As a result of several judicial rulings, processing of horses for human consumption came to a halt in 2007. This article determines the change in horse prices resulting from elimination of horse-processing facilities. As expected, lower-valued horses were more affected by the ban than higher-valued horses. The analysis suggests the slaughter ban reduced horse prices, on average, by about 13% and resulted in a loss in producer surplus to sellers of approximately 14% at the sale we analyzed. We also show horse prices are affected by a myriad of factors including breed, gender, age, coat color, and sale catalog description.
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Copyright © Southern Agricultural Economics Association 2015There are 9.2 million horses in the United States that are estimated to contribute $39 billion and 1.4 million jobs to the economy (Deloitte Consulting, 2005; Lenz, Reference Lenz 2009). However, legislative decisions and court proceedings have halted the processing of horses for human consumption in the United States, actions that could have substantive negative impacts on the equine industry and the people who rely on it as a source of livelihood. The closure of horse processing within the United States not only has led to an increase in instances of equine neglect, abuse, and abandonment, but also has the potential to cause severe economic losses. These economic losses merit analysis and investigation.
In 2006, almost 105,000 horses were processed for human consumption in the United States, all in two foreign-owned Texas plants and a third foreign-owned plant in Illinois (Cowan, Reference Cowan 2010). For a variety of cultural and historical reasons, most U.S. and Canadian citizens view horses as performance and companion animals rather than food, and therefore the market for horse meat lies abroad. More than 17,000 metric tons of horse meat, estimated at a value of $65 million, was exported to countries such as France, Belgium, Switzerland, Italy, Japan, and Mexico in 2006 (Cowan, Reference Cowan 2010).
Several states had long-standing laws prior to 2006, aimed at preventing the processing of horses for human consumption. In 2006, the owners of the two Texas processing plants, Beltex Corporation and Dallas Crown Inc., sought to clarify the Texas state law initially passed in 1949, which banned the sale of horse meat. The U.S. District Court for the Northern District of Texas had earlier agreed that the law was preempted by the Federal Meat Inspection Act and violated the dormant Commerce Clause of the U.S. Constitution. In January 2007, the U.S. Court of Appeals for the Fifth Circuit rejected the previous conclusion and declared the Texas law to be in force. This development cleared the way for the Texas state attorney to prosecute the plant owners unless they ceased operation. The Illinois legislature passed a law banning horse processing in May 2007, and the Illinois plant ceased operation in September 2007 (Cowan, Reference Cowan 2010).
These rulings effectively ended horse processing in the United States (due to state legislation) and increased horse exports to Mexico and Canada where processing horses for human consumption remains legal. In 2006, a little more than 11,000 horses were shipped to Mexico for processing. In 2008, the number shipped to Mexico for processing rose to more than 50,000 (Simon, Reference Simon 2011). However, legislation was introduced to the 113th Congress to prohibit the sale or transport of equines and equine parts in interstate or foreign commerce for human consumption. The House and Senate bills were referred to subcommittee on March 12, 2013 (Cowan, Reference Cowan 2013). Federally, Congress kept a ban on horse slaughtering in place from 2006 to 2011 by preventing federal funding for horse meat inspections and therefore barring horse meat production in the United States. In late 2011, President Obama's approval of a congressional spending bill authorized the return of U.S. Department of Agriculture (USDA) inspections of horse meat and processing facilities (Hawkes, Reference Hawkes 2011). As of December 2013, the USDA had granted equine inspection services to establishments in Missouri, Iowa, and New Mexico (Flynn, Reference Flynn 2013); however, in January of 2014, the approval of the fiscal year 2014 spending bill presented a roadblock for these facilities. The spending budget signed by President Obama has withheld funding required for federal inspections of horse meat (Massey, Reference Massey 2014). At present, no horse-processing facility is in operation within the United States.
In addition to the loss of buyers for slaughter horses, the legal actions caused other costs and problems as well. In particular, the problem of unwanted horses has grown dramatically since 2007, and abandonment has become increasingly common (Dawson, Reference Dawson 2008). Prior to the slaughter ban, horses had a salvage value; horse owners are now faced with disposal costs and potential charges of animal cruelty if they fail to care for now unwanted animals with little residual market value.
To date, there has been relatively little economic research of the equine industry. To our knowledge, three studies have been conducted to determine the economic impact of a halt in horse processing. Initially in Reference North, Bailey and Ward 2005, North et al. estimated the potential impacts of the proposed ban, and their findings indicated a loss of approximately $300 per head if the ban were put into place.
In 2011, the U.S. Government Accountability Office (GAO) report to congressional committees on horse welfare found that the ban reduced horse prices from 8% to 21% due to the cessation of slaughter. Our analysis relies on some of the same data used in the GAO report, but our hedonic analysis includes more detailed descriptions of the horses (reducing the chance that unobserved quality characteristics are biasing estimates), and we also calculate the implied welfare consequences of the ban. Footnote 1
A second related study is that of Taylor and Sieverkropp ( Reference Taylor and Sieverkropp 2013). The study examined prices of horses sold at an auction located in Montana. Their ordinary least squares (OLS) estimates found the processing ban to be insignificant in impacting horse prices, likely because horses in this location were less likely to be delivered to slaughter in the United States given the distance to U.S. slaughtering facilities. Nevertheless, Taylor and Sieverkropp ( Reference Taylor and Sieverkropp 2013) used quantile regressions and showed that the ban negatively impacted lower-priced horses. Specifically, horses priced at or below $1,500 suffered price declines from 12% to 16%.
