Mandatory Country-of-Origin Labelling— Will It Benefit Customers

US - Demands for mandatory country-of-origin labeling (COOL) for some retail food products have sparked considerable controversy. Proponents— primarily some cow-calf producers and fruit and vegetable grower/shipper associations—claim such labels would benefit consumers with concerns about food safety, those who wish to support U.S. producers, or who believe that US products are of higher quality than imports.
calendar icon 2 May 2007
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Others mainly cattle and pig finishing operators, meatpackers, processors, and retailers, argue that mandatory labeling will merely raise costs without adding benefits.

In 2002, Congress incorporated COOL in the Farm Security and Rural Investment Act. Mandatory labeling rules were scehduled to go into effect by September 30, 2004, but Congress postponed the deadline , and COOL is due to come on st for September 2008. Unless the law is changed, retailers will be required to identify red meats (beef, lamb, and pork), fish and shellfish, fresh and frozen fruit and vegetables, and peanuts as being from the United States, from another country, or from mixed origins. COOL has been in effect for farm-raised and wild fish since April 2005 and will not be affected by the delay.

Researchers have tried two ways to establish if the benefits of mandatory COOL exceed costs. The first, an engineering approach, requires a calculation of likely expenditures for segregation and recordkeeping—the activities necessary to prove a product’s origin—along with an estimate of what labels are worth to consumers. To estimate value to consumers, some analysts have relied on consumer surveys asking consumers whether they want labels and/or are prepared to pay more for this information. The second approach entails drawing inferences about costs and benefits from the actual behavior of suppliers and consumers in the marketplace.

Food manufacturers infrequently label food as “Made in USA.” The absence of such voluntary labeling suggests that suppliers believe consumers either do not care where their food comes from or prefer imported products. It is also possible that consumers prefer domestic products, but are unwilling to pay higher prices to cover labeling costs. Any of these explanations implies that suppliers believe it is generally not profitable to label.

Some consumers do actually prefer such labels, but they tend to be a minority and markets could not satisfy their demands profitably. In this case, consumers who value the information may be better off with mandatory COOL, depending on how much they are willing to pay for label information and the cost of providing it. Even for these consumers the costs could still exceed the benefits. For consumers who are indifferent to labels, the higher prices resulting from mandatory COOL would make them unequivocally worse off.

This article is drawn from. . .

Country-of-Origin Labeling: Theory and Observation, by Barry Krissoff, Fred Kuchler, Kenneth Nelson, Janet Perry, and Agapi Somwaru, WRS-04-02, USDA/ERS, January 2004.
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