REPORTS surfaced late last week that one of the largest beef processors in the U.S. will no longer be accepting slaughter cattle from Canada because of the U.S. country-of-origin labeling (COOL) rule.
Tyson Foods' new policy, effective this month, means that the company is no longer purchasing cattle finished north of the border, although it will continue buying cattle that are born in Canada but finished in the U.S.
Tyson told U.S. media outlets that it was "very disappointed" by the U.S. Department of Agriculture's most recent COOL rule, released May 23, and that the labeling rule significantly increases the cost of processing Canadian cattle. As such, Tyson stopped importing cattle directly from Canada last week.
"We've known this was coming for a while now," said Dennis Laycraft, executive vice president of the Canadian Cattlemen's Assn. "The logistics under the new rule are so difficult. Anyone who has been in a modern processing plant can appreciate how tough this rule is to implement, because you just can't switch things from one animal to another without sacrificing line speed and efficiency."
Laycraft explained that, under the new COOL rule, processors essentially have to separate cattle into three different classes based on their point of production. Cattle born in Canada and finished in the U.S. require one label, while cattle born and finished in Canada require a separate label.
Because of the additional product codes, production breaks and product segregation necessitated by the more complicated labeling scheme, Tyson has opted not to purchase direct-to-slaughter cattle.
"We've known we were heading toward this kind of a wreck, and it looks like it was pretty deliberate by this Administration in making this such a hard rule to implement," Laycraft said.
Canada has filed another World Trade Organization complaint against the U.S., alleging significant discrimination against imported cattle.
According to data from USDA's Agricultural Marketing Service, the U.S. has imported 285,792 head of fed cattle from Canada through Oct. 12, nearly 7.4% fewer than the same period in 2012. Feeder cattle imports, meanwhile, have nearly doubled, to 225,277 head.
Several factors, including a much slower flow of feeder cattle into the U.S. from Mexico (down more than 41% year to date), account for the influx of Canadian feeders, but the COOL issue could play a larger role moving forward.
"We're not surprised to see this move by Tyson," said Colin Woodall, vice president of government affairs for the National Cattlemen's Beef Assn. "They've got to make a business decision based on this new rule, and this is something we've been warning policy-makers would happen for some time."
Woodall said the Tyson move, plus its impact on the industry and the debate over COOL, shows that COOL "isn't good for anyone" in the beef industry.
"We have a study from Kansas State University showing that consumers aren't paying attention to these (origin) labels, and all this rule is doing is adding costs borne by people at the upper end of the supply chain — not by consumers," he explained. "Now, we have a situation where Tyson has made a decision that could ultimately have a significant ripple impact in the U.S."
Specifically, it further reinforces Canada's will to retaliate via WTO, Woodall predicted. He said all indications point toward the trade body again ruling that the labeling law violates the U.S.'s international trade obligations and paves the way for Canada and Mexico to impose retaliatory measures against a range of U.S. products -- including beef -- sometime in the later months of 2014.
For Canadian producers, the impact of Tyson's decision is much more immediate.
"Most of our processing industry is in Ontario and Alberta, so if you're in Manitoba and Saskatchewan, your closest processor is probably to the south," Laycraft explained. "With only so many trucks that can move cattle and processors in the U.S. already cutting the number of days they'll process our cattle, we're running into trucking issues and border delays."
If finished cattle can't go south, that means feeders and packers have to absorb the extra costs of trucking cattle to Canadian plants farther away.
Laycraft noted that two companies effectively account for 90% of Canada's domestic beef processing capacity, so the absence of a third bidder for those cattle also has a direct effect on prices.
"We believe we're going to see a $50-100 discount (or negative price spread) because of COOL on every animal we raise in Canada," he said.
Tyson did not immediately return requests for comment on this story.