Forgive, forget, finish that steak

Crises like mad cow don't weigh on minds of consumers for long

09:21 PM CST on Saturday, January 17, 2004

By KATIE FAIRBANK and PAULA LAVIGNE / The Dallas Morning News

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If the story plays out like past food scares, mad cow disease will barely cause a ripple in the U.S. beef industry.

Hundreds of people got sick or died from E. coli and hepatitis A, but futures markets for beef and green onions reacted only briefly. And the scare over genetically engineered corn in the food supply even pushed prices up a bit.

The results from research by The Dallas Morning News fly in the face of conventional wisdom that says a food industry can be devastated by a medical scare. Instead, it shows that consumers' attention fades quickly despite blaring headlines, and financial markets follow suit.

Amy Joy Lanou, a doctor with the Physicians Committee for Responsible Medicine, argues that the rules governing beef-industry practices should be strengthened to protect consumers, but she was surprised how swiftly markets forgive food-safety problems.

"Really? Wow. I think we must have this sort of deep-seated belief that our food supply is safe," she said, although she worries the government "is giving us a false sense of security."

And the food industry may recover quickly, but individual companies aren't always so lucky. The Mexican restaurant chain that served green onions tainted with hepatitis A filed for Chapter 11 bankruptcy on Oct. 8, and more than 80 people have sued. More than a decade ago, Jack in the Box paid out millions of dollars for lawsuits after serving hamburgers tainted with E. coli. Sales plummeted 40 percent, and it took a couple of years for the fast-food chain to fully recover.

"It's a significant impact if you're a shareholder," said Roger Viadero, a former U.S. Department of Agriculture inspector who works in the agribusiness division of Ernst & Young.

Of course, there's always an exception. In this instance, it's the bellwether case involving apples.

In 1989, when a news report showed that Alar, a chemical suspected of causing cancer, was being sprayed on apple crops, the apple industry was wrecked. Prices kept going falling for four months.

"We had mothers who were stopping buses to pull apples out of their kids' lunches," said Tom Hale, a former president of the Washington Apple Commission.

The industry has never been the same, he adds.

"We did recover, to a degree, but I still think there was a residual, ongoing effect that is still there today," he said.

Intervention

The Alar incident is one reason why the government steps in so quickly when word of contaminated food surfaces.
"The primary goal for the government, especially the USDA, is to advance the agriculture interests of the United States," said Tom McGarity, president of the Center for Progressive Regulation and a professor of food-safety law at the University of Texas School of Law. "What's happening, in a sense, is that the government is being their flack for free."

In the case of mad cow, USDA officials held daily briefings, and Secretary Ann Veneman went so far as to say that she'd be eating beef on Christmas Eve despite news that the brain-wasting disease was found in a cow slaughtered in Washington state.

Then the Agriculture Department and the nation's $40 billion cattle industry braced for trouble.

Cattle futures dropped, halting trading for several days after the Dec. 23 USDA announcement. Now, prices are inching back up despite the fear that there will be a glut of beef in months to come. About 40 nations have banned U.S. beef imports because of mad cow, formally known as bovine spongiform encephalopathy.

Because of the cut in exports, 2004 cattle price estimates have been lowered to between $72 and $78 per hundred pounds, down from record highs of $84 to $91 last year. Prices had been climbing because of high demand brought on by protein-heavy diets such as Atkins and a U.S. ban against Canadian imports.

Exports this year are now projected at 220 million pounds, the lowest since 1980. A month ago, the USDA had projected 2.62 billion pounds of exports this year.

Reassurance

Federal officials are assuring the public that nobody has gotten sick from mad cow in the United States, and they're pointing fingers north because the infected cow came from Canada.

The Agriculture Department has also instituted measures to comfort consumers, including a ban on slaughtering cattle for human food if they are too sick or injured to walk, and a ban against brain and nervous-system tissue from older cattle in human food.

Mr. McGarity said some of the bans impose "no burden whatsoever on the cattle industry and will not enhance the safety of meat." He adds that it "seems disingenuous at best for USDA to claim credit for taking action that will have no impact one way or the other."

Still, consumers haven't needed much convincing. The USDA reported last week that domestic beef demand "has remained firm."

Cattle industry groups are pumping an additional $1.3 million into advertising, hoping to keep demand up and also because they need to sell the meat that had been bound overseas.

"Most market reactions to product problems are very short-lived. Generally it goes away," said Dan Howard, chairman of the marketing department at Southern Methodist University. "Consumers have become numb to warnings."

Agriculture officials aren't so sure.

"Our agency hasn't looked at this to draw conclusions," said Steve Crutchfield, staff analysis coordinator for the Agriculture Department, which is studying how markets react to problems in the food supply. The report should be turned over to top officials in a few months.

Mr. Crutchfield said he believes the research will show that consumers and markets react according to "the nature of whatever the health concern was and how widespread."

But The News' study shows that even dramatic food problems don't have much impact. Overall, people aren't willing to give up their taco shells or burgers, and markets bounce back quickly.

"Consumers believe they're immortal. In all likelihood, most didn't hear what the government said and didn't even feel that they needed to," said Mr. Howard, who studies consumer behavior.

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