person has already entered a house on another farm. Also, visitors may
be banned from entering poultry houses altogether.
    Contaminated equipment can also spread SE on a farm. One way to
mitigate this problem is to ensure that equipment that is used in
multiple houses (such as forklifts and manure removing equipment) is
kept clean.
    The hygiene of persons moving between houses affects the likelihood
of cross-contamination. To protect against cross-contamination, farms
may require that employees and visitors use footbaths, change their
clothing, or use protective clothing when on the farm. Farms also may
choose to require that their employees work on only one farm site on a
given day. Although it is impossible to predict what measures each farm
will take to guarantee the hygiene of persons moving between houses,
for the purposes of calculating the costs of this provision, discussed
in detail in the following paragraphs, we assume that farms will use
footbaths and have visitors wear protective clothing.
    Stray poultry, wild birds, cats, and other animals must also be
prevented from entering the farm's poultry houses. This may be done by
keeping grass and weeds cut, minimizing the existence of standing pools
of water near poultry houses, repairing holes on poultry houses, and
keeping doors closed on poultry houses.
    Finally, biosecurity precludes employees of the farm from keeping
any birds as domestic animals at home.
    viii. Current industry practices; biosecurity. Most farms already
practice some form of biosecurity.\34\ Roughly 68.1 percent of farms do
not allow nonbusiness visitors and 22.1 percent do not allow business
visitors into poultry houses. Of those that do allow visitors to enter,
65.6 percent have biosecurity rules for nonbusiness visitors and 69.5
percent have biosecurity rules for business visitors.
---------------------------------------------------------------------------

    \34\ All data in this section are from the Layers study (Refs.
27 and 28).
---------------------------------------------------------------------------

    Farms use different methods to keep employee, contract crew, and
visitor hygiene at an acceptable level. The Layers study estimates that
24.5 to 24.6 percent use footbaths, 3.9 to 4.8 percent require showers
to be taken, and 17.6 to 32.0 percent require persons to change clothes
or wear coveralls.
    Many farms use biosecurity measures aimed at keeping stray poultry,
birds, and other animals away from the poultry houses. While data on
the number of farms that trim grass and discourage standing pools of
water are not available, the Layers study did estimate that fencing is
currently used at 26.7 percent of farms.
    Finally, 75.7 percent of farms do not allow employees to keep their
own layers at home.
    ix. Costs of biosecurity. It is difficult to quantify many of the
costs of biosecurity. This is especially true because the biosecurity
measures may be implemented in different ways, allowing each farm to
adapt the measures to their operation, as appropriate. However, a few
of the costs can be quantified.
    First, the cost of restricting visitors can be estimated as the
cost of monitoring and providing protective clothing to visitors who
are allowed on the farm. The cost of monitoring visitors includes the
cost of posting signs asking visitors to check in, the cost of having
visitors sign in, and the cost of accompanying visitors around the
farm. One estimate of protective clothing found costs of $102.75 for a
box of 25 disposable coveralls and $112.97 for a box of 200 plastic
shoe covers (Ref. 88). Because farms will choose to implement this part
of biosecurity in different ways, it is impossible to determine what
the actual cost will be.
    The cost of cleaning contaminated equipment is uncertain because we
do not know how individual farmers will

choose to do this. We assume that the amount of equipment that needs to
be kept clean increases linearly with the number of houses on a farm.
In particular, we assume that a farm with two houses requires 1 hour of
cleaning per week, a farm with three houses requires 2 hours, and so
on. Using data from the Layers study, we find that the average farm
will devote 69 labor hours annually to cleaning equipment. At a labor
rate of $9.56 per hour (Ref. 89), plus 50 percent to include overhead
costs, the total expected labor cost of this provision is $990 per
farm, or $3.3 million for all affected farms.
    The cost of chlorine footbaths also can be estimated. We calculate
the cost of a footbath as the sum of the cost of the plastic vessel,
the cost of bleach, and the cost of the labor needed to fill footbaths.
We estimate the total cost per house to be $360 per year.\35\ Because
only 24.6 percent of houses currently use footbaths, the total annual
cost of footbaths is estimated to be (100 - 24.6 percent) x 7,359
houses x $360 per house = $2.0 million.
---------------------------------------------------------------------------

    \35\ This estimate is based on the following assumptions: (1)
The plastic vessel costs $5 and is replaced annually; (2) bleach
costs $1 a gallon; a gallon is used per footbath, and it is changed
once a week; (3) there are two footbaths per house; (4) labor costs
$9.56 an hour (Ref. 89) plus 50 percent to include overhead; and (5)
changing the bleach-water mixture takes 10 minutes. The estimate in
the text is calculated as 2 x [($5 x 1) + ($1 x 52) + ($14.34 x
0.167 x 52)] = $360 per year.
---------------------------------------------------------------------------

    Finally, the cost of preventing stray poultry, wild birds, cats and
other animals from entering poultry houses already is accounted for
under rodent and other pest control costs. The estimated cost for a
complete rodent and other pest control program includes all biosecurity
measures that contribute to rodent and other pest control.
    The total measured costs of biosecurity provisions are $5.3 million
for affected farms.
    x. Benefits of biosecurity. The importance of biosecurity in the
reduction of disease transmission is well established.\36\ For example,
the Layers study (Ref. 29) estimates that farms allowing nonbusiness
visitors onsite are five times more likely to test positive for SE than
farms that ban such visitors. Farms allowing nonbusiness visitors have
a prevalence of SE of 17.0 percent while farms that do not only have an
SE prevalence of 3.6 percent. We include the benefits from biosecurity
with those of rodent control, because the practices and effects are
highly correlated and cannot be estimated separately.
---------------------------------------------------------------------------

    \36\ A number of State extension services have written
extensively about the importance of biosecurity (Refs. 79, 80, and
90).
---------------------------------------------------------------------------

    xi. Cleaning and disinfecting provisions. Specific cleaning and
disinfecting provisions include the removal of all visible manure, and
a dry clean and disinfection of the house.
    xii. Current industry practices; cleaning and disinfecting. To a
large extent the layer industry already performs adequate cleaning and
disinfecting procedures. For larger houses, the Layers study (Refs. 27
and 28) estimates that, every year or two, manure is removed from 100
percent of houses, 80.5 percent of houses are dry cleaned annually,
53.6 percent of houses are wet cleaned annually, and 65.1 percent of
houses are disinfected. The prevalence of these practices on affected
farms is illustrated in table 13 of this document.

                              Table 13--Current Cleaning and Disinfecting Practices
----------------------------------------------------------------------------------------------------------------
                                                      Manure
                                                    removal (%)    Dry clean (%)   Wet clean (%)   Disinfect (%)
----------------------------------------------------------------------------------------------------------------
Between each flock (cleaned annually)...........            96.6            79.4            30.6            44.5
After two or more flocks (cleaned occasionally).             3.4             1.1              23            20.6
Never...........................................               0            19.5            46.4            34.9
----------------------------------------------------------------------------------------------------------------

    xiii. Costs of cleaning and disinfecting. The cost of cleaning and
disinfecting houses is illustrated in table 14 of this document. For
each component of cleaning and disinfecting, we estimate the annual
cost as the number of houses that this provision will affect each year
times the cost per house. We calculate the number of houses affected as
the product of the percent of houses not using a practice (100 minus
the percent using the practice in table 14 of this document), the
probability of a positive flock, and the number of affected houses
(7,359, calculated from data in table 6 of this document).

                      Table 14--Cost of Cleaning and Disinfecting Houses on Affected Farms
----------------------------------------------------------------------------------------------------------------
                                                  Probability of
                                   Houses using     a positive       Number of                        Cost to
                                   practice (%)    environmental      houses      Cost per house     industry
                                                     test (%)        affected
----------------------------------------------------------------------------------------------------------------
Dry clean.......................            79.8             8.4             125          $1,200        $130,300
Disinfect.......................            51.4             8.4             300             600         152,300
                                 -------------------------------------------------------------------------------
    Total cost..................  ..............  ..............  ..............  ..............         282,600
----------------------------------------------------------------------------------------------------------------

    The percentages of houses engaged in the different cleaning and
disinfecting practices (the first column of numbers in table 14 of this
document) is based on the first two rows of table 13 of this document.
In table 14 we calculate the percent as follows:
    CA + (CO x PC), where

CA is the percent of farms that are cleaned and disinfected
annually, (see table 13 of this document)
CO is the percent of farms that are cleaned and disinfected
occasionally, (see table 13), and
PC is the probability that a farm that is cleaned occasionally would
have been cleaned in a year that it had a positive environmental
test. We assume that PC is distributed uniformly between 0 and
0.667, with a mean value of 0.333.

    The per-house cost for each component is taken from Morales and
McDowell (Ref. 91) and is converted to year 2005 constant dollars using
the GDP deflator. We assume that the true

cost of each component is distributed uniformly between the low and the
high estimates given.
    xiv. Benefits of Cleaning and Disinfecting. Cleaning and
disinfecting is another tool that may decrease or eliminate SE in an
infected house. Schlosser et al. estimate that cleaning and
disinfecting a house reduces by 50 percent the probability that a
previously infected house will test positive (Ref. 92). Because they do
not address cross-contamination, the 50 percent reduction is likely to
be an overestimate of the actual efficacy of cleaning and disinfecting.
Furthermore, the same study estimates that 28 percent of negative
houses tested positive after cleaning and disinfecting.
    The Layers study (Ref. 29) finds that farms that are cleaned and
disinfected are less likely to be contaminated with SE. No surveyed
farms that performed washes of houses between flocks were found to be
positive. By contrast, houses that neither wash nor fumigate between
flocks had SE prevalence rates of 12.2 percent. These results suggest
that cleaning and disinfecting a layer house is negatively correlated
with SE prevalence. However, because the practices and effects of
cleaning and disinfecting are highly correlated with rodent control we
do not estimate the benefits separately.
    xv. Total and net benefits of rodent and other pest control
programs, biosecurity, and cleaning and disinfecting. The total annual
cost for all three provisions is $28.1 million.
    As discussed in detail under rodent control, the benefits of these
provisions are highly correlated. The data attributing a correlation
between any one practice and a decrease in SE prevalence is probably
overstating the effect because, for instance, farms with a good
biosecurity system tend to have good rodent and other pest control
programs. In order to avoid the double counting of benefits, we use
only the benefits estimated for rodent control as a proxy for the
benefits of all three provisions implemented correctly. Therefore all
three provisions implemented together are estimated to reduce the
number of SE related illnesses every year by nearly 39,000 for total
estimated annual benefits of more than $697.3 million. The provisions
would cost about $690 per illness averted and have net benefits of
about $675.9 million.
    If we account for estimated reductions in SE prevalence due to the
chick and pullet provisions (an estimated decrease of 0.23 percent,
discussed in detail in section V.F.1.i), occurring earlier in the
production cycle, these three provisions would prevent about 90 less
illnesses than they would standing alone ((1-0.0023) x 39,000
illnesses). Costs would only decrease slightly, as cleaning and
disinfecting costs are the only ones that are a function of SE
prevalence. In place with the other provisions of the final rule, these
three provisions will cost about $700 per illness averted and have net
benefits of about $674.3 million.
    d. Refrigeration.--i. Refrigeration provisions. This rule requires
that shell eggs being held or transported must be refrigerated at or
below 45 [deg]F ambient temperature beginning 36 hours after time of
lay.
    ii. Current industry practices; refrigeration. Because eggs packed
on the farm do not have to be transported to a packing plant, we assume
that eggs on these farms are packed for sale within 36 hours of lay.
Accordingly, we assume that this provision would impose additional
costs only on those farms that do not pack their eggs for the ultimate
consumer, are currently storing their eggs for longer than 36 hours,
and currently do not refrigerate their eggs at an ambient temperature
at or below 45 [deg]F, either on-farm, during shipment, or during
holding before shell egg processing or entering egg products
facilities. We use data from the Layers study (Refs. 27 and 28), shown
in table 15 of this document, to determine the percentage of farms
affected by the on-farm storage temperature requirements.

