The Impact of Media Hype on Consumer Demand: The Case of Mad Cow Disease in The United States

ABSTRACT

This paper hypothesises that the Mad Cow Disease (MCD) scare in Europe brought on by the ban on exports of British beef has had a negative impact on beef consumption in the United States. This is in light of the fact that MCD has no direct impact on food safety in the US. Using monthly data an Almost Ideal Demand System containing an intercept dummy capturing developments in the MCD media developments is estimated. While concerns over the results generated by the model are raised, the estimated structural change variable is indeed found to be significant for the beef share equation suggesting that media in the case of MCD has had a negative impact on consumer demand for beef.

TABLE OF CONTENTS

Abstract i

Table of Contents ii

Introduction: 1

Literature Review 2

Methodology 3

Data 6

Estimation Procedure 9

Results 11

Discussion and Critique of results 15

Conclusions 16

References 18

INTRODUCTION:

In March of 1996 the British beef industry was dealt an incredible blow when a European Union commission imposed a worldwide ban on the export of UK beef. The ban was imposed after an outbreak of mad cow disease (MCD) in Britain. MCD is the laymen term for Bovine Spongiform Encephalopathy (BSE), a disease that leads to deterioration of the brain tissue in beef and dairy cattle. It is the hypothesized link between MCD and Creutzfeldt Jakob Disease (CJD), the similar condition in humans, which led to the imposition of the export ban on British beef. This ban effectively crippled the UK beef export market in addition to sending a shock throughout Europe concerning beef safety. News of this ban spread throughout the world portraying images of infected cattle stumbling and falling unable to maintain their balance. While the scientific community was, at the time, unsure of the nature of the link between MCD and CJD, if any, the effects of the outbreak may have been much further reaching than Europe.

It is arguable that North America was also impacted to some extent, whether long term or short, by the MCD scares. In the days that followed the ban on UK beef, beef futures in Chicago fluctuated as traders were torn between two economic forces. The first was the expected increase in demand. Markets formerly serviced by UK beef must now be filled with beef from other countries. The second impact deals with the adverse effects the outbreak could have on consumer demand. North American consumers were also exposed to a great deal of media propaganda as most, if not all, North American newspapers and television news broadcasts, national and local, carried stories of the outbreak and the horrific consequences of CJD. If concerns of food safety in the United States and Canada were never of concern there would have been no need for the United States Department of Agriculture and Agriculture and Agri-Food Canada to issue statements testifying to the safety of each of the countries respective beef.

This paper looks at the short-term impact of the MCD media propaganda on consumer demand for beef in the United States. Due to the fact that the supply of beef in the United States is completely risk free, or at very most extreme minimal risk, in terms of MCD and the risk to the beef supply, the scientific side of the story need not be considered. Changes in US consumers' demand beef, ceteris paribus, can therefore be credited to changes in preference resulting from media propaganda.

The hypothesis studied in this paper is presence and prevalence of media propaganda dealing with the threat of MCD resulted in a negative impact, at least in the short term, on demand for beef in the US. There are two primary purposes for setting out to study the fore mentioned problem. The first is to satisfy the authors own curiosity, in an empirical manner, as to how "fickle" consumers preferences actually are. The second deals with the availability of data and the realization the USDA has readily available, extensive data for livestock consumption.

The organization of this paper is as follows: 1) a brief review of the literature relating to the impact of media and propaganda on the public; 2) an overview of the methodology used to evaluate the problem and the data used; 3) the type of estimation used; and 4) results are presented with a critique of the results. Summary and conclusions follow.

LITERATURE REVIEW

It can be said that the impact of media, correct or otherwise, also has considerable impacts on consumers' perceptions, and preferences. The literature is quite extensive in this area and all seem to report a similar result. The public is indeed impacted by the media. A few examples are listed here with a more comprehensive review of the literature contained in Roberts and Bachen. In the article by Page, Shapiro, and Dempsey, the authors find the content of television news accounts for a proportion of aggregate changes in US citizens political preferences. Cook et al. uses an experimental design to look at the impact of a single media event on the general public and policy makers and find media does indeed influence these groups. When evaluating concepts and ideas like freedom of the press, Graber suggest that the costs of such concepts be included with the benefits.

The preceding literature review is quite abridged as much is omitted. Advertising could also be reviewed here and would return a similar result, consumer behavior impacted by what is seen and heard.

METHODOLOGY

To evaluate the impact of structural change a suitable demand system is needed. For the purposes of this paper the Almost Ideal Demand System (AI model) derived by Deaton and Muelbauer is implemented. This model has several favorable features that lend favorably to analysis of structural change, the foremost being its linearity. The AI model has been used in a number of studies to evaluate structural change in meat demand (see Moschini and Meilke, and Eales and Unnevehr). To test for structural change in this study an intercept dummy is introduced in a manner similar to that employed by Eales and Unnevehr. However, this dummy is introduced subjectively in the sense that it appears

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