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MF2678 the Economic Impact of BSE on the U.S. Beef Industry: Product Value Losses, Regulatory Costs, and Consumer Reactions

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MF2678 the Economic Impact of BSE on the U.S. Beef Industry: Product Value Losses, Regulatory Costs, and Consumer Reactions 5IF&DPOPNJD*NQBDUPG#4& ,BOTBT4UBUF6OJWFSTJUZ POUIF64#FFG*OEVTUSZ "HSJDVMUVSBM&YQFSJNFOU4UBUJPO BOE$PPQFSBUJWF&YUFOTJPO4FSWJDF 1SPEVDU7BMVF-PTTFT 3FHVMBUPSZ $PTUT BOE$POTVNFS3FBDUJPOT Brian Coffey Research Assistant Department of Agricultural Economics James Mintert Professor Department of Agricultural Economics Sean Fox Professor Department of Agricultural Economics Ted Schroeder Professor Department of Agricultural Economics Luc Valentin Research Assistant Department of Agricultural Economics Prepared for The Kansas Department of Agriculture Adrian Polansky, Secretary of Agriculture Acknowledgements We acknowledge funding assistance from the Kansas Department of Agriculture and the U.S. Department of Agriculture Economic Research Service. We are grateful to the numerous beef industry participants who were very generous in providing their time and sharing their expertise with us in this research effort. We also appreciate helpful comments from Dr. Gary Brester and Dr. Dell Allen on an earlier draft of this manuscript. Any remaining errors are the responsibility of the authors. Some cover photos courtesy of USDA Natural Resources Conservation Service. Contents Executive Summary ..............................................................................................3 Background ........................................................................................................................... 3 Regulatory Response to the December 23 Case ....................................................................3 Costs Associated with BSE Regulations ............................................................................... 3 Market Response to the December 2003 Case ......................................................................4 Testing ..................................................................................................................................5 Introduction .........................................................................................................7 1.1 Study Objectives ..............................................................................................................7 1.2 Structure of the Study ..................................................................................................... 7 The Regulatory Environment in the United States .................................................9 2.1 History of U.S. BSE-Related Policy ................................................................................9 2.2 BSE in North America ..................................................................................................10 2.3 U.S. Reaction to the BSE Case in Washington State .................................................... 10 Market Losses Following the December 2003 Case ...............................................13 3.1 U.S. Beef Exports by Product Category .........................................................................13 3.2 Ranking Beef Exports by Category ............................................................................... 13 3.3 Beef Exports Decline in 2004 ........................................................................................15 3.4 U.S. Beef Export Customers ..........................................................................................20 3.5 Beef Exports, By Country, and Category .......................................................................20 3.6 Beef Industry Losses Attributable to the Trade Ban ..................................................... 27 3.7 Impact of Beef Export Reduction ..................................................................................28 3.8 Impact of Beef Offal Export Reduction ........................................................................ 29 3.9 Potential Revenue Gains from Reopening Japanese and South Korean Markets ..........30 Changes in the Beef Packing Sector .....................................................................33 4.1 Changes in Procurement ............................................................................................... 34 4.2 Changes in Employment ...............................................................................................34 4.3 Employee Training ........................................................................................................ 37 4.4 HACCP, SSOPs, and Record Keeping ..........................................................................37 4.5 Facility Modification Investment .................................................................................. 37 4.6 Lost Products ................................................................................................................ 38 Analysis of Feed-Ban and Specified Risk Material Policy Options .........................43 5.1 Cost of the 1997 Feed Ban ...........................................................................................44 5.2 Cost of the Proposed Restriction on Ruminant Blood Meal ........................................44 5.3 Proposed Restrictions on SRM ..................................................................................... 45 5.4 Expanded Definition of SRM .......................................................................................46 5.5 Ban the Feeding of any Animal Protein to Ruminants .................................................47 5.6 Ban on Feeding Ruminant Derived Protein to any Animal .......................................... 47 5.7 Ban on Feeding any Animal Protein to Farmed Animals ..............................................48 5.8 Conclusion..................................................................................................................... 48 Impact on U.S. Beef Demand of Future BSE Cases ...............................................49 6.1 Consumer Survey ......................................................................................................... 49 6.2 Survey Results ............................................................................................................... 49 6.3 Response to the Initial BSE Case ..................................................................................50 6.4 Response to Additional Cases of BSE ...........................................................................50 6.5 Conclusions Regarding Consumer Response to Future BSE Cases ..............................51 Regulatory Policy Alternatives .............................................................................53 7.1 Testing for BSE .............................................................................................................53 7.2 Non-ambulatory Animals ..............................................................................................57 7.3 Small Intestine ...............................................................................................................57 7.4 Animal Identification .................................................................................................... 58 References ..........................................................................................................59 Appendix 1 .........................................................................................................60 Timeline of Major Bovine Spongiform Encephalopathy (BSE) Events. .............................60 Appendix 2 .........................................................................................................62 Beef and By-product Categories. .........................................................................................62 Appendix 3 .........................................................................................................62 Beef Offal Categories. ......................................................................................................... 62 Appendix 4 .........................................................................................................63 Methodology for Estimating 2004 BSE-Related Trade Loss. ............................................63 Abbreviations ............................................................................... inside back cover Executive Summary Background cattle in a 12- to 18-month period beginning For nearly 2 decades the U.S. beef in June 2004. This represented more than a industry has been impacted by bovine spon- tenfold increase in testing relative to previous giform encephalopathy (BSE). Since the surveillance levels. emergence of the disease in the United Kingdom and the subsequent discovery of Costs Associated with BSE Regulations a possible link between BSE and fatal new The regulations introduced in 2004 led variant Creutzfeld-Jacob Disease (vCJD) in to changes in cattle procurement, employ- humans, various agencies of the United States ment, employee training requirements, food government have implemented measures safety plans, capital investments, and market- to prevent BSE from entering the country, ing opportunities for the beef industry. To prevent its spread if it were to be discovered assess the impact on industry, we interviewed here, and safeguard human health. These seven firms to gather data on costs associated measures included restrictions on imports of with the new regulations. The seven firms live animals, meat products and feedstuffs, represented more than 60 percent of 2003 restrictions on feeding certain ruminant beef slaughter and were sufficiently diverse to derived tissues back to ruminant animals, a represent
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