Extension Responds: BSE
Economic implications of “mad cow” in the U.S.
By: Brenda Boetel, Livestock Marketing Specialist
University of Wisconsin-River Falls/Extension
How much beef does the U.S. produce yearly?
A: The U.S. produced 27.09 billion pounds of commercial carcass weight -- a retail equivalent value of $65 billion in 2002. It's estimated that the nation's beef industry produced a retail equivalent value of $70 billion in 2003 (26.30 billion pounds of commercial carcass weight).
How much beef does the US export?
A: The US exported 2.45 billion pounds of commercial carcass weight (9 percent of production) valued at $2.61 billion in 2002. The estimate for 2003 was 2.58 billion pounds of commercial carcass weight (9.8 percent of production) valued at $3.27 billion in 2003.
How much beef does Wisconsin export?
A: In 2002, Wisconsin exported $194.3 million worth of live animals and meat. This value includes hogs, sheep and other meat animals as well as cattle.
What are the top markets for U.S. beef, and how much do they import?
A: The top three markets for U.S. beef are Japan, Mexico and South Korea, and they account for approximately 92 percent of all beef exports. In 2002, Japan imported 771 million pounds carcass weight valued at $854 million. Mexico imported 629 million pounds carcass weight valued at $615 million. South Korea imported 597 million pounds valued at $619 million.
What does the BSE detection mean for U.S. beef exports?
A: As of Dec. 29, 2003, more than 30 U.S. trading partners, including Japan, South Korea, Russia and Mexico, have suspended imports of U.S. beef and beef products.
When will our borders open?
A: Japan, the largest market for U.S. beef exports, will send a fact-finding team to the United States in early January to gather more information about the case. So far, Japan has refused to soften its ban on imports of American beef. In a trip to Japan, U.S. officials had hoped to persuade Japanese officials that U.S. safeguards were adequate and a ban was not necessary. However, the U.S. request to lift the Japanese beef ban was rejected. U.S. agriculture officials arrived in South Korea on Tuesday, Dec. 30, to discuss their ban. Taiwanese officials said their nation would ban U.S. beef imports for at least seven years. America is the source of 20 percent of Taiwan's beef.
What will happen to cattle prices?
A: The loss of export markets increases the domestic supply of beef, which will lower domestic prices. Although the U.S. exports approximately 9.6 percent of its beef, the loss of export markets does not necessarily imply that there will be a 9.6 percent increase in the domestic supply, as trade flows may change some. However, if one assumes the worst situation in that all beef normally exported must be consumed domestically and that beef imports remain unchanged, then there could be a 15 to 20 percent decrease in prices. This number is based on a 1.7 percent decrease in price for every 1 percent increase in domestic supplies, and assumes that domestic demand will not change. If domestic perception changes and demand decreases, this percent decline in price could be even greater.
It is important to remember that cash prices were expected to fall to an upper $80s/cwt average for the first quarter (this is prior to the BSE case). Accounting for the 15 to 20 percent decrease in prices due to the loss of export markets will push cash prices into the low- to mid-$70s/cwt.
What will happen to the value of by-products?
A: The loss of export markets will also hurt by-product values. This decline in by-product value will also drag cattle prices lower.
What will happen to domestic demand?
A: Nick Piggott at North Carolina State University and Tom Marsh at Kansas State University suggest that the impact on domestic beef demand could be limited, provided no additional BSE cases are found. Their research would indicate that although demand declines in the short-run in response to a food safety problem, consumers generally do not allow the food safety problem to impact their long-run consumption habits. Only repeated food safety problems will lead to an ongoing domestic demand loss.
For more information: Brenda Boetel, Livestock Marketing Specialist, University of Wisconsin River Falls/Extension, 715-425-0702, brenda.boetel@uwrf.edu