EU Mad Cow Crisis Destroying Beef Industry

New York Times, Thursday, February 1, 2001
Mad Cow Disease (and Anxiety)

TOULOUSE, France - Christine Schmitz, a 33-year-old mother of three,
will not feed her children beef, and their school's cafeteria stopped
doing so in December. That was when European regulators moved to contain
the spread of mad cow disease - a fatal, brain- wasting affliction with
no known cure - by ordering that every cow or steer more than 30 months
old be tested and the diseased ones be destroyed.

Yet on a recent evening, Ms. Schmitz sat with a friend picking at a
sirloin steak and fries at L'Entrecôte, a favored steakhouse in this
southern French city. And she was not alone. "There are people who don't
come any more," said Henri Gineste de Saurs, who owns L'Entrecôte and
eight other restaurants like it throughout France. "But 90 percent of
our clients have come back."

That seems small comfort for people like Leonhard Immerz. On his farm
outside Buchloe, Germany, 550 miles northeast of Toulouse, he used to
raise some of the cattle that eventually wound up as beef on
L'Entrecôte's tables. Now, however, Mr. Immerz says he cannot sell any
of his 150 head to his usual meat processor - not at any price - because
there is no local market for them.

A few months after the mad cow scare caused Europeans to shun beef in
all forms, growing numbers of consumers are coming back - slowly and
selectively. They are enjoying an occasional sirloin or other costlier
cut, which they believe is less likely to contain the infectious agents
that have transmitted the disease to some humans. But they are steering
clear of cheaper cuts that they still consider suspect.

Declines are most significant for brains, sweetbread and liver - once
staples of French cuisine - because such organ meats are believed to be
most risky. There is also evidence that Europeans are curbing their
taste for hamburgers. McDonald's said in mid- January that its
fourth-quarter earnings fell 7 percent, its first quarterly decline in
at least a decade, in part because of European concern about the safety
of beef.

Since the first human cases linked to contaminated beef were diagnosed
in Britain in 1996, 92 people in Europe have died or are dying from
Creutzfeldt-Jakob disease, the form of mad cow disease in human beings.
Of those, 88 were in Britain, 3 in France and one in Ireland. The
prions, or infectious agents, that cause the condition can survive
outside the body for years. No one knows the incubation period in

Each part of the animal left uneaten takes a bite out of its value in
the market, and the financial damage worsens, the farther it travels
from feedlot to fork. Overall beef consumption has declined 27 percent,
pushing down prices to the point where farmers cannot recoup their costs
without government subsidies. Such aid is on the way, and may be big.

The European Union has decided to test cattle, buy and destroy infected
animals, and buy and slaughter at least two million healthy cattle to
prop up the sagging price of beef. Depending on how many infected
animals are found, and how many healthy ones slaughtered, the cost to
the union's 15 member nations this year alone could total six billion
euros, or about $5.6 billion, according to estimates by Thomas Mayer, a
senior economist at Goldman Sachs International in Frankfurt.

But while Mr. Mayer thinks that the long-term economic effects on
government spending and overall economic output may be marginal by
comparison, uppermost in the minds of the people involved in raising,
butchering and selling beef are immediate measures to protect their
companies and jobs.

Even if sales to restaurants are holding up, said Jacques Denis, 59, the
meat wholesaler near Toulouse who supplies Mr. Gineste's sirloin,
flagging demand from supermarket chains, butchers and public
institutions like schools has caused his business to fall by 40 percent.
"It will be a difficult year," Mr. Denis said. "My goal is to hold on to
my employees, but it will mean a lot of sacrifice."

In ordinary times, his 15 butchers process roughly 60 tons of meat a
week, about 90 percent of it beef; since the recent scare began, beef
sales have dropped about 22 tons a week. He has made up some of that
loss through increased sales of lamb, pork and veal.

Others have tried to cushion their businesses by selling organically
raised beef. Their sales have risen 15 to 20 percent in France since
November, according to the government.

Exports outside the European Union have dropped, as countries in Eastern
Europe, the Middle East and elsewhere banned West European beef after
mad cow concerns were reignited.

In France, the government is offering subsidized loans at 1.5 percent
interest to tide over suffering businesses, but Mr. Denis hopes to ride
out the storm without borrowing. He bases his hope for a quick recovery
on what he saw in Britain, where mad cow disease first erupted in the
late 1980's.

The demand for beef, after initially plummeting, rebounded there when
consumers realized how much prices had fallen and how far the government
had gone in culling animals at risk of developing the disease.

Over the years, Mr. Denis has ordered the beef he supplies to
restaurants like L'Entrecôte from slaughterhouses in Bavaria, in
southern Germany. Cattle from that region are prized for the low fat and
savory texture of their meat, particularly in cuts like rib steak,
sirloin and filet mignon that the French favor.

