ECONOMIC ANALYSIS: Final Regulatory Impact Analysis Final Rule Prohibition of the Use of Specified Risk Materials for Human Food and Requirements for the Disposition of Non- Ambulatory Disabled Cattle Offered for Slaughter, and Prohibition of the Use of Certain Stunning Devices Used to Immobilize Cattle during Slaughter (FSIS Docket No.03-025F) Updated from the Preliminary Regulatory Impact Analysis United States Department of Agriculture Food Safety and Inspection Service June 28, 2007 TABLE OF CONTENTS ____________________________________________________Page LIST OF TABLES ………………………………………………………………………………………………………………………iii GLOSSARY ………………………………………………………………………………………………………………………………………viii SUMMARY ………………………………………………………………………………………………………………………………………………xi SECTION 1. Introduction …………………………………………………………………………………………………………1 2. Need for the Final Rule ……………………………………………………………………………5 3. Preliminary Assessment of the Effectiveness of the SRM and Air-injection Stunners Interim Final Rules…………………8 4. Data Sources ………………………………………………………………………………………………………10 5. Response to Comments: Economic Impact Issues Received on the PRIA with Respect to SRMs and Air-injection Stunners and the SRM and Air-injection Stunners Interim Final Rules………………………………………………………………………………………16 6. Updated Final Regulatory Economic Analysis and Methodology……………………………………………………………………………………………………………24 7. Benefits Analysis and Cost-Effectiveness Analysis of the Final Rule ……………………………………………………………………………………………129 8. Compliance with Regulatory Flexibility Act of 1996…157 9. Unfunded Mandates ……………………………………………………………………………………180 REFERENCES ……………………………………………………………………………………………………………………………………183 APPENDICES ……………………………………………………………………………………………………………………………………188 Appendix A Appendix B ii LIST OF TABLES Tables Page I: Summary Comparisons of the PRIA of the Interim Final Rule and the FRIA of the Final Rule for Differences in the Final Rule Compared to the Interim Rule, and Comparison of the Interim Final Rule and the Final Rule. …………………………………………………………………………………xv II: Summary: Number of Beef Slaughter and Processing Establishments Considered in the Preliminary Regulatory Impact Analysis (PRIA) and this Final Regulatory Impact Analysis (FRIA)…………………………………………………………………………………………………………………………………………………xxv III: Summary: Number of Beef Slaughter and Processing Establishments by Size …………………………………………………………………………………………………xxvi IV: Summary: Sources of Data Used for the FRIA ……………………………xxviii V: Summary: Costs for Establishment of the Requirements of the Final Rule ($millions) ……………………………………………………………………………………………………xxx VI: Summary: Benefits and Costs, and Cost-Effectiveness Ratios for Final Rule and Alternatives to it Considered …………………………xxxiv 3.1: Effects of Non-Compliance on the Costs and Benefits of the Final Rule ………………………………………………………………………………………………………………………………………10 4.1: Summary of Areas for which Data was Collected for All of the Surveys, used in the FRIA ……………………………………………………………………………………13 4.2: Summary of Areas for which Data were Available and Assumptions Made in the FRIA Compared to Assumptions of the PRIA…………………………………………………………………………………………………………………………………………………………15 6.1.1: Pre-BSE 2003 Estimated Population of Establishments Potentially Affected by this Final Rule……………………………………………………………33 6.1.2: Federally Inspected Establishment that Slaughtered Cattle in Pre-BSE 2003, Categorized on Size and Slaughter Volumes…………………………………………………………………………………………………………………………………………………36 6.1.3: Pre-BSE 2003 Classification of Federally Inspected Slaughter Establishments in 2003 Categorized by Size and Type of Cattle Slaughtered …………………………………………………………………………………………………………………37 iii 6.1.4: Average Weight of Cattle at Federally Inspected Establishments, Pre-BSE 2003 ………………………………………………………………………………………38 6.1.5: Pounds and Value of Beef and Veal Exports by Year …………39 6.1.6: Value of Exports of Cattle and Beef Products by Year (Million Dollars) ……………………………………………………………………………………………………………………40 6.1.7: Comparison of the handling of non-ambulatory cattle before the SRM Interim Final Rule (baseline year 2003), to after the SRM Interim Final Rule (after January 12, 2004), and as set forth in the SRM Final Rule …………………………………………………………………………………………42 6.2.1: Primary Alternatives Analyzed in the Harvard BSE Update with Options ……………………………………………………………………………………………………………………………60 6.3.1: Summary of Requirements of the FSIS SRM Interim Final Rule Included in the Analysis………………………………………………………………………………………65 6.3.2: Typical Changes in Cattle Slaughter Establishments in Response to the SRM Removal and Disposal Requirements ……………………73 6.3.3: Summary of the Per-Animal Most-likely Cost Estimates for the SRM Products and Non-Ambulatory Disabled Cattle for the SRM Final Rule, Based on the Preliminary Regulatory Impact Analysis (PRIA) of the SRM Interim