The effects of E. coli 0157:H7, FMD and BSE on Japanese retail beef prices: A historical decomposition

This study examines Japanese retail price reactions to the 2001 bovine spongiform encephalopathy (BSE) discovery, the 2000 outbreak of foot and mouth disease (FMD), and the 1996 E. coli food poisoning events. Historical decomposition of retail-level price series aids in explaining the behavior of beef prices in a neighborhood (period-by-period time interval) of the three events. This is based on an application of directed acyclic graphs, constructing orthogonal innovations to determine causal patterns behind contemporaneous innovations. The results show that the beef safety and animal health events had different negative impacts on Japanese retail beef prices, suggesting that consumers understood and differentiated among the health risks. The results provide incentives for beef producers and retailers to inform consumers proactively about ongoing beef safety and animal health measures. Understanding consumer reaction to BSE, FMD, and E. coli helps the beef industry restore consumer confidence after future crises, and provides policy makers a basis for countermeasures and compensations. [EconLit citations: Q11, Q13]. © 2007 Wiley Periodicals, Inc. Agribusiness 23: 131–147, 2007.