USDA reveals proposed COOL rule; opponents, proponents voice opinions

SALLY SCHUFF, Washington Editor

WASHINGTON, D.C. -- When the U.S. Department of Agriculture unveiled its proposed rule last week for the farm bill's mandatory country-of-origin labeling (COOL) program, both proponents and opponents found a point of agreement: the long-awaited final round of the controversy can finally begin.

That's expected to occur during the 60-day public comment period that follows the Oct. 30 publication of the rule in the Federal Register. At the heart of the last-ditch round is USDA's official estimate that the mandatory program will cost the U.S. economy up to $3.9 billion the first year. Two other big questions loom: Will the program put dollars in the pockets of U.S. producers? Will the program give imports a competitive advantage by adding a regulatory burden to U.S. producers?

The $3.9 billion in direct costs was estimated even though USDA reduced the $1.9 billion estimate it had made last November in estimating the costs of recordkeeping for covered commodities. The new estimate pegs recordkeeping costs at $582 million for the first year the records are established. Costs for subsequent years are estimated at $458 million annually.

The balance of the $3.9 billion in direct costs is estimated for capital expenditures slaughter plants, and other handlers will have to make to their operations to segregate product, Ken Clayton, USDA's associate director of the Agricultural Marketing Service (AMS), said last week.

USDA economists estimate there will be a cost to the U.S. economy as a whole of $138?$596 million a year in reducing purchasing power due to COOL costs.

"We were hard pressed to come up with any quantification of benefits," said Clayton. While he noted there had been many surveys pointing to a consumer preference for domestic product, none of those surveys were taken in stores while consumers grappled with their budgets and, therefore, were not accurate estimates of actual consumer buying decisions.

Consumer demand would have to rise 1-5% to cover the cost of the program, Clayton concluded. The 203-page rule is on the internet at www.ams.usda/cool.

COOL opponents hope that with USDA's estimated economic impact cost topping out at $3.9 billion for the first year of the program alone, they can implore the cash-strapped Congress to step in and rewrite the farm bill's COOL provision -- making the program voluntary. At the very least, they hope that the Senate will agree in its appropriations process for fiscal 2004 to adopt the "Bonilla amendment" in the House appropriations bill. That amendment would prevent USDA using any funds to implement the mandatory COOL program in fiscal 2004 -- even though the farm bill mandates startup Sept. 30, the final day of the federal 2003 fiscal year.

House Agriculture Committee Chairman Bob Goodlatte (R., Va.) told the Texas Cattle Feeders Assn. (TCFA)last week that COOL will up costs for U.S. cattle producers and give foreign beef a competitive advantage.

He said he and other House members support the Bonilla amendment, allowing time for hearings next year. According to a TCFA statement, Goodlatte told the group the House is waiting for the Senate to finalize work on its appropriations bill and then will fight for the Bonilla provision in conference committee.

"My personal preference would be that we go to a voluntary program with government support," he told TCFA.

However, Michael Stumo, spokesperson for the Organization of Competitive Markets (OCM), called the Bonilla amendment "a blunderbuss approach" and called on Congress not to intervene to stop an implementation process he said he believes is working to clarify the issue. "Consumers get choice; they get to decide where their food is produced."

The cost estimates have also further cooled the Bush Administration's chilly view of mandatory COOL, which is set to begin next October. Office of Management & Budget's (OMB) John Graham is asking USDA to advise OMB if a legislative fix is advisable.

In a post-review letter to USDA's undersecretary Bill Hawks, Graham, noting the statute's language, said his agency "recognizes that the farm bill mandates a rule such that USDA cannot avoid these huge costs."

Graham said, "We remain very concerned that this program will impose enormous costs on consumers that are substantially in excess of any benefits."

He asked Hawks to provide the Administration with advice "on whether it should seek legislative relief to mitigate these impacts." Hawks heads USDA's regulatory and marketing services.

Hawks is still reviewing that request, a USDA spokesperson told Feedstuffs.

National Pork Producers Council president Jon Caspers said, "This rule and cost is just reinforcing what we've said all along: This is all cost and no benefit. It carries some huge ramifications for our industry and the economy in general, and we're going to have a possible trade retaliation issue and a lot of market effects beyond the rule."

The National Cattlemen's Beef Assn. (NCBA) disputes that mandatory labeling will be a money maker for cattle producers. "Most producers will be disappointed in the proposed mandatory rule, as it falls short of meeting the program's objective of enhancing and sustaining the profitability for America's cow-calf producers," NCBA president Eric Davis said. "The cost-benefit analysis shows that it will be all but impossible for producers to improve their bottom line under this mandatory law." NCBA favors development of voluntary labeling programs for producers who have identified potential paybacks from niche marketing.

On the other hand, COOL proponents, who currently have the law at their backs and smooth sailing to a mandatory program as long as Congress holds to the current farm bill language, have cloaked their criticisms of USDA's proposed rule in diplomatic language.

