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Evaluation Report Series

Evaluation Report 7

Review of Animal Welfare
December 2004 Biosecurity Victoria

Other reports in the Evaluation Report Series are: Department of Natural Resources and Environment (2000), “Beneficiaries and Funders of Research and Development in Agriculture: Science Technology and Innovation Initiative 1999/2000”, Evaluation Report No: 1, Melbourne, June.

Department of Natural Resources and Environment (2000), “The Value of Prospective Improvements from Research and Development in the Victorian Dairy Industry”, Evaluation Report No: 2, Melbourne, August.

Wimalasuriya, R., Grey, D., Fisher, W., Haines, P., and M. Eigenraam (2001), “The Value of Prospective Improvements from Research and Development in the Victorian Grains Industry”, Evaluation Report No: 3, Melbourne, December.

Department of Natural Resources and Environment (2001), “Beneficiaries and Funders of Research and Development in Agriculture: Science Technology and Innovation and Naturally Victorian Initiatives 2000/2001”, Evaluation Report No: 4, Melbourne.

Wimalasuriya, R., Hamilton, J. and D. Goldsworthy (2002) "The Value of Prospective Improvements from Research and Development in the Victorian Beef and Lamb Industries", Evaluation Report Series No: 5, Melbourne.

Department of Primary Industries (2004), “Review of Chemical Standards”, Evaluation Report No: 6, Melbourne, September.

Find more information about DPI on the Internet at: http://www.dpi.vic.gov.au

ISSN: 1444-2949

ISBN: 1 74146 209 6

Department of Primary Industries (2004), “Review of Animal Welfare”, Evaluation Report No: 7, Melbourne.

Department of Primary Industries

GPO Box 4440 Melbourne Vic 3001

Disclaimer

This publication may be of assistance to you but the State of Victoria and its employees do not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication.

Foreword

In 2002/03, the Victorian Government conducted a review of the State’s animal welfare function, which is managed by the Victorian Department of Primary Industries (DPI). The review focussed on the role of government in the provision of services. While centred on Victoria, the review is relevant to the management of animal welfare programs in all jurisdictions, particularly given that many such programs are coordinated at a national level.

Both the review and this report, which outlines the review process and findings, were prepared under the direction of Gary Stoneham, Chief Economist, DPI Economics and Policy Research Branch and Terry Truscott, then Director, DPI Agricultural Industry Policy Branch. Senior staff in the DPI Agricultural Quality Assurance Branch (now Biosecurity Victoria) assisted the review.

The aim of this publication is to present the review findings to a wider audience and to stimulate further discussion of the key issues identified in the review.

However, because the material outlined in this report was prepared during 2002, it may not reflect some of the more recent initiatives and decisions by the Commonwealth, States and industry. Some minor changes have been made to improve clarity, such as updating the names of government agencies, but otherwise the report is a faithful record of the review at the time it was undertaken.

PETER J. BAILEY

Executive Director, Biosecurity Victoria Department of Primary Industries

Acknowledgments

This report was prepared by John Hamilton (Agricultural Industry Policy), Bill Fisher (Economics & Policy Research Branch) and Anne Cole (Economics & Policy Research Branch). Zoë Glasson, who was on leave from the Queensland Department of Primary Industries, assisted by reviewing economic research on animal welfare issues and contributing to the overall analysis. Gary Stoneham and Loris Strappazzon (Economics & Policy Research Branch) provided advice on issues and approach.

The authors are grateful for advice provided by Dr Stephen Tate and staff in the Bureau of Animal Welfare throughout the review.

The authors also acknowledge the assistance of Nancy Mills, Millwright Context, who edited this report for publication.

Foreword
Acknowledgments
Executive Summary
1. Background
1.1 What is Animal Welfare?
1.1.1 The international context
2. Overview of DPI Activities
2.1 Key Projects
2.1.1 Animal welfare services
2.1.2 Domestic animal management
2.2 Other Relevant Organisations
3. Role of Government in Animal Welfare
3.1 Characteristics of the Issue
3.2 Market Failure
3.2.1 Externalities
3.2.2 Asymmetric information
3.2.3 Imperfect information
3.3 Overview of Stakeholder Incentives and Preferences
3.3.1 Scientific establishments
4. Mechanisms to Address Animal Welfare Issues
4.1 Legislation
4.2 Codes of Practice
4.3 Labelling
4.4 Information & Education
4.5 Further Research
5. References

Executive Summary

The output from the Victorian Government’s animal welfare function can be defined as activities to promote animal welfare objectives expected by the community.

