Market Preview: Labeling Law Creates Confusion

US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.
calendar icon 18 October 2008
clock icon 6 minute read

To say mandatory country-of-origin labeling (MCOOL) is “off and running“ would be an overstatement. “Off and stumbling“ would be more appropriate but the key word is off. MCOOL is now required – sort of – and the entire meat complex is trying to conform to the rules, whatever those are. Do you detect a bit of uncertainty here?

The MCOOL law and the U.S. Department of Agriculture’s (USDA) interim final rule to implement it became effective Sept. 30. It has been adopted and exhibited at retail stores to varying degrees since that time. Some stores have everything in place; others have little in place. Some have clear, concise labels. Others have labels that cover all possibilities and will probably not pass muster at some point. There is good reason USDA said up front that it would use the initial six months as an education period.

Pork packers are trying to decide how to handle MCOOL, and part of their difficulty is they are trying to hit a moving target, or at least an evolving one. The current version of MCOOL, passed as part of the 2008 Farm Bill, is much more manageable and, in my opinion, reasonable than the version initially included in the 2002 Farm Bill. What boded to be a daunting record-keeping system has been reduced substantially. USDA has agreed that affidavits from people with first-hand knowledge of the origin of animals will suffice as proof of origin. The number of potential labels has been reduced from five to four for meat products.

Marketing 'Issues' Remain

But "issues" remain. They revolve primarily around how much flexibility the system provides for allowing pigs born in the United States to "fill out a slaughter run" that includes some pigs born in Canada and fed in the United States.

First, let’s review a primer on the labels and the apparently-accepted vernacular of Labels A, B, C and D:

  • Label A – Product of the USA. This product must come from animals born, raised and slaughtered in the United States. Note that is a one-way statement. The law does not say that all animals born, raised and slaughtered in the United States must carry this label.
  • Label B – Product of the USA and Country X. This product is from animals not exclusively born, raised and slaughtered in the United States, OR from animals born or raised or slaughtered in the United States, but NOT animals imported for immediate slaughter (i.e., both born and raised in another country). The second part of this definition was new in the 2008 Farm Bill, and it allows pigs born and raised in the United States to be included in this label.
  • Label C – Product of Country X and the USA. For product produced from animals imported for immediate slaughter – i.e. Canadian market hogs.
  • Label D – Product of Country X. For imported meat products. These always had to be identified at the border. The new law requires a label at retail, even for fresh meat products, which were not necessarily labeled in the past.

Debating Label Flexibility

The rub, of course, has come with Label B. Just how much flexibility is allowed under the rule? Or, more importantly, how much did Congress intend to be allowed under the rule? Some packers saw the rule as permission to include as many U.S-born-and-raised pigs as they wanted and had moved forward with plans to only use Label B.

Two weeks ago, USDA said this was, in fact, what neither they nor Congress intended and told the meat trade that they could use Label B only for product that was produced on a “production day“ when both U.S.-born and Canadian-born pigs were processed in the plant. That still provides flexibility to fill out a day or a shift of primarily Canadian-born pigs with U.S.-born pigs, but it does not give carte blanche permission to label product from U.S.-born pigs with the multi-country label.

An obvious solution would be to make sure you have a few Canadian-born pigs in the slaughter each day or each shift. But there are rumblings that this may not be acceptable either; that "intent of Congress" thing enters in, where we only seem to know after we start trying to do, something what the law actually says.

Five Predictions

It’s still not clear what will happen but here are my thoughts – for what they are worth:

  1. Canadian market hogs are in a VERY tough spot. Production from them will have to carry a unique label - "Product of Canada and the USA" - and that would create three sets of products in some plants. I look for U.S. companies to virtually stop buying these hogs.
  2. Some companies will stick to their "U.S. pigs only" stances but others will compromise. Imports of Canadian feeder pigs have fallen back to levels considered "normal" before the exchange rate- and feed cost-driven surge of late 2007 and early 2008. We will still import about 7 million of these pigs in '08, 7.3% more than last year. ALL U.S. packers cannot quit buying these pigs cold turkey. (It's a bad pun but it fits.) The U.S. packing sector cannot run efficiently on 7 million (over 6%) fewer pigs, especially when 2 million imported Canadian market hogs may already be removed from the supply.
  3. The rules and interpretations still allow more flexibility than we once thought would exist. Couple that with the fact that packers collectively still need those 7 million pigs, and I think it is now unlikely that these pigs will be discounted heavily and, perhaps, not discounted at all.
  4. 4. A key indication that imported Canadian feeder pigs are not a huge problem is the fact that the numbers are staying near those "normal" levels. Hog feeders and packers are pretty rational people who have a reasonably good handle on what this situation might entail. And armed with that knowledge, they have continued to buy these pigs. I don't detect a lot of alarm in that, especially since the interim final rule was published. Live hogs imports from Canada can be found in Figure 1.
  1. Thank your lucky stars you're not in the beef business. Assuming, of course, you aren't. And if you are, have fun!

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