Impacts of Country of Origin Labeling on North American Beef Trade Prepared for the Organized Sympos

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Impacts of Country of Origin Labeling on North
American Beef TradePrepared for the Organized
Symposium Impacts of Country-of-Origin
Labeling on North American Trade in Livestock and
Meats

• AAEA Annual Meetings
• Montreal, Canada
• July 29, 2003
• Parr Rosson and Flynn Adcock
• Texas AM University

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Overview

• Provisions of MCOOL
• Issues
• Impacts on Beef Trade

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Mandatory Country-of-Origin Labeling

• Retail Labeling of Imported Products
• Voluntary October 11, 2002
• Mandatory September 30, 2004
• Retailer is Responsible for Label
• Products Included in Regulations
• Muscle Cuts Ground Beef (??), Pork (??), Lamb
  (fresh, chilled, frozen)
• Seafood and Aquaculture
• Fresh/Frozen Fruits and Vegetables
• Peanuts

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Present Provisions

• Animal Products Labeled as U.S. Only if Born,
  Raised, and Processed in the United States
• Requires Label, Stamp, Placard on Package,
  Container, or Bin
• Major Exemptions Are
• Exports
• Hotel-Restaurant-Institutional Trade
• Ingredients in Processed Foods
• Retail Stores w/Sales lt 230,000 Meat/Fish
  Markets

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Present Provisions (continued)

• Specific Provisions
• Exclusively U.S. origin
• Foreign Origin, Entirely Outside United States
• Mixed Origin, including United States
• Blended Products, raw materials-Order of
  Prominence by Weight, not Percent

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Present Provisions (continued)

• State Regional Programs
• State Regional Labeling Claims Cannot be
  Accepted in lieu of labeling
• Retention of Records
• Two Year Records Retention Policy
• Maintain Auditable Records Documenting Origin-
  Retailers Down-line Suppliers

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Issues

• Consumer Preference is Unclear
• Who Will Bear Start-Up Costs Looms Large
• Contradiction Secretary Prohibited from
  Implementing Mandatory ID System
• BUT Law Interpreted to Require Verifiable Audit
  Trail for 2 Years, Raising Concerns About
  Traceback of U.S. Cattle Hogs
• Higher Costs of U.S. Beef Damage
  Competitiveness w/Poultry, Imported Products

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Issues (continued)

• USITC Found that U.S. Buyers view U.S. and
  Canadian Cattle As Interchangeable
• 70 of Meat from Mexican Cattle Enters
• H-R-I Trade
• Survey Results Inconclusive as to Consumer
  Preferences
• Some Foreign Firms Commodity Assns. May View
  MCOOL as an Opportunity
• De-Funded for FY 2004 in Ag Appropriations Bill
  (U.S. House)

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MCOOL Cost Estimates

• USDA/AMS Estimates First Year Compliance Costs at
  1.97 Billion
• Other Estimates Up to 6 Billion
• Who Bears Costs Producers, Wholesalers/Feedlots/
  Packers, Retailers, Consumers?

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MCOOL Beef

• Beef Product Beef from Imported Cattle
  Represent 17.9 of Total Beef Consumption
• Distribution of Beef Imports (5 Billion Pounds)
• 53 HRI
• 27 Processed or Re-exported
• 20 Retail, 1 Billion Pounds (3.6 of
  Consumption)
• 5.6 Billion Pounds of U.S. Beef Sold at Retail

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Thousand Head
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Potential ImpactsU.S. Products Perceived as
Having More Value

• U.S. Product Differentiated from Imports
• U.S. Product Would Sell at a Premium Relative to
  Imports
• More Product Would Stay in the U.S., Exports Fall
• Opportunties for Foreign Products Possible in 3rd
  Country Markets

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Potential Impacts Foreign Products Perceived as
Having More Value

• Imports Differentiated
• Imports Sell at Premium in U.S. Market
• U.S. Imports Would Increase
• U.S. Exports Increase

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Potential Impacts U.S. Consumers Are
Indifferent

• Price Sensitive Competitive Market
• U.S. Product Would Have No Premium Relative to
  Imports
• No Major Market Shifts
• U.S. Producers Incur Increased Costs of Labeling

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Potential Impacts(New Supply Chains)

• U.S. Product Incurs Higher Costs Due to
  Tracking/Segregation/Labeling
• Development of Specialized Export Oriented Supply
  Chain to Service U.S. Market-Replaces Mixed
  Origin Supply Chain HRI and/or Retail
• Likely to Occur in Canada, Maybe Mexico
• Imports Replace Some U.S. Product at
  Retail-Exports to Canada/Mexico Fall

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Potential Impacts(Disruption of North
AmericanMarket Integration)

• Some Retail Groceries Refuse to Market Beef
  Labeled as Product of Mexico
• Packing Plants Reduce Demand for Mexican Cattle
• Feedlots Limit Purchases of Cattle from Mexico
• Lower Imports of Mexican Feeders Price
  Discounting
• Increased Beef Supplies in Mexico Lower U.S.
  Exports

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Summary and Conclusions

• Canadian Cattle Segregation in Feed Lots
  Slaughter May Spur Specialization in Export
  Products
• Mexican Cattle Likely Discounted
• MCOOL May Spur Retaliation by Trading Partners
• MCOOL Viewed by Some as Government Mandated
  Market Segmentation

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Summary and Conclusions

• Some Countries May Respond by Developing Market
  Differentiated Beef Products
• All Natural, Grass Fed, Premium Beef
• Potential to Serve U.S. Hispanic Oriented
  Supermarkets with Mexican Beef
• U.S. Cattle Sector Facing Higher Costs Loss of
  Competitiveness
• North American Market Integration Disrupted,
  Reducing Efficiency

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Implications

• Record Keeping Traceback, if Required, Will Be
  Major Cost Factors for U.S. Cattle Hogs
• Shelf Space at Premium High Degree of
  Competition Among Retailers, So Cost Passed Back
  to Production Sector
• U.S. Retailers Packers May Reduce Number of
  Countries Supplying Products
• Canadian Suppliers in Good Position to Respond to
  Market Opportunities
• BSE Discovery in Canada Provides Support