Economic Incentives in Mandatory vs. Voluntary Meat Food Safety Standards * 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 Demand was falling for years- adding to economic signals to address consumer issues 1993 – E. coli O157:H7 declared an adulterant BSE a human health threat

Issues overtaking the beef industry threatening the Business and Consumer Marketing Climates “ Managing issues means before you see ‘it’ here you have been working on the issue, dealing with the risks and developing a action plan for some time.”

Milestones in the E. coli O157:H7 Crisis 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 Development of Pathogen Reduction/Hazard Analysis & Critical Control Points Systems Beef Producers Supported the Debate and Development of Pathogen Reduction/Hazard Analysis & Critical Control Points Systems PR/ HACCP Final Rule (9 CFR Chapter III) (9 CFR Chapter III) July 1996 July 1996

“They” Declared “War” Against E. coli O157:H7 Protecting Public Health and the Business Climate for the Beef Industry and Their Partners

Prevalence of E. coli O157:H7 in Ground Beef 1 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 E. coli O157:H7 in Ground Beef * *Results of raw ground beef products analyzed for E. coli O157:H7 in federal plants Data as of 10/9/2007. Percent Positives

Areas of control Intervention steps become easier to implement as the hourglass narrows Intervention steps become easier to implement as the hourglass narrows Primarily at packing plantsPrimarily at packing plants Then pre-harvest or When pre-harvest?Then pre-harvest or When pre-harvest? Stocker Feedlot Packer Processor Retailer Foodservice Consumer Seed Stock Cow/Calf 800,000 2,700 85% 35 95% 280,000,000

“Typical” Intervention Costs per Head by Plant Size Plant Size: head headhead head Hide on Wash $ 2.40$ 2.16$ 1.84$ 1.60 Steam Past. $.24$.22$.18$.16 Pre-Evis Cab. $.06$.05$.05$.04 Pot Wash Cab. $.09$.08$.07$.06 Head Cabinet $.02$.01$.01$.01 Total $ 2.81$ 2.52$ 2.15$ 1.87 Depreciation $ 2.88$ 2.59$ 2.21$ 1.92 Chem. 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 Illness : E. coli O157* National Health Objective: 1.0 Incidence per 100,000 Population *Preliminary FoodNet Data on the Incidence of Infection with Pathogens Transmitted Commonly Through Food states, 2006

Reasons Consumers “Report for” Eating Less Beef Percent of consumers citing reasons for eating less beef

Consumers may not react to recalls as they once did - Litigation is always a risk This is an economic stimulus as is “Brand Equity” risk “Tyson has issued 2 unrelated ground beef recalls (hamburger recalls) in 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 of ground beef shipped to Wal-Mart stores in Alabama, Arkansas, Colorado, Kansas, Kentucky, Louisiana, Missouri, Mississippi, New Mexico, Oklahoma, Tennessee and Texas. “Tyson has issued 2 unrelated ground beef recalls (hamburger recalls) in 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 of ground beef shipped to Wal-Mart stores in Alabama, Arkansas, Colorado, Kansas, Kentucky, Louisiana, Missouri, Mississippi, New Mexico, Oklahoma, Tennessee and Texas. Pritzker | Ruohonen & Associates, P.A., a leading food poisoning litigation law firm, is republishing it here as a public service. The firm has recovered millions of dollars for food poisoning victims, including a recent settlement for $6,425,000.” Pritzker | Ruohonen & Associates, P.A., a leading food poisoning litigation law firm, is republishing it here as a public service. The firm has recovered millions of dollars for food poisoning victims, including a recent settlement for $6,425,000.” a recent settlement for $6,425,000 a recent settlement for $6,425,000

Beef Demand Responding to Increased Consumer Confidence on all Issues Demand Has Increased Significantly Since 1998

U.S. consumer expenditures on beef

The Challenge of E. coli O157:H7 Remains 2007 Recalls and Illnesses June 3, United Food Group, LLC, a Vernon, Calif., establishment, voluntarily recalling approximately 75,000 pounds of ground beef products because they may be contaminated. June 3, United Food Group, LLC, a Vernon, Calif., establishment, voluntarily recalling approximately 75,000 pounds of ground beef products because they may be contaminated. June 9, Tyson Fresh Meats Inc. recalled more than 40,000 pounds 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. June 9, Tyson Fresh Meats Inc. recalled more than 40,000 pounds 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. June 11, United Food Group recall expands to over 5 million pounds, says illnesses were reported in five states - three in California, four in Arizona, two in Colorado, one in Wyoming, and one in Utah. June 11, United Food Group recall expands to over 5 million pounds, says illnesses were reported in five states - three in California, four in Arizona, two in Colorado, one in Wyoming, and one in Utah. October 4, Topps Meat Company E. coli-related recall, fifth largest food recall in history, company has ceased operation. October 4, Topps Meat Company E. coli-related recall, fifth largest food recall in history, company has ceased operation. November 3, Cargill Meat Solutions Corp. of Wyalusing, Pennsylvania "... is voluntarily recalling approximately 1,084,384 million pounds of ground beef products” November 3, Cargill Meat Solutions Corp. of Wyalusing, Pennsylvania "... is voluntarily recalling approximately 1,084,384 million pounds of ground beef products”

The Challenge of E. coli O157:H7 Remains November 3, Cargill Meat Solutions Corp. of Wyalusing, Pennsylvania "... is voluntarily recalling approximately 1,084,384 million pounds of ground beef products November 3, Cargill Meat Solutions Corp. of Wyalusing, Pennsylvania "... is voluntarily recalling approximately 1,084,384 million pounds of ground beef products Estimated 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 $2,962,520/year Companies understand the interventions are cost effective-there are times they are not enough-more needs to be done.

Pre-Harvest Interventions Have Been Under Development for Many Years What can be done to stimulate their development, approval and adoption?  Probiotics and Competitive Exclusion Products (FDA)  Neomycin Sulfate (FDA)  Sodium Chlorate (FDA)  Vaccines (USDA-APHIS-CVB)

Toward the “right mix” of Mandatory vs. Voluntary “Standards” Observations 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 are “implicitly” needed as a result! Mandatory “standards” usually result from crisis and are “implicitly” needed as a result! Risk analysis, science and regulatory (agency) hurdles are often rate limiting in finding solutions Risk analysis, science and regulatory (agency) hurdles are often rate limiting in finding solutions Who should bear the cost of regulations/interventions is sometimes difficult to determine Who should bear the cost of regulations/interventions is sometimes difficult to determine The best “solution” is for industry and government to work together to find solutions The best “solution” is for industry and government to work together to find solutions There will never will be “zero risk” There will never will be “zero risk”

Thank you – safe travels!