IBP's Position

On

Country of Origin Labeling

Before The

Senate Committee on Agriculture, Nutrition and Forestry

Wednesday, May 26, 1999

IBP, inc., the nation's largest producer of fresh red meat, appreciates this opportunity to express our concerns regarding possible legislation mandating country of origin labeling for meat.

IBP strongly believes country of origin labeling goes against the tenants of the North American Free Trade Agreement (NAFTA) and the recent rulings of the World Trade Organization (WTO), both designed to promote the premises of free trade and to promote commerce. This labeling requirement, if passed, would be a trade impediment similar to what the European Union (EU) has placed on United States meat products with their ban on non-hormone free meat. The United States is currently poised to take retaliatory actions against the (EU) for their actions. If the U.S. enacts country of origin labeling laws, we will expose our exporting efforts to more trade barriers, such as we see with the current EU situation.

A recent Beef Today article (March 1999) pointed out that while the United States exports eight percent of the beef it produces (on a tonnage basis), it earns 12 percent of the value because export sales represent a high-value mix of products. On the other side of the coin, the value of exports exceeds the value of imports because imported product is mostly lower-value, high lean manufacturing beef needed to blend with fatter U.S. trimmings in order to make lean ground beef. While, the U.S. beef industry produces less fat trimmings today than in the past, we still produce a large quantity that needs the imported lean beef to upgrade the fat trimmings for use in ground beef. Without free use of these imports, the value of U.S. fat trimmings will be greatly reduced. Even the United States Meat Export Federation (USMEF) states that United States cannot supply the U.S. demand for ground beef and imports are necessary to compensate for the lack of lean trimmings necessary to meet the domestic ground beef demand.

Chuck Lambert, National Cattlemen's Beef Association (NCBA) economist, was also quoted in the same article as saying, "The U.S. beef market is probably the most open market in the world. That means the NCBA and other policy makers need to continue to press for access to the European market and the emerging Chinese market, and to other markets where the consumer base offers a large, growing demand for beef. The export market [is important because it] allows us to move products to markets offering the best value."

Here we are on one hand stressing the need to open markets for our exports, but on the other hand we are looking at ways to restrict imports, through such things as country of origin labeling. These activities cannot occur without trade repercussions in our already established foreign markets.

Under most international agreements, products that are substantially transformed become a product of the country where the processing or manufacturing occurs under that country's inspection requirements. What is being proposed even applies to live cattle. A calf born in the United States, raised in Canada and processed into beef in the United States, becomes a Canadian product, while a calf born in Mexico, raised in the United States and processed in the United States becomes a United States product.

The end result is the same; both animals were processed in the United States. Yet, one package of meat would be labeled "Made in the USA," even though the animal came from Mexico, while the other would be labeled "Made in Canada," even though that animal was "Born in the USA" - some where the logic is missing on this.

Some of the comments on the need for country of origin labeling come from the belief that the Canadians are "flooding" the U.S. with fed cattle thus "driving" down the price paid for U.S. fed cattle. According to John Nalivka of Sterling Marketing, a firm well known in the industry for its extensive research on livestock economics, writes in Feedstuffs (August 1998) that the county of origin labeling will not increase beef demand or drive up cattle prices.

In reality, the impact would be twofold. Initially, there would be decline in Canadian cattle coming south for slaughter, which would cause prices to decline in Canada, but increasing in the U.S. for the short term. This would cause U.S. beef packers to operate (in certain locations) at an uneconomical level of capacity. This in-turn hurts packers, especially since the number of animals in the U.S. herd is decreasing because of herd liquidation. The Pacific Northwest is one area where cattle imports are critical. The U.S. cattle supply to the plants located there only allows those plants to operate at 65 percent of capacity. With Canadian cattle, those same plants can maintain an 83 percent level. A constant reduction in cattle supplies to these plants will eventually force these plants to close creating the situation for cattlemen in the Northwest of "Where do I sell my cattle now?"

The other aspect of this labeling scenario, according to Nalivka, is that prices would decline for Canadian cattle as supply outpaces demand leading to lower prices throughout the Canadian beef complex. This would force Canadian cattle back south into the United States where the market is stronger or force the Canadians to increase their export efforts and provide the same quality meat, as produced in the United States, to foreign markets at a cheaper price than comparable U.S. meat exports.

This proposed legislation could cause the Canadians to establish a "Canadian Brand" identity program who would then focus promotion dollars on competing for the same customers that domestic beef does now. Since Canadian and U.S. beef compare evenly in eating quality (same breed mix and feeding practices), a Canadian specific marketing campaign could be very successful. An example of this is the recent success by a South American country to sell beef in the United States.

Some would lead you to believe that there is a difference in quality or safeness between Canadian and U.S. meat. By U.S. law, imported meat is required to meet U.S. standards in order to enter U.S. commerce. The Canadian meat inspection system and the U.S. system are very comparable. Neither U.S. consumers, nor U.S. government inspectors, can find any difference in the quality or wholesomeness between U.S. and Canadian beef. Surveys that indicate consumer support for country of origin labeling fail in that the surveys don't explain to the consumer that USDA mandated procedures to inspect foreign meat processors insures equivalent inspection practices and controls for border entry of non-U.S. meat already exist for the consumers' safety and protection.

The Food Marketing Institute (FMI) and the American Meat Institute (AMI) report the cost to the industry, consumers and taxpayers is more than a billion dollars a year for country of origin labeling for meat alone. A pretty high cost when research (conducted by Market Facts for FMI) has shown that country of origin labeling is not a primary concern of consumers, it provides no meaningful benefits and could result in trade barriers for our own products. The survey sample group was adult grocery shoppers.

It would be almost impossible to fully describe the impact on the food service and fast food industry, especially when a significant portion of the ground beef sold in the United States has been blended with "foreign trimmings" in order to raise the fat to lean ratio to the current acceptable percentage. Some days they might buy Canadian and U.S. blended product and other days they might not. Would they then have to continually change their menus to reflect if the hamburgers they sold were American or Canadian? What if they ran out of U.S. ground beef and had to use "Canadian" ground beef? The confusion would be endless.

Where is it all going to end? Even the pork producers who have suffered through the worst prices in history have unanimously rejected country of origin labeling. They feel, and rightly so, that the increased packer, processor and retail costs will be passed back to the producer in the form of lower hog prices. They feel that aggressive overseas marketing will be more beneficial to the industry than country of origin labeling.

If country of origin labeling of meat was such a great idea, why hasn't someone exploited the idea? There is nothing in the law that would prohibit a voluntary program to take advantage of this unique marketing opportunity. We are sure that if this had a potential to increase someone's profits, somebody would have done it by now with the others soon to follow.

What is needed is an amendment to the Federal Meat Inspection laws that expands the current federal pre-emption to include a prohibition on country of origin labeling requirements on wholesalers and retailers by states and local governments. Several states have enacted state laws on country of origin label in the mistaken believe that they are helping the beef and pork producers when in reality it will probably be just the opposite. By creating a patchwork of different laws, it will make the marketing of beef and pork more difficult and creates demand problems. We will simply be adding costs, creating enormous industry inefficiencies and creating confusion and concern on the name of protectionism.

In conclusion, there is no tangible benefit to the American consumer and in the long run the cattle and hog producers will be the ones who will suffer. We urge you not to pass country of origin labeling.