BSE: 10 years later

by Steve Kay
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The United States’ first bovine spongiform encephalopathy (BSE) case in December 2003 remarkably had no measurable impact on Americans’ confidence in beef or on domestic beef sales. However, the opposite was true in nearly all the US’s export markets. Many of the immediately imposed bans on US beef and cattle are still in place. In the second of the two-part report: BSE:10 Years Later, Contributing Editor, Steve Kay examines BSE’s costs and the challenges involved in getting US beef back into key Asian markets.

The pressure was intensifying. Japan, by far the US’s largest beef- export market, was telling US trade officials that if it tested all slaughter cattle for BSE, it would resume accepting US beef again. Some US Dept. of Agriculture officials saw this as the only way to re-start what had been a $1.4 billion trade in 2003. But other officials, notably Bobby Acord, administrator of USDA’s Animal and Plant Health Inspection Service (APHIS), strongly opposed the idea.

The debate over blanket testing intensified in early March 2004, after beef processor Creekstone Farms Premium Beef, Arkansas City, Kan., asked USDA for permission to test all of its slaughter cattle. Creekstone, like other US beef exporters, was anxious to get back into the lucrative Japanese market. But there were flaws in its argument. The biggest was that testing would have been scientifically pointless as BSE had never been detected in cattle under 21 months of age.

Nonetheless, Creekstone kept pressing USDA for a response and that agency’s officials divided – so much so that Acord, APHIS administrator since November 2001, abruptly resigned March 23. Yet, Acord’s opposition to testing ultimately prevailed. In all likelihood, his stand saved the US beef industry $1 billion per year.

“That’s how much it would have cost the US to test all slaughter cattle each year,” says Ron DeHaven, former USDA chief veterinary officer, who succeeded Acord. “Acord really spoke up and said, ‘We can’t do this.’ I give him absolute credit for the US not testing all slaughter cattle today.”

Acord and DeHaven knew that Japan’s testing request was a result of its own government’s terrible mishandling of BSE cases in their own country, starting in 2000. The United State’s handling of its first case was just the opposite. But they knew it would take time to get beef back into Japan and South Korea, which was the second-most valuable market ($877 million in 2003). Korea had been expected to follow Japan’s lead on banning US beef and it did. However, no one foresaw how many years of protracted negotiations and trips to both countries it would take for trade to resume.

Preparations for those negotiations in some countries read at times like something out of a spy novel. Patrick Boyle, president of the American Meat Institute, recalls the final week of negotiations in Seoul on the US-Korean Free-Trade Agreement and the side agreement on beef access.

“Whenever colleague Jim Hodges, myself and other industry representatives would meet with our US government negotiators in a hotel room, they would turn up the TV and make us talk in whispers and pass handwritten notes on strategic negotiating objectives. Were their hotel rooms actually bugged? I don’t know, but it was a rather amusing and a memorable way to hold a meeting.”

Japan and South Korea were two of 75 countries that immediately shut their doors to US beef. One notable exception was Canada, which continued to allow shipments of boneless beef from cattle under 30 months of age. Mexico then reopened (on March 12) its border to the same beef category and expanded access for more products a month later. Trinidad was one of the next countries (in June) to reopen its market to under-30 beef.

Holding out

Getting back into Japan was a more challenging process. On Oct. 23, 2004, Japan and the US reached a tentative agreement for the US to export beef from cattle under 20 months of age. But how to verify the age of the cattle was not agreed upon. It was not until Dec. 12, 2005, that Japan announced a partial lifting of its ban.

The first shipments arrived in Japan a few days later, but on Jan. 20, 2006, Japan halted all US beef imports after discovering prohibited vertebral material in one shipment. It took Japan until June 21 to agree to resume imports, which resumed July 27. It took Japan until Feb. 1, 2012, to start accepting under 30-month old beef.

Conundrum in Korea

Re-entry into Korea was a tortuous stop-start affair, partly due to shipping errors. It was announced Jan.13, 2006, that it would resume imports of boneless beef from cattle under 30 months of age. But actual shipments were delayed due to plant inspection and other issues. On Sept. 7, Korea then made a new announcement after resuming imports. But the discovery of bone fragments caused it to reject shipments from then into 2007. It suspended imports again on Aug. 2, 2007, after finding vertebral bone in a short loin. Imports resumed 25 days later, but were suspended again on Oct. 5.

