A publication of the Agricultural & Applied AAEA The magazine of food, farm, and resource issues Agricultural & Applied Economics Association Economics Association 4rd Quarter 2012 • 27(4) Assessing the Impact of LFTB in the Cattle Industry J. Ross Pruitt and David P. Anderson JEL Classification: Q11, Q13, and Q18 Keywords: Beef Cattle, , Lean Finely Textured Beef

Ground beef consumption in the United States accounts It is in this environment that lean finely textured beef for over half of total beef consumption and is included in a (LFTB) was developed to increase the percent leanness of variety of products from tacos to chili to hamburgers (Greene relatively fatty beef trim—items after removal of major 2012; National Cattlemen’s Beef Association 2009, 2012; cuts from carcass. The overall value of a beef carcass was Peel, 2012). The importance of to U.S. con- increased due to production of LFTB, which allowed con- sumers is reflected in the number of restaurants that include sumers to experience near constant prices of products like hamburgers on their menus as well as the different types of hamburgers. Following media stories on LFTB, referred to hamburgers offered. Despite the slow economic recovery as “pink slime,” in March 2012, consumers rejected the that has been occurring over the past few years, quick-service beef product with immediate implications for the U.S. beef restaurants focusing on serving quality hamburgers have supply chain. This article explores the implications for beef been expanding across the country. This is in addition to markets as a result of the rejection by some consumers and better known chains such as McDonald’s and Wendy’s pe- retailers for LFTB. Discussion is also included on industry riodically updating their hamburger offerings to boost sales reaction to the story. which reflects the latest trends present among consumers. LFTB: The Product Although ground beef consumption accounts for over half of total beef consumption, it accounts for approxi- LFTB has been used since the early 1980s (Rabobank, mately a quarter of the beef produced from each steer or 2012) although the exact product sold by heifer carcass (Nold, 2012) and a much larger percentage Incorporated (BPI), and which was at the center of media of harvested cows. Additional ground beef is produced by and consumer publicity in March 2012, has only existed grinding primal chuck and round cuts, but these are more since 2001 (Andrews, 2012). expensive. Compared to the 1970s, domestic beef demand Dramatic public backlash against the use of LFTB— dropped as consumer demand shifted toward leaner protein or termed “pink slime,” based on wording from a former sources, namely chicken. Although the number of cattle in USDA scientist—occurred following the airing of an ABC the U.S. has declined since the 1970s, increased efficiency News segment on March 7, 2012 (Avila, 2012a), even has contributed to an increase in total U.S. beef production. though there had been other stories on LFTB in previ- The primary source of lean ground beef is not from feedlot ous years (see Andrews, 2012). Consumer concern was al- finished cattle, but from mature cows and bulls slaughtered most immediate with ABC News alerting its viewership to and from imported lean beef trimmings. Supplies of ma- which retail outlets carried LFTB in a follow-up story on ture cows and bulls are limited compared to feedlot finished March 8th (Avila, 2012b). Price impacts were not imme- cattle, as an average of 6.3 million cows and bulls have been diately apparent in the fed cattle futures and cash markets, slaughtered under federal inspection annually since 2000 but weekly prices for 50% chemically lean (CL) trimmings compared to 27.4 million steers and heifers.

