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LIVESTOCK IDENTIFICATION SERVICES LTD. REGULATORY COST-BENEFIT ANALYSIS

By Kevin Grier and Holly Mayer

Abstract

The services provided by Livestock Identification Services play an important role in the facilitation of commerce through brand inspection and by helping to verify ownership. In this regard, the recently privatized LIS continues to successfully fulfil its mission. The goals of LIS are: · Value · Accountability · Flexibility · Recognition · Viability · Effective enforcement. Based on the research conducted for this project, it can be concluded that during the three years in which LIS has been in existence, the organization has met its goals. LIS has been found to be an efficient, well managed organization with a dedicated staff. With regard to costs and benefits, the primary benefits associated with the regulations administered by LIS relate to the deterrence of theft as a result of the brand inspection system. An important related benefit is the identification of livestock through branding and the brand inspection process. While these benefits are extremely difficult to quantify, they do in fact have a dollar value associated with them. The benefits that have dollar values attached to them include: · livestock thefts deterred · lawsuits avoided · prosecutions avoided · reduced police investigations · cattle returned to rightful owners · manifest corrections Unlike benefits, costs are easier to quantify. Direct costs such as the dollar inspection fee and the overall budget associated with LIS are open to public scrutiny. There are also indirect costs that may result from complying with the regulations LIS is responsible for carrying out. Such indirect costs include additional weight loss and inventory management effort. With that said, however, this research has not found these additional indirect costs to be significant. The one additional cost associated with brand inspection that was identified in this research is hide damage. This is a material cost, but given that branding is not mandatory, it is questionable whether the damage can be considered a cost of compliance. Due to the nature of the benefits associated with LIS, it is not appropriate to take a ledger approach and add up the dollar value of benefits in order to determine a specific benefit-cost ratio. This inability to calculate a specific ratio is due to the fact that each of the benefits has a very wide range of possible values. With that said, the evidence associated with the calculations for each of the benefits leads to the conclusion that total value of the benefits of LIS exceeds the direct and material or significant indirect costs of LIS (not counting damaged hides). The same line of thought and rationale for determining benefits also leads to the conclusion that most of the benefits of brand inspection rest at the cow-calf sector. While benefits exceed costs, and while LIS has successfully met its mission and goals, the organization and the industry continue to adjust to LIS' role as a private sector organization. For example, some of the government policies and directives utilized in the past have at times been shown to be at cross purposes with how LIS must operate now. This has created tension in the industry. The issue of conversion has highlighted questions as to the efficacy of brand inspection with regard to ownership verification. Furthermore, the organization also continues to adjust to the fact that the legislation it is responsible for was written at a time when the feedlot sector was radically different in size and structure than it is today. Finally there needs to be a better matching of benefits and costs between the feedlot and cow-calf sectors. These are the main challenges of the future for LIS. The survey of cow/calf producers and feedlot operators indicates that both groups have a relatively high level of awareness of most of the services provided by LIS. The vast majority of respondents in both groups are also aware that brand inspection services have been transferred to the private sector. Approximately half of producers surveyed stated that brand inspection and/or verification of brand ownership is the most important function of LIS in their own operations. A similar proportion of respondents feel that the main benefit of LIS is verification of ownership of livestock. A significant group of large feedlot operators, however, feel that LIS has no important function in their operation, nor does LIS have any benefits. Producers in both sectors feel that cow/calf producers are the primary beneficiary of LIS services. The surveys also indicate that both groups of producers are satisfied with LIS overall and specific LIS services, although the cow/calf group recorded a slightly higher overall satisfaction level. Satisfaction among cow/calf producers is quite homogeneous across operation size, however the large feedlot operators gave a lower satisfaction rating than the other feedlot groups. The majority of respondents from both sectors also said they did not have any concerns regarding LIS services. The two sectors differ in their opinion of whether they receive good value for LIS fees. Cow/calf producers overwhelming feel that they do, while feedlot operators as a group are essentially split in their responses. Within the feedlot group, opinions are also divided, as almost three-quarters of the largest feedlot operations feel that they do not receive good value. Cow/calf producers and feedlot operators do agree that LIS should continue to provide all of the services it currently does, and not take on any additional responsibilities. The discussions in the focus groups also support this view. The focus groups also identified issues such as conversion and the need to better match benefits and costs between the cow/calf and feedlot sectors that need to be addressed and resolved in order for LIS to be successful in the long term.

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