                    Table 15--Farms Affected by On-Farm Egg Storage Temperature Requirements
----------------------------------------------------------------------------------------------------------------
                                                                 Stored
                                                 Packed  off- longer than   Temp >  45   Percent of   Number of
          Farm size (number of layers)            farm  (%)     36 hours   [deg]F  (%)     farms        farms
                                                                  (%)                     affected     affected
----------------------------------------------------------------------------------------------------------------
3,000 to 19,999................................         98.3         98.2         78.1         75.4        1,317
20,000 to 49,999...............................         96.3          100         75.8         73.0          675
50,000 to 99,999...............................         83.1         83.4         92.1         63.8          158
100,000 or more................................         65.6           75         72.6         35.7          146
                                                ----------------------------------------------------------------
    Total......................................         81.2         87.3         81.2         57.6        2,296
----------------------------------------------------------------------------------------------------------------

    The first three columns of table 15 of this document are taken
directly from data collected for the Layers study. The percentage of
farms affected (fourth column) is the product of multiplying the first
three columns. The number of farms affected (final column) is estimated
by multiplying the percent of farms affected by this provision by the
total number of farms covered by the provision.
    Due to current rules on refrigeration, most farms currently ship
eggs from the farm in refrigerated freight at 45 [deg]F, even though
they are not required to do so until the eggs have been packaged or
further processed.\37\ Farms with more than 10,000 layers are likely to
be currently in compliance with this provision. Some smaller farms,
those with 10,000 layers or less, which account for roughly 5 percent
of current egg production, may be out of compliance. It is unlikely
that even the smallest farms that are currently refrigerating eggs
onsite would ship eggs on unrefrigerated trucks. As a high estimate of
the costs of this provision, FDA assumes that producers with 10,000
layers or less, who are currently not in compliance with the on-farm
refrigeration part of this provision (all farms with less than 3,000
layers and 75.4 percent of farms with between 3,000 and 20,000 layers)
\38\ are not in compliance with the refrigerated shipping requirement.
---------------------------------------------------------------------------

    \37\ Current industry practices and the costs of egg
transportation are based on information gained from telephone
conversations between FDA, an egg processor, and a shipper.
    \38\ See table 16 of this document.
---------------------------------------------------------------------------

    There are 514 producers, packers, and grading stations that will be
affected by this provision (Ref. 93). While the majority of eggs in the
United States are processed within 2 to 3 days, some cases arise where
eggs are held longer. Seasonal fluctuations in demand or within
industry egg trading, at times causes eggs to be held for more than 36

hours between lay and processing \39\ (Ref. 94).
---------------------------------------------------------------------------

    \39\ Within industry egg trading refers to trading between firms
to meet unexpected demand or get rid of excess supply.
---------------------------------------------------------------------------

    There is currently no regulation requiring a specific temperature
for preprocessed eggs. Eggs are typically held between 55 and 60 [deg]F
(Ref. 94). FDA believes most producers will have to decrease the
holding temperature for their eggs.
    iii. Cost of on-farm refrigeration.\40\ The refrigeration provision
will cause producers to choose to perform one of the following tasks:
(1) Turn down the thermostats in their coolers, (2) install new
refrigeration, or (3) renegotiate their shipping contracts to require
more frequent pickup of unpacked eggs. In addition, producers that do
not currently ship in refrigerated freight will need to do so.
Furthermore, producers, packers, and egg grading stations will have to
refrigerate eggs at no more than 45 [deg]F if they hold the eggs for
more than 36 hours prior to processing.
---------------------------------------------------------------------------

    \40\ All cost estimates regarding on farm storage are from data
supplied to FDA through a contract with the Research Triangle
Institute. Derivation of estimates is more fully described in a
memorandum to the record (Ref. 95).
---------------------------------------------------------------------------

    In table 15 of this document, we estimate that almost 2,300 farms
do not meet the on-farm standards set by the refrigeration provision.
Of these farms, some are currently using refrigeration, albeit at
higher temperatures than the provision would permit. Others do not have
any refrigeration installed on their farms. We assume that those farms
that report storing their eggs between 45 and 60 [deg]F already have
refrigeration installed. For these farms, the cost of complying with
the refrigeration provision is the cost of increasing electricity usage
to further cool their eggs. For farms that store their eggs at a
temperature greater than or equal to 60 [deg]F, we assume that no
refrigeration is currently installed. The cost to these farms includes
the cost of installing an insulated egg room with refrigeration units.
    In table 16 of this document, we use data from the Layers study to
determine how many farms will have to install refrigeration and how
many will only have to reduce the temperatures in their egg rooms. The
majority of smaller farms lack refrigeration facilities, while larger
farms are more likely to use refrigeration at an inadequate level.
    The cost of this provision to farms that are using refrigeration at
an inadequate level is assumed to be the cost of increased energy
usage.\41\ If temperatures in egg rooms on these farms are uniformly
distributed between 45 and 60 [deg]F, the average reduction in
temperature is 7.5 [deg]F. If the electricity rate is $0.057 per
kilowatt-hour (Ref. 96), farms will spend between about $130 for farms
with between 3,000 and 20,000 layers to a little over $1,400 for farms
with more than 100,000 layers. These estimates are based on the
assumption that refrigeration must be run 18 hours a day to achieve the
45 [deg]F mark, while it must be run 15 hours a day to achieve the 60
[deg]F mark. We estimate that the average farm with 20,000 to 50,000
layers would need to run one 5-horsepower refrigeration unit and one 1-
horsepower unit to sufficiently cool its egg room. A 5-horsepower unit
uses 4.83 kilowatt hours per hour of operation, while a 1-horsepower
unit only uses 1.73 kilowatt hours. Therefore, the cost of cooling to
60 [deg]F is about $168 per month, or about $2,020 per year.\42\ The
cost of cooling to 45 [deg]F is about $202 per month, or about $2,420
per year.\43\ The resulting cost of decreasing the ambient temperature
in the egg cooler by 15 [deg]F is approximately $400. Using a linear
relationship between refrigeration and cost gives us an estimate of
approximately $200 for a 7.5 [deg]F reduction.\44\
---------------------------------------------------------------------------

    \41\ We recognize that some of these farms may require
additional refrigeration units to achieve the 45 [deg]F threshold.
However, because we do not currently have information that allows us
to estimate how many farms fall into this category, we assume that
the only cost facing farms that use an inadequate level of
refrigeration will be the cost of increased energy usage. As such,
actual refrigeration costs will be higher than estimated. As most
farms currently using refrigeration will simply have to increase
their energy usage, we believe the difference between actual costs
and costs estimated using energy usage as a proxy is small.
Furthermore the underestimate will be at least somewhat offset by
the use of newer, more efficient equipment, and overestimates in
other parts of this calculation (see footnote 44 of this document).
    \42\ (4.83 + 1.73) kilowatt hours used per hour x 15 hours of
operation x $0.057 per kilowatt hour used x 30 days.
    \43\ (4.83 + 1.73) kilowatt hours used per hour x 18 hours of
operation per day x $0.057 per kilowatt hour x 30 days.
    \44\ In actuality, the relationship between refrigeration and
cost is increasing at an increasing rate, so that our use of a
linear relationship somewhat overstates the cost of lowering
refrigeration temperatures.

                                              Table 16--Annual Cost of On-Farm Refrigerating Affected Farms
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         No refrigeration                    Inadequate refrigeration       Total cost  (in thousands)
                                         ---------------------------------------------------------------------------------------------------------------
      Farm size (number of layers)                         Cost per farm   Cost per farm
                                              Number       (7% discount    (3% discount       Number       Cost per farm   (7% discount    (3% discount
                                                               rate)           rate)                                           rate)           rate)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3,000 to 19,999.........................             720          $6,979          $5,074             597            $128          $5,102          $3,730
20,000 to 49,999........................             201          13,793           9,779             474             203           2,868           2,062
50,000 to 99,999........................              65          26,359          18,500              93             352           1,746           1,235
100,000 or more.........................              32         112,681          78,595             114           1,413           3,767           2,676
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The fixed cost of new refrigeration includes the cost of
constructing an egg room, insulating that room, and installing
refrigeration units. Storage rooms and their insulation are assumed to
last 30 years. Refrigeration units last from 10 to 20 years. Using
these values, along with a 7 percent discount rate, we estimate that
the annualized cost of installing new refrigeration would be about
$1,300 for a farm with 20,000 to 50,000 layers.
    The cost of constructing an egg room equals the number of square
feet required times the construction cost per square foot. The number
of square feet required is estimated as the number of square feet
required per 1,000 dozen eggs (294 square feet) times the number of
eggs produced in a 24-hour period (1,700 dozen eggs) times the number
of days the eggs are expected to be stored (about 4 days). The average
cost of construction per square foot has been estimated to be between
$50 and $75. Therefore, for the average farm with 20,000 to 50,000
layers the cost of construction is $125,000. The amortized cost over 30
years at 7 percent is approximately $10,050.
    The cost of insulating an egg room equals the number of square feet
to be covered times the insulation cost per square foot. Insulation
costs $13.38 for a 32 square foot sheet. For a farm with 20,000 to
50,000 layers requiring 3,670

square feet of insulation, the expected cost of insulation is therefore
$1,540. The annualized cost of insulation (amortized over 30 years at 7
percent) is $125.
    The fixed cost of refrigeration for an egg room is the cost of
buying and installing refrigeration units. We assume that installation
costs are approximately 5 percent of the purchase price of the unit.
For a farm with 20,000 to 50,000 layers, the cost of refrigeration is
the purchase price for needed refrigeration units ($10,300) plus the
cost of installation ($10,300 x 5 percent) for a total of $10,816.
Amortizing this cost over 15 years at 7 percent yields an annual cost
of $1,190.
    The total annualized cost of installing a refrigerated egg room on
a farm with 20,000 to 50,000 layers is estimated to be approximately
$11,350. Including the cost of energy increases the total cost to
$13,800.
    For all types of refrigeration, there also will be a cost
associated with the use of electricity to run the cooling units. Given
that electricity costs $0.057 per kilowatt-hour, we estimate that farms
not currently using refrigeration will spend an additional $1,500 to
$17,000 annually for power.\45\ Farms that currently use refrigeration,
but at higher temperatures than 45 [deg]F, will spend an additional
$130 to $1,400 annually for power.\46\
---------------------------------------------------------------------------

    \45\ As noted previously, for a farm with 20,000 to 50,000
layers the annualized cost of cooling an egg room to 45 [deg]F is
(4.83 + 1.73) kilowatt hours used per hour x 18 hours of operation
per day x $0.057 per kilowatt hour x 30 days [ap] $202 per month, or
about $2,420 per year. Using similar calculations, average annual
energy costs for refrigeration on farms that previously did not use
refrigeration are estimated to be $1,540 on farms with 3,000 to
19,999 layers, $4,230 on farms with 50,000 to 99,999 layers, and
$16,950 on farms with 100,000 layers or more.
    \46\ Using a calculation similar to the one illustrated in the
discussion of the costs of inadequate refrigeration for farms with
20,000 to 50,000 layers, average annual energy costs for farms with
inadequate refrigeration are estimated to be $130 on farms with
3,000 to 19,999 layers, $350 on farms with 50,000 to 99,999 layers,
and $1,400 on farms with $100,000 layers or more.
---------------------------------------------------------------------------