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1 CHOICES 4rd Quarter 2012 • 27(4) of various retail buyers. The ground Figure 1: Weekly Prices for Fed Cattle and Selected Beef Trimmings beef lean-to-fat ratio typically ranges from 50% lean and 50% fat up to 97% lean and 3% fat. The LFTB process allowed lean beef to be taken out of trimmings that contain a high percentage of fat. Extracted LFTB, approaching 100% lean beef, can be blended with other beef to increase the percentage lean which consumers continue to demand. LFTB never accounts for more than 15% of a ground beef mixture comprised of lean trimmings that range from 94 to 97% chemical lean (94CL, 97CL). Using ground beef in combination with LFTB results in a desired percentage lean ground beef Source: USDA AMS; compiled by LMIC offering to consumers. Table 1 illus- trates prices which affect the forma- tion of an 85% lean-15% fat ground showed a 2% decline in the first of LFTB reflected in the price for beef mixture with and without the in- week and increased to a 48% drop 50CL trimmings continues to lower clusion of LFTB. The beef trim prices by mid-April. Fifty percent (50CL) the value of fed cattle. The decline are reflective of prices at the wholesale trim prices would stage a short-lived in demand for 50CL trimmings level in mid-February 2012, and indi- recovery in late April, but the damage may be permanent, short of a shift cate savings that can be passed on to in public confidence was too great too in consumer demand resulting from consumers. overcome. consumer or retailer re-acceptance of LFTB type products. The cost savings from use of LFTB Through the end of June, lean in ground beef mixtures may not be trimmings (75CL, 81CL, 85CL, and Why did the industry adopt LFTB large, but helps to explain why an 90CL) held or increased in their value use? Use of LFTB helped to recover estimated 75% of hamburger relative to the first week of March, as approximately 110 pounds of beef sold in the United States contained 50CL trim prices continued to de- trimmings that were less than 50% LFTB by mid-2008 (Shin, 2008). In cline. The loss of LFTB acceptance chemically lean (Rabobank, 2012). the intensely competitive hamburger resulted in a large increase in the sup- Otherwise this product would have market, where margins are razor thin ply of 50CL. been rendered down or would have and profits often measured in frac- BPI was not the only company been incorporated into lower value tions of a penny, these cost savings producing a form of LFTB, and pro- products on each carcass harvested. are extremely important. duction of this beef product by all The use of 50CL allowed the industry companies has slowed since the news to improve efficiency at the process- Consequences of an LFTB-Free ing level amid a period of declining stories in March 2012. While this Marketplace story has huge potential ramifications cattle herd supply in the U.S. and for the entire and indus- other major beef producing nations. The inability to use LFTB in ground try, the drought that has enveloped Even though the total U.S. beef herd beef mixtures has not dampened the much of the United States in subse- numbers declined in recent years, U.S. consumers’ appetite for prod- quent months has become the larger total beef supplies had not declined ucts requiring ground beef. Sources story. The impact of the drought on because carcasses were getting larger of lean ground beef are still needed pasture and range conditions com- and the industry was able to more ef- due to U.S. consumer preferences for bined with rapidly declining yield ex- ficiently harvest what was available. lean beef. As a result of some con- pectations for corn and soybeans have On the consumer demand side, sumers and retailers unwillingness to had a larger impact on fed and feeder ground beef is typically produced, accept LFTB, 13 pounds of beef per cattle prices than LFTB. Regardless, or ground, into a range of lean-to- animal are no longer being used for the fallout from the lack of demand fat ratios to meet the requirements human consumption (Cross, 2012). This meat did not disappear, but is

2 CHOICES 4rd Quarter 2012 • 27(4) Regardless of the source of the Table 1: Fed Cattle and Selected Beef Trimmings, Weekly Prices ($/cwt.) beef, indications are that the concern Example Price Comparison of Ground Beef Mixture with and without Inclusion of LFTB over LFTB has led to the U.S. im- porting more beef. This is not trivial, Ground Beef Ground Beef with LFTB included without LFTB given the increased interest among some U.S. consumers for locally pro- Percent Usage of 90CL Ground Beef Trim 75% 87.5% duced food. 90CL Ground Beef Trim Price ($/cwt) $212.28 $212.28 In early April, 2012, imports of Percent Usage of 50CL Ground Beef Trim 15% 12.5% Canadian slaughter cows and bulls 50CL Ground Beef Trim Price ($/cwt) $99.84 $99.84 began to increase, partially in re- sponse to the inability of U.S. pro- Percent Leanness of LFTB 95% N/A cessors to continue to use LFTB in Percent Usage of LFTB 10% N/A ground beef mixtures. LFTB Price ($/cwt) $174.00 N/A The increase in cattle imports was Percent Leanness of Ground Beef Mixture 85% 85% likely to occur, given price trends, even without the loss of LFTB, but Ground Beef Mixture Price ($/cwt) $191.59 $198.23 