Meat + Poultry - September 2006 - 14

Business Notes
Economist expects B.S.E. impact to linger for years
The U.S. beef industry lost approximately $3.2 billion to $4.7 billion during 2004, after Japan and South Korea
banned imports of U.S. beef following
the discovery of bovine spongiform encephalopathy in the United States. Economic projections indicate that even
when all imports are restored, it will
take a few more years for the beef industry to return to pre-2004 market levels.
"It looks right now like it will linger on," said Sean Fox, an agricultural economics associate
professor at
Kansas State
Univ., Manhattan, who
researched
the impact
of the situation for the
Food Safety
Consortium. "Even if we hadn't had
this latest episode with Japan, we were
probably looking at regaining one-third,
maximum, of that market compared to
what we had there in 2003. To get back
to where we were in 2003, we're probably looking at two to four years."
Fox's study found that prior to the
embargo, Japan had accounted for 35
percent of the beef export market's value and South Korea had contributed to
21 percent of the value. The loss of the
export markets led to increased domestic supplies and reduced prices.
The study also noted that average
U.S. wholesale boxed beef prices dur-

ing 2004 were 12c to 17c per lb. lower
than they would have been if the Asian
export markets hadn't been closed.
Domestic beef demand held up well
in the United States after the fi rst reports in December 2003 of the B.S.E.
case, Fox said, despite initial fears
there might be significant reduction
of demand.
"The main economic impact of B.S.E.
was a consequence of export reductions
and costs of new regulations on the beef
industry," he said.
Adoption of 100
percent testing of cattle for B.S.E. was also
shown to be cost prohibitive in the study.
The K.S.U. research
indicated it would
have cost $640 million to test all U.S.
slaughtered cattle in
2004, which would offset the revenue
gain the U.S. would realize if it got back
25 percent of the Japanese and South
Korean markets.
"Recapturing the market is going to
remove the incentive for voluntary testing," Fox said. "There are some fi rms
that would do it if they had the authority to do it, but it doesn't look like the
U.S. Dept. of Agriculture is going to
allow that."
He went on to say testing is not likely
to be the silver bullet, especially if tests
are not 100 percent accurate and if there
is any chance the banned material could
slip into the exported beef supply.

Gold Kist cuts ribbon
on $30 million plant
expansion
Gold Kist, Inc., Atlanta, officially
opened the $30 million, 80,000square-foot expansion at its poultry
processing plant in Guntersville,
Ala., with a ribbon cutting ceremony
on Sept. 26.
The expansion project significantly increases Gold Kist's capacity to produce value-added products
for its private label retail customers
as well as providing space for new
packaging equipment designated
for its Fridge-to-Freezer Pak, which
was introduced last year in Costco
Club Stores.
In addition, the expansion includes administrative office space,
employee welfare and training facilities and two additional coolers, which will store approximately
650,000 lbs. of product. The coolers
will operate in conjunction with the
plant's robotic product inventory and
order processing system, which ensures quick assembly of customers'
orders and proper product rotation.
"The completion of this plant expansion is an important step in executing Gold Kist's strategic plan to
increase production of value-added
products and to build on our strong
reputation of providing innovative
products to our rapidly growing,
private label customers," said John
Bekkers, C.E.O. of Gold Kist.

Hormel Foods to acquire Provena Foods
Officials with Hormel Foods Corp., Austin, Minn.,
have announced the company has agreed to acquire
Provena Foods, Inc., a Chino, Calif.-based processor of pepperoni to pizza makers and packaged food
manufacturers, in a deal valued at $16.8 million.
Under the deal, each share of Provena's common stock
14

MEAT&POULTRY

September 2006

www.MEATPOULTRY.com

will be cancelled and converted into the equivalent of
0.08 shares of Hormel Foods common stock.
The proposed acquisition already has been approved
by the board of each company and is subject to customary closing conditions and is expected to close by
the end of 2006.

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Meat + Poultry - September 2006

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