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UNCW BLA 361 - USDA re Country of Origin Labeling

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United StatesDepartmentof Agriculturewww.ers.usda.govElectronic Outlook Report from the Economic Research ServiceWRS-04-02January 2004Country-of-Origin Labeling:Theory and ObservationAbstractThis report examines the economic rationale behind the various claims about the effectsof mandatory country-of-origin labeling, thereby identifying the most likely outcomes.Profits motivate firms to innovate and introduce thousands of new food products eachyear to satisfy consumers' demand. Yet, food suppliers have generally not emphasized,advertised, or labeled food with U.S. country of origin. The infrequency of "Made inUSA" labels on food suggests suppliers do not believe domestic origin is an attributethat can attract much consumer interest. We find little evidence that suppliers wouldhave difficulty supplying such labels if there were sufficient consumer interest.Keywords: country-of-origin labeling, consumer demand, meat, fruit and vegetables, fishand shellfish, peanuts.AcknowledgmentsThe authors appreciate the thoughtful and constructive comments provided by NicoleBallenger, Kenneth Clayton, Carol Goodloe, Mildred Haley, Joy Harwood, Daniel Pick,Warren Preston, Donna Roberts, Radwan Saade, Shayle Shagam, and David Stallings.The authors also wish to thank Dale Leuck and Carlos Arnade for contributing to our dis-cussion of the economics of labeling. Thanks also goes to Dale Simms and Cynthia Rayfor excellent editorial and production services. Any remaining errors rest with the authors.Barry Krissoff, Fred Kuchler, Kenneth Nelson,Janet Perry, and Agapi Somwaru**Krissoff, Nelson, Perry, and Somwaru are economists with the Market and Trade Economics Division;Kuchler is an economist with the Food and Rural Economics Division, Economic Research Service, USDA.For many years, various agricultural and consumeradvocacy groups have argued for legislation thatwould require food suppliers to provide consumerswith country-of-origin information about food prod-ucts. Among those favoring mandatory country-of-origin labeling (COOL) are several U.S. cow-calf pro-ducer and fruit and vegetable grower/shipper associa-tions.1These groups argue that many U.S. consumersprefer domestic products to imported. They claim con-sumers would use these labels to help alleviate theirfood safety concerns, to support U.S. producers, and toguide their preference for U.S. foods of a perceivedhigher quality. The recent instances of bovine spongi-form encephalopathy (mad-cow disease) in the UnitedStates and in Canada, labeling proponents argue, fur-ther emphasize the urgency of COOL. Domestic saleswould increase with labeling, proponents contend, andthis may translate into higher prices and increasedreturns to U.S. producers.Opponents counter that consumers have little interestin country-of-origin labeling; that the costs of labeling,recordkeeping and operating procedures necessary tosupport required COOL would be onerous, especiallyfor red meats (if individual animals must be traced);and that international trade agreements might be vio-lated. Opponents claim that Americans may wind upwith fewer food choices and that the costs of COOLwould be passed forward to consumers, raising foodprices (or backward to producers, raising their costs).U.S. cattle feeder and hog finishing operations, meatpackers, processors, and retailers have generallyopposed required country-of-origin labeling. TheCanadian government, on behalf of its cow-calf andfarrowed pig operations, indicated strong objections tomandatory country-of-origin labeling and apprehen-sion that labeling might reduce U.S. Canadian animaltrade (Crosbie, 2003).In 2002, Congress amended the AgriculturalMarketing Act of 1946 by incorporating COOL in theFarm Security and Rural Investment Act of 2002(Public Law 107-171, henceforth denoted the FarmAct or Law) and Supplemental Appropriations Act of2002 (Public Law 107-206). USDA issued specificguidelines for voluntary labeling in 2002 that are cur-rently in effect. USDA proposed mandatory labelingrules in October 2003. The Farm Act states thatmandatory COOL is to be promulgated no later thanSeptember 30, 2004.2However, in response to agrowing chorus of criticism, Congress recently agreedto delay COOL for 2 years to revisit some of the leg-islative requirements and perhaps make COOL volun-tary. The 2-year delay will apply to meats, produce,and peanuts, but not to farm-raised and wild fish.This report assesses the economic rationale behind thevarious claims about the effects of COOL, therebyidentifying the most likely outcomes. It containsanalysis and cost estimates previously published in theDepartment notices in the Federal Register (2003).2 Economic Research Service, USDAIntroduction1For a comprehensive overview of positions, see MandatoryCountry of Origin Labeling Hearings before the Committee onAgriculture, House of Representatives, www.agriculture.house.gov. 2See references for the Federal Register 2002 and 2003. The pro-posed rule is available on the Agricultural Marketing Service’sCOOL website at www.ams.usda.gov/cool. Public comments arewelcomed until February 27, 2004.Basic Details of Mandatory COOLThe Farm Act and the proposed rule would requirethat retailers identify legibly the country of origin onred meats (beef, lamb, and pork), fish and shellfish,fresh and frozen fruit and vegetables, and peanuts(covered commodities). In addition, fish and shellfishmust be identified as either wild or farm-raised.Retailers may use a label, stamp, mark, placard, orother clear and visible sign on the covered commodity,or on the package, display, holding unit, or bin con-taining the commodity at the final point of sale.Retailers need to indicate the specific country of originfor imported covered commodities including U.Scountry-of-origin products. COOL is not required if these foods are ingredients inprocessed food items.3Examples of processed fooditems under the proposed rule include bacon, orangejuice, peanut butter, bagged salad, seafood medley, andmixed nuts. In contrast, COOL would be required forcanned salmon, bagged lettuce, and canned roastedand salted peanuts since they are nonprocessed foodsfrom a single covered commodity. Foodservice estab-lishments are exempt from COOL requirements.Under the proposed rule, such establishments includerestaurants, food stands, and similar facitilities includ-ing those within retail stores (delicatessens and saladbars, for example). Moreover, grocery stores that havean annual


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UNCW BLA 361 - USDA re Country of Origin Labeling

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