Australia in box-seat as LFTB drama unfolds

Jon Condon, 02/04/2012

Nobody likes to dance on the grave of a respected market competitor, but there is no escaping the fact that Australia and NZ – large grinding beef exporters to the US – stand to gain from the current US consumer hysteria surrounding Lean Finely Textured Beef.

Beef Central has followed and reported on the alarming developments concerning social media attacks on LFTB in the US over the past three months.

It started when celebrity chef Jamie Oliver launched a vicious and factually incorrect attack on LFTB which he described as ‘pink slime, tainted with bacteria and laced with ammonia.’ The second wave of social media spawned by his TV segment, including a You-Tube video that has since received 1.3 million hits, has sparked a mass exodus of support for the product from major US end-users – driven solely by consumer sentiment.

In developments last week, large US supermarket retailers have joined burger food service operators in abandoning the use of LFTB in their burger pattie formulations. Safeway, Giant, Kroger, Food Line, Bi-Lo/Winn Dixie, Aldi and Wal-mart all announced that they have stopped stocking ground beef products containing LFTB due solely to consumer concerns. None question the health or safety aspects of the product.

They join a long list of burger chains headed by McDonalds and Burger King who earlier distanced themselves from LFTB in burger pattie formulations, for the same reason.

Their decision to drop the product is entirely consumer-related, not safety related, but it has forced Beef Products Inc, the company behind the LFTB technology, to suspend operations at three of its four plants across the US, wiping-out 660 jobs.

So how significant is the ill-founded consumer backlash over LFTB for Australia and NZ grinding beef exporters? Consider the following points.

In combination BPI’s four factories are reported to produce 3100 tonnes of LFTB per week, or 160,000t per year.

Being a lean product (typically containing only 5pc fat or less), LFTB competes directly with imported Australian and NZ 90CL grinding beef in the US market. Its absence leaves a yawning gap in the supply-side marketplace, and also seriously undermines the value of fattier US grainfed trim (50-70CL) that previously provided the ‘raw material’ for the LFTB extraction process.

In layman’s terms, the LFTB factories use a combination of processes including centrifugal force to separate out the lean meat from fat components in fatty US trim, leaving, as its name suggests, a ‘finely-textured’ extremely lean meat protein that blends well with fattier trim to produce the perfect pattie formation. Ammonia gas is used as an anti-microbial agent, but it leaves no residue in the product. In fact the USDA’s closely monitored regulations over ‘ingredients’ require it to be called nothing other than ‘beef’ – such is the nature of the finished product.

Even if BPI and one other manufacturer licensed to use the process lose only 50pc of its current market, which now looks extremely conservative, it is estimated that the US market will need another 2500t/week of lean trim to fill the void left by its absence, or 10,000t/month.

Australia’s exports to the US in February reached an unusually high 17,000t last month, but was only 9000t for the same month last year.

One US analyst has speculated that the consumer impact on LFTB might decrease the value of fed cattle in the US market by as much as $10 a head. About 15pc of any fed carcase in the US can end up in the fatty trim grind.


Impact on consumers

The ripple effect of the shutdown stands to have a huge impact on everything from farm to fork, says the US National Meat Association. Consumers are already seeing a big increase in price at the meat case for ground beef and ground beef products, because fewer cattle are coming to market. The increases will continue as ground beef producers seek additional sources.

Many of these will need to come from imported sources to help deliver the ultra-lean ground beef products (90pc lean and above) that many consumers demand, particularly heading into the busy summer grilling season.

“LFBT has always been priced as a cheaper alternative to imported 90 CL frozen beef, so demand for imported 90s should only increase as a result,” said Australian Meat Industry Council’s Steve Martyn last week.

A group of US State Governors supporting BPI last week said US consumers would ultimately pay for taking the ‘perfectly safe’ product out of the market.

The price of ground beef would rise as US ranchers worked to raise as many as 1.5 million more cattle to replace “safe beef no longer consumed because of the baseless media scare,” the Governors said.

They urged retailers, consumers and members of the media to seek the facts behind LFTB, arguing that science supported keeping the lean beef product on grocery store shelves for the benefit of American agriculture and consumers alike.

Reporting in his influential US Cattle Buyers Weekly newsletter last week, publisher Steve Kay said the social media/blogosphere was likely to keep pursuing the LFTB subject for some time.

Efforts by BPI and others to counter the ‘pink slime’ label now attached to LFTB might not easily change consumer perception of the product, observers told CBW. The key to BPI’s recovery was whether food service operators, retailers and further processors resumed or kept using LFTB, to allow BPI’s three plants to resume production.

“The price of 90CL will increase sharply this year for two reasons. The first is the reduced LFTB production. The second is because of a decline in the supply of domestic and imported 90CL.

CBW and analysts calculate that the 90CL supply might decline by at least 250 million pounds from last year. US cow beef production in 2011 totalled 4.071 billion lbs. Cow carcases in 2011 averaged 597 lb, down from an average 607 lb in 2010 (largely due to the effects of drought on cows in Texas and Oklahoma).

Cow slaughter this year is forecast to be down 10pc on last year, but weights will increase 1.3pc to an average 605 lb. This meant the US was likely to produce 3.725 billion lb of lean manufacturing beef, 346 million lb less than in 2011, Mr Kay said.

“Beef imports will increase this year from last year. But imports from Canada are not of lean manufacturing beef so the only increase might come from Australia, New Zealand or Uruguay,” he said.

US importers are reporting a lot of inquiries about imported product. But potential buyers are so far resisting the notion of paying higher prices.

Frozen imported 90CL was last week selling for US$216 per cwt for delivery in mid-May – what appeared to be keenly priced compared to where the price might be by then. Prices might easily be $10 per cwt higher, analysts told CBW.

An additional 95 million lb of imported lean beef might be available this year, compared to 2011. CBW suggested. “After accounting for this, it means that 251 million lb less lean manufacturing beef might be available in 2012, which would be as much as 5 million lb less per week,” analysts told CBW.

US consumers would suffer because less lean ground beef will be available at retail because the supply of 90CL (domestic and imported) will decline this year, not increase. So there will be less lean beef to blend with fattier beef to make retail grinds with 10pc fat or less.

Second, all retail ground beef prices will increase because the price of 90CL will likely sky-rocket in the coming weeks and months, analysts told CBW. 90CL at US$250/cwt might be just around the corner, analysts told CBW on Friday.

This would force retailers to raise their ground beef prices to cover the price increase. All non-LFTB grinds at retail could go up by US5-10c/lb immediately, and could go even higher later, analysts said.

On the counter-side, however, some speculation is now emerging in the US that the controversy surrounding LFTB in ground beef might have a negative impact, generally, on consumer demand for ground beef, just as retailers prepare for the start of the summer grilling season.

“Even more concerning for the US market going into the summer is the state of beef demand, particularly with negative beef stories percolating in the press,” said Len Steiner from Chicago Mercantile Exchange last week.


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