Cattle Today

Cattle Today

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by: Wes Ishmael

As you craft your New Year wish list, by all means leave room for prayerful hope that the beef industry as a whole will be gifted with a stronger dose of big picture vision in place of the pennies-wise, pounds-foolish short-sightedness that continues to plague its efforts.

Remember how mandatory price reporting was supposed to usher in a new age of market transparency and level the playing field, according to proponents of the legislation? Never mind the initial chaos and equity drain that occurred when it took effect, since then it has made for more market murk than anything else, while increasing the cost of doing business.

But that's nothing compared to the potential havoc mandatory Country of Origin Labeling (COOL) is fixing to wreak.

By now you know that guidelines for voluntary COOL were issued in October. The guidelines require that all fresh meat products have labels defining the country of breeding, birth, slaughter and processing for every animal in the product — all tracked and labeled in order of predominance. In addition to this, the U.S. Department of Agriculture has a program that will charge producers for audits to verify the accuracy of their information.

Fair enough, retailers who want to now have a common standard labeling guideline to use in telling consumers about the country of origin for beef, veal, lamb, pork, fish, perishable agricultural commodities and peanuts.

However, the law requiring this voluntary program also requires USDA to promulgate regulations for a mandatory COOL program by September 30, 2004. Here's where the fun starts.

According to many proponents of the legislation, implementing such a system is easy as pie and next to free. As an example, in a letter to Senator Tom Harkin last spring, supporting mandatory COOL, one group calling itself Americans for COOL wrote, “Country of origin labeling costs virtually nothing. According to the Florida Department of Agriculture, a state where country of origin labeling for produce has been law for more than 20 years, it costs supermarkets $5-$10 per store per week—if that cost is passed on to consumers that's less that 1 cent per household per week. As Florida retailers have discovered, labeling is simple and straight-forward to implement, and contributes to a more informed and satisfying buying experience for the consumers.”

Let's make the generous to never-never-land assumption that these costs are correct. According to 2000 Bureau of Census figures there are 105.5 million households in the United States. Even at a full red penny each that only amounts to $1.05 million, albeit only for Florida and only for produce. That's more than pin money, but squat compared to estimates recently released by USDA. Try $2 billion on for size, and that's just the first year, and only accounts for estimated record keeping cost.

According to a Federal Register notice issued by USDA's Agricultural Marketing Service (AMS) in November: “…AMS estimates that the total burden to producers to develop a record keeping system that would comply with these guidelines to be 2 million producers X $25 per hour X 8 hours, or $400 million. In addition, AMS estimates that the total annual burden for producers to generate and maintain the records required to comply with these voluntary guidelines to be 2 million producers X $25 per hour X 12 hours, or $600 million. Therefore, the total potential burden for this program on producers in the first year could be $400 million + $600 million of $1 billion.”

Keep in mind this is assuming 100 percent participation—which by definition it is supposed to be when guidelines become mandatory—and includes producers of all of the products cited above.

The AMS pencil pushers go on to estimate the added costs to food handlers, including packers, processors, etc.) and retailers. In round numbers they estimate that at another $1 billion.

So, the assumption of COOL proponents, if they've even thought that far, must surely be that the American consumer will generously ante up $2 billion for something they might like but they have placed no value on. Commodity markets being what they are with supply-driven elasticity, inelasticity and whatnot it's hard to imagine retailers raising the price at the pump without hampering demand. Never mind the fact that there is currently no mechanism by which producers can be paid to recoup their costs in such a program. And, never mind the fact that in the beef industry mandatory COOL ends up making some sort of national ID system mandatory by default (save the letters, I've heard the arguments of why that's not the case, and I'm not buying it).

Hmmm…maybe that's the marketing alternative everyone had in mind when they supported this legislation to begin with: let the producer pay for it, what's a billion dollars in the ocean-deep margins they deal with.

“The $2 billion price tag just for the paperwork required by the new country-of-origin labeling law demands that we search for more cost-effective alternatives,” says Tim Hammonds, president and CEO of the Food Marketing Institute (FMI), which represents food retailers. “These unacceptable costs are borne by the entire supply chain — starting with $1 billion for farmers, ranchers and fishermen and another billion for packers, wholesalers and retailers. Much of the burden will fall ultimately on consumers in higher costs for the hundreds of products that must be labeled in this program.”

Plus, Hammonds emphasizes the estimated added cost of record keeping is only the entry point to a black hole of necessary expenditure. As an example, he says the estimates do not include the cost to: Overhaul the entire supply chain for each meat, seafood, fruit, vegetable and peanut item required to be labeled to segregate products according to the country of origin; Audit farmers, ranchers and fishermen, and each subsequent segment in the food supply chain to verify that they comply with the program; Design and print country-of-origin labels, shelf tags and placards; Attach the labels to pallets, cartons and individual items; Train employees how to maintain the program; Pay $10,000 fines for each violation; Enforce the law by the U.S. Department of Agriculture and Food and Drug Administration.

More specifically, Hammonds explains, “Country-of-origin labeling really breaks down for the large quantities of beef and produce that are multinational in their origin, processing and packaging. Ever since the North American Free Trade Agreement was ratified in 1993, cattle and produce have moved freely among Canada, Mexico and the U.S.”

Of course, restricting the market for imports is exactly what some of COOL's proponents had in mind to begin with, dressing up artificial market barriers in the guise of consumer benefit. While such mom-and-apple-pie rhetoric extolling the horrors of imports is an easy sell with producers unwilling to address the complex reality of beef economics, the fact is without beef imports domestic prices paid to the producer would be lower. As an example, the U.S. imports lean trim to mix with domestic fat for ground beef. Without that trim, our fat has no value, meaning a part of the carcass producers are paid for today would become a cost. Never mind the fact that limiting ground beef supplies would in effect decrease demand.

“Meat labeling will be the most difficult to manage and most confusing to consumers,” says Hammonds. “A simple package of hamburger combining meat from suppliers in two or more countries could be labeled: beef (born in U.S., raised in Canada, slaughtered in U.S.), beef (born and raised in Mexico, slaughtered in U.S.), beef (product of Australia). It is hard to imagine more useless consumer information on a food label.”

Indeed, it's just as hard to fathom how members of the beef industry could support such a costly endeavor with such limited consumer benefit.

Does this mean country of origin labeling is without benefit? No. Does it mean mandatory country of origin labeling as it's currently designed is bad business? Only if you believe producers, markets and consumers should lead the industry rather than the government; only if you'd just as soon not pay more money out of your own pocket without any means of getting it back; only if you think the U.S. beef industry is such a lousy global competitor that it needs mandatory, artificial, market-depressing tariffs disguised as legislation aimed at helping the consumer.

Thankfully, the program is still voluntary, but there are only a few months for public comment. If you don't want what's described above to be reflected in the mandatory guidelines, call your congressmen, senators, cattlemen's associations and anyone else representing you and tell them so.

“It is quite likely that once all sectors of the industry face the challenge of implementing the labeling mandate, they will be overwhelmed by the costs, the paperwork and the penalties the law imposes,” says Hammonds. “Let's act now before the food industry crashes into this iceberg.”

Ain't it COOL?


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