The National Animal Identification System and CountryofOrigin Labeling: How are They Related

1
The National Animal Identification System and
Country-of-Origin LabelingHow are They Related?

• Prepared by
• Wendy J.UmbergerAssistant Professor and
  Extension EconomistDepartment of Agricultural
  and Resource Economics
• Colorado State University
• Email wendy.umberger_at_colostate.edu

Western Extension Marketing Committee
Western Center for Risk Management Education
2
Presentation Overview

• Background of country-of-origin labeling
  provision
• What is COOL
• What are the controversies related to COOL?
• Estimates of Costs and Benefits
• Issues related to verification of COOL
• COOL versus the National Animal ID System (NAIS)

3
What is Mandatory COOL?

• Title of the 2002 Farm Bill
• Retailer shall inform consumers at the final
  point of sale of the country of origin of covered
  commodities.
• Only animals born, raised and slaughtered/processe
  d qualify for Product of U.S.A label
• Exemption for food service
• Secretary of Agriculture can not mandate a
  national identification system to verify
  country-of-origin

4
Proponents Reasoning Behind COOL

• Consumers right to know
• Food safety - U.S. food supply is safer
• Protection of the U.S. market
• Increase demand for U.S. products
• Voluntary labeling will not work
• Mandatory labeling program is the only way to get
  all segments of the food chain coordinated
• Ex. Nutritional labeling
• Necessary after BSE incidents in North America

5
The Controversy COOL Law Exemptions?

• Ingredients In Processed Food Products
• Poultry and Dairy
• No Chicken, Turkey, Eggs, Milk
• Food Service Establishments
• Restaurants, Cafeterias
• Retailers With Less Than 230,000/Year In Fruit
  Vegetable Sales
• Butcher Shops, Fish Markets, Small Grocers

Why are some meat products exempt if consumers
have the right to know???
6
The Controversy Labeling of Country-of-Origin?

• U.S. Origin
• Meat Must Be Exclusively From Animals
• Born, Raised, and Slaughtered (Processed) In U.S.
• Also includes beef from animals born and raised
  in Alaska or Hawaii (transported for no more than
  60 days through Canada to the U.S. for slaughter)

What about feeder animals from Canada or Mexico
that are finished in U.S.?
7
Mixed Origin and Blended Origin Meat Labeling

• Mixed Origin Products with an origin that
  includes production steps (e.g. born, raised,
  slaughtered) that occurred in more than one
  country, including the U.S.
• Ex. Product of Canada, Raised and Slaughtered in
  United States
• Blended different products of different origins
  that are combined for retail sales with no
  material change
• Ex. Ground beef Product of Australia Product
  of Mexico, Raised and Slaughtered in U.S.A.
  Product of U.S.A.

8
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9
The Controversy Necessary Records and
Verification

• USDA didnt create an unknown origin label
• Self-Certification is not sufficient
• Retailers must label covered commodities
• Must keep Point of Sale records for 7 days
• Must keep records of origin for 2 years
• Suppliers must provide information about country
  of origin
• Producers, handlers, processors, packers,
  importers
• Verifiable (auditable records)
• Suppliers must maintain records
• Affidavits may be used to certify origin and
  existence of records

10
What Are the Costs?

• Cost of Preserving
• the Identity of Animal
• (Covered Commodity)
• Cost of Labeling the Products
• Compliance Costs
• Unexpected Industry Costs
• Structural changes
• Domestic or export demand changes

11
Cost Estimates USDA-AMS

• First Year Cost Estimates (Millions of Dollars)

