ABC's Attack On Lean Beef Costs Economy More Than A Half Billion Dollars

September 10, 2012 - 9:02 AM

The U.S. beef industry is enduring what one analyst called “a perfect storm” of both the huge drought and ABC-led attacks on lean finely textured beef (LFTB) that activists hyped by nicknaming the product “pink slime.”

Rabobank’s Don Close warned the impact is a “multi-year issue.” “The ramifications of both of these events will readily impact the future,” he said. Close is the financial firm’s vice president for Food & Agribusiness Research and Advisory in Animal Protein.

According to Close, those financially harmed by anti-LFTB activists include Beef Products, Inc., which makes LFTB, and U.S. fed-cattle producers. But that rolled down hill to customers. “Ultimately, it will go to damage the consumer,” he added.

Those comments come on the heels of recent analyses of the beef industry that show the devastating impact the fight over lean finely textured beef has had. According to an analysis by two Iowa State University economics professors, that controversy has cost at least $573 million dollars.

That report detailed how the loss of “300 million pounds of lean finely textured beef that would have been processed through the end of 2012 was worth $273 million in added value to the economy.” That included a loss of $90 million in payroll and nearly 2,000 jobs “in the areas of transportation, handling, construction and public utilities as well as retailers and foodservice businesses.”

There was an additional $300 million “in lost sales to the rest of the economy.”

Dr. Dermot J. Hayes, Ph.D., Iowa’s Pioneer Chair in Agribusiness, said the worse toll was on the “workers in the plants. They’re all still unemployed.”

Hayes, writing with Dr. Daniel Otto, Ph.D., predicted the issue would raise the price of ground beef another 6 cents per pound. Close called that estimate “very conservative.”

He added that he was critical of how the media had handled the issue of lean finely textured beef and said “without question” ABC deserved some blame. That ABC covered the story “for three consecutive nights was the catalyst for that whole thing to go viral.”

Close concluded that the issue had prompted industry mistrust of journalists. “In agriculture as a whole, we have become much more leery and much more distrusting of the media in general.”

The LFTB battle escalated following “segments on ABC News on March 7, 8, and 9, 2012,” Close wrote in a July analysis of the issue. He cited “a social media frenzy” that led to the beef being pulled from restaurants and major retailers.

All of that happened as agricultural states were trying to survive the “worst U.S. drought in at least 50 years.” According to Bloomberg, “Food prices will increase an average 4 percent annual rate in the nine months ending June 2013.”

High beef prices could last some time. An Aug. 16 USDA outlook on the beef industry indicated increased food prices were causing cattle owners to sell off both feed and dairy cattle. Any attempt to expand beef herds might not take place until 2016 or 2017, it added.

A big decline in demand for the lean beef has depressed the price for beef trimmings, raising the price of other beef. Before the ABC reports in March, 50 percent lean trimmings, which are used by BPI to produce its lean beef, sold at $1.02 per pound. By the end of May, that price had plummeted 46 percent, according to Rabobank figures. That price of $.55 per pound has seen a slight improvement to $58.92, but that is still more than a 40-percent drop because of falling demand for the lean beef product.

The ABC reports spanned two full months on the network. Correspondent Jim Avila’s stories were spurred on by complaints about the lean beef by two former USDA employees turned activists.

But, the damage from that reporting was massive.

In May, 650 BPI jobs were lost when plants closed in Amarillo, Texas; Garden City, Kansas; and Waterloo Iowa, company spokesman Rich Jochum told CBS News. A plant in South Sioux City, Neb., remained open but has operated at reduced capacity.

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