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2003 BSE Case: The Cost Of One Sick Cow

No single event in U.S. commerce has done more to rock an industry or been a trigger for such immediate, sweeping and controversial change.

They call her the “index cow” — the cow that stole Christmas when she was discovered to have bovine spongiform encephalopathy (BSE) Dec. 23, 2003. Her legacy continues to raid every segment of the U.S beef industry.

The National Cattlemen's Beef Association (NCBA) estimates the cost of implementing new regulations directly addressing BSE could hit $300 million/year. Meanwhile, the lost revenue from the non-ambulatory ban could eclipse $50 million/year.

Cattle-Fax says the removal of specified risk materials from beef at slaughter will cost beef processors $100 million/year. The loss of use of advanced meat recovery systems could be another $15 million/year.

USDA announced in March it plans to increase BSE testing to about 200,000 head annually. NCBA chief economist Gregg Doud pegs the cost at $30 or more/animal.

When the U.S. Animal Health Association endorsed implementation of a national animal identification (ID) system last fall, it estimated a comprehensive ID plan would run around $15/animal/year.

Of course, the above accounting doesn't include the loss of domestic and foreign beef markets, or the impacts on cattle prices.

$5.5 Billion This Year?

Early on, a 10% drop in 2004 U.S. farm income due to BSE was predicted. Global Insight (GI) Inc., an international think tank in business and economic forecasting, recently updated the prediction, saying 2004 U.S. net farm income will be down $5.5 billion from 2003 — mostly due to the index cow.

In 2003, the U.S. beef export value was $3.3 billion. Before the BSE discovery, 2004 exports were predicted to grow 0.5%. However, GI says the forecast has been cut 75% from the 2003 level.

GI says each $10/cwt. drop in average price of fed and feeder cattle, and cows will lower U.S. farm cash receipts nearly $2 billion/quarter.

Prior to Dec. 23, beef prices had been at record levels, with fed prices at $90/cwt. after topping $100/cwt. in October and November. Today, prices for nearly every cattle class are higher than last year. Beef-cutout prices are higher. Even export-sensitive, by-product prices are significantly higher.

The 2003 Beef Demand Index increased more than 5% compared to 2002, and more than 15.4% since reversing a 20-year decline in 1998. The index is a reflection of per-capita consumption and consumer spending for beef. There's no indication this trend has changed, says Charlene Schuster, executive director of the Montana Beef Council.

“We fully expect demand will continue to outpace that of a year earlier,” she says. “And, the second quarter is traditionally the strongest demand period.”

Split Within The Industry

While, collectively, the beef business chugs along despite BSE, the industry is fighting itself. Controversy over BSE testing erupted after Creekstone Farms submitted a request to USDA in February for the OK to conduct private BSE testing at its Arkansas City, KS, processing plant. Creekstone says it has assurances from Asian customers that such voluntary testing will reopen the markets for Creekstone products.

USDA refused the license request, saying 100% testing isn't justified. NCBA agrees. The use of 100% testing as a marketing tool is disrupting government-to-government discussions on restoring trade for U.S. beef and undermines consumer confidence, says Jan Lyons, Kansas cattle producer and NCBA president.

“Allowing private companies to use testing as a marketing tool will place undue costs on cattlemen without producing additional protections for consumers and our animal herds,” Lyons says.

Wythe Willey, chairman of Iowa Quality Beef Supply Cooperative (IQBSC), Tama, IA, warns that rapid tests are known to create false-positives.

“Our industry can't afford the ramifications of a false-positive finding,” Willey says. IQBSC doesn't favor testing cattle less than 30 months of age — the vast majority of cattle harvested in the U.S.

Dave Wood, beef division chairman for Harris Ranch Beef Co., Coalinga, CA, says if Creekstone is allowed to proceed with 100% testing, other markets could make similar unscientific demands.

Needle In A Haystack?

Creekstone Farms' CEO John Steward says the firm will challenge the USDA decision. Creekstone would test more than 300,000 head/year, vs. USDA's plan to test 220,000 head.

“USDA is planning on spending at least $72 million of taxpayer money to conduct these tests,” Steward says. “Our plan will cost less than $6 million using the identical test kit, and our customers are willing to pay for the cost of the testing.”

