The Impacts of Food Safety Fears and Policy on International Trade: Trade Creation, Diversion, and Depression as a Result of Bovine Spongiform Encephalopathy

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Virginia Tech

In December of 2003, the U.S. Secretary of Agriculture announced the presence of Bovine Spongiform Encephalopathy (BSE) within a cow in the state of Washington. The announcement prompted the cessation of beef imports by the largest traditional beef trading partners with the United States, resulting in immediately realized losses to the U.S. industry. This thesis evaluates the short- and long-term impact this discovery and subsequent policies had on the global beef market. We utilize market share analysis to examine the loss realized by the U.S. over a 13-year time frame, then employ a log-linear gravity model with fixed effects to quantify the changes in global export and import values and quantities using a novel bilateral trade database spanning 16 years. We find that the policies implemented immediately on discovery of the single BSE case were often slow to be rescinded even though additional related cases of BSE were not found in the United States. We also find that the removal of said policies does not guarantee full reentry of U.S. beef products, even after a lag of several years. Finally, we find that both traditional and newly emerging suppliers of beef and beef products contributed to the slow reentry of U.S. beef within critical markets. The losses and implications of the aforementioned policies detailed within this thesis suggests a different approach be undertaken by regulators should another similar threat to the U.S. food supply emerge in the future.

Agricultural Economics, Bovine Spongiform Encephalopathy, International Trade