certainly imports have increased from Source: USDA AMS and industry contact the negative press coverage surround- USDA prices for the week ending February 18, 2012; prices for LFTB for mid-February 2012 ing LFTB. Year-to-date imports from Canada are on pace to provide ap- being incorporated into lower value Lack of consumer acceptance of proximately 200,000 head of mature products and thus reducing the over- LFTB opens the door to development cows and bulls. all value of cattle to producers. of technologies that can efficiently har- Imported lean beef trimmings The processes used in produc- vest all available beef on each animal from Australia and New Zealand can tion of LFTB are an illustration of slaughtered. Without the use of LFTB, also fill the void in an LFTB-free mar- the disassembly process involved in more 90CL trim from mature cows ketplace, but not without its own set of transforming cattle into beef and, ulti- and bulls will be needed to increase the challenges. Imports from these coun- mately, , roasts, and ground beef leanness of ground beef when mixed tries are typically frozen, which work (Robb, Lawrence, and Rosa, 2006). with 50CL trim (Peel, 2012). Supplies better in the hotel and restaurant in- Consumer beef demand rests on these of 90CL trim come primarily from dustries due to the lack of mandatory products, as beef demand is an aggre- mature cows and bulls which accounts country-of-origin labeling (mCOOL) gation of the demand for each of those for approximately 20% of Federally required for retail grocery sales. Ad- products consumers eat such as roasts, Inspected cattle slaughter. Domestic ditionally, frozen processing beef is ground beef, and steaks. Technologies supplies of 90CL trim are expected to more difficult to use in retail packag- such as LFTB increased the supply of continue tightening in the next few ing due to the increased liquid that recoverable lean beef from fat trim- years as the U.S. cattle herd shifts results when frozen product is thawed, mings, allowing for lower priced beef from contraction to expansion result- thereby increasing the chances of leaky at the retail counter and cattle there ing in fewer mature cows and bulls packages (Rabobank, 2012). Through were higher in value at the farm gate. going to slaughter. May of 2012, U.S. imports of Austra- Cross (2012) and Rabobank Not all of the 90CL trim though lian beef trim have increased 85% over (2012) argue that the inability to use will come from domestic sources. Ad- last year. The strengthening of the Aus- LFTB will result in the need for an ad- ditional supplies of 90CL trim will tralian dollar relative to the U.S. dol- ditional 1 to 1.5 million cattle to be come from a variety of sources in- lar during this time period cannot be slaughtered annually. Loss of the LFTB cluding U.S. cattle producers, slaugh- ignored, but frozen 90CL trimmings production process creates an inability ter cow imports from Canada, and from Australia and New Zealand have to efficiently use all the products avail- frozen beef imported from Austra- been trading at a discount to U.S. fro- able from beef carcasses. An additional lia and New Zealand. At this point, zen 90CL trimmings for every month 1 million cattle slaughtered would re- the question is which source will be in 2012. The fact that fresh U.S. beef sult in more steaks, roasts, and other quickest to respond and at the lowest trimmings (90CL) continue to trade beef cuts also being produced along cost to consumers in this competitive at a premium to imported frozen trim- with ground beef, which would reduce market? mings of similar leanness indicates that prices for these beef cuts and the over- the frozen imported product is not a all value of cattle at the farm gate. perfect substitute for fresh product.

3 CHOICES 4rd Quarter 2012 • 27(4) Lessons Learned Questions remain as to what part production and food safety. Increased and to what extent LFTB should have transparency would provide consum- The issue of LFTB further illustrates been labeled: low value beef trim be- ers with increased knowledge of food the divide in perception of consum- ing incorporated into higher value production practices, and reduce the ers and agricultural producers. Con- beef trim or the fact that ammonium “yuck” factor, but there is no guaran- sumers generally find agricultural hydroxide was used to kill E. coli and tee that consumer exposure will even- producers to be credible, hence the other pathogens? The former has large tually lead to consumer acceptance. recent push by farm organizations to implications for any meat or poultry have producers “tell their story” and Lusk and Briggeman (2009) product that is ground while the lat- the development of public relation found that consumers considered ter has consequences for products programs such as the Masters of Beef food safety the most important of ranging from meat to bakery prod- Advocacy by the National Cattle- eleven attributes tested. Gimmicky ucts to confectionery (Greene, 2012). men’s Beef Association to help com- names such as “pink slime” call into Ammonium hydroxide is widely used bat misinformation. question the safety of a product, as a processing aid in a variety of food which can undermine consumer con- While there is room in today’s products and the Food and Drug fidence in the attributes of safety, nu- marketplace for a variety of produc- Administration views ammonium trition and taste which were ranked tion methods, consumer knowledge hydroxide as generally recognized as highly by consumers in Lusk and about processing practices used to safe (International Food Information Briggeman (2009). convert a raw food into Council Foundation, 2009; Greene, the desired food product is lacking. 