IMPACT OF BSE AND FMD ON BEEF INDUSTRY IN UK

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IMPACT OF BSE AND FMD ON BEEF INDUSTRY IN UK

• By
• Aviral Chopra David Bessler

Saint Louis, Missouri April 17, 2005
The research was supported by the Texas AM based
National Center for Foreign Animal and Zoonotic
Disease Defense (FAZDD) that was established by
the Department of Homeland Security
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REASON FOR RESEARCH

• Bioterrorism and agri-terrorism became main
  concern after 9/11
• Impact on Health
• Impact on Economy
• Media Concern

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TWO MAIN DISEASES

• Foot and Mouth Disease (FMD)
• Bovine Spongiform Encephalopathy (BSE)
• How these disease affect
• Consumers
• Meat Industry

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REASON FOR CHOOSING UK

• Impact of these events can be accessed by UK
  events.
• Both diseases happened in UK
• Better understanding of these events and their
  impact.
• Understanding to deal such situations.
• Impact on USA in these events.

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DATA

• Data provided by department of environmental food
  and rural affairs (DEFRA), United Kingdom (UK).
  
• Consists of Real Daily prices of
• Beef (Retail, Wholesale, Producer)
• Lamb (Retail, Wholesale, Producer)
• Pork (Retail, Wholesale, Producer)
• Poultry (Retail, Producer)
• Period January 1985 to December 2002.

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DATA
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DATA

• Seasonality
• No seasonality in the prices of any meat
• Two lags are present
• Stationarity
• Most of the series are non-stationary using ADF
  Test (Except Retail Lamb Price)

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METHODOLOGY

• Vector Error Correction Model
• Dynamic Model
• Directed Acyclical Graph (DAG)
• Innovations

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COINTEGRATION

• Trace Test suggests that there are seven or less
  cointegration vectors.

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TIME SERIES PROPERTIES

• Stationarity
• DF and ADF tests do not provide conclusive
  results for stationarity of the series
• Alternative hypothesis is tested that series are
  stationary
• Rejected the hypothesis in all cases indicating
  that series are non-stationary at their levels

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TIME SERIES PROPERTIES

• Exclusion from Cointegration space
• Hypothesis tested that series is not in
  cointegration space
• Rejected for all series indicating that all
  series are part of cointegration space
• Test of Weak Exogenity
• Hypothesis tested is that the series does not
  respond to perturbation in the cointegration
  space
• Rejected the hypothesis for all series but Retail
  Beef Price

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PRICE CORRELATION ON INNOVATIONS FROM ECM
BEEF
Retail
Whsale
Prod
LAMB
Retail
Whsale
Prod
PORK
Retail
Whsale
Prod
POULTRY
Retail
Prod

• Prices are strongly correlated in Lamb followed
  by Beef, Pork and then Poultry.

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PRICE CORRELATION ON INNOVATIONS FROM ECM

• Wholesale and producer prices are strongly
  correlated.
• Lamb producer and wholesaler prices have
  strongest correlation.
• Retail lamb price responds with Pork prices.
• Retail beef price is positively correlated with
  retail pork price.

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DIRECTED ACYCLICAL GRAPH ON INNOVATIONS
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DIRECTED ACYCLICAL GRAPH ON INNOVATIONS

• Wholesale beef price and retail poultry prices
  are the source of information.
• Producers price of pork and poultry are two main
  sinks (absorb all meat sector information).
• Wholesale prices play very dynamic role in beef,
  pork and lamb prices.
• Producers prices are affected by wholesale and
  retail price (except in case of poultry).
• Retail lamb price is main communication link
  between beef and other meats.

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IMPULSE RESPONSES
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IMPULSE RESPONSES

• Retail beef prices respond positively to
  wholesale and producers beef price.
• Beef prices respond negatively to retail lamb and
  wholesale pork prices.
• Lamb prices respond only to its own system
  prices.
• Pork prices respond negatively to retail beef and
  lamb prices.
• Retail pork prices respond negatively to
  wholesale and producers pork price.

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EVENT ANALYSIS

• Analyzed three events
• BSE88 (July 1988) When British government
  decided to kill all the infected animals.
• BSE96 (March 1996) British government decided to
  ban ruminant protein in pigs and poultry ration
  and shortly after human transferability of BSE
  also announced.
• FMD00 (December 00) Major starting point for all
  events related with FMD.

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EVENT ANALYSIS

• Actual Price VS Forecasted Price
• Deviation (Actual Forecasted ) Price

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BSE88

• Beef prices remain strong during and after the
  event.
• Producers price of beef became weak after the
  event could be due to mass killing (gt50,000
  head).
• Other meats did not respond to this event.

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BSE96

• Beef prices fell after the incident.
• First retail prices declined but recovered in
  next few months but wholesale and producer prices
  kept on declining.
• Other meat prices (Lamb, Pork and Poultry) gained
  just after the incident.
• Lamb was the main beneficiary.
• Pork and Poultry did not gain may be due to
  involvement in BSE.
• Market power of wholesaler.

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FMD00

• FMD 2000 impacted all the animals (except
  Poultry).
• Prices gained after the mass killing of animals
• Supply problem mainly at producer and wholesale
  level.

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IMPACT ON BEEF
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IMAPCT ON LAMB
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IMPACT ON PORK
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IMPACT ON POULTRY
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ALTERNATIVE VIEW

• t-statistics on dummy variables on three
  different events by meat category and marketing
  channel

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FUTURE STUDY

• Unavailability of higher frequency data
• Daily Price Data
• Same analysis with nominal prices
• Difficult to generalize for other countries due
  to difference in consumption pattern and
  production technologies

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THANK YOU