Foot-and-mouth Disease: An Economic Problem Attacking Argentina

The news came out in early February: There was another outbreak of foot-and-mouth disease in Argentina, and authorities there were working against the clock to control the infection and avoid grave consequences for the health of the country’s economy. Nevertheless, the symptoms are already starting to be felt. More than thirty countries automatically closed their borders, either partially or totally, to beef from Argentina, the third-largest beef exporter in the world. Although foot-and-mouth disease does not affect human beings, global trade is a major victim. Experts estimate that the virus could generate losses of more than $350 million for Argentina.

 

Despite the sense of alarm the news created, foot-and-mouth disease involves no health risk for human beings, unlike bird flu or mad cow disease. The virus affects the mouth, snout, hooves and other parts of certain cloven-hoof animals such as beef cattle, sheep, goats, hogs, wild boar, deer, llamas and vicunas. A few days after the animal is infected, lesions start appearing, followed by a loss of appetite. Later, the animals experience problems walking because the disease eventually reaches their hooves. It is impossible for them to access food and water. They wind up dying of starvation.

 

The Contraband Hypothesis

 

Argentina’s SENASA, the national organization responsible for monitoring health and quality in the food and agriculture sector, is completing its investigation into the true cause of the new outbreak. For the moment, Biogénesis, the laboratory responsible for manufacturing the vaccine, said only that it “guarantees the quality of the vaccine for foot-and-mouth disease that is manufactured and sold in this country and exported to foreign markets.”

 

So far, 800 head of cattle have been slaughtered in the San Juan facility in Corrientes province in northeast Argentina, where the new outbreak of the disease was identified. However, in an even more nightmarish scenario, authorities at SENASA now forecast that they could wind up killing the rest of the production, which amounts to 3,067 animals.

 

“SENASA’s control did not fail,” said Juan José Grigera Naón, a professor in the University of Buenos Aires’ department of beef cattle. “We have to say that the organization behaved exactly the way it says in the manual,” added Grigera Naón, who is also head of the university’s department of animal reproduction. “We have to congratulate the veterinarian and the cattle producer for sending out a warning right away.”

 

José La Torre, director of the center of animal virology at CONICET, the national council on scientific and technical research, is the only specialist who dares to propose the hypothesis that the new outbreak is related to illegal trade in animals. “The question,” says La Torre, “is why did a virus appear that supposedly was not there earlier on? The virus in the new outbreak arrived with the animal. As a result, we do not believe that there was a problem with the vaccine, which is of the highest quality. And the controls are appropriate.”

 

The Consequences of Closing Borders

 

If beef consumption involves no risk for human beings, why did Brazil and Bolivia completely stop buying Argentine beef? According to La Torre, “The countries that buy beef place preventative measures [on imports] that, in reality, hide the fact that their goal is to lower prices. That would [ordinarily] involve imposing a tariff or tax [on imports].” In other words, it would involve measures that restrict the freedom of trade between countries and that have an economic goal.

 

Hernán Marini, a veterinarian who is dean and director of institutional relations at the Argentine Catholic University’s agrarian science department, says that “Many countries close their markets on the grounds that it is a health measure; that is, to prevent their livestock from being infected. But other countries use this approach to restrict trade.”

 

La Torre and Marini also note that beef cuts that have neither bone nor ganglia are not contagious. “It is important to clarify that such cuts as ribs, rib steak and ‘la cuadrada’ (another type of beef cut) can be exported without making any excuses. That’s especially the case if these products have been put in cold storage for at least 48 hours,” says La Torre. “The same thing is true for cooked beef,” adds Marini.

 

Closing down export markets could mean losses of more than $350 million for Argentina. That’s about 20% of Argentina’s entire beef exports, which amounted to more than $1.4 billion last year.

 

Experts are worried about the economic impact, “especially because of the major effort Argentina had made to re-enter the U.S. market, which was going to open up this year,” says Grigera. Now, he adds, “They will have to wait at least 12 more months before inspections can begin again and before they can negotiate an opening.”

 

Any Relief for Inflation?

