COOL report shows producer, consumer losses

Beef and pork industries take largest hit while poultry industry seems some shift to their product because of higher prices.

May 6, 2015

4 Min Read
COOL report shows producer, consumer losses

The mandatory country-of-origin labeling rule for meat has yet to provide observed demand increases, but has resulted in increased costs which have had an adverse economic impact on the entire beef and pork industry, according to new research from Kansas State University.

During the 2014 Farm Bill debate over COOL, instead of making any changes to the law, Congress mandated that USDA assign research to quantify the market impacts of MCOOL. The requirement included studying both the implementation of MCOOL in 2009 and a revision of the policy in 2013.

Agricultural economists Glynn Tonsor and Ted Schroeder from Kansas State University and Joe Parcell from the University of Missouri completed the research and issued the full report to government officials May 1.

Tonsor said the research involved compiling literature from MCOOL studies and other non-peered reviewed information such as comments regarding cost impacts. The researchers used economic models to quantify price and meat quantity estimates over the next 10 years based on the 2009 and 2013 rulings. They compared those findings to 2008, which provided estimates if MCOOL had never occurred. 

“We estimated the beef industry’s 2009 impact was an economic loss of $8.07 billion over 10 years,” Tonsor said. “For the pork industry, it’s a $1.31 billion loss.”

Tonsor pointed out that approximately 16% of pork and about one-third of beef production is covered by MCOOL, as some products such as those sold in restaurants are not required to bear the label. MCOOL covered beef would have to see at least a 6.8% increase and covered pork a 5.6% increase in demand to avoid an adverse economic impact.

Results also showed consumers to experience net losses—$5.98 billion for beef and $1.79 billion for pork—over 10 years due to higher retail prices and lower retail quantities available every year.

The study explained that because only a small portion of beef and pork products are covered by MCOOL, the only way to recapture costs associated with producer, packer and retailer rule compliance is for consumer demand to increase on MCOOL associated products.

The researchers had to study 2013 separately because the MCOOL policy changed. The 2009 ruling led to labels such as “Product of U.S. and Canada” showing up on a package of beef, for example. The 2013 ruling required that same package to read more specifically, “Born in Canada, Raised and Slaughtered in the U.S.”

“We added the specificity of ‘Born, Raised and Slaughtered’ stages in 2013, which means additional costs with additional precision,” Tonsor said. “But, it’s not the same level of costs as we had the first round in 2009. There’s an incremental additional cost, but it isn’t as large as the original cost to be in compliance.”

The additional impact of the 2013 rule was another $494 million loss to the beef industry and $403 million loss to the pork industry over 10 years. Demand increases would need to be at least another 0.4% for beef and 1.6% for pork on top of the 2009 estimates to avoid an adverse economic impact.

Consumer losses were another $378 million for beef and $428 million for pork based on the 2013 revision.

In the end, “consumers lost because they now face higher retail beef and pork prices and reduced supply because of the 2009 and 2013 MCOOL rules,” the report notes.

Poultry gains under MCOOL

The poultry industry, Tonsor said, was the only one to show a gain. Those gains for 10 years were $753 million for 2009 and an incremental addition of $67 million for 2013. The gains, however, were narrow compared to the billions in losses to the beef and pork sectors that mean a total loss for the meat industry as a whole.

“The main reason is (the poultry sector) doesn’t have the same cost of compliance, so at the retail level there is some shift away from more expensive beef and pork prices over to poultry products,” Tonsor said. “That serves as a pull for more production on the poultry side, and the poultry industry benefits.”

Tonsor added this raises poultry prices and production volumes leading to net benefits to the poultry sector.

The World Trade Organization plans to make an announcement no later than May 18 on whether the latest U.S. appeal regarding Mexico and Canada’s challenge of the rule. Should the WTO rule against the United States a legislative fix would be needed to prevent retaliatory measures from going into effect.   

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