Meatpackers Struggled to Sell Import-Labeled Beef

Daily Report for Executives provides in-depth coverage of unfolding legislative, regulatory, and judicial news from the nation’s capital, the states, and around the world. This daily news service...

By Llewellyn Hinkes-Jones

Feb. 2 — The cost of implementing country-of-origin meat labeling was not necessarily responsible for widespread discounting of imported cattle that forced lower prices on sellers, according to findings of a 2009 Agriculture Department investigation obtained by Bloomberg BNA.

Contrary to claims by meatpacking groups and cattle importers, the department's Grain Inspection, Packers and Stockyards Administration (GIPSA) found that reasons for the discounts were inconsistent and were partially based on a struggle to sell import-labeled beef to U.S. consumers.

Congress rolled back the labeling mandate in December as part of the omnibus spending law (Pub. L No. 114-113), in response to a World Trade Organization finding that the requirement unfairly discriminated against imports. Consumer and ranching groups have complained that Congress moved too quickly to repeal mandatory country-of-origin labeling (COOL), contending the decision was based on wildly exaggerated loss estimates from Canada and collusion within the meatpacking industry.

Even though the COOL regulations have been repealed, Canada still seeks $1.5 billion in retaliation through the WTO's Dispute Settlement Body since obstacles to Canadian beef and pork exports “remain pending implementation”.

Bill Bullard, a representative with the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America (R-CALF USA) called the decision a result of “monopolistic control of the marketplace by the meatpacking industry where four companies—Cargill Inc., Tyson Food Inc., JBS SA, and National Beef Packing Co. LLC—control 80 percent of the market.”

“Congress capitulated without diplomatic negotiations,” Bullard said. Patrick Woodall of Food & Water Watch said that U.S. meatpackers and foreign cattlemen's organizations have been working together to defeat COOL for some time, and they used the WTO process as an end-run around a domestic debate.

(Click image to enlarge.)

DRE graph 1 02032016

COOL Mandated in 2002 Farm Law

Congress mandated COOL in the 2002 farm law (Pub. L. No. 107-171), although final labeling standards weren't published in the Federal Register until Jan. 15, 2009. Interim labeling rules were implemented in late 2008 but the final rules became effective March 16, 2009.

In the original implementation, meat sold in the U.S. was required to carry one of four labels: A (beef born, raised, and slaughtered in the U.S.), B (born in another country but fed and slaughtered in the U.S.), C (born and raised in another country but slaughtered in the U.S.), or D (slaughtered in another country). The rules did not apply to prepared food, but solely to retail sales of unprocessed meat. Because of confusion over the A-D labels, the rules were updated in 2013 to designate where the animal was born, raised, and slaughtered.

WTO Dispute

Immediately after implementation, Canada and Mexico, the two largest exporters of cattle to the U.S., disputed the labeling laws through the WTO as a barrier to trade. Both countries blamed labeling for a sharp decrease in exports and a substantially lower cost paid for their livestock. Canadian Minster of Agriculture Gerry Ritz accused COOL of causing a 49 percent decline in feeder cattle exports to the U.S. from 2008-2009.

In July of 2015, the WTO made a determination of $1.05 billion in export revenue losses to Canada's cattle and hog industry, and $227 million to Mexico's based on econometric analysis. The U.S. challenged all of the allegations, claiming that the calculations were based on “unrealistic assumptions” and that the export revenue loss methodologies were fundamentally flawed and based on incomplete and unsubstantiated data. The U.S. attempted to explain the market changes on other variables—such as economic fluctuations and lingering effect of bovine spongiform encephalopathy (BSE) in Canadian cattle—but the WTO committee disregarded those additions.

CanFax, a research division of the Canadian Cattlemen's Association, told Bloomberg BNA that, while labeling may have had an effect, the major cause of declining Canadian cattle exports was a liquidation phase in the Canadian cattle cycle from 2005-2011. Because of a high U.S. dollar, rising feed costs, and an inflated inventory following the 2003 BSE investigation, Canadian feedlots were liquidating their inflated inventory through exports, and that liquidation occurred while COOL was implemented.

