It’s hard to believe that a single cow could control the future of the North American meat complex. But that’s what is happening after a dairy cow of Canadian origin was confirmed to have bovine spongiform encephalopathy in the United States.
This discovery triggered a nervous reaction in the U.S. beef industry, as well as in related protein industries, as they awaited U.S. consumers’ reaction. Even with just one BSE case, a panic fueled by the media could have implications for all of agriculture.
Of course, the export market had a more predictable response, with some 30 nations, immediately ending ties with the U.S. beef industry.
“BSE has been blown way out of proportion. Only 150 people worldwide have ever died from eating the meat of an infected cow,” says Glenn Grimes, University of Missouri agricultural economist. “You have a better chance of getting struck by lightning twice in one day as dying from eating the muscle meat of a BSE-infected cow.”
The U.S. BSE case didn’t cause much of a stir with domestic consumers, and beef demand held steady. Fast-food restaurants reported no significant purchasing changes, and retailers continued to sell beef.
“The BSE case has shown U.S. consumers to be a knowledgeable consuming public that doesn’t panic,” says Steve Meyer, Paragon Economics. “Long-term that is a big positive.
It probably didn’t hurt that the nearly 7-year-old cow was traced back to Canada.
But as noted, international markets had a different response. In 2002, U.S. beef and beef variety meat exports accounted for $4.6 billion in sales, so losing export markets even for a short time, will be costly.
The United States exports 10 percent of its beef production. Losing that market will mean more beef will end up in U.S. grocery stores at discount prices. That’s bad news for pork, since cheap beef could lead consumers to substitute more beef for pork.
“Lower beef prices will cause some substitution, though I don’t know how much,” says Meyer. “This is the reverse situation of last fall with the high beef prices causing consumers to substitute pork for beef and strengthening the pork markets.”
Today, the price/demand relationship between beef and pork is not as strong as it’s been in past years, but it still exists. The last quarter of 2003 was evidence of that, says Grimes. It does, however, take a much wider swing in retail price to get consumers to substitute between beef and pork than in the past.
Retail beef prices decline about 1 percent for every 2 percent drop in fed-cattle prices. As a result of the BSE find, fed-cattle prices dropped about 20 percent in three weeks. That pushed retail beef prices down about 10 percent, says Grimes.
But considering that beef prices were at all-time highs during fourth quarter 2003, a 10 percent drop is not that drastic, and 2003’s record-setting live-cattle prices were too high to be sustained long term.
U.S. pork may be able to pick up some extra export business, depending on how long the U.S. beef ban lingers,
“The Japanese have to eat something and between U.S. and Canadian beef, they have thrown a roadblock to 30 percent of their beef supply,” says Meyer.
Still, some are skeptical about making much gain in the export market. “There won’t be a large increase in pork exports,” says Grimes. He points to pork’s sales in 2003 — up 6.4 percent during the first 10 months. Japan would be the big market, and it would be a surprise if U.S. pork exports there increased more than 1 percent to 2 percent of U.S. production.
Still, a 1 percent increase with U.S. pork’s biggest export customer would mean more tonnage and dollars than a 1 percent increase anywhere else.
The $64,000-question of course is, how long will the export ban last?
Canada continues to accept U.S. beef and cattle, provided the animal is less then 30 months old. But Taiwan has banned U.S. beef for the next seven years. Whether the rest of the world takes a science-based approach to resuming beef trade with the United States will determine BSE’s ultimate significance.
One thing the United States has in its favor is the fact that the infected cow originally came from Canada.
“Psychologically, that determination helps quite a bit,” says Grimes. “It may allow the United States to continue to claim to be BSE-free, and it may expedite lifting some of the export bans.”
There were 81 cows from that same herd shipped to the United States in 2001, of which USDA is looking to track 71 of them. “If USDA can account for those other cows, and no U.S.-born, BSE-infected cow is found, there will be a strong campaign to get other countries to lift the export ban,” says Meyer.
The BSE situation is not nearly as bad as it could’ve been. There were several additional factors that made the case much easier to take.
“The beef industry made a lot of money and built some equity just before the BSE case,” says Meyer. “Also, the beef supply was running small, so an extra 10 percent of beef puts the domestic supply about where it was before prices shot up.”
In the long run, a return to normalcy for the beef market is what’s best for the pork market. The sooner the export markets open up, the better for U.S. pork and U.S. beef.