Beef: COOL expected to hurt Canadian beef less than previously predicted

Sunday, August 10, 2008

Conforming to U.S. country-of-origin labelling requirements will mean some added cost for Canadian producers. But shrinking national herds and a positive outlook for prices may mitigate its impact

by MARY BAXTER

Country of origin labelling (COOL) legislation takes effect at the end of September in the United States and will no doubt take its toll on Canadian beef producers' profit margins. But Dennis Laycraft, executive vice-president of the Canadian Cattlemen's Association (CCA), suggests that the hit will less than previously predicted and shifts in market demand, a shrinking national herd and a positive outlook for cattle prices may mitigate its impact.

After years of talking and reworking, COOL legislation was passed as part of the 2008 U.S. Farm Bill in May.

The exact wording is due to be released for public comment this summer.

John Masswohl, CCA's director of international relations, expects that new regulations for meat sold in retail stores will call for the creation of three label categories. One will be for products coming from animals born, raised and slaughtered in the United States. A second will require a multiple countries of origin label for livestock born in other countries but finished in the United States, and a third will identify animals raised elsewhere but imported for immediate slaughter.

The middle category is likely to have the greatest impact on the Canadian beef industry, Masswohl suggests, because of the pressures it is expected to place on U.S. feedlots. Currently, in a typical Nebraska feedlot, there's no divisions made between cattle from Canada, New Mexico and the United States. The CCA fears that wording in the law is "going to force that segregation," which Masswohl says will occur throughout the food chain.

The easiest way for retailers to avoid compliance issues or added costs is to obtain product from a single source. Obtaining meat from low-cost suppliers would be the next alternative, "which infers a discount as a result of that."

Because Canada only supplies between three and four per cent of the United States' supply of beef, Laycraft rules out the possibility of producers north of the border becoming a single source supplier for larger retail outlets.

There may be more interest in Canadian-only products in smaller to mid-size retailers. He also sees opportunity for multiple-origin products in the U.S. food service sector. If some retail chains try to buy strictly from animals born and raised in the United States, it could create some shortage in the food service industry, he says. Demand would "have to be filled either by a mixed-label product coming out of the United States or product from Canada that can meet their higher-end grain-fed requirements."

Laycraft doubts that COOL will end demand for Canadian cattle in American feedlots. A number of regions are heavily dependent on imported feeder cattle and a shortage of U.S. born and bred feeder cattle is forecast, he points out. Moreover, COOL regulations will apply to beef consumed in the United States, but not to exported meat, and this loophole could present yet another opportunity for multiple-origin category beef.

Conforming to COOL will mean added costs for the producer. It won't be as high as the 2001 estimates of $92 a head, and Laycraft credits revisions on labels for ground beef. (A version of COOL drawn up in 2002 proposed that retailers list each country of origin and their percentage of contribution to the package of ground beef).

Meanwhile, escalating feed costs are causing national herd reductions on both sides of the border. Laycraft predicts that the Canadian herd will shrink five per cent this year. The drop comes at a time when demand for grain-fed beef is increasing worldwide and the combination could mean "good opportunities for the value of cattle to increase here."

Developing new international markets for Canadian beef is posing its challenges, he admits, pointing to June's vociferous protests in South Korea after that country inked a deal to buy U.S. beef. Yet progress is being made.

Mexico in particular has been identified as holding good growth potential for Canadian beef products, he says. Nevertheless, the United States will remain "our biggest market and the largest in the world and we're the only just-in-time supplier for them." BF