Australian farmers set to benefit from mad cow discovery in USA

by Mark Benson on April 25, 2012

in Money, Business and Finance

This is serious - not Little House on the Prairie

Scientist in the United States of America have today confirmed that a dairy cow has been diagnosed with so-called “mad cow disease” in a bitter blow for the US agricultural sector. While the condition has only been found in one older cow so far, it did throw something of a spanner into the works with regards to the international beef market. Many now expect Australian farmers to benefit from the ongoing confusion and concern about a potential return of so-called “mad cow disease”.

Is this a one-off discovery?

The US Department of Agriculture has classified this particular discovery as “atypical” which suggests that the animal was not presented for slaughter and there is no risk whatsoever to the food chain. While the merest mention of mad cow disease will bring back terrible memories for some people it is worth noting that the condition can in certain circumstances spontaneously occur in older animals. Whether this is the case with this particular dairy cow remains to be seen but investigations are ongoing and the US Department of Agriculture will update the markets in due course.

The fact that the infected animal was not presented to the food chain should put many minds at rest although the 1986 outbreak in Britain is still very raw for many people.

Disruptions to US exports

Despite the fact that the US authorities believe that this particular infected animal is a “one-off” it is worth noting that the South Korean authorities have today suspended clearance of US beef imports. The authorities in South Korea are taking “all necessary measures” and while there is concern that others will follow in due course, the Japanese authorities have decided not to react. The fact that Japan has not yet made any changes in relation to the import of US beef into the country will be a welcome gesture for the US authorities and US farmers, but will it last?

It was interesting to see that the US authorities were in active discussions with the Ministry for Agriculture, Forestry and Fisheries in Japan in relation to extending the age limit from 20 months to 30 months for imported beef from US cows. These negotiations have been suspended pending further investigation and further announcements from the authorities.

If the US authorities were defined to find any more infected animals, inside or outside of the food chain, the situation could change instantly. We would probably see a number of countries immediately suspending imports of US beef and indeed many expect the Australian authorities to “make hay while the sun shines” and do as much as possible to increase Australian exports.

Will the Australian authorities benefit from this US discovery?

First and foremost the Australian Department of Agriculture has today confirmed that Australia does not import beef or beef products from cattle of US origin. This perfectly distances the Australian authorities from their US counterparts and is seen by many as the first stage in an ongoing promotion of “clean” Australian cattle. But how did Australian beef exports react when the 1986 British outbreak was announced?

History shows that the last time we saw an outbreak of mad cow disease there was a significant increase in Australian exports of beef to the likes of South Korea and Japan. Indeed Japan is already Australia’s largest trading market and further concerns about the supply of US beef could play into the hands of Australian farmers. This will come as a welcome surprise to Australian farmers who have suffered dramatically from the ever increasing value of the Australian dollar and a worsening export market. It may also take some of the focus and the pressure off the Australian mining industry which has literally been carrying the Australian economy for some time now.

Is agriculture the forgotten sector?

It is very easy to discuss mining, financial services and other “headline grabbing” sectors in the Australian economy but in reality the agricultural sector is still very important. Exports of Australian beef have been very strong for many years, prior to the recent increase in the value of the Australian dollar, and while obviously not under the best of circumstances, today’s revelations will assist a sector which has been suffering.

Prior to the onset of the mining sector, which has by far and away taken over the Australian economy, agriculture was seen by many as the headline grabbing sector. The same can be said of New Zealand although both countries have had to adapt to the times and introduce new sectors, new technology and new initiatives.

A welcome improvement in sentiment

Outside of the Australian mining industry it has all been doom and gloom over the last few months as the economy shows signs of stalling even though growth of 3% is still expected for the current calendar year. The expected increase in Australian beef exports will add further emphasis to the need to restructure and rebalance the economy and the authorities are likely to make as much out of this situation as possible.

At this point in time it is only really South Korea which has come out in favour of suspending US imports of beef but if more evidence is presented showing a wider spread of the condition in US cattle then this will change. This is a condition which has appeared time and time again in the past and indeed the UK agricultural sector was decimated back in 1986 with hundreds of thousands of cattle killed.

Conclusion

While nobody would like to benefit from the ongoing issue with US cattle there is no doubt that if countries decide to blacklist America in the short to medium term then Australia will benefit. So far it is only South Korea which has suspended the import of American beef with Japan deciding to stay on the sidelines and leave the situation unchanged at the moment.

The benefit to the Australian agricultural sector could change dramatically one way or another depending upon whether the authorities classify this as a one-off case, which seems to be the situation, or indeed further infected cattle are found. This fast-moving situation could swing either way in just a matter of hours or a matter of days and we will watch the situation carefully.

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