    The cost of this provision to a farm without any refrigeration in
place is estimated to range from about $7,000 for farms with between
3,000 and 20,000 layers to over $112,600 for farms with more than
100,000 layers. The cost of this provision to a farm with adequate
refrigeration is simply the cost of the additional energy, ranging from
about $130 for farms with between 3,000 and 20,000 layers to over
$1,400 for farms with more than 100,000 layers.
    iv. Cost of refrigerated shipping. The average cost of refrigerated
shipment at 45 [deg]F is $0.12 per dozen eggs. Unrefrigerated shipments
cost 20 percent less than refrigerated shipments. Therefore, the
difference in cost between refrigerated and unrefrigerated shipments is
$0.024 per dozen eggs. Since farms with 10,000 layers or less produce
roughly 1.5 percent of the eggs sold annually (93 million dozen eggs),
the additional cost of refrigerated shipping on these farms is $1.7
million (93 million dozen eggs x $0.024 x 0.754 not in compliance).
    v. Cost of preprocessing storage. The cost of this provision to
facilities holding eggs at above 45 [deg]F for shell egg processing or
before entering egg products facilities is assumed to be the cost of
increased energy usage. If temperatures in egg rooms at these
facilities are uniformly distributed between 55 and 60 [deg]F, the
average reduction in temperature is 7.5 [deg]F. If the electricity rate
is $0.057 per kilowatt-hour, facilities holding 100 dozen eggs at a
time will spend $35 annually while facilities holding 1,000 dozen eggs
at a time will spend nearly $20,000 annually. Using calculations
similar to those described previously for on-farm holding, it is
estimated that the average annual cost of additional refrigeration is
about $9,700 per facility. The total annual cost for the 514 facilities
holding eggs at above 45 [deg]F is expected to be $5 million.
    vi. Total cost of refrigeration provisions. The total cost of the
refrigeration provision, using a 7 percent discount rate, is
approximately $20.2 million.\47\ Using a 3 percent discount rate, the
cost is approximately $16.4 million. However, some farms will choose to
increase the frequency of egg pickups instead of installing additional
refrigeration to remain in compliance with the provision. If more
frequent egg pickups are a lower cost alternative to refrigeration
installation, the previously mentioned figures may overstate the actual
cost of increased refrigeration.
---------------------------------------------------------------------------

    \47\ For ease of explanation, the total new burden of the
refrigeration requirement is assumed to be carried by the farmers.
In reality, this burden, although equal in total, might be spread
among the farmer, shipper, producer, retailer, and consumer.
---------------------------------------------------------------------------

    vii. Benefits of refrigeration. The probability that an individual
will become ill from an SE-contaminated egg depends, among other
things, on the number of bacteria within the infected egg.
Refrigeration of eggs at 45 [deg]F significantly slows the reproduction
of the SE bacteria (Ref. 22). This provision would require that eggs
that are stored for more than 36 hours after laying be refrigerated at
45 [deg]F through the preproduction stage. We use the USDA SE risk
assessment model (Ref. 22), a model designed, in part, to estimate the
effects of refrigeration on the number of SE illnesses. The FSIS risk
assessment estimates that if all eggs on farms affected by the final
rule are refrigerated at 45 [deg]F within 36 hours of lay to the time
they were processed, we would see a 31 percent decline in annual SE
illnesses. This translates to nearly 45,000 illnesses avoided annually,
or about $800.6 million in annual benefits. Standing alone, the
refrigeration provisions would cost about $450 per illness avoided and
provide $780.4 million in net benefits.
    If we account for estimated reductions in SE prevalence due to the
provisions pertaining to chicks and pullets, rodent and pest control,
biosecurity, cleaning and disinfecting, and testing and diversion (a 35
percent reduction in prevalence when all provisions are in place and
fully effective), all occurring earlier in the production cycle, the
refrigeration provisions would provide a 20 percent decline in SE
illness, preventing about 29,000 illnesses annually ((1-0.35) x 45,000
illnesses). Costs of refrigeration are not a function of SE prevalence
and remain constant. In place with the other provisions of the final
rule, the cost per illness averted on farms with more than 3,000 layers
is estimated to be roughly $700.\48\ The annual net benefit of the
provision is $496.9 million.
---------------------------------------------------------------------------

    \48\ This estimate assumes a 7-percent discount rate.
---------------------------------------------------------------------------

    e. Routine environmental testing. Environmental testing does not
serve directly as an SE prevention measure. Testing serves primarily as
an indicator of the effectiveness of the SE prevention measures.
    i. Environmental testing provision. This provision would require
every farm to routinely test the environment of their layers for SE.
For flocks that do not undergo a molt, this requirement would be
limited to a test for SE in the environment when each group of layers
in the flock is 40 to 45 weeks of age. For those flocks that do undergo
a molt, testing would be required when each group of layers is 40 to 45
weeks of age and 4 to 6 weeks after molting for each group is
completed.\49\
---------------------------------------------------------------------------

    \49\ In the proposed rule, molted flocks were to undergo
environmental testing at 20 weeks post molt. Changing the time from
20 weeks to 4 to 6 weeks post molt increases the costs to farms that
test environmentally positive, egg positive, and continue to test
egg positive. For these farms, earlier testing means more eggs
diverted over the life of the flock and more egg tests. However, the
benefit of diverting more potentially positive eggs is greater than
the additional costs.
---------------------------------------------------------------------------

    Environmental sampling would be accomplished by a method such as
swabbing manure piles in the poultry

house and then culturing those swabs using a primary enrichment testing
method. We consider variants of sampling protocols that are currently
in use. The California Quality Assurance program currently requires a
sampling plan that relies on randomly swabbing 30-foot sections of the
poultry house (Ref. 97). To obtain a 95 percent probability of finding
a house that is 10 percent infected, we estimate that 32 samples would
have to be taken. Many other State quality assurance plans, including
Pennsylvania's, require the span of each row of the layer house to be
swabbed with one swab, regardless of row length (Ref. 92).
    ii. Current industry molting practices. Molted flocks face
additional testing under this provision. Overall, 62 percent of all
large flocks are molted once and 12 percent are molted twice before
depopulation (Refs. 27 and 28). Industry molting practices, however,
vary by region and by farm size.
    Farms in the Central and Great Lakes regions are least likely to
molt their flocks while farms in the Southeast and West are most likely
to use molting as a practice. See table 17 of this document.

                Table 17--Regional Molting Practices \1\
------------------------------------------------------------------------
                                                Times molted
              Region              --------------------------------------
                                        0            1            2
------------------------------------------------------------------------
Great Lakes......................          30%          65%           5%
Southeast........................           7%          80%          13%
Central..........................          49%          51%           0%
West.............................          18%          50%          32%
------------------------------------------------------------------------
\1\ Layers study data provided by APHIS.

    Molting practices also vary by farm size. As table 18 of this
document illustrates, smaller farms are less likely to molt their
layers than are larger farms. While almost 85 percent of all farms with
50,000 or more layers molt their layers, only 28 percent of farms with
fewer than 20,000 layers molt their flocks. This disparity plays a
significant role in the determination of the expected cost of testing
and diversion.

              Table 18--Molting Practices by Farm Size \1\
------------------------------------------------------------------------
                                                Times molted
   Farm size (number of layers)   --------------------------------------
                                        0            1            2
------------------------------------------------------------------------
Fewer than 20,000................          72%          28%           0%
20,000 to 49,999.................          35%          54%          11%
50,000 to 99,999.................          14%          68%          18%
100,000 or more..................          16%          72%          12%
------------------------------------------------------------------------
\1\ Layers Study data provided by APHIS.

    iii. Current environmental testing practices. According to the
Layers study, approximately 52 percent of all farms with more than
30,000 layers currently conduct some routine environmental tests for SE
(Refs. 27 and 28). The vast majority of these producers are also
members of formal quality assurance programs.
    iv. Environmental testing costs. The cost of routine environmental
testing depends on how many samples are tested, the labor cost of
collecting the samples, the cost of shipping the samples to a
laboratory, and the laboratory cost per sample tested.
    We estimate that it will take approximately 15 minutes to collect
and pack each sample. Because the wage for a typical livestock and
poultry worker is approximately $9.56 per hour (Ref. 89), after adding
50 percent to reflect overhead costs, we assume that the cost of labor
is $3.59 per sample collected.\50\
---------------------------------------------------------------------------

    \50\ (15 / 60) x $14.34.
---------------------------------------------------------------------------

    The cost of shipping samples will vary by the weight of the
shipment. We assume that a swab, with its packing material, weighs
approximately 1 pound. To calculate the cost of shipping, we estimate
the average number of swabs sent per shipment and use rate tables (Ref.
98) to determine the cost of shipment.
    We estimate the laboratory cost of testing for SE that has been
collected from the environment to be approximately $36.00 per sample
(Ref. 99).
    The average cost of routine testing for SE in a given house is
determined by multiplying the number of tests required for that house
by the expected cost per test. For any plan that is used, the per house
cost of testing is estimated to be

Cost = SWABS x (LABOR + MAIL + LAB)

Where:

SWABS is the number of required swabs,
LABOR is the cost of labor per test,
MAIL is the cost of shipping samples to a lab, and
LAB is the laboratory costs of testing for SE.

    To determine the testing cost of the row-based plan, we multiply
the cost per test by the estimated number of rows that will have to be
swabbed. We assume that all farms that are currently conducting routine
testing (52 percent) (Refs. 27 and 28) are using a row-based plan.
    The number of rows that will have to be swabbed in larger houses is
estimated in table 19 of this document. Information for the first three
columns is drawn from the Layers study (Refs. 27 and 28). We estimate
the number of houses affected by the provision (the fourth column) by
multiplying the number of large houses (7,315) by the percent of houses
affected by the provision (48 percent), and then multiplying the
product by the percent of houses in the given category. We estimate the
number of rows that will have to be swabbed because of the provision as
the number of rows per house times the number of houses affected by the
provision. We estimate

that a total of 21,325 rows would have to be swabbed due to this
provision.

                                     Table 19--Number of Rows To Be Swabbed
                                       [Houses with 3,000 or more layers]
----------------------------------------------------------------------------------------------------------------
                                                      Average                        Number of
      Number of rows or batteries of cages        number of rows    Percent of        houses      Number of rows
                                                        \1\           houses         affected        affected
----------------------------------------------------------------------------------------------------------------
1...............................................             1.0             1.9              67              67
2 to 3..........................................             2.5            12.5             442           1,105
4 to 5..........................................             4.5            50.8           1,794           8,073
6 or more.......................................            10.0            34.2           1,208          12,080
                                                 ---------------------------------------------------------------
    Total.......................................             6.1  ..............           3,511          21,325
----------------------------------------------------------------------------------------------------------------
\1\ The average number of rows per house is estimated as the midpoint of the range estimated by Layers study.
  For the ``6 or more'' category we assume that these houses have an average of 10 rows each.

