A cyclical downturn in beef
production has cut the amount of lean meat available in the market, experts said.
However, cattle ranching associations, citing McDonald's recent financial hardships, claim the real reason for the move is price. A spokeswoman for the
Australian embassy said the beef McDonald's is buying is a few cents a pound cheaper than its purchases in America.
Said John McBride, spokesman for the Livestock Marketing Association: "People in the industry are skeptical of the claim that there is shortage of supply."
"Their profits are falling and their competitors, like Burger King, use cheap imported beef," said Chuck Lambert, chief economist at the National Cattlemen's Beef Association.
"We have beef for them, but they want it much too cheap," said Bill Brandenberg, manager of Meloland Cattle Co. in El Centro.
A slow economy, a foot-and-mouth disease scare in Europe and a weakening Japanese market all contributed to a 33 percent drop in McDonald's net income for the first quarter of the year.
Analysts said McDonald's is looking to stem its troubles by cutting costs through the purchase of cheaper meat from Australia and New Zealand.
Australian beef is 5 to 10 cents a pound cheaper than American beef, thanks in part to a weak Australian dollar. Howard said McDonald's, which has been using Australian beef in many Asian markets, would not cut purchases from domestic buyers. The company plans to introduce the imported beef at 400 restaurants in the
southeastern U.S. for what Howard called a test project.
Officials at the Brawley Beef plant, which only recently got its first contract to sell ground beef
to McDonald's, said they expected no immediate impact.
Australian beef imports, which are under a quota, are unlikely to rise, experts said. Still, cattle prices, which have been depressed recently, dropped about 5 cents per pound in the commodities markets on the news of McDonald's decision.
Brandenberg said that farmers' profits are being squeezed. While retail beef prices have dropped about 1 percent, wholesale prices had dropped more than 10 percent in the last two weeks.
The decision by McDonald's will have a "psychological impact" on Imperial Valley cattle businessmen, said Brandenberg, particularly in light of McDonald's traditionally close relationship with American cattlemen.
Australian beef is becoming increasingly popular in the U.S., with imports hitting the quota limits last year. Imperial Valley cattle businessmen justified their high prices by saying American beef is higher quality than imported beef.
"American beef is more expensive because it is grain fed, while Australian beef is grass fed," said Ross Jenkins, general manager of Phillips Cattle Co. in El Centro.
The Livestock Marketing Association's McBride said, "This is another argument for displaying the country of origin on products."
He said because McDonald's had promoted that it used only American beef as a part of its advertising campaigns, now it should disclose in the test restaurants that burgers are made from Australian meat.