Increased interest in animal welfare issues is linked to higher living standards in developed economies. As living standards improve, consumers take more interest in ’non–priced’ services, such as the environment and animal welfare. This has raised society’s expectations that animals will be treated in a humane way. This expectation is backed by legislation. In Victoria, the relevant legislation includes the Prevention to Cruelty to Animals Act 1986, Domestic (Feral and Nuisance) Animals Act 1994 and the Impounding Livestock Act 1994.

Some believe that animal welfare relates only to the physical wellbeing of an animal while others believe this should be expanded to include what they feel and what their nature is. A commonly used, and widely accepted, definition of animal welfare relates to how well an animal is coping with the situation it is in. If an animal does not appear to be coping then its welfare is considered to be at risk.

An example of a practice which can have negative effects on the community is the use of small cages for egg production. Examples relating to domestic animals include:

destruction of native fauna by domestic animals such as dogs and cats
domestic pets, or their offspring, becoming stray or feral.

Mechanisms that help to achieve animal welfare goals include:

Legislation

Legislation is an appropriate mechanism for government to use to set minimum standards for animal welfare. Legislation is intended to reflect government perceptions of society’s demands for minimum standards of animal welfare.

Codes of practice

Codes of practice act as a reference for animal-based industries and animal owners in Australia, as well as providing information for animal welfare organisations, animal industry participants and the general public. They may serve as the basis for accreditation and quality assurance programs and they provide global audiences with a guide to Australian welfare standards.

Producers who adhere to the relevant codes of practice not only protect themselves against possible legislation breaches, but also make their production processes transparent for consumers, government and international markets. To minimise the risk of disputes with welfare groups that affect producer income, the standards set in codes of practice are generally higher than the minimum prescribed by legislation.

Government assists industry in formulating agreed industry codes of practice for the treatment of animals in agricultural production.

Similar incentives exist for the pet shop industry to develop codes of practice.

Labelling

If enough consumers were prepared to pay a sufficient amount for animal welfare above the minimum standard, labelling could provide a mechanism for producers to tap this market to achieve price premiums. However, if producers cannot signal to consumers that theirs is a higher quality product, they will not be able to command higher prices. In such a situation, consumers will not choose to purchase the ‘high welfare’ good because they have no ability to verify claims about additional value.

Producers can make their claims credible by:

making investments that consumers understand would be worthless if the producer is caught making false claims; or
using third-party certification.

If consumers are unwilling to pay for additional attention to animal welfare plus the cost of producers telling them of this additional care, there will not be a viable market for superior animal welfare. Where such markets have emerged, it is because willingness to pay has exceeded these costs.

Information and education

Information and education can be used to increase the awareness of all stakeholders on animal welfare issues. In turn, this can break down the imbalance in information between producers and the community. Information and education activities can be initiated and run by industry organisations, the government, animal welfare groups or consumer groups. For example, activities may aim to educate consumers regarding farming and production practices, or to encourage producers to support and assist in the uptake of, and adherence to, legislation and codes of conduct.

Further research

Further research may be required to improve knowledge of animal welfare in some areas, including identifying practices that might improve animal welfare. Such research could also contribute to a scientifically-established and more widely-accepted understanding of animal welfare that would address information asymmetry problems.

Responsibility for all animal welfare issues rests with the DPI Bureau of Animal Welfare

The DPI Bureau of Animal Welfare manages and implements state legislation in animal welfare, and works with the Commonwealth, local governments, Victorian animal welfare agencies, industry associations and other state governments on animal welfare matters.

The Bureau uses a combination of appropriate instruments to achieve its objectives. These instruments are legislation, information and a role for government education (including codes of practice) and research.

1. Background

The last 15 to 20 years have seen an increasing interest in animal welfare issues throughout Australia and around the world. This is in keeping with a general trend for consumers to demand increasing transparency in livestock production practices. The trend may be linked to higher incomes in developed countries. Where domestic supply of food exceeds domestic demand, consumers with higher incomes are able to exert greater influence over the conditions under which food is produced.

The increasing interest in farm animal welfare also coincides with worldwide anxiety about food safety prompted by several high-profile contamination scares and animal disease outbreaks (eg. foot and mouth disease and mad cow disease).

1.1 What is Animal Welfare?

There is no universally accepted definition of farm animal welfare. Some believe that animal welfare relates only to the physical wellbeing of an animal while others believe that this definition should be expanded to include what an animal feels and what its nature is.

A commonly used, and widely accepted, definition of animal welfare refers to how well an animal is coping with the situation it is in. If an animal does not appear to be coping, then its welfare is considered to be at risk. An animal’s attempts to cope with a stressful situation could have physical costs such as reduced growth rates, reduced fertility rates and a weakened immune system that leaves the animal susceptible to illness and disease.