12
Cost Estimates Sparks / CBW
Segment Cost
Calculation
Segment Cost
Calculation
/Head
/Head
(Million )
Process
(Million )
Process
38 Mil
Hd
calf crop
38 Mil
Hd
calf crop
Cow
-
calf Producers
Cow
-
calf Producers
198
4.88
198
4.88
Backgrounders
Backgrounders
2.5 Mil
Hd
Imports
2.5 Mil
Hd
Imports
109
-
167
3.75
-
5.75
29 Mil. Head Sold
Feedlots
109
-
167
3.75
-
5.75
29 Mil. Head Sold
Feedlots
29 Mil
Hd
Steer/Heifers
29 Mil
Hd
Steer/Heifers
435
-
522
15
-
18
Packer / Processor
435
-
522
15
-
18
Packer / Processor
6 Mil
Hd
Cows/Bulls
6 Mil
Hd
Cows/Bulls
8 Billion lbs. Sold _at_
8 Billion lbs. Sold _at_
10cents/lb from 35 mil
805
23
Retail Dist. Store
10cents/lb from 35 mil
805
23
Retail Dist. Store
cattle
cattle
1,571
-
1,716
47
-
52
Total
1,571
-
1,716
47
-
52
Total
Source Andersen. R.S. and S. Kay. COOL Cost
Assessment. Published by the Sparks/CBW COOL
Consortium. April 2003. http//www.ams.usda.gov/
cool/comments/cool1041.pdf.
13
Cost Estimates Across Livestock Industry Sectors

• Beef
• 47-52/head
• 0.10/pound
• Pork
• 3.25-10.25/head
• 0.075/pound
• Fish and Seafood
• 0.05 to 0.075/pound

Source Andersen. R.S. and S. Kay. COOL Cost
Assessment. Published by the Sparks/CBW COOL
Consortium. April 2003. http//www.ams.usda.gov/
cool/comments/cool1041.pdf.
14
Potential Benefits of COOL?

• Mandatory COOL may be an Appropriate Policy Tool
  if (Golan et al, 2000)
• Asymmetric information exists
• Disclosure of possible negative quality
  attributes does not exceed the benefits
• COOL increases demand for product
• Increased Demand?
• Market Share
• Higher Price
• Will Consumers Pay For Country Of Origin
  Information?

15
Consumer Studies Examining Possible Market Impact
of COOL

• 2002 Colorado Supermarket Study
• Loureiro and Umberger. Estimating Consumer
  Willingness to Pay for Country-of-Origin
  Labeling. Journal of Agricultural and Resource
  Economics. 28(2)(August 2003)287-301.
• 2002 Chicago, IL Denver, CO Consumer Auction
  Study
• Umberger et al. Country-of-Origin Labeling of
  Beef Products U.S. Consumers Perceptions.
  Journal of Food Distribution Research.
  34(3)(November 2003b) 103-116.
• 2003 Continental U.S. Consumer Study
• Loureiro and Umberger. Assessing Preferences
  for Country-of-Origin Labeled Products. Journal
  of Agricultural and Applied Economics.
  Forthcoming April 2005.

16
2002 Colorado Supermarket StudyLoureiro and
Umberger. Estimating Consumer Willingness to Pay
for Country-of-Origin Labeling. Journal of
Agricultural and Resource Economics.
28(2)(August 2003)287-301.

• 243 Consumers surveyed in supermarkets along the
  Front Range of Colorado
• Consumers Very Receptive to COOL
• Mandatory COOL Program
• 183.77/year
• 3.53/week
• U.S. Certified Steak 38 Premium for label
• U.S. Certified Hamburger 58 Premium for label

17
2002 Chicago, IL Denver, Colorado Consumer
StudyUmberger et al. Country-of-Origin
Labeling of Beef Products U.S. Consumers
Perceptions. Journal of Food Distribution
Research. 34(3)(November 2003b) 103-116.

• 273 Consumers in Denver and Chicago
• Surveyed on WTP for COOL Hamburger and Steak
• Experimental Process- paid 50 to participate
• Bid on USA Guaranteed Born and Raised in the
  U.S. Labeled Unlabeled Steak

18
Consumer Research on COOL Important Food
Characteristics

• Colorado Front Range Study
• Extremely to Very Desirable
• Fresh
• Food Safety Inspection
• High Quality
• Lean
• Visual Presentation
• Very to Somewhat Desirable
• Source Assurance
• Beef Raised in your region of the country

• Chicago, IL Denver, CO Study
• Extremely to Very Desirable
• Fresh
• Food Safety Inspection
• Color
• Price
• Leanness
• Very to Somewhat Desirable
• 9. COOL
• Source Assurance
• Beef Raised in your region of the country

