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HUNTIN' DAYLIGHT -- VERIFY THIS -- THE RACE IS ON

by: Wes Ishmael

Take a little government regulation, add a dash of nightmare and you have the fixings for what is quickly becoming a mad dash toward the animal identification that makes traceabilty possible.

The government regulation, of course, has come in the form of Country of Origin Labeling, which no matter how much you may agree with the intent, has created the necessity for a standardized system that doesn't yet exist, even though producers, by law will be asked to identify and track their cattle for country of origin and country of production. Never mind the fact there is currently no mechanism by which producers can retrieve the costs of complying with the law.

Whatever becomes of COOL—whether it remains as is, to be implemented in September of 2004, whether it is delayed, changed, etc.—a partnership between government and industry is hard at work developing recommendations for a national standardized animal identification program. Plans call for submitting the recommendations to the U.S. Animal Health Association this fall, a necessary precursor to the adoption and implementation of a national program.

The dash of nightmare, more like a flood of red ink, comes with the discovery of BSE in Canada in a single cow. Since the discovery was announced May 20, estimates of beef industry losses in that country range from $11-25 million per day in U.S. dollars.

Keep in mind, according to USDA's National Agricultural Statistics Service (NASS) there were 5.7 million head of cows, heifers and calves in the Canadian inventory at the beginning of this year, compared to 42.1 million in the U.S. With only a seventh of the inventory, estimates of daily economic loss in Canada due to the ban run as high as $25 million (U.S.). Using cowboy math, multiply that by six and it would be similar to the U.S. industry losing $175 million per day. How many of those days can you bank before being forced to shut it down?

On top of that, throw in the wonderments of bio-terrorism aimed at agriculture with the aim of inflicting economic chaos.

Who, Where and What?

Consequently, discussions within the beef, meat and food industries regarding identification and traceability—which can help mitigate the risk of Foreign Animal Disease and its consequences—are more intense and perhaps more sincere than ever before. Even in Washington, insiders say livestock animal identification and traceability has begun to shine brightly on the legislative radar in the past six months.

It's a lot like the family lore you hear about the Cherokee Land Run, though. There are lots of players from all kinds of different places lined up with the destination in clear view: in this case, a cost effective way to identify and trace livestock from birth to the meat-case for the purpose of disease surveillance and health monitoring first, economic opportunities second. Unlike the Run, though, the participants in this race are still milling about the starting line even though the starting gun has already been fired. Folks see where they want to go, need to go, but there is still no consensus on how to get there.

Never mind the specific products and tracking systems that already exist, there is yet to be adopted any kind of industry-wide standard. One of the major sticking points, spoken or not, is who is going to pay for this stuff?

There's obviously popular opinion among producers that either the government or consumers pay for any added assurances demanded by regulation or the market. Government, at various times, has alluded to the fact that federal dollars might be available to pay for or at least subsidize trace-back components such as necessary pieces of a national ID system. Often in the same breath, however, they've also suggested that both government and industry may have to get creative about financing such a system.

Barring any of the above, of course the expectation is that industry will pay for it. And, so far the way the industry works that expectation is reasonable. If consumers pressure retailers and restaurants to provide added pre-harvest beef safety and production assurances, which is more than likely given letters sent from retailers to packers already regarding COOL compliance, they pass these demands and their costs on to packers as a condition of sale. Packers then—in their defense there has so far been no mechanism for them to collect such dollars by charging the retail segment more (if you think packers are a consolidated pennies/margin business, then quickly consolidating retailers make them look like value-added mom and pop shops) have passed that on to feedlots as a condition of sale. To a certain extent, feedlots can pass the cost of such conditions of sale along to stockers and cow-calf producers in the price they pay for calves, but there's a limit to it.

On all counts, not only is such a system patently unjust, it's completely inefficient because the supply chain has no way of setting and implementing chain-wide common standards.

And the Market Will Lead Them

Of course, this dilemma hasn't always been obvious, and when it has been noticed, none of the solutions offered up previously have met with much success. Attempts have usually revolved around trying to offer such assurance services at a premium price, meaning that at best only niche markets can access the market. Others have tried to push through new services that come at an added cost, only to find when the cost is tied to the product itself they end up getting paid the same net dollars but increasing their costs.

That's why a new company set for public launch later this month is generating such widespread interest in its novel approach: let the consumer pay for beef safety and production assurances via a service fee, then distribute that fee back to the producers and other supply chain participants who make such pre-harvest identification and traceback possible. Furthermore, divorce that service fee from the price of the product itself so that services can be paid for without impacting the normal trade and pricing of the product.

VeriPrime, Inc. is a member-owned, member-directed cooperative two years in the making which already counts as members cattle feeding organizations representing more than 40 percent of the annual fed cattle supply, as well as some of the nation's largest packers and retailers.

It costs members nothing to join. They can come and go any time they like. As members they are then eligible to enter into a service agreement with the organization to provide pre-harvest beef production and beef safety assurance services. The initial services offered include pre-harvest BSE safeguards, e-coli intervention, minimum animal welfare standards and an identification and traceability system capable of complying with COOL or any other government or market mandate.

On the other side of the equation retailers enter into purchase-service agreement contracts agreeing to pay for the services. Specifically, buyers license VeriPrime eligible product and receive the documentation that verifies the services. In other words buyers can continue to access VeriPrime-eligible beef without paying a service fee, but if they want the information that allows them to make such claims, then they must pay the fee.

What's more the organizational model is structured such that each segment of the industry, including the consumer, can evaluate, price and implement future assurance needs without one segment being able to force another to do something that is impractical or cost-prohibitive.

While subtle, this separation of specific assurance documentation as an asset apart from the cattle or beef is a revolutionary idea. Based on the interest VeriPrime is getting from both suppliers and buyers, it's a revolution ready to happen.

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