    Because each row has two sides, each of which we assume will have
to be swabbed, the total number of swabs required is estimated to be
approximately 42,650. On average, 12.2 swabs will be used for each
house with more than 3,000 layers. The total cost of testing the
average large house is $532 (12.2 swabs x ($3.59 labor + $3.98 shipping
+ $36.00 lab culture)) when two swabs are used per row.\51\
---------------------------------------------------------------------------

    \51\ The cost of shipping 12 swabs (12 pounds) overnight is
estimated to be between $25.58 and $70.73, including pickup charges
(Ref. 98). We divide the average cost of shipping by 12 to obtain
the cost per swab ($3.98).
---------------------------------------------------------------------------

    The random swabbing plan requires that 32 samples be taken per
house. Although 52 percent of houses conduct some routine environmental
testing, far fewer are likely to follow the random swabbing plan. In
the absence of better information, we assume that between 0 and 52
percent (uniformly distributed) of large houses that are currently
testing use random swabbing plans. The cost per swab under the random
swabbing sampling plan is about $42 ($3.59 labor + $2.42 shipping \52\
+ $36.00 lab culture). The total cost of one round of testing under the
random swabbing plan is calculated to be $1,344 per house, regardless
of size (32 swabs per house x $42 cost per swab).
---------------------------------------------------------------------------

    \52\ The cost of shipping 32 swabs (32 pounds) overnight is
estimated to be between $42.10 and $114.65, including pickup charges
(Ref. 98). We divide the average cost of shipping ($77.44) by 32 to
obtain the cost per swab ($2.42).
---------------------------------------------------------------------------

    f. Follow-up egg testing.--i. Egg testing provisions. Follow-up egg
testing would occur if an environmental test is positive for SE. If egg
testing is triggered, the following protocol must be followed. First,
the farmer must submit 1,000 eggs to a lab both initially and
subsequently every 2 weeks for a total of 4,000 eggs. Consistent with
the method described in chapter 5 of FDA's Bacteriological Analytical
Manual (BAM) the eggs that are submitted for testing may be pooled in
samples of 20 eggs each. If pooled into samples of 20 eggs each, a
total of 200 egg tests are conducted. If any of these egg tests are
positive, the farm will be required to divert its eggs until four
consecutive rounds of egg tests are found to be negative. Furthermore,
a farm that has had a positive egg test must continue to test 1,000
eggs each month for the life of the flock.
    If the cost of egg testing is high enough, however, the farmer may
simply choose to forego egg testing and divert all eggs for the life of
the flock.\53\
---------------------------------------------------------------------------

    \53\ Under the provision on diversion, farms that test positive
for SE in their eggs would be required to divert their eggs for
treatment until they are able to show via testing that SE is not
present in the eggs produced in the infected house. This is
discussed in detail in the following section on diversion costs.
---------------------------------------------------------------------------

    ii. Current industry practices; Follow-up egg testing. We assume
that those farms currently under a recognized quality assurance plan
that mandates egg testing following a positive environmental test are
currently in partial compliance with this provision. Of the major
plans, only the Pennsylvania and Maryland plans have follow-up testing
provisions that are largely the same as this provision (Ref. 76).
According to ``Chicken and Eggs'' (Ref. 75), egg production in Maryland
and Pennsylvania accounted for 9.7 percent of the U.S. total. Only 85
percent of the eggs in these States fall under the State quality
assurance programs. We therefore estimate that 8.2 percent (9.7 percent
x 85 percent) of all eggs are currently in partial compliance. Because
farms with fewer than 3,000 layers are not currently in these quality
assurance programs, we assume that no farms with fewer than 3,000
layers conduct follow-up egg tests.
    Farms using the number of eggs for sampling required by the
Pennsylvania and Maryland plans are sampling fewer eggs than are
required by this rule. Specifically, this provision would require that
batches of 1,000 eggs be tested if egg testing is required, while the
Pennsylvania and Maryland plans only require 480 eggs to be tested in
each batch. Farms on either the Pennsylvania or the Maryland plans are
only 48 percent (480 / 1000) in compliance with the provision.
Furthermore, the testing protocol used in Pennsylvania and Maryland is
less rigorous than the one prescribed by FDA. Therefore, farms
currently testing under the Pennsylvania and Maryland plans will also
have to change their testing protocol. Because these farms are already
paying for egg testing, however, not all costs of the new testing plan
will be new costs. The tests under the Pennsylvania plan cost about 71
percent as much as the test required under the FDA plan.
    These numbers suggest that the current net level of compliance with
the provision is 2.8 percent (8.2 percent under state quality control
plans x 48 percent as many eggs tested as required by this rule x 71
percent the cost of FDA test) for farms with more than 3,000 layers.
    iii. Egg testing costs. The cost of follow-up egg testing is
composed of the following: (1) The labor cost of collecting the eggs,
(2) the value of the eggs being tested, (3) the cost of shipping the
eggs to a qualified laboratory, and (4) the lab costs of testing the
eggs. The cost of collecting the eggs is the hourly cost of labor times
the number of hours spent collecting the eggs. We estimate that it will
take the typical farmhand approximately one-half minute per egg to
select eggs for testing, so the labor cost of egg testing is $119.50
per 1,000 eggs tested (50 samples x 20 eggs per sample x 0.0083 hours
per egg x $14.34 dollars per hour) (Ref. 89).
    The lost value of the eggs used for testing is the number of eggs
tested

times the producer price of an egg.\54\ To avoid double counting of the
cost of diversion (for those eggs being tested), we modify this value
to account for the fact that as many as 26 percent of eggs being tested
may be required to be diverted at the time of testing. The price that
the typical producer receives for table eggs is about $0.43 per dozen,
while the price a producer receives for diverted eggs is about $0.26
per dozen eggs (see table 21 of this document). The expected value of a
tested egg is the weighted average of the value of a table egg and a
diverted egg, or about $0.03 per egg.\55\ The value of the eggs tested
is the value per egg times the number of eggs tested. The value of
every 1,000 eggs tested is $32.15.
---------------------------------------------------------------------------

    \54\ Using the producer price of the egg may slightly
underestimate the value of the lost egg. Although much of the price
increase between producer and consumer includes transfers, there is
real value added during some processing.
    \55\ The following calculation is used to reach this figure.
[(74 percent of eggs not diverted x $0.43 per dozen table eggs) +
(26 percent of eggs diverted x $0.26 per dozen diverted eggs)] / 12
eggs in a dozen = $0.03215 per egg.
---------------------------------------------------------------------------

    Eggs that are collected will have to be shipped to a laboratory for
analysis. The cost of shipping these eggs depends on the weight of the
eggs being shipped. We estimate that 1,000 large eggs weigh
approximately 111 pounds. The cost of shipping these eggs in two 60-
pound packages (including packing) to the laboratory is approximately
$260.\56\
---------------------------------------------------------------------------

    \56\ The cost of shipping a 60-pound package overnight is
between $67.35 and $191.70, including pickup charges (Ref. 98). We
multiply the average cost of shipping ($129.52) by 2 to obtain the
total cost of $259.05.
---------------------------------------------------------------------------

    The largest cost of egg testing is the laboratory; we estimate the
average lab cost for 1 batch of 20 eggs to be $35.16.\57\ Hence, for 50
tests the laboratory cost of eggs testing is $1,758 per 1,000 eggs
tested (50 batches x $35.16 per test).
---------------------------------------------------------------------------

    \57\ For the testing method FDA prescribes, the lab cost per 20
egg pool is $35 initially and an additional $30 for confirmation if
the pool tests positive (Ref. 100). Upon an environmental positive,
eggs will test positive at a rate of 2.75 per 10,000 (Ref. 92).
Therefore the probability of a pool of 20 eggs testing negative is
99.45 percent ((1 - (2.75/10,000))-20). Conversely the probability
of a pool testing positive is 0.55 percent. So the expected cost of
a test is $35.16 (($35 x 0.9945) + ($65 x 0.0055)).
---------------------------------------------------------------------------

    The total cost of egg testing is the sum of each of the previously
stated costs. Therefore, the cost of egg testing is $2,169 per 1,000
eggs tested ($119.50 collection costs + $32.37 lost income from egg
sales + $259.05 shipping costs + $1,758 lab costs).
    g. Diversion.--i. Diversion provisions. Under this provision, farms
that test positive for SE in their eggs would be required to divert
their eggs for treatment until they are able to determine via testing
that SE is not present in the eggs produced in the infected house. Both
the expected level of diversion and the expected cost of diversion will
vary by each operation's location and size.
    ii. Regional differences in the cost of diversion. Regional
differences in the cost of production have led to the centralization of
the breaker industry in the North Atlantic and North Central regions of
the United States. As table 20 of this document shows, these regions
are responsible for only 52 percent of overall egg production, but over
86 percent of breaker eggs.\58\ The centralization of the breaker
industry is even more clearly illustrated in the fourth column of table
20. While 36 to 44 percent of eggs make it to breaker plants in the
northern regions, the corresponding figures for the West and South are
only 10 percent and 6 to 7 percent. The primary purpose of breaker
plants outside of the North appears to be as an outlet for eggs not
suitable for retail sale as table eggs.
---------------------------------------------------------------------------

    \58\ In table 20 of this document, the number of eggs produced
includes hatching eggs as well as table eggs. Because most hatching
eggs are produced in the South and hatching eggs do not go to
breaker plants, the percentages of eggs going to breaker plants are
biased downward for the southern regions.

                                    Table 20--Production and Breaking of Eggs
----------------------------------------------------------------------------------------------------------------
                                           Eggs produced                    Eggs broken             Percent of
                                 ----------------------------------------------------------------  eggs produced
             Region                 Millions of                    Thousands of                      that are
                                      eggs\1\         Percent       dozens \2\        Percent         broken
----------------------------------------------------------------------------------------------------------------
North Atlantic..................          10,106            12.3         300,406            17.1            35.7
North Central...................          32,869            40.0       1,212,758            69.1            44.3
South Atlantic..................          13,979            17.0          69,774             4.0             6.0
South Central...................          14,512            17.7          84,071             4.8             7.0
West............................          10,636            13.0          87,662             5.0             9.9
                                 -------------------------------------------------------------------------------
    Total.......................          82,102           100.0       1,754,671           100.0            25.7
----------------------------------------------------------------------------------------------------------------
\1\ National Agricultural Statistical Services (NASS) (Ref. 75).
\2\ NASS (Ref. 101).

    To predict how the industry will respond to a provision mandating
diversion, it is important to consider the following information: (1)
Why the breaker egg industry is regionally concentrated while the shell
egg industry is distributed more evenly throughout the United States
and (2) Why the concentration has occurred in the northern regions of
the United States.
    There are several reasons why the breaker industry is centralized
and the shell egg industry is not. First, it is much more expensive to
transport shell eggs than it is to transport egg products. Shell eggs
are relatively bulky and are susceptible to breakage in transit.
Second, shell eggs are ultimately delivered directly to consumers in
their natural state, while egg products are often used as ingredients
in large-scale food manufacturing operations. Because processed foods
are less costly to transport than are their ingredients, it makes sense
to locate processed food facilities in areas where ingredients are
locally available. To the extent that these ingredients are available
in the northern regions, processed food plants will locate there.
Consequently, it makes sense to locate breaker plants in this region as
well.
    If centralization of breaker plants is going to occur, it will
likely occur in the northern regions, for several reasons. The cost of
egg production is lowest in the north, partly because feed grains (such
as corn and wheat) are locally available at low prices in this
region.\59\ Also, farms in the north are more likely to be
characterized by large in-line houses (up to 250,000 layers). These
houses take advantage of economies of scale to produce more eggs more

cheaply. Furthermore, because the demand for egg products is higher in
the northern regions, breaker plants can avoid the high transportation
costs of shipping to food processors by locating closer to their
customers.
---------------------------------------------------------------------------

    \59\ Shipping grains from the Midwest to the West Coast by rail
car cost over $1 per bushel (Ref. 102).
---------------------------------------------------------------------------

    The implication of the industry structure is that there are likely
to be regional disparities in the cost of diversion. Egg products and,
hence, breaker egg prices are not expected to vary regionally by as
much as shell egg prices. Where the cost of egg production and freight
for diverted eggs is relatively high (such as in California), the cost
of diversion is likely to be high. Similarly, where the price of egg
production and freight is low (such as in Ohio and Pennsylvania), the
cost of diversion is likely to be low. Furthermore, there are some
remote areas, such as Hawaii, where the absence of breaker plants makes
local diversion impossible. Because it is not economical to ship these
eggs to breaker plants in the continental United States, the cost of
diversion is simply the lost value of a clean table egg.
    FDA met with industry representatives in each of the previously
mentioned regions and was given estimates of diversion costs that are
consistent with the above reasoning. The diversion cost per dozen eggs
in Pennsylvania was estimated to be insignificant while the diversion
cost in California was estimated to be $0.21 to $0.42 per dozen.
    iii. Effect of operation size on diversion costs. Operation size
can have a significant effect on average diversion costs for a given
producer. A large producer is less likely to be affected by an
individual house that tests positive, because the cost is generally
spread across many houses and farm sites. Furthermore, in areas where
it is economically feasible to produce eggs that are dedicated to
breaker plants, large operations are less likely to have contract
problems \60\ because they can substitute SE-positive eggs for the eggs
that originally were contracted to go to the breaker plant. By
contrast, the economic losses from a positive house may cause a small
farm with one house to incur significant losses for that farm.
---------------------------------------------------------------------------

