ROD SMITH, Feedstuffs Staff Editor

WASHINGTON, D.C. -- At the Food Marketing Institute (FMI) here, senior vice president for government and public affairs John J. Motley III said although his organization is not prepared to recommend that member retailers and supermarkets voluntarily participate in country-of-origin labeling (COOL) because of the costs and liabilities to which they need not be exposed at this time, it will work to make the program more effective and efficient when it becomes mandatory in 2004.

He said FMI does not want to go back and fight the program in Congress, saying that would be up to the politicians and producers who pushed so hard for COOL and now have something that might be more than they wanted. "We are concerned with how it will work in the real world," he said, given its disruptive and onerous requirements on packer/processors and retailers that will be felt just as much by producers.

COOL will be disruptive and expensive, Motley said, beginning with the "paperwork" required to verify that meat and other products were correctly labeled as to their country or countries of origin. He noted that the average retailer will have 500-700 SKUs per week covered by COOL, which, delivered by two or more suppliers two or more times per week, could mean one retail store would have 15,000 or more origin-documentation invoices per month that would have to be catalogued and stored for two years for products that are gone in two weeks or sooner.

He said this trail goes back into the production systems to packers, processors and producers. "It's an expensive chit" that came from the farm bill, he said. (Most sources believe Congress gave COOL to producers and populist politicians in exchange for dropping a ban on packer livestock ownership in the farm bill.)

Motley said without keeping and providing verification trails, retailers will be subjected to a fine of $10,000 per violation, which means retailers will insist on verification proof from packer/processor suppliers, who will insist, in turn, on verification from producer suppliers, who will need to adopt animal identification even though many are opposed to identification schemes because of liability issues.

Indeed, Wal-Mart Stores already sent a message to its suppliers that when the mandatory phase starts, covered products that reach store docks not labeled and verified will be rejected. "Our members won't assume all the risk, won't assume all of the liability and responsibility for this by themselves. The market has a lot of power to decide how this will be implemented," the company said.

COOL will also be disruptive, Motley said, because of the labels themselves, which, in the case of meat, have to identify the country or countries of origin of the animal or animals from which the meat product was produced, i.e., where the animals were born, raised and slaughtered. Labels, especially for ground beef and fish, which he noted "tend to swim from one country to another," may cover the entire package, especially if additional labels for cooking instructions and nutrition information are included.

(For farm-raised fish to be labeled as U.S. product, they must be derived exclusively from fish that are hatched, farm raised and processed in the U.S., and for sea-caught fish to be labeled as U.S. product, they must be harvested in U.S. waters or by a U.S.-flagged vessel and processed in the U.S. or on a U.S.-flagged vessel.)

How added costs and labeling will affect demand remains to be seen, Motley said, but it can't be good. It will increase costs, and these costs will be absorbed and reduce returns for retailers, packer/processors and producers, or passed on to consumers, he said. This could decrease demand for products affected by elasticity wherein a slight cost increase results in a substantial demand decrease, he said.

Consumers may well shift from higher-priced COOL meat products to lesser-priced poultry and other meat alternatives, and they may shift to Australian and Canadian meat products that are born, raised and slaughtered in those countries and could be labeled simply "Product of" Australia or Canada and could be more competitively priced and/or promoted, Motley said.

"How will U.S. product stand up in the marketplace?" he asked. If an Australian or Canadian meat product is 50 cents or $1 less per pound and tastes as good or better, "it could have a real argument" over meat that has several countries of origin, including the U.S.

He said this could have an adverse impact on northern states' beef cattle producers who finish cattle in Canada, southwestern cattle feeders who buy Mexican cattle and Iowa and Minnesota pork producers who grow out Canadian-born pigs.

"This is the miscalculation that producers made" when they and their allies in Congress pushed for COOL, he said. "I don't believe producers planned on all this."

"I don't know where this will take us," he said, but hopefully "this kind of discussion ... will open some eyes" in the producer sector, and producers will go to Congress and seek amendments to or rescission of COOL. It will take an industrywide consensus to change COOL, and without producers stepping up and saying COOL is a mistake, it won't be changed, he said.

Motley said the COOL fallacy is that consumers have never put country of origin that high on their radar screens. "If you ask consumers if they want to know the country of origin of their food, they will say they do, but if you ask consumers what's most important in their buying decisions, then this (country of origin) drops to seventh or eighth. Price and quality, which includes food safety, always are at the top, numbers one and two. Is it convenient and fresh? Is it tasty? You don't get to country of origin until you get to the second five things."

In response to questions, Motley said he believes Congress will revisit COOL before its mandatory phase, and under the right conditions, FMI will take the matter back to Congress. "Congress will address this is some way. It can hold hearings, it can instruct AMS to do something differently, it can amend or repeal (the legislation), it can do a new law," he said. "There are a number of things Congress can do, and it will do something," especially with control of Congress and the Senate Agriculture Committee shifting after the elections.

He also said FMI will work with its member companies on implementation processes as companies will want to be "quick to the market" with COOL when the time comes. Unfortunately, he said this will disadvantage smaller stores that don't have the leverage and resources to make COOL work as efficiently as larger supermarkets, which will accelerate consolidation in the retail sector.

What's especially disappointing is that the American Meat Institute and FMI, negotiating with producer trade groups, were "that close" to a voluntary country-of-origin program that had a definition of what would be U.S. products, Motley said. "I even had three major chains -- two of them top-five chains -- ready to adopt the program" in which packer, processors and retailers would have labeled meat products that met the agreed-to definition as U.S. beef, pork, etc., and would have heavily promoted them.

However, largely because cattle producers were not satisfied with the description of an American cow, the agreement collapsed, he said, and the issue went to Congress. "We would have been better off if we had gone to that voluntary program," which would have strongly promoted U.S. product. "We would be doing that now."