Research Accomplishment Reports 2007

Effects of Policy and Product Changes on the International Demand for US Agricultural Products

M.R. Reed
Department of Agricultural Economics

 

Project Description

Saghaian, Maynard and Reed examine the time-varying Japanese price reactions to the 2001 Bovine Spongiform Encephalopathy (BSE) discovery, the 2000 outbreak of Foot and Mouth Disease (FMD), and the 1996 E.coli food poisoning events. The results show the beef safety events had different negative impacts on Japanese retail beef prices, suggesting that consumers understood and differentiated among the health risks. The results provide incentives for beef producers and retailers to proactively inform consumers about ongoing beef safety measures.

Understanding consumer reaction to BSE, FMD and E.Coli helps the beef industry restore consumer confidence after future food safety crises, and provides policy makers a basis for countermeasures and compensations. Saghaian and Reed found that the Foot and Mouth Disease (FMD) and Bovine Spongiform Encephalopathy (BSE) events had important impacts on Japanese retail meat prices and quantities, as evidenced by dynamic retail-level changes in the neighborhood of each event. The results of this research help beef producers and retailers better understand consumer reactions to beef safety scares.

The historical decomposition of the price and quantity series indicated that price and quantity responses in the neighborhood of FMD and BSE events were dissimilar and consistent with well-informed, rational consumer behavior. For example, quantity demanded of Australian beef, which is primarily grass-fed, rose upon the discovery of BSE, while quantities of primarily grain-fed beef fell precipitously. Babool measures the impacts of environmental policies, competition policies, and food safety standards on exports from certain developing countries. He finds that the value of exports in food and food products is negatively affected by aflatoxin standards. A one percent increase in food safety standards decreases exports by approximately one percent. He finds that environmental regulations play a large role in determining international competitiveness in some industries, but it plays no role in determining food exports.

Impact

The results of the research on BSE, E-coli, and FMD help beef producers and retailers better understand consumer reactions to beef safety scares. These producer groups need to be cognizant of the importance that timely, accurate information to consumers can benefit the demand for their products. There is evidence that groups associated with the meat industry are paying closer attention to public perceptions when an outbreak occurs. Large changes in food standards (which are common these days) will have salutary, deleterious impacts on food exports by developing countries. When importing countries change their policies, it is difficult for exporting countries to comply and it can be costly in terms of lost exports. The World Trade Organization and other groups need to assure that food standards reflect sound science and represent a legitimate balancing of risks and implementation costs.

Publications

Babool, A. 2007 "The Impact of Domestic Policies on International Competitiveness." Ph.D. dissertation
Xiao, Q. and Reed, M. 2007 "Export and Production Growth: Evidence from Three Major Wheat Exporters Of Australia, Canada, and the United States" Applied Economics 39: 309-21.

Saghaian, S., Maynard, L. and Reed, M. 2007 "The Effects of E.COLI0157:H7, FMD and BSE on Japanese Retail Beef Prices: A Historical Decomposition." Agribusiness: An International Journal. Vol. 23, Issue No. 1, Winter: 131-47.

Saghaian, S. and Reed, M. 2007 "Consumer Reactions to Beef Safety Scares." International Food and Agribusiness Management Review 10 Issue 1: 18-35.