‘‘Impacts of Country of Origin Labeling Impacts of Country of Origin Labeling on North American Beef Trade’on North American Beef Trade’

Prepared for the Organized Symposium:Prepared for the Organized Symposium:

‘Impacts of Country-of-Origin Labeling on ‘Impacts of Country-of-Origin Labeling on North American Trade in Livestock and Meats’North American Trade in Livestock and Meats’

AAEA Annual MeetingsAAEA Annual Meetings

Montreal, CanadaMontreal, Canada

July 29, 2003July 29, 2003

Parr Rosson and Flynn AdcockParr Rosson and Flynn Adcock

Texas A&M University

OverviewOverview

• Provisions of MCOOLProvisions of MCOOL

• IssuesIssues

• Impacts on Beef TradeImpacts on Beef Trade

Mandatory Country-of-Origin LabelingMandatory Country-of-Origin Labeling

• Retail Labeling of Imported ProductsRetail Labeling of Imported Products• Voluntary October 11, 2002• Mandatory September 30, 2004• Retailer is Responsible for Label

• Products Included in RegulationsProducts Included in Regulations• Muscle Cuts & Ground Beef (??), Pork (??),

Lamb (fresh, chilled, frozen)• Seafood and Aquaculture• Fresh/Frozen Fruits and Vegetables• Peanuts

Present ProvisionsPresent 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 < $230,000 &

Meat/Fish Markets

Present Provisions (continued)Present Provisions (continued)

• Specific Provisions: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

Present Provisions (continued)Present Provisions (continued)

• State & Regional ProgramsState & Regional Programs• State & Regional Labeling Claims State & Regional Labeling Claims

Cannot be Accepted in lieu of labelingCannot be Accepted in lieu of labeling

• Retention of RecordsRetention of Records• Two Year Records Retention Policy• ‘Maintain Auditable Records

Documenting Origin’- Retailers & Down-line Suppliers

IssuesIssues

• 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

Issues (continued)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)

MCOOL Cost EstimatesMCOOL 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?

MCOOL & BeefMCOOL & 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

U.S. Imports of Live Cattle fromCanada and Mexico, 1993 - 2002

Source: USDA/FAS

1202

1010

1133

1509

13771313

985 965

1306

1687

1297

1072

1653

456

669720

960

12231130

816

1993 1994 1995 1996 1997 1998 1999 2000 2001 20020

500

1000

1500

2000 Canada Mexico

Thousand Head

Canadian Exports of Beef to the United States, 1993 - 2002

Source: USDA/FAS

$357 $367 $353

$454

$603

$723

$919$961

$1081 $1095

151174 175

231 239

300

337 328350

382

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002100

200

300

400

500

Thousand Metric Tons

$0

$200

$400

$600

$800

$1000

$1200Million Dollars

Volume Value

Potential ImpactsPotential Impacts‘‘U.S. Products Perceived as Having More U.S. Products Perceived as Having More

Value’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

Potential Impacts Potential Impacts ‘‘Foreign Products Perceived as Having More Foreign Products Perceived as Having More

Value’Value’

• Imports Differentiated• Imports Sell at Premium in U.S.

Market• U.S. Imports Would Increase• U.S. Exports Increase

Potential Impacts Potential Impacts ‘‘U.S. Consumers Are Indifferent’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

Potential ImpactsPotential Impacts(New Supply Chains)(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

Potential ImpactsPotential Impacts(Disruption of North American(Disruption of North American

Market Integration)Market 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

Integration in the North American Cattle and Beef Industry, 2002

$301 Million, 816,000 Head of Beef Cattle$23 Million, 6,000 Metric Tons of Beef

$283 Million, 76,000 Metric Tons of Beef

$75 Million, 105,000 Head of Beef Cattle$592 Million, 206,000 Metric Tons of Beef

$50 Million, 134,000 Head of Beef Cattle$218 Million, 67,000 Metric Tons of Beef

$1.1 Billion, 1.7 Million Head of Beef Cattle$1.1 Billion, 392,000 Metric Tons of Beef

Summary and ConclusionsSummary 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

Summary and ConclusionsSummary 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

ImplicationsImplications

• 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