2012). The use of ammonium hy- Social media and the internet have Part of the backlash against LFTB droxide in LFTB was as a processing removed a curtain that often sepa- was the use of beef previously ren- aid, and not as an ingredient, which rated production agriculture from the dered into nonfood products and use is not required to be labeled per the average U.S. consumer and ushered of ammonium hydroxide to prevent Food Safety Inspection Service. in additional opportunities for trans- the risk of E. coli and other pathogen parency and for consumer education. Transparency through labeling contamination. Critics of the way the Consumers may be more knowledge- can reduce information asymmetry, beef industry and USDA handled able about production practices that especially at a time when an increas- media coverage have argued prod- are used, but that is not the same as ing number of consumers are fur- ucts containing LFTB should have knowing why a practice is employed. ther and further removed from the been labeled as such (Ray and Schae- The “why” is no less an important realities of agricultural production. fer, 2012; Lean Beef or Pink Slime? question to ask and present to di- However, the effectiveness of trans- It’s All in a Name, USA Today, April minish asymmetric information, but parency is limited when emotions are 2012). it doesn’t always easily translate into involved, as is often the case with food a 140 character tweet or blog post. Too much information can also be Figure 2: Weekly Slaughter Cows and Bulls Imported from Canada detrimental if not completely under- stood or without the proper context. Arguably, the stories by Avila (2012a, b) lacked context due to the repeated use of the pejorative “pink slime” and failure to highlight how LFTB made more efficient use of available domes- tic lean beef supplies. Following the timeline set forth by Andrews (2012) demonstrates that opponents of LFTB had been slowly building a case for labeling or removal of LFTB from the food supply since at least 2008. Entities that are not happy with current production practices in modern agriculture have learned to target public opinion. Use of outlets such as the documentary “Food, Inc.” Source: USDA AMS and APHIS; compiled by LMIC and targeted

4 CHOICES 4rd Quarter 2012 • 27(4) opinion setters. However, public out- changes in the underlying production For More Information cry over LFTB did not gain strength practices. The changes that occur may Andrews, J. (2012, April 9). BPI until traditional media such as ABC result in smaller producers exiting the and ‘pink slime’: A timeline. News and other outlets covered the industry due to an inability to capture Food Safety News. Available story (Fielding et al., 2012). At that efficiencies from alternative available online: http://www.foodsafe- point, no amount of transparency technology or the ability to afford the tynews.com/2012/04/bpi-and- could prevent the downfall of LFTB. technology. pink-slime-a-timeline/?utm_ Proponents of transparency in Another issue may be the name of source=newsletter&utm_ modern agricultural production prac- the product itself. Lean finely textured medium=email&utm_cam- tices must also remember that while beef, LFTB, is beef. The descriptors paign=120409. exposure to certain practices may of this beef product do provide the Avila, J. (2012a, March 7). 70 per- increase consumer acceptance, pre- opportunity for individuals to know cent of ground beef at super- vious research has shown that “why” what it is. Alternatively without suf- markets contains ‘pink slime’. doesn’t always matter in the consum- ficient transparency, a product can be ABC News. Available online: er thought process (Lusk, Norwood, rebranded into something seemingly http://abcnews.go.com/blogs/ and Pruitt, 2006; Tonsor, Olynk, and sinister. headlines/2012/03/70-percent- Wolf, 2009). In both studies, con- The media did no favors to con- of-ground-beef-at-supermar- sumers were provided different levels sumers by presenting an unbalanced kets-contains-pink-slime/. of information prior to completing LFTB story. Consumers are intelligent, Avila, J. (2012b, March 8). Is pink a questionnaire, only to find that but intelligence is different from being the level of information presented slime in the beef at your gro- knowledgeable. Research that has fo- cery store? ABC News. Available did not lead to differences in results. cused on hot topic animal agriculture However, Tonsor, Olynk, and Wolf online: http://abcnews.go.com/ issues has not determined the extent blogs/headlines/2012/03/is-pink- (2009) found that labeling of of the knowledge base of consumers. raised from gestation crates would slime-in-the-beef-at-your-gro- This may provide an information void cery-store/. improve societal welfare more than a pertaining to their knowledge of what ban on gestation crates in pork