Market reactions to animal disease: the case of bovine spongiform encephalopathy discoveries in North America

The increasing awareness of, and concern over, possible terrorist attacks using biological threats has increased attention and efforts for safeguarding U.S. agriculture. Whether intentional or unintentional, a biological event likely would cause substantial consequences well beyond the U.S. agricultural sector with considerable economic, social, and political costs. One significant impact would involve trade disruptions. This dissertation investigates biosecurity risk impacts with a focus on animal disease outbreaks using data from recent U.S. and Canada bovine spongiform encephalopathy (BSE) cases. An empirical study was carried out on the impact of the North American BSE cases. Using a time series approach, this study detected a significant structural break during the second half of 2003 when two BSE cases were confirmed in North America. Results showed that U.S. beef prices responded to the disruptions in cattle and beef trade caused by the BSE cases. The ban on beef and cattle imports from Canada and the ban on U.S. beef exports were major contributors to the fluctuation in beef prices. This showed that trade disruptions following the BSE discoveries in North America resulted in a supply shift and affected the movement of beef prices afterwards. The study did not find strong evidence that the 2003 North American BSE cases and associated trade disruptions greatly affected per capita beef consumption. In turn, a simulation study was conducted to examine the impact of major BSE outbreaks, associated trade disruptions, and demand shifts on U.S. welfare and the livestock industry. Six alternative scenarios were simulated and compared with the base scenario where there was no trade disruption and demand shift. The six scenarios consisted of various combinations of cattle and beef trade restrictions, livestock production adjustment, and beef demand shift. When beef and cattle trade, and market demand are greatly reduced in the wake of the BSE events in both Canada and the U.S., the impact on the U.S. welfare, meat trade, and regional livestock production would be the greatest. Beef price and production could reduce by 26% and 16% respectively. Regional impact on beef and livestock production would also be substantial in this case.