Offsetting the costs associated with the Country of Origin Labeling Law will require a 1 to 5 percent increase in related product demand, according to USDA.
Officials with USDA's Agricultural Marketing Service outlined the regulatory rules for the Country of Origin Labeling Law at an Oct. 26 press briefing in Washington, D.C.
Kenneth Clayton, associate administrator for Agricultural Marketing Service, says the benefits offered through the labeling mandate are difficult to quantify. While the majority of surveyed consumers say they want a labeling law, labels typically are not at the top on consumers' list of required attributes when purchasing groceries.
A cost/benefit analysis by Clayton took into account both direct costs to those involved in the manufacturing or marketing of covered commodities, and economy-wide effects that go beyond those who are directly impacted by the rule.
Direct costs directly include record-keeping expenses, which USDA last fall estimated to be about $1.9 billion.
“With the passage of time, and taking into consideration any changes that may or may not have to be made to develop records and record-keeping systems and the labor involved to maintain records, we've now come up with an annual record-keeping cost burden estimated to be $582 million for the first year of development and operation,” Clayton says.
Once the labeling program is in place, Clayton says, that figure should drop to about $458 million per year.
“We believe many folks in the marketing chain, beyond just the development and maintenance of records will have to make modifications,” he says. “In addition to the record-keeping costs themselves there will be a need to make capital modifications in plants, and processing plants handling both imported and domestic products will need to physically segregate product movement.”
Clayton estimates that when the record-keeping costs of $582 million are added to potential capital costs, program costs could be in the neighborhood of $3.9 billion.
Working with USDA's Economic Research Service, Clayton says, his agency estimates that the Country of Origin Labeling Law could mean an additional $138 million to $596 million annual boost to the overall economy.
A.J. Yates, Agricultural Marketing Service administrator, says country of origin labeling is a retail labeling law, with retailer defined as anyone who annually sells more than $230,000 worth of fruits and vegetables. The definition excludes butcher shops, fish markets, exporters and delis located within retail establishments that provide ready-to-eat foods. Food service establishments such as restaurants are also exempted by the statute.
Covered commodities include most cuts of meat, including veal, lamb, pork, ground beef, ground lamb, ground pork, farm-raised fish and shellfish, and wild fish and shellfish; and perishable agricultural commodities — fresh and frozen — and peanuts.
Under the law, USDA had to determine what would be considered a “processed food item.” The definition they settled on was any covered commodity that has undergone a physical or chemical change and has a character that is different from that of the covered commodity.
For example, an orange is covered under the country-of-origin labeling law, while orange juice is exempt. “A pork belly is a covered commodity. But when you smoke it and cure it, it's bacon and no longer is covered,” says Yates.
Also excluded by the law, he says, is any retail item derived from a covered commodity that has been combined with other covered commodities or other substantive food components resulting in a distinct retail item that no longer is marketed as a covered commodity. That means if you bought a skewer of shish kebab that had beef and lamb on the skewer, it's a mixed commodity and is no longer covered under country of origin labeling. The same is true for pre-mixed salads, or fruit cups.
Retailers also won't be able to skirt the law simply by adding ingredients such as water, seasonings, sugar and breading to a covered commodity. And co-mingled products, such as a bag of apples from both New Zealand and the United States, must be labeled as such. For imported products, the country-of-origin would be determined by existing federal law and customs.
Retailers and intermediary suppliers must maintain records for seven days, and corporations must keep records for two years. Suppliers must maintain records for two years. There are no record-keeping requirements for livestock producers, but there are for meat packers and other “first handlers” of a covered commodity, according to Yates.
State labeling programs such as “Jersey Fresh,” and “California Grown,” can continue to operate, but those products must also bear a country of origin label.
The 2002 farm bill contained language that will require retailers to provide country of origin labeling on fresh fruits and vegetables, red meats, seafood, and peanuts beginning on Sept. 30, 2004.