Cattle: BSE, Diet Trends and Beef Demand
Americansí tolerance of BSE has been remarkable. During the two quarters following the December, 2003, announcement of the first BSE case on US soil, the index of US beef demand increased several points and surpassed even the most optimistic market observerís vision of how the US consumer would respond. After the second case was announced in June of this year, there was minimal market fluctuation. Now, a month later, USDA has announced the possibility of a third case of BSE, with the target of the investigation being an animal born prior to the imposition of the 1997 ruminant to ruminant feed ban. Prices on the futures market barely skipped a beat, and live cattle futures prices rallied the day after the news.
As of July 1, 2005, there were 104.5 million cattle in the United States; 42.8 million of these were cows, which are most likely two years or older. If only 2.3% of the existing cow herd is older than 8 years of age, it means we have about a million animals born before the 1997 feed ban. Hence, it would not be unexpected if more BSE announcements were to follow. This begs the question, will US consumersí tolerance continue? Would any circumstances cause a ëtipping pointí in consumer trust and demand?
A study conducted by several Kansas State University researchers shortly after the December 2003 BSE case may provide some insight to these questions (Coffey et al., Chapter 6). The researchers used a survey to probe the tolerance of US consumers to future BSE cases, i.e., would other announcements lead to a loss in confidence in the quality of beef and commensurate reductions in beef purchases. Respondents were asked about two potential scenarios: another single BSE case and a situation involving 20 BSE cases appearing at a similar time at different locations around the U.S.
In response to the scenario with a single new BSE case was announced, 48% said they would not change beef consumption, 38% said they would reduce beef consumption and 12% said they would stop consuming beef. When the same respondents were asked how they would respond to a situation with 20 separate, unrelated BSE cases, nearly half said they would stop eating beef altogether.
Given that we have experienced the first hypothetical scenario in real life (i.e., the BSE announcement in June 2005), and little has changed in terms of beef consumption, we can safely say that survey suffers from hypothetical bias, i.e., respondents over-react to a hypothetical scenario presented in the highly focused setting of a survey. We might also expect some hypothetical bias to hold if (heaven forbid) the 2nd scenario with 20 BSE cases were to occur, but I believe there could be a noticeable demand decline from such a wider-spread BSE scenario.
So the question becomes, which BSE case between the 1st and the 20th is the straw that breaks the consumerís trust? And what circumstances surrounding the cases might alter consumer perception? To my knowledge, no existing research probes these finer points. However, one may draw upon knowledge of consumer behavior in other contexts to better understand how consumer confidence could be affected.
Consistency in the handling and communication of a series of potentially hazardous events such as BSE cases can be an important determinant of consumer confidence. For example, food recalls feature thousands of pounds of food, potentially contaminated with life-threatening pathogens, reaching supermarket shelves and consumersí refrigerators. These events have evolved to the point of routinization, however. USDA issues numerous press releases (several during the month of July alone) featuring standardized announcements that list the items involved, the distribution areas, and the steps taken to ensure public safety. All data regarding the case is made publicly available in rapid, recognizable fashion. Food recalls rarely warrant headline news anymore in part because the events have been made a routine risk that is actively monitored and managed by an authority perceived as competent by most consumers.
The last two BSE cases were handled inconsistently. Both cases had unusual paths linking the death of the suspect animal to the eventual announcement by USDA, e.g., long lag times and circuitous routes. Such odd details are newsworthy and likely to draw greater consumer scrutiny. Such consumer behavior is by no means illogical; if the regulating agency canít seem to approach these cases with consistency, would consumers be unwarranted in assuming the agency carries out other elements of their job inconsistently? Some inconsistency is inevitable ñ a natural outgrowth of the disperse geography of the cattle industry and the learning curve faced by any agency implementing new procedures and policies. However, a string of several announcements with apparently inconsistent approaches and communications could spiral into a media event that eventually undermines demand. If USDA can master the consistent treatment and handling of future BSE cases, my best guess is that the public can handle many more single incidences and would not flinch unless there were more than three announced in a given 48-hour period. With an inconsistent approach, even a small string of cases may begin to undermine demand, however.
While beef demand faces the uncertain threat posed by possible future BSE cases, a more concrete demand threat emerges from the ebb and flow of Americans dietary trends. The bad news is that the Atkins and other low-carbohydrate diets are losing popularity. Between January of 2004 and the summer of 2005 the percent of Americans following such a diet dropped from 9% to 2%. In fact, Atkins Nutritionals Inc., the company founded by the late innovator of the low-carbohydrate diet, declared bankruptcy on August 1 due, in part, to lagging interest in the diet.
The good news is the next apparent dieting trend is toward low glycemic or ësmart carbí diets. These diets focus on the composition of the carbohydrates you eat and many suggested menus involve a large role for lean meat and other proteins (e.g., 25% of calories). In practice these diets will not lead to the plates full of steak and eggs that were the fashion during the height of the Atkins diet craze, but it should mean a gradual reduction in meat consumption rather than a stark drop off that could have occurred had the new trend, for example, strictly limited animal proteins.
The other big issue recently digested by the market concerns the resumption of trade in live cattle with Canada. The first Canadian cattle entered the United States shortly after the mid-July announcement by the 9th U.S. Circuit Court of Appeals. Futures market prices for heavy-weight feeder cattle dropped several dollars after the announcement, which was a relief to feedlot managers and a worry for cow-calf operators. The key thing for cow-calf operators to remember is that incoming Canadian animals must only have one U.S. destination before proceeding to slaughter. Hence, fall calf sales to backgrounders may face little direct competition from the Canadian spring calf crop. However, the U.S. will produce about 175,000 more calves this year, which will likely mean lower calf prices during the upcoming fall season than a year ago.
Correction. In last monthís communication, I incorrectly stated that no meat from the U.S. cases of BSE entered the human food chain. Meat from the case announced in December, 2003, did enter the food chain. According to the US Food and Drug Administration, ìÖUSDA immediately recalled the meat. Meat that did enter the food supply was quickly traced and was removed from the marketplace. Moreover, all the organs in which infectious prions occur were removed at slaughter and did not enter the food supply.î I apologize for any confusion and thank a reader for pointing out my error.
Brian Roe, OSU, Associate Professor, Dept. AED Economics
