Beef and Lamb: Implications of Labeling by Country of Origin (Letter
Report, 01/27/2000, GAO/RCED-00-44).
Pursuant to a congressional request, GAO provided information on
mandatory country-of-origin labelling for beef and lamb, focusing on the
potential: (1) compliance costs associated with mandatory
country-of-origin labelling for fresh and processed beef and lamb; (2)
enforcement costs associated with such a requirement; (3) trade issues
associated with such a requirement; and (4) benefits of mandatory
country-of-origin labelling.
GAO noted that: (1) mandatory country-of-origin labelling for meat as
prescribed under H.R. 1144 would necessitate changes in the meat
industry's practices, which would create compliance costs across all
sectors of the industry; (2) the meat industry has estimated an annual
cost of $182 million for meatpackers and processors to maintain
information solely on the country-of-origin for beef; (3) the grocery
industry has estimated that the nation's 156,300 large and small retail
grocers would incur annual costs of about $375 million for
record-keeping, inventory management, and the labelling of meats in
their stores; (4) U.S. packers, processors, and grocers would pass their
compliance costs back to their suppliers in the form of lower prices or
forward to the consumers in the form of higher retail prices; (5) the
Department of Agriculture (USDA) estimated, on the basis of a 1998
proposal to label imported beef and lamb at the retail level, that its
Food Safety and Inspection Service would incur a cost of $60 million per
year to enforce country-of-origin labelling; (6) that estimate did not
take into account all of the requirements of H.R. 1144, including the
enforcement costs for other sectors of the meat industry, such as the
pork industry, or costs for ensuring the identity of meat from imported
animals raised at U.S. feed facilities before being slaughtered; (7)
according to federal officials and industry trade representatives,
mandatory country-of-origin labelling for beef and lamb, as provided for
in H.R. 1144, could have negative ramifications for U.S. trade; (8)
officials with the Office of the U.S. Trade Representative and the
Department of State said that U.S. trading partners could raise concerns
that such country-of-origin labelling requirements might adversely
affect their exports to the United States by raising costs or lowering
the demand for their products; (9) at least 11 U.S. trading partners
have some requirements for labelling and might decide to more strictly
enforce them if a new U.S. law were enacted; (10) countries that do not
require such labelling might impose them; (11) according to federal
officials, a stringent U.S. law would make it more difficult for the
United States to oppose an impending European Union proposal for
country-of-origin labelling; (12) H.R. 1144's labelling requirements
would benefit consumers who prefer to purchase U.S. beef and lamb by
giving them the information to make that choice; and (13) if consumers
were to increase their purchases of domestic beef and lamb, U.S. cattle
and sheep producers, and others, could realize increased sales or higher
prices.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-00-44
TITLE: Beef and Lamb: Implications of Labeling by Country of
Origin
DATE: 01/27/2000
SUBJECT: Labeling law
Import regulation
Consumer protection
International trade restriction
Cattle
Meat packing industry
Safety standards
Livestock products
Cost analysis
Quality assurance
IDENTIFIER: North American Free Trade Agreement
NAFTA
Australia
Canada
New Zealand
Mexico
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Report to the Chairman, Subcommittee on Livestock and Horticulture,
Committee on Agriculture, House of Representatives
January 2000
BEEF AND LAMB
Implications of Labeling by Country of Origin
*****************
*****************
GAO/RCED-00-44
Resources, Community, and
Economic Development Division
B-284193
January 27, 2000
The Honorable Richard W. Pombo
Chairman, Subcommittee on Livestock
and Horticulture
Committee on Agriculture
House of Representatives
Dear Mr. Chairman:
Currently, all meat entering the United States must be marked by country
of origin. However, once the meat is sliced, cut, ground, or otherwise
processed, it may lose that identity. Similarly, all livestock entering
the United States must be identified by country of origin but becomes part
of the domestic meat supply when slaughtered. Both imported meat and meat
from animals slaughtered in U.S. meatpacking plants go to U.S. processors,
distributors, retail grocers, or food service facilities to be cut,
blended into ground meat, or blended into processed products, such as cold
cuts. Relatedly, several legislative proposals have been introduced over
the years that would require imported meat or meat from imported animals
to be labeled by country of origin all the way to the consumer. In October
1998, Senate and House conferees for the Omnibus Consolidated and
Emergency Supplemental Appropriations Act, 1999, directed the U.S.
Department of Agriculture (USDA) to study the potential effects of
mandatory country-of-origin labeling to the retail level for imported
fresh cuts (such as steaks and chops) of beef and lamb./Footnote1/ USDA
was required to issue its study by April 21, 1999; USDA completed its
analysis and released its report on January 12, 2000.
Concerned about the delay in USDA's release of its report, in July 1999
you asked us to review a number of issues associated with the potential
costs and benefits of mandatory country-of-origin labeling to the retail
level for beef and lamb. In addition to fresh cuts of beef and lamb, which
were the focus of USDA's study, you asked us to consider processed
products, such as ground or blended beef and lamb and frozen, prepared,
and preserved beef and lamb products. Specifically, this report provides
information on the potential (1) compliance costs associated with
mandatory country-of-origin labeling for fresh and processed beef and
lamb, (2) enforcement costs associated with such a requirement, (3) trade
issues associated with such a requirement, and (4) benefits of mandatory
country-of-origin labeling. As you requested, we addressed these issues in
the context of H.R. 1144, a bill pending before your Subcommittee at the
time of your request. /Footnote2/ H.R. 1144 calls for labeling fresh and
processed meat from cattle, sheep, swine, and other hoofed animals through
to the ultimate purchaser, which is generally the consumer. It also
requires that meat from imported animals slaughtered in the United States
be identified by the country or countries in which the animal was born and
raised.
