Policy and Politics
Agweek Editorial: With COOL and trade, real solutions are needed
FARGO, N.D. — Many people would like to find a scapegoat for the big drop in cattle and hog prices. The repeal of the December 2015 Country of Origin Labeling law in might seem like a good thing to pin it on, and given the recent response to coverage of the issue by The Blaze's Tomi Lahren, it appears to be an argument gaining traction among some livestock producers and people outside agriculture.
But, those who think the repeal of mandatory country of origin labeling has led to lower cattle and hog prices in the U.S. are probably wrong. We agree with economists who say today's low cattle prices have little to do with scrapping COOL.
COOL never would have paid for itself. The U.S. Department of Agriculture's Office of the Chief Economist report to Congress concluded COOL would have added $8 billion in farm-to-retail costs if the law had lasted the full cycle of 2009 to 2019. Additionally, beef consumers would have paid an additional $6 billion in the 10-year period.
Researchers from Kansas State University and University of Missouri have studied the issue extensively, and their analyses were used in the U.S. Department of Agriculture report on COOL. Ted Schroeder, an agricultural economics professor at KSU, says pork producers also lost about $1 billion from COOL.
Additionally, Dermot Hayes, an agricultural economist from Iowa State University, says the law disrupted confidence in the North American pork market. Canadian producers lost 10 percent of the value of their pigs and held back on some expansion that now is likely to go ahead after winning a World Trade Organization challenge to the labeling rule.
And the argument that consumers would have paid a premium for U.S. beef and pork doesn't hold up. Schroeder and Hayes say there was no measurable change in demand for the U.S. products. The price of the raised-in-the-U.S. product was identical to commingling products.
"Why? It turns out consumer opinion surveys aren't the same as plunking down cash at meat counters," Hayes says.
Consumers tend to say they want information on things like gluten, GMOs, how products are grown or raised, farm size or locality, but in the end they buy based on other things — perceived freshness, visual characteristics and retailer trust. U.S. consumers even take USDA inspection stickers for granted, Schroeder says.
If the idea of origin labeling delivered a premium, meat packers already would have jumped on the idea and come out with a raised-in-the-U.S.A. line of products.
Plus, Schroeder says, most beef and pork weren't covered by the rule, so the meat that was covered would have needed to triple the effect to make it worthwhile to the industry as a whole.
If country of origin labeling was required today, prices wouldn't rebound. Solutions to the problems in the market are too complex to be fixed with a sticker.
Speaking of government actions, it's too early to measure the impact of the proposed repeal of the North American Free Trade Agreement or the scuttling of the U.S. involvement in the Trans-Pacific Partnership. But Schroeder says the economics "are very clear."
"Anytime you make it more difficult to engage in agricultural trade or continue with existing political barriers, it's sizable losses to our industry," he says.
The federal government can have unintended consequences for farmers. The idea that the new Trump administration might put a duty of 20 percent on products coming in from Mexico to pay for a wall against illegal immigrants was a key factor in a $3 per hundredweight tumble in pork prices, Hayes says.
The U.S. exports only 12 percent of its beef volume, but those exports represent an enormous value to the industry, Schroeder says. Replacing NAFTA and TPP with something similar will be complicated and time consuming.
Mexico imports the kind of products grown in Iowa, North Dakota and South Dakota.
"We stand to lose most. They buy our meat and corn and soybeans, and they can source meat and corn and soybeans in Europe and elsewhere," Hayes concludes.
With COOL and trade, intuitive political solutions that are ignorant of economic realities will damage U.S. agriculture. Just because something makes for good populist political fodder doesn't mean it's going to work or deliver prosperity for American farmers.
Editor's note: The ideas expressed in this editorial are those made by the Agweek editorial board.