Other workable definitions of animal welfare are provided in the agreed standards developed by various industries, in association with animal welfare organisations, researchers, expert consultants and government officials. These standards combine legislative, regulatory and self-regulatory procedures and differ between jurisdictions.

Most animal welfare-related laws, codes of practice and standards take into account what are known as the ‘five freedoms’. The RSPCA uses the five freedoms in its definition of animal welfare.

The five freedoms specify that all animals should have:

Freedom from hunger, malnutrition and thirst by ensuring access to fresh water and a diet to maintain health and vigour
Freedom from thermal and physical discomfort by providing an appropriate environment, shelter and a comfortable resting-place
Freedom from pain, injury and disease through prevention or rapid diagnosis and treatment
Freedom to express most normal forms of behaviour by providing sufficient space, proper facilities and company of the animal’s own kind
Freedom from fear or distress by ensuring conditions and treatment to avoid mental suffering.

In policy development, consideration must also be given to economic factors, scientific research findings and other relevant issues.

1.1.1 The international context

Europe has been at the forefront of changes to animal welfare legislation for some time. Recent initiatives include the recognition of animals as sentient beings (i.e. as having the power of self-perception) in 1997; the phasing out of sow stalls and tethers in the UK by 1999 and the decision to phase-out ‘battery’ hens in the EU by 2009. In 2002, Germany recognised animals as sentient beings with certain rights in the national constitution.

Animal welfare is emerging as a policy issue in multilateral trade agreements. The EU is currently modifying some of the methods it had previously considered ‘acceptable’ for livestock food production within its member countries. If the EU seeks to extend these standards beyond its own borders, this could have ramifications for Australia’s trade relationships. Animal welfare is also being used as a basis for subsidies to European producers. For example, farmers are now subsidised to produce free-range eggs instead of using caged production systems, despite the fact that the scientific community and the industry do not necessarily agree that free-range production systems provide improved welfare over caged systems. In 2001 the OIE (Office International Des Epizooties) included animal welfare in its strategic business plan. In April 2002 it formed an ad-hoc committee to advise it on animal welfare standards and the appropriate scope of activity. This led to formation of a permanent committee in October 2002.

A significant part of the Commonwealth Government’s Australian Animal Welfare Strategy is aimed at telling the rest of the world about Australia’s commitment to animal welfare. This will assist in ensuring continued access to markets such as the EU.

2. Overview of DPI Activities

Animal welfare policy in Australia is managed by the States and Territories through various Acts addressing animal welfare or prevention of cruelty to animals, codes of practice, quality assurance schemes and standards. An Australian Animal Welfare strategy was developed in 2004 to address animal welfare matters and associated market access and trade issues.

The DPI Bureau of Animal Welfare (BAW) manages and implements state legislation in animal welfare. The Bureau works with the Commonwealth, local governments, Victorian animal welfare agencies, animal industry representatives and other state governments on animal welfare matters.

The BAW convenes the Domestic Animal Management Implementation Committee (DAMIC) to liaise with local government animal management administration and representatives of domestic animal businesses; Prevention of Cruelty to Animals inspector liaison advisory group involving Police, Department of Primary Industries, RSPCA and Council inspectors under the Prevention of Cruelty to Animals Act; the Animal Ethics Chairs Committee with representation from chairs of animal ethics committees serving research premises in universities, private and government institutions; the Responsible Pet Ownership Education Program Steering Committee for Community and Schools/Kindergartens; the Animal Welfare Advisory Committee.

The Bureau provides administrative and technical support to the Animal Welfare Advisory Committee (AWAC), a non-statutory committee constituted by the Minister of Agriculture to provide advice on animal welfare issues. AWAC receives submissions from individuals and agencies on animal welfare issues, collects information and makes recommendations to the Minister for Agriculture regarding changes to legislation. Members of the committee include representatives from the Australian Veterinary Association, Victorian Farmers Federation (both intensive and extensive animal industries), Lost Dogs Home, Cat Protection Society, RSPCA, Animals Australia, Municipal Association of Victoria, Department of Sustainability and Environment (Wildlife Management), Animal Welfare Science Centre, Victorian Canine Association, Victorian Horse Council and a research representative from a licensed research premises Animal Ethics Committee.

Examples of issues discussed by AWAC include: use of animals in circuses, the export of pets to Asia for human consumption, caged egg production, gestation sow stall confinement, the permanent microchip identification of pets, public liability regarding ‘recycling’ pets (i.e. through pounds), the use of animals in scientific research/teaching and off-leash zones for dogs.

