The mandatory country-of-origin labeling (COOL) provision of the farm bill received a failing grade during two sessions at World Pork Expo (WPX).
The report card on the potential impact of COOL just keeps getting worse. Pork industry leaders say it will likely eat away newfound profits, send exports into a prolonged dive, and could ultimately bankrupt thousands of independent producers.
At a WPX press conference, National Pork Producers Council (NPPC) President Jon Caspers proclaimed: “If mandatory COOL is implemented, it will have a dramatic effect on the competitive position of the U.S. pork industry in world markets, and will end a string of 11 record-setting years for increasing U.S. pork exports around the world.”
Two COOL Scenarios
The impact of COOL on pork trade takes into account two implementation scenarios — full traceback or a certification-with-audit system, says Caspers.
He points out that the law prohibits imposing a mandatory animal identification system, which would be needed to roll out a full traceback program. But it doesn't stop retailers, packers and processors from demanding it of its suppliers.
Agricultural economists Dermot Hayes of Iowa State University and Steve Meyer of Paragon Economics predict that a full traceback system, like the one employed in the European Union, will increase farm production costs by $10.22/head or about 10%.
In this case, every pig born, raised and slaughtered in the U.S. (94.5 million animals in 2002) would be subject to full traceback. Canadian-born pigs bound for the U.S. would be subject to traceback; 5.7 million head were sent south in 2002.
A more likely means of implementing COOL, says Caspers, is through a certification-with-audit system. “Producers would certify to their packer or market what the country of origin of those animals is. Then producers would have to have some documentation or proof of certification.”
A report by the Food and Agricultural Policy Research Institute (FAPRI), a joint arm of Iowa State University and the University of Missouri, forecasts the impact of COOL on U.S. pork trade using three scenarios (Figure 1).
The first scenario uses a baseline, the second is tied to full traceback and the third is based on certification. The analysis projects that COOL will impact pork exports as early as this year, as Canada prepares for implementation of the rule.
“The 10% higher costs of a full traceback system will cause U.S. pork exports to remain near current levels through 2011, instead of growing by about 30%, assuming no additional costs were imposed on U.S. producers,” states the FAPRI report. U.S. producers would only capture growth in the domestic market. Canada, which will be able to take advantage of higher production costs resulting from COOL, will capture virtually all of the growth in international pork trade.
Under the certification-with-audit plan, U.S. pork exports are forecast to actually decline through 2011, as Canada will find other outlets for its live pigs, and possibly pork products traditionally shipped to the U.S. Short-term, Canadian weaned pigs fed out at home will be worth $16.50/head less, according to the FAPRI study. And prices for all Canadian hogs will be depressed as U.S. packers reject Canadian hogs due to increased segregation and certification costs. Those prices in Canada are expected to rebound as packers move to double-shift slaughter operations and more pigs are finished domestically.
Also, with the certification-with-audit scenario, Canadian production will decline, but not as much as Canadian pork exports to the U.S. Those fresh pork exports will therefore be freed up, and will be diverted into foreign markets, displacing U.S. products.
Observes Caspers: “The implementation of a certification-with-audit system is a lower cost system, but actually the impact on exports will be greater because of the dynamics in the marketplace. How Canada responds to those economics means we will actually see exports drop by over 50% over the rest of the decade into 2011. So COOL is going to have a huge impact.”
COOL dominated discussion at an NPPC-sponsored agricultural trade roundtable at Expo.
Sen. Tom Harkin (D-IA) sparred with the panel and audience over his unwavering support of a mandatory COOL program.
“I'm supporting it as I did in the farm bill. I believe the provisions we put in there for farmer certification can work, and it would give our consumers the right to know where their products are coming from,” he observed.
Rep. Phil Latham (R-IA) responded that he has asked 100 producers on both sides of the issue whether COOL is going to put one more dime in producers' pockets.
“I have not heard one comment to that effect, and to me that is the fundamental question,” he asserted. He says it is time to take a step back and consider ways to maintain a voluntary program.
Implementation of a mandatory program will decimate profit margins for many of our producer customers, said Greg Gates, director of swine marketing, Sioux Nation Marketing. Sioux Nation facilitates the purchase of about one million segregated early weaned pigs annually fed out by independent producers in six Midwest states; 90% of those pigs are under packer contracts. Sixty percent of pigs are purchased in the U.S. and 40% are from Canada. Death loss on U.S. pigs is 6%, with 3% on Canadian pigs, he said.
NPPC President Caspers believes mandatory COOL must be overturned in this session of Congress. A late-June hearing was held in the House of Representatives to start that process.
“I think once Congress has evaluated all of the facts, they will see that COOL is quite devastating to a number of industries,” he says.”
Producers Echo Concerns Over COOL
A group of pork producers and NPPC board members echoed concerns over the impact of COOL at a WPX news conference.
Joy Philippi of Bruning, NE, admitted that when COOL was first proposed, many Nebraska producers, including herself, favored it. But once it became evident that extra costs would be attached, they all changed their minds.
“We cannot afford to have any extra costs put in our production system right now,” she declared. “We are just to the point now that we are starting to see some profits, and those profits are going back into equity that we have lost over the past few years.”
Nebraska producers also don't want the extra burden of identification and recordkeeping, which may be required under COOL, she said.
Steve Schmeichel of Hurley, SD, said that in the north central part of the U.S. where he lives, there is naturally a lot of concern over the growing influx of Canadian hog imports. “At first, we felt this was a way to keep Canadian pigs from coming down.”
But, he added, South Dakota producers soon changed their tune when they learned of the injustices in COOL. Poultry is excluded, even though the rule is supposed to encompass all protein products. Foodservice is also excluded, even though 55% of consumer's meals are purchased at foodservice establishments.
Jim Quackenbush of Chokio, MN, related his involvement in a company called Minnesota Certified Pork, comprised of a small group of producers who briefly sold niche pork products to retail stores in the Twin Cities.
“We spent about two years developing our business plan, incorporated an auditing system, and calculated the increased production cost in our system at 10%. The costs of our products at retail also increased to cover the added segregation costs. But none of this money came back to the farmer. We never recovered any of our added costs,” he said.
Similarly, COOL has the capability of adding to producer costs without any returns on the profit side, said Quackenbush.