Volume 10: Economic Impact and International Trade
4. Where did the economic consequences of BSE finally fall?
Farmers

4.10 We know that farmers were largely cushioned from the direct impact of BSE - the death of cattle due to the disease - by the various compensation schemes.

4.11 However, farmers also incurred some increased costs which were not offset by compensation. Feed prices increased marginally when more expensive protein sources were used in compound feeds instead of MBM. ¹ Farmers were no longer able to sell fallen cattle to knackers and instead either had to pay the knacker to remove the fallen cattle or incur extra labour expense in burying the animal on the farm. ² We know, too, that a two-tier market emerged in which farmers whose herds had been affected by BSE sometimes obtained less than the price paid for cattle from BSE-free herds. Although none of these additional costs was substantial, all of them can be attributed to BSE.

4.12 The question then is, was the farmer able to pass these additional costs on by way of demanding a higher price for cattle in the market? As Figure 4.3 below demonstrates, the price for cattle did not even track the retail price for beef. In other words, the price that the farmer was receiving for cattle in the market declined when compared with both the overall cost of living and the price of beef in shops.

Figure 4.3a: The RPI for beef, 1987-97; Figure 4.3b: The market price for cattle, 1987-97

4.13 What seems certain when looking at these figures is that farmers were not able to pass on their additional costs to the slaughterhouses by commanding higher prices for cattle. What is less clear is why the market price of cattle dropped relative to the Retail Price Index. This may simply be a function of the drop in demand for beef that may have been due to general market trends, or in reaction to BSE, or both. It would be expected that, even in the absence of BSE, a significant drop in the demand for beef would result in a drop in the price that farmers received for their cattle, at least until supply adjusted to demand. ³

4.14 The decrease in the market price of cattle may also indicate that slaughterhouses were passing their additional BSE-related costs back to farmers, by buying at lower prices, rather than absorbing the increased costs or passing them on to consumers. To the extent that the price of cattle failed to keep pace even with the Retail Price Index for beef, it would lend support to the view that at least some, if not all, of the additional BSE-related costs incurred by slaughterhouses were being passed back to the farmers.