Statement of
Dan Glickman
Secretary
U.S. Department of Agriculture
Before the Senate Committee on Agriculture, Nutrition and Forestry
Hearing to Examine Issues Affecting the Livestock Industry, Including Mandatory Price Reporting and Country of Origin Labeling
May 26, 1999
Mr. Chairman and Members of the Committee, good morning. I am pleased to appear before you today to discuss two significant initiatives for our nation's livestock industry: mandatory price reporting of livestock prices and country-of-origin labeling of livestock products.
Farmers and ranchers in almost every sector of agriculture are experiencing tremendously difficult economic times, and the outlook for most commodities over the next year or two is not very bright. The Clinton Administration is committed to working with Congress to find appropriate responses to soften the blow of these hardships. From improving risk management, to working to open new world markets, to ensuring that farmers have full and fair access to credit, the Administration is strongly committed to making sure U.S. farmers and ranchers prosper in the 21st century.
Ensuring Transparency In An Increasingly Concentrated Economy
I share the concerns a growing number of farmers and ranchers have about increasing economic concentration and consolidation, from railroads to the seed and biotechnology industries. Every month or so, it seems that another major merger is announced: Cargill-Continental, Dupont-Pioneer, Farmland-Cenex. Not every one of these mergers will hurt farmers and ranchers; big is not necessarily bad.
But many in the agricultural community believe that today's low prices and difficult economic times are, at least in part, the result of this trend of consolidation and concentration in their respective industries. Put simply, there is a fundamental sense among many family farmers and ranchers that the market is stacked against them, and that Congress and the Administration need to level the playing field if they are to survive.
I have been actively engaged in this issue for several years, I established an Advisory Committee on Agricultural Concentration (Concentration Committee) and then implemented several new policies in response to its recommendations; I opposed the Union Pacific-Southern Pacific merger; I restructured the Grain Inspection Packers and Stockyards Administration (GIPSA) so it can more aggressively protect against unfair trade practices in the livestock industry. But, there is clearly more that needs to be done to address concentration and consolidation.
These concerns may be strongest in the livestock industry. In the beef industry, for example, four meat-packers now control over 80% of the steer and heifer slaughter. Also, we are witnessing a substantial restructuring of the U.S. hog industry. Since 1967, the number of hog operations has declined from a little over 1 million to approximately 114,000, a decline of 90%. Hog operations with more than 2,000 hogs now represent just under 6% of producers, but account for almost two-thirds of our nation's entire hog inventory.
More farmers raise their livestock under marketing contracts with a small number of processors, changing the very nature of business relationships in the industry. When firms use private marketing arrangements, the prices and terms of sale are not publicly disclosed. This makes it difficult and risky for farmers to utilize cash markets to determine what is a fair market price. More importantly, many farmers contend they are unable to obtain adequate market information that would enable them to assess packer's bids and therefore negotiate the best price for their livestock. This lack of price transparency creates an imbalance in information that can limit market choices for farmers, especially small-scale farmers.
Currently, the Agricultural Marketing Service (AMS), under the Agricultural Marketing Act of 1946 (AMA), collects on a voluntary basis and promptly releases reports on livestock and meat prices and other related market information. AMS' disseminates market news reports in written and electronic formats, via daily, weekly, monthly and annual reports on sales of live cattle, hogs, sheep and lamb, and on wholesale meat products. Because these market reports rely on the voluntary reporting of feedlots, packing plants, and individual buyers and sellers, they do not reflect all sales transactions, especially those sales being conducted through private marketing contracts. The key question is whether our voluntary price reporting system is performing adequately. For example, a 1998 GIPSA investigation of Western Cornbelt hog procurement practices discovered that the daily prices reported by AMS generally were lower than the actual prices being paid by four large meat packers.
While USDA has made a number of improvements in our voluntary market reporting programs in response to the Concentration Committee's report and in response to this investigation, USDA strongly believes that a relative lack of market transparency continues to affect adversely the ability of independent family farmers and ranchers to determine the fair market value of their commodity. I believe Congress must provide USDA with mandatory price reporting authority to provide a satisfactorily transparent market for America's farmers and ranchers.
While the Administration has supported previous congressional efforts to enact mandatory price reporting legislation, the Administration recently submitted its own legislative proposal to Congress, entitled the "Department of Agriculture Livestock Reporting Act of 1999". As Vice President Gore announced on April 8, 1999, "In today's market conditions we need to improve the accuracy of our livestock reporting system so family farmers and ranchers can compete on a level playing field. Our legislation gives USDA authority to work with producers to make sure that we get them the most valuable information, so they'll have a fuller, more timely picture of what's happening in the market place."