Results in Brief
Mandatory country-of-origin labeling for meat as prescribed under H.R.
1144 would necessitate changes in the meat industry's current practices.
These changes would, in turn, create compliance costs across all sectors
of the industry. However, the magnitude of these costs is uncertain.
Although the beef and lamb industries have not developed cost estimates
for complying with the specific requirements of H.R. 1144, certain
industry sectors have developed some estimates for maintaining country-of-
origin information. For example, the meat industry has estimated an annual
cost of $182 million for meatpackers and processors to maintain
information solely on the country of origin for beef. While we have no
basis to assess the validity of this estimate, we note that it did not
include the costs to packers and processors of also identifying and
maintaining country-of-origin information for meat from cattle that were
imported and raised in the United States--if that were to be required.
Although this meat is considered domestic under current laws, it would be
considered imported under H.R. 1144. The grocery industry has estimated
that the nation's 156,300 large and small retail grocers would incur
annual costs of about $375 million for record-keeping, inventory
management, and the labeling of meats that they cut, blend, and grind in
their stores. U.S. packers, processors, and grocers would, to the extent
possible, pass their compliance costs back to their suppliers--U.S. cattle
and sheep ranchers and foreign exporters--in the form of lower prices or
forward to consumers in the form of higher retail prices.
Enforcement costs would be incurred to adequately oversee all sectors of
the meat industry affected by the legislative requirements. USDA had
estimated, on the basis of a 1998 proposal to label imported beef and lamb
at the retail level, that its Food Safety and Inspection Service would
incur a cost of $60 million per year-more than 10 percent of its budget-to
enforce country-of-origin labeling for those meats. Although we did not
assess the validity of USDA's enforcement estimate, it did not take into
account all the requirements of H.R. 1144. For example, the estimate did
not include enforcement costs for other sectors of the meat industry, such
as the pork industry. USDA's estimate also did not consider monitoring and
enforcement costs for ensuring the identity of meat from imported animals
raised at U.S. feed facilities before being slaughtered.
According to federal officials and industry trade representatives,
mandatory country-of-origin labeling for beef and lamb, as provided in
H.R. 1144, could have negative ramifications for U.S. trade. U.S. trading
partners could view any such law as inconsistent with U.S. trade
obligations. In particular, officials with the Office of the U.S. Trade
Representative and the Department of State said that U.S. trading partners
could raise concerns that such country-of-origin labeling requirements
might adversely affect their exports to the United States by, for example,
raising costs and/or lowering the demand for their products. In fact,
according to Department of State officials, Australia, Canada, and New
Zealand said they would view any such U.S. law that they believed would
adversely affect their exports to the United States as a trade barrier.
These countries are among the United States' largest sources of beef and
lamb imports. Furthermore, mandatory country-of-origin labeling could have
adverse repercussions for U.S. beef and other exports. At least 11 U.S.
trading partners already have some requirements for country-of-origin
labeling through the retail level for at least some meats. Currently,
these countries accept meat exported by the United States to be labeled as
a product of the United States as long as it bears a marking indicating
that USDA inspected it. According to USDA officials, these countries might
decide to more strictly enforce their own labeling laws if a new U.S. law
were enacted. Moreover, countries that do not currently require such
labeling might be prompted to impose such requirements. Finally, according
to federal officials, a stringent U.S. law would make it more difficult
for the United States to oppose an impending European Union proposal for
country-of-origin labeling that these officials believe may adversely
affect U.S. meat exports.
H.R. 1144's country-of-origin labeling requirements would benefit
consumers who prefer to purchase U.S. beef and lamb by giving them the
information to make that choice. According to surveys of consumers
sponsored by beef producers, if the prices of domestic and imported beef
were the same, most consumers, if given the choice, would purchase
domestic beef so that they could support U.S. businesses and farmers.
However, domestic meat might be accompanied by higher prices in grocery
stores if demand for it increases or if labeling costs are passed on to
consumers. Certain industry sectors might also benefit from mandatory
country-of-origin labeling. For example, if consumers were to increase
their purchases of domestic beef and lamb, U.S. cattle and sheep producers-
as well as U.S. meat packers, processors, and distributors who handle U.S.
beef and lamb-could realize increased sales or higher prices.
In summary, it is difficult to quantify the cost of labeling meat by
country of origin or to put a value on the potential benefits. Certainly,
such labeling would benefit consumers who want to know where their food
comes from and might increase sales in some sectors of the U.S. meat
industry. However, these benefits would not come without costs. All
industry sectors expect to incur compliance costs that may be passed on to
consumers, and some level of federal enforcement resources would be
needed. In addition, a meat labeling law could have adverse trade
implications.
Background
Total U.S. consumption of beef increased 9 percent-from about 24.3 billion
pounds to nearly 26.6 billion pounds-between 1993 and 1998, the most
recent year for which USDA has compiled such data./Footnote3/ During this
same period, the amount of beef the United States imported increased 10
percent, from 2.4 billion pounds to 2.6 billion pounds. Measured in
dollars, most beef imported into the United States in 1998 came from
Australia, Canada, and New Zealand. The United States also imported about
2 million cattle in 1998: about 1.1 million cattle from Canada for
immediate slaughter and about 170,000 cattle from Canada and about 720,000
cattle from Mexico to be raised in the United States before
slaughter./Footnote4/ The imported cattle represented about 5.5 percent of
the cattle slaughtered in the United States that year.