BAW contributes to Commonwealth policy development (eg. model animal welfare codes), with the BAW Director representing DPI on the Commonwealth Primary Industries Standing Committee’s Animal Welfare Working Group, which reports to the Primary Industry Standing Committee (PISC). Examples of work by this group include developing a system of national codes with appendices for different states, comparing the codes and powers of welfare offices between states and developing policy on the ritual slaughter in abattoirs.

BAW represents Victoria on the National Consultative Committee on Animal Welfare that reports to the Commonwealth Minister for Agriculture, Fisheries and Forestry. In 2004, this Committee developed the Australian Animal Welfare Strategy adopted by Primary Industries Ministerial Council.

2.1 Key Projects

2.1.1 Animal welfare services

This project aims to prevent cruelty to animals, encourage the considerate treatment of animals and improve the level of community awareness about the prevention of cruelty to animals. It facilitates and fosters the wellbeing of farm, domestic, experimental and recreational animals through its advisory, policy development and administration, enforcement, liaison and training roles.

The project involves implementing legislative controls, including the operation of the Prevention of Cruelty to Animals Act 1986, and introducing welfare codes of practice. Project staff are also responsible for monitoring the appointment of animal welfare inspectors. Welfare inspectors in urban areas are principally provided by the RSPCA for companion animals while DPI animal health officers serve as inspectors in rural areas primarily for commercial livestock. For example, welfare concerns about a Melbourne pet shop would be handled by the RSPCA, while the local DPI animal health officer would handle a case of malnourished sheep in a rural area. Police and authorised council officers are also involved but to a lesser degree.

Another component of the project addresses animal welfare in scientific establishments through consultation, negotiation, seminars and licensing and auditing of scientific and specified animal breeding establishments to ensure compliance with legislative requirements. BAW has established a licensing and auditing process for scientific procedures and premises and completed a risk assessment of project responsibilities.

The project also licenses rodeos and rodeo schools and monitors compliance with permit requirements.

Project staff convene and provide support for the Animal Welfare Advisory Committee, Animal Ethics Chairs Committee and the Prevention of Cruelty to Animals Inspector Consultative Committee Staff represent government animal welfare policy on the National Consultative Committee on Animal Welfare, Primary Industry Standing Committee Animal Welfare Working Group, Hunting Advisory Committee, National Health and Medical Research Council Code Liaison Group and the Wildlife Trade and Possession Consultative Committee.

2.1.2 Domestic animal management

This key project administers the Domestic (Feral and Nuisance) Animals Act 1994. It is funded entirely from Treasury monies that local councils collect from dog and cat pet registrations and registration of domestic animal businesses.

The project aims to increase community awareness of responsible domestic animal ownership and registration and standards for domestic animal businesses. It also aims to reduce the number of unwanted feral and domestic animals. This requires liaison with groups involved in implementing legislative controls (such as the RSPCA and municipal councils), provision of advice (to pet shops, for example) about meeting the codes of practice for domestic animal businesses, provision of training courses for municipal staff and contributions to the ongoing improvement of domestic animal education programs.

This project convenes and supports DAMIC, which includes representatives from Department of Victorian Communities, Municipal Association of Victoria, local councils (rural, peri-urban and urban), animal welfare groups, Pet Industry Association, Council of Cat Fancy organisation Victorian Local Government Professionals Association, Victorian Canine Association and Victorian Local Government Association. Examples of advisory work to the Department include the recent benchmarking of council services for animal management and the 2004 owner survey of where owners obtain their cats and dogs.

The project convenes, funds and provides executive support for the Responsible Pet Ownership Education Program Steering Committee, which provides guidance to the Department on content and management of the Responsible Pet Ownership community and Schools Education Programs.

Project staff and their activities include:

A manager of policy and education who develops domestic animal welfare and management policies, contributes to the development of a range of animal welfare codes, administers the Act, trains council officers and manages the Responsible Pet Ownership Community and Schools Education Programs. A project officer who audits pounds to ensure that they meet the relevant code of practice.
A project officer who investigates dog attacks and works with local government to develop the community program on responsible pet ownership.

2.2 Other Relevant Organisations

Several organisations assist DPI in the administration of animal welfare. The main organisations are the Animal Welfare Centre (a joint research centre funded by DPI, Melbourne and Monash Universities and CSIRO), the RSPCA, police and local government.

3. Role of Government in Animal Welfare

3.1 Characteristics of the Issue

This section discusses the key stakeholder groups in animal welfare in Australia.

Society—is made up of individuals with different preferences and different levels of awareness about animal welfare.

