Electronic Outlook Report from the Economic Research Service United States Department of Agriculture WRS 04 02 January 2004 www ers usda gov Country of Origin Labeling Theory and Observation Barry Krissoff Fred Kuchler Kenneth Nelson Janet Perry and Agapi Somwaru Abstract This report examines the economic rationale behind the various claims about the effects of mandatory country of origin labeling thereby identifying the most likely outcomes Profits motivate firms to innovate and introduce thousands of new food products each year 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 in USA labels on food suggests suppliers do not believe domestic origin is an attribute that can attract much consumer interest We find little evidence that suppliers would have difficulty supplying such labels if there were sufficient consumer interest Keywords country of origin labeling consumer demand meat fruit and vegetables fish and shellfish peanuts Acknowledgments The authors appreciate the thoughtful and constructive comments provided by Nicole Ballenger 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 discussion of the economics of labeling Thanks also goes to Dale Simms and Cynthia Ray for excellent editorial and production services Any remaining errors rest with the authors 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 Introduction For many years various agricultural and consumer advocacy groups have argued for legislation that would require food suppliers to provide consumers with country of origin information about food products Among those favoring mandatory country oforigin labeling COOL are several U S cow calf producer and fruit and vegetable grower shipper associations 1 These groups argue that many U S consumers prefer domestic products to imported They claim consumers would use these labels to help alleviate their food safety concerns to support U S producers and to guide their preference for U S foods of a perceived higher quality The recent instances of bovine spongiform encephalopathy mad cow disease in the United States and in Canada labeling proponents argue further emphasize the urgency of COOL Domestic sales would increase with labeling proponents contend and this may translate into higher prices and increased returns to U S producers Opponents counter that consumers have little interest in country of origin labeling that the costs of labeling recordkeeping and operating procedures necessary to support required COOL would be onerous especially for red meats if individual animals must be traced and that international trade agreements might be violated Opponents claim that Americans may wind up with fewer food choices and that the costs of COOL would be passed forward to consumers raising food prices or backward to producers raising their costs U S cattle feeder and hog finishing operations meat 1 For a comprehensive overview of positions see Mandatory Country of Origin Labeling Hearings before the Committee on Agriculture House of Representatives www agriculture house gov 2 packers processors and retailers have generally opposed required country of origin labeling The Canadian government on behalf of its cow calf and farrowed pig operations indicated strong objections to mandatory country of origin labeling and apprehension that labeling might reduce U S Canadian animal trade Crosbie 2003 In 2002 Congress amended the Agricultural Marketing Act of 1946 by incorporating COOL in the Farm Security and Rural Investment Act of 2002 Public Law 107 171 henceforth denoted the Farm Act or Law and Supplemental Appropriations Act of 2002 Public Law 107 206 USDA issued specific guidelines for voluntary labeling in 2002 that are currently in effect USDA proposed mandatory labeling rules in October 2003 The Farm Act states that mandatory COOL is to be promulgated no later than September 30 2004 2 However in response to a growing chorus of criticism Congress recently agreed to delay COOL for 2 years to revisit some of the legislative requirements and perhaps make COOL voluntary 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 the various claims about the effects of COOL thereby identifying the most likely outcomes It contains analysis and cost estimates previously published in the Department notices in the Federal Register 2003 2 See references for the Federal Register 2002 and 2003 The proposed rule is available on the Agricultural Marketing Service s COOL website at www ams usda gov cool Public comments are welcomed until February 27 2004 Economic Research Service USDA Background Basic Details of Mandatory COOL The Farm Act and the proposed rule would require that retailers identify legibly the country of origin on red meats beef lamb and pork fish and shellfish fresh and frozen fruit and vegetables and peanuts covered commodities In addition fish and shellfish must be identified as either wild or farm raised Retailers may use a label stamp mark placard or other clear and visible sign on the covered commodity or on the package display holding unit or bin containing the commodity at the final point of sale Retailers need to indicate the specific country of origin for imported covered commodities including U S country of origin products COOL is not required if these foods are ingredients in processed food items 3 Examples of processed food items under the proposed rule include bacon orange juice peanut butter bagged salad seafood medley and mixed nuts In contrast COOL would be required for canned salmon bagged lettuce and canned roasted and salted peanuts since they are nonprocessed foods from a single covered commodity Foodservice establishments are exempt from COOL requirements Under the proposed rule such establishments include restaurants food stands and similar facitilities including those within retail stores delicatessens and salad bars for example Moreover grocery stores that have an annual invoice value of less than 230 000 for fruit and vegetables are exempt from all
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