USDA's proposal would amend the Agricultural Marketing Act of 1946 (AMA) to give USDA permanent authority to require any person engaged in the business of buying, selling, or marketing livestock, livestock products, or unmanufactured meat or meat products to report the prices of their transactions to USDA market news reporters. With this authority, USDA could, through notice and comment rulemaking, tailor the price reporting program to the needs of various sectors of the livestock industry and would be able to change reporting requirements as the industry structure and needs change. Moreover, all participants in the agricultural economy would be able to participate with USDA in a public process to determine the details of the reporting requirements, including who would be required to report, what must be reported, and the format for the reporting.
The Administration's legislative proposal also provides adequate enforcement authority that would enable USDA to act quickly to address incidents of non-compliance. This enforcement authority includes keeping the reporting and enforcement functions within one agency (AMS), authority to assess civil penalties for non-compliance, and authority to seek temporary or permanent injunctions if the situation warrants.
The Administration understands that there are a number of other proposals that have been introduced in Congress or that are being developed by various sectors of the industry. And USDA has participated informally in many of these efforts. Given this widespread interest, the Administration hopes this Congress will enact comprehensive mandatory price reporting legislation. I believe that any mandatory price reporting legislation should meet the following general criteria:
First, the details of the program should be developed through an open, public process, so that all interested parties, particularly, family farmers and ranchers, can fully participate in its development. That's why the Administration proposes in its bill to develop the details of its program through a rulemaking process with meaningful opportunity for public participation. Second, while I appreciate the desire to lock in specific reporting provisions, I also strongly believe that the program should be sufficiently flexible to allow for changes as the industry and the needs of producers change. Third, legislation must also include sufficient enforcement authority and adequate funding to ensure full compliance with the price reporting requirements. Fourth, and most importantly, mandatory price reporting legislation must result in a program that is clear and understandable to family farmers and ranchers so that the market in fact becomes more transparent and they can use the information to improve their ability to get a fair price in the market.
Mr. Chairman and Members of the Committee, if we are to help restore producers faith in the fairness and openness of the market, Congress must enact mandatory price reporting legislation. The Administration looks forward to working with the Congress and the agricultural industry to achieve these goals.
Country of Origin Labeling
Like mandatory price reporting, there are strong feelings in farm country about the need for country of origin labeling. Many farmers and ranchers believe that American consumers have a right to know where their meat products come from, and that, if given the choice, American consumers would buy domestic rather than imported product, benefiting domestic producers. Some in industry, on the other hand, argue that country of origin labeling would impose excessive costs, threaten U.S. exports, and would not improve food safety. I would like to briefly lay out some background material for the Committee before talking about my perspective on these issues.
Country of Origin Labeling Is Not A Food Safety Issue
I must stress at the outset that country of origin labeling is a marketing issue, not a food safety issue. USDA's Food Safety and Inspection Service (FSIS) ensures that imported meat is as safe as domestically produced meat. FSIS requires imported meat to be inspected under a system that FSIS has determined --through a rigorous and comprehensive process -- to be equivalent to the U.S. system. Perhaps most importantly, all foreign plants exporting meat to the U.S. must meet the requirements of the Hazard Analysis and Critical Control Points (HACCP) inspection system. Then, upon arrival at a U.S. port of entry, all meat shipments are subject to FSIS reinspection. Almost all imported products, about 85 percent, then proceed to a U.S. plant for further processing into value-added products -- all under FSIS inspection.
FSIS has certified only 37 countries as meeting U.S. inspection standards. According to data from USDA's Economic Research Service (ERS), imported fresh muscle cuts of beef constitute about 1.4 percent of the total domestic beef consumption. This figure would nearly double to about 2.8 percent if one were to include muscle cuts from live animals imported directly for slaughter as imported product. On the other hand, about 24 percent of U.S. lamb consumption is imported product.
Currently, only 11 countries export fresh beef to the U.S., Argentina, Australia, Canada, Costa Rica, Guatemala, Honduras, Japan, Mexico, New Zealand, Nicaragua, and Uruguay. Australia, Canada, and New Zealand account for the vast majority; imports from other countries are negligible. For lamb and mutton, only six countries export to the U.S., Australia, Canada, Costa Rica, Iceland, Mexico and New Zealand. Nearly, 100 percent of imported lamb and mutton comes from Australia and New Zealand, and much of that is already labeled as to country of origin. Australia and New Zealand each account for about 50% of imports.
Imported carcasses and parts of carcasses must be labeled with the country of origin when it is presented for import. In most cases, however, industry does not keep that information with the product as it is processed in the U.S., and it therefore does not appear on the retail label. On the other hand, imported meat products that are imported in individual or consumer size packages such as New Zealand lamb or Danish canned hams must be labeled with the country of origin.