Final Rule …………………………………………………………………76 6.3.3.1: Number of Hours (Most-Likely) of Operation per Workday for Slaughter Establishments, by Type, Based on FSIS PBIS Data…………………………………………………………………………………………………………………………………………………………79 6.3.4: Average Slaughter Volumes, by Age of Cattle and Slaughter Establishment Size, Used for Calculating Compliance Costs ……………………………………………………………………………………………………………………………………………………80 6.3.5: Estimated Number and Cost Estimate Assumptions Associated with Non-ambulatory Disabled Cattle Offered for Slaughter, by Establishment Size: Slaughter Establishments…………85 6.3.6: Assumptions Associated with Segregation of Cattle and SRMs, by Establishment Size: Slaughter Establishments………………………91 6.3.7: Estimated Weight of SRMs per Head at Slaughter Establishments ……………………………………………………………………………………………………………………………93 iv 6.3.8: Assumptions Associated with Vertebral Bone-In Cuts for Establishments that Slaughter Cattle 30 Months of Age and Older: Slaughter Establishments …………………………………………………………………………………………………97 6.3.9: Assumptions for Lost Value, measured in dollars per head, of By-Products, by Age of Cattle: Slaughter Establishments………………………………………………………………………………………………………………………………98 6.3.10: Assumptions Associated with Written Plan Modifications, by Age of Cattle and Processing-Only and Slaughter Establishments……………………………………………………………………………………………………………………………100 6.3.11: Assumptions Associated with Additional Monitoring and Verification Activities for Establishments that Slaughter Calves, Steers, Heifers, Cows, or Bulls ……………………………………………………102 6.3.12: Summary of Most-likely Industrywide Capital and Other One-Time Cost Estimates Associated with the Final Rule: Federally Inspected Slaughter Establishments …………………………………………106 6.3.13: Summary of Most-likely Industrywide Ongoing (Variable) Costs Associated with the Final Rule: Federally Inspected Slaughter Establishments ………………………………………………………………………………………………107 6.3.14: Summary of Most-likely Total Industrywide Costs Associated with the Final Rule: Federally Inspected Slaughter Establishments …………………………………………………………………………………………………………………108 6.3.15: Summary of Most-likely Industry-wide Capital and Other One-Time Cost Estimates Associated with the Final Rule: State- Inspected Slaughter Establishments ………………………………………………………………110 6.3.16: Summary of Most-likely Industrywide Ongoing (Variable) Costs Associated with the Final Rule: State-Inspected Slaughter Establishments …………………………………………………………………………………………………………………………111 6.3.17: Summary of Most-likely Total Industrywide Costs Associated with the Final Rule: State-Inspected Slaughter Establishments ……………………………………………………………………………………………………………………112 6.3.18: Summary of the Most-likely Total Industrywide Costs Associated with the Final Rule: Custom-Exempt Slaughter Establishments …………………………………………………………………………………………………………………115 6.3.19: Summary of Most-likely Industrywide Capital and Other One-Time Cost Estimates Associated with the Final Rule: Federally-Inspected and State-Inspected Beef Processing-Only Establishments …………………………………………………………………………………………………………………………121 v 6.3.20: Summary of Most-likely Industrywide Ongoing (Variable) Costs Associated with the Final Rule: Federally and State Inspected Beef Processing-Only Establishments ………………………………………122 6.3.21: Summary of Most-likely Total Industrywide Costs Associated with the Final Rule: Federally and State Inspected Beef Processing-Only Establishments …………………………………………………………………124 6.3.22: Summary of Most-likely Total Industrywide Costs Associated with the Final Rule: All Inspected Establishment Types and Sizes ……………………………………………………………………………………………………………………125 6.4.1: The Shift from the Baseline Year (2003) to Slaughtering a Larger Proportion of Younger Market Fed-Cattle (e.g., Steers and Heifers), Excluding Calves after the Interim Final Rule, Based on Data from 2003 to 2006 ………………………………………………………………………127 6.5.1: Comparison of the Distribution (Minimum, Maximum, 5th Percentile, Median (50th Percentile), Average, 95th Percentile, and Standard Deviation) of Annualized Cost of Compliance Values in the PRIA (without the AMR impact) and the FRIA………………………………128 7.1.1: Comparison of Assumptions: Harvard 2005 Analysis, and Harvard 2001 and 2003 Analyses…………………………………………………………………………………134 7.1.2: Levels and Incremental Reductions in Potential Human Exposure to the BSE Agent for the Risk Management Alternatives…………………………………………………………………………………………………………………………………142 7.1.3: Potential Human Exposure to the BSE Agent (cattle oral ID50s) under Alternative Baseline Assumptions Regarding Number of Infected Animals Cattle Producers Introduced …………………………………146 7.1.4: Summary of Areas of Differences between the Results of the PRIA Compared to the Results of the FRIA and the Impact of those Differences on the Benefits of