mCOOL

July 1, 2020

mCOOL

There has been a lot of discussion recently about the merits of country-of-origin labeling, both voluntary and mandatory. KLA members always have believed the livestock industry is best served by the process of free enterprise and free trade. Therefore, KLA policy opposes any attempts to narrow the business options or limit the individual freedom of livestock producers to innovate the management and marketing of their production. These operating principles are used to guide all policy decisions, including those surrounding country-of-origin labeling. Below is a review of country-of-origin labeling and how KLA’s policy on the issue came to be.

DOES KLA SUPPORT COUNTRY-OF-ORGIN LABELING?
Yes. KLA supports market-driven country-of-origin labeling programs. KLA does not support government-mandated country-of-origin labeling. 

 HOW DID KLA ARRIVE AT THIS POSITION?
Just like every other policy position taken by KLA, our opposition to mandatory country-of-origin labeling (MCOOL) came from our member-driven policy development process. KLA policy is developed through standing committees and councils, primarily at the annual KLA Convention. 

WHAT IS THE HISTORY OF MCOOL?
The 2002 Farm Bill included language creating an MCOOL program. The language was expected to lead to a program requiring significant documentation from U.S. producers to validate cattle were of U.S. origin. Opponents of the law, including KLA, worked with members of Congress to block implementation of the program because of the costs U.S. producers would face. In the 2008 Farm Bill, the MCOOL law was modified to reduce compliance costs. MCOOL was implemented in March 2009. The law was later modified, with new rules implemented in May 2013. MCOOL was repealed in December 2015. 

WHAT WERE THE DETAILS OF THE MCOOL LAW?
The MCOOL law required country-of-origin information be provided for beef muscle cuts and ground beef sold at retail. Under the 2009 rule, muscle cuts were labeled “Product of the U.S.” for beef derived from cattle born, raised and harvested in the U.S. Beef from cattle born in Mexico, then raised and harvested in the U.S., were labeled “Product of the U.S. and Mexico.” The 2013 MCOOL rule required more specificity. Examples included “Born, raised and harvested in the U.S.” and “Born in Mexico, raised and harvested in the U.S.” 

HOW DID THE WORLD TRADE ORGANIZATION VIEW MCOOL?
The World Trade Organization (WTO) is the arbiter of trade agreements between member nations. When a country believes a trading partner has instituted policies in violation of trade agreements, they can file a complaint requesting a review by WTO. U.S. beef producers have benefited from WTO decisions in the past.  

Prior to the implementation of MCOOL, both Canada and Mexico asserted the labeling program would violate U.S. trade obligations under several WTO agreements. These obligations include treating imports no less favorably than like products of domestic origin; making sure that product-related requirements are not more trade restrictive than necessary to fulfill a legitimate public policy objective; ensuring that compliance with laws on marks of origin does not result in damaging imports, reducing their value, or unreasonably increasing their cost; and ensuring that laws, rules and procedures on country-of-origin do not “themselves create restrictive, distorting, or disruptive” international trade, among others. Following implementation of MCOOL, Canada and Mexico requested WTO establish a dispute settlement panel to consider their case. The panel was established in November 2009.  

The first ruling against the U.S. MCOOL program occurred in November 2011. In June 2012, the U.S. lost an appeal. In May 2013, USDA issued new MCOOL rules in an attempt to address the WTO findings. In October 2014, the WTO dispute panel again ruled against the U.S. MCOOL program. The U.S. appealed the finding, but in May 2015 the WTO Appellate Body again found the MCOOL program violated U.S. trade obligations. In June 2015, Canada and Mexico requested authority to impose $3 billion in retaliatory tariffs against U.S. products. Canada made clear their intent to apply a 100% tariff on U.S. beef. On December 7, 2015, WTO authorized just over $1 billion in tariffs to be implemented on December 21, 2015. On December 18, 2015, Congress repealed MCOOL.  

The retaliatory tariffs authorized by WTO would have had the effect of closing two of the three largest export markets to U.S. beef. Even though Congress prevented WTO from placing tariffs on U.S. beef in 2015, the WTO case remains active. Canada and Mexico kept the case active to put pressure on the U.S. and prevent any attempt at reinstating MCOOL in the future. If the U.S. implements a new MCOOL program, Canada and Mexico can immediately retaliate. 