pro- agricultural practices are used, by more Cross, R. (2012, April 1). Opposing duction. This suggests the possibility importantly why certain practices are view: LFTB is 100% beef [Edito- that USDA’s action to approve label- used. Knowledge on the “why” may rial]. USA Today. Available online: ing for LFTB to increase transparency not have made a difference in the case http://www.usatoday.com/news/ was correct. of LFTB, but this can provide a lesson opinion/story/2012-04-01/lean- to agriculture related consumer edu- finely-textured-beef/53933754/1. Summary cation needs. Providing an improved Fielding, M., Friedland, D., Gab- Norwood (2007) found consum- understanding to consumer’s relating bett, R.J., Johnston, T. and Keefe, ers do realize the impact of their pur- to production practices used at the L.M. (2012, May). SLIMED what chasing decisions on aspects of the ag- farm or processing level will help them the hell happened. Meatingplace. ricultural supply chain. However, the more reliably assess information pro- Available online: www.meat- consequences of those decisions are vided by the media and other sources. ingplace.com/Print/Archives/ not always immediately felt. Longer- Labeling and bans on LFTB have Details/4162. run price adjustments often result as been discussed. Labeling provides a Greene, J.L. (2012, April). Lean marketing intermediaries, recogniz- degree of information and transpar- finely textured beef: The “pink ing income and substitution effects, ency, but without background knowl- slime” controversy. Washington, are reluctant to pass additional costs edge may mislead consumers. With- DC: Congressional Research Ser- to the consumer immediately. In the out an educated public, bans could vice R42473. Available online: case of LFTB, consumers continue to have unintended negative effects on http://www.fas.org/sgp/crs/misc/ demand lean ground beef. The major- societal welfare, as opposed to the de- R42473.pdf. ity of ground beef product previously sired result of being welfare-enhanc- International Food Information used in LFTB is still being used and ing. The outrage expressed by con- Council Foundation. (2009). consumed as ground beef, but now in sumers over LFTB resulted in ABC Questions and answers about a manner that is more expensive and News providing a lesson for produc- ammonium hydroxide use in increases costs to consumers and re- tion agriculture that the public must food production. Available duces returns to producers. Cost in- be both educated and informed. online: http://www.foodin- creases such as these are reflective of sight.org/Resources/Detail.

5 CHOICES 4rd Quarter 2012 • 27(4) aspx?topic=Questions_and_An- Rabobank. (2012, July). LFTB: Beef’s swers_about_Ammonium_Hy- latest battleground for survival. droxide_Use_in_Food_Produc- Ray, D.E., and Schaffer, H.D. tion. (2012). Pink slime: An object les- Lean beef or pink slime? It’s all in a son for the ? Uni- name [Editorial]. (2012, April versity of Tennessee Agricultural 1). USA Today. Available on- Policy Analysis Center. Available line: http://www.usatoday.com/ online: http://www.agpolicy.org/ news/opinion/editorials/sto- weekcol/611.html. ry/2012-04-01/pink-slime-lean- Robb, J.G., Lawrence, A.E., and beef/53933770/1. Rosa, E.L. (2006). Issues related Lusk, J.L, and Briggeman, B.C. to beef traceability: A discussion of (2009). Food values. American transforming cattle into products. Journal of Agricultural Economics, Lakewood, CO: Mar- 91(1),184-196. keting Information Center. Avail- Lusk, J.L., Norwood, F.B., and able online: http://www.lmic.info. Pruitt, J.R. (2006). Consumer de- Shin, A. (2008, June 12). Engineer- mand for a ban on antibiotic drug ing a safer burger. Washington Use in pork production. American Post, p. D-1. Journal of Agricultural Economics, Tonsor, G.T., Olynk, N., and Wolf, 88(4),1015-1033. C. (2009). Consumer preferences National Cattlemen’s Beef Associa- for animal welfare attributes: The tion. (2012, August). Average an- case of gestation crates. Journal of nual per capita consumption, beef Agricultural and Applied Econom- cuts and ground beef. Available ics, 41(3), 713-730. online: http://www.beefusa.org/ CMDocs/BeefUSA/Resources/ J. Ross Pruitt ([email protected]. Statistics/averageannualpercapita- edu) is an Assistant Professor and Ex- consumptionbeefcutsandground- tension Economist in the Department of beef559.pdf. Agricultural Economics and Agribusi- National Cattlemen’s Beef Associa- ness at the Louisiana State University tion. (2009, May). Beef market at Agricultural Center. David P. Ander- a glance. Available online: http:// son ([email protected]) is the Ex- www.beefusa.org/CMDocs/Beef- tension Livestock Marketing Specialist USA/Resources/Statistics/fact- at Texas A&M University. sheet_beefmarketataglance.pdf. Nold, R. (2012, January 2). How much meat can you expect from a fed steer? Brookings, SD: South Da- kota State University Extension. Available online: http://igrow.org/ livestock/beef/how-much-meat- can-you-expect-from-a-fed-steer/. Norwood, F.B. (2007, November 26). lessons abound on animal welfare issue. The Voice of Agricul- ture-American Farm Bureau. Peel, D.S. (2012). Getting what you asked for and not liking what you get. Cow/Calf Corner Newsletter; April 2.

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