Mandatory Country-of-Origin Labeling: A Short-Sighted, Protectionist Scheme

By Philip C. Olsson and John G. Dillard

November 23rd was a significant date for the livestock and meat industry. After more than a decade of lobbying, litigating, and haranguing, all fresh cuts of beef, pork, lamb and chicken sold in retail establishments must bear a label stating the country (or countries) where each animal supplying meat in the package was born, raised, and slaughtered. Known as mandatory Country-of-Origin Labeling (mCOOL), this new, onerous labeling requirement is a long-sought victory for the protectionist fringe of the U.S. beef cattle industry.

Prior to the implementation of the mCOOL legislation, beef and beef products were subject to the generic country of origin labeling requirements which apply to all processed products, both foods and non-foods, that is that the label should designate the place of most recent substantial transformation as the place of origin. For beef and pork, where the animals were born and/or fed in Canada or Mexico, but slaughtered and processed in the United States, this traditional rule has allowed the United States to be designated as the country of origin.

We are all familiar with the country of origin labeling which applies to fruits and vegetables, each of which usually bears a small, sticky label identifying the single country where it was cultivated, harvested and processed. It is not unusual to visit a supermarket’s produce department and see tomatoes from the United States, Canada, Guatemala, Mexico and the Netherlands displayed separately, side-by-side.

On its face, the mCOOL regulation appears rather innocuous. Retailers are simply required to denote the country where the derivative animal was born, raised, and slaughtered. However, the behind the scenes efforts that are necessary to allow retailers to comply with this labeling requirement are anything but simple. Prior to the implementation of mCOOL, meat processors “commingled” meat products with different country of origin designations in a single shipment to retail customers. On a given day, a large packing plant might process 2,000 carcasses of similar age and quality with anywhere from 100 to 800 of those carcasses attributable to animals born and/or fed in Canada or Mexico. Since these carcasses are not separated out on the production line, the various cuts of meat from these carcasses are commingled when they are packaged for shipment to retailers.  This has been a standard industry practice because, unlike various physical attributes such as age, leanness and fat cover, political boundaries do not have a material bearing on the quality, safety, or taste of meat products. However, despite a long history of “commingling” products with different country of origin designations, the new mCOOL rule does away with this practice.

The ban on commingling will cause dramatic reverberations for the beef and swine industry that will unnecessarily increase costs that will be passed along to consumers. Feedlots will be required to maintain additional records and segregate livestock based on country of origin. Processing plants will have to do separate production runs based on an animal’s country of origin designation. These processing plants will also have to use extra cold storage space to allow for segregation of finished product by country of origin. Retailers will want to purchase product with consistent country of origin labeling, which will mean that packing houses will need to contract for and process meat with the same geographical origin, day after day and month after month. This will be a strong incentive for retailers to demand that packers provide beef and pork from a single country of origin, which will lead to the loss of work and  jobs at packing houses near the borders with Canada and Mexico, which have traditionally shipped commingled products to their retailer customers. The alternative for the retailer would be to build extra SKUs into their inventory management systems to account for the different labels under the new mCOOL Rule, something which would likely be both cumbersome and costly.

These extra costs are not the unintended consequences that were overlooked when the commingling ban was put into place. Instead, these extra costs are the rather deliberate consequences forced on the livestock and meat industry via the seemingly innocuous mCOOL regulation. That is because the costs of compliance with mCOOL provide a clear incentive to avoid processing Mexican and Canadian livestock. Retailers do not want to provide extra shelf space for different label designations, packers do not want to have separate production runs or extra storage space, and stockyards do not want to undertake the burden of segregating livestock with various countries of origin. The new mCOOL regime picks winners and losers, and the clear winner is meat from animals that are born, raised, and slaughtered in the United States.

Many do not see a problem with this. American beef and pork producers grow a great product and take pride in their work. mCOOL helps to protect them from competition with our neighbors to the north and south. However, this is a short-sighted view which will cause harm to livestock demand that will greatly outweigh any benefits resulting from discriminating against foreign livestock. The U.S. cannot raise all of the beef and pork that its packers process domestically. Packers, especially those near our northern and southern borders, rely on Canadian and Mexican cattle and swine to even out seasonal fluctuations in supply. With a reduced market for meat not bearing a “Born, Raised, and Slaughtered in the United States” label, these packers will have to pay a premium for domestic livestock – exactly as the crafters of mCOOL intended. Large packers may follow Tyson’s lead and decide to not slaughter Canadian cattle at all. Smaller, single-plant packers will have to decide whether they can remain in business with this cost squeeze.

Supporters of mCOOL are careful not to designate these labeling requirements as a protectionist measure. Instead, they frame mCOOL as a measure that provides consumers with more detailed information regarding where their food comes from. mCOOL supporters have received a relative pass from the popular press regarding the specifics of the regulation because the supporters have couched the regulation as furthering the consumer’s “right to know.” Ironically, many of the strongest advocates for mCOOL were also parties and amici in Ranchers Cattlemen Action Legal Fund United Stock Growers of America v. United States Department of Agriculture 415 F.3d 1078 (9th Cir, 2005), where the Court of Appeals struck down an injunction which these parties had obtained from the United States District Court in Billings Montana (2004 WL 1047837), to keep the Canadian border closed to imports of Canadian cattle. It seems clear that many of the producer parties and amici are protectionists at heart. Their protestations regarding the consumer’s “right to know” about where cattle and hogs are born or fed are unpersuasive, because nothing in current law has prevented voluntary labeling of U.S. product to provide such information on a voluntary basis. If consumers were really interested in knowing these things, they would have created a market for this kind of more detailed labeling.

The fundamental flaw in the mCOOL supporters’ logic is the presumption that competition in the beef industry is a contest between U.S. producers and foreign producers; the real competition in the beef industry is between beef and cheaper forms of protein. While mCOOL does shield domestic producers from foreign competition, it does not insulate beef producers from the consumers that decide whether to purchase their product or not. mCOOL will tighten beef and pork supplies. This will, in turn, increase the price of meat for consumers. Faced with higher prices, consumers often turn to lower cost forms of protein, choosing pork, chicken, or turkey over beef. The retail price of beef is already high due to elevated grain prices and short supplies recovering from the 2012 drought – the added costs of mCOOL will only serve to further nudge beef prices higher and further weaken demand. Ultimately, some of the most ardent supporters of mCOOL, disaffected beef producers, may prove to be the biggest victims of mCOOL.