A few hedonic studies were conducted prior to the ban. Lansford et al. ( Reference Lansford, Freeman, Topliff and Walker 1998) focused specifically on yearling Quarter Horses in the racehorse industry. Maynard and Stoeppel ( Reference Maynard and Stoeppel 2007) and Neibergs ( Reference Neibergs 2001) conducted hedonic price analyses of Thoroughbred broodmares. Taylor et al. ( Reference Taylor, Dhuyvetter, Kastens, Douthit and Marsh 2006) examined the price determinants of show-quality Quarter Horses sold at auction, whereas Lange et al. ( Reference Lange, Johnson, Wilson and Johnson 2010) applied a hedonic pricing model to ranch horses sold at auction in Texas. Freeborn ( Reference Freeborn 2009) conducted a hedonic price analysis to study the “lower-end” segment of the horse industry by examining recreational and pleasure horses sold and advertised online. The previously discussed hedonic studies addressed the individual specific characteristics of horses and their relationship to price. Buzby and Jessup ( Reference Buzby and Jessup 1994) show that both yearling-specific variables and macroeconomic variables are important in the yearling Thoroughbred price. Also in the Thoroughbred market, Karungu, Reed, and Tvedt ( Reference Karungu, Reed and Tvedt 1993) show that exchange rate and tax laws have significantly influenced yearling prices for many decades. In perhaps the only study estimating underlying structural parameters, Neibergs and Thalheimer ( Reference Neibergs and Thalheimer 1997) estimated supply and demand functions associated with the Thoroughbred yearling market.
The primary objective of this research is to determine the impact of the slaughter ban on horse prices at a large auction house in Oklahoma. We build on existing literature in a number of important ways. First, our data set is particularly well suited to an analysis of the slaughter ban as it comes from a large, well-established auction that was in close proximity to the slaughter plants that were shutdown in Texas. Moreover, the auction includes a wide range of horse qualities (priced from $75 to $75,000), allowing us to use quantile regressions to analyze the differential impacts of the ban on horses on different ends of the quality spectrum (presumably lower-priced “killer” horses would be most affected by the slaughter ban). Second, we analyze a larger number of price determinants than previous research, including not only standard variables such as age, gender, breeding status, breed, and so forth, but also each horses’ coat color and event specialization (i.e., reiner, rope, all around), as well as information on how the seller chose to describe the horse in the sales catalog. Finally, unlike previous studies, we use our hedonic estimates to infer the welfare effects of the policy issue motivating this work.
The value of a horse is determined by the supply and demand for horses, which is heavily determined by buyer and seller preferences for genetic and physical characteristics along with genetic production capabilities in the case of mares and stallions. A hedonic model is an indirect valuation method in which the implicit value of horse characteristics is inferred from observed market transactions. The practice of hedonic analysis goes back to Waugh ( Reference Waugh 1928), and the theory was formalized by Rosen ( Reference Rosen 1974; for a recent overview and review, see Costanigro and McCluskey, Reference Costanigro, McCluskey, Lusk, Roosen and Shogren 2011). In conventional theory, consumer utility is defined over the quantity of goods consumed, and producer profit over the goods produced. Following Rosen ( Reference Rosen 1974), however, consumer utility and producer profits can instead be written as a function of the characteristics or attributes of the goods. One can conceptualize the prices of the aggregate goods (horses in this case) as the equilibrium price function that arises from the loci of tangency points between the buyer's bid curves and the seller's offer curves of each of the good's underlying attributes. Thus, by observing market transactions of heterogeneous horses, the implicit price of the characteristics can then be estimated. Some recent research such as that by Bajari and Benkard ( Reference Bajari and Benkard 2005) questions whether the parameters of such a “first-stage” hedonic model can adequately identify the underlying structural demand or cost parameters; however, our purpose here is not to estimate the underlying preference parameters per se. Rather, our goal is to determine how horse prices have changed over time in response to the horse slaughter ban while holding constant any changes in horse characteristics that might have occurred during this period.
The basic model is of the following form:
(1) \begin price = f(physical\,traits,\,ban,\,macro\,conditions,\,catalog\,descriptions).\nonumber\\[-2pt]\end
Equation (1) specifies the price of a horse as a function of its physical traits such as breed, age, gender, and color; whether the ban is in place; and macroeconomic conditions. Also included in the hedonic regression were specific variables related to how the horse was described in the sale catalog. Using data from real-estate advertisements, Levitt and Dubner ( Reference Levitt and Dubner 2005) showed that specific descriptive terms were correlated with house prices. Houses with higher sales prices tended to include physical descriptions of the house itself (e.g., granite countertops), whereas superfluous terms like “fantastic” were more associated with lower-priced homes. They hypothesize this is because ambiguous adjectives such as “charming” and “fantastic” do not convey the same level of straightforward, specific, and useful information that “granite” or “Corian” convey. In a similar spirit, horses are often described as “nice” or “lots of cow” Footnote 2 in sales catalogs, and such descriptors might likewise send signals related to unobservable quality characteristics. A complete description of the specific descriptive terms analyzed is shown in Table 1.
Table 1. Variable Definitions