WHAT RESEARCH WAS CONDUCTED REGARDING THE COSTS AND BENEFITS OF MCOOL?
Multiple analyses were conducted on MCOOL to identify and quantify the costs and benefits associated with the program. Costs were relatively easy to identify. The record keeping and segregation required to ensure accurate labels came at a clear cost. In developing the rule to implement MCOOL, USDA estimated the incremental implementation costs at $1.3 billion for beef. In a 2015 report to Congress commissioned by the USDA Office of the Chief Economist, researchers used a different modeling method to determine the 10-year cumulative costs of MCOOL at $8.07 billion for the beef industry.  Benefits of the program proved much more difficult to identify and quantify. Authors of the 2015 report to Congress reviewed multiple studies, with all concluding that MCOOL did not increase consumer demand for beef. Several studies determined consumers were unaware of MCOOL information. In a paper published in September 2019, Kansas State University agricultural economist Glynn Tonsor used a different economic model to evaluate the demand impacts of MCOOL. Once again, no positive demand impact was identified. In fact, this model indicated beef demand was higher both before implementation of MCOOL and after the rule was repealed. 

WHY DIDN'T MCOOL PROVIDE THE INTENDED BENEFITS? 
There likely are a number of reasons. Most imported beef is sold through foodservice channels, which were exempt under the MCOOL law. The vast majority of beef sold through retail came from cattle with at least one production step occurring in the U.S. With all beef products displaying a similar mandatory label, consumers were not able to differentiate their purchasing behavior when buying meat. Another reason for the lack of success is consumers have indicated they do not value origin information. In the April 24, 2020, Meat Demand Monitor published by K-State’s Glynn Tonsor, consumers ranked origin information 11th out of 12 attributes important to them when making meat purchasing decisions. 

DIDN'T RECORD CATTLE PRICES OCCUR WHILE MCOOL WAS IN EFFECT?
That is accurate. However, concluding the prices were the result of MCOOL would be a mistake. Doing so would be forgetting the old adage that correlation does not imply causation. The primary contributor to record cattle prices was historically low cattle numbers that followed herd reductions due to widespread drought. 

Additionally, some claim the shift to lower cattle prices was triggered by repeal of MCOOL. That ignores the fact that fed cattle prices began moving lower in early 2015, well before MCOOL was repealed.  

Other events that occurred during the period MCOOL was in place, include the closure of at least three major beef processing plants. The Cargill plant in Plainview, TX, closed February 1, 2013. The National Beef plant in Brawley, CA, closed May 23, 2014. Tyson closed the Denison, IA, plant on August 14, 2015. All three companies cited low cattle numbers as a reason for closing each plant.  

Imported beef always is intertwined in the MCOOL discussion. Beef imports reached their highest point in the last five years, and the third-largest total in the last 20 years, in 2015. Lower beef imports in 2016 likely were more reflective of increasing U.S. beef production, not the repeal of MCOOL. 

WHAT ABOUT LOOPHOLE THAT COULD ALLOW IMPORTED MEAT TO CARRY A "PRODUCT OF THE U.S." LABEL?
Under current rules, imported lean trim can be mixed with fatty trimmings to make ground beef, then be labeled as “Product of the U.S.” NCBA established a working group to study this issue. While they found no examples of the loophole being utilized, they determined that the loophole should be closed. NCBA has petitioned USDA to eliminate the authority that allows the loophole. 

SOURCES:

COOL Report to Congress, 2015 
www.usda.gov/oce/economics/reports/COOL_ReportToCongress.pdf      

Overview of MCOOL Demand Impact, 2019 
www.agmanager.info/ag-policy/livestock-policy/overview-mcool-impact-ksu-domestic-beef-and-pork-demand-indices    

Meat Demand Monitor 
www.agmanager.info/livestock-meat/meat-demand/monthly-meat-demand-monitor-survey-data/meat-demand-monitor-april-2020      

Country-of-Origin Labeling for Foods and the WTO Trade Dispute on Meat Labeling 
https://crsreports.congress.gov/product/pdf/RS/RS22955    

Beef Import Data 

www.ers.usda.gov/data-products/livestock-and-meat-international-trade-data