Here's How "Pink Slime" Could Affect Your Pocketbook
There are quite a lot of things that my friends enjoy picking my mind about. Investments and anything related to sports are two that quickly come to mind. On the flip side, there are other subjects that my friends know not even to approach me about, like anything involving manual labor, or what constitutes a proper diet.
While I may not have the best sense for what makes a nutritious meal, I, like many consumers, am happy to see ammonia-treated beef trimmings, often referred to as "pink slime," being removed from many beef products. Pink slime itself is considered perfectly edible, without any adverse effects according to the FDA, but a rash of public outrage over the filler product winding up in school cafeteria lunches has caused irreparable damage to its sales.
The primary producer of pink slime is privately held Beef Products. It has responded to the slowdown in demand by shuttering all but one of its plants in order to cut costs and keep supply as in-line with demand as possible. While consumer groups cheer, it should be known that there will be repercussions to the removal of pink slime from ground beef.
For starters, the lean filler product is added to high-fat content beef in order to bring down the fat content and to keep prices down. Without this filler product you can almost assuredly expect prices on ground beef to rise.
Tyson Foods (NYS: TSN) has seen immediate pressure on beef sales and expects that demand could be reduced by 2%-3%, though it expects a rebound over the long-term. Tyson suspects that as supply corrects down, prices will undoubtedly move higher.
According to an ABC News interview with former United States Department of Agriculture scientist, Gerald Zirnstein, 70% of ground beef in the supermarket contains pink slime. With public backlash clearly against the filler, grocers Safeway (NYS: SWY) , Kroger (NYS: KR) , SUPERVALU (NYS: SVU) , and Food Lion announced last week they'd discontinue carrying beef containing pink slime. This move comes shortly after McDonald's (NYS: MCD) agreed to discontinue carrying products with the filler last year.
The message here is simple: The price for reform is going to drive straight through your pocketbook. Collectively the price increases won't be huge, but meat producers like Tyson are going to find ways to boost pricing to offset the cheapening effect pink slime had on beef prices. In turn, you can expect the lessening of beef choices in the supermarkets over the near-term to affect pricing. Less in the way of competition will give supermarkets more pricing power.
I guess you could say this brings a completely new meaning to the phrase, "Where's the beef?"
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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He would consider himself to be a modern day Hamburglar. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of SUPERVALU. Motley Fool newsletter services have recommended buying shares of McDonald's and buying calls on SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never requires a rain check.