Economist says LFTB Bite Long-lasting

No matter what you call it, the beef industry was 'slimed' and it appears the impact could be long-term.

Figuring the market impact of a major media event on a market is no easy task, but the beef industry is working through another crisis brought on by coverage of lean finely textured beef as an unwanted additive. Glynn Tonsor, agricultural economist, Kansas State University, looked at the impact of media attention on the issue seeking parallels to events in the past. His aim is to determine just how long the LFTB blow-up could impact prices.

Tonsor notes that the $40 per hundredweight pull back in fresh 50% lean processing beef values has gotten the industry's attention, which triggers interest in how long economics of the issue may stick around.

LONG-TERM IMPACT: Media spat over lean finely textured beef is going to linger for the industry.

He adds that other factors can impact meat values from medical journal articles discussing issues including cholesterol, zinc or iron in diets; media attention to high-protein, low-carb diets; meat recall announcements from USDA; and media attention on animal care. "In short, increases in this type of information received by the public has led to impacts on aggregate meat demand which typically is estimated to last one or perhaps two quarters," he says.

To get a better handle on the potential impact, Tonsor looked for another media-hyped incident and came up with H1N1 flu which faced the hog industry in 2009. He notes the parallels including a catchy media name for the problem - swine flu - which was in no way accurate, but persisted.

"Narrowly, both the H1N1 and LFTB cases are characterized by extensive media attention involving debated and prevalently circulated and "catchy" phrases. Moreover, both cases involve situations where several industry experts contend there is not "scientific basis" for public concern yet the phrase "perception is reality" is prudently applicable when examining economic implications," he says.

Tonsor notes one study showed the H1N1 flare-up had adverse economic impacts that lasted about four months. Based on his review of literature, Tonsor says the impact of LFTB could span from three to six months.

And he adds: " The second thing to recognize is the supply-side response and implications. Narrowly, even after any demand impact and associated media coverage subsides one may expect the LFTB situation to have longer-lasting impacts on the industry "behind the scenes." The statements by various retail customers indicating they will no longer procure beef from users of LFTB, the possible introduction of additional product labeling, etc. suggests the odds of returning to pre-March 2012 practices in the production of ground beef are rather remote."

Tonsor concludes that consumers have the right to influence how food is produced. "After all economic value is derived by providing willing buyers with product they desire. Importantly however, this LFTB situation is yet another example where at least this economist thinks all of society would be better served if collectively we each better appreciated the phrase 'there is no free lunch' which is frequently used among my colleagues."

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