Beef Recalls Can Harm Cattle Prices for Years
Many public- and private-sector forces make food safer. Government regulation and oversight of those producing and serving food are important tools, as are voluntary standards for industry set by public agencies or private groups. Market forces provide a third lever: Businesses may invest in food safety to avoid increased costs or smaller profits because of recalls.
A recent study by two University of Georgia researchers found that a beef recall can affect cattle prices for as long as two years, and that the effects of multiple recalls can accrue over time.
In their research, Matthew Houser and Jeffrey H. Dorfman examined beef recalls and weekly cattle prices from 1996 to 2016, a period that included major foodborne outbreaks of E. coli infections linked to contaminated beef. From 2000 to 2002 alone, more than 160 confirmed illnesses were reported, and almost 22 million pounds of ground beef were recalled. The study, published in the journal Applied Economic Perspectives and Policy, estimated how these events affected annual revenue for cattle producers nationwide. For example, the researchers found that in 1998, farmers lost about $454 million in revenue after a rise in recalls over the previous two years. Conversely, sales revenue increased by $1.07 billion in 2012 after a two-year span with less frequent and serious recalls.
“One implication is that food safety events each help contribute to a consumer’s overall sense of a product’s desirability and that these events accumulate over time into impressions that translate to identifiable impacts on consumer demand, and thus price,” Dorfman said. “A second implication is that because of the long-lasting negative effects of recalls on prices, producers and processors should probably invest more money into trying to prevent them.”
Dorfman and Houser acknowledge that substantial research has been published about the short-term effects of recalls on beef prices, and how health information about meat can influence consumer demand. But the consequences of such recalls in the long run were not studied or evident in earlier analyses. “[T]he impact of recalls on daily cattle prices was known and believed to be temporary,’’ they wrote, noting that “this research uncovers a more prolonged impact.”
Considering these results, the authors conclude that “if this information influences companies to make even minor investments in food safety or changes to safety protocol, it could move the meat industry toward higher food safety standards, thus decreasing illnesses and death from contaminated beef.”
Sandra Eskin directs and Colin Finan manages The Pew Charitable Trusts’ work on food safety.