Session 2
— A Change in Demand
Case Study 3.2c "Mad Cow Disease and the Demand for Beef"
Current as of: March 7, 2001
Directions: Complete the following case study and record your answers on a separate sheet of paper.
Topic: Mad cow disease as an example of a demand shifter.
Objective: To understand market demand shifters in an industry scenario.
| Key Terms: | demand shifter | demand |
| United Kingdom | determinants of demand | |
| Brazil | France | |
| Careers: | meat inspector | farmer |
| Web Site Links: | http://www.mad-cow.org/ | |
| http://bseinfo.org/ | ||
Transmissible Spongiform Encephalopathy (TSE) is a group of brain diseases marked by the spongy appearance of infected brain cells. There is no treatment available for these fatal diseases. One variety of TSE is Bovine Spongiform Encephalopathy (BSE), known commonly as mad cow disease. It is believed that humans can get variant Creutzfeldt-Jakob disease (vCJD) from eating cows infected with BSE. The brain disease vCJD affects approximately one individual in a million every year. There is a long incubation period for TSE diseases. After a human is infected, as many as 30 years may pass by before symptoms appear. The chance of getting vCJD from infected beef per meal is at least 1 in 40 billion - and maybe even 1 in 400 billion.
BSE in the United Kingdom was first detected in 1986. Because of the long incubation period, human fatalities related to the epidemic did not begin surfacing until the mid-1990s. On March 21, 1996, an international news frenzy was caused by reports from the United Kingdom of 10 cases of vCJD, presumably from the infection of a BSE agent, or mad cow. The average age of these 10 people was 27. Sporadic cases of vCJD, those not associated with an outbreak, affect individuals whose average age is 63. These early reports led to some hysteria and decreases in the demand for beef. Worldwide, consumers were quickly educated on the rarity of the disease and on the safety measures in place or being put in place to limit the impact of the outbreak.
CS Question #1: Describe your own demand for beef. (If you do not eat beef, your description would be "no demand.") Is it affected by the fear of mad cow? Why or why not?
The British mad cow epidemic resulted in 3.7 million cattle being destroyed. More than 80 British people died as a result of disease related to mad cow. During the height of the British epidemic in 1993, more than a thousand cases of mad cow were reported weekly. Currently the rate of the disease is less than 10 percent of what it was at its peak. The United Kingdom's domestic demand for beef has decreased dramatically. There is also a worldwide ban on imported beef from the United Kingdom. This has severely crippled the British cattle industry, which has yet to recover even 15 years after the original detection.
Mad cow spreads when cows are fed the protein-rich by-products of other cows. This feeding method caused the United Kingdom epidemic. Until a few years ago, this method was standard practice in the beef industry. It is no longer used and is, in fact, illegal in the United States under Food and Drug Administration (FDA) regulations. The FDA does allow for the use of protein by-products of horses and pigs, based on evidence that they do not get TSE.
There has never been any evidence that mad cow can be transferred through milk. In fact, there is solid data to the contrary. Calves of infected cows, who feed on the cow's milk, have not become infected.
CS Question #2: Do you think the British cattle industry will ever fully recover from the change in demand caused by the mad cow epidemic? Why or why not?
On January 31, 2001, in Germany 400,000 cows with the highest probability for infection were destroyed after 25 instances of mad cow disease were discovered. The demand for beef in Germany has dropped to half of what it was in November of 2000, before the outbreak of mad cow. Mad cow disease has been detected or alleged signs have shown up in Spain, Italy, Portugal, Switzerland, the Netherlands, Germany, Great Britain, France, Liechtenstein, Luxembourg, Ireland, Denmark and Belgium.
In 1989 the United States Department of Agriculture (USDA) barred the import of meat and bone meal from the United Kingdom. This prohibition was extended to all of Europe in 1997. In February of 2001, beef imports from Brazil were also included in the ban because Brazil had received cattle from Britain in the 1980s. Another federal government precaution extended to banning blood donations from individuals who lived 10 or more years in France, Portugal or Ireland since 1980 or at least six months in Britain.
A mad cow epidemic in the United States would be devastating. For instance, the United States beef industry is much larger than that of any currently affected nation. For example, prior to the epidemic, Britain had approximately 10 million cows. The United States has over 100 million cows. The U.S. cattle and dairy industries provide $54 billion in revenue, and related industries provide approximately $100 billion in revenue. There has never been a case of mad cow disease in the United States. The demand for beef in the United States has not been significantly affected by fear of mad cow.
CS Question #3: Do you agree with government bans to protect citizens from mad cow and related diseases? Why or why not?
The quantity of goods and services that are demanded depends on many factors, including price. A change in price will cause a movement along the demand curve. But a change in a factor other than price changes the entire demand curve. These other factors are known as demand shifters or determinants of demand. Demand shifters affect the behavior of buyers, sellers or both. In the case of a mad cow outbreak, the demand will shift (decrease) because of a change in consumer information.
A mad cow epidemic as a demand shifter causes the demand for beef to decrease at every price. A decrease in demand is demonstrated by a shift in the entire demand curve to the left, as seen below.
CS Question #4: Would the demand for beef simply shift to the left, or would there be a more radical shift in the demand for beef? Is this affected by the elasticity of demand for beef? What would the demand curve for beef look like if 100 cases of mad cow disease were discovered in the United States?
Further Thought:
Data and News sources: University of Wisconsin Board of Regents, The Atlantic Monthly, Access Excellence.