Between 1993 and 1998, total U.S. consumption of lamb decreased 6 percent-
from about 381 million pounds to about 359 million pounds./Footnote5/ At
the same time, the amount of lamb imported more than doubled, from about
53 million pounds to about 112 million pounds. As measured in dollars,
most lamb imported in 1998 came from Australia and New Zealand. In
addition, in 1998, the United States imported about 46,000 sheep from
Canada, which represented about 1 percent of the total sheep slaughtered
in the United States that year.
Figure 1 shows the sources of imported beef and cattle, as well as
imported lamb and sheep, in 1998, in percentages determined by the dollar
value of the imports.
Figure****Helvetica:x11****1: Sources of Imported Beef and Cattle and
Imported Lamb and Sheep, 1998, in
Percentages Determined by the Dollar
Value of Imports
*****************
*****************
Source: GAO's analysis of USDA's data.
In 1998, we estimate that, by weight, imported beef and beef from imported
cattle accounted for about 14 percent of the U.S. beef supply; imported
lamb and lamb from imported sheep accounted for about 32 percent of the
U.S. lamb supply./Footnote6/ The United States also exported about 2.2
billion pounds of beef and about 6 million pounds of lamb in 1998.
Two country-of-origin meat-labeling bills were pending before the House
Subcommittee on Livestock and Horticulture in July 1999-H.R. 222 and H.R.
1144. Both bills apply to meat from cattle, sheep, swine, goats, horses,
mules, and other equines and amend the provisions of the Federal Meat
Inspection Act that deal with issues of misbranding. USDA has oversight
and enforcement responsibilities for misbranding violations under the act.
Specifically:
o H.R. 222, which was introduced in January 1999, requires that imported
meat and meat food products containing imported meat carry a label
identifying the country of origin. The bill does not require that the
label be maintained to the retail level.
o H.R. 1144, which was introduced in March 1999, applies to imported and
domestic meat and meat from imported animals. It requires that meat
labels inform the "ultimate purchaser" of the country or countries in
which the animal (from which the meat was derived) was born, raised,
and slaughtered, and, if imported, the country from which it was
imported. It defines the "ultimate purchaser" as the person who bought
the meat for consumption or the institution, restaurant, or other food
service establishment that served the meat for consumption. For blended
meat or meat food products, it requires that the country or countries
of origin of the animals from which the meat was derived be listed in
descending order of predominance. To be considered domestic, the meat
had to come from an animal born, raised throughout its entire life, and
slaughtered and otherwise processed in the United States. The bill
identifies meatpackers and processors as initially responsible for
labeling; each subsequent reseller is responsible for ensuring that the
label is maintained.
Because our study focused on the implications of carrying country-of-
origin meat labeling information to the retail level, we discuss the study
issues only in the context of the requirements of H.R. 1144.
H.R. 1144 was among several bills that have been introduced in the
Congress over the last 5 years that would require country-of-origin
labeling for meats at the retail level. In addition, at least a dozen
states have at various times over the past four decades proposed-and
several have passed-laws requiring country-of-origin labeling for meats at
the retail level. However, in 1967, a Supreme Court ruling affirmed a
lower court's finding that one state's country-of-origin law unreasonably
discriminated against imported meat and was unconstitutional. Following
that ruling, some states stopped enforcing their laws and others repealed
theirs. An official in Wyoming, a state that recently enacted a country-of-
origin retail labeling law for meat, told us the state is in the process
of determining how to enforce its law.
In view of the proposed bills that the Congress has considered, it is
important to note that, to some extent, a country-of-origin labeling
requirement already exists for beef and lamb. The Tariff Act of 1930, as
amended, generally requires imported articles to be marked by country of
origin through to the ultimate purchaser. However, meatpackers and
processors do not routinely maintain country-of-origin information. This
is due in part to the fact that the U.S. Customs Service (Customs), which
administers the Tariff Act, does not generally enforce the act's labeling
requirement for meat after inspection at the border. This may also be due
to the fact that USDA has given meatpackers and processors different
guidance on the need to maintain country-of-origin information. More
specifically, USDA, which administers the Federal Meat Inspection Act,
requires that the country of origin appear in English on the carcass or
container of all meat entering the United States. However, unlike Customs,
which requires an imported product to maintain its import identity through
to the ultimate purchaser, USDA considers imported meat to be part of the
domestic meat supply once it passes a USDA safety inspection.
Consequently, any subsequent cutting, blending, or grinding may be done
without maintaining country-of-origin labeling. USDA also considers
imported livestock to be domestic after its Animal and Plant Health
Inspection Service inspects and releases these animals. We are preparing a
report, which will be issued later this year, on the differing treatment
of country-of-origin labeling by Customs and USDA.
The provisions of H.R. 1144 differ from the Tariff Act requirements in
many aspects. For example, the Tariff Act regards the meat from imported
animals slaughtered in the United States as U.S. meat. H.R. 1144 would not
regard the meat as domestic and would require its label to identify the
country or countries in which the animal was born, raised, and slaughtered.
All Sectors of the Meat Industry Expect to Incur Compliance Costs, but the
Magnitude Is Uncertain
---------------------------------------------------------------------------
Mandatory country-of-origin labeling for meat as prescribed by H.R. 1144
would necessitate changes in current meat industry practices; these
changes would, in turn, impose compliance costs across all industry
sectors. However, the magnitude of these costs is uncertain. It is also
unclear who would bear those compliance costs.
Compliance Costs Would Stem From Changes in Current Practices
-------------------------------------------------------------
U.S. meat producers, packers, processors, distributors, and retailers
would have to change their practices to comply with a mandatory country-of-
origin labeling law at the retail level. To ensure the integrity of
country-of-origin information on meat packages that reach consumers,
origin information would need to be established and maintained from the
animal in the field and from the point of importation to the grocery
store. The additional efforts and associated costs for compliance for each
industry sector would depend on the extent to which current practices
would have to be changed. For the most part, information on country of
origin is not maintained by these industries. Figure 2 presents a
simplified version of the main activities involved in bringing beef to
consumers and of the industry sectors that generally perform those
activities, using the examples of the major beef exporters to the United
States. It is followed by a discussion of the potential labeling costs for
each sector.
