September 15 2017

Estimating the economic impact of cattle slaughter ban

Summary

Historically, India has had laws governing the slaughter of cattle which varied from state to state. Some states imposed heavy punishment on flouting the ban while most of the north-eastern states allowed the slaughter of all types of cattle (cows, buffaloes, bullocks etc.). However, recently the Ministry of Environment under the Central government has laid down new rules under the Prevention of Cruelty to Animals (PCA) act (1960) pertaining to the slaughtering of cattle in India. As per the new rules, the definition of cattle has also been expanded to include bulls, bullocks, cows, buffaloes and even camels and the rules point to a nation-wide ban on the sale of cattle for slaughter.

The agenda of protection of cattle via a flat-out ban on slaughter will not only cripple the meat and leather industries but will worsen the situation of the farmers. The farmers will face double brunt in terms of reduction in profits due to the ban on the sale of cattle for slaughter even if it is unproductive, and increased cost burden for maintaining unproductive cattle. This may also result in a reduction in the new buyers of cattle. In addition, the flat-out ban will breed underground economy, illegal trade and slaughter of cattle, thereby defeating the very aim the policy envisaged to achieve.

Further, this social policy is expected to have huge economic cost in terms of loss of output and employment in meat and leather industry. Assuming the ban persists long-enough and results in a 40% loss in output of meat and leather industry combined, then the ban has a potential to cost the nation around 1% of Gross Value Added (GVA) of 2016-17.

The cattle slaughter ban

Recently, the Government of India put a nation-wide ban on the slaughter of cattle. The official notification dated 23rd May 2017, lays out new rules called “Prevention of Cruelty to Animals (Regulation of Livestock Markets) Rules 2017, under the Prevention of Cruelty to Animals Act, 1960. The official document stated, “No person can sell the cattle for slaughter and it can be bought only for agricultural and dairy purposes”.

As per the new rules, the word “cattle” means a bovine animal including bulls, bullocks, cows, buffaloes, heifers, calves as well as camels.  As per the government, the new rules are aimed at removing the illegal sale and cross-border smuggling of cattle. The total no. of cattle in the country as per 2012 census is 1.9 billion, contributing around 37.28% to the livestock population.

Economic cost to social policy

We (IMA) believe the policy of putting a ban on cattle slaughter (not just a beef ban, as is being popularised) will have serious economic ramifications and may also defeat the sole purpose of the new rules. Firstly, the new rules may prove detrimental to the industries which use cattle as an input. Such industries include Meat industries (buffalo meat as input) and leather industries (use raw hide and skin of the cattle as input).

The meat industry in India is the 5th largest meat producing industry in the world and employs around 2.5 million people. It accounts for 3% of the total world meat production of 220 million tonnes [Source: APEDA, Chapter2-India’s Meat Industry]. Meat production in India relies heavily on large livestock population in India.

The meat products produced, processed and exported in the country include canned luncheon meat, canned cooked ham, canned chopped meat, canned chicken, canned mutton & goat meat, frozen mutton, chicken, goat and buffalo meat.

As per Agricultural and Processed Food Products Export Development Authority (APEDA), which regulates export of agricultural processed food products (including meat and meat products); the main types of Meat being exported from India are (1) Buffalo Meat, (2) Sheep & Goat Meat, (3) Processed Meat and (4) Poultry Meat.

As per the official figures, during April-March of FY17, meat industry exported over USD 3.64 billion worth of edible meat. Also, India is touted as the largest exporter of meat by volume. (1.35 million tonnes during FY17).

Note: The years represent the fiscal years, 2016 refers to the period April 2016-March 2017.

An important point to be noted is that India does not officially export the meat of cows. (Against the export policy of India) The so-called “beef” that it exports is buffalo meat, which is also known as “carabeef”. The buffalo meat exported by India is mostly raw, de-boned chunks and is primarily used in the processed and canned food industry. Only a minuscule portion of it is used for direct consumption by individuals as carabeef is tougher and considered inferior to cow meat.

