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  • Mathieu Provencher

Horse-beef meat... what happened?

We are now eight months after the horse-meat scandal that hit Europe and no individual has yet been prosecuted or arrested... Remember that firms were selling cheaper "beef" by mixing it with horse meat. I have two questions for you guys: (1) why was horse meat so cheap compared to beef (and where did it come from); (2) where these firms engaging in price discrimination or in product discrimination?

Horse came from Ireland because it was much cheaper than beef, and why was that the case? Ireland was very badly hit by the 2007-2008 financial crisis (and the following economic crisis)... one of these industries that crashed was the horse racing and horse breeding industry. These products are what we normally call luxuries, which see big changes in demand when income changes.

In this case, most people lost a lot of income and stopped going to horse races and horse exhibitions... which decreased the demand for horse a lot, which reduced the price of horse a lot. Now... these investors holding horses wanted to get rid of their unprofitable assets but very few wanted them alive, so they simply turned to a new market: horse meat.

At the same time, a substantial decrease in income in the UK and other European countries lead more people wanting to buy cheaper products, including the very low quality (but relatively low priced) processed beef. Someone saw this nice opportunity and started buying horse meat to put in their "beef" and thus being able to sell it at very low prices, which is exactly what consumers wanted.

The macro-economy is full of these invisible interactions that cause chains of events, a bit like the butterfly effect if you wish. Learning about macro-economics is learning about all these variables which are all related to each other and react to different economic shocks.

This scandal scared most consumers, which then made companies more careful with the source of their meat. I heard that many beef farmers and beef manufacturers in Ireland suffered because of a substantial decrease in demand for their products, even though they may not have participated in this behaviour.

This would normally mean that firms, in order to protect their image (read here: profits), would put a lot more efforts in stopping these types of things from happening. However, the real answer is that we don't know if they did... there was no significant change in the law regarding these products and there doesn't seem to be any significant change in monitoring efforts either. As such, we may very well be eating as much horse as before the scandal, which is better for your health by the way but which is not what the product is being advertised as.

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