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Hammonds paper (03-65)

Retailer Expectations for Country-of-Origin Labeling

American Agricultural Economics Association Food Labeling Forum, Washington, DC

Dr. Tim Hammonds, Food Marketing Institute

March 20, 2003

In May of 2002, Congress passed a sweeping new requirement for point-of-sale Country of Origin Labeling (COL) of perishable products in the United States. ? A voluntary program period is in effect until September 30, 2004 when the program becomes mandatory. ? The fact that no major supermarket company has joined the voluntary program, despite the fact that retailers have a long history of supporting consumer information, tells you all you need to know about whether this will be a good idea or not.

Since USDA?s interim compliance guidelines were published in October of 2002, the entire industry has been struggling to understand the implications for American agriculture. ? The answers that are emerging are not encouraging.

Despite the fact that selected cattlemen along with a group of fruit and vegetable growers primarily in the West were responsible for the passage of this act, it?s becoming increasingly clear that the cost burden will fall primarily on producers, growers, importers, fisheries, fishermen and processors. ? Beef, for example, will become more expensive relative to poultry (chicken and turkey are not covered) and retailers will move increasingly to prepackaged meats at the expense of in-store processing. ? In addition, this two-year ?voluntary? period is not voluntary at all for cattlemen. ? Ranchers unable to document the history of their animals two years hence, including those being born right now, will find themselves unable to sell to supermarkets forcing their beef into the export or foodservice markets (restaurants are not covered). ? Traceability to the farm will ultimately be required by the industry for cattle, and traceability for fruits and vegetables will require segregation by origin, perhaps all the way to the retail display case. ? No one yet knows how much this is going to cost.

What?s covered? ? Fruits and vegetables including all fresh and frozen. ? Beef, pork and lamb including muscle cuts and ground products. ? Seafood both fresh and frozen which must be identified as either ?farm-raised? or ?wild caught?. ? Peanuts. ? Blended products such as hamburger and fruit salad must be labeled in their entirety with all components labeled for origin in descending order of predominance by weight. ? Congresswoman Mary Bono is now asking that the percentage declaration for each component by origin also be mandated. ? Not covered are foodservice, poultry, dairy, and processed foods.

How will we know declarations are accurate? ? Self-certification is not sufficient. ? Suppliers will need to pay for audits by the Department of Agriculture to verify their programs and the accuracy of their declarations. ? Retailers will certainly ask that suppliers indemnify them for any costs they incur as a result of supplier inaccuracies including the resulting fines levied at the store level along with any attorneys? fees. ? Both suppliers and retailers will need to develop a record-keeping system capable of verifying the source of their covered commodities reaching back two years despite the fact that most of these products have a retail shelf life of only a few days. ?

Since the statute relieves further in-store labeling requirements for any products stickered by the supplier, retailers will be asking their trading partners to provide stickers with all the required country-of-origin information. ? For products where this is impossible, it?s likely retailers will ask for signs that can be posted at point of sale. ? USDA will require contracts between retailers and their suppliers (and their suppliers in turn) to ensure that there are verified audit trails for all covered commodities. ? The USDA is making available a user-fee audit program so that suppliers can provide the necessary proof of veracity at their own expense. ?

Of course, all of this will be necessary even for animals and commodities raised entirely in the United States. ? A born-in-the-USA declaration will need to be verified just as will declarations for imported products. ? For animals moving across country lines, a label declaration will need to track the movement. ? A label for beef might, for example, read Born in the USA, Fed in Canada, Slaughtered and Processed in the USA. ? Even strawberries might have to declare: Seedlings Produced in Canada, Grown in the USA.

The requirements for produce are just beginning to be understood. ? It appears that the law will require the industry to develop a new segregation system from farm (or import point) through to the retail case. ? Even when items are marked with country-of-origin stickers, some individual items will inevitably lack these stickers and will not be able to be mixed with other it





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