Bill Bullard, chief executive officer of R-Calf, said it "appears clear to us that USDA has made significant progress in addressing some of the technical problems associated with its initial November guidelines."

He said R-Calf is particularly pleased "that they have addressed the issue of removing ground beef from the requirement of labeling if water is added to it."

He said, "USDA has now included in the rule that such enhancers as water and other extenders do not remove the commodity from the labeling requirement."

Bullard also praised USDA's decisions that spells out that ground beef will not have to be labeled by country based on the proportion of meat from each country that ends up in the final ground beef product. Instead, Bullard said, USDA now has outlined "a simplified process, and they're simply requiring the labeling of the countries in alphabetical order," he said.

"We believe the improvements that have been made indicate that the process itself is working. We're working with USDA trying to implement this bill, and we see some significant progress," he said.

R-Calf indicated USDA's rule on liability is still an issue. Noting that USDA has not made packers and retailers liable for misinformation they receive about origin verification, Bullard said USDA could prescribe the types of records packers need to have to satisfy the verification. "We will continue to focus on this area; it is very important to us. In addition, in the 60-day comment period, we believe there is a very strong possibility that we could use a presumption of domestic origin as USDA can address origin verification."

R-Calf, an organization that has long sought to protect the domestic market from the impacts of cattle imports, said he believes USDA's demand estimate points to optimism. "It's an acknowledgment that if the U.S. producers could recapture just 1% of the market share now enjoyed by Australia, New Zealand, Mexico or Canada, or any one of the importers into this country, based on a consumer preference for U.S. product, we believe producers would certainly realize financial benefits," Bullard said.

Pointing to the impact of Canada's single case of bovine spongiform encephalopathy (BSE), he said, "The example of the Canadian border closing provides us with empirical evidence that labeling the product and allowing consumers to dictate trade flows through their buying preference will have a beneficial impact on producers."

Citing an analysis by the National Farmers Union (NFU), another key leader in the fight for COOL, Bullard said, "We've reduced the overall supply as a result of closing the (U.S.-Canadian) border in May by 7-8%. As a result, we've increased the value of fed cattle from January through September $9.90 cents." If based on total U.S. slaughter that impact to U.S. producers would be more than $3.2 billion.

In yet another viewpoint, American Meat Institute (AMI) president Patrick Boyle, one of Washington's staunchest opponents of COOL, said, "If there were billions to be made through a COOL program, the meat industry would have done it already.

"Still, if there are people out there who believe that COOL stands to benefit them, then we say go for it. Implement a COOL -- just do so voluntarily. Leave the rest of us out of your multi-billion dollar federal mandate," Boyle concluded.

The USDA rule points to a $2.4 billion cost to the meat industry to verify it has segregated imported product from domestically born, raised and slaughtered meat.

USDA posted its proposed rule for the mandatory COOL program with an official estimate that the rule will cost the U.S. economy $3.9 billion a year.

Except for exemptions listed in the proposed rule that USDA released Oct. 27, retailers (as defined under federal statute as those with more than $230,000 in annual sales) would be required to label "covered commodities. Covered commodities include muscle cuts of beef including veal, lamb, pork, ground beef, ground lamb, ground pork, farm raised fish, shellfish, wild fish and shellfish, perishable agricultural commodities fresh and frozen and peanuts.

AMS administrator A.J. Yates said "retailer" is defined by the Perishable Agricultural Commodities Act, which says that anyone who sells over $230,000 worth of fruits and vegetables must have a PACA license.

"We have 4,500 PACA licensees operating 37,000 retail stores throughout the country. The definition excludes butcher shops, fish markets and exporters. Salad bars and delis located within retail establishments that provide ready-to-eat food are exempt from the law. Food service establishments such as restaurants are exempted by the statute," Yates said.

The National Food Processors Assn. (NFPA) said the USDA rule "while an improvement over the previous version, will still be operationally impractical for both food processors and retailers."

Dr. Alan Matthys, NFPA vice president, said, "From a technical standpoint, the labeling requirements will be extremely difficult to achieve and will require a huge investment by the food industry.

"We are pleased, however, that the proposed rule does make some accommodations for a number of food products," Matthys added. "Although fresh and frozen fruits and vegetables are covered by the labeling requirements, commingled products are exempt (e.g., fruit cup with 2 or more fruits). Making COOL alphabetical instead of in order of predominance is a logical and practical adjustment as well."

"These improvements aside, there are clearly a number of issues we believe USDA should reexamine before issuing its final rule," said Matthys. "For example, the rule does not address the problem of products in trade labeled prior to the effective date of the regulation or that fish or shellfish that has been combined with other ingredients such as seasonings, preservatives or breading would be considered a covered commodity. We will be presenting our concerns about these issues and other elements of the proposed rule to USDA."

Copyright Feedstuffs, Miller Publishing Company