BSE outbreaks in the BSE outbreaks in the United States and United States and Canada and the Canada and the Impact on TradeImpact on Trade

Hyun J. JinHyun J. JinWon W. KooWon W. Koo

Center for Agricultural Policy and Trade StudiesCenter for Agricultural Policy and Trade StudiesNorth Dakota State UniversityNorth Dakota State University

BSEBSE

BSE (Bovine Spongiform BSE (Bovine Spongiform Encephalophthy), widely known Encephalophthy), widely known as “mad Cow Disease” is a lethal, as “mad Cow Disease” is a lethal, central nervous system disease central nervous system disease targeting cattle. targeting cattle.

Occurrence of BSE in Occurrence of BSE in EuropeEurope First outbreak in the U.K. (1986) First outbreak in the U.K. (1986) The total number of infected cattle in The total number of infected cattle in

Europe: Europe: – over 34,000 by 1992.over 34,000 by 1992.– over 180,000 by 2000.over 180,000 by 2000.

The U.K. government announced the linkage The U.K. government announced the linkage between BSE and Creuzfledt-Jocob disease between BSE and Creuzfledt-Jocob disease (vCJD) on March 20, 1996; major alert on (vCJD) on March 20, 1996; major alert on consumption of infected beef.consumption of infected beef.

Approximately 135 people worldwide have Approximately 135 people worldwide have been infected with vCJD from outbreak in been infected with vCJD from outbreak in Europe.Europe.

EffectsEffects Major reductions in domestic Major reductions in domestic

consumption of beef.consumption of beef. Major reductions in exports - most Major reductions in exports - most

countries banned imports of countries banned imports of European beef/cattle.European beef/cattle.

Increases in imports of beef from Increases in imports of beef from uninfected countries, mainly the uninfected countries, mainly the U.S. and Australia.U.S. and Australia.

Occurrence of BSE in Occurrence of BSE in JapanJapan First case in Chiba in September First case in Chiba in September

2001.2001. Second case in Hokkaido in Second case in Hokkaido in

November 2001.November 2001. Two additional cases in December Two additional cases in December

2001.2001.

EffectsEffects Major reduction in beef consumption in Japan:Major reduction in beef consumption in Japan:

– About 60% of Japanese consumers have stopped About 60% of Japanese consumers have stopped eating beef since the first outbreak of BSE. eating beef since the first outbreak of BSE.

Major reduction in beef exports:Major reduction in beef exports:– S. Korea, Singapore, China, Malaysia, and S. Korea, Singapore, China, Malaysia, and

Philippines banned imports of Japanese beef.Philippines banned imports of Japanese beef. Increase in imports of beef from uninfected Increase in imports of beef from uninfected

countries such as Australia and the U.S.countries such as Australia and the U.S. Increase in domestic consumption of beef Increase in domestic consumption of beef

substitutes.substitutes.

Jin and Koo conducted a study to Jin and Koo conducted a study to test whether there was a structural test whether there was a structural change in Japanese consumers’ change in Japanese consumers’ demand for meat as a result of the demand for meat as a result of the BSE outbreak.BSE outbreak.– Method: non-parametric approach Method: non-parametric approach

using WARP test.using WARP test.– Results: experiencing structural Results: experiencing structural

change in meat consumption.change in meat consumption.

BSE outbreak in BSE outbreak in CanadaCanada First case in May 2003.First case in May 2003.

EffectsEffects The United States, a major importer of The United States, a major importer of

Canadian beef/cattle, banned imports Canadian beef/cattle, banned imports of Canadian beef and cattle and of Canadian beef and cattle and ruminant animal products to minimize ruminant animal products to minimize BSE risk to the U.S. livestock industry. BSE risk to the U.S. livestock industry.

Other major importers also banned Other major importers also banned Canadian beef/cattle.Canadian beef/cattle.

Moderate reduction in Canadian Moderate reduction in Canadian domestic consumption of beef.domestic consumption of beef.

No significant changes in meat No significant changes in meat consumption pattern in Canada.consumption pattern in Canada.

BSE outbreak in the BSE outbreak in the United StatesUnited States First case in the state of First case in the state of

Washington in December 2003.Washington in December 2003.

EffectsEffects Major reductions in domestic and Major reductions in domestic and

export demand:export demand:– 5 - 10% reductions in domestic 5 - 10% reductions in domestic

consumption of beef.consumption of beef.– Importers banned imports of U.S. Importers banned imports of U.S.

beef.beef.– No significant changes in meat No significant changes in meat

consumption pattern in the U.S.consumption pattern in the U.S.

Recent ResearchRecent Research Jin, Skripnitchenko, and Koo Jin, Skripnitchenko, and Koo

conducted a study to analyze the conducted a study to analyze the effects of the U.S. BSE outbreak effects of the U.S. BSE outbreak on the beef and cattle industry.on the beef and cattle industry.– Method: econometric simulation Method: econometric simulation

model.model.

The Effects of Decreased Beef Demand on Meat Prices, Due to a BSE Outbreak

Scenarios Base Price:

2003 Third Quarter Base Price:

2002 Average Beef Pork Chicken Beef Pork Chicken

Base Prices (cents/lb.) Base Prices (cents/lb.) Demand Decrease

Exports Decrease

370.0 269.9 177.7 331.5 265.7 169.7 5% 10% 15% 20%

50% 75% 100% 50% 75% 100% 50% 75% 100% 50% 75% 100%

337.8 329.6 321.4

321.9 313.7 305.5

306.0 297.8 289.6

290.1 281.9 273.8

274.2 275.3 276.4

276.3 277.4 278.5

278.4 279.5 280.6

280.5 281.6 282.7

180.6 181.4 182.1

182.1 182.8 183.6

183.5 184.3 185.0

185.0 185.7 186.5

301.0 292.8 284.5

287.0 278.7 270.5

272.9 264.7 256.4

258.9 250.6 242.4

270.2 271.4 272.6

272.3 273.5 274.7

274.3 275.5 276.7

276.4 277.6 278.8

172.6 173.4 174.2

174.0 174.8 175.6

175.4 176.2 177.0

176.7 177.5 178.3

Note: The unit is cents per pound.

Jin, Kim and Koo conducted Jin, Kim and Koo conducted another study to analyze the another study to analyze the effects on U.S. agribusiness firms.effects on U.S. agribusiness firms.

– Method: Event StudyMethod: Event Study

Cumulative Excess and Abnormal Daily Returns for the Sectors

Sector 12/24/03~

12/24/03

12/24/03~

12/29/03

12/24/03~

01/02/04

12/24/03~

01/06/04

12/24/03~

01/08/04

Ranch and Dairy -0.116 0.010 -0.461 -1.168 -2.085**

Mixed Meats -1.443 -3.095** -3.237** -3.330** -3.477**

Other Meats 8.817 8.863** 8.940** 9.190** 8.595**

Grain Marketing 1.572 0.835 0.959 1.005 1.164

Farm Machine & Equip. -2.402 -2.596** -2.531** -3.194** -2668**

Other Foods -0.581 0.031 0.011 0.218 -0.310

Notes: The superscript ** denotes significance at the 5% level.

Thank you!Thank you!