Effects of Country of Origin Labeling on North American Beef Trade Prepared for the Organized Symposium: Impacts of

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'Effects of Country of Origin Labeling on North American Beef Trade' Prepared for the Organized Symposium: 'Effects 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

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Overview Provisions of MCOOL Issues Impacts on Beef Trade

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

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Present Provisions Animal Products Labeled as U.S. Just 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

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Present Provisions (proceeded with) Specific Provisions: Exclusively U.S. inception Foreign Origin, Entirely Outside United States Mixed Origin, including United States Blended Products, crude materials-Order of Prominence by Weight, not Percent

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Present Provisions (proceeded with) State & Regional Programs State & Regional Labeling Claims Cannot be Accepted in lieu of naming Retention of Records Two Year Records Retention Policy 'Keep up Auditable Records Documenting Origin'- Retailers & Down-line Suppliers

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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. Cows & Hogs Higher Costs of U.S. Hamburger : Damage Competitiveness w/Poultry, Imported Products

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Issues (proceeded) USITC Found that U.S. Purchasers see U.S. what's more, 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)

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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?

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MCOOL & 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-traded 20% Retail, 1 Billion Pounds (3.6% of Consumption) 5.6 Billion Pounds of U.S. Hamburger Sold at Retail

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Thousand Head

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Potential Impacts " U.S. Items Perceived as Having More Value' U.S. Item Differentiated from Imports U.S. Item Would Sell at a Premium Relative to Imports More Product Would Stay in the U.S., Exports Fall Opportunties for Foreign Products Possible in third Country Markets

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Potential Impacts " Foreign Products Perceived as Having More Value' Imports Differentiated Imports Sell at Premium in U.S. Advertise U.S. Imports Would Increase U.S. Sends out Increase

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Potential Impacts " U.S. Customers Are Indifferent' Price Sensitive & Competitive Market U.S. Item Would Have No Premium Relative to Imports No Major Market Shifts U.S. Makers Incur Increased Costs of Labeling

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Potential Impacts (New Supply Chains) U.S. Item Incurs Higher Costs Due to Tracking/Segregation/Labeling Development of Specialized Export Oriented Supply Chain to Service U.S. Advertise Replaces Mixed Origin Supply Chain: HRI as well as Retail Likely to Occur in Canada, Maybe Mexico Imports Replace Some U.S. Item at Retail-Exports to Canada/Mexico Fall

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Potential Impacts (Disruption of North American Market Integration) Some Retail Groceries Refuse to Market Beef Labeled as 'Result 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. Sends out

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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

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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. Cows Sector Facing Higher Costs & Loss of Competitiveness North American Market Integration Disrupted, Reducing Efficiency

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Implications Record Keeping & Traceback, if Required, Will Be Major Cost Factors for U.S. Steers & 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