Professor Galina Hale Examines Proposition 12 Through an Economic Lens

In November 2018, the state of California passed, with 62.7% of the vote, Proposition 12, which bans the sale in California of eggs, veal, and whole uncooked pork from animals confined below minimum space standards, no matter where the animals were raised. For breeding pigs, this means at least 24 square feet per sow and no gestation crates [1, 2]. Its pork provisions were set to take effect on January 1, 2022, but a state court delayed enforcement until July 1, 2023 (with full enforcement from January 1, 2024). Even before that, it was challenged in federal court in December 2019 by the National Pork Producers Council (NPPC) and the American Farm Bureau Federation on the basis that it violated the dormant Commerce Clause of the U.S. Constitution by regulating farming beyond California’s borders [3].

The Supreme Court of the U.S. decided to hear the case after a U.S. District Court and a U.S. appeals court rejected the claims of NPPC and its co-plaintiffs. In May 2023, the Court ruled on behalf of the State of California [4]. In a plain misreading of the rulings, the NPPC and its allies have claimed that the Court told Congress to fix Prop 12. On that point, the court said that the NPPC and other Prop 12 opponents are “free to petition Congress to intervene” [4], as any interest group is. In 2025, the Supreme Court also declined to hear a follow-up challenge brought by the Iowa Pork Producers Association [5].

What were the alleged issues and why is Prop 12 so controversial particularly among pork conglomerates and the bodies that represent them?

Before we dive into the details, let’s focus on the pork portion of Prop 12. The reason for this is the fact that California produces less than 1% of the pork it consumes (by the industry’s own count, 99.87% of the pork eaten in California comes from hogs born outside the state) [6] and therefore the NPPC saw this as an opportunity to challenge Prop 12 based on its potential effects on other states.

Now let’s get to some business and economic motives of the NPPC and the industry it represents. The pork industry has been undergoing a rapid concentration. The four largest packers processed 34% of U.S. hogs in 1980 but 67% by 2019 [7]. On the farm side, the number of farms with hogs fell by 13% between 2017 and 2022 alone, to about 56,000, while operations with 5,000 or more hogs now hold 75% of the national inventory, up from 53% in 2002 [8]. Large concentration allows for a larger production scale therefore lowering costs of production. However, the economies of scale critically rely on uniform output and streamlined supply chain. Thus, setting aside the impact of Prop 12 on the at-the-farm production costs, it creates heterogeneity of the product across states, thus putting a limit on how large the scale of production can grow.

Is this heterogeneity good or bad? Well, it is bad if you want to increase the market power of large producers, which can lead to lower production costs without affecting consumer prices, thus increasing profit margins. So, it is bad for the shareholders and executives of these companies. But it is not necessarily bad for consumers because these cost savings are not going to be necessarily passed on to consumers. Farmers today receive only about 24 cents of each retail pork dollar [9], down from 44–50 cents in the early-to-mid 1980s, before the industry consolidated [30], compared with more than half of each retail beef dollar [10].

Now who are “these companies”? The largest U.S. pork packers are Smithfield Foods (about 25% of U.S. pork packing), JBS USA (about 18%), and Tyson Foods (about 16%), followed by Clemens, Hormel, Seaboard/Triumph and others [13]. Two of the three largest are foreign-owned: Smithfield by China’s WH Group, and JBS by Brazil’s JBS [10, 15].

It is somewhat ironic, then, that NPPC President Lori Stevermer complains that “California Proposition 12 reaches far beyond California to include farmers in other states – and even other countries” [14]. Even Smithfield, the most vertically integrated of the packers, now plans to raise on its own farms only enough hogs to cover about 30% of its fresh pork needs [15]. The rest is supplied by independent farmers and contract growers that do not have much of a market power.

Nationally, about 40% of market hogs were packer-owned in 2023, and 52% of U.S. hog inventory was raised under production contracts [16], in which the grower is paid a fee per animal or per pig space rather than a market price for the hogs. When the industry is more concentrated, the buyers of the product have more market power than the producers, because producers do not really have a choice of who to sell their products to. So, what is the impact of Prop 12 on the farmers that grow pigs?