Figure****Helvetica:x11****2: Activities Involved in Bringing Beef to
Consumers
*****************
*****************
Notes: By dollar value, beef imported in 1998 came from Canada (40
percent), Australia (25 percent), New Zealand (18 percent), Brazil (6
percent), Argentina (5 percent), and other nations (6 percent). Virtually
all cattle imported for immediate slaughter in 1998 came from Canada
(about 1.1 million head). Virtually all cattle imported in 1998 to be
raised in the United States before slaughter came from Mexico (about
720,000 head) and Canada (about 170,000).
Potential Producer Costs
Under the provisions of H.R. 1144, only animals born, raised, and
slaughtered in the United States would be considered "domestic" and their
meat a U.S. product. In contrast, under current USDA rules, cattle that
are imported to be raised and slaughtered in the United States may be
considered part of the domestic herd after they have been inspected by
USDA at the border and released. U.S. producers generally do not provide
packers with information identifying the country of origin of the
livestock when they are sold for slaughter.
Many U.S. producers import cattle from Mexico or Canada to raise to a
slaughter weight of about 1,300 pounds. Producers who import these animals
would incur compliance costs to maintain information on the country where
each animal was born and raised. During 1998, about 720,000 head of cattle
were imported from Mexico by ranchers located primarily in Arizona, New
Mexico, and Texas; about 170,000 head of cattle were imported from Canada
by ranchers located primarily in Idaho, Montana, North Dakota, and
Washington State.
To comply with H.R. 1144, U.S. producers could be required to track and
maintain detailed records of the movements of their livestock and have
controls in place to ensure the accuracy of this information. The
implementing regulations would determine the amount of information that
would have to be maintained and the manner in which this information would
be maintained-for example, whether ear tags or documentation that
described the animals' international movements would be used. The American
Meat Institute testified before your Subcommittee in April 1999 that ear
tags would cost producers about $2.50 per animal./Footnote7/
The requirements of H.R. 1144 would have a negligible impact on U.S. sheep
producers because only a small number of live sheep are imported.
Potential Packer and Processor Costs
H.R. 1144 identifies packers and processors as initially responsible for
ensuring that the integrity of country-of-origin meat labeling is
maintained to the ultimate purchaser. Currently, both Customs and USDA
regard the country in which an animal is slaughtered as the country of
origin of the meat from that animal. Thus, the meat from cattle and sheep
slaughtered in the United States is generally considered to be U.S. meat.
Packers and processors generally neither need nor maintain detailed
country-of-origin information concerning the animals they buy from U.S. or
foreign producers.
To comply with H.R. 1144, which considers only animals born, raised, and
slaughtered entirely in the United States as "domestic," meatpackers and
processors would need to receive and maintain accurate, detailed records
about the international movements, if any, of the animals they purchase
from U.S. producers. Furthermore, meatpackers would need to maintain
accurate country-of-origin records on meat from both the cattle imported
for direct slaughter and the cattle purchased from U.S. producers that had
been imported and raised in the United States. Depending on the stringency
of the implementing regulations, packers might need additional animal-
holding pens and meat storage and chilling facilities to segregate animals
and meat by country of origin. Packers might also need new labels and/or
labeling equipment to indicate the country of origin of the carcasses,
organ meats, and other animal parts used for human consumption from
slaughtered animals. When we visited a large packer, we observed that the
meat storage areas were fully stocked. The slaughter and carcass-cutting
activities, which were carried out in an assembly-line process, also fully
occupied the plant's floor space. According to plant officials, if they
were required to segregate meat from imported animals, they would have to
build additional refrigerated storage space and enlarge the meat-cutting
area.
Similarly, processors might need to separate meat from different countries
before it enters their production runs-cutting, grinding, and blending.
Depending on the strictness of the implementing regulations, preventing
the contamination of one production run by another could require the
entire production line to be shut down between runs for cleaning. The
meats might have to be placed in different chilling and storage areas
and/or marked in some way to ensure that country-of-origin information is
maintained until the meat is packaged and labeled. Segregating meats may
require additional equipment, such as refrigeration units, storage bins,
and racks.
According to the Food Industry Trade Coalition, which is comprised of food
processors, manufacturers, distributors, and marketers, labeling blended
meats by country of origin would be particularly burdensome to U.S.
processors. H.R. 1144 requires that, for blended meat, the country or
countries of origin of the animals from which the meat is derived are to
be listed in descending order of predominance. For example, to meet the
demand by U.S. consumers for lean ground beef, U.S. processors typically
blend the fatty trimmings from domestic beef with leaner cuts and
trimmings from imported beef or domestic cows or bulls. In addition, the
developing integration of the cattle industry among the United States,
Canada, and Mexico further complicates the labeling scenario for ground
beef. If any of the trimmings were from animals that were born in Canada
or Mexico or spent any time at a Canadian or Mexican feed lot, that
information would have to appear on the label for hamburger meat under
H.R. 1144. Processors would face the challenge of maintaining detailed
records to track a number of possible different countries of origin in
their hamburger supply and to maintain accurate label information. And,
depending on the requirements in implementing regulations, the complexity
and associated costs could be increased if processors also had to track
the relative proportion of meat from different sources in each production
run of ground beef. Processors might also need new labels and/or labeling
equipment, redesigned packaging, or some other way of indicating the
country of origin of the meat and meat products.
