BSE Market Loss Estimated at Up to $4.7 Billion

K-State study shows that voluntary and mandatory testing would have cost less than closed markets. Compiled by staff

Published on: Apr 29, 2005

"The most significant economic impact of BSE is from lost beef export markets," says 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."

This is the key findings in a new report, "The Economic Impact of BSE on the U.S. Beef Industry," from the Kansas Department of Agriculture and K-State Research and Extension. The report provides a comprehensive assessment of the economic impact of lost export markets and policy changes affecting cattle procurement and processing.

Testing would have alleviated economic losses

The report 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.

"The cost of equipping a facility to perform the tests varies substantially from one operation to another," says K-State professor of agricultural economics James Mintert. "We focused on the known expenses; the tests and the labor to conduct them."

Researchers estimated that the revenue gain would equal testing costs if the United States regained about 25% of the Japanese and South Korean export markets and the United States was testing roughly 75% of commercial cattle slaughtered. However, if half of those markets were regained with only 25% 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% 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 says.

New regulations cost beef industry $200 million

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 non-ambulatory 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.

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 by-products.

Feed regulations also come with a cost

The study also examined potential costs related to feed regulations being considered by the Food and Drug Administration. Last July, FDA published an advance notice of proposed rulemaking seeking input on regulation changes the agency was considering to ban from cattle feed all bovine blood products, plate waste and poultry litter, and to require dedicated equipment for producing ruminant and non-ruminant feed to prevent cross-contamination. To date, FDA has not made the rules final.

"BSE-related policies will continue to evolve, and the analysis provided by the research team should be beneficial to that process," Polansky says. "The best regulations are those that provide consumer and animal health protection without being particularly onerous on industry."

Also examined in the study was the economic impact of USDA’s rule that prohibits non-ambulatory cattle from entering the food supply. The beef industry contends that injured non-ambulatory 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 non-ambulatory cattle means the industry lost revenue because of the new regulations.

"Assuming that 95% of nonambulatory cattle in 2004 passed the standards in place before USDA enacted its ban on non-ambulatory cattle entering the food supply, the economic benefit could have been more than $63 million," Mintert says.

Reports indicate that Secretary of Agriculture Mike Johanns may be willing to become less stringent on the nonambulatory rule.

The report is available online by clicking HERE.