By Glynn T. Tonsor, Assistant Professor, Department of Agricultural Economics, Kansas State University
The impact of media attention to issues regarding meat production is certainly on the minds of many industry leaders given the enduring lean finely textured beef (LFTB) dialogue. More narrowly, observations of the nearly $40/cwt pull back in Fresh 50% lean processing beef values since early March triggers interest in understanding how long economic impacts of the LFTB conversation may persist.
To contribute to this broader discussion, one should first note that various research projects have examined the meat demand impact of consumers receiving additional information on several different subjects of interest. This includes the impact of increases in: a) medical journal articles discussing issues such as cholesterol, zinc, or iron in diets, b) media attention to high-protein or low-carbohydrate diets, c) meat recall announcements by the U.S. Department of Agriculture's Food Safety and Inspection Service, and d) media attention to animal well-being. 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.
While a specific parallel to the LFTB case does not exist in this literature, in recent conversations I have asserted perhaps the closest example is the 2009 "H1N1 flu" situation faced by the hog industry. 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. One study estimated the H1N1 coverage had adverse economic impacts spanning about 4 months. Combined, the existing literature would suggest a negative demand impact duration of 3-6 months may be expected in the LFTB situation.
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. Accordingly, even after demand impacts subside the associated increases in production costs, and hence ultimately retail meat prices, will persist.