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Little Wiggle Room in Mandatory COOL

29 May 2013

US - The bad rule that became worse is now final. That is the most succinct way I know to describe the final mandatory country-of-origin labeling (COOL) rule that USDA announced on Friday, writes Steve Meyer in the National Hog Farmer.

The final rule contains no substantive changes from the proposed rule issued in March. It will require all covered products to specify where each production step (birth, raising and slaughter) takes place. That applies even to product from animals that spend their entire lives in the United States. There will be no “product of the USA” label for covered meats.

The only change USDA made was a revision of the estimated costs of the proposed rule with the mid-point estimate now at $123.3 million. USDA points out that these costs will be “. . . incurred by intermediaries (primarily packers and processors of muscle cut covered commodities) and retailers. . .” As usual, USDA does not recognise that consumers pay all costs in the long run, which means that this COOL rule will raise the cost of already-expensive muscle cut proteins to US consumers.

The rule is effective now, thus meeting the May 23 deadline set by the World Trade Organization (WTO) for the United States to comply with its findings that the original mandatory COOL program violated our duties under trade agreements. USDA says it will conduct an industry education program over the next six months, thus allowing covered entities time to comply with the new rule.

Industry organizations had requested at least one year to allow time for WTO to render its decision about the sufficiency of the new rule in meeting our trade obligations. Canada and Mexico have both said they believe the rule does not solve the problem of treating imported product differently than domestic product.

There should not be much trouble in complying with the labels, as it appears that current records systems will be sufficient to prove compliance. Therefore, there should be no change in the affidavit system now in place. Those packers who have handled Canadian-born pigs fed in the United States already have two sets of stock-keeping units (sku’s) and two labels, “product of the US” and “product of the US and Canada.” While physical labels and boxes will have to be changed, computer systems can be changed to say “born, raised and slaughtered in the US" and “born in Canada, raised and slaughtered in the US” for those two classes of pigs. There are two labels and two sets of sku’s before and the same after. I know there are a lot of details to come but that much seems pretty clear.

Plants that have slaughtered Canadian-fed market hogs have had the additional label, “product of Canada and the US,” which can be changed to “born and raised in Canada, slaughtered in the US” Again, the number of labels and sku’s do not change unless these plants were lumping all pigs under the multi-country label, something they were not supposed to do anyway.

Problems arise on two fronts: segregation costs and timing. Where the old rule allowed some co-mmingling of pigs under the multi-country labels, this plan requires strict separation. That means some companies are not going to use Canadian-origin pigs. The ones that do will have to group them together far more than they have in the past, which means less flexibility for delivery times. Both of those increase the cost of handing Canadian-origin pigs for both packers and producers and will likely result in larger price discounts. Neither of those requirements strikes me as “lessening” discrimination against Canadian-origin pigs which are, by the way, virtually identical to US pigs. I would argue they once were, in fact, better than US pigs, though I think that gap has been closed in recent years.

Timing is an even bigger issue. As it stands, US packers and retailers will have to comply with this rule and label every covered product by Nov. 23. No one knows exactly how WTO will rule, so covered parties will have to proceed as if this rule will stand. I see very little wiggle room at this point. That means that weaned pigs brought into the United State in late June will be subject to the more specific labeling.

Does anyone know what to pay for those pigs given the possibility that a) your packer may not buy them, and b) even if he does, it will likely be at a discount yet unknown vs. prices paid for US-origin pigs? My strategy would be to cover myself for potentially large discounts or freight costs, meaning bids for Canadian pigs might fall almost immediately. And should WTO find the new rule is insufficient, those discounts would have been applied in error!

Let’s hope the WTO decision comes soon. I don’t know enough about WTO thinking or decision-making to assign any odds, but I do know that waiting to allow some certainty would have been a much better course of action by USDA. Is anyone surprised they chose otherwise?

As published in National Hog Farmer's Weekly Preview.

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