing Animal ID
Prior to December 2003, the full implementation costs (all species with interstate and intrastate movements tracked) for the USAIP were estimated to total over $500 million for the first six years of the program. The precise plan for how these costs would be shared between the public and private sectors was not defined in the USAIP, although some funding for the first year of the project had been requested from the Commodity Credit Corporation (CCC). As a result, USAIP was a plan that did not initially have a clear format for funding the full cost of its implementation. A separate cost study completed by Sparks Companies Inc. estimated the capital investment required to implement a source verification system for cattle would be approximately $140 million with an additional annual variable cost of about $108 million.

Buhr estimated the costs of implementing a farm-to-fork traceability system for a single supply chain in Europe to be between $10-$12 million. Consequently, traceability systems such as those that could be established using animal ID are not costless and, as a result, they raise questions about which firms, based on size and market, will be able to implement such protocols most profitably.

Blasi estimated the costs of implementing an RFID system at the producer level for cow/calf operators and feedlots and included the costs of transponder tags, electronic readers, computer hardware, computer software, Internet access, required upgrades and labor. Their results indicate substantial economies of size (i.e., average costs decline dramatically as the size of the operation increases) in implementing animal ID exist at the producer level. This could place small producers at a disadvantage to large producers. However, the cost differences between large and small producers estimated by Blasi may be somewhat overstated because they did not account for the possibility of pooling some of these costs (e.g., in some instances small producers might be able to share costs for computer hardware or electronic readers). However, the largest single difference in cost between large and small producers is for labor. This suggests animal ID programs will probably provide incentives for small
producers to work cooperatively in placing identification devices such as eartags on cattle and in collecting and disseminating this information.

The USDA, APHIS received a transfer of $18.8 million from the Commodity Credit Corporation (CCC) during fiscal year (FY) 2004, and President Bush’s budget for FY 2005 requests $33 million for animal ID. During FY 2004, APHIS plans to spend this money to establish cooperative agreements that will assist implementing animal ID, establish a national premises allocator and repository to begin allocating premises identification numbers and identify and qualify third parties that have ID technology and products so they can be integrated into the national system. The USDA is initiating the program on a voluntary basis, although it may become mandatory over time as the system becomes fully functioning.

At this point (August 2004), the funding available to USDA will probably cover only the costs of developing the national databasing system for animal ID. This means the costs for identification devices such as eartags and data gathering devices such as hand-held computers will be borne by individual firms (producers, sale barns, order buyers, etc.) and not the U.S. government.

The initial investment of implementing traceability protocols can be expensive. However, they will potentially provide benefits from several perspectives including animal disease control and food safety. Once implemented, there may be long-run niche- marketing opportunities because of the ability animal ID systems will have to gather and certify data about production inputs and processes leading to the identification of cost efficiencies or market opportunities.

Who Will Benefit from the Implementation of Animal ID?
Results from a survey of the leaders of state cattlemens organizations indicate different perceptions exist about who will benefit from the implementation of an animal ID system and why they are expected to benefit. While over 90 percent of state cattle producer association respondents indicated support for a national cattle ID program, only 41 percent indicated they supported the USAIP when the survey was administered (January 2004). This may help to explain why the USAIP has continued to evolve as producer groups have applied political pressure to add more flexibility to the national animal ID plan.

The desire for flexibility in implementing traceability systems, such as animal ID, has been a constant theme with U.S. agribusiness firms when discussing issues relating to traceability. Farm Foundation reports U.S. agribusiness firms would prefer market solutions rather than government regulation and mandates when traceability systems are implemented, except in the case of life-threatening food safety concerns. Bailey and Slade reported average responses from a survey of leaders of state cattle producer associations for both USAIP supporters and non-supporters. While the average responses for supporters tended to be higher (more favorable about the possible benefits of the USAIP) for most questions than for non-supporters, both supporters and non-supporters ranked the maintenance of international markets as the most important reasons for implementing the USAIP. Bailey and Slade report the state veterinarians responding to a similar survey ranked consumer issues only fourth, based on the average response, as the most important reason for implementing the USAIP. This may help explain why support for the USAIP varied between state veterinarians and producer groups. State veterinarians see animal ID principally as an animal and public health issue, while state producer associations place at least an equal weight on market issues as they do health issues as reasons for implementing animal ID. Veterinarians would be expected to support the implementation of standardized programs that safeguard animal and human health because this is their area of responsibility. Conversely, leaders of cattle producer organizations would be expected to be most concerned about implementing a flexible system that can adjust to market conditions.

On average, supporters of the USAIP had a more positive perception of the USAIP from the perspective of food safety and preserving international markets than did non-supporters. In fact, the results suggest the most positive feelings non-supporters have had about the USAIP are were from the perspective of animal disease control and eradication. This may help explain why the national effort to develop an animal identification ID plan continues to build consensus for implementing animal ID by focusing on animal disease control issues.

A further statistical analysis revealed if the state cattle producer organization leaders perceived that processors (packers) would benefit more from the USAIP than for farmers and ranchers, they were less likely to support the USAIP than if they perceived no difference in benefits between producers and processors. This illustrates that some of these leaders see costs, but only limited benefits from animal ID while believing most of the benefits would be captured by downstream firms. The respondents seemed to understand the health issues (both animal and human) associated with animal ID and also the potential positive impact on international markets, all of which should offer direct or indirect benefits to producers.

Issues relating to the potential shift in liability in the marketing chain toward producers as a result of animal ID are often brought up by producers when discussing traceability issues. This might explain why some industry leaders see fewer benefits for producers as a result of implementing animal ID compared to other levels of the marketing channel. Those who perceive shifts in liability away from packers and toward farmers would likely reduce producer support for animal ID programs.

Few issues in the U.S. livestock industry in recent years have been more controversial than animal ID. Significant barriers remain to be crossed before animal ID is implemented on a national basis in the United States. For example, issues relating to how liability will be shared or limited in a system with animal ID and how costs of implementing animal ID will be allocated remain to be addressed. Questions about which technology or technologies will be used in a national animal ID system and how these technologies will interface in transferring information to a national database also need to be resolved. Despite these challenges, animal ID offers opportunities for controlling animal diseases, standardizing beef trade in world markets and expanding niche market opportunities to beef producers. Consequently, although the precise form in which animal ID will be implemented in the United States remains somewhat cloudy, a significant commitment on the part of industry and government currently exists that has not
existed in the past. This commitment should provide the ability to overcome the apparent obstacles standing in the way of implementing animal ID in the United States.