USA: Impact of BSE on Organic Meat Industry
BSE was reported in the
last week and the meat industry is gripped with fear on what cost will a
sick cow have on the multi-billion dollar industry.
The American beef industry is estimated
at USD 175 billion, which includes retail sales and related businesses
such as equipment and feed supplies. The
USA is the world’s
largest beef producer churning out more than 11 million tonnes per
annum, and it is the second largest exporter with foreign sales
accounting for 10 percent of domestic production.
The Canadian meat industry was crippled by
the BSE scare earlier this year. BSE was described as the greatest
threat and shock faced by the Canadian agricultural sector; the Canadian
government estimates losses of USD 2.5 billion by the beef industry.
If the impact on the Canadian meat industry is an indicator then the
ramifications of BSE will be huge and the effects will be felt by the
whole American economy. Beef is a staple food for many Americans and the
restaurant, food retailer, and financial service sectors will all be
affected. A 2001 study by the American government estimated damages
caused by BSE could be in the tune of USD 15 billion.
Shares of meat companies like Tyson and McDonald’s fell sharply when
news broke of BSE on Christmas Eve. The US dollar also took a knock in
the foreign exchange as fears rocked the financial, grains and livestock
markets. Over 30 countries have closed their borders to American beef,
threatening the USD 2.6 billion export market.
Amidst the doom and gloom, there is some positive news for companies in
the organic meat industry. Sales of organic meat products are projected
to surge as consumers’ fear for food safety. Organically raised cattle
are not fed animals remnants and there have been no cases of BSE
reported on animals that have been raised their entire lives according
to organic production methods. Organic beef is thus seen by consumers to
be safer to eat than non-organic beef.
The organic meat market has been slow moving compared to other sectors
of the American organic food industry. Most organic meat is produced on
a small-scale and there is an absence of distribution infrastructure.
Farmers’ sell significant volume of organic meat directly to consumers,
and that which is marketed by retailers is usually priced three times
higher than non-organic meat products. These are reasons for organic
beef to have less than 1% share of the beef market in 2003.
The impact of BSE on the organic meat industry is to be multi-fold:
1. Consumer demand – Organic meat sales have soared in
since the BSE scare in May 2003, expanding by over a third in 2003.
Organic beef sales in the
could double in 2004 if suppliers can get sufficient volume into
2. Retailer interest – there has
traditionally been low interest from retailers to market organic meat
products. This is partly because of the success of natural meat
products, which are seen by many consumers to be similar to organic meat
products. BSE is elevating consumer awareness of organic meat products
and retailers are likely to respond by introducing these products in
their stores. Albertson’s is the only mainstream supermarket marketing
organic beef in 2003 and others are expected to follow its lead.
3. Conversion rate – The fall-out of the BSE scare is to make many meat
producers consider organic farming methods. Only 0.2% of American
pastureland and rangeland is certified organic, however a large rise in
organic farmland is predicted as more meat producers take the organic
4. Supply chains – The formation of supply chain is to accelerate as
retailers demand greater volume from organic meat suppliers. Companies
like Dakota Beef are poised to take advantage as they are setting up
strong supply chains from farmers to retailers. More conventional meat
companies are likely to enter the organic meat sector and utilize their
5. Imports – Demand for organic meat products could surpass supplies in
2004 creating opportunities for exporters in other countries. In 2003,
organic beef and organic pork was imported into
North America from Australia and Europe. Latin American companies are
already looking to capitalize on opportunities caused by the BSE scare.
In conclusion, the effects of the BSE
scare are to be profound. The fall in consumer confidence and export ban
could devastate the meat industry, affecting the recovery of the
American economy. A shake-up of the meat industry is envisaged in which
the U.S. Food & Drug Administration (FDA) will raise livestock
production standards and place tighter controls.
The BSE scare is poised to accelerate growth in the organic meat sector.
Sales are expected to surge since many Americans see organic meats to be
safer than non-organic meats. The North American market for organic meat
products is to show high growth with organic beef sales projected to
expand by over 50% in 2004.
High market growth rates will not continue indefinitely though, and the
long-term success of organic meat products depends upon how they are
positioned in the marketplace. Consumer confidence in non-organic beef
will eventually return and as this happens, there will be stiffer
competition from natural meats, free-range meats, and conventional meats
– all of which are likely to be produced according to higher standards.
Until then, organic meat companies are likely to make hay while the sun
#3001-44 The North
American Market for Organic Meat Products
Posted: December 30th 2003
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