Every industry is generally content with the ebbs and flows of the economy of the world, there are cycles which people try to prepare for, generally not very well, but they try. What throws a wrench into the plans are crisis, for as much as we all talk about crisis planning, we are not very good at it. Whether the crisis is a some sort of violence attached to it or it is medical related. In the classic case of medical is J&J reaction to its drugs being laced with life threatening drugs. J&J pulled all of its medicine off the shelf and changed its production facility to have the aluminium foil on top of the drug, plus the move to pressed down and turn tops. This action which initially cost millions, save the company billions and their actions is considered to the classic case of what to do. In the not being prepared and not sure what to do is the book Cattle Crisis by Scott Wooding published by Fitzhenry and Whiteside, Markham, 2006. The book focused on the Mad Cow disease or BSE in the Canadian cattle market.

For many years, Mad Cow disease was not seen in North America, it had been seen in England and almost destroyed the cattle industry. One would think those in the industry would have crisis management plans if the diseases showed up. If the disease shows up, the effect on humans is not good, which means all countries of the world would close its borders to meat exports. This is to be expected, the issue is how does the industry move to come back to normal. Prior to the border being closed with a case of BSE, 90% of beef exports and 99% of live cattle exports went across the border to the US. In addition, the biggest meat packaging plants are owned by large American companies. Cattle farmers and the supply system did not treat the border as that big of a deal. The industry was expecting the case to be isolated, it would take a few lumps and all would return to normal. Then a second and third case happened which brought out the protection issue and a presidential election meant delay is better than saying yes. The result is the beef industry went into a two-year depression with affects all throughout the economy.

It could have been, the beef industry thought the government testing was adequate and maybe needed to be expanded. Another issue is no one is really certain what cases BSE and why one steer is affected and not another, but what does happen is when the borders closed, there was a glut of beef supply which sent the price down. The governments of the day reacted by giving price supports to the beef farmer, which sounds good. The meat packers benefited because of the various methods they ensure they have a product for their plants.

In the years since, all cattle are tracked and there has not been any cases of BSE however the issue of the day is what should the industry do in the worst case. Over time, there were programs to reduce the supply and price supports but with government money time is not on your side, government money takes months rather than weeks.

Linking to dividend paying stocks, it is worth looking in the markets the company receives its greatest profits to pay the dividends, what is the worst crisis the company has to manage and can it? or is it dependent on either the government or the normal flow of economic cycles? If it is, reduce your holdings for the recovery will be long time in coming back.

There are more questions than answers, till the next time – to raising questions