In 2008, the USDA predicted that Canadian exports would decline in 2009 because of diminishing inventory following the BSE discovery, high value of the Canadian dollar, and rising feed costs. Overall, COOL did not appear to effect total U.S. livestock imports since an increase of imports from Mexico made up for the lack of imports from Canada.

While importers reported cattle being discounted, the discounting may not have substantially affected overall prices for imported cattle. According to an analysis by C. Robert Taylor, professor of agricultural economics at Auburn University, the price difference between Canadian and U.S. slaughter cattle got smaller after COOL implementation.

Evidence of Widespread Discounting

The National Cattlemen’s Beef Association (NCBA) supported COOL repeal for “cost[ing] our livestock industry billions in implementation,” but the GIPSA report details numerous reasons for the discounting that did not necessarily include implementation costs. Meatpacking companies never gave a full quantitative reasoning for the discounts but various reasons included:

  •  Inability to sell import labeled meat to retailers or customers.
  •  Inability to label imported meat as branded or premium product.
  •  Limited number of processing facilities that would accept imported cattle.
  •  Paperwork and cattle separation costs.
  •  Costs of pausing production to alternate between labels for foreign and domestic cattle.
  •  Shipping problems as a result of processors only accepting cattle on certain days of the week.
  •  

    According to the investigation, explanations for the discounts were sometimes inconsistent—processors in Washington state were less likely to discriminate than those in Nebraska—and that the amount of the discounts varied widely.

    In 2010, the USDA proposed rule §201.94(b) that would have required packers to maintain records detailing the reasons for differential pricing, but packers lobbied against the regulation because it would cause additional record keeping and potentially eliminate premium pricing. The USDA never finalized the rule.

    (Click image to enlarge.)

    DRE graph 3 02032016

    Disputed Estimates for Cattle Separation

    Colin Woodall, a representative with NCBA, reported that the reason feedlots were discounting imported cattle, or simply not buying imported cattle, was to account for the costs associated with segregating, labeling, and filling out paperwork for imported stock.

    Such estimates for labeling paralleled estimates produced by Informa Economics that were included in the USDA report to Congress on COOL, which put the cost of implementation at $45.50 per head of cattle. Based on this analysis, labeling costs would be $1.3 billion for beef or $2.6 billion for all imported commodities per year.

    These estimates were criticized by the U.S. Trade Representative as based on erroneous methodologies and assumptions of wildly unreasonable increases in feeder cattle exports in a year. In the document, the USTR pointed out that Canada calculated its losses to be $1.61 billion annually even though the country's total export value for 2014 was only $1.744 billion. A separate regulatory impact analysis by the USDA placed COOL implementation costs at less than $10 per head of cattle or $373 million for the first year.

    Food & Water Watch's Woodall said the costs of COOL implementation were drastically overstated. “Its not as if cattle are just wandering around and happen to walk into a slaughterhouse,” he said. “Feedlots already segregate and label on a number of different factors. Additional costs should be incremental. It's already built into the system.”

    Debate Over Effect on Consumers

    In a lawsuit against the USDA over labeling, meatpacking groups, including the NCBA and the American Meat Institute, and Mexican and Canadian cattlemen associations, asserted that the consumer benefit from COOL was limited and that “beef is beef whether the cattle were born in Montana, Manitoba, or Mazatlan.”

    The NCBA also told BNA that “beef, as a commodity, is beef,” and that a recent Kansas State University study showed that country of origin labels had no effect on consumer purchases.

    But the GIPSA investigation detailed numerous reports of processors not taking imports because of the difficulty in finding retailers to accept imported meat. Roger Johnson, president, National Farmers Union also disputed NCBA's assertion, insisting that “every country has different standards for the beef they produce.”

    “Producers have different practices,” Johnson said. “Consumers know and trust the quality of the product that comes from U.S. beef producers.”

    To contact the reporter on this story: Llewellyn Hinkes-Jones in Washington at ljones@bna.com

    To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com