Months later (April 18, 2008), Korea agreed to resume imports, including bone-in beef. But its decision caused such a wave of anti-US beef protests in Korea that the government delayed resumption and sought to revise the April agreement. Korea and the US finally reached a new agreement June 21 and Korea on July 10 finally began to accept US beef again.

Price tag

The first BSE cow stole far more than Christmas 2003. It cost the US beef industry billions of dollars in lost exports of beef cuts and variety meats. It also added tens of millions of dollars of new operating costs to beef processors that continue to this day and forced them to make many millions of dollars in new capital expenditures. A new BSE-related rule also resulted in revenue losses after products were banned from the food supply. The loss of most export markets also briefly forced domestic beef and live cattle prices lower.

Export bans were, by far, the largest cost to the industry incurred. Presupposing that export values had remained at 2003’s $3.856 billion level in succeeding years, the industry lost $8.829 billion from 2004 to 2008 inclusive. Values in 2009 were down $774 million on 2003, but this was largely due to the global recession. Values finally exceeded the 2003 total in 2010 and reached $5.511 billion last year.

However, the US Meat Export Federation had forecast that exports values would keep increasing after 2003. With this in mind and the fact that the industry is still losing export values because of continued restricted access, USMEF says lost export sales are estimated to have cost the US beef industry $16 billion from 2004 through 2012.

Total US beef industry losses arising from the loss of beef and offal exports during 2004 alone ranged from $3.2 billion to $4.7 billion. That’s according to a study by Kansas State Univ. published in April 2005. The study’s analysis included the increase in beef available on the domestic market, which it says depressed domestic prices below levels they would have attained if exports were possible.

Live cattle prices fell by about 16 percent in the week after the announcement, noted the study. However, prices recovered in early 2004 as it became clear that US consumer demand had been impacted only minimally, if at all. In fact, market data on beef disappearance and retail prices suggest that consumer demand for beef actually strengthened in the first half of 2004, the study revealed.

Packers incurred additional costs in numerous ways, according to the KSU study. New regulations introduced in 2004 led to changes in cattle procurement, employment, employee training requirements, food-safety plans, capital investments and marketing opportunities for the beef industry. Firms it surveyed on average incurred additional labor costs of $0.45 per head of daily slaughter capacity. Given that industry-wide capacity in 2004 was 145,000 head (as calculated by the author) and using 280 days of operation, this meant packers incurred $18.3 million in added costs in 2004.

These costs arose primarily as a result of regulations requiring the creation of positions to determine the age of animals using postmortem dentition, to deal with non-ambulatory animals and to segregate SRM material, said the study. One-time costs of training existing employees to comply with new FSIS rules varied from $13,800 to $100,000 across firms.

Changes in capital investments varied across firms. Some were able to achieve compliance without any new investments, whereas others invested up to $84,000 in long-term assets. All firms had investments in certain assets that they now consider obsolete. On average, the loss resulting from investments being made obsolete was more than $700,000 per firm.

The new regulations also resulted in revenue losses due to products being banned from the food supply. In particular, the condemnation of small intestines from all cattle cost an average of $3.68 per head in potential revenue. The ban on downer cattle cost packers another $65 million. Considering all these areas of change, and ignoring one-time expenses, the net economic cost to the beef industry in 2004 from FSIS’s new rules was approximately $200 million, said the study.

Convincing countries

The years it took to get US beef products back into key global markets taught the US government and beef industry some harsh lessons. One was that if you treat a country in a certain way, it will treat you back the same way. Another was that there was no defense against countries making decisions based on emotion rather than science. Another was that the US was on the defensive because it lacked a national animal-identification system.

AMI’s Boyle recalls being with Secretary Ann Veneman in late May 2003 shortly after Canada confirmed its first case of BSE and USDA had closed the border to its cattle and beef imports.

“Thinking of our own on-going APHIS BSE surveillance, I expressed some concern about the precedent that USDA had established, or more precisely had re-established, when we suspended trade with the UK and other European countries whose cattle herds contained BSE-positive animals,” he says. “She acknowledged the concern, but said that USDA’s Office of the General Counsel had assured her that she had the statutory authority to reopen the border with Canada as quickly as USDA had sealed it. A decade later, the full range of pre-BSE exports from Canada to the US has yet to be restored.”