Pros and Cons of Country of Origin Labeling
As I indicated earlier, supporters of country of origin labeling argue that consumers have a right to know the country of origin of the meat products they purchase. They believe that, if given the choice, consumers would purchase domestic rather than imported product, thereby benefitting domestic producers. Industry and some producers, on the other hand, argue that country of origin labeling would impose excessive costs on industry and would threaten U.S. exports.
I am sympathetic to the idea of providing consumers with information about the country of origin of their food products. As the saying goes, "you know where your t-shirt comes from but not your T-bone, or your pajamas but not your prime rib." Many consumers desire additional information about the origin and production process of the products they purchase, and country of origin labeling would enable those consumers who prefer to support domestic industry an opportunity to do so.
In addition, many domestic producers are increasingly concerned about competitive conditions in the market and doubt the benefits of freer international trade. Country of origin labeling could help increase producers' confidence in the market and their acceptance of freer international trade.
Country of origin labeling, however, also has some negative implications that need to be carefully considered. For example, it would impose some costs on industry, both from the direct cost of labels and from the need to segregate domestic from imported product. The extent of those costs would vary, depending on the scope of any labeling requirement.
We do know, however, that there are systems in place within the industry, like the AMS grading program, certified Angus beef, and the National School Lunch Program, that require at least some degree of product segregation. In the grading program, for example, carcasses are graded in slaughter plants, and the grades pass through all the way down to the retail chain. Such an approach might greatly reduce the costs of a new labeling requirement on domestic industry, though it could be more complex in practice than it might seem. While these programs may not fully match the requirements of a country of labeling regime, they do demonstrate that it is feasible for industry to segregate product.
There would also be some cost to the taxpayers from government enforcement activities. Again, those costs would vary, depending on the type of enforcement regime. I would be very concerned, however, about diverting any resources that would otherwise be devoted to food safety to enforcement of country of origin labeling, which is not a food safety issue.
I also think it is important to consider fully the implications of basing a mandatory labeling requirement on the theory of the consumer's right to know. As the Committee is well aware, the European Union believes its consumers have a right to know if food products contain genetically modified organisms. It is possible that imposing country of origin labeling in the U.S. could weaken our ability to object to other labeling requirements sought by our trading partners.
In this regard, however, it is worth noting that the U.S. may impose mandatory country of origin labeling under our trade agreements if various criteria are met. In fact, a significant number of our trading partners already impose some form of country of origin labeling on imports.
Article IX of the GATT(1994) sets forth general rules regarding requirements of importing countries for Marks of Origin on imports. Regulations on marks of origin are allowed, but difficulties and inconveniences to commerce or industry should be minimized, with due regard to protection of consumers against fraudulent or misleading indications. Laws and regulations requiring marks of origin at the time of import are permissible, provided that compliance would not seriously damage products, reduce their value, or unreasonably increase their cost.
Article III of the GATT (1994) requires that imported goods be treated like domestic product (national treatment) in respect to laws and regulations affecting their internal sale, offering for sale, purchase, transportation, distribution, or use. If labeling is required in a manner other than solely to indicate country of origin, then such a labeling requirement, as applied, may be contrary to such national treatment provisions.
The disciplines of the World Trade Organization (WTO) Agreement on Technical Barriers to Trade (TBT Agreement) apply to a broad range of measures applicable to industrial and agricultural products. The Agreement establishes fundamental rules and procedures regarding the preparation, adoption, and application of voluntary standards, mandatory standards ("technical regulations"), and the procedures ("conformity assessment procedures") used to determine whether a particular product meets such standards. These requirements are intended to ensure that standards, technical regulations and conformity assessment procedures do not create unnecessary obstacles to trade. Key obligations under the TBT Agreement include non-discrimination and national treatment; transparency; and a prohibition against unnecessary barriers to trade. The North American Free Trade Agreement (NAFTA) also has various provisions addressing the application of country of origin labeling requirements.
Because the U.S. is a major importer and exporter, it is likely our trading partners would challenge a U.S. country of origin requirement. The U.S. has objected to other countries' country of origin labeling requirements when those requirements impose unreasonable and unsupported additional costs or lack of consistency with international agreements. And if we were to establish a mandatory country of origin labeling requirement, it might undercut our ability to object to such requirements in the future.
It is also important to consider that U.S. exporters can and do label products as a marketing tool when it will expand their market. In some markets, however, the presence of a mandatory country of origin label could be used to the detriment of U.S. products by protectionist interests.
Conclusion
Mandatory price reporting and country of origin labeling are important issues for American livestock producers. I would like to thank the Chairman and the Committee for holding this hearing and for providing me with the opportunity to appear before you today on these important issues. I look forward to working with you on these and other issues, and I will be happy to answer any questions you or other Members of the Committee may have.