A friend of mine who is raising pigs in the East Coast said that it cost him about $3,000 of one-time investment per sow to convert his farm to be Prop-12-compliant. That is below the $3,500–$4,500 per sow that the industry and Agriculture Secretary Brooke Rollins cite [17]. A prominent Pennsylvania farmer who converted his barns, Brent Hershey, estimates that once spread over the 20-year life of a building, the cost adds only 1–2% to production costs [18]. Moreover, with more space and no gestational confinement, my friend’s sows started to produce more piglets per litter. Thus, over time, the conversion cost paid for itself. In addition, farmers are able to receive a higher price for their hogs when they are Prop-12-compliant: USDA economists estimate the price premium at about $5.50 per hundredweight on average in the first months of enforcement, roughly 7-8% above the base hog price, ranging between $5 and $7 [19].

Another friend built a whole new farm in Missouri, making a large investment to construct a new Prop-12-compliant facility. They did that because they were not able to make profit for conventional pork given the prices the buyers were offering them. Even accounting for the construction costs, they are making more money on Prop-12-compliant pork because they are able to sell it at a higher price. Another friend has a free-range farm in South Carolina, automatically compliant with Prop 12. During early months of COVID when supply chains broke down, they were the main source of animal products in their town. They like Prop 12 because it allows them to sell their products at higher prices that recognizes their premium quality and better treatment of animals.

Importantly, no farmers were forced to convert to compliant farming, contrary to the claim of the NPPC and allies, that Prop 12 tells farmers how to farm. About 27% of U.S. producers have made or are pursuing investments to comply [17]; most have not. California accounts for only about 8–9% of U.S. retail pork purchases [20], and supplying it requires only about 8–9% of North American sows [21]. Pork industry representatives have acknowledged that production has adjusted sufficiently to meet Prop 12 demand without requiring other farmers to convert. Farmers that did not see conversion as profitable to them, did not have to convert and could continue selling at the volumes they had before, to be distributed in other states. Indeed, U.S. commercial pork production did not shrink: it reached 27.8 billion pounds in 2024, the first year of full enforcement, and was forecast to grow further in 2025 [22].

There was no shortage, but prices did go up in California. USDA economists found that prices of pork products covered by Prop 12 in CA were on average about 26% higher after July 2023 than before Prop 12 enforcement began, ranging from 17% for ribs to 47% for pork loin [21], and industry scanner data show them still about 20% above pre-Prop 12 levels in mid-2025 [17].

This seems like a lot, but can it be attributed to Prop 12? Given that we had inflation across the country and all goods in recent years, we need something to compare it to. Let’s compare it to beef. Over the same time period, price of beef in CA increased by 26-29% [BLS].

So, there was a relative increase in pork prices in CA, and Californians bought about 21% less of the covered cuts [20], but it was not out of line with what happened to other meats. Three years after enforcement began, there was no market disruption, and, most importantly, there was no surprise for California voters. The official 2018 voter guide warned that Prop 12 would likely increase prices for eggs, pork, and veal [2], yet CA voters, by a margin of 25 percentage points (about 3 million votes), showed that they are willing to pay extra for a more humane treatment of animals [1].

What about other states? If less pork is sold in CA because it has become more expensive, it means more pork is available for other states, compliant or not. This would lead to lower, not higher prices for consumers. In fact, nationwide, pork prices increased by much less than beef prices: less than 7% versus about 30% since June 2023 [24], and USDA forecasts pork prices to rise less than 1% in 2026, compared with nearly 10% for beef [26].

While the pork industry is the one that has made CA Prop 12 a subject of national news, the provisions of the initiative were not limited to pork products. Responding to the ban on extreme confinement and overall consumer demand trends, other animal-agriculture sectors have also been transitioning toward less restrictive housing, with half of U.S. egg production now cage-free, compared to just 9.6% in 2012, and the veal industry having moved its members to group housing. Notably, the egg and veal industries have not joined the pork industry’s repeatedly unsuccessful efforts to overturn Prop 12.

Bottom line, consumers should have a right to have a say in how their food is produced. State laws and regulations, as a matter of democratic action, should reflect consumers’ preferences. It is very important that states have these rights. In fact, heterogeneity of rules across states (the “patchwork”) is actually keeping industrial organization of the supply chain healthy and competitive, not monopolized by a small number of very large producers. Small businesses are and always have been the engine of economic growth and they don’t need subsidies or handouts from the government, but they do need anti-trust protections to stop the anti-competitive practices of multi-national conglomerates. Every small firm starts with addressing a niche market and some grow to become global giants but most don’t. Prop 12 slows down the concentration of pork production in the U.S. and it has potential to reduce profit growth for a handful of companies, but it benefits small farmers, consumers, small and large companies, and of course animals.