The American Meat Institute surveyed its member companies to develop an
estimate of annual compliance costs for an earlier country-of-origin
labeling proposal. Basing its estimate on the provisions of that earlier
proposal, the Institute estimated that compliance with country-of-origin
labeling requirements would cost beef packers and processors $182 million,
which would be equivalent to three-quarters of a cent per pound on all
beef produced in the United States. Beef-packing plants that slaughter
both domestic cattle and cattle imported for immediate slaughter reported
their compliance costs would total 7 to 8 cents per pound on their plants'
production. However, the estimate did not include the costs of identifying
and maintaining country-of-origin information for meat from cattle that
were imported and raised in the United States. As noted earlier, under
current law, meat from such animals is considered to be domestic but would
be considered imported under H.R. 1144. The Institute did not develop an
estimate for compliance costs for lamb.
Potential Distributor Costs
Distributors, including wholesale distributors, generally handle boxed
meats and carcasses, which may be imported directly or purchased from U.S.
meatpackers and processors. Distributors generally do not cut or process
meat and generally would not repackage meats. Consequently, under H.R.
1144, their compliance burden would be limited to maintaining controls to
ensure that records stay with the meats.
Potential Retail Grocery Costs
Retail grocery stores perform many of the same activities as meat
processors and would have the same types of compliance burdens. That is,
retail grocery stores receive boxes of large cuts of meat, which their
meat departments cut up and repackage into smaller retail cuts; the stores
also grind the trimmings into hamburger meat. On our visit to a typical
store in a large grocery chain, we observed that space was limited; the
single butcher on duty would prepare several packages of one cut of meat,
such as chuck roast, followed by several packages of another cut, such as
strip steak. We also observed that fat trimmings from various cutting
operations were put into a single receptacle and subsequently ground
together into hamburger meat. Segregating imported meats would be
difficult under these space and labor constraints. In addition, many
grocery stores and butcher shops make their own sausage and meat loaf mix.
The Food Marketing Institute and the National Grocers Association have
estimated that complying with country-of-origin labeling for meat would
cost the nation's approximately 156,300 large and small retail grocery
stores about $375 million. To comply with H.R. 1144, stores might have to
separate their storage, cutting, and grinding operations to keep meats
from different countries segregated. Also, grocery stores typically use
machines that, in addition to packaging retail meat cuts, place labels
with such information as weight and price, as well as handling and cooking
instructions, on the packages. The addition of country-of-origin
information on meat packages, as required in H.R. 1144, might make it
necessary for grocers to modify or replace existing labeling machines.
It Is Not Clear Who Would Bear Compliance Costs
-----------------------------------------------
Although a country-of-origin labeling law would create compliance costs
for the beef and lamb industries, it is not clear how the burden of these
costs would be distributed. U.S. packers, processors, distributors, and
retailers would, to the extent possible, pass any compliance costs back to
their suppliers or on to consumers. These industries might attempt to pass
their costs to U.S. producers and foreign exporters in the form of lower
prices paid for livestock and imported meat; they might also attempt to
pass their costs to consumers in the form of higher prices for meat sold
at the retail level. However, they would be limited in their ability to do
so to the extent that consumers reduce their meat purchases in response to
higher meat prices. For example, some consumers may respond to higher
prices by purchasing alternatives to beef and lamb, such as chicken. The
success of such attempts would depend on the relative strengths of the
various segments of the meat industry. Packers, processors, distributors,
and retailers may also try to reduce their costs by deciding to handle
only domestic livestock and meat products. Such a move could possibly lead
to an increase in prices for domestic meat products, if the supply of meat
were not sufficient to meet demand; it could also result in a reduction in
choices for consumers. To the extent that they are unable to shift the
costs for compliance, packers, processors, distributors, and retailers
will have to accept a reduction in their profit margins.
Enforcement Resources Would Be Needed for an Inherently Difficult Task
----------------------------------------------------------------------
Enforcement costs for country-of-origin labeling for meat, as embodied in
H.R. 1144, would be incurred because government regulators would have to
adequately oversee all sectors of the meat industry affected by the
legislative requirements. The enforcing agency would have to implement a
monitoring system to ensure that the identity of meat is maintained at the
producer, packer, processor, distributor, and retail levels. Enforcement
could require significant inspection resources to ensure that (1)
producers and packers maintain the origin identity of their imported
livestock; (2) packers, processors, distributors, and retail grocers
maintain the original identity of the meats; and (3) the information on
the labels that reach consumers are accurate and complete. Because
inspectors would generally be unable to determine the country of origin of
livestock or meat from visual inspection, they might need to periodically
review the entire industry's internal controls, practices, and records.
No single federal agency has a presence throughout all sectors of the meat
industry. Both USDA and Customs have the authority to enforce existing
country-of-origin labeling requirements. Both agencies have inspectors at
U.S. borders and ports of entry, and USDA and the states share the
responsibility for inspecting U.S. packers and processors. State and local
officials generally inspect retail grocery stores for compliance with
state health and safety laws. USDA also collects ground beef samples at
about 4 percent of the nation's grocery stores each year.
H.R. 1144 proposed amending the misbranding provisions of the Federal Meat
Inspection Act, for which USDA has oversight and enforcement
responsibilities. According to USDA officials, the Department did not
develop an estimate of the cost to enforce H.R. 1144. However, USDA had
determined, on the basis of a 1998 proposal to label imported beef and
lamb at the retail level, that enforcement "would require extensive record
keeping, segregation and tracking of both imported animals and meat."
