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Impact of Canadian Beef Imports Hinges on Quantities Imported, Consumer Response

PULLMAN, Wash. — The economic impact of re-opening the border to Canadian beef imports into the United States hinges on two factors – how much beef is imported and how American consumers respond to it.

“The first thing most of us should see is a drop in the price of beef at the grocery store,” said Thomas I. Wahl, professor and director of the International Marketing Program for Agricultural Commodities and Trade Center in Washington State University’s College of Agricultural, Human, and Natural Resource Sciences.

On July 14, the U.S. 9th Circuit Court of Appeals overturned a temporary restraining order on live cattle shipments from Canada; the first shipments since then occurred earlier this week.

The U.S. Department of Agriculture stopped live cattle imports from Canada in May 2003 following a confirmed case of bovine spongiform encephalopathy (BSE), commonly known as Mad Cow Disease. That ban was scheduled to be lifted in March this year, but was continued after a temporary restraining order initiated by the Ranchers-Cattleman Action Legal Fund was approved by a lower court. The legal fund group is preparing for a July 27 court hearing to make the injunction permanent.

Before the border closure, Canadian beef represented approximately 4 percent of total U.S. beef consumption, Wahl said. “If live cattle imports return to pre-BSE levels, the beef supply will increase, which, unless offset by increased exports of American beef, will reduce U.S. prices,” he added.

Another effect may occur in the U.S. beef processing industry, Wahl said. “Because the border opening was delayed so long, Canada has increased its beef processing capacity. If they have increased their cost competitiveness in slaughtering and processing enough, we may see processed beef rather than live cows coming across the border at the cost of jobs and even processing plant closures in the U.S.”

The first confirmed BSE case in the United States occurred in Washington in December 2003. That incident prompted closure of beef exports to Japan, which, Wahl said, offset the ban of Canadian cattle from the U.S. market.

The incident also prompted closure of beef exports to Mexico, Korea and Canada, according to David Holland, professor of agricultural economics and IMPACT researcher.

In October 2004, Holland ran computer models on the potential aftermath of the 2003 BSE incident in the United States. The most likely scenario reflected a 90 percent decline in foreign exports with no change in domestic consumption. Under those circumstances, the model predicted about an 8 percent loss in employment in the U.S. beef packing industry, and employment losses of between 23 percent and 32 percent in all U.S. cattle industries, and a loss of nearly $3 billion in income to U.S. beef and cattle producers.

Holland said beef producers are worried about similar consequences resulting from reintroduction of Canadian beef and cattle into the country.”The beef industry is arguing that opening the border puts more beef into the market and shakes consumer confidence in the safety of all beef products,” he said.

Wahl said that following the December 2003 BSE incident, consumers “backed away” from beef for only a short time before returning to nearly previous beef purchasing levels. Similarly, a BSE incident in Texas earlier this year does not appear to have significantly affected beef consumption.

Consumers may be a bit more wary if they know their hamburger comes from Canada, but for the most part, origin is not easily discernible, he added. “In most cases, people don’t know or worry about where the meat comes from, so BSE is not going to be an issue for them.”

Wahl noted that re-opening the border could foster further”branding” efforts by major U.S. producers and USDA labeling requirements.

“Retailers who sell beef, like Wal-Mart and other major outlets, want to be able to track backwards to the origin of the products they sell,” Wahl said. “The USDA will require that at some point.” If that occurs, beef imports from Canada would have to be labeled, he added.

Some companies already have started the branding process. For example, Safeway advertises its “ranch select” beef; Rosauer’s labels its beef products as “source certified.”

“Consumers trust local producers and want to know where their beef comes from,” said WSU Associate Professor and IMPACT Fellow Jill McCluskey. She, Wahl and several graduate students also conducted consumer research, funded by the IMPACT Center, in Seattle and Vancouver, Canada, just a month following the BSE incident in Canada in March 2004. According to her Seattle findings:

  • Consumers are willing to pay high premium for BSE tested beef. On average, consumers are willing to pay 61 percent more for the BSE tested beef over the regular beef, assuming equal taste.
  • Consumers believe that U.S. beef is still somewhat safe. However, the majority expressed a preference for beef produced in Washington. About half of the respondents did not change beef consumption after the BSE news.
  • 79 percent agree that a national identification system of beef should be implemented even if it raises the price of beef to consumers.

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Editors:

The following sources are available for interviews.

Thomas I. Wahl, director, WSU IMPACT Center,
(509) 335-6653, wahl@wsu.edu

Jill McCluskey, IMPACT fellow,
(509) 335-2835, mccluskey@wsu.edu

Dave Holland, IMPACT researcher,
(509) 335-2570, holland@wsu.edu