Published Dec 24, 2003

This was going to be an entry about how nice it was to visit my grandmother in Houston get a good, simple steak, from a good cut of meat, which is something it’s easy to do down here but not so easy in Los Angeles, where they persist in putting all sorts of things on a steak. But then I learned that, thanks to Mad Cow Disease, my tasty tasty meal may turn my brain to mush; so, instead, I’ll write about risk management and how the beef industry has done a bad job of it.

Risk management is, quite briefly, the practice of understanding potential risks and planning to either avoid or, more frequently, mitigate them. Risk management is a good way to make sure projects turn out well and, in any industry, to maximize the chance of long-term success and profitability.

The beef industry knew of the risk of Mad Cow Disease. Mad Cow had broken out in Britain in the ’90s, virtually destroying the beef industry there even though only a small number of people actually contracted the brain-wasting Creutzfeldt-Jakob disease from contaminated cow parts. Europe banned British beef from its shores, many other countries followed suit, and in Canada and the US many animals imported from Britain were destroyed. Many producers, even those whose families had been in the business for more than 100 years, were financially wiped out by the consequences of Mad Cow.

So the existence of Mad Cow, and the ultimate risk from the disease, was fully understood by American cattlemen. Also understood was the single vector through which the disease could be transmitted: the brains of other infected farm animals, ground up and added to feed. Now, in an example of good risk management, the beef industry agreed to laws which prohibited the feeding of ruminant brains to other ruminants. They did not, however, agree to laws either:

  • Requiring that all cattle are tested for Mad Cow when slaughtered, as is mandated in Europe
  • Requiring that the meat of all “downed” cattle, animals who are not ambulatory when slaughtered, be segregated until the cattle have been confirmed Mad Cow-negative, or simply destroyed outright — a loss of less than 150,000 head annually

So the risk of Mad Cow entering the US cattle population was minimized; but, once a cow was found to be infected, the risk of the meat entering the food chain was not controlled.

Now, it’s not always inappropriate to ignore risks. Some risks are so small that they shouldn’t be worried about (for instance, I don’t worry that chair I sit on will break under my 165 lb. weight, even though it would be painful to fall on my posterior). Others have such near-benign consequences that, should the undesired event come to pass, no real harm is done (even were the chair to spontaneously collapse, I would still only suffer a bruised ego).

Unfortunately, the consequences of having meat from infected animals enter the food market are clearly grave — last year, the US banned beef imports from Canada for a time after a single animal was found to have Mad Cow, and now the same has happened to us as Japan, South Korea, Mexico, and Canada have pulled American beef from their supermarket shelves. If those bans continue, millions, if not billions of dollars could be lost by cattle farmers.

This seems to me to be the kind of risk that should have, been managed by our domestic beef producers. Because now disaster is potentially staring them in the face — and for just a few dozen thousand head of cattle. Is it the case that the margins for ranchers are so small that it’s necessary to maximally monetize these head? I hope that this kind of poor planning doesn’t net them generous government subsidies to protect cattlemen from the consequences of their decisions!