Analyzing the use of antibiotics in livestock

The FDA has released its latest annual report on use of antibiotics in raising livestock. As expected — at least by those of us with a skeptical bent — use increased over the reported period despite new regulations intended to curb it. Especially troubling is a 27 percent increase over three years in the use of cephalosporins, particularly important antibiotics against human infections.

As has been the case for decades, the concern is that using antibiotics at low levels to promote growth in meat animals fosters the development of strains of bacteria that are resistant to these drugs. Combined with over-prescription in humans, successive groups of once-vital drugs have become useless. The result is that antibiotic-resistant infections, including MRSA (Methicillin-resistant Staphylococcus aureus), are an increasing threat to human health.

From the point of view of a teacher, however, the problem affords great examples of important concepts in economics.

The first is the concept of external cost — that human disease is an external cost of feeding these drugs to livestock. This is a cost that is not born by the manufacturer of the product, nor by the farmers who buy the antibiotics. Nor is it necessarily experienced by the consumer who eats the meat. Such third-party harm to persons who have no say over either production or consumption of a good is exactly what economists mean by “external cost.”

This leads to a second point — that it is hard to come up with an alternative to direct government regulation as a means of dealing with the problem, despite the fantasies of some.

Milton Friedman was famous for advocating the abolition of the FDA, arguing that it inhibited the development of useful new drugs. Such delays in possible new cures, he said, caused greater harm than any reduction in unsafe or ineffective products. Market forces would be sufficient to remove bad products from the market just as they had put the kibosh on the Edsel and the Yugo. Consumers would see which drugs didn’t work or harmed other people and would buy alternatives that were manifestly safer and more effective.

This is an example of how a great scholar who was extremely insightful on some issues could be obtuse on others. His recommendation assumed a level of “perfect information” about drug safety and effectiveness by consumers that is manifestly lacking and that runs counter to historical experience.

Economic theory is clear that in such a case, efficiency suffers and society is worse off.

Moreover, Friedman’s theory ignores all external effects of unregulated drugs.

Even if consumers avoided buying ineffective antibiotics, farm use would develop resistance that would harm them. Such harm also makes an economy less efficient and is inequitable, since third parties are harmed through no action of their own.

However, skeptics are correct in pointing out that, even with regulation, widespread use of antibiotics in livestock has contributed to the loss of effectiveness of once useful drugs.

So why regulate?

This is an example of another economic phenomenon, one first identified by conservative economists and central to their arguments against regulation.

Farmers still legally feed antibiotics four decades after the problem of resistance development was identified because they, together with drug manufacturers, wield great influence in Congress.

Tighter controls on farm use of these products clearly would reduce the profits of manufacturers. And farmers think the same is true for themselves, though it is less certain in their case.

Together, they lobby Congress to curb tighter control by the FDA.

This abuse of political power to feather one’s own nest is what economists generically call “rent seeking.” This was laid out by Gordon Tullock at George Mason University and other “public choice” economists.

It is also an example of University of Maryland economist Mancur Olson’s “logic of collective action,” in which a very small group of people who each individually have much at stake overcome the best interests of millions of people, each of whom perceives that he or she has little at stake.

Farmers’ perceptions of their self-interest may not be correct.

Any individual farmer thinks, “If the FDA bans use of antibiotics, it will take me more time and more feed to achieve the same weight gain. My net income will drop.” But farmers in Europe use far lower quantities and survive.

And so, another economics concept: Farmers have fallen into a “fallacy of composition.”

Any individual producer would suffer if he alone were barred from using antibiotics in feed.

But, as introductory micro-economics students learn, as long as the restriction applies to all producers, market prices will adjust up and long-term profitability of the whole sector won’t suffer.

Consumers also reach false conclusions. Those aware of the link between livestock use and antibiotic resistance often condemn supposed greed on the part of manufacturers and farmers.

But in a competitive market — and the livestock sector is extremely competitive — most of the benefits of a cost-lowering technology like feeding antibiotics are passed along to consumers in the form of lower meat prices. So meat-consuming households capture most of the benefit, not just drug companies, farmers or meat processors. Stricter limits on feeding drugs would increase consumer meat prices more than lowering farm profits.

The final economic concept is that of “scale neutrality.” This refers to whether or not a particular technology or government policy affects all producers the same way or whether it affects small ones differently than large ones.

“Subtherapeutic” levels of antibiotics promote faster growth with less feed for reasons not fully understood, but that includes less spread of disease between animals. This is particularly true in capital-intensive, total-confinement systems in which livestock are crowded into buildings, or in feedlots where thousands of cattle are in close proximity even though in open air.

The large majority of meat animals are now produced under such conditions, and these contribute to lower consumer prices.

Such large facilities are more dependent on antibiotic use than smaller traditional ones in which animals have more space and access to outside air and natural light.

So antibiotic feeding, like many government programs for agriculture and indeed much government regulation of any type, is not “scale neutral.” It favors large operations over small ones and is a significant factor in the concentration of livestock production into many fewer and much larger installations over the past 50 years.

That plays right into creating Olson’s “collective action.” A smaller number of larger producers are much more likely to organize effectively to fight regulations than a larger number of small producers.

So while the FDA is tightening down incrementally, don’t expect U.S. use of antibiotics in feed to disappear soon. And thus don’t expect the problem of growing antibiotic resistance to abate either.

(By way of disclosure, I, like most other Minnesota farmers, used antibiotics in feed in raising cattle, hogs and sheep when I was farming in the 1970s. But I also was hospitalized with an infection requiring intravenous antibiotics after my cancer treatments and a close relative had a MRSA infection. So I know both sides of the problem.)

St. Paul economist and writer Edward