Economic Incentives in Mandatory Economic Incentives in Mandatory vs. Voluntary Meat Food Safety vs. Voluntary Meat Food Safety

Standards Standards

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Beef Sector “Case Study”Beef Sector “Case Study”

Gary M. Weber, Ph.D., President G.M. Weber & Associates, LLC Consulting

*special thanks to Dr. Dell Allen, Cargill, retired; Gregg Doud and others at the NCBA for data and slides used in this presentation

Beef DemandBeef Demand was falling for years- was falling for years-adding to economic signals to address adding to economic signals to address

consumer issuesconsumer issues

40

50

60

70

80

90

100

110

80 82 84 86 88 90 92 9440

50

60

70

80

90

100

110

80 82 84 86 88 90 92 94

1993 – E. coli O157:H7 declared an adulterant1996 - BSE a human health threat

Issues overtaking the beef industry threatening the Issues overtaking the beef industry threatening the Business and Consumer Marketing ClimatesBusiness and Consumer Marketing Climates

““Managing issues means before you see ‘it’ here you have Managing issues means before you see ‘it’ here you have been been

working on the issue, dealing with the risks and developing working on the issue, dealing with the risks and developing a action plan for some time.”a action plan for some time.”

Milestones in the Milestones in the E. coliE. coli O157:H7 O157:H7CrisisCrisis

In 1993 the Jack-In-The-Box outbreak in the Pacific Northwest brought the problem into national focus.

For the first time, a pathogen on fresh beef was declared an adulterant and a zero tolerance policy was established by the USDA.

USDA began testing for the organism in ground in plants and at retail. If found, USDA demanded complete product recalls.

USDA developed ever more sensitive tests while industry struggled to develop and put in place interventions to reduce risk.

Since 1993 millions of pounds of ground beef have been condemned and companies such as Hudson Foods, Beef America, Topps have been put out of business.

Beef Producers Supported the Debate and Beef Producers Supported the Debate and Development Development

of Pathogen Reduction/Hazard Analysis & of Pathogen Reduction/Hazard Analysis &

Critical Control Points SystemsCritical Control Points Systems

PR/ HACCP Final RulePR/ HACCP Final Rule

(9 CFR Chapter III) (9 CFR Chapter III)

July 1996July 1996

““They” Declared “War” They” Declared “War” Against Against E. coli E. coli O157:H7 O157:H7

Protecting Public Health and the Protecting Public Health and the Business Climate for the Beef Business Climate for the Beef Industry and Their PartnersIndustry and Their Partners

Prevalence of E. coli O157:H7 in Ground Beef1

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

95 96 97 98* 99** 00 01 02 03 04

Fiscal Year

Percent

Positives

1 Results of raw ground beef products analyzed for E. coli O157:H7 in federal plants.

* In 1998 FSIS increased sample size from 25 g to 375g.

** In July 1999 FSIS changed to a more sensitive analytical method.

Prevalence of Prevalence of E. coliE. coli O157:H7O157:H7

in Ground Beef in Ground Beef**

Prevalence of Prevalence of E. coliE. coli O157:H7O157:H7

in Ground Beef in Ground Beef**

0

0.2

0.4

0.6

0.8

1

00 01 02 03 04 05 06 07Fiscal Year

*Results of raw ground beef products analyzed for E. coli O157:H7 in federal plants. 2007 Data as of 10/9/2007.

Perc

en

t Posi

tives

Areas of control Intervention steps become easier Intervention steps become easier

to implement as the hourglass to implement as the hourglass narrowsnarrows• Primarily at packing plantsPrimarily at packing plants

• Then pre-harvest or Then pre-harvest or When pre-When pre-harvest?harvest?

