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COOL should but won't go away

COOL should but won't go away

Some things just never seem to go away but really should, such as country-of-origin labeling.

Some things just never seem to go away. Whatever the list might be, we probably need to make sure country-of-origin labeling (COOL) is duly included. Case in point, Sen. John Tester (D., Mont.) has now introduced a resolution citing Congressional support to reinstate the law for beef and pork.

Undoubtedly, at the surface, it all makes sense. After all, consumers have the right to know more about their food and where it comes from. The current situation opens the door for confusion and deception. Tester would likely argue consumers don’t really know the origin of their purchases from the meat case.

But COOL advocates seem to forget (or conveniently overlook) we’ve already tried this experiment. The industry operated under COOL from 2009 through 2015. That seven-year period sufficiently taught us all we need to know about its impact.

The law’s premise is founded on consumer demand. That is, if consumers can readily identify the source (i.e. country) of origin, they’ll be more likely to purchase (i.e. pay more for) meat products sourced from the U.S. But the data tells us otherwise.

In fact, Kansas State University’s Glynn Tonsor recently completed demand analysis and concluded that both beef and pork demand were lower, both economically and statistically, when MCOOL was in-place than for the pre-MCOOL (base timespan) period. This finding is consistent with the research summarized in the 2015 U.S. Department of Agriculture report to Congress.

That’s an important conclusion because we also need to consider the cost side of the equation. COOL regulations mandate additional costs associated with record-keeping, documentation, logistics, segregation, etc. To be economically beneficial, COOL must establish an improvement in demand sufficient to offset those costs. That didn’t happen.

Therefore, COOL’s marginal cost outweighed the marginal benefit. An inadequate shift in demand subsequent to the introduction of additional costs made the industry worse off. Economic analysis included in USDA’s report to Congress reflects that reality.

The findings out of Kansas State University and the University of Missouri within the Congressional report are summarized this way (emphasis is mine):

“...economic modeling indicates that producer surplus over the longer run declines for beef and pork producers, packers, processors, and retailers due to the costs of COOL implementation. While prices are estimated to increase for both retail and wholesale beef and pork over the longer run due to increased costs for COOL implementation, quantities decline by proportionally greater amounts, leading to net reductions in producer surplus…Without a commensurate demand increase, higher costs attributable to COOL implementation result in decreased producer surplus at each level of the production and marketing chain.”

In other words, COOL had the meat industry incurring additional costs but realized no appreciable advancement on the demand side.

Despite all that evidence, COOL proponents continue to argue the law will make producers better off. They often cite the cattle market as evidence arguing that COOL drove cattle prices to higher levels in 2013, 2014 and 2015. For example, RCALF recently tweeted a graph depicting the surge in feeder cattle prices at Oklahoma City during that three-year period and commented: “Circled area shows when full #COOL was in effect. Look at cattle prices! When it was repealed look what happened! #Rally$USMCA #WeNeedCOOLinTheUSMCA.”

What RCALF doesn’t tell U.S. producers, though, is that feeder cattle prices in Central Alberta followed the same pattern. The overlay of currency-adjusted Canadian cattle prices match the Oklahoma City graph almost dollar-for-dollar (the correlation during the COOL years is nearly perfect: .973). The reality being COOL wasn’t market supportive at all (or else Congress passed the law to also benefit Canadian producers to the same degree thereby defeating its very purpose). In the end, COOL proved to be nothing more than a costly, cumbersome, ineffective non-tariff trade barrier.

Let’s circle back to the beginning. Do consumers want to know more about where their food comes from? Absolutely! That’s why we continue to see growth in the marketplace for programs that substantiate all sorts of claims and product attributes. But those are market-driven; they result from voluntary exchange and establish mutual benefit - a positive-sum scenario.

The marketplace is complex and increasingly segmented. Therefore, despite all the good intentions, top-down, one-size-fits-all mandates will never generate meaningful conviction among consumers. That requires matching of production systems to consumer demand in a granular fashion - meeting consumers where they are and anticipating where they’ll be. Simply, COOL failed the most important test – the marketplace.

Maybe, just maybe, someday we’ll quit tussling over COOL. But that probably won’t happen anytime soon. Perhaps that’s because those who keep bringing it back up aren’t focused on the facts – they’re more worried about ideology.

It recalls for me Walter Bagehot’s great quote (c. 1872): “One of the greatest pains to human nature is the pain of a new idea [in this case, it didn’t work]. It … Cmakes you think that after all your favorite notions may be wrong, your firmest beliefs ill-founded.” Yep, put it on the list of things that seem to never go away.

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