    \60\ Filling orders for table eggs when eggs from one house must
be diverted.
---------------------------------------------------------------------------

    iv. Effect of SE-positive status on diversion costs. It has been
suggested that eggs from an SE-positive flock will command a lower
price at the breaker than will other eggs. The pasteurization process
for breaker eggs is designed to achieve at least a 5-log reduction in
any SE that may be in eggs. Further, the actual cost of marking the
shipments and stamping documents accompanying diverted eggs as ``these
eggs must be treated to achieve at least a 5-log destruction of
Salmonella Enteritidis or processed as egg products in accordance with
the Egg Products Inspection Act'' will be insubstantial.\61\ However,
because these eggs are limited in how they may be used, SE-positive
eggs are intrinsically less valuable than SE-negative eggs.
---------------------------------------------------------------------------

    \61\ Eggs are typically shipped on palates holding 900 dozen
eggs. The palates are shrink-wrapped. Diverted eggs will need to be
marked somewhere on the shrink wrapping. Based on FDA's estimate of
474 million eggs diverted annually (discussed in detail in section
F.1.h of this document), between 45,000 and 60,000 labels would have
to be affixed to palates each year. This estimate accounts for the
fact that some shipments may use partially full palates. The labels
themselves will cost about $0.025 each and require less than 30
seconds to apply. Thus, a conservative estimate puts the cost at
less than $8,000 annually across the entire industry, or less than
two one-thousandths of a cent additional cost per egg. Each farm
will need to buy a label gun for a one time cost of approximately
$100. Amortized over 10 years, this cost is less than $15 per year,
per farm. The cost of stamping the accompanying documents is
discussed in the recordkeeping section F.2.a of this document.
---------------------------------------------------------------------------

    v. Cost of a diverted egg. Given all of the factors stated in the
previous paragraphs, we estimate that, on average, breaker eggs from an
SE-positive flock will command a price below that received for shell
eggs. Table 21 of this document illustrates the prices that producers
receive for shell and breaker eggs by region. As expected, the north-
central region, with its proximity to inexpensive feed and a large food
processing industry, has the highest level of production, the lowest
prices for eggs, and the lowest cost for diversion. The West, with its
higher feed costs and smaller layer houses, has the highest prices for
eggs and the highest cost of diversion. We find the weighted average
cost of diversion to be between $0.13 and $0.23 per dozen eggs. If
there is an additional discount for those eggs with SE, the total cost
could rise as high as $0.33 per dozen eggs.

                                     Table 21--Total Cost of Diverting Eggs
----------------------------------------------------------------------------------------------------------------
                                                                                Cost of
                 Region                   Regional weight    Shell egg price    Breaking eggs   diversion  (nest
                                               (in %)        to producer \1\   (nest run) \2\         run)
----------------------------------------------------------------------------------------------------------------
North-Atlantic.........................               12.3             $0.42             $0.31             $0.11
North-Central..........................               40                0.39              0.30              0.09
South-Atlantic.........................               17                0.43              0.31              0.12
South-Central..........................               17.7              0.47              0.30              0.17
West...................................               13                0.53              0.31              0.22
----------------------------------------------------------------------------------------------------------------
Average Cost of Diverting Eggs \3\............................................................         0.13-0.23
Additional Discount for SE+ Eggs \4\..........................................................         0.00-0.10
Total Cost of Diverting Eggs..................................................................         0.13-0.33
----------------------------------------------------------------------------------------------------------------
\1\ The shell egg price paid to producers for the north-central region was estimated as equivalent to the prices
  AMS reported as paid in Iowa, Minnesota, and Wisconsin. For regions other than the north-central region, the
  shell egg price to the producer was calculated by discounting the price to retailer by a percentage equal to
  the percent difference between the price to the producer and the price to retailer in the north-central
  region. All figures were taken from AMS data accessed through The Institute of Food and Agricultural Services
  at the University of Florida (Ref. 103).
\2\ All figures are from AMS data accessed through the North Carolina Department of Agriculture (Ref. 104).
\3\ The lower bound of this range is the average cost of diverting eggs calculated as described above, and is
  weighted by regional production (Ref. 75). The upper bound of this range is calculated using data from
  comments to the analysis of the proposed rule, suggesting that the difference between the value of shell eggs
  and breakers has been greater recently. Because prices tend to fluctuate, and therefore differences in the
  price between shell eggs and breaker eggs fluctuate, the full range of estimated price differences is used in
  the calculation of the total cost of diverting eggs.
\4\ Ref. 91 and comment to analysis of the proposed rule.

    vi. Expected cost of diversion. The expected cost of diversion is
determined by the cost of diverting an egg, the number of eggs in
commerce affected by the provision, and the probability that a given
egg will be diverted.
    h. A model of testing and diversion costs.--i. The model. We use a
dynamic model for estimating testing and diversion costs. We model
these costs as depending on the probability of SE detection, farm size,
molting practices, and the farmer's choice between conducting follow-up
egg tests and diverting until depopulation of the contaminated house.
    In the first stage of the model, we estimate the probabilities
associated with environmental and egg tests. For environmental tests,
we estimate that 9.7 percent of all flocks currently test positive. We
then adjust this estimate downwards to 8.4 percent initially and 7.0
percent eventually to account for the expected reduction of SE on the
farm due to the adoption of other provisions of the rulemaking to
reduce SE. In the experience of Pennsylvania, a flock with at least one
environmental positive is likely to have at least one egg test positive
26 percent of the time (Ref. 105). We do not know if the experience of
Pennsylvania is representative of the nation as a whole. In the absence
of better information, we use the Pennsylvania figure.
    In the next stage of the dynamic model, the expected cost of
testing and diversion is calculated for farms in each of the five size
categories used throughout this analysis. There are two reasons why
this is a necessary step. First, the estimation of cost for different
size categories allows for the explicit representation of the fact that
both the number of tests required and the cost of diversion are
directly related to the number of layers on the farm. Second, using
different size categories facilitates an algebraic model design that
uses logical operators to allow farmers (in the model) to make the low
cost choice between egg testing and diversion.
    Molting practices are accounted for in the next stage. The
different testing protocols for molted and non-molted layers make it
necessary to look at the cost of testing and diversion separately for
each of these types of flocks. At this stage of the model, we set out
the possible scenarios for testing and diversion, derive the expected
cost of each scenario, and calculate the statistical probability that
each scenario will occur.\62\
---------------------------------------------------------------------------

    \62\ For a detailed look at the mathematical model for this
stage, see Ref. 106.
---------------------------------------------------------------------------

    In the final stage of the testing cost model, we insert logical
operators into the model in such a way that farmers are given the
choice of diverting rather than testing eggs when it is cost-efficient
to do so. Failure of the model to give the farmer this choice may lead
to estimated costs that are up to double the actual expected costs.\63\
---------------------------------------------------------------------------

    \63\ A further refinement of the model would be to include the
option of depopulating the flock and starting over with a new flock.
There is a large degree of uncertainty over whether this is feasible
given that the growing cycle of chicks and pullets must be
coordinated with the laying cycle of flocks. Therefore, we did not
include this option in our analysis. We invited comment on the
feasibility of this option in the analysis of the proposed rule but
did not receive any responses.
---------------------------------------------------------------------------

    ii. The costs of testing and diversion. The model described in the
previous paragraph produces estimates of the annual expected cost of
testing and diversion for layer houses. Estimates are obtained for each
of the size categories by molting practice.
    As tables 22 and 23 of this document illustrate, the expected costs
of testing and diversion for a poultry house range from $160 to over
$5,500, depending on house size, environmental testing protocol, and
molting practices.\64\ The low figures in the environmental testing and
total cost columns represent costs given the row-based sampling scheme,
while the high estimates represent the random swab sampling method. The
costs for molted houses are annualized for the purpose of comparison.
---------------------------------------------------------------------------

    \64\ Tables 22 and 23 of this document present the cost
estimates for houses based on the current estimated prevalence of
SE. In the total cost tables (24 and 25 of this document), we also
present an estimate that reflects the expected prevalence following
the full implementation of this rule.

                                                                Table 22--Cost per House
                                                                   [Non-molted flocks]
--------------------------------------------------------------------------------------------------------------------------------------------------------
   Farm size  (number of layers)       Environmental testing       Egg testing      Diversion         Dynamic total cost           Static total cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fewer than 3,000..................  $150 to $1,340.............              $0              $6  $156 to $1,346.............  $1,313 to $2,503.
3,000 to 19,999...................  $530 to $1,340.............             843             311  $1,684 to $2,494...........  $1,885 to $2,695.
20,000 to 49,999..................  $530 to $1,340.............             843             722  $2,095 to $2,905...........  $2,140 to $2,950.
50,000 to 99,999..................  $530 to $1,340.............           1,124             556  $2,210 to $3,020...........  $2,352 to $3,162.
Over 100,000......................  $530 to $1,340.............           1,124           1,288  $2,942 to $3,752...........  $3,223 to $4,033
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                Table 23--Cost per House
                                                                     [Molted flocks]
--------------------------------------------------------------------------------------------------------------------------------------------------------
   Farm size  (number of layers)       Environmental testing       Egg testing      Diversion         Dynamic total cost           Static total cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
3,000 to 19,999...................  $530 to $1,340.............          $1,378            $537  $2,454 to $3,314...........  $2,522 to $3,332.
20,000 to 49,999..................  $530 to $1,340.............           1,597             766  $2,893 to $3,703...........  $2,955 to $3,765.
50,000 to 99,999..................  $530 to $1,340.............           1,597           1,129  $3,256 to $4,066...........  $3,315 to $4,125.
Over 100,000......................  $530 to $1,340.............           1,597           2,618  $4,745 to $5,555...........  $4,793 to $5,603
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The inclusion of a choice to opt out of egg testing also results in
egg testing costs that increase with farm size. The choice to opt out
of egg testing significantly increases diversion costs for smaller
farms while having a limited effect on larger farms.\65\ This
difference is apparent in the comparison between dynamic total costs
and static total costs. If the option to switch from egg testing into
diversion were removed, the costs incurred would be the static total

costs. Nonetheless, diversion costs also generally rise with farm size.
---------------------------------------------------------------------------

    \65\ It is never in the interest of the smallest farms to test
eggs because the expected cost of testing exceeds the revenue loss
from simply diverting all eggs for the life of the flock.
---------------------------------------------------------------------------

    Whether or not a farmer chooses to molt the flock also has an
effect on cost. The annual cost of testing and diversion for a molted
flock is greater than that for a non-molted flock, largely because a
molted flock forced to divert for the life of the flock is expected to
experience diversion for a longer time. In the dynamic model, where the
farmer can opt out of testing, molting has a secondary effect of
increasing egg-testing costs due to the high expected cost of opting
out.
    For comparison with dynamic costs, the static cost of testing and
diversion is included in the final column of tables 22 and 23 of this
document. As expected, when the producer is given the choice of opting
out of egg testing the total cost of testing and diversion falls. The
savings to the farmer are greatest on the smallest farms, where
expected costs may fall by over 60 percent.\66\ On the largest farms,
it is less economical to divert, and thus the cost savings can be
insignificant.
---------------------------------------------------------------------------

    \66\ This conclusion assumes that the farmer will be paying all
of the costs of testing and diversion.
---------------------------------------------------------------------------

    To obtain the total cost of testing and diversion for all houses on
all farms we multiply the cost per house in each category by the number
of houses in each category and the percentage of houses that would be
affected by the provision. These costs are summarized in tables 24 and
25 of this document.

