Released: June 10, 2005

K-State Economists Provide Further BSE Study Details

MANHATTAN, Kan. – Details of a recent Kansas State University study on the economic impact that bovine spongiform encephalopathy (BSE) has had on the U.S. beef industry suggest that average U.S. wholesale boxed beef prices during 2004 were 12 to 17 cents per pound lower than they would have been if all export channels had been open.

The study, “The Economic Impact of BSE on the U.S. Beef Industry,” was released earlier this spring. It provided an assessment of the economic impact of lost export markets and policy changes affecting cattle procurement and processing.

For example, the loss of export markets also meant that beef offal prices were lower than they would have been otherwise. As a result, the K-State researchers estimated that total U.S. beef industry losses arising from the loss of beef and offal exports in 2004 ranged from $3.2 billion to $4.7 billion.

K-State Research and Extension agricultural economists James Mintert, Sean Fox and Ted Schroeder authored the study, along with research assistants Brian Coffey and Luc Valentin. The study was commissioned by the Kansas Department of Agriculture.

The economists recently outlined these further details from the study:

* U.S. beef exports were valued at $3.95 billion in 2003 and accounted for 9.6 percent of U.S. beef production.

* Within days of the late December 2003 news that a cow in Washington state had tested positive for BSE, a total of 53 countries -- including such major markets as Japan, Mexico, South Korea, and Canada -- banned imports of U.S. cattle and beef products.

* The top five export markets for U.S. beef during 2003 were Japan (35 percent of export value), Mexico (23 percent of export value), South Korea (21 percent of export value), Canada (9 percent of export value) and Hong Kong (2 percent of export value). These top five markets cumulatively accounted for 90 percent of the value of U.S. beef exports during 2003.

* The import bans caused U.S. beef exports to drop. While some important markets, including Mexico and Canada, reopened in 2004, export quantities for the year declined 82 percent below 2003’s level.

* Talks are progressing, but the United States has yet to regain access to the Japanese and South Korean beef export markets, which were the second and third largest markets for U.S. beef in 2003. If the U.S. had regained access to these two key markets and exported the same percentage of U.S. production to them in 2004 as in 2003, wholesale revenue per head would have increased between $45 and $66 per head for every head slaughtered in the United States.

* The loss of export markets increased the quantities available on the domestic market, which depressed domestic prices below levels they would have attained if exports were possible.

* The two largest export categories -- boneless fresh beef and boneless frozen beef -- accounted for 59 percent of U.S. beef export value during 2003. With the addition of bone-in frozen beef, the top three product categories accounted for 68 percent of U.S. beef exports.

* U.S. exports vary, depending on the importing country. Boneless frozen and boneless fresh beef comprised 78 percent of all beef exports to Japan in 2003. In contrast, 44 percent of U.S. beef export value to Mexico in 2003 was accounted for by boneless fresh beef, and 22 percent -- the second largest category -- by frozen beef tripe.

Some countries are a key outlet for certain products. Japan was an important market for beef tongues, accounting for 79 percent of the value of all U.S. beef tongue exports during 2003.

* A key component of the study was to estimate the impact that reduced exports had, in turn, on the U.S. beef market. The beef export reduction meant that U.S. consumers were faced with more beef at retail outlets than otherwise would have been the case.

The researchers developed a model that incorporated assumptions regarding domestic demand for beef and offal, to estimate the price reduction linked to increased supplies on the domestic market. They used several elasticity estimates to gauge probable beef industry revenue losses. The results suggested weighted average wholesale boxed beef prices in 2004 were 12 to 17 cents per pound lower than they would have been had export channels been open.

The K-State researchers’ report is available on the Web at http://www.agmanager.info/livestock/marketing/bulletins_2/industry/default.asp.

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K-State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well-being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K-State campus, Manhattan.

Story by:
Mary Lou Peter
mlpeter@oznet.ksu.edu
K-State Research& Extension News