Additionally, the leather industry is one of India’s oldest manufacturing industries. It catered to the international markets and has been a major contributor to export earnings. The leather industry in India has witnessed robust growth in the past few years, transforming from a raw material supplier to one of the largest exporters in the world. The major markets for Indian leather products are US, Germany, UK, Spain, France, Italy, UAE the Netherlands and Australia.

The Indian leather industry accounts for around 12.9 % of the world’s leather production of hides/skins. The country ranks second in terms of footwear and leather garments production in the world and accounts for 9 per cent of the world’s footwear production.

Globally, India is touted as the 2nd largest producer of Footwear and 2nd largest exporter of Leather Garments after Italy. During April 2016-March 2017, Indian leather industry exported around USD 5.49 billion of leather & leather products (incl. raw hides and skins).

Note: The years represent the fiscal years, 2016 refers to the period April 2016-March 2017. 

 

During April-March 2016-17, leather and meat exports contributed around 3.7% to the total export earnings of India, so a flat out ban on slaughter will result in a significant amount of loss in these export earnings.

Also, during 2015-16 the meat group (Rs.1.21 trillion) contributed around 20% to the output of the livestock sector. (Source: MOSPI).  Assuming the meat output grew at 3.8% (similar to the growth in 2015-16), so the meat output in 2016-17 can be valued at Rs.1.25 trillion (USD 19.5 billion, assuming an exchange rate of Rs.64/$). The leather industry in 2015-16 was valued at USD 17.8 billion. (Make in India-Leather Industry Achievement report, a 37.3% growth in 2015-16). Assuming the similar growth in 2016-17, the value of leather sector output can be seen at USD 24.5 billion.

So, together leather sector and meat sector can be roughly valued at USD 44 billion. Now, assuming a nation-wide cattle slaughter ban causes a 40% decline in the output of both industries. Thus, the country may lose around USD 17.6 billion as output during 2017-18. This is roughly equivalent to 1% of GVA of 2016-17.  

Furthermore, the leather industry is highly labor intensive and employs around 3 million people. Also, the economic survey 2016-17 stated “Apparel and Leather industry key to the generation of formal and productive jobs”. So a cattle slaughter ban may affect the employment situation in the industry, following the revenue woes the industry may face in future.

The worsening of the employment situation in these will add to the persisting jobless growth situation in India. So, in terms of economic losses the slaughter ban along with appreciating rupee (appreciating about 5.3% since January 2017) may result in shrinking of export earnings and deterioration in the employment situation.

Just to exemplify the impact on exports of buffalo meat due to the recent strike by slaughter houses in Uttar Pradesh ( the largest buffalo meat producer state in India), exports of buffalo meat in April 2017 fell by 34% month-on-month (MoM) to 86,119 tonnes.

Farmers’ plight

Apart from serious threat to export revenues and employment, the farmers who own livestock will lose out on two fronts:  Income from selling livestock as meat and increased cost burden due to the maintenance of unproductive cattle. This will render livestock farming no longer profitable. Further, since the livestock that arrives at the animal market is mostly unproductive, such a ban will only create a loss-loss situation.

Problem misconstrued

Considering the aim of the new rules, intending to stop cross-border smuggling and illegal trade of cattle is not just bad politics but bad economics as well. Any kind of flat out ban breeds an underground economy. Ill-legal slaughtering is already rampant and a ban will make the animal market more difficult to operate, thus defeating the very purpose of the new regulations.

Also, even if the government wants to remove traders from the market and want to encourage buying of livestock from farmers, ban nowhere seems to be a logical step. To link farmers directly to the animal market and remove the presence of middlemen/traders, proper economic incentives and a well-functioning mechanism should be put in place to ensure this.

To weed out other problems persisting in animal trade, the government needs to move towards better regulation of animal markets, checking for the health of the animals being sold for slaughter and better infrastructure for storage of meat. Additionally, enhanced security at borders and stricter punishment would help in keeping a check on cross border smuggling of cattle. The government has claimed that the new rules are aimed at preventing unregulated animal trade and not food choices per se, but the insurgency of cow vigilantism and a flat out-ban policy suggests otherwise.