/Footnote8/ USDA estimated the annual cost to monitor for compliance with
the 1998 bill would have been at least $60 million for its Food Safety and
Inspection Service, which was more than 10 percent of that agency's entire
annual budget. This estimate, prepared by USDA's Office of the Chief
Economist, assumed that USDA would carry out all inspection and
enforcement activities. It was based on two inspection visits annually to
250,000 retail establishments (grocery and convenience stores and meat
markets) selling beef or lamb and 50,000 packers, processors, and other
handlers of beef and lamb, at a cost of $100 per visit for labor, travel
costs, and record-keeping. We did not independently verify this estimate.
However, USDA's estimate did not take into account all the requirements of
H.R. 1144. For example, the estimate did not (1) include enforcement costs
for other meat industries nor (2) consider monitoring and enforcement
costs for ensuring the identity of meat from imported animals that are
raised at U.S. feedlots before slaughtering.
A Meat Labeling Law Could Have Adverse Trade Implications
Any labeling law would need to be consistent with international trade
rules that the United States has agreed to, including those embodied in
the World Trade Organization (WTO) and the North American Free Trade
Agreement (NAFTA), in order to withstand any challenges that could be
brought by U.S. trading partners./Footnote9/ WTO provisions recognize the
need to protect consumers from inaccurate information while minimizing the
difficulties and inconveniences that labeling measures may cause to
commerce. While WTO rules permit country-of-origin labeling, they require,
among other things, that the labeling of imported products not result in
serious damage to the product, a material reduction in its value, or an
unreasonable
increase in its cost./Footnote10/ WTO rules also require that imported
products be provided national treatment-that is, that they be treated no
less favorably than domestic products with regard to laws and regulations
affecting their internal sale, offering for sale, purchase,
transportation, distribution, or use. Likewise, NAFTA permits country-of-
origin labeling but requires that any such marking requirement be applied
in a manner that would minimize difficulties, costs, and inconvenience to
a country's commerce. In addition, both WTO and NAFTA contain procedures
for settling disputes between member countries over the consistency of
these countries' laws, regulations, and practices with the agreements.
According to officials with the Office of the U.S. Trade Representative,
USDA, and the Department of State, U.S. trading partners could raise
concerns that a U.S. country-of-origin labeling law might adversely affect
their meat exports to the United States by increasing the cost of, or
reducing the demand for, these exports. In particular, both Australia and
New Zealand have indicated they would view any new measures, such as a
meat-labeling law, as an undue hardship and an unnecessary obstacle to
trade, according to Department of State officials./Footnote11/
Specifically, a New Zealand official, in an October 1999 letter to the
Department of State, noted that country's opposition to country-of-origin
labeling for meat products. The letter stated that such labeling was not
needed to address any food safety or health concerns and that the only
purpose would be to imply a quality differential. It further stated that
New Zealand, as a matter of principle, opposes such mandatory labeling for
meat and that such labeling imposes an unjustifiable cost on foreign
producers and, ultimately, American consumers.
Some cattle industry officials are also concerned that country-of-origin
labeling requirements could adversely affect the developing integration of
the cattle industry among the United States, Canada, and Mexico.
Currently, a large number of cattle move across the borders of these
countries. Canadian cattle enter the United States for slaughter, and U.S.
cattle are sent for slaughter to Canada or Mexico. In addition, cattle
born in Canada and Mexico are raised, slaughtered, and processed in the
United States.
According to officials with the Office of the U.S. Trade Representative
and the Department of State, Canada has expressed its view that a U.S. law
requiring country-of-origin labeling all the way to the consumer-for
imported meat that is further processed after it enters the United States
and for meat from imported animals slaughtered in the United States-would
be a violation of NAFTA and WTO provisions and that Canada would seek
relief under those agreements. These officials told us that Mexico might
raise similar concerns. Under NAFTA's dispute settlement provisions,
Mexico had requested consultations with the United States to discuss its
concerns that an earlier U.S. country-of-origin labeling bill for fresh
produce would have violated certain NAFTA provisions./Footnote12/
U.S. trade representatives have worked informally and cooperatively to
oppose certain other countries' country-of-origin labeling requirements.
However, the United States has not formally challenged any such
requirements within the WTO. WTO officials said they were unaware of any
formal challenges to any country's labeling requirements. Yet, according
to both USDA and WTO officials, the absence of any formal challenge does
not necessarily indicate that existing country-of-origin labeling
requirements are consistent with WTO rules. The absence of formal
challenges to existing laws also does not preclude such laws from being
challenged in the future if, for example, they were considered to be
discriminatory in nature or to create unnecessary obstacles to trade.
Moreover, because the United States is such a large importer and exporter
of fresh meat, USDA and Department of State officials pointed out that a
U.S. labeling law is more likely to be formally challenged than are other
countries' laws. USDA and Department of State officials are concerned
about the impact on U.S. exports of a meat-labeling rule that the European
Union plans to implement in the near future. If implemented, this rule
would impose stringent country-of-origin labeling requirements that the
U.S. meat industry would likely find difficult to comply with, according
to USDA officials. These officials noted that a U.S. labeling law would
make it more difficult for the United States to oppose such a proposal
under international trade agreements.
USDA officials and some industry representatives have also expressed
concern that mandatory country-of-origin labeling for meat to the retail
level could be viewed as a trade barrier and might lead to actions that
could hurt U.S. exports. According to USDA's Foreign Agricultural Service,
of the 15 countries that purchase the majority of U.S. beef, at least 11
already require that at least some of the meat they import be labeled by
country of origin at the retail level. Currently, these countries accept
meat exported by the United States to be a product of the United States as
long as it bears a marking indicating that it was inspected by USDA-in
lieu of a country-of-origin marking that identifies where the animal was
born. According to the Foreign Agricultural Service, should the United
States enact a labeling law that these countries found to be onerous, they
could act to enforce their own laws more stringently by, for example,
refusing to accept the USDA seal on meat exports from the United States.