                                            Table 24--Total Cost of Testing and Diversion: Row-Based Sampling
                                                                 [Thousands of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Number of                     Environmental
              Farm size (number of layers)                    houses      Percent molted      testing       Egg testing      Diversion      Total cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fewer than 3,000........................................          45,700               0          $6,798              $0            $271          $7,069
3,000 to 19,999.........................................           2,445              28             617           2,357             839           3,813
20,000 to 49,999........................................           1,295              65             327           1,675             892           2,894
50,000 to 99,999........................................             595              86             150             886             574           1,610
Over 100,000............................................           3,024              84             763           4,476           6,687          11,926
--------------------------------------------------------------------------------------------------------------------------------------------------------
Farms with >= 3,000 layers, Initially...................................................           1,857           9,393           8,992          20,242
Farms with >= 3,000 layers, Eventually..................................................           1,857           6,812           6,512          15,181
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                           Table 25--Total Cost of Testing and Diversion: Random Swab Sampling
                                                                 [Thousands of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Number of                     Environmental
              Farm size (number of layers)                    houses      Percent molted      testing       Egg testing      Diversion      Total cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fewer than 3,000........................................          45,700               0         $61,425              $0            $271         $61,696
3,000 to 19,999.........................................           2,445              28           2,432           2,357             839           5,627
20,000 to 49,999........................................           1,295              65           1,288           1,675             892           3,855
50,000 to 99,999........................................             595              86             592             886             574           2,051
Over 100,000............................................           3,024              84           3,008           4,476           6,687          14,171
--------------------------------------------------------------------------------------------------------------------------------------------------------
Farms with >= 3,000 layers, Initially...................................................           7,319           9,393           8,992          25,704
Farms with >= 3,000 layers, Eventually..................................................           7,319           7,319           7,319          21,958
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As shown in table 24 of this document, the estimated eventual total
cost of testing and diversion is approximately $15.2 million when row-
based sampling is used. When we assume that a random swab method of
environmental sampling is used, as in table 25 of this document, the
eventual estimated costs increase to $22.0 million.
    iii. Benefits of testing and diversion. While the primary purpose
of testing is to obtain an indication of the effectiveness of the
farm's SE prevention measures, the testing and diversion program would
also directly reduce SE infection by preventing SE-positive eggs from
reaching consumers. To the extent that SE-positive eggs are diverted
for treatment, the number of these eggs that reach the consumer in an
untreated form will decline. We estimate the benefits from diversion
using the experience of the states.
    The first key measure to be determined is the probability that the
environment of a flock will test positive. We used two sources to
estimate the current prevalence of SE-positive houses. Our first source
is the Layers study (Ref. 29), which recruited 200 farm sites to be
tested across the United States. We also use estimates based on the
experience of testing under quality assurance plans.
    The Layers study estimates that 7.1 percent of all houses are
positive for SE. Regionally, SE prevalence ranges from a low of 0
percent in the Southeast to a high of 17.2 percent in the Great Lakes
region. Nonetheless, because only 200 of an original sample of 526 farm
sites chose to participate in this phase of the study, we are hesitant
to rely solely on this figure for SE prevalence (for example, those
that chose to participate may be a biased sample who are more likely to
have cleaner houses).
    Regional quality assurance programs have also collected data on SE
prevalence on farms. As an upper bound, Pennsylvania experienced a
prevalence of 40 percent in the early 1990's (Ref. 107). As a lower
bound, we use 1 to 3 percent, which is the current prevalence of houses
with SE-positive environments in Maine (Ref. 108). We believe that
Pennsylvania's current prevalence of 7 to 9 percent (Ref. 105) is a
mode for the nation as a whole.\67\ When we put this data into a Beta-
Pert probability distribution using a uniform distribution over 1 to 3
percent as the lower bound, 40 percent as the upper bound, and a
uniform distribution over 7 to 9 percent as the mode, or most

likely value, we estimate a national prevalence rate of 12.3 percent.
---------------------------------------------------------------------------

    \67\ This assumption is based on the fact that the number of
outbreaks in the Northeast (where Pennsylvania is located) has
fallen to a level equivalent with the rest of the nation (Ref. 11).
---------------------------------------------------------------------------

    We consider that the Layers study and quality assurance program
estimates are equally likely to be valid. Therefore, we put these
values in a uniform distribution (7 to 12.3 percent) to estimate that
an expected 9.7 percent of farms would currently test SE-positive.
Based on the experience of Pennsylvania, we estimate that 26 percent of
houses that are environmentally positive also will have eggs that test
positive (Ref. 105).
    These figures imply that 469 million eggs from affected farms,\68\
or 0.5 percent of all shell eggs,\69\ would be diverted initially
following the initial effective date of the provision. Of these eggs,
we expect eggs to be positive at a rate of 2.75 per 10,000 (Ref. 92).
Consequently, we estimate that an average of 129,000 SE-positive eggs
would be diverted annually. Given a total estimated number of positive
eggs of 1.5 million, we estimate that diversion would initially
decrease the number of SE-related illnesses by 10.8 percent. This
translates to potentially 15,300 illnesses (valued at $274.1 million)
prevented each year. Standing alone, the testing and diversion
provisions would cost about $1,300 per illness avoided and provide
about $261.6 million in net benefits.
---------------------------------------------------------------------------

    \68\ The total cost of diversion is divided by the cost of
diversion per egg to obtain the number of eggs diverted.
    \69\ The percent of shell eggs that are diverted is determined
by dividing the number of eggs diverted by the total number of shell
eggs produced (90,772 million) as published in the USDA's Chicken
and Eggs report (Ref. 75).
---------------------------------------------------------------------------

    If we account for estimated reductions in SE prevalence due to the
provisions pertaining to chicks and pullets, rodent and pest control,
biosecurity, and cleaning and disinfecting, (a 28 percent reduction in
prevalence when all provisions are in place and fully effective), all
occurring earlier in the production cycle, the refrigeration provisions
would provide a nearly 8 percent decline in SE illness, preventing
about 11,000 illnesses annually ((1-0.28) x 15,300 illnesses). Because
the baseline SE prevalence will be reduced by other provisions, FDA
expects that over 40 million less eggs will be diverted once the rule
is fully effective. Furthermore, less egg tests will be necessary.
Therefore we expect annual costs to decrease by $3.5 million once all
provisions are fully effective. In place with the other provisions of
the final rule, the cost of testing and diversion is about $1,900 per
SE case prevented. The eventual net benefits of testing and diversion
are about $189.6 million per year.
    i. SE-Monitored chicks and pullets.--i. Chick and pullet
provisions. Under the final rule, farms must procure pullets that are
SE monitored or raise pullets under SE monitored conditions. Pullets to
be used as layer hens must be raised under SE control conditions that
prevent SE, including (1) procurement of chicks from SE-monitored
breeder flocks,\70\ (2) cleaning and disinfection, and (3)
environmental testing at 14 to 16 weeks of age. If the environmental
test is negative, the farm will not need to perform any additional
testing of those birds or their environment until the environmental
test at 40 to 45 weeks of age. If the 14 to 16 week environmental test
is positive, farms must begin egg testing within 2 weeks of the start
of egg laying. A positive egg test triggers diversion.
---------------------------------------------------------------------------

    \70\ NPIP certified or the equivalent.
---------------------------------------------------------------------------

    ii. SE-Monitored chicks. Farms must procure pullets that have been
raised from chicks from SE-monitored breeder flocks that meet the
NPIP's standards for ``U.S. S. Enteritidis Clean'' status (9 CFR
145.23(d)) or equivalent standard.
    iii. Current industry practices--SE-monitored chicks. According to
the Layers study (Refs. 27 and 28), 94.6 percent of farm sites
representing 94.5 percent of layers received their chicks from flocks
that were bred under the NPIP program. Furthermore, NPIP has
successfully integrated all of these layers into the NPIP U.S.
Salmonella Enteritidis monitored program (Ref. 109).
    NASS estimates that a total of 138,292,380 chicks were sold in 1997
(Ref. 26). If 94.5 percent of these birds were purchased from breeder
facilities that are NPIP SE monitored, then 5.5 percent (7,606,080) of
chicks are not currently monitored for SE.
    iv. Costs of SE-monitored chicks. We do not have data for the cost
of monitoring chicks for SE. However, Morales and McDowell (Ref. 91)
estimated that pullets monitored for SE cost approximately $0.003 to
$0.02 more per pullet. If we assume the cost difference is the same for
chicks, the total increased annual cost of requiring SE-monitored
chicks is estimated to be about $87,000.\71\ This cost would be borne
by pullet growers but could be passed on to egg farms depending on
market conditions.
---------------------------------------------------------------------------

    \71\ If monitoring costs $0.003 per layer, the total cost is
7,606,080 layers x $0.003 = $22,820. If monitoring costs $0.02 per
layer, the total cost is 7,606,080 layers x $0.02 = $152,120. The
average of these two figures is $87,470.
---------------------------------------------------------------------------

    v. Benefits of SE-monitored chicks. The prevalence of SE in breeder
flocks is relatively low.\72\ Between 1994 and 1996 only 2 out of 847
breeder flocks (0.2 percent) had layers that tested positive for SE.
For our estimate of benefits, we used this figure because breeders
under the NPIP program must destroy their flocks when layers test
positive.\73\
---------------------------------------------------------------------------

    \72\ The data for this paragraph is drawn from Rhorer (Ref.
110).
    \73\ Under the NPIP program a flock only loses its certification
as a NPIP SE-monitored flock if birds test positive.
---------------------------------------------------------------------------

    The 0.2 percent estimate understates the probability that a farm
not currently using NPIP SE-monitored layers will test positive. To the
extent that farmers obtain their chicks from multiple sources,\74\ we
would expect the probability that a farm obtains SE-positive chicks to
be greater than the underlying prevalence of SE in hatchery flocks.\75\
---------------------------------------------------------------------------

    \74\ The Layers study estimates that 38.2 percent of farms
obtain pullets from multiple sites (Refs. 27 and 28).
    \75\ The following example illustrates this point. If a farmer
obtains pullets from two different flocks, each of which has a 0.2
percent chance of having SE-positive birds, the probability that the
farm will obtain SE-positive birds is 0.2 percent + 0.2 percent -
0.04 percent = 0.36 percent.
---------------------------------------------------------------------------

    We calculated the expected benefit of this provision using the
percentage of farms affected by the provision multiplied by the
probability of a positive test. Because only 5.5 percent of farms
receive birds from breeder flocks that are not SE monitored, the
expected effect of this provision on SE contamination on the farm and,
hence, human illness, is projected to be slightly greater than 0.01
percent (5.5 percent x 0.2 percent). This percent translates into an
expected benefit of 14 illnesses averted on affected farms (valued at
about $0.3 million). This provision attempts to bar the introduction of
SE onto the farm. SE can be difficult to control once it has been
introduced onto a farm, but if SE is never introduced, it is impossible
for it to spread. For this reason, effective SE control in chick
populations has been cited as critical.
    vi. Cleaning and disinfecting, and environmental testing in pullet
houses. To ensure that pullets about to begin the laying cycle are SE
free, egg producers must only use pullets whose environments were
tested for SE when the pullets were 14 to 16 weeks old. There are two
consequences to a positive environmental test. First, an egg producer
who uses those pullets must begin egg testing on the positive flock
within 2 weeks of the start of egg laying. Second, the pullet house
must have all manure removed, and be cleaned and disinfected before a
new flock is added.

    vii. Current industry practices--Cleaning and disinfecting, and
environmental testing in pullet houses. FDA does not have detailed
information on SE monitoring practices in pullet houses. However,
comments from state run programs and industry stated that pullet houses
are typically subject to the same provisions as layer houses under
state Egg Quality Assurance Programs (EQAPs) and other programs for egg
farmers. Therefore, FDA estimates that pullet houses will be in
compliance with these provisions at the same rate as estimated for
layer houses in previous sections of this analysis.
    FDA does not have specific data on the number of pullets and pullet
houses there are in the United States. However, multiple comments
stated that there are roughly one-third as many pullets as there are
layers at any given time. Further, there are roughly one-third as many
pullet houses as there are layer houses. FDA therefore estimates that
2,453 pullet houses (7,359 layer houses covered/3) will be covered
under this provision. Some of the pullet houses are located onsite at
layer farms and others are located on pullet growing facilities.
    viii. Costs of environmental testing in pullet houses. Because the
requirements for tests will be the same for both pullet and layer
houses, per house costs are calculated the same way. As in layer
houses, the cost of routine environmental testing in pullet houses
depends on how many samples are tested, the labor cost of collecting
the samples, the cost of shipping the samples to a laboratory, and the
laboratory cost per sample tested.\76\ The total annual cost of
environmental testing in pullet houses is estimated to be $1.3 million.
---------------------------------------------------------------------------

