Paying For COOL

A study shows consumers are willing to pay more for country-of-origin labeled beef - but will it be enough?

With mandatory country-of-origin-labeling (COOL) legislation just around the corner, the entire beef industry is scrambling to see who's going to foot the bill for labeled beef. Until recently, there's been very little information on how deep consumers will dig to pay for the assurance of U.S.-origin beef.

Now a group of university economists led by Wendy Umberger of Colorado State University (CSU) has taken a stab at answering that question. She is an assistant professor in CSU's Department of Agricultural and Resource Economics.

Umberger says the research is the first attempt to quantify consumers' “willingness to pay” for U.S.-labeled beef. Previously, she says, studies seeking to determine consumer response to this type of “labeled” beef, were market-basket surveys and consumer attitude questionnaires.

“Or course, with those types of surveys you're going to get a high percentage of people saying ‘yes’ to something that feels good to them,” she explains. “It's a completely different question though, to ask people if they're willing to pay more for a labeled product.”

Her results came via surveys that directly address that willingness-to-pay question. The group also conducted experimental auctions in Chicago and Denver — another way to measure willingness to pay for labeled beef.

The data show the majority of consumers (73%) were willing to pay an 11% premium for labeled steak and a 24% premium for labeled hamburger. In the auction, consumers were willing to pay a 19% premium for steak labeled “Guaranteed USA: Born and Raised in the U.S.”

The most common reasons consumers preferred labeled beef were:

  • food safety concerns;

  • a preference for labeling source and origin information;

  • a strong desire to support U.S. producers; and

  • beliefs that U.S. beef was of higher quality.

The auction part of Umberger's research was designed to be non-hypothetical with buyers selected to represent a cross-section of consumers using money to buy steaks and hamburger.

“This process was designed to take emotion out of the question about labeling and consumer buying decisions,” she says.

She and her partners are following up this research with another survey of 5,000 households. This component will measure consumer willingness to pay for labeled beef, pork and poultry. It will also focus on other consumer preferences for beef.

The first survey indicates that consumers who were willing to pay the most for labeled meat believed the label signified increased food safety and quality. Therefore, Umberger says, retailers and processors labeling products with COOL may also want to consider labeling food safety and quality attributes.

“We'll be able to find out what attributes are most important to consumers,” she adds. “These will be things like food safety, tenderness, traceability, etc.”

The researchers especially want to know if consumers differentiate between source verification and country of origin in their purchasing habits.

Will COOL Pay?

No doubt about it, COOL will increase marketing costs in the beef industry, says Derrell Peel, Department of Agricultural Economics, Oklahoma State University. But the amount of additional cost is dependent on the decisions about implementation details yet to be decided.

“There's every indication that the costs will be significant,” Peel explains. “As in any market situation, the general impact of increased marketing costs will be borne in part by consumers as higher retail prices and in part by producers as lower farm prices and/or increased production costs.”

In the extremely complex beef industry, consisting of many different products and final markets, as well as a complicated set of production and marketing sectors, it's extremely difficult to say how these increased marketing costs will be distributed, he says.

“The costs will be shared, but probably not equally by all sectors of the industry,” Peel adds.

COOL does not apply to food service establishments such as restaurants, hotels, convention centers, hospitals and nursing homes; or butcher shops and retailers with annual sales less than $230,000.

COOL will apply to fresh or frozen whole beef, lamb and pork muscle and ground meats — but not poultry. It won't apply to deli foods, canned or cooked products or fresh or frozen processed products. Seafood (wild and farm-raised fish and shell fish), perishable commodities (fresh/frozen fruits and vegetables) and peanuts will be covered by COOL.

“A large percent of consumers appear to be willing to pay premiums for COOL,” Umberger concludes. “But, additional research is necessary to determine if the premiums are substantial enough to cover additional costs associated with certification and traceability programs necessary to validate the label.”