Mad Cow's Economic Slaughter

The calamity is spreading beyond the beef industry

In Spain, bull breeders are seeing red. To stamp out mad cow disease, the government is forcing owners to destroy and burn bulls whose fighting days are over instead of slaughtering and selling them for meat. The bullfighting industry is lobbying the government for up to $13 million in compensation and trying to forestall testing that might uncover mad bulls in their $20,000-a-head herds--and so keep the animals from fighting in the ring. Across the border in France, one of the country's most famous restaurants, L'Arpege in Paris' chic 7th Arrondissement, has gone vegetarian--in this panicky time, cote de boeuf is definitely out. Over in Germany, 10% of the slaughterhouses are expected to close this year, and shoe prices are likely to rise because of the diminished availability of leather.

Mad cow mania is sweeping Europe. It has already taken down two ministers in Germany. But the costs are more than political: The health scare is quickly turning into a calamity for Europe's beef industry--and its effects will ripple through the economy. Using recent expenditures as a guide, Europe's bill for bovine spongiform encephalopathy (BSE), as the disease is formally known, is likely to reach $20 billion in the next two years, factoring in the cost of hits to the farm sector, government bailouts to industry, lost jobs and revenues, and reduced economic competitiveness in the beef industry. And the crisis is only beginning.

In France alone, plunging consumer demand for beef is costing cattle producers up to $14 million a week. Some 40,000 food industry jobs are at risk in Germany. "What we are experiencing these days is catastrophic," says Patrick Steinke, manager of Germany's top trade association for meat processors.

ASSUAGING PANIC. Meat producers are not the only ones feeling the pain. The European Commission has spent $6 billion over the past four years--well before mad cow disease jumped the English Channel from its source in Britain--to assuage consumer panic and shore up the beef market. The EC has already bought 23,000 tons of beef, and as BSE spreads across Europe, these bailouts will escalate. Costs include anti-BSE measures such as cattle testing, export refunds, and government payments to the industry for destroyed animals.

One cost impossible to predict: the final bill for treating afflicted humans, which could spiral out of control if the number of people infected with the disease multiplies from the current small number. The incubation period could be 10 years or more. "The implementation of BSE controls across the EU will be a significant financial burden," predicts Stephen Rossides, head of food and health science at Britain's National Farmers Union.

Europe's open borders mean cattle and contaminated meat and animal feed are easily transported from one country to another. Because of the disease's long incubation period, the extent of the problem is impossible to ascertain. But all of the Continent, including the much poorer nations of Eastern Europe, "will find BSE once they start looking" at cow herds, says Paul Brown, a senior research scientist with the National Institutes of Health in Bethesda, Md. Fearing contamination, Poland and the Czech Republic have banned beef imports from most EU members.

Discovered 15 years ago in cattle in the south of England, BSE has crossed over to humans through the consumption of beef, killing 88 British citizens. Since 1996, British taxpayers have shelled out $7.5 billion for BSE-related measures including compensation to producers and testing of cattle. The $6 billion British beef industry calculates losses of $480 million for each year since the government adopted strict BSE controls in 1988.

In continental Europe, 1,700 infected cows have been reported over the years, with most cases cropping up in the past 12 months. Numerous countries, including the U.S., Australia, New Zealand, and Malaysia have banned European beef. These measures, combined with a 27% drop in European demand for beef, have caused beef prices to fall an average of 26.2% across Europe since late October.

Beginning this month, all EU member governments must over the next six months ban the feeding of meat and bone meal--the way the disease is spread--to all animals and test all at-risk cattle. As of July 1, member states face a tough choice: Test all cows over 30 months of age for BSE or destroy them. The EU figures 2 million European cows will be slaughtered. Brussels will pay 70% of the cost of the cattle, or $790 million. National governments will pay the rest.

Anyone associated with the beef industry is feeling the pain. Italian meat producers say they're losing around $6.8 million a week. In Rome, a family-run butchery of more than 200 years recently stopped selling beef and reopened as a fishmonger. "Everyone was too scared to eat meat," says owner Sandro Belardinelli. In beef-loving Germany, beef consumption has dropped by nearly 70% since November. At the family-run Weiss Butcher Shop in the Stuttgart suburb of Ostfildern, owner Marcus Weiss says purchases of beef and veal at his shop fell 80% in the past month. "Customers were very worried, and the more cases of BSE that were discovered, the more worried they got," he says. Weiss's way out: switching to organic beef.

The single biggest cost is likely to come from the ban of meat and bone meal. Some 3 million tons of meat and bone meal are produced in the EU, of which 500,000 tons are exported. Not only will slaughterhouses have to pay to destroy the feed, but they can no longer sell it. The EU farm lobby estimates that these steps will saddle its 15 member states with a bill exceeding $2.9 billion per year.

The amount of money that governments are willing to commit varies widely. The French BSE program, for instance, will cost $1.4 billion, with the price passed on to consumers. Tested beef will cost anywhere from 14 cents to 28 cents more per kilo. Germany plans to spend about $800 million. Italy, meanwhile, has allocated only $121 million and dubiously claims no new taxes will be levied to fund the effort.

If there's a ray of sunshine in this bleak picture, it's that BSE is forcing European governments at long last to figure out what they are getting in return for decades of massive subsidies to the farm sector. On Jan. 10, German Chancellor Gerhard Schroder appointed a Green Party member to head the agriculture ministry and called for a "rethinking in agricultural policy" that would focus on organic and other environmentally friendly farming methods. Europe's $38 billion Common Agricultural Policy is likely to shift its focus from intensive production to consumer protection. But first the contagion must be contained, however huge the cost.

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