    \76\ For a detailed breakdown of per house environmental testing
costs, see section V.F.1.e of this document.
---------------------------------------------------------------------------

    ix. Costs of cleaning and disinfecting in pullet houses. The rule
requires a similar cleaning and disinfecting routine for both pullet
houses and layer houses. Therefore, the per house costs and the number
of houses affected are calculated similarly to the costs for cleaning
and disinfecting a layer house. We calculate the number of houses
affected as the product of the percent of houses not using a practice
(100 minus the percent using the practice in Table 14 of this
document), the probability of a positive flock, and the number of
pullet houses.\77\ The total annual cost of cleaning and disinfecting
pullet houses that test environmentally positive is $226,000.
---------------------------------------------------------------------------

    \77\ For a detailed discussion of cleaning and disinfecting
costs, see previous section on cleaning and disinfecting costs for
layer houses.
---------------------------------------------------------------------------

    x. Follow-up egg testing and diversion. Upon an environmental
positive, farms must begin egg testing on the positive flock within 2
weeks of the start of egg laying. Farms that test positive for SE in
their eggs would be required to divert their eggs for treatment until
they are able to show via testing that SE is not present in the eggs
produced in the infected house.
    xi. Current Industry Practices--Follow-up egg testing and
diversion. Comments to the proposed rule suggest that farms do not
typically test eggs when a pullet house tests positive for SE. FDA
therefore estimates that all pullet flocks in houses that test
environmentally positive will be affected by this provision.
    xii. Cost of egg testing and diversion. Total costs are estimated
once again using the testing and diversion model described in section
V.F.1.l of this document. The model takes into account prevalence of SE
in the environment and the farmer's decision between egg testing and
immediate diversion to minimize costs.\78\ The prevalence of SE in
pullet flocks is relatively low compared to layer flocks. Data gathered
from comments, citing PEQAP and CEQAP databases, show that the
environmental prevalence of SE in pullet houses ranges from 0 to 1.5
percent. We use a uniform distribution bound between 0 and 1.5 percent
to estimate that 0.75 percent of pullet houses would currently test
environmentally positive.
---------------------------------------------------------------------------

    \78\ The choice on whether to destroy the flock or move it to
the layer house is also included in the pullet section of the
testing and diversion model. However, except for very small flocks
not covered by this rule, the cost of flock destruction, including
the cost of disposal, bird replacement costs, and lost production,
is much greater than the costs of egg testing and diversion.
Therefore, FDA believes nearly all farms covered by this rule will
choose to test eggs rather than destroying the flock upon and
environmental positive in the layer flock.
---------------------------------------------------------------------------

    The per test cost of egg testing is discussed in detail in section
V.F.1.f of this document. The cost of diverted eggs is discussed in
detail in section V.F.1.g of this document. To summarize, we find the
weighted average cost of diversion to be between $0.13 and $0.23 per
dozen eggs. If there is an additional discount for those eggs with SE,
the total cost could rise as high as $0.33 per dozen eggs.
    To obtain the total cost of testing and diversion for all houses on
all farms, we multiplied the cost per house in each category by the
number of houses in each category and the percentage of houses that
would be affected by the provision. These costs are summarized in
tables 26 and 27 of this document.

   Table 26--Total Cost of Testing in Pullet Houses, Follow-Up Egg Testing, and Diversion: Row-Based Sampling
                                             [Thousands of dollars]
----------------------------------------------------------------------------------------------------------------
                                     Number of     Environmental
  Farm size (number of layers)        houses          testing       Egg testing      Diversion      Total cost
----------------------------------------------------------------------------------------------------------------
3,000 to 19,999.................             815             $58             $53             $50            $161
20,000 to 49,999................             432              31              47              18              96
50,000 to 99,999................             198              14              22              12              48
Over 100,000....................           1,008              72             111             144             326
----------------------------------------------------------------------------------------------------------------
Farms with >= 3,000 layers......................             174             233             225             632
----------------------------------------------------------------------------------------------------------------

  Table 27--Total Cost of Testing in Pullet Houses, Follow-Up Egg Testing, and Diversion: Random Swab Sampling
                                             [Thousands of dollars]
----------------------------------------------------------------------------------------------------------------
                                     Number of     Environmental
  Farm size (number of layers)        houses          testing       Egg testing      Diversion      Total cost
----------------------------------------------------------------------------------------------------------------
3,000 to 19,999.................             815            $811             $53             $50            $914
20,000 to 49,999................             432             429              47              18             495
50,000 to 99,999................             198             197              22              12             231
Over 100,000....................           1,008           1,003             111             144           1,258
----------------------------------------------------------------------------------------------------------------
Farms with >= 3,000 layers......................           2,440             233             225           2,897
----------------------------------------------------------------------------------------------------------------

    Table 26 of this document shows that the estimated eventual total
cost of testing in the pullet house and diversion is approximately $0.6
million when row-based sampling is used. If a random swab method of
environmental sampling is used, as in table 27 of this document, the
estimated costs increase to $2.9 million.
    xiii. Benefits of SE-monitored chicks and pullets. While the
primary purpose of an SE monitoring program is to ensure that pullets
entering layer houses producing table eggs are SE free, testing and
diversion will also directly reduce SE infection by preventing SE-
positive eggs from reaching consumers. Furthermore, cleaning and
disinfecting a house after an environmental positive will help ensure
SE does not spread and infect current and future flocks on the same
farm.
    As stated in the previous section, FDA estimates that the national
prevalence of SE in pullet houses varies uniformly from 0 to 1.5
percent, for an average of 0.75 percent. As with layer houses, we
estimate that 26 percent of houses that are environmentally positive
also will have eggs that test positive (Ref. 105).
    These figures imply that 12 million eggs from affected farms would
be diverted due to environmental testing in the pullet house and
follow-up eggs testing and diversion. We expect eggs to be positive at
a rate of 2.75 per 10,000 in an SE-positive house (Ref. 92). Therefore,
we estimate that an average of 3,200 SE-positive eggs would be diverted
annually. Given a total estimated number of positive eggs of 1.5
million, we estimate that diversion would decrease the number of SE-
related illnesses by 0.2 percent. This translates to potentially 306
illnesses (valued at about $5.5 million) prevented annually.
    The chick and pullet program will potentially prevent 320 illnesses
per year, for a total benefit of about $5.7 million. The total annual
cost per illness of the program is $6,500. The annual net benefits for
the chick and pullet provisions are $3.6 million.\79\
---------------------------------------------------------------------------

    \79\ These figures are correct if the chick procurement
provisions and the pullet provisions are put in place
simultaneously, so the costs and benefits of the pullet provisions
are net the effect of the change in SE prevalence due to the chick
procurement provision. Because the chick procurement provisions
alone only reduce prevalence by about 0.01 percent, the difference,
if calculated separately, is less than 1 illness per year.
---------------------------------------------------------------------------

    j. Summary of costs and benefits of on-farm SE prevention measures.
Table 28 of this document summarizes the costs and benefits of the on-
farm SE prevention measures. In this paragraph we emphasize some of the
key features of these summary estimates. First, because the
effectiveness of rodent and other pest control is strongly linked to
biosecurity and cleaning and disinfecting practices, we estimated the
benefits of these provisions jointly. Second, we derive benefits
without taking into account the interdependence of all provisions.
Therefore, table 28 reflects the incremental effects of each provision
starting from a baseline of no new regulation. The benefits reported
for the provisions in table 28 can be added together, mixed and
matched, to achieve a rough upper bound estimate of the effectiveness
of different combinations of provisions. Because some of the provisions
are substitutes in benefits, particularly diversion and rodent and
other pest control, the actual benefits of combinations of provisions,
as well as the final rule, will be somewhat smaller than what is
reflected in table 28. A rough lower bound estimate of the incremental
effect of each provision when combined with another is shown in table
33 of this document.

                       Table 28--Summary of Annual Costs and Benefits of On-Farm Measures
----------------------------------------------------------------------------------------------------------------
                                                    Cases of SE                   Total benefits   Net benefits
                                 Costs (millions      averted      Cost per case   (millions of    (millions of
                                   of dollars)      (eventual)     of SE averted     dollars)        dollars)
----------------------------------------------------------------------------------------------------------------
Rodent and Pest Control \4\....            $21.4          38,954            $529          $697.3          $675.9
Biosecurity....................  ...............            _ _1            _ _1            _ _1            _ _1
Cleaning and Disinfecting......              0.3            _ _1            _ _1            _ _1            _ _1
Refrigeration..................             20.2          44,727             451           800.6           780.4
Environmental Tests (average)..              4.6         _ _2, 3         _ _2, 3         _ _2, 3         _ _2, 3
Egg Tests......................              9.7            _ _2            _ _2            _ _2            _ _2
Diversion......................             12.5          15,312           1,343           274.1           261.6
SE Monitored Chicks and Pullets              2.1             320           6,494             5.7             3.6
----------------------------------------------------------------------------------------------------------------
\1\ Estimated rodent control benefits also include benefits from biosecurity and cleaning and disinfecting.
\2\ The benefits from all elements of the testing and diversion program are reported jointly under diversion.
\3\ The environmental testing cost number reported is the average of the costs of the random swab and row based
  sampling methods.
\4\ This calculation nets out feed savings.

    k. Other on-farm prevention measures considered. This section
analyzes the costs and benefits of two prevention measures, SE-
monitored feed, and flock vaccination, considered by the FDA, but not
required by the final rule.
    i. SE-negative feed provisions. We considered requiring the use of
feed that meets the standards for SE-negative feed, as defined by FDA's
Center for Veterinary Medicine (CVM). CVM defines SE-negative as 10
subsamples that are negative for SE (measured using the BAM method)
collected for a lot of feed (60 FR 50098, September 28, 1995).
Composite samples may be used to reduce testing costs. We received
comments that SE-negative feed is not currently available commercially.
    ii. Current industry practices--SE monitoring of feed. The layer
industry obtains feed from both independent feed mills and from egg
farmers that produce feed in their own mills. The Economic Research
Service report on the feed manufacturing industry estimates that egg
producers operated a total of 144 feed mills in 1984 (Ref. 111). In the
absence of more recent data, we assume that they operated the same
number in 2006. To isolate the number of independent feed mills
operating in the United States, we used the July 2000 version of Dun's
Market Identifiers (Ref. 112). Using this database, we were able to
isolate 210 mills that primarily produce poultry and chicken feeds.
This figure is our low estimate of the number of independent feed mills
producing layer feed. For a high estimate, we assume that all 2,459
establishments that Dun's Market Identifiers reports as producers of
animal feed produce layer feed.\80\ This estimate is similar to the
1984 Economic Research Service estimate of 2,432 primary feed
manufacturers. Assuming that the true number of feed mills producing
layer feed is uniformly distributed between the low and high estimates,
we estimate that approximately 1,300 feed mills produce layer feed.
---------------------------------------------------------------------------

    \80\ The low estimate is likely to underreport the number of
mills producing layer feed because most firms did not report to
Dun's Market Identifiers what kinds of feeds they produced.
---------------------------------------------------------------------------

    iii. Costs of monitoring feed for SE. The cost of this provision to
a feed mill would be the sum of the labor, laboratory, and shipping
costs for testing, multiplied by the number of lots tested. In
addition, SE-positive feed would have to be treated or destroyed.
    The laboratory cost per test has been estimated to be approximately
$61.00 per sample.\81\ In addition, we estimate that the collection and
preparation of each subsample will take approximately 10 minutes. Given
an hourly wage of $15.51 for production inspectors at grain and feed
mills (Ref. 113), plus 50 percent to include overhead costs, we
estimate the cost of labor to be $38.78 ($23.27 x 1.667 hours) for each
full sample. The cost of shipping each sample to a lab is estimated to
be $30.20.\82\ The total cost per composite sample is about $130
($61.00 + $38.78 + $30.20).
---------------------------------------------------------------------------