Livestock producers—have more information on the production of livestock products than do consumers and society in general. Producers vary greatly in their standards of animal welfare. Factors driving individual decision-making include:

trade-offs between animal welfare and profitability
level of concern for animal welfare regardless of profitability
level of understanding about welfare issues
management skills
incentives that may exist for higher animal welfare standards (eg. market advantage) and deterrents for poor animal welfare (eg. litigation).

Animal Welfare Groups—some may not tolerate any level of suffering by an animal. They may disagree with the way in which animals are used for production of meat, dairy, eggs and fibres, or they may consider any animal use unnecessary. Other groups may accept limited use of animals as long as they do not suffer unnecessarily.

Government—has the role of taking into account the preferences of all stakeholders and using these in developing appropriate policies with a goal of maximising the wellbeing of the whole community.

Domestic pet owners—keep animals to provide companionship. Incentives for pet owners to look after animal welfare are therefore higher than for owners of production livestock.

Domestic animal (pet) businesses—include pet shops, pet boarding establishments, pounds and shelters, pet breeding and training businesses. These entities would probably face similar incentives to livestock agricultural enterprises, except for the fact that they produce or service pets instead of livestock or livestock products. Because the welfare they provide has a greater impact on the quality of their product (i.e. pets) than for agricultural producers, they have stronger incentives to provide higher standards of welfare.

Scientific Establishments—refer to private and government institutions, which use animals in experiments for research and teaching purposes. Experiments may relate to improving animal health or the productivity of livestock production systems or may be directed at human health issues. Unlike pet sales and livestock production, these experiments will often be conducted out of public view, which introduces an additional asymmetric information problem (see Section 3.2.2 below). Consumers cannot easily use their purchasing decisions to influence this sector because research facilities do not make consumer products.

3.2 Market Failure

Market failure occurs when unfettered market operation does or would be expected to lead to outcomes that are not optimal for the community as a whole. Externalities and information problems can cause individual decisions about animal welfare to contribute to outcomes which are not the best for the whole community: these are described in this section.

3.2.1 Externalities

In animal welfare, market failure may result from the presence of externalities. Externalities exist when a firm or individual’s activity imposes costs (or benefits) on others but no compensation is made to those affected (or payment by those benefiting). In animal welfare, an externality may exist because individual producers only take into account their own private preferences regarding animal welfare, rather than also considering the preferences of the community as a whole. For example, an individual producer may have poor welfare standards (eg. poor control of flystrike in sheep). This has a negative impact on members of the community who would prefer a higher level of animal welfare in wool production (provided of course they are aware of it). This ‘negative externality’ reduces society’s overall level of utility or wellbeing.

Other externalities in livestock production include impacts on water quality and other environmental factors. While these are clearly important in the broader policy context, this section focuses specifically on markets (and the lack thereof) for animal welfare.

Another externality occurs when the actions of an individual producer influence the community’s perception of the industry as a whole, thus affecting the profitability of other producers. This is an example of an industry impact, as distinct from a community impact. Such a situation provides an incentive for industry to develop systems to ensure good behaviour by all participants. It is not an externality that warrants community involvement.

Actions taken by owners of domestic animals, or by the animals themselves, can have negative effects on other members of the community. As noted in the flystrike example above, individuals and businesses that provide poor standards of animal welfare are hurtful to those in the community who would prefer higher standards.

Other instances of externalities that may be associated with domestic animal ownership include destruction of native fauna by domestic animals such as dogs and cats, and domestic pets or their offspring becoming stray or feral.

3.2.2 Asymmetric information

Asymmetric information occurs where not all parties to a transaction have the same information. There are three types of information asymmetry in animal welfare.

3.2.2.1 Consumer knowledge of animal welfare practices used to produce food and fibre and for domestic animals

Animal welfare is a credence quality. This means that a consumer cannot readily check the credibility of a claim about animal welfare standards at any stage of purchase or consumption. As a result, producers have more information about production of their livestock products than consumers do. For example, a consumer cannot determine whether an egg is from a free-range chicken or one housed in a barn or cage system simply by tasting the egg. Likewise, it is impossible to tell by tasting a bottle of milk whether the cows had docked tails.

Just as livestock producers have more knowledge about the welfare they provide than the general community, so too have domestic animal businesses. However, the treatment of animals in a pet shop is more easily observed by consumers because the item for sale is the animal itself.

If consumers knew all relevant information about the animal welfare associated with a particular product (called perfect information) they could make fully informed choices and convey these preferences to producers through price signals. However, as long as consumers do not have perfect information about animal welfare and production practices, information asymmetry will exist. It can be expensive for producers to provide consumers with information about product quality, so producer signalling of quality is unlikely to emerge across the full quality range for a credence attribute such as animal welfare. Efficient markets are therefore unlikely to emerge across the full range of animal welfare quality.