Stocker Feedlot PackerProcessor

Retailer

FoodserviceConsumer

Seed Stock

Cow/Calf

800,000

2,70085%

3595%

280,000,000

“Typical” Intervention Costs per Head by Plant Size

Plant Size: 1000 2000 3000 5000 head head head head

Hide on Wash $ 2.40 $ 2.16 $ 1.84 $ 1.60Steam Past. $ .24 $ .22 $ .18 $ .16Pre-Evis Cab. $ .06 $ .05 $ .05 $ .04Pot Wash Cab. $ .09 $ .08 $ .07 $ .06Head Cabinet $ .02 $ .01 $ .01 $ .01

Total $ 2.81 $ 2.52 $ 2.15 $ 1.87

Depreciation $ 2.88 $ 2.59 $ 2.21 $ 1.92Chem. Cost $ 2.35 $ 2.35 $ 2.35 $ 2.35

Total/Head $ 8.04 $ 7.47 $ 6.71 $ 6.14

* Source Dell Allen, Cargill, retired

Human Illnesses Attributed to E. coli

Incidence of Foodborne Incidence of Foodborne Illness 1996-2006: Illness 1996-2006: E. coliE. coli

O157*O157*

0

0.5

1

1.5

2

2.5

3

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

National Health Objective: 1.0

Inci

den

ce p

er

10

0,0

00

P

op

ula

tion

*Preliminary FoodNet Data on the Incidence of Infection with Pathogens Transmitted Commonly Through Food --- 10 states, 2006

03 3

1 2 2 2 2 14

0 1

12

3

12

8

1310

14

22 21 20

13 14

23

4542

484647

40

44

36

3130

4547

28

8

32

79

22

33

89

12

35

27

63

9/03 28%

12/30/0319%

1/7/0421%

1/16/0420%

2/12/0421%

3/31/0422%

4/29/0420%

5/27/0421%

7/5/0424%

8/4/0422%

12/1/0421%

12/15/0421%

1/12/0523%

Nutrition "Mad Cow" disease Safety Price

Reasons Consumers “Report for”Eating Less Beef 2003-2005

Percent of consumers citing reasons for eating less beef

Consumers may not react to recalls Consumers may not react to recalls as they once did - Litigation is always a riskas they once did - Litigation is always a risk

This is an economic stimulus as This is an economic stimulus as

is “Brand Equity” riskis “Brand Equity” risk

““Tyson has issued 2 unrelated ground beef recalls (hamburger recalls) Tyson has issued 2 unrelated ground beef recalls (hamburger recalls) in 2007.  The first one was on March 2 and involved 16,743 pounds of in 2007.  The first one was on March 2 and involved 16,743 pounds of ground beef.  The second was on June 8 and involved 40,440 pounds ground beef.  The second was on June 8 and involved 40,440 pounds of ground beef shipped to Wal-Mart stores in Alabama, Arkansas, of ground beef shipped to Wal-Mart stores in Alabama, Arkansas, Colorado, Kansas, Kentucky, Louisiana, Missouri, Mississippi, New Colorado, Kansas, Kentucky, Louisiana, Missouri, Mississippi, New Mexico, Oklahoma, Tennessee and Texas.  Mexico, Oklahoma, Tennessee and Texas. 

Pritzker | Ruohonen & Associates, P.A., a leading food poisoning Pritzker | Ruohonen & Associates, P.A., a leading food poisoning litigation law firm, is republishing it here as a public service.  The firm litigation law firm, is republishing it here as a public service.  The firm has recovered millions of dollars for food poisoning victims, including has recovered millions of dollars for food poisoning victims, including a recent settlement for $6,425,000.”  .” 

Beef Demand Responding to Increased Beef Demand Responding to Increased Consumer Confidence on all IssuesConsumer Confidence on all Issues

Demand Has IncreasedSignificantly Since 1998

U.S. consumer expenditures on beef

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04YEARS

35

40

45

50

55

60

65

70

Billio

n D

olla

rs

Source: USDA & Cattle-FaxDomestic disappearance valued at all-fresh retail price, 2004 projected

The Challenge of E. coli O157:H7 RemainsThe Challenge of E. coli O157:H7 Remains2007 Recalls and Illnesses2007 Recalls and Illnesses

June 3, 2007 - United Food Group, LLC, a Vernon, Calif., establishment, June 3, 2007 - United Food Group, LLC, a Vernon, Calif., establishment, voluntarily recalling approximately 75,000 pounds of ground beef voluntarily recalling approximately 75,000 pounds of ground beef products because they may be contaminated.products because they may be contaminated.