19
Consumers Rationale for Preferring COOL (75
Preferred Labeled, 22 Indifferent)

• Safety and Health of Meat, 45
• U.S. better regulations and standards
• Mad Cow Disease
• More Information (Awareness of conditions,
  Identify meat if Outbreak Occurs), 32
• Support Producers 21
• Location (Prefer from certain countries, Learn
  about importing countries), 12.5
• Quality of Meat Higher in U.S., 11
• Freshness of Meat Closer to Home, 4.5

Source Umberger et al. Country-of-Origin
Labeling of Beef Products U.S. Consumers
Perceptions. Journal of Food Distribution
Research. 34(3)(November 2003b) 103-116.
20
2002 Chicago, IL Denver, CO StudyUmberger et
al. Country-of-Origin Labeling of Beef
Products U.S. Consumers Perceptions. Journal
of Food Distribution Research. 34(3)(November
2003b) 103-116.

• COOL Steak
• 73 Consumers were Willing to Pay Premium
• 11 Premium for label
• COOL Hamburger
• 72 Consumers were Willing to Pay Premium
• 24 Premium for label
• U.S. Guaranteed Steak versus Unlabeled Steak
• 69 Consumers were Willing to Pay Premium
• 19 Premium for labeled steak

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Are Consumers Willing
-
to
-
Pay for their
Taste Preference? Canadian vs. US
N 106
45
N 78
N 49
34
21
Umberger, W.J., D.M.
Feuz
, C.R. Calkins, B.M.
Sitz
.

Consumers

Preferences and Willingness
-
to
-
Pay for
Beef Originating from the U.S., Canada, and
Australia.

Paper Presented at the
2003 WAEA Annual Meetings
.
22
Are Consumers Willing
-
to
-
Pay for their
Taste Preference? Australian vs. US
N 139
60
N 40
17
N 54
23
Umberger, W.J., D.M.
Feuz
, C.R. Calkins, B.M.
Sitz
.

Consumers

Preferences and Willingness
-
to
-
Pay for
Beef Originating from the U.S., Canada, and
Australia.

Paper Presented at the
2003 WAEA Annual Meetings
.
23
2003 Continental U.S. Consumer StudyLoureiro
and Umberger. Assessing Preferences for
Country-of-Origin Labeled Products. Journal of
Agricultural and Applied Economics. Forthcoming
April 2005.

• Mail survey sent during Spring early Summer
  2003
• Representative sample of 5000 households in the
  continental U.S., 673 respondents
• Perceptions of safety of meat, agency for
  certifying origin, and fairest mechanism to pay
  for costs of COOL
• Would you be WTP for Certified U.S. beef, pork,
  and poultry?
• Compare value of COOL, source-verified,
  tenderness, food safety inspected
• Socio-demographics representative of U.S.
  population

24
Perceived Safety of Meat Products from
Exporting Countries
Source Loureiro and Umberger. Assessing
Preferences for Country-of-Origin Labeled
Products. Journal of Agricultural and Applied
Economics. Forthcoming April 2005.
25
Who Should Certify COOL?
Source Loureiro and Umberger. Assessing
Preferences for Country-of-Origin Labeled
Products. Journal of Agricultural and Applied
Economics. Forthcoming April 2005.
26
Fairest Mechanism to Pay for COOL?
Source Loureiro and Umberger. Assessing
Preferences for Country-of-Origin Labeled
Products. Journal of Agricultural and Applied
Economics. Forthcoming April 2005.
27
Other Issues Related to Verification of Country
of Origin

• Concerns regarding how COOL can be implemented in
  an auditable system since a mandatory animal ID
  system can not be created to maintain an animals
  origin information
• Without individual ID, source verification
  becomes difficult and potentially requires more
  costly segregation
• Market may discount animals sold by producers who
  arent able to provide specific source
  documentation information

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Other Issues and Remaining Questions Related to
COOL

• Will COOL increase beef demand?
• Unlikely due to supply vs. demand issue
• Costs versus Premium estimates?
• Chicken and pork highest, but likely the least
  costly to label with country-of-origin
• Appears consumers have some misconceptions when
  asked directly if they are WTP for COOL
• COOL is NOT TRACEABILITY
• Relative value of origin-label versus other meat
  attributes
• Competitiveness of U.S. versus major importers?
• Animal ID makes COOL easier, but they are 2
  separate issues

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Why Individual Animal ID?