Governments have typically responded to market failure caused as a result of information asymmetry by establishing minimum standards. Consumers who want to purchase animal products above the minimum standard usually demand a form of assurance. Producers might signal this assurance via third-party certification, or by investing in reputation.¹ This has contributed to the existence of markets for animal welfare above regulated minimums (eg organic), although these are unlikely to operate as efficiently as a perfect-information market.

3.2.2.2 Community perceptions of industry

The second type of information asymmetry concerns the flow of information to the community about animal welfare issues. In developing preferences and views on animal welfare, the broader community relies on receiving truthful information. For example, animal welfare lobbyists may argue their case in emotional and

¹ Such investments need to be sunk, and sufficiently conspicuous so that consumers know the firm will lose financially if caught making false claims. Cole and Harris (2003) discuss credence attributes and the role of government in more detail.

graphic ways. Unless provided with other views, such as independent scientific information, members of society could quite reasonably assume that inhumane treatment of animals is a common occurrence. Perception is a strong tool. If society perceives the standard of animal welfare to be too low then it will demand what it perceives as a higher level regardless of the actual level of animal welfare or suffering. For example, members of society may demand that a certain practice be outlawed because they believe it to be inhumane, when such a ban may not in fact lead to higher standards of animal welfare.

3.2.2.3 Government awareness of the preferences of society regarding animal welfare

The third type of information asymmetry exists between community and government. This arises because the absence of a market for varying levels of animal welfare makes it difficult for government to measure the level of animal welfare that society deems to be appropriate. If the first two types of asymmetric information could be overcome, there would be no market failure and thus government would not need to intervene on behalf of society. The fact that those two asymmetries do exist in animal welfare provides a rationale for government to intervene, but requires government to tackle the problem of identifying society’s individual preferences and aggregating them in an acceptable manner.

3.2.3 Imperfect information

Imperfect information refers to a situation where the relevant information is not known by any of the parties involved. This is the reason why there is currently no widely accepted definition of animal welfare. Scientists, the government, welfare groups, society and animal livestock owners generally disagree as to how best to measure animal welfare. While some groups use definitions based on physical measures of wellbeing such as fertility rates, output and growth, others believe the definition should incorporate the emotional wellbeing of the animal and take into account such factors as stress, fear and discomfort. This lack of agreement makes it difficult to measure animal welfare and to formulate a widely agreed and scientifically sound definition of animal welfare.

Good policy in animal welfare relies on the quality of existing knowledge. For example, regulations to control dog attacks (an example of an unwanted behaviour by animals, not an externality) need to take into account the factors that cause dog attacks. It may be that specific breeds are a problem, or that owners are not aware of appropriate pet management. It is clearly in the community’s interest to address any gaps in our knowledge of the factors that cause dogs to attack.

3.3 Overview of Stakeholder Incentives and Preferences

Given the above analysis of market failure, it is useful to review the incentives that result for each of the key stakeholders. Figure 1 presents in schematic form the incentives for key stakeholders and the roles that different mechanisms can play in achieving desirable outcomes in this area.

Figure 1. Market failure and animal welfare.

Enterprises that operate at the far left of the spectrum in figure 1 (low welfare) will be very unprofitable (as well as cruel), because animals that suffer are not productive. Because an incremental improvement in animal welfare (i.e. a shift to the right) will improve profits, there are economic (as well as moral) incentives for livestock producers to improve welfare beyond the ‘low welfare’ point. However, without regulation, a small number of producers (such as the one represented by point A) may operate in this range because they have poor management skills, poor awareness or no concern for animal welfare.

Point B is the point at which the productivity gain from improving animal welfare will no longer cover the cost of achieving this welfare improvement. This would be the point at which livestock producer would operate if their decision-making were solely based on economic return—which in reality it is not.

However, society is likely to expect a higher standard of animal welfare than that represented by point B. While there is great variation in social preferences for minimal animal welfare standards, point C represents the general view. If citizens had perfect knowledge, point C would be the point at which minimum animal welfare standards should be based, as defined in legislation.

Because of the externalities that exist within the livestock industry (i.e. a poor performer can discredit the industry), there is an incentive for industry as a whole to encourage producers to meet a certain welfare standard that exceeds the legislated minimum welfare standard. This higher standard is defined through industry-specific animal welfare codes. These codes have been developed by industry to help promote the industry to consumers, and to assist livestock producers to defend themselves against litigation. When producers operate according to these codes (point D), they exceed the legislative requirements for animal welfare (point C).

