BEEF INDUSTRY Companies recover after mad cow scare

Innovative products make up for loss of exports.
WASHINGTON POST
WASHINGTON -- Facing the loss of a key export market for its short ribs when the mad cow scare temporarily paralyzed the American beef industry six months ago, Harris Ranch Beef Co. of Selma, Calif., began experimenting.
Over the first few months of the year, it tested two flavors of short ribs that might appeal to U.S. consumers, spicy sesame and teriyaki, and just won the necessary government approval to sell them through grocery stores and restaurants.
"I have a little less hair, and I'm a little more gray than when we started on this," said Bruce Berven, director of marketing for the company. But if the new product sells, it could use up all the short ribs the company once sold to South Korea.
Outbreak results
Since the discovery of one case of mad cow disease in Washington state in late December, the U.S. beef industry has had to deal with uncertainty about consumer response, volatile prices, increased safety costs -- and the start this month of a more intensive testing program for mad cow disease.
Yet, as the Harris Ranch innovation shows, many companies are faring better than they expected, even as the two biggest export markets, Japan and South Korea, remain closed.
The $175 billion-a-year beef industry has strong domestic sales, aided by the popularity of low-carb, high-protein diets. And the biggest, most diversified processors have also been helped by the strong sales and higher prices of pork and chicken both here and abroad.
"Demand in the U.S. does not seem to have flagged at all," said Jim Herlihy, a spokesman for Swift & amp; Co., another leading processor. "Consumers are continuing to buy despite the higher prices."
Industry officials know there may be more upheaval around the corner. With new, faster tests of cows just implemented, the industry is expecting at least some false positive results.
Future dangers
No one knows how consumers will respond if a second case of bovine spongiform encephalopathy (BSE) is found.
"The fact is, it's possible we're going to get another case. The surveillance system is going to determine BSE, if we have it, with a very high degree of accuracy," said Janet Riley, a spokesman for the American Meat Institute, based in Arlington, Va. "You just don't know how future cases will be perceived."
Beef exporters are still trying to recover from the lost business that accompanied decisions by Japan, South Korea, Mexico and many others to close their markets in the wake of last year's mad cow discovery. Though only about 10 percent of U.S. beef is exported, it is still a large market.
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 Thursday at $20.50.
Reestablishing trade
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.
New safety 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.