June 9, 2007 - Tyson Fresh Meats Inc. recalled more than 40,000 pounds June 9, 2007 - Tyson Fresh Meats Inc. recalled more than 40,000 pounds of ground beef shipped to Wal-Mart stores in 12 states after samples of ground beef shipped to Wal-Mart stores in 12 states after samples tested at a Sherman, Texas, plant showed signs of E. coli contamination.tested at a Sherman, Texas, plant showed signs of E. coli contamination.

June 11, 2007 - United Food Group recall expands to over 5 million June 11, 2007 - United Food Group recall expands to over 5 million pounds, says illnesses were reported in five states - three in California, pounds, says illnesses were reported in five states - three in California, four in Arizona, two in Colorado, one in Wyoming, and one in Utah.four in Arizona, two in Colorado, one in Wyoming, and one in Utah.

October 4, 2007October 4, 2007 - - Topps Meat Company Topps Meat Company E. coliE. coli-related recall, -related recall, fifth largest food recall in history, company has ceased fifth largest food recall in history, company has ceased operation.operation.

November 3, 2007 - Cargill Meat Solutions Corp. of November 3, 2007 - Cargill Meat Solutions Corp. of Wyalusing, Pennsylvania " ... is voluntarily recalling Wyalusing, Pennsylvania " ... is voluntarily recalling approximately 1,084,384 million pounds of ground beef approximately 1,084,384 million pounds of ground beef products” products”

The Challenge of E. coli O157:H7 RemainsThe Challenge of E. coli O157:H7 Remains

November 3, 2007 - Cargill Meat Solutions Corp. of November 3, 2007 - Cargill Meat Solutions Corp. of Wyalusing, Pennsylvania " ... is voluntarily recalling Wyalusing, Pennsylvania " ... is voluntarily recalling approximately 1,084,384 million pounds of ground beef approximately 1,084,384 million pounds of ground beef products products

Estimated cost of the recall in product value alone is $2,949, 524Estimated cost of the recall in product value alone is $2,949, 524

Cost of the “state of the art” interventions in the plant $13,466/day or Cost of the “state of the art” interventions in the plant $13,466/day or $2,962,520/year$2,962,520/year

Companies understand the interventions are cost effective-there are Companies understand the interventions are cost effective-there are times they are not enough-more needs to be done.times they are not enough-more needs to be done.

Pre-Harvest Interventions Have Been Under Pre-Harvest Interventions Have Been Under Development for Many YearsDevelopment for Many Years

What can be done to stimulate their What can be done to stimulate their development, approval and adoption?development, approval and adoption?

Probiotics and Competitive Exclusion Probiotics and Competitive Exclusion Products (FDA)Products (FDA)

Neomycin Sulfate (FDA)Neomycin Sulfate (FDA) Sodium Chlorate (FDA)Sodium Chlorate (FDA) Vaccines (USDA-APHIS-CVB)Vaccines (USDA-APHIS-CVB)

Toward the “right mix” of Mandatory Toward the “right mix” of Mandatory vs. Voluntary “Standards” vs. Voluntary “Standards”

ObservationsObservations Industry has many incentives to “do the right things” Industry has many incentives to “do the right things” Mandatory “standards” usually result from crisis and Mandatory “standards” usually result from crisis and

are “implicitly” needed as a result!are “implicitly” needed as a result! Risk analysis, science and regulatory (agency) Risk analysis, science and regulatory (agency)

hurdles are often rate limiting in finding solutionshurdles are often rate limiting in finding solutions Who should bear the cost of regulations/interventions Who should bear the cost of regulations/interventions

is sometimes difficult to determineis sometimes difficult to determine The best “solution” is for industry and government to The best “solution” is for industry and government to

work together to find solutionswork together to find solutions There will never will be “zero risk”There will never will be “zero risk”

Thank you – safe travels!