Criminal motive behind horse meat scandal

Mar 1, 2013

Agricultural ministers meeting in Brussels last week agreed that criminal activity stretching across the European continent is the underlying problem behind the horsemeat scandal. In response, they’ve called for still more DNA testing of the continent’s meat and meat products. The low cost of horses makes them far cheaper than beef, providing the possible incentive for the fraudulent substitution.

The horsemeat scandal went public Jan. 15 when the Food Safety Authority of Ireland announced that pig and horse DNA had been found in products supposedly made from beef. Horsemeat has now been found in beef and beef products in at least 14 European Union (EU) countries.

The scandal is likely to result in higher costs for the continent’s smaller food producers and manufacturers, adding to the pressure on the sector’s margins and profits, according to Fitch Ratings.

Dual-headquartered in New York and London with over 50 offices worldwide, Fitch Ratings is a global rating agency that provides valuable information to investors, issuers and other market participants.

Some of these companies may be already operating on relatively slim margins, partly due to pressure from major retailers to keep prices down, according to Fitch.

Manufacturers, in turn, put pressure on their suppliers which helped create the complex supply chains and lack of traceability which is at the heart of the current scandal, the company said. Ultimately, there is a problem of reputation and trust in certain meat product categories and a few brands associated with this scandal which can take some time to rebuild.

The discovery of horse meat in a variety of beef products will probably lead to tighter health and safety standards and new requirements for labeling and tracing ingredients across the value chain, which will push up costs. Product recalls and lost sales will also hurt revenue in the near-term, though the long-term impact on sales is less clear.

The rating company said smaller, less-diversified manufacturers, or singlebrand manufacturers of frozen food and readymeals, may be harder hit than larger multiple-brand manufacturers. This could be the case regardless of the small proportion of product lines directly affected due to the reputation damage done by the scandal to individual brands and frozen foods in general.

The impact on bigger manufacturers, such as Nestle, will be much less because meat-products make up only a fraction of their brands. Similarly, major retailers like Tesco are unlikely to feel any significant impact although the crisis is likely to be longrunning, given the complexity of the supply chain.

So far, Morrisons has been left unscathed by this scandal, being vertically integrated in the United Kingdom (UK) where it owns its factories and manufacturing facilities. One thing the scandal may do, therefore, is test the strength of the major UK retailers’ market share.

The overall effect on future sales is uncertain.

Consumer research and media reports indicate that sales of some frozen meat products have dropped and that consumers say they are less likely to buy these products in the future. But it is unclear how long this might last, especially as the scandal revolves around the misrepresentation of horse meat, rather than a major health scare such as the BSE crisis.

Some countries are looking at a Plan B for the meat, hoping to find a positive outcome for the problem.

In Finland, a food company has asked authorities to green-light a plan to donate its products found to contain horsemeat to charities for the poor.

Finland company Pouttu withdrew more than five metric tons of kebab dishes from sale after the company’s internal tests found traces of horse meat in products listing other meats on their labels.

Chief executive Pekka Kosonen told reporters the idea had come from social media users who were concerned about the environmental effects of destroying metric tons of meat.

“We thought it was a good and honorable idea, and if the authorities give us the green light, we are ready to give these dishes to charities,” he said.

Unlike other food companies hit by the European horsemeat scandal, Pouttu said it knew the origin of the horsemeat, and that only the labeling had been erroneous.

Home furnishing giant Ikea pulled meatballs from the shelves and the menu at stores in in Sweden.

The move came two days after Czech food inspectors found traces of horse meat in Ikea’s Swedish-made meatballs, prompting the company to pull them from store shelves in 21 European countries and in Hong Kong, Thailand and the Dominican Republic.

In a press release, Ikea officials said they would be doing more testing.

IKEA US responded to the reports saying all of the meatballs in the U.S. are from a U.S. supplier.

“When this issue first came to light in Europe, we mapped the sources of the meat in our meatballs,” IKEA US said in a press release. “Based on the results of our mapping, we can confirm that the contents of the meatballs follow the IKEA recipe and contain only beef and pork from animals raised in the US and Canada. All beef and pork from the US and Canada must comply with USDA guidelines.”

Fresh beef sold by several of Europe’s major supermarket chains was also found to contain horsemeat. Testing expanded to include frozen beef products and found horsemeat in packaged lasagnas and spaghetti Bolognese.

Continued testing has brought more countries and more brands into the growing problem. Countries as far as Romania and Sweden are involved, along with Bulgaria, Finland, Hong Kong, Whales, Belgium and more. In addition to IKEA, other brands include Burger King, Nestle, Bird’s Eye, Findus and many more. Gennady Onishchenko, Russia’s chief sanitary official, said Thursday on Ekho Moskvy radio that he has sent a letter to the European Commission requesting its guarantee that meat products sold to Russia don’t contain horsemeat, according to the Associated Press.

According to Food Safety News, three people were arrested in the UK in mid- February, but it’s not likely that those suspects have total awareness of the Europe-wide horsemeat conspiracy. The horsemeat was potentially being passed off as beef on a regular basis, according to health officials.

Fresh beef labeling has become more regulated in Europe since Britain and France both experienced outbreaks of BSE. According to European officials, whoever is passing horsemeat off as beef is taking advantage of complex supply chains that are difficult to unwind.

Despite the mislabeled products, food manufacturers want to assure that food safety is not the issue. Despite their reassurance, food safety is still on the minds of most consumers.

What the food manufacturers are trying to say, according to Food Safety News, is that mistaking horsemeat for beef should not make you sick, so long as it was not a race horse treated with the painkiller known as phenylbutazone, or “bute.” So far, little if any of that has turned up in testing done by the Europeans. (See Infographic on page 27.)

Whether it’s a labeling or safety issue, officials say the U.S. is, so far, immune from the problems.

As the media continues to cover the scandal, USDA has said that Americans won’t see horse meat in the grocery stores anytime soon. Despite the decision in November 2011 to drop the ban on USDA horse meat inspections, the meat is still not brought into the country for human consumption, and to date, there are no U.S. slaughter houses processing horse meat.

Congress had banned USDA from using any taxpayer funds for horse slaughter inspections through its annual budget appropriations for the department. And since the Federal Meat Inspection Act requires USDA’s Food Safety and Inspection Service (FSIS) to inspect animals for slaughter, horse meat was not an option for U.S. consumers. In addition, FSIS does not allow imports of horse meat for human consumption.

The horse meat scandal has brought the U.S. political debate front and center the past few weeks.

According to USDA statistics, the slaughter of U.S. horses increased by 32 percent in 2012 to over 176,000, a 20-year high. The horses were exported largely to slaughter houses in Mexico and Canada, which then shipped the meat to Europe.

The number of horses exported to Mexico increased from 68,429 in 2011 to 110,202 in 2012, a 61 percent increase while exports to Canada actually decreased slightly (7.5 percent) to 59,812. — Traci Eatherton, WLJ Editor