Feedstuffs | April 7, 2003 | Issue 14 | Volume 75

ROD SMITH, Feedstuffs Staff Editor

For those who argue that the Agricultural Marketing Service (AMS) was way off base in estimating costs of paperwork to implement the country-of-origin labeling (COOL) rule at $2 billion, Dr. Ernie Davis at Texas A&M University has put the total start-up costs for just the beef industry at near $9 billion -- and he said that's a conservative, incomplete projection.

Davis, a livestock marketing specialist at the university, released the estimates to a meeting of the Texas & Southwestern Cattle Raisers Assn. last month.

He said the costs for identification, documentation and auditing for cow/calf producers would be $1.3 billion; for stocker operations, $9 million; for feedlots, $23 million; for packing plants, $688 million, and for retail stores, $6.9 billion.

The costs do not consider the impact on cattle prices that will occur as costs are passed back from retailers and packers, he told Feedstuffs last week.

He said he plans to work through the Livestock Marketing Information Center to have more complete estimates soon.

A COOL provision was written into the 2002 farm bill that mandates all fresh meat, seafood and certain other commodities sold at retail to be labeled by Oct. 1, 2004, as to the country, or countries, of origin of the animal, or animals, from which the meat and seafood was produced (Feedstuffs, April 29, 2002). Poultry is not included.

AMS developed voluntary COOL guidelines last year (Feedstuffs, Dec. 2, 2002) and has now started to develop mandatory requirements based on public comment on the voluntary program. AMS has stated that retailers will have to demonstrate the accuracy of all labels on the covered commodities, which will require documentation and verification (Feedstuffs, March 10).

Retailers have said they will demand documentation from packer/processors as to the origin of beef, lamb and pork, and packer/processors have advised producers that producers will need to provide documentation of the origin of their cattle, lambs and hogs.

Packers and retailers will be under threat of civil and criminal penalties for product that's mislabeled.

Davis said producers need to understand that while the agriculture secretary cannot require an animal identification program under COOL, packers and retailers will be responsible for proof of origin, and for them to provide that proof, it's obvious that producers will have to participate in the documentation and verification process.

"The free enterprise system works," Davis said, and cattle producers who do not want to document and verify will be left by the marketplace to sell their cattle into lower-priced, non-COOL channels.

To tell producers that the secretary cannot mandate animal identification and that it's the retailers who will have to prove origin with the implication that the ball won't leave the meat case is not fair to producers, he said.

Cost estimates, documentation called anti-COOL scare tactics

COOL proponents have held solidly, though, that the COOL law does not require every farmer and rancher to document animals and maintain records on them. In a recent statement, National Farmers Union president Dave Frederickson said the law "specifically prohibits this" by saying that the secretary cannot use a mandatory identification system to verify country of origin of a covered commodity.

The law "instructs grocery stores" to label products as to their country of origin, he said, and it puts "the burden of proof on importers." He said it "makes no sense" to impose such requirements on U.S. producers when records already are kept on animals and meat that are imported into the U.S.

He cautioned that the anti-COOL campaign is one that's "fueled by misinformation and scare tactics" and said producers should work to make sure that COOL is implemented "in a farmer- and rancher-friendly manner."

Indeed, Dr. R.M. "Max" Thornsberry, president of the Missouri Stockgrowers Assn. and vice chair of the R-Calf USA affiliate council, has stated that AMS administrator A.J. Yates has told him how Agriculture Secretary Ann Veneman has instructed AMS staff to develop the final mandatory rule so that labeling will be "least burdensome for producers."

Thornsberry said Yates told him that Veneman reminded staff that the COOL law does not require documentation and verification.

A spokesperson for Veneman did not respond to a request to confirm her instructions to AMS.

Meanwhile, R-Calf has called for the Grain Inspection, Packers & Stockyards Administration (GIPSA) to investigate letters that are being issued by packers to producers advising them of plant expectations for documentation and verification when COOL becomes mandatory (Feedstuffs, March 17) and has said the letters are having the effect of threats of lower cattle prices actually causing lower cattle prices.

Feeder cattle prices have decreased since the letters were issued early last month while fed cattle prices and beef prices have increased, according to an R-Calf statement. "A competitive market free of anti-competitive forces would not produce these results," the statement said.

Market sources have explained that beef prices have risen due to reduced supplies, and fed cattle prices have risen due to tight supplies. Feeder cattle normally seasonally weaken to fed prices in the spring, sources have noted.

Thinking through the two costs of COOL

Davis said he began his estimates by assuming 50% of supermarkets, or about 16,132, will handle beef labeled other than U.S. origin -- beef that may come from cattle born in the U.S. but raised elsewhere or from cattle born outside the country but raised by U.S. producers with U.S. management and technology.

He said his research shows the cost per store for additional coolers to keep product separate at $178,500 and the cost per store for auditing, handling and separate shelf space at $250,000. (Records must be kept for two years.)

He said this $428,500 multiplied over the 16,132 stores would be $6.9 billion.

He noted, though, this does not include the cost for the other 50% of supermarkets that will market only U.S. origin beef but still will have to provide documentation and records on that product, and it does not include the cost for the other 126,126 non-supermarket retail stores that fall under the rule.

Davis said a similar exercise involving only the 43 federally inspected plants that handle 90% of the beef kill worked the additional cost for coolers, warehousing, auditing, etc., out at $16 million per plant. He said this does not include the additional cost for the other 663 plants.

Davis said retailers have monopsony power over packers and can exercise disproportionate influence in setting market prices, just as packers have monopsony power over producers. To not think that these costs will be passed back to producers and will affect cattle prices is not good thinking, he said.

Producers will have two costs, he said, i.e., the cost to document and the cost in cattle prices. "Everyone needs to really think this through," he said.

Listening sessions

Meanwhile, AMS announced the dates and locations of 12 "listening sessions" that the agency will conduct this spring to allow producers and others to address issues surrounding the rule to provide additional input for AMS to use in writing the final, mandatory rule.

All sessions will be from 1-4 p.m. local time and are scheduled for:

April 29 -- Raleigh, N.C. -- Jim Graham Building Hall of Fame Room at 1025 Blue Ridge Rd.;

May 1 -- Austin, Texas -- William B. Travis Building Room 1-111 at 1701 N. Congress Ave.;

May 2 -- Pasco, Wash. -- Red Lion Inn at 2525 N. 20th Ave.;

May 6 -- Kansas City, Mo. -- Hilton Kansas City Airport at 8801 N.W. 112th St.;

May 8 -- Kearney, Neb. -- University of Nebraska at Kearney at 905 W. 25th St.;

May 14 -- Orlando, Fla. -- Orange County Administration Building Board of County Commissioners Chambers at 201 S. Rosalind;

June 4 -- Cody, Wyo. -- Holiday Inn AT 1701 Sheridan Ave.;

June 6 -- Billings, Mont. -- Holiday Inn at 5500 Midland Rd.;

June 12 -- Sacramento, Cal. -- California Environmental Protection Administration headquarters, Joe Serna Jr. Building, Central Valley Auditorium, 1001 I St.

June 19 -- Baton Rouge, La. -- Southern University Agricultural Research & Extension Center at B.A. Little Dr.;

June 24 -- St. Paul, Minn. -- Earle Brown Continuing Education Center at 1890 Buford Ave., and

June 26 -- Lancaster, Pa. -- Lancaster Farm & Home Center at 1383 Arcadia Rd.

Additional information is available from www.ams.usda.gov/cool.