Economic Impact of BSE Regulations:
Worth the Risk Reduction?

By Tina Caparella


No one needs to tell renderers that the discovery of bovine spongiform encephalopathy (BSE) has changed the rendering and livestock industries, but a recent report by the U.S. Department of Agriculture’s (USDA’s) Economic Research Service has the government affirming that policies and regulations put in place to prevent BSE have caused higher costs for animal feeds and a loss of products for non-livestock industries.

USDA Economist Kenneth H. Mathews Jr. says in his report, Economic Impacts of Feed-Related Regulatory Responses to Bovine Spongiform Encephalopathy, that policies are designed to prevent future animal disease outbreaks, but that these policies will have economic impacts affecting producers, processors, and consumers; and the long-term results will be much longer lasting than the immediate economic effects of the disease. In his analysis of the BSE impact on the use of animal proteins in livestock feed, Mathews states that the impact has spread far beyond the cattle and beef industries due to the number of industries dependent on outputs from the by-product and rendering industries and feed manufacturing sectors.

“Affected industries include the cosmetic and pharmaceutical industries (both of which use by-products, such as gelatin and collagen), feed manufacturing industries, and numerous service and manu facturing industries (which use other animal by-products, such as enzymes, triglycerides, and other compounds in the manufacture of fatty acids, paints, varnishes, rubber goods, plastics, and lubricants).”

BSE was first discovered in the United Kingdom in 1986 and researchers quickly identified the spread of the disease from the use of contaminated ruminant proteins in animal feed. While the disease ravaged the British livestock industry, which was forced to burn the carcasses of hundreds of thousands of animals, only a handful of cases have been found in the United States, mostly in animals originating from other countries. In 1996, BSE-related regulations shifted significantly with the discovery of BSE-infected cattle in European Union (EU) countries other than the United Kingdom, and with the announcement in March 1996 of a potential link between variant Creutzfeldt-Jakob disease in humans and BSE in cattle. In 2000, cases of BSE in native born animals were discovered in other EU countries and in countries outside the EU (e.g., Japan in 2001). In 2003, BSE was discovered in a cow in Canada (May) and in a cow in the United States that had been imported from Canada (December).

According to Mathews’ report, economic effects for the United States began in 1997 when the Food and Drug Administration (FDA) implemented a feed ban. Meat and bone meal (MBM) prices declined by half over the next two years from a high of $431 per ton in April 1997 to a low of $187 per ton in March 1999. The analysis states revised FDA estimates indicate the feed ban would ultimately cost the U.S. private sector approximately $53 million per year – $44 million in direct compliance costs to the beef, rendering, and by-product industries (including annualized capital and operating costs), $171 million in lost value of products to the rendering industry (primarily a decline in value of MBM), and a gain of $163 million through lower feed costs to producers of non-ruminant animals.

MBM prices recovered somewhat by 2003, reaching a high of $395 in November of that year, but the discovery in late December 2003 of the first U.S. BSE case resulted in MBM prices dropping to $173 in January 2004. By April 2004, MBM prices had recovered to a peak of $397 per ton, but new FDA regulations posted during the summer of 2004, which required slaughterhouses to find new uses or disposal methods for the nerve tissues banned from human consumption, sent prices into another decline, reaching a low of $187 per ton in October 2004.

Mathews says very little MBM is currently being used in any livestock feed. While the original 1997 ban on MBM reduced availability of protein feeds by 13 percent, MBM use only constitutes about eight percent of protein meals today so when FDA’s final feed rule published earlier this year (see “FDA Unleashes New Feed Rule” in the June 2008 Render) is implemented in April 2009, Mathews estimates feed substitution impacts will be relatively small but that feed and downstream costs will increase. The new rule will also introduce another round of disposal issues and costs, including charges estimated at $100 or more per head by renderers for picking up carcasses, if they pick them up at all, and a nearly $20 per head cost for disposal of unusable carcasses.

In his report, Mathews points out the obvious benefit of BSE-related regulations is the reduction of risk from animal and human disease. However, he says some have now begun to question the tradeoffs between marginal reductions in these risks and the costs incurred in achieving the risk reductions.

Mathews’ full report is available on the Internet at www.ers.usda.gov/Publications/LDP/2008/08Aug/LDPM17001/ldpm17001.pdf.


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