Economic impact of BSE still playing out, says economist

By Sandi Alswager Karstens
University of Nebraska IANR

5/25/2005, 2:07 PM CDT
Closed border may mean less money in the long run

LINCOLN, Neb. -- Two years after the North American beef industry was rocked by BSE's arrival, the economic impact continues to play out, University of Nebraska-Lincoln specialists say.

The discovery of bovine spongiform encephalopathy in a cow in Canada in May 2003 led the US to shut down imports of Canadian cattle. Seven months later, a BSE case was discovered in Washington state, which led to a loss of most US beef export markets.

Different sectors of the US beef industry have been affected very differently by the discoveries of mad cow disease. US meatpackers that rely on Canadian imports to meet their processing capacity have been hard hit. A Kansas State University estimate is that 5,000 American meatpackerslost their jobs in the last two years as Canadian imports dried up.

Some US cow-calf producers may see Canada's woes as helping their situation. In the short term, that may be so, but the long-term outlook is less certain, said Dillon Feuz, UNL agriculture marketing specialist at the Panhandle Research and Extension Center at Scottsbluff.

The bottom line, Feuz said, is that all sectors in the beef industry are best served by a robust, open trade environment. From 1998 to 2002, the last full year before BSE was discovered on this continent, open trade benefitted the U.S. economy significantly, as the nation annually imported $3.7 billion in cattle, beef and byproducts and exported $5.1 billion.

That's a $1.4 billion annual trade balance in the black.

"This added value from international trade likely increased the value of commercially slaughtered cattle slightly more than $40 per head, or more than about $3 per hundredweight," Feuz said. "If fed cattle were worth $40more as a result of trade, then a 550 pound steer was likely worth about $7 more per hundredweight as a result of international trade from 1998-2002."

That $1.4 billion overall annual trade surplus from US beef trade was divided among various sectors of the industry.

"To suggest that none of that $1.4 billion trade surplus found its way back to cow-calf producers in the form of higher calf prices would be incorrect," Feuz said.

If US packers continue to contend with reduced international trade, they likely would look to regain some margin by trying to buy fed cattle cheaper, he added. And if feedlots received a lower price for fed cattle and were less profitable, they would be less aggressive in bidding for calves to enter the feedlot, he said.

"While it is tempting to try and close some borders to imports of cattle and beef, and receive a short-term economic gain, if in the long term that results in less total trade in beef and beef byproducts, I believe that would result in less dollars for cow-calf producers," he said.

"Trade does not occur in isolation. It is not likely that the US can close borders to imports of cattle and beef and still expect to be able to export beef and beef byproducts."

In addition, the US has been importing Canadian boxed beef since three months after the initial discovery of BSE in Canada, said Darrell Mark, UNL livestock marketing specialist in the Institute of Agriculture and Natural Resources.

Mark pointed out that the North American beef industry appears to be structurally changing by shifting processing outside of the US, which in the long run could put US producers at a disadvantage.

"With live cattle imports from Canada banned, imports of boxed beef have increased," he said. Canadian beef imports in 2004 were up 11 percent from the 1998-2002 average.

"And, it appears imports are increasing rapidly in 2005," he said. March beef imports were up 19 percent from the 1998-2002 average.

From 1998-2002, the US imported an average of 1.25 million head of live cattle a year from Canada, Mark said.

"The US plant capacity is built on 1.25 million head of imports from Canada," he said. "If this source of slaughter cattle is permanently reduced in the US, it will likely mean less processing lines or fewer plants. That would be particularly true for those that rely more heavily onCanadian cattle (those closest to the border)."

The impact on US processors could be permanent, as Canadianslaughter increased 12 percent in 2004 from the 1998-2002 average and capacity continues to be expanded.
In the long run, Mark said this can reduce US slaughter capacity and increase costs for cattle feeders.

"This will eventually bid into feeder cattle prices, and the cow-calf producer would see lower prices," he said.

Economics aside, lifting the ban on live Canadian beef imports would not increase the risk for introducing BSE to US cattle, said David Smith, UNL dairy/beef veterinarian.

"Few if any BSE-infected cattle will be imported from Canada because the disease is so rare," he said. "Even if infected cattle were imported, there is nearly no opportunity for BSE to spread into the US cattle herd because the disease is not transmitted directly from animal to animal.

"Infected cattle arriving from Canada would be young and unlikely to have developed infective tissue, and the US has taken actions that prevent cattle from being exposed to infective proteins," he said.

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