• Live animal traceability
• Disease surveillance
• Document origin
• Homeland security
• Bio-security
• Food safety assurance
• Reduce the financial and social impacts of animal
  health incidents 
• Market Access
• Value-added
• Opportunities for Genetic and Product improvement

30
Why NAIS To Maintain Market Access!

• Within the U.S.
• and for Export
• Markets
• Countries with national ID
• Europe, Australia, Canada, Japan
• Countries implementing ID
• Brazil, Argentina, Uruguay, Mexico

31
US Beef Export Market

• About 10 of production
• Japan 32Mexico 26S Korea 24Canada 1030
  other 8
• High quality beef
• Variety meats and hides (70 of tongues are
  exported)
• Drop of 9 in demand would cause price to drop by
  15

82
32
John Hayes, Senior Director of U.S. supply for
McDonalds (CNNMoney 2 July 2004)

• "We do have a captive supply of poultry. The
  animal ID program for us currently is most
  focused on cattle," he said.
• "We'll continue over the next few years to
  increase the amount of traceable animal ID
  products that we can buy, and at some point in
  the not-too-distant future we'll draw a line in
  the sand and say that after a certain date, all
  of our animal products will be from animals that
  are under an animal ID program," Hayes said.

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What Can Animal ID Do For Producers?

• Help you maintain improved records on purchased
  cattle by source i.e. order, buyer, market,
  producer
• Manage cattle while on your operation
• health, performance
• Added value at marketing
• Sort off poor performers
• BQA certified
• Process-verified
• Fit various alliance/premium programs

34
Cost Estimates of ID Will Vary Depending on the
Method and Size of Operation
Information available at http//www.beefstockeru
sa.org/rfid/
35
Estimated Costs of an RFID System (Example is
based on 250 Head at 8 Interest Cost)
Kevin Dhuyvetter and Dale Blasi Web-based
spreadsheet to calculate RFID costs.
www.beefstockerusa.org
36
ID Costs Decline with Herd Size
Kevin Dhuyvetter and Dale Blasi Web-based
spreadsheet to calculate RFID costs.
www.beefstockerusa.org
37
Uncertainties Associated with Mandatory Animal
ID

• Costs of system?
• 100 million annually to maintain
• Ability to maintain tags throughout production?
• What happens once the hide is gone?
• Sharing of the costs vs. benefits in the food
  supply chain?
• Liability issues?
• Producers no longer invisible participants in the
  marketing channel
• Change in market structure?

38
Public vs. Private Needs and Uses
39
Summary

• The Mandatory COOL Program provides Neither
  traceability nor individual animal ID
• THUS, Neither COOL nor the NAIS is a food safety
  program
• However, the NAIS substantially increase the U.S.
  governments ability to respond to animal health
  and disease outbreaks
• Ensuring the safety of animal and meat product
  that could enter the food supply chain
• Consumers value both COOL and Traceability, but
  based on consumer research what they appear to
  really want is traceability

40
Summary Continued

• A U.S. Animal ID system is inevitable, but the
  future of mandatory COOL is less certain
• In 2004, Public Law 109-199 was signed into law,
  postponing implementation of the mandatory COOL
  program for all commodities except wild and
  farm-raised fish and shellfish until 9/30/2006
• COOL will probably continue to be an issue
• A NAIS will likely be implemented in a
  technology neutral manner
• Some level of animal ID will be especially
  important to maintain and re-establish access to
  export markets

41
Conclusions

• Consumers needs and wants should play a dominant
  role in food production.
• However, the needs of each member of the food
  system must also be met for the system to exist
  and to function efficiently.