 

On the other hand, immediate changes are also expected in Argentina’s domestic market. That’s because, short term, a lower volume of beef will wind up in export markets. “There will be a larger amount of beef [in the domestic market] and that will put downward pressure on [domestic] prices,” states Carlos Steiger, dean of the University of Belgrano’s School of Economics and International Business (EENI).

 

Although Argentine President Néstor Kirchner has denied that this situation “makes us happy,” there is no doubt that the crisis suits the government to a tee. The government was trying to negotiate a price adjustment with the beef sector to deal with Argentina’s galloping inflation, which exceeded 12% in 2005.

 

Lowering the price of beef might be just fine, short-term, but it will be harmful in the long run. According to Grigera, “Little by little, they will now be liquidating the stock of animals from year to year, and when they no longer have a problem, the markets will recover. By then, however, there won’t be a sufficient inventory [of animals]. As a result, this will lead to another price rise in the domestic market. In addition, you can’t forget that people have more buying power, and they will continue to increase their consumption.”

 

For Steiger, “The subject of beef prices is tied to under-development because, as a result of low revenues, food expenditures now account for 40% of most Argentines’ shopping budgets. In contrast, in developed countries, food costs amount to only about 10%” of total consumer spending.

 

For his part, Martin Simonetta, executive director of the Atlas Foundation, criticizes the mercantilist approach in Argentine trade policy. “The country is going around closing both its imports and exports. It is curious how the official logic is that blocking exports increases the supply of goods and avoids internal price hikes. But they do not consider removing barriers to imports, which would also increase the supply of merchandise and act as an anti-inflationary tool. That approach worked successfully on other occasions in Argentine history.”

 

Long term, conditions could be quite different, argues Steiger. “The volume of supply is going to depend on the rate at which animals are retained and liquidated in response to changing expectations about profitability. It will also depend on the process of liquidation that happens whenever there are unfavorable expectations that accelerate the decline in prices. Nevertheless, from the viewpoint of international demand, the outlook is favorable because, for several reasons, there is less beef in the world now and demand is on the rise.”

 

Regarding investments, Grigera warns that “It could happen that producers revert to other activities, and people who thought about opening a cold storage (or a slaughterhouse) start looking around for other kinds of opportunities.” In that respect, Steiger argues that the most important factors in strengthening investment [in the beef industry] are the lack of clear rules of the game and the current institutional insecurity. “Since every investment requires a long-term maturation process, this sort of instability is obviously harmful to investments.”

 

An Optimistic Future

 

Although economic losses are inevitable, not all of them spell bad news for the country. “The outbreak is going to be controlled but we are going to have to fight to recover [foreign] markets. Argentina sells at low prices,” says Grigera. Uruguay, in contrast, sells almost all its production at higher prices. Uruguay buys Argentine beef to supply its domestic market but our country cannot pursue the same approach because we cannot buy beef outside our country at lower prices than we can produce it.”

 

Marini is also optimistic about the likelihood that the outbreak will be quickly controlled. “The vaccination campaign against foot-and-mouth disease has been underway for several years; as a result, most of the animals in this country already have a high level of defenses and that makes it hard for the virus to spread. So we need to restart negotiations right away with those countries that have closed their borders. The desirable situation for Argentina in the short term would be to continue to export beef from those zones that are free of the disease. After all, the outbreak took place only in the Northeast; that is in Argentina’s Mesopotamia region,” which is between the rivers of Rio Paraná and Rio Uruguay.”

 

Fortunately, he notes, both the European Union and Russia have imposed restrictions only on imports from that region, which includes the province of Corrientes.

 

In the future, “controls will have to be strengthened,” La Torre says, adding that “It would also be good to improve the system for monitoring cattle. CONICET has certification systems in place that are very affordable. Some demanding markets, such as Germany, demand these certificates, but we think that here in Argentina, there is some reluctance to apply them to monitoring illegal breeding grounds for cattle.”

 

In addition, as Marini notes, foot-and-mouth disease affects the entire Southern Hemisphere. Usually, there are no barriers to crossing those borders, so the “topic of foot-and-mouth disease should be treated at a regional level, and it should involve” such countries as Brazil, Uruguay, Paraguay, Bolivia and Chile.

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