1. ‘Impacts of Country of Origin Labeling on North American Beef Trade’ Prepared 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 A&M University

2. Overview Provisions of MCOOLProvisions of MCOOL IssuesIssues Impacts on Beef TradeImpacts on Beef Trade

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

4. 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 < $230,000 & Meat/Fish Markets

5. 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

6. Present Provisions (continued) State & Regional ProgramsState & Regional Programs State & Regional Labeling Claims Cannot be Accepted in lieu of labelingState & Regional Labeling Claims Cannot 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

7. 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

8. 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)

9. 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?

10. 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

11. Thousand Head

13. Potential Impacts ‘ U.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

14. 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

15. 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

16. 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

17. Potential Impacts (Disruption of North American 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

19. 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

20. 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

21. 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