Beef industry sweats over 'mad cow' spectre

The discovery of a suspected case of mad cow disease in Washington state could deal a heavy blow to the livestock industry and other beef-dependent businesses, possibly even U.S. restaurant chains.

Japan and South Korea temporarily halted imports of U.S. beef Tuesday and there is concern that other countries will follow, cutting off a critical market for U.S. beef producers, especially for higher-priced cuts. U.S. beef and veal exports to Japan alone were valued at about $843 million in 2002. There is precedent for a shutout of beef imports: When a single case of mad cow disease was detected in Canada in May, the United States immediately closed its borders to imports of Canadian beef, as did many other countries.

Restaurant chains also are likely to be hurt by the discovery, both in the stock market and possibly in sales. Indeed, stocks of the major fast-food chains fell in extended trading Tuesday, and those declines will likely continue today. The drops could be even more severe today because it is a short trading day that typically has light volume, which exacerbates volatility in the market.

Some analysts predict the hardest-hit businesses may be restaurants that specialize in red meat -- from mass-market chains like Outback Steakhouse to, perhaps, the tonier purveyors of $23 filets.

"This is also about the higher-end steakhouses," said John Glass, a restaurant analyst with CIBC World Markets, who does not own any restaurant industry stocks. "There's less latitude on the menu. You can go to McDonald's and get chicken."

Still, for chains like McDonald's and Burger King, the fear of public reaction is real. In some countries, such as Germany and Japan, consumption of beef fell as much as 30 percent immediately after the discovery of mad cow disease -- although in Canada, the nation rallied around its beef industry and meat consumption actually increased.

Right now, no one knows just how the U.S. public will react, but the nation's biggest restaurant chains already have started a campaign to assure customers that their beef supplies are safe.

"The meat packer in question has no connection whatsoever to McDonald's supply chain," said a statement from the nation's largest fast food company Tuesday night. The company expressed confidence that U.S. regulators "are investigating this situation very seriously and are taking all the appropriate steps necessary to safeguard the beef supply."

Ironically, the beef industry has been enjoying several years of growing consumption and higher prices, which some experts attribute to the popularity of the meat-centered Atkins diet. The industry's value is estimated at $175 billion by the National Cattlemen's Beef Association.

"In the last three years we've seen a significant increase in beef demand and consumption," said John Nalivka, a consultant to the cattle industry. But that could change quickly if mad cow disease is in fact present in a U.S. livestock operation.

"I'm not going to play it down," he said. "It's obviously a concern."