In addition, trading partners that do not currently require country-of-
origin information at the retail level might be prompted to impose such
requirements.
Country-of-Origin Labeling Would Provide Information to Consumers and
Benefit Some Sectors of the U.S. Beef and Lamb Industries
---------------------------------------------------------------------------
Country-of-origin labeling for beef and lamb would benefit consumers who
would prefer to purchase meat from U.S. cattle and sheep by giving these
consumers the information to make that choice. The consumer groups with
which we spoke--Consumers Union, the Consumer Federation of America, the
Center for Science in the Public Interest-generally agreed that consumers
would favor such labeling and that consumers have the right to know where
their food comes from.
The National Cattlemen's Beef Association sponsored the only surveys of
consumers' views on country-of-origin labeling for meat sold in grocery
stores that we were able to identify during the course of our study. The
Association testified before your Subcommittee that, according to a poll
taken in November 1998, the majority of shoppers surveyed supported the
concept of putting country-of-origin labels on fresh meat sold in
supermarkets. In a nationwide survey in March 1999, 91 percent of the
consumers polled said that given a choice between domestic and imported
meats that were the same price, they would purchase ground beef or steak
labeled "Product of the United States" over the same meats labeled
"imported product."/Footnote13/ Of those who said they would select the
U.S. meat, more than two-thirds said they would do so because they prefer
to buy American and support American businesses and farmers; 13 percent
thought U.S. beef would be safer; and 9 percent thought it would be of
higher quality. When asked to choose among packages of beef labeled
product of Canada, Australia, the United States, or New Zealand, nearly
90 percent said they would choose the U.S.-labeled beef if the prices were
the same. However, the surveys did not ask consumers whether they would be
willing to pay higher meat prices for country-of-origin information.
If country-of-origin labeling were to result in increased demand for
domestic beef and lamb, then U.S. cattle and sheep producers who do not
handle imported animals-as well as the packers, processors, and
distributors who handle beef and lamb that come primarily from
domestically born, raised, and slaughtered animals-might also benefit from
higher prices and increased sales. However, because H.R. 1144 would allow
only meat from animals born, raised, and slaughtered in the United States
to be labeled as domestic meat, those producers who share feeding or
slaughtering activities with Canadian or Mexican producers might see lower
sales and revenues. In addition, packers, processors, and distributors who
handle imported livestock and/or meat might see lower sales and reduced
profits.
Agency Comments and Our Response
--------------------------------
We provided USDA, the Office of the U.S. Trade Representative, and the
Department of State with a draft of this report for their review and
comment. We met with USDA officials, including the Food Safety and
Inspection Service's Assistant Deputy Administrator, Office of Policy
Program Development and Evaluation, and the Director, Internal Control
Staff. USDA responded that the report provided an accurate and even-handed
presentation of the potential compliance and enforcement costs, as well as
the trade implications, associated with H.R. 1144. USDA also stated its
concern that, if H.R. 1144 were enacted, countries to which the United
States exports meat may impose requirements on the United States that
would necessitate a comprehensive tracking system for all animals produced
for consumption in the United States. With regard to the potential
benefits, USDA believes that if consumer demand for U.S. meat truly
existed, the industry would already be using labels to distinguish U.S.
meat from other countries' meat because there would be economic incentives
to do so. USDA also suggested technical clarifications that we
incorporated as appropriate. We also spoke with the Director of
Agricultural Affairs and Technical Barriers to Trade in the Office of the
U.S. Trade Representative and with the Economic/Commercial Officer,
Agricultural Trade Policy Division in the Department of State. These
officials told us that the information in the report on potential trade
implications was accurate; they also offered technical clarifications that
we incorporated as appropriate.
Scope and Methodology
---------------------
As you requested, we addressed the objectives of this study in the context
of H.R. 1144. As agreed with your office, we did not conduct a detailed
cost-benefit analysis, but we did discuss the potential benefits and costs
of H.R. 1144 with federal officials and industry and consumer
representatives. Also, because the USDA study on meat labeling was not
released until January 12, 2000, we did not analyze and discuss that study
in this report. Additionally, this report did not discuss the safety of
imported meat because the United States imports meat only from the 37
countries that USDA has certified as having safety standards for meat that
are equivalent to U.S. standards.
To determine the potential costs associated with compliance and
enforcement, we interviewed officials and/or reviewed documents from
USDA's Agricultural Marketing Service, Animal and Plant Health Inspection
Service, Economic Research Service, National Agricultural Statistics
Service, Foreign Agricultural Service, and Food Safety and Inspection
Service; and the U.S. Customs Service. We reviewed the existing
legislation related to country-of-origin labeling, including the Federal
Meat Inspection Act and the Tariff Act of 1930, as amended. We also
interviewed officials and/or reviewed documents from the Food Industry
Trade Coalition, Food Marketing Institute, National Cattlemen's Beef
Association, American Meat Institute, American Sheep Industry Association,
and National Meat Association. In addition, we visited a beef-packing
plant to examine how imported animals and the meats produced from them
were segregated throughout slaughtering, cutting, chilling, and other
activities occurring at the plant. We also visited a distribution facility
and retail outlet for a large grocery chain to examine how meats are
labeled when they arrive at the facility and retail outlet and how they
are further processed, repackaged, and labeled. We did not independently
verify the compliance and enforcement cost estimates developed by industry
sectors and USDA. To learn about compliance and enforcement experiences
with state labeling laws, we spoke with state officials in Kansas, North
Dakota, South Dakota, and Wyoming.
