The Beef Business Stays Home and Bulks Back Up
Swift's beef operations reported a loss, despite a slight increase in sales, in the first three months after the mad cow scare, and other large exporters took earnings hits during the first three months of the year because of lost sales. But the losses were minimized by continued domestic demand.
Tyson Foods Inc., the nation's largest beef processor and the only one of the top three that is publicly held, reported a $2 million operating loss in its beef business for the quarter ended March 27, which it attributed to lost export sales because of mad cow. Its stock fell to $12.60 a share right after the discovery. It closed yesterday at $20.50.
It has helped that Mexico has reopened its borders, because it brings back demand for "variety" meats, such as livers, hearts, tripe and intestines, that are not big domestic sellers. According to the U.S. Meat Export Federation, for example, many of the cow tongues that would typically be sold to Japan are now being made into dog food.
Some bigger companies are trying to develop new products, as Harris Ranch has, to boost sales. Swift, for example, has created a new line of pre-seasoned and precooked beef products aimed at the U.S. Hispanic market, under the brand name La Herencia.
Still, Swift and other beef processors lost container-loads of meat that were en route to foreign markets when the BSE case was discovered. Some deeply frozen products were brought home, industry executives say, but some shipments were too perishable to make the return trip and were written off, at a cost of millions of dollars.
Industry officials say they recognize the need for the new safety procedures put in place since December.
Of particular importance is a new government guideline preventing the slaughter for human consumption of any "downer" cows, or those that can't walk. Additionally, any cattle that are tested are now held aside until the results are known.
The BSE-infected cow discovered in December, to the dismay of many consumers, was a downer cow that was processed into hamburger and shipped to stores before results from the mad cow test had been received.
Other new safeguards include more careful identification of the animals' age through dental inspection, because older cows are at greater risk for mad cow disease. The nerve and intestinal tissues of slaughtered animals, where BSE-causing cells are known to reside, is also more thoroughly removed now and must be rendered for use only in nonedible products such as film coatings and industrial lubricants.
"There are many more firewalls in place that protect [consumers] that weren't in place prior to December 23," said Gary Weber, executive director of regulatory affairs for the National Cattlemen's Beef Association.
These new procedures don't come cheap. Weber said the industry has easily spent "hundreds of millions of dollars" on plant improvements and increased surveillance systems in the past few months.
Beef prices have been at historically high levels because of strong consumer demand and a cyclical decline in the supply of cattle coming to market. But those prices would be even higher if beef processors, which buy the cattle, weren't shouldering higher expenses equal to about $15 per animal, Weber said.
The recent crisis permanently changed operations at some companies. T.Y. Baker, president of exporting company E. Boyd & Associates of Raleigh, N.C., has shifted to the less-profitable but also less-complicated business of exporting fruits and vegetables. Two years ago, he said, 60 percent of his business was in sales of meat. Now it's about 40 percent.
In recent years, Baker said, his beef business, particularly, has been hit by a wave of bans and restrictions from various markets, culminating in the loss of all the products he had heading overseas when BSE was found here.
Now, he says, even if trading resumes freely, E. Boyd is going to stay with the blueberries and carrots.
"When you get hit with that two-by-four enough, you learn," Baker said.
© 2004 The Washington Post Company