Mandatory U.S. Country of Origin Labelling officially came into effect September 30 but the U.S. Department of Agriculture (USDA) has indicated it will focus on education and outreach during the first six months. Under the new law provisions requiring retailers to label food products according to their nation of origin has been extended to include muscle cuts and ground beef, veal, lamb, chicken, goat, and pork; perishable agricultural commodities, including fresh and frozen fruits and vegetables; macadamia nuts; pecans; ginseng; and peanuts.

Regulations Outline Four Label Options

As far as pork is concerned, regulations developed by USDA provide for the use of four labels. Label A, “Product of the United States” designates meat from animals born, raised and processed exclusively in the U.S.; Label B, “Product of the United States and Canada” or “Product of Canada and the United States” designates meat from animals born in Canada and partially raised and slaughtered in the U.S.; Label C identifies meat from animals imported for direct slaughter; And Label D identifies meat imported from another country. Processed pork products, products distributed through food service and products that are exported out of the United States are exempt.

Dual Nation Label Applauded by Canadian Pork Industry

While the Canadian industry has viewed the dual nation label as a practical way to allow U.S. processors who had been accessing Canadian origin pigs to continue to do so there has been opposition expressed by a number of American interests.

“There seems to be some backlash to the way the USDA has interpreted the law and the flexibility the USDA has allowed in the regulation to permit U.S. pork processors to mix U.S. born and raised animals with Canadian born animals,” observes Canadian Pork Council (CPC) executive director Martin Rice.

“There is some pressure to look at more segregation of U.S. born and raised animals.”

COOL Results in Immediate Impact on Trade

Manitoba Pork Marketing Co-op CEO Perry Mohr says, in the short term, the new law has definitely had a negative impact.

“We got letters from both John Morrell and Hormel Meats who were the two largest purchasers of Canadian origin hogs and both of them, I think, probably caught most of us in the industry by surprise.”

Smithfield , the parent company of John Morrell, indicated that effective September 30 it would no longer buy bacon hogs born and raised in Canada and shipped to the U.S. for slaughter and in March it will stop buying hogs born in Canada and raised in the United States. As well, Hormel determined that effective September 30 it would stop buying Canadian butcher hogs but it will buy animals born in Canada and raised in the United States. However those animals will only be accepted on certain days, at certain plants and during certain hours.

“It’s really restricted the movement from Canada into the United States,” Mohr observes. “What we’ve seen, from a butcher hog perspective, is that producers that were selling their animals into the United States for many many years, had forged relationships with American processors, are not able to sell to those processors.”

“Right now I think what we’re seeing with some of the packers is a great deal of uncertainty in how the regulations, as they’re finally enacted, will impact their individual situations and their marketing plans and programs,” observes John LaClare, the CEO of Humboldt, Saskatchewan based Big Sky Farms.

Big Sky Farms Reports Minimal Impact from COOL

Several months ago Big Sky discontinued the sale of market hogs into the U.S.

“What we’re moving down now are feeders and isoweans and so we haven’t seen any direct impact on our movement down there so far,” says LaClare.

“Some of the processors we deal with are quite confident and have maintained a steady position all the way through this. Other ones seem to be more uncertain about how, when things are finally set up, it’s going to impact them.”

He believes the more pressing concern among U.S. processors is not COOL but rather the volatility in the corn market and the volatility in the hog futures market.

Legislation Expected to Result in Closure of U.S. Plants

Rice points out Canadian origin pigs have accounted for approximately 10 percent of U.S. slaughter.

“The vast majority are feeder pigs that are raised in the U.S. but there’s also some slaughter animals as well including a major amount of our sows and boars. 10 percent is very significant. Five percent is very significant in terms of processing capacity going unused so I think that there would be some major questions raised about plants staying open if they can’t access the Canadian born pigs.”

Saskatchewan Pork Development Board general manager Neil Ketilson believes the situation will be sorted out over the next six months.

He acknowledges “The slaughter market out of Canada into the United States is virtually drying up and so that will likely cease to be a good option for us in Canada.”

However, he stresses, “There are companies and plants that are going to go with a phase two label which means that the isoweans out of Canada going into the United States to be fed and slaughtered will still have a place in the U.S. market. We’re hopeful that remains and that there is a home for Canadian born hogs but it is changing on a day to day basis.”

He believes the six month period of education and outreach prior to full enforcement will help determine the future direction of that market.

Canadian Packers Ramp Up Capacity

Meanwhile LaClare points out, there have been some very encouraging signs in the Canadian processing industry recently.

“Clearly Maple Leaf’s decision to double shift at Brandon and increase their capacity and draw for hogs there is a good thing. Olymel has invested a lot in the Red Deer plant and has the ability to take that plant higher if they can secure markets and supply of hogs.”

Mohr points out, virtually all of the processing plants in western Canada, with the exception of Olymel, are slaughtering at capacity. Maple Leaf has been moving aggressively to get its second kill up and running fully and, while they’re doing a very good job, they’re still not 100 percent. As well, he says, Springhill Farms in Neepawa has outlined plans to increase its kill but they’re still not where they would like to be at this point.

“What has actually happened is that we’ve seen hogs from Manitoba being shipped all the way down to Olymel in Alberta. Not a money making proposition and subsequently I don’t think it’ll be a long term proposition unless the fundamentals in the market change to make it so.”

Canadian Prices Hold Firm

Mohr acknowledges the Canadian processor that has space to kill those hogs is buying them at fair market value and, while that could change, it looks like the introduction of COOL has had minimal impact on the value of butcher hogs being slaughtered in Canada.

As well he notes, while there was a short period where U.S. buyers were heavily discounting the price of weanlings, prices have recovered, although not completely because there is still is a great deal of uncertainty over who will take them and for how long.

Despite the uncertainty, Ketilson remains convinced there is a place in Canada for a profitable hog business.

“It was the darling of the world a few years ago and we don’t believe the fundamentals have changed. We still have a very large land base that’s conducive to raising hogs, we have a large grain base that, quite frankly, needs the livestock industry to be a demand source for it.”

He acknowledges. “We’ve been through an extremely tough 18 months. We firmly believe that it will shift back in 2009. Costs will be down and therefore producers should be in a better position.”

Dialogue Continues

Country of Origin Labelling and how the U.S. processing trade seems to be reacting to it will be a major item on the agenda when representatives of the Canadian Pork Council meet in mid-November.

Rice notes there’s quite a bit of dialogue happening with USDA and within U.S. political circles as to whether Country of Origin Labelling has satisfied everyone’s objectives.

He believes there may be a period of time where people are upset that it doesn’t favour more U.S. born and raised animals than it appears to right now. But he hopes people will realize that COOL will allow customers who want only U.S. pork and meat to have it.

Rice insists, “There’s no point in forcing processors that have customers that aren’t insisting on this to make changes that are against their business interests and against the interests of their suppliers, pork producers.”