    \81\ This is the cost of an Association of Official Analytical
Chemists test for Salmonella genus and a serotype test at Silliker
Laboratories (Ref. 99). One option that mills have is to initially
test for the genus of Salmonella ($28.00) and then, if the test is
positive, follow through with a test for the serotype enteritidis
($33.00). We assume that mills will not choose this option because
Salmonella positive feed is considered adulterated and firms will
not want to test to see if their feed is adulterated unless mandated
to do so by FDA.
    \82\ The cost of shipping a 2-pound package overnight in the
United States ranges from $21.15 to $39.25. These figures include a
$6 pickup charge. The average charge is estimated to be $30.20 (Ref.
98).
---------------------------------------------------------------------------

    Samples must be taken for each lot of feed. We expect that, because
of limited storage space for finished feed, a lot of feed will not
exceed 3 days worth of production for most large mills. For some small
mills, however, a lot may be a week's worth of production; for some
large mills a lot may be a day's worth of production. Given these
parameters, we assume that the frequency of feed testing will be
distributed uniformly between once a week and five times a week with a
mean frequency of three times a week. Consequently, the expected annual
cost of testing for a typical feed mill is calculated to be
approximately $20,300 ($130 per sample x 52 weeks x 3 times a week).
The cost of testing all of the approximately 1,450 entities that
produce feed is estimated to be $29.4 million. If these costs are
passed on to farmers at a rate proportional to the number of layers on
the farm, the total cost to affected farms would be $29.2 million.
    In the event of a positive feed test, feed mills would have to
treat or destroy the suspect feed. It is also likely that the mill
would take action to address the problem at its source. Furthermore, we
assume that the mill would recall this feed and treat or dispose of it,
which could be very costly.
    iv. Benefits of monitoring feed for SE. Feed contaminated with SE
is theoretically also a vehicle for the introduction of SE on the farm.
Testing for SE in finished layer feed at mills has almost never yielded
positive results. However, SE has been isolated in ingredients at feed
mills so SE contamination of feed is a potential problem (Ref. 114).
    If finished feed is contaminated with SE, the consequences for
human health are potentially large. A feed mill that does not test feed
for SE and becomes contaminated with SE could deliver a large number of
shipments of contaminated feed before the problem is uncovered. The
potential financial consequences to the farms using the feed include
costs due to increased cleaning and disinfecting, egg testing, and
diversion of eggs. Also, there likely would be adverse health effects
from the consumption of SE-positive eggs.
    v. Vaccination provision. Inoculating layers with vaccines is
another potential way of preventing the growth of SE in layers. FDA
could mandate that all layers be inoculated against SE.
    vi. Current industry practices; vaccination of flocks. The Layers
study (Refs. 27 and 28) estimates that at least 14.6 percent of all
layers on farms with 3,000 or more layers are vaccinated against SE.
    vii. Cost of vaccinating flocks. Estimation of vaccination costs
range from approximately $0.13 per layer (Ref. 115) to $0.15 per layer
\83\ for an inoculation. The average of these estimates is an expected
vaccination cost of $0.14 per layer for an inoculation.\84\ Given 272.1
million layers on larger farms and 1.4 million layers on smaller farms,
we expect that this provision would result in 232.2 million new
vaccinations on larger farms and 1.4 million new vaccinations on
smaller farms. Consequently, the cost of vaccination on farms with at
least 3,000 layers would be $31.2 million.
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    \83\ This is based on a per layer cost of $0.035 for vaccine
plus $0.10 for labor (Ref. 115), adjusted for inflation.
    \84\ These costs are recalculated in terms of year 2005 constant
dollars using the GDP deflator.
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    viii. Benefits of vaccinating flocks. While vaccines have shown
some promise in the lab, there is insufficient evidence from field
trials about their efficacy to estimate any benefit from their use.
    In a controlled environment vaccines were found to reduce incidence
of intestinal colonization and mean number of SE shed in the feces.
Further, in a controlled setting, the same vaccines have been shown to
reduce the number of SE-positive eggs laid when compared to non-
vaccinated controls (Ref. 116). Hens were vaccinated at 38 weeks of age
followed by a booster 4 weeks later and subsequently challenged
intravaginally 2 weeks later. Despite the high level of SE recovery
from cloacal and vaginal swabs of vaccinated and unvaccinated hens,
vaccination resulted in a significant

decrease in the number of SE-positive eggs when compared to non-
vaccinated controls (19 percent versus 37 percent, respectively). The
degree of protection was only partial though, because more than half
the population was still shedding SE at a high rate (Ref. 116).
    However, the primary test for efficacy of a vaccine is a field
trial, and it is common for vaccines to be effective in the laboratory
but fail to perform up to expectations under field conditions. In a
series of Pennsylvania field studies, despite the use of SE vaccine,
63.6 percent of the houses had SE-positive environmental cultures and
100 percent of the flocks had SE organ positive birds. With regard to
all parameters tested, there were no statistical differences between
vaccinated or unvaccinated controls--indicating the ineffectiveness of
either commercially available bacterins or autogenously manufactured SE
vaccines (Ref. 117). Lab results show promise for vaccines to become a
useful tool in fighting SE transmission to eggs in the future. However,
currently, there is no vaccine that has been shown to be efficacious in
the field. Therefore, FDA is not requiring vaccination in this final
rule.
2. Administrative Measures
    a. Plan design and recordkeeping.--i. Plan design and recordkeeping
provisions. Each farm site with 3,000 or more layers that sells raw
eggs to the table egg market, other than directly to the consumer, and
does not have the eggs treated, must design and monitor an SE
prevention plan. This prevention plan includes all measures the farm is
taking to prevent SE in its flock. The following information includes
potential components of the plan: (1) Chicks and pullets, (2)
biosecurity, (3) rodent and other pest control, (4) cleaning and
disinfecting, (5) refrigeration, and (6) testing and diversion. Records
are also required for review and of modifications of the SE prevention
plan and corrective actions taken. Farms are required to have a trained
or experienced supervisor that would be responsible for overseeing the
plan.
    ii. Current industry practices; plan design and recordkeeping. We
assume that those farms that are currently operating according to
recognized industry or State quality assurance plans are already
largely in compliance with the plan design and recordkeeping provisions
discussed in this section, and therefore would not experience
additional costs to comply with record keeping provisions. Using data
from the Layers study (Refs. 27 and 28), we find that 59 percent of
farms with more than 50,000 layers are currently members of State or
industry quality assurance plans. Fewer than 8 percent of farms with
fewer than 50,000 layers are currently members of quality assurance
plans.\85\ The estimated number of farms and houses affected by plan
design and recordkeeping provisions is shown in table 29 of this
document.
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    \85\ We do not have data on participation by farms with fewer
than 3,000 layers. We assume that none of these farms are currently
members of recognized quality assurance programs.

                      Table 29--Farms Affected by Plan Design and Recordkeeping Provisions
----------------------------------------------------------------------------------------------------------------
                                                                    Percent of
                                                                    farms on a                        Houses
  Farm size (number of layers)       Number of      Houses per        quality     Farms affected    affected by
                                       farms           farm          assurance      by the rule      the rule
                                                                      program
----------------------------------------------------------------------------------------------------------------
3,000 to 19,999.................           1,746             1.4             4.9           1,661           2,325
20,000 to 49,999................             925             1.4            27.7             669             936
50,000 to 99,999................             248             2.4              58             104             250
100,000 or more.................             409             7.4            59.7             165           1,219
All farms.......................           3,328             1.4            21.9           2,599           4,730
----------------------------------------------------------------------------------------------------------------

    As table 29 of this document shows, we expect that a total of 2,598
farm sites with 4,730 poultry houses would be affected by plan design
and recordkeeping provisions.
    iii. Plan design costs. The per provision plan design cost is
calculated in table 30 of this document. Because information on the
costs of designing the SE prevention plan for eggs is not available, we
base these costs on assumptions used to analyze the design of HACCP
programs (63 FR 24253 at 24275 to 24285, May 1, 1998). In particular,
we assume that each plan component will take approximately 20 labor
hours to design. We add 50 percent to the cost of labor for designing
the plan to account for overhead. The cost of designing a plan with one
component is expected to be $560 ($27.98 x 20) (Ref. 89). Amortized
over 10 years at 7 percent, the total cost of plan design will be about
$207,000 ($80 per farm) per provision. Amortized over 10 years at 3
percent, the total cost of plan design for all farms will be about
$171,000 ($66 per farm) per provision. For six provisions (rodent and
other pest control, biosecurity, cleaning and disinfecting, chick and
pullet procurement, refrigeration, and testing and diversion), the
total cost of the plan design would be $1.2 million when amortized over
10 years at 7 percent ($1.0 million when amortized over 10 years at 3
percent).

                                   Table 30--Cost of Plan Design per Provision
----------------------------------------------------------------------------------------------------------------
                                                                  Farms affected                    Total costs
                  Farm size (number of layers)                        by the       Cost per farm   (in thousands
                                                                     proposal                       of dollars)
----------------------------------------------------------------------------------------------------------------
3,000 to 19,999.................................................           1,661            $560            $930
20,000 to 49,999................................................             669             560             375
50,000 to 99,999................................................             104             560              58
100,000 or more.................................................             165             560              92
All farms.......................................................           2,599             560           1,455
Amortized over 10 years at 7%...................................  ..............  ..............             207
----------------------------------------------------------------------------------------------------------------

    iv. Recordkeeping costs. We assume that the time required for
recordkeeping is roughly equivalent to the time necessary to monitor
and document the food safety provisions of a HACCP plan (63 FR 24253 at
24275 to 24286). Because the HACCP time estimate upon which we are
basing our estimate involves multiple control points and monitoring,
this assumption tends to overstate the cost of recordkeeping for a
provision of this final rule. In particular, we expect that, for each
house affected, recordkeeping will take one half hour per week per
required provision for provisions that would require weekly or daily
monitoring. Records kept for biosecurity measures, rodent and other
pest control and refrigeration are assumed to be recorded on a weekly
basis.
    The cost of weekly recordkeeping for biosecurity and rodent and
other pest control, assuming $18.65 an hour for labor, plus 50 percent
to reflect overhead costs, would be $727 ($27.98 x 0.5 hours x 52
weeks) per record, per house. The total annual cost for all houses for
these two records is $3.4 million ($27.98 x 0.5 hours x 52 weeks x
4,730 houses). Refrigeration records, collected weekly on a farm-by-
farm basis, rather than by-house, will cost $1.9 million annually
($27.98 x 0.5 hours x 52 weeks x 2,598 farms).
    Environmental and egg sampling and testing, diversion and treatment
records \86\ together have daily, weekly, and monthly aspects, in the
event of an environmental positive. In the case of an environmental
positive, the records' annual cost is assumed to be similar to the cost
estimated for the weekly records discussed previously, $727 per record,
per house. However, as discussed previously in this document FDA
estimated that 9.7 percent of houses will test environmentally positive
initially and 7.0 percent will test positive after the provisions of
this rule have taken effect. Additionally, farms would have to keep
records of egg testing, diversion, and treatment if they receive
pullets from a house that has tested environmentally positive; FDA
estimated that pullet houses will test positive 0.75 percent of the
time. The cost for houses that test negative would be similar to
keeping an annual record \87\; at a half hour per record the annual
cost would be $14 per record, per house. The initial total annual cost
of the environmental and egg testing, diversion, and treatment records
is $0.4 million (((0.097 x $727) + (0.903 x $14) + (0.0075 x $727)) x
4,730 houses). The eventual total expected cost of the environmental
and egg testing, diversion, and treatment records is about $0.3 million
(((0.070 x $727) + (0.930 x $14) + (0.0075 x $727)) x 4,730 houses).
---------------------------------------------------------------------------

    \86\ Including stamping documents accompanying diverted egg
shipments. The cost of the actual rubber stamp is assumed to be
negligible.
    \87\ The cost of environmental tests to pullet houses is
discussed in a separate paragraph.
---------------------------------------------------------------------------

    Records of chick and pullet procurement and records of cleaning and
disinfection will take one half hour each, per year, per house. At a
half hour per record, the annual cost will be $14 per record, per