Costs of an environmental regulation in livestock farming: Evidence from pig production in rural China

We investigate the cost and benefit of one of the most stringent Chinese environmental regulations that led to a shutdown of a large number of livestock farms. The temporal and spatial variation in programme implementation allows us to employ a staggered difference‐in‐difference (DID) to identify the causal effects of the regulation. Our DID estimates show that while the regulation significantly reduced NH3‐N, it has no significant effect on the other three important livestock related pollutants (pH, DO and COD). In contrast, the regulation consistently reduced the number of pigs slaughtered, inventory of live pigs and pork production by 8.3%, 10.3% and 11.2%, which alone is equivalent to a 2.9 percentage point loss of China's entire agricultural output value in 2016. Further analyses reveal evidence of partial substitution between pig and other livestock animals and the possibility of relocation to other regions. The policy‐induced reduction in export and increase in pork price is consistent with the reduction of pig and pork production. Overall, we find that the regulation achieved rather limited environmental benefit at a large economic cost.