Meanwhile, Dr. Stanley Prusiner says the only way to assure beef is BSE-free is test all cattle at slaughter. He's the University of California-San Francisco neurologist who discovered prions — the malformed proteins believed responsible for BSE.

Only such testing will eliminate prions from the food supply and restore consumer confidence, Prusiner says. He says BSE hadn't been found in the U.S. because USDA tests too few animals.

“Once more cows are tested,” Prusiner says, “we'll be able to understand the magnitude of our problem.”

Some say Prusiner's credibility is tainted because he's an owner of a company that markets BSE testing kits.

“I greatly respect his work, but believe that such a disclaimer is appropriate and should be made in every discussion in which he's cited,” says Jared Taylor, Ames, IA. He's a veterinarian and adjunct instructor in the Center for Food Security and Public Health Iowa State University College of Veterinary Medicine.

Taylor believes the revised BSE testing program recently proposed by USDA is a rational attempt to balance the need to establish a baseline of prevalence with the enormous demands of locating a proverbial “needle in a haystack.”

Hide and Offal Value

  12/22/03 3/23/04
  $/head $/head
Steer Hide, butt brand $66.94 $65.03
Tallow, edible 4.34 3.06
Tallow, packer bleachable 13.64 10.20
Tongues, Swiss #1 white 12.50 2.93
Cheek meat, trimmed 5.36 2.81
Head meat 1.40 1.15
Oxtail, selected 5.48 2.55
Hearts, reg, bone out 1.53 1.15
Lips, unscalded $1.66 $1.02
Livers, slected, gall off 4.34 2.81
Tripe, scalded, edible 4.59 2.30
Tripe, honeycomb, bleached 2.93 2.17
Lungs, edible 0.13 0.13
Melts 0.00 0.00
Meat-and-bone meal, 50% blk/ton 6.12 6.50
Blood meal, 85% blk/ton 2.81 2.17
Total $133.75 $105.95
Source: Cattle-Fax

Cost Summary

New Regulations Cost
Specified Risk Materials $100 million
“Downers” $50-70 million
Over 30 months of age $17-73 million
Advanced Meat Recovery $15 million
BSE Testing $1.2 (to $201 million)
Total $183-277 million

Regulators And Congress Take Aim

Today, Americans are just beginning to see how important BSE-related issues have become on Capitol Hill. The National Cattlemen's Beef Association (NCBA) reports that seven pieces of legislation have been introduced in Congress to address animal identification (ID) and traceback.

  • The BSE and Other Prion Disease Prevention and Public Health Protection Act contains ID language and provides for a national animal heath laboratory network. It also calls for rapid prion disease screening for all non-ambulatory ruminants 30 months of age and older and expands testing for chronic wasting disease in farm-raised deer and elk.

  • The Animal Feed Protection Act would impose a comprehensive ban on interstate commerce in animal feeds that contain specified risk materials from ruminants.

  • H.R. 3705 seeks to amend the Federal Meat Inspection Act to require USDA to test all cattle for BSE at slaughter.

  • The Consumer and Producer Protection Act would redefine a “downer” to exempt those paralyzed by “fatigue, stress, obdurator nerve paralysis, obesity, or one or more broken or fractured appendages, severed tendons or ligaments, or dislocated joints.”

    Meanwhile, the animal feeding industry has been hit with several interim rules by the Food and Drug Administration (FDA) designed to strengthen BSE firewalls. These include:

  • Elimination of present exemptions that allow mammalian blood and blood products to be fed to other ruminants.

  • Banning poultry litter and plate waste as feed ingredients for ruminants.

  • Requiring feed manufacturing equipment, facilities or production lines to be dedicated to non-ruminant animal feeds if they use protein prohibited in ruminant feed.

  • Increased inspection of feed mills and renderers by the FDA.

    There is concern though, that animal products prohibited from cattle feed are currently acceptable for use in pet food. Such products include meat-and-bone meal. There's been much informal discussion about banning such animal products from pet foods for two reasons:

  • A significant amount of pet foods may be entering the human food chain.

  • Accidental or unintended consumption of pet foods by animals intended for human consumption.