To determine the potential trade implications of country-of-origin
labeling for beef and lamb, we reviewed documents and interviewed
officials from the Office of U.S. Trade Representative, the Foreign
Agricultural Service, the WTO, and the Department of State. We also
examined international trade agreements. We identified U.S. trading
partners that have country-of-origin labeling requirements for beef (and
veal) and lamb (and mutton), and we reviewed the February 4, 1998, survey
conducted by the Foreign Agricultural Service, 1998 Foreign Country of
Origin Labeling.
To determine the potential benefits of mandatory country-of-origin
labeling, we examined documents and interviewed officials from the
Consumer Federation of America, Center for Science in the Public Interest,
Consumers Union, National Cattlemen's Beef Association, American Sheep
Industry Association, American Meat Institute, and Food Marketing
Institute. We also analyzed the results of a nationwide telephone survey
of consumer opinions regarding mandatory country-of-origin labeling
administered in March 1999. The survey was sponsored by the National
Cattlemen's Beef Association and conducted by a contractor using a random-
digit dialing methodology. We also spoke with officials and obtained
documents from USDA's Food Safety and Inspection Service about the
relative safety of imported and U.S. beef and lamb.
We conducted our review from September 1999 through January 2000 in
accordance with generally accepted government auditing standards.
As requested, unless you publicly announce its contents earlier, we plan
no further distribution of this report until 10 days after the date of
this letter. At that time, we will send copies of this report to Senator
Richard G. Lugar, Chairman, and Senator Tom Harkin, Ranking Minority
Member, Senate Committee on Agriculture, Nutrition, and Forestry; and
Representative Larry Combest, Chairman, and Representative Charles W.
Stenholm, Ranking Minority Member, House Committee on Agriculture. We will
also send copies of this report to the Honorable Dan Glickman, Secretary
of Agriculture; the Honorable Madeleine Korbel Albright, Secretary of
State; the Honorable Raymond Kelly, Commissioner of Customs; the Honorable
Jacob J. Lew, Office of Management and Budget; and Ambassador Charlene
Barshefsky, the U.S. Trade Representative. We will also make copies
available to others upon request.
If you would like more information about this report, please contact me or
Erin Lansburgh at (202) 512-5138. Key contributors to this report were
Erin Barlow, Stephen Cleary, and Clifford Diehl.
Sincerely yours,
*****************
*****************
Robert E. Robertson
Associate Director, Food
and Agriculture Issues
(150156)
--------------------------------------
/Footnote1/-^Conference Report 105-825 accompanied H.R. 4328, which became
the Omnibus Consolidated and Emergency Supplemental Appropriations Act,
1999 (P.L. 105-277, Oct. 21, 1998).
/Footnote2/-^Another bill pending before your Subcommittee-H.R. 222-
requires country-of-origin labeling for imported meat; however, it does
not require that the label be maintained to the retail level.
/Footnote3/-^These data include veal.
/Footnote4/-^Nearly 90 percent of cattle imported to be raised in the
United States before slaughter weigh less than about 700 pounds at the
time they are imported. These cattle include stocker calves, which
generally weigh up to about 400 pounds, and feeder cattle, which weigh
over 400 pounds. Cattle are slaughtered at about 1,300 pounds.
/Footnote5/-^These data include mutton.
/Footnote6/-^These estimates were calculated from USDA data, including (1)
Economic Research Service data on beef and lamb production, (2) Economic
Research Service and Foreign Agricultural Service data on imports, and
(3) National Agricultural Statistics Service data on slaughter.
/Footnote7/-^The United Kingdom, which requires the tagging of cattle, has
placed the cost of ear tags at about $1.60 to $3.20 (based on the
current exchange rate) per animal. The Canadian Food Inspection Agency,
which will be implementing a national cattle identification program that
is set to go into effect on Dec. 31, 2000, has a lower preliminary
estimate for ear tags of about $0.68 to $1.00 (based on the current
exchange rate) per animal.
/Footnote8/-^In July 1998, the Senate passed an amendment to the fiscal
year 1999 appropriations bill that would have required fresh muscle cuts
of beef and lamb, as well as ground or other processed beef and lamb, to
be labeled as U.S. beef; U.S. lamb; imported beef; imported lamb; or, in
cases where domestic and imported product was mixed, with the percentage
content of U.S. and imported beef or lamb contained in the product.
USDA's estimate was compiled as part of its comments on that bill.
/Footnote9/-^The WTO was established in 1995 as a result of the Uruguay
Round of the General Agreement on Tariffs and Trade (1986-94). The WTO
facilitates the implementation, administration, and operation of
multiple agreements that govern trade among its member countries. NAFTA
is a multilateral trade agreement that contains obligations governing
trade among Canada, Mexico, and the United States.
/Footnote10/-^In addition, country-of-origin labeling is covered as a
technical regulation subject to the WTO Agreement on Technical Barriers
to Trade. This agreement provides general guidelines for developing and
applying technical regulations.
/Footnote11/-^In July 1999, the United States imposed a duty on imports of
lamb from Australia and New Zealand. In the first year, the duty is 9
percent on amounts up to the allowable poundage and 40 percent on
amounts above the allowable poundage. These percentages decrease in each
of the 3 years for which the duty is to be in place.
/Footnote12/-^For additional information on the implications of mandatory
country-of-origin labeling for fresh produce, see Fresh Produce:
Potential Consequences of Country-of-Origin Labeling (GAO/RCED-99-112,
Apr. 21, 1999).
/Footnote13/-^In commenting on a draft of this report, USDA pointed out
that labels reading "imported product" might violate the national
treatment requirements of WTO.
*** End of document. ***