The middleman between Mr. Denis and his Bavarian slaughterhouses is a
French importer in Strasbourg, Serge Maier. His company, Sobev, does
about $17 million of business a year importing meat products, about 80
percent of that beef. Since the scare began, demand has fallen by half,
Mr. Maier said, though like Mr. Denis he is trying to make up for that
by selling more veal and pork.

So, too, is his German supplier, A. Moksel A.G., a meat-processing
company in Buchloe, a farm town of 11,000 about 40 miles west of Munich.
In recent years, Moksel did a thriving business with French meat
distributors and wholesalers, including Mr. Maier and Mr. Denis. With
loyal clients accustomed to Bavarian beef, Moksel's annual revenue
reached a peak at $1.6 billion - until the first reports of mad cow
disease began to spread in Germany, France and elsewhere. "In France,
within two to three weeks, everything collapsed," said Wilhelm Habress,
the company's export manager for France.

The collapse of French sales has further complicated an already
challenging situation at Moksel. After struggling back to profitability
in the late 1990's from losses earlier in the decade, Moksel was
squeezed last year by slack demand for meat products and overcapacity in
the German meat-processing industry, and it posted a first-half loss of
$1.4 million. Then came the fear of mad cow disease, which reduced sales
20 to 30 percent further.

French slaughterhouses also find the situation difficult. Last week,
Socopa, the market leader in France, said it would lay off 300 of 5,000
workers. Almost half the layoffs will be at its largest factory, at
Cherré, in northern France, where beef orders had fallen 40 percent, to
670 tons a week.

With new cases of mad cow disease being discovered daily, after European
Union authorities ordered all cattle older than 30 months to be tested,
the uncertainty among retail customers is not expected to subside any
time soon. And farmers worry that shopkeepers, meat processors and the
feed industry, which are large and well organized, will try to shift the
burden of the problem onto them.

"Slaughterhouses want to pass on their costs, but food retailers are too
powerful, so the easy solution is to cut the price you pay farmers for
their beef," said Costa Golfidis, of the Committee of Agricultural
Organizations in the European Union, a farmers' lobby.

While farmers may be weak in dealing with wholesalers, they are
experienced and skilled at influencing politicians. They and their
unions are already demanding that European governments somehow fix the
problem or face an explosion. Farmers' lobbying - and less-subtle means
of persuasion like road blockades and fires - are powerful and highly

In France last month, farmers threw stones at Prime Minister Lionel
Jospin when he visited communities economically affected by mad cow
disease. In Rome, several hundred angry cattle farmers pelted the lower
house of Parliament with eggs, oranges and firecrackers to protest the
government's decision to destroy entire herds if one cow was infected.

Such events obviously increase distrust. Prosecutors in several French
cities are looking into accusations that dealers illegally imported
British feed, banned from the Continent, by funneling them through
Ireland or Belgium. Feed and protein supplements made from animals
infected with the disease are considered one of the primary ways mad cow
disease is spread. Earlier in January, the French police raided
government offices, seeking evidence to help determine whether
manslaughter charges should be filed in the spread of the disease.

The bitterness of French butchers is shared by Mr. Immerz, who keeps
about 150 head of dairy cattle on his 150-acre farm outside Buchloe. In
recent years, Mr. Immerz, 48, has sold 20 to 25 cows a year to Moksel,
fetching as much as $955 a head. He now has five cows that should have
been slaughtered a month or two ago, he said. But on a recent Saturday
when he inquired at Moksel, company officials told him they had already
bought all the cattle they wanted for $430 each.

None of his cattle have tested positive for mad cow disease, but Mr.
Immerz is worried. He fed his cows and steers vegetable feed, but added
protein supplements of the kind suspected of containing bone meal and
thus harboring infection.

The loss of income from the sale of cattle has been offset until now by
booming prices for milk and cheese, where there is strong demand. But
some experts have suggested that the infectious agents that cause mad
cow disease may be transmitted in milk. If that proves true, frightened
consumers could shun cheese, too.

Mr. Immerz said farmers whose herds are destroyed are reimbursed for
their "estimated value," a value that bureaucrats have yet to fix. Even
if they pay close to the $955 a head that farmers received before the
crisis, Mr. Immerz said he and his colleagues would not be fully
compensated. "You have to assemble a new herd," he said, "and years of
work in breeding your own herd is destroyed. And your risk is probably
greater, since you'll now be buying cows from various sources."

His 19-year-old son is preparing to take over the family business when
he retires, but Mr. Immerz is starting to wonder whether it is worth the
aggravation. "The farmers around here are very angry," he said.

Not everyone caught up in the supply chain is suffering. Some of the
protein supplement that Mr. Immerz feeds to his cattle is produced by
Deuka, a German company whose 500 workers and $290 million in annual
revenue make it one of Europe's market leaders.

"There's no market for beef," said Dietrich Schwier, Deuka's marketing
director. "Prices are down, demand is down; the animals are backed up in
the supply chain."

While that may be a disaster for farmers, it is not yet one for Deuka.
"The animals are in their stalls," he said. "They need feed."

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