A recent Rabobank report details some of the complications facing the pork industry in relation to California’s Proposition 12. Approved by voters in 2018, Prop 12 prohibits the sale of veal, pork, and eggs from animals not raised according to California standards. The provisions affecting pork production are set to take effect beginning in 2022. A recent RaboResearch report describes the substantial disruption coming to the pork supply chain.
According to Rabobank Senior Analyst – Animal Protein, Christine McCracken, “producers are reluctant to make the costly investments needed to comply with the new regulation, unless compensated with long-term premium guarantees.” Shortly after Prop 12 was passed, the cost of implementation for the pork industry was estimated between $1.9 billion to upwards of $3.2 billion. The Rabobank report shows less than four percent of housing for sows meet the standards of Prop 12. With so few operations meeting California requirements, substantial ramifications are excepted throughout the supply chain.
According to the Rabobank report, between 20 and 25 percent more barn space would be needed for most producers. Failing to provide more space would require a reduction in stock. Along with construction costs, the uncertainty surrounding the various legal challenges to Prop 12 has also left many producers hesitant to comply. “Packer processors and end users are unwilling to enter into long-term supply arrangements, given outstanding legal challenges to the California rule and limited visibility around implementation,” said McCracken.
California accounts for approximately 13 percent of domestic pork production but demand far outweighs supplies. The Rabobank report outlines an expectation for the bifurcation of the U.S. market. A lack of compliant pork supplies would leave California in a deficit, resulting in higher prices for consumers. The overall U.S. market is expected to experience a surplus of pork that can no longer be sold in California.