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The Na?ve Leading Us to Slaughter? PDF Print E-mail
Written by Steve Dittmer   
Tuesday, 17 July 2007
AFF Sentinel Vol.4#24

Betting Against Trickle Down

No country has attempted what mCOOL would mandate on a beef industry the size of America's. Analysts have envisioned the challenges and costs. All estimates we're aware of have put the cost in the billions for the entire production chain.

Economists have warned that much or all of the cost will be passed back through the chain. Retailers will be reluctant to pass much of the cost on to consumers - the competitive gap with chicken is big enough - and most consumers see little or no value in the mCOOL information. Some analysts are assuming that any reaction from consumers would be negative. All sectors would likely be affected by the political and economic fallout from trade repercussions.

E. E. "Ernie" Davis, then Texas A&M University professor and ag economist, pointed out in 2003 that retailers and packers are margin operators. They can pass their added costs back to their supplier, i.e. the retailer to the packer and the packer to the feeder. He could have added that feeders are also margin operators.

In his first look at mCOOL, Davis estimated the cost to Texas alone, from producer through retail, at $922 million. That's figuring only one-third of retailers handling mixed-origin beef.

Davis told Feedstuffs that nationally, counting 43 plants that handle 90 percent of slaughter, the cost estimates were $16 million per plant, or $688 million (not including 600+ smaller plants). If even half the retail stores decided to handle mixed-origin product at an average cost of $16,132 per store, the retail sector cost could reach $6.9 billion. The whole chain total could reach $9 billion. That's not counting the other stores who would still have documentation and recordkeeping costs, plus another 126,126 smaller retail stores.

In Choices, the Association of Agricultural Economists magazine, Brester, Marsh and Atwood (2004) noted that the Sparks (now Informa Economics)/Cattle Buyers Weekly study estimates were smaller than Davis' but in line with USDA. Sparks/CBW estimates totaled $1.65 billion: retail - $850 million; packers - $500 million; feeders - $150 million; and cow-calf - $198 million.

Then Hanselka, Davis, Anderson and Capps Jr. (Choices) did an economic survey of companies in all segments of the production chain, investigating operational set ups, what changes compliance would force and estimated costs. This approach yielded a total cost of $1.9 billion: retail - $818 million; packers - $603 million; feeders - $356 million; and cow-calf - $97 million.

USDA-AMS estimates for meat, seafood and produce - for recordkeeping only - came to $1.9 billion total: retail - $628 million; processors - $340 million; and producers - $1 billion.

Texas A&M also examined the effect on South Texas, where they estimated 80 percent of the Mexican feeder cattle are fed. Loss of those cattle would cost South Texas $700 million directly ($336 to the cattle- feeding sector and $365 to the packer sector) plus 1,978 jobs, not including feedlot and backgrounding jobs.

Take a round, middling figure, say $2 billion dollars, divide by the fed-cattle slaughter (27 million), (slaughter cows end up as bulk ground beef rather than hundreds of muscle cuts) and that comes to $74 per head the beef industry is supposed to eat. And that doesn't include anything from export market losses, which the BSE issue painfully illustrated, can amount to over $100 per head, depending on the degree of upheaval.

Only the totally na?ve can really believe such a major overhaul to the entire chain would not cost big money and disruption.

There are those who refuse to believe economic consequences trickle down the production chain. During the worst of our export market closures, an R- CALF convention audience laughed uproariously when USMEF's Phil Seng told them packers would have paid more for fed cattle if the export markets had been open. They simply didn't believe packers would pay more even for fed cattle - the nearest link in the chain - if packers were selling more beef at higher prices. R-CALF and their allies only see packers and feeders as robber barons on different levels. They don't believe in trickle down.

So it is possible that some cow-calf operators think they'll never see these costs. As National Farmer's Union's Tom Buis told Congress, if fish are being labeled and fish "don't have ear tags," [USDA] shouldn't "have a problem labeling 1,000-pound beef cattle."

Such na?vet? will cost us dearly.

"Estimate of Start-Up Costs for Country of Origin Labeling Requirements to the Texas Beef Cattle and Beef Sectors," Ernest E. Davis, Prof. & Extension Economist, Texas A&M University, 2003

"Who Will Bear the Costs of Country-of-Origin Labeling?" Gary W. Brester, John M. Marsh, professors, and Joseph Atwood, associate professor, Agricultural Economics & Economics Departments, Montana State University; Choices, 4th Qtr. 2004, American Agricultural Economics Assn.

"Country-of-Origin Labeling for Foods," Geoffrey S. Becker, specialist in agricultural policy, Congressional Research Service Report for Congress, July 30, 2003.

"COOL start-up costs put at $9 billion; AMS issues listening dates, locations," Rod Smith, Feedstuffs, April 7, 2003

"Cool Cost Assessment," Sparks/CBW COOL Consortium, Sparks Companies, Inc., April, 2003.

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Last Updated ( Wednesday, 25 July 2007 )
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