The One Burger Effect

DR. ANDREW P. GRIFFITH

KNOXVILLE, TENNESSEE

There have been a number of questions concerning President Donald Trump’s comments on importing more Argentinian beef in an effort to reduce beef prices domestically. Specifically, he has stated increasing their tariff rate quota from 20,000 metric tons to 80,000 metric tons. This increase of 60,000 metric tons is equivalent to 132.3 million pounds of lean grinding beef entering the domestic market. Given an estimate of 343 million people in the United States, the increase in imports from Argentina would mean every person in the United States would need to eat 0.39 more pounds of ground beef this year to wipe out the additional imports.

This is where the name “The One Burger Effect” comes into play. Most hamburgers are one quarter pound to one third pound, which clearly would not clear the market of the 0.39 pounds. Thus, it will now be called “The Two Burger Effect,” because we have not accounted for infants and children who do not consume ground beef or for vegans, vegetarians, or other folks that fall in that category. This means our most typical beef consumers may have to eat two more hamburgers to clear the domestic market of additional beef imports.

In order to provide more context, it is important to state that President Trump cannot change beef prices. Supply and demand will determine the price, and he would have to import a lot of beef to influence the price of beef. More specifically, the beef price President Trump is referring to when he is talking about reducing beef prices is the price of ground beef. Ground beef is the product that touches nearly every beef consumer in the country, because it is a versatile product that can be used for hamburgers, tacos, meat loaf, chili, hamburger helper and many more. This means his focus is on the general consumer and the most common beef item available.

Furthermore, the United States primarily imports lean grinding beef from countries like Australia, New Zealand, Brazil, and Mexico. There are very few muscle cuts (i.e. steaks and roasts) imported, which means the price of steaks and roasts will not be influenced much if at all by importing lean grinding beef. Canada would be the primary source of imported muscle cuts and that is a relatively small quantity. If demand for muscle cuts does not change then price of those goods is not expected to change in the short-run.

In short, the stated increase in beef imports of lean grinding beef will not influence beef prices much if at all. Thinking of it in a slightly different manner, per capita beef availability in the United States is a little less than 60 pounds per person. If we make the assumption that ground beef prices declined $1 per pound and that there is a consumer that only consumes ground beef then that would be a savings of $60 per person on an annual basis or $240 per family for a family of four. In reality, the change in ground beef price would be closer to $0.10 per pound which means a savings of $6 per person or $24 per family on an annual basis. These numbers are even smaller if consumers purchase muscle cuts that are not expected to see any price declines.

The question now, does the consumer really care about such a savings? It sounds good to make a statement about reducing a price of a good to the consumer, but what does such a small savings mean to a consumer? What President Trump’s statement on reducing beef prices has done effectively is reduce beef cattle prices. What it has not done is reduce beef prices. Thus, cattle producers have taken the brunt of the blow during this time with little to no impact on the consumer.

As a last comment on this subject, it is odd to increase import tariff rates on a country like Brazil who has a lot of beef that could be imported while trying to import beef from a country that produces a much smaller quantity of beef. This would appear that beef is a means to a different end. The President probably has something else on his mind other than just beef prices. It could be helping out Argentina, but it probably has more to do with putting some pressure on Brazil.   ∆

DR. ANDREW P. GRIFFITH

UNIVERSITY OF TENNESSEE