Some members of the community are more concerned about animal welfare standards and may be prepared to pay for it through higher prices for livestock products. If there are enough such consumers willing to pay a high enough price, producers may be able to capture price premiums by delivering a standard of animal welfare that is higher than the minimum standard indicated in the codes of practice (i.e. they will operate at point E). A producer’s ability to do this will also depend on having a system, such as labelling, that can communicate their higher animal welfare status to consumers.

Note that point E is not the point of maximum animal welfare. The ‘maximum’ level of animal welfare is a difficult concept to define, for reasons noted in Section

1. For example, an extreme definition would be that animals are no longer slaughtered for meat. However, this would probably be unacceptable to almost all members of society. Furthermore, without a market for meat products, the population of meat animals would need to be drastically cut, itself creating a major economic issue.

3.3.1 Scientific establishments

While the above discussion refers only to livestock farming and domestic pet businesses, many of the same principles apply to scientific establishments. For example, all scientific establishments should be required to meet the general community’s expectation of minimum welfare standards as a condition of them undertaking work in Victoria. The incentive for developing a code of practice for animal experimentation may be to protect scientific establishments from litigation. However, the great variation that exists in animal experimentation (in factors such as animal species and numbers and the nature of the experiments) may make a code of practice system less workable here than for livestock agriculture and domestic animal businesses. Mandatory codes for the keeping of lab animals and the establishment and conduct of animal ethics committees are regulated, licensed and audited by the Department. Research cannot be conducted unless under a license and with prior approval of an animal ethics committee.

4. Mechanisms to Address Animal Welfare Issues

The existence of market failure does not automatically mean that government should intervene. Governments generally only intervene where the benefits of intervention are greater than the cost of doing so, or where society’s wellbeing is greatly improved by government intervention. Furthermore, some interventions may be better implemented by industry or welfare organisations than by government.

Where intervention is warranted, the mechanisms available include legislation, codes of practice, labelling, accreditation, research, information and education.

4.1 Legislation

Legislation is an appropriate mechanism for government to use to set a minimum standard for animal welfare (i.e. point C in Figure 1). Legislation is intended to reflect what the government perceives as society’s demand for a minimum standard of animal welfare. As discussed above, there are some challenges in determining what community expectations are, and whether these perceptions are well-informed.

Bennett (1997) identifies three factors for government to consider before implementing legislation. Policy makers need to be assured that: 1) the proposed legislation will actually improve the welfare of farm animals; 2) there is general public support; and 3) it is politically feasible and will not have serious negative economic consequences. The same principles for legislation that enforces minimum welfare standards apply to both domestic animals and production livestock.

However, legislation is a fairly inflexible mechanism because the only alternative to complying with the regulations is to face the penalties if caught not complying. Some farmers may automatically comply with legislation, but others may weigh up the benefits of not complying against the probability of getting caught and paying the fine. Legislation therefore requires a central authority to monitor behaviour and impose penalties for non-compliance, and it is appropriate only for implementing minimum welfare standards.

For scientific establishments, where activities are more isolated from public view, auditing of experimental conditions would be required to ensure compliance with expected community standards enshrined in the legislation.

4.2 Codes of Practice

Industries use codes of practice as benchmarks for minimum recommended standards (point D in Figure 1). The codes act as a reference for animal users in Australia as well as providing information for interested stakeholders and the general public. They may serve as the basis for accreditation and quality assurance programs and they provide a guide for the global economy on Australia’s standards of welfare.

Codes of practice are useful in informing stakeholders of the practices used in producing livestock products. This can help to reduce the asymmetry between the (limited) information the consumer holds and the (more comprehensive) information the producer holds regarding animal welfare.

Government assists industry in formulating agreed industry codes of practice for the treatment of animals in agricultural production.

Similar incentives exist for the pet shop industry to develop codes of practice. In the case of domestic animal businesses, the codes are a mandatory requirement of the registration process. Failure to comply puts them out of business.

Livestock welfare codes provide quality assurance systems and regulators with a guide to minimum acceptable standards.

4.3 Labelling

If enough consumers are prepared to pay a sufficient amount for animal welfare above the minimum standard (point E in Figure 1), labelling could provide a mechanism for producers to tap this market to achieve price premiums. The price premium would need to cover the cost of providing additional information to consumers (as well as providing better animal welfare) if the market is to be sustainable.

As mentioned in Section 3.2.2, animal welfare is a credence quality. For example, simply tasting a bottle of milk does not tell you how well the cows that produced the milk were treated. This provides a challenge for communication from producers to consumers. If producers cannot signal to consumers that their product is of higher quality, it is likely that they will not be able to command higher prices (Cole and Harris 2002). Without such a signal from the producer, consumers would not purchase the ‘high welfare’ good because they would not know of its additional value.

