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What To Expect From Mandatory COOL

With a new farm bill now on the books, USDA soon should be rolling out all of the important info on mandatory country

With a new farm bill now on the books, USDA soon should be rolling out all of the important info on mandatory country-of-origin labeling (COOL) so that producers can begin preparing for the implementation data. While important, deadlines and details probably aren't what most producers are really curious to know, however.

The most obvious question is: “Will mandatory COOL decrease the importation of beef from foreign countries?” That’s primarily feeder cattle from Mexico and fed cattle from Canada.

Certainly, in the short term, nobody wants to be holding inventory if that inventory might be devalued, but I’ve had trouble with the cause and effect for quite some time.

For one thing, a very small percentage of the retail case consists of imported beef, the segment to which mandatory COOL applies. And with about 50% of our product moving through non-retail marketing channels, if there was a consumer preference for the “made in the USA” label, the non-USA product would likely be just shifted through the Hotel, Restaurant and Institutional (HRI) trade, which is exempt from the law.

The cost and benefits to the industry of the law’s implementation have been hotly disputed, and at least we’ll finally get a handle on those numbers.

But the reaction of our trading partners to implementation of mandatory COOL is likely to be the most interesting. As one analyst put it: “If there’s no negative impact on Canada and Mexico, it hurts U.S. producers. And if there is a negative impact on those countries, then mandatory COOL will be challenged through NAFTA and the World Trade Organization (WTO).”

Once in the WTO, the U.S. will either win or lose. But by winning, we’ll virtually ensure our other trading partners will restrict access to their markets by establishing other marketing programs/non-tariff trade barriers that aren’t science based.

I tend to feel that the worst- and best-case scenarios being advanced are both detached from reality.

  • Will mandatory COOL mean an end to imported product from our neighbors? Probably not.

  • Will it mean billions of dollars in additional expenses that lead to dramatically lower prices for the cattle received: Probably not. It does mean that we’ll have to have our calves tagged at the time we sell them, which is something that likely would have occurred anyway in today's world.

  • Will it overthrow trade agreements and adherence to science-based principles by allowing countries to circumnavigate trade rules through what has euphemistically been called “marketing programs?” Probably not.
We certainly will be able to do a cost/benefit analysis over time, and there may be some short-term market implications that could be significant, even if short lived. But in the end, mandatory COOL will not have a significant impact on the price received for cattle because of the loopholes that were always in the law.

The new farm bill did eliminate some of the negative repercussions of the first bill, however, and ultimately we’ll be able to answer the questions: Did it make us more competitive in a global beef market? Did it increase the value of the calves we sell? Did it add costs, value or some combination thereof?

And, finally, given the political capital and clout that the industry expended on it, was the effort justified, or would both sides have been served to direct their efforts in other areas? My instincts tell me the value or cost of mandatory COOL will be debated for some time.

I hesitate to say mandatory COOL was never really what the debate was about, because many feel very strongly that the law will either benefit producers or kick us down the slippery slope of government intervention in the marketplace.

I would say that mandatory COOL was just symbolic of debate on a greater industry question that probably needed to be held and still is largely undecided. That is, do we want to be a leader in a global beef industry, or do we want to have protected access to our domestic market? Are we willing to give up control for protection from the marketplace? If our goal is to meet consumer needs, and protect our viability and sustainability, do we believe the marketplace is the best mechanism to achieve that? Or do we believe government intervention and control is the solution?

The answer is critical to how each producer develops his or her business model for the future. With the industry dealing with the costs of ethanol subsidization, the increasing political power of the environmental movement, and the consequences of forced consolidation, this question must be answered.