TOPEKA, Kan. – How much did the 2003 mad cow disease announcement cost U.S. beef producers?
The most significant economic impact of BSE is from lost beef export markets, observed Kansas Secretary of Agriculture Adrian Polansky.
“Alone, they accounted for a $3.2 billion to $4.7 billion revenue loss to the U.S. beef industry last year.”
Borders slammed shut. Within days of the USDA’s late 2003 announcement that a cow in Washington state had been diagnosed with bovine spongiform encephalopathy (BSE), 53 countries banned imports of U.S. cattle and beef.
In 2003, U.S. beef exports were valued at $3.95 billion and accounted for 9.6 percent of U.S. commercial beef production.
Five countries – Japan, Mexico, South Korea, Canada and Hong Kong – received 90 percent of U.S. beef exports in 2003.
Mexico and Canada partially resumed beef imports in 2004, but overall the quantity of U.S. exports fell by 82 percent below 2003 levels.
Japan and South Korea have agreed in principle to resume beef imports from the United States, but neither country has committed to a date when that will occur.
“We really need access to markets like Japan, which accounted for 35 percent of all U.S. beef export value in 2003,” Polansky said.
The report. The Kansas Department of Agriculture and Kansas State University Research and Extension recently released a report, The Economic Impact of BSE on the U.S. Beef Industry.
It evaluates the potential impact BSE testing could have if it were used to regain export markets.
Researchers estimate that it would have cost about $640 million to test all cattle slaughtered in the United States in 2004, but that figure does not include any investment needed to place testing facilities in a beef processing plant.
Costs vs. markets. Researchers, led by K-State ag economist James Mintert, estimated the revenue gain would equal testing costs if the United States regained about 25 percent of the Japanese and South Korean export markets and the United States was testing roughly 75 percent of commercial cattle slaughtered.
However, if half of those markets were regained with only 25 percent of cattle tested at slaughter, the wholesale revenue gain would be $22.84 per head.
Whether such market access would be attainable with this level of testing was not addressed in the study.
“According to the research, if voluntary testing of 25 percent of U.S. slaughter cattle allowed the industry to regain access to the Japanese and South Korean export markets, and the U.S. was able to ship just one-half the quantity shipped during 2003, the potential return to the beef industry would have been nearly $750 million,” Polansky said.
Costs of stiffer regs. Researchers polled seven firms representing more than 60 percent of 2003 beef slaughter to get the data needed to assess the cost of new regulations enacted in 2004 by USDA.
The firms involved were sufficiently diverse to represent a reasonable cross-section of the beef packing industry.
Regulations issued in 2004 by USDA’s Food Safety and Inspection Service had an estimated net cost to the beef industry of approximately $200 million, plus some one-time investments that were substantial, but varied widely from firm to firm.
Those costs related to the inability to market nonambulatory cattle, the need to age cattle presented for slaughter, to segregate and process separately cattle older than 30 months and to prevent certain tissues from entering the food supply.
To offset the cost of complying with new regulations, packers are paying less for cattle over 30 months of age.
According to USDA, some packers reported discounting cattle over 30 months of age by as much as $35 for every 100 pounds of carcass weight.
However, average packer discounts for cattle over 30 months of age were closer to $10 per 100 pounds of carcass weight.
Jobs lost. The regulations also led to changes in cattle procurement, employment, employee training requirements, food safety plans, capital investments and marketing opportunities for the beef industry.
While some new jobs were created to comply with the new regulations, overall there were more jobs lost.
Job gains were due to the need to age cattle. Job losses were tied to closed export markets and condemnation of certain beef byproducts.
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Not being able to market nonambulatory cows costly
TOPEKA, Kan. – Kansas researchers also studied the economic impact of USDA’s rule that prohibits non-ambulatory cattle from entering the food supply.
The beef industry contends that injured nonambulatory animals can be distinguished from animals that are non-ambulatory due to symptoms that place the animal at high-risk of having BSE.
The inability to market any nonambulatory cattle means the industry lost revenue because of the new regulations.
“Assuming that 95 percent of nonambulatory cattle in 2004 passed the standards in place before USDA enacted its ban on nonambulatory cattle entering the food supply, the economic benefit could have been more than $63 million,” said Kansas State University economist James Mintert.
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