February 23, 2007 

Regulatory Analysis and Development 
PPD, APHIS, Station 3A-03.8 
4700 River Road, Unit 118 
Riverdale, MD 
2073701238 

Re: Docket No. APHIS-2005-0096 

Action: "Change in Disease Status of the Patagonia South Region of Argentina With Regard to Rinderpest and Foot-and-Mouth Disease" 

The American Sheep Industry Association, Inc. (ASI), the trade association of the United States sheep industry provides the following comments to this proposed rule on behalf of the nation's 68,000 sheep producing farms and ranches. 

ASI supports USDA/APHIS's on-going efforts to protect the United States against FMD and Rinderpest. The introduction of either of these diseases into the U.S. would be devastating to animal agriculture in our country. We urge APHIS to carefully evaluate the "special restrictions" outlined in the proposed rule as to their practical ability to be effective risk-mitigation measures to prevent the introduction of these two diseases. 

It is stated in the proposed rule that if it becomes final, APHIS expects the result to be average imports of 13.2 million pounds of lamb and mutton into the United States as sheep production "is the prevailing livestock activity with this region producing almost 60 percent of the entire sheep population in Argentina". Due to this very significant quantity of imported lamb and mutton, APHIS estimates a 4.7 percent reduction in the price of domestic wholesale lamb; therefore, it is very important that the economic impact of the proposed rule be analyzed very carefully. We have reviewed the economic impact analysis that is reported in this proposed rule and we strongly urge APHIS to redraft the economic impact analysis using different assumptions and parameters as discussed below. 

  • It is stated that mutton "…is primarily used in the industrial market, such as for pet food…" While some mutton may be used in pet food, we disagree that mutton is primarily used in pet food. This market segment is growing in the U.S. and increasing quantities of mutton are being imported for human consumption.
  • The proposed rule states: "historically, lamb and mutton are viewed as byproducts of wool production for domestic producers" and "…farm-level production decisions are dictated more by changes in the price of wool than by changes in the wholesale price of lamb and mutton." While this may be true for other production models in some other countries, these statements (assumptions) are false for domestic sheep production systems. In the U.S., it is very much the opposite with at least 80 percent of the total revenue from sheep operations coming from the sale of lambs and cull breeding stock (mutton) for feeding or slaughter.
  • The vast majority of sheep in the U.S. are dual-purpose breeds and has been for many years. One only needs to review the historic data on carcass weights from federally inspected slaughtering establishments to see the large size (meat type) of American sheep. When reporting on the effect of wool prices on wool production, it was found that "of the revenue components in the lamb industry, lamb prices are of far greater significance in terms of eliciting supply responses" (Jones, R. and T. C. Schroeder, "Production Responses to Economic and Other Signals" Sheep & Goat Research Jouranal, Vol. 14, No. 1., 1998.).
In addition, we have other concerns regarding the modeling as it was presented. The proposed rule states: "the farm-level supply of lamb and mutton is highly inelastic." However, the conclusion in APHIS's analysis: "Thus, this may illustrate that farm-level production decisions are dictated more by changes in the price of wool than by changes in the wholesale price of lamb and mutton" is not supported by other literature. Previous studies revealed that the supply elasticities with respect to lamb prices are larger than elasticities with respect to wool prices. By the late 1990s' studies found that the five-year breeding stock elasticity with respect to lamb prices ranged from 0.578 to 1.38, and the elasticity with respect to wool prices ranged from 0.103 to 0.59 (Jones, R. and T. C. Schroeder, "Production Responses to Economic and Other Signals", Sheep & Goat Research Journal, Vol. 14, No. 1., 1998.). 

Additionally, a recent study shows that the elasticities of lamb supply with respect to wool prices are lower than that with respect to lamb prices. The price elasticity of demand of the sheep-breeding inventory with respect to feeder lamb prices was 0.096 in the short-run and 2.526 in the long-run of 8 to 10 years (USDA/GIPSA, "GIPSA Livestock and Meat Marketing Study, Vol. 5 Lamb and Lamb Meat Industries", 2007:6-43). Again, the elasticities with respect to the price of wool are lower. "The short-run and long-run elasticity of sheep breeding inventory with respect to wool price is 0.031 and 0.821, respectively" (USDA/GIPSA, "GIPSA Livestock and Meat Marketing Study, Vol. 5 Lamb and Lamb Meat Industries", 2007:6-47). 

  • ASI recommends that the report be more specific in outlining the assumptions for its analysis. For example, it is unknown whether the demand elasticity of -0.729 is at the retail level. The elasticity measure will differ depending upon the marketing stage, be it final consumer at retail or producer level. The analysis computes a 4.7 percent price reduction at the wholesale level, but fails to specifically address producer level price changes.
  • We request a more robust analysis be conducted with respect to assumed lamb demand elasticity measures. Recent lamb demand studies have found that the own-price elasticity of retail lamb demand ranges from -0.523 (USDA/GIPSA, 2007:6-36) to -0.76 (American Lamb Board, "Analysis of Lamb Demand in the United States", 2007:46).
  • We also recommend that the analysis include a more thorough supply response analysis with respect to short and long run periods. The analysis does not specify whether its supply elasticity measure of 0.14 is in the short-run or long run. Sheep production responses to price signals take at least three years due to the biological nature of the animals, therefore longer-term analyses are important. Biological rigidities translate into relative inelastic short-run responses yet longer-run supply responses of 3 to 10 years can be relatively large.
Overall, we strongly suggest the analysis be conducted again, using several measures of elasticity and assumptions that are based upon sound literature to measure the potential effects of the proposed rule on the domestic sheep industry. 

In summary, we are urging USDA/APHIS to re-evaluate carefully the "special restrictions" outlined in the proposed rule as to their disease risk-mitigation efficacy. We also urge USDA/APHIS to conduct another economic impact analysis taking into account errors in the assumptions, including but not limited to, those mentioned above and re-propose the proposed rule after addressing these concerns. 

Sincerely, 

Burdell Johnson
ASI President