Labelling is one method of highlighting a credence quality such as animal welfare. It also aims to improve the consumer’s knowledge of the product so that they can make better-informed decisions. However, if the labelling comes directly from the producer, who has all the information about production and will gain from any price premiums, consumers might be sceptical of the claim.

Producers can make their claims credible through two primary means (Cole and Harris 2003): making investments that consumers understand would be worthless if the producer is caught making false claims; or by using third party certification.

If the marginal cost of providing and signalling higher animal welfare standards exceeds the consumer benefit, consumers will not purchase. If community attitudes accurately reflect basic principles of animal welfare, market failure is unlikely. This would suggest that government has no role in providing labelling schemes. However, if community attitudes do not reflect basic principles of animal welfare due to a lack of unbiased information, then there may be a role for government to provide information standards.

At a basic level, governments already provide rules about truthful labelling through the Trade Practices Act and mirror State legislation. There may be ways to improve the monitoring of credence claims under this legislation (Cole and Harris, 2003).

An example of a labelling scheme that operates in a sustainable manner without government involvement is RSPCA labelling of barn-laid eggs. Demand from consumers with a preference for barn-laid eggs has led to the RSPCA-labelled product commanding a premium over eggs from caged production systems. Reputable labelling such as this, combined with monitoring by interested parties, removes some of the information asymmetry between producers and consumers.

The Commonwealth Department of Agriculture, Fisheries and Forestry Australia (DAFF) recommends that governments help to address labelling issues without being solely responsible. DAFF supports a uniform Australia-wide set of labelling standards developed jointly by government and industry in consultation with major animal welfare groups and other key stakeholders.

In terms of egg production, national standards would be a part of a national assurance program with provision for third-party auditing of egg producers for compliance with labelling standards, although it is not clear which group(s) would have the credibility to act as the third-party auditor. The Commonwealth prefers this option to the two extremes of legislation, which are compulsory labelling and industry self-regulation relying on market forces.

4.4 Information & Education

Information and education can be used to increase the awareness of all stakeholders on animal welfare issues, which in turn can minimise problems caused by information asymmetry between stakeholders. Information and education activities can be initiated and run by industry organisations, government, animal welfare groups or consumer groups for the purpose of eliminating some of the information asymmetry between producers and consumers, and between the government and consumers. For example, education may aim to tell consumers about farming and production practices, or it may aim to encourage producers to support and assist in the uptake of, and adherence to, legislation and codes of practice.

However, information and education can vary in impartiality. Such activities will generally reflect the beliefs of the group that is providing the information. This is sometimes referred to as ‘moral suasion’. For example, animal welfare groups use moral suasion (sometimes including highly graphic images) in lobbying for stronger animal welfare considerations. However, if the images depict conditions that are not typical of the industry, they will be misleading. Misleading information is another form of information asymmetry; in this example, members of the community cannot test the validity of information that is only accessible to the animal welfare groups.

Minimum welfare standards should reflect the desires of the community. Information and education may result in altering views and expectations, leading in turn to a gradual change in legislative requirements.

4.5 Further Research

Education and information initiatives rely on existing knowledge. Further research may be required to improve animal welfare in some areas, including identifying practices that might enhance animal welfare. Research could also contribute to the development of a scientifically established and more widely accepted understanding of animal welfare that would address information asymmetry problems.

Mulesing in the wool industry is an example of where further research could be beneficial. Mulesing is a surgical procedure used to remove wool-bearing skin from around the breech and tail area of lambs. As the cut area heals the skin stretches, providing a barer, less wrinkly area that gives the sheep lifetime protection against flystrike. Although the procedure causes lambs to bleed and experience some pain, this is outweighed by the suffering caused by flystrike. Until a more acceptable solution is found through research, mulesing is therefore recommended under the code of practice.

5. References

Bennett, R. M. (1997). Farm animal welfare and food policy. Food Policy, 22(4), 281-288.

Bennett, R. M. (1998). Measuring public support for animal welfare legislation: A case study of cage egg production. Animal Welfare, 7, 1-10.

Cole, A. and J. Harris (2003), “Credence attributes, ecolabelling and the role of government”, Economics Branch Working Paper, Department of Primary Industries, East Melbourne. (Available at: www.dpi.vic.gov.au/About Us/publications/economics and policy research branch publications/2003/working papers).

Cole, A. and J. Harris (2002), “Labelling might be the answer.... but what is the Question?”, DNRE Seminar Paper, Feruary. (Available at: www.dpi.vic.gov.au/About Us/publications/economics and policy research branch publications/2002/conference & seminar papers presented).