It took a number of years to even partially reopen trade in beef with Canada, notes Boyle. “So when the US found its BSE cow in December 2003, no one should have been surprised at the international reaction.”

Veneman puts it even more succinctly: “Those countries that banned US beef products only treated us like we would have treated them.”

APHIS’s Acord notes that in the US, the government worked with the industry to explain the science and tamp down any emotional public reaction to this disease. “But in other countries, governments succumbed to the emotion and to pressure from their beef industries, ignored the science and supported their public’s panicked reaction,” he adds.

Acord is also disappointed that the case did not spark implementation of a national animal-identification system, which had been discussed for years and partially developed by 2003.

“Not having an animal-traceability system in place contributed significantly to international market losses,” he charges, “We could not demonstrate to trading partners that we could trace all the cohorts of the cow in the index case. We could not convince government officials in importing countries that this was a single case and there would not be more to follow. Those countries remembered the steady trickle of cases in the EU and gave the US no credit for having had a feed ban in place long enough to prevent widespread cases of BSE.”

USDA’s Undersecretary for Food Safety at the time was Elsa Murano. Her takeaway about the bans is this: “Perhaps the international arena could have been handled better in the sense that visits with trade partners could have included food-safety experts, not just policy officials, to convince them of the science behind our safety claims,” she says.

The government and industry probably should have been more aggressive from day one with the US trading partners, says Kendal Frazier of the National Cattlemen’s Beef Association (NCBA). “Government and industry were so focused on maintaining domestic consumer confidence [with good reason because it’s the largest market for US beef and you have to prioritize resources in a crisis] that it was not easy to focus on an international strategy,” Frazier adds.

“The standard domestically, and we thought internationally, was that ‘science-based’ information would rule the day,” adds Terry Stokes, NCBA president at the time. “Ten years later, BSE remains to some governments more often a politically emotional disease rather than an animal-health disease,” Stokes says. But one day in the future, he is confident many people will conclude that there was a “tad bit of overreaction” to a disease that has now nearly disappeared.

Bans still linger

US beef and cattle exports still face full or partial bans in at least 22 countries as a result of the first BSE case and three subsequent cases. Five South American countries and three others still ban all products and cattle because of the first case, according to a report by the Office of the US Trade Representative (USTR) last year. The list of countries that have full or partial bans on US beef products and/or cattle includes all the major beef-producing nations with the exception of Canada and New Zealand.

US beef exporters continue to face unwarranted and burdensome BSE-related import restrictions, USTR says. These include bans by some countries of all US beef and beef products, selected bans on certain products (e.g., bone-in and ground beef) and restrictions on US beef and beef products produced from animals over certain ages. Moreover, the disparity in BSE-related measures in different markets represents a separate trade burden and undercuts the comparative advantage of US exporters, it says. This disparity burdens producers, who must alter production and packing processes based on the requirements of the specific export market. It also burdens USDA, which must maintain an export verification program to confirm that these alterations in production and packing processes meet the relevant requirements, USTR says.

Another example is China, which imposed a ban on US live cattle, beef and beef products in December 2003. Since that time, the US has repeatedly provided China with extensive technical information on all aspects of US BSE-related surveillance and mitigation measures, which the World Organization for Animal Health (OIE) has recognized as effective and appropriate, for both food safety and animal health, says USTR. China has imposed a zero tolerance limit for the presence of Salmonella, Listeria and other pathogens in imported raw meat and poultry.

China has also banned US exports of protein-free tallow due to BSE-related concerns, USTR says. But this protein-free requirement is difficult to comply with and appears inconsistent with OIE guidelines.

US beef exports got a potential boost in May last year from the OIE’s decision to grant the US negligible risk status for BSE. Then in November, USDA’s APHIS announced a comprehensive final rule that completed efforts to modernize the agency’s import regulations for BSE.

APHIS says the move will demonstrate to the international community that the United States is committed to basing its BSE regulations on internationally-accepted scientific literature and standards set by the OIE. Industry officials hope that countries accept all this and remove their lingering bans on US beef and cattle. But no one is expecting that to occur overnight, given the decade-long battle to reopen markets.

Steve Kay is a longtime contributing editor to Meat&Poultry and editor and publisher of Petaluma, Calif.-based Cattle Buyers Weekly (www.cattlebuyersweekly.com).

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