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A Foot and Mouth Disease Induced Model of US Excess Supply of Beef
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Abstract
Agriculture is a vulnerable sector of the U.S economy, accounting for 13% of Gross Domestic Product and 15% of employment. It produces quality cheap food for domestic consumption and accounts for more than 65billioninexportrevenues.ContagiousanimaldiseaseslikeFootandMouthDisease(FMD)areoftenreferredtoaseconomicdiseasesbecauseofthemagnitudeofharmtheycauseproducers,localcommunitiesandtheconsequencesininternationaltrade.Lossesfromthe2001FMDoutbreakintheUnitedKingdomareestimatedat10.7 to $11.7 billion. The total cost of an FMD outbreak is the sum of eradication cost, production losses, and the loss of exports. This paper examines the export effects of a bioterrorist attack such as the introduction of FMD on the US beef industry. The context is to model the US beef market as a price taker on the international beef market, the simplifying “small open economy” assumption of international economics. Although, the beef market is linked to beef prices around the world, we tend to conceive of the US beef market in terms of domestic supply and demand and the resulting domestic equilibrium price. The excess supply of beef is the difference between quantities supplied and demanded that increases with price and responds to other influences on domestic supply and demand. We assumed that U.S consumers will exercise more caution when purchasing beef at grocery store as a result of the outbreak of FMD. As U.S consumers alter their diet, poultry and pork will become good substitutes with poultry having a higher demand than pork. The economic impact of FMD is simulated based on expected changes in price of beef and its substitutes based on three different scenarios of the levels of FMD occurrences.Excess supply, FMD, beef prices, bioterrorism, Agricultural and Food Policy, Environmental Economics and Policy, International Relations/Trade, Q17,