Differential impacts of country of origin labeling: COOL econometric evidence from cattle markets

Abstract

Country of origin labeling (COOL) is a common practice. It occurs routinely for many products in many places, but the US implementation of mandatory COOL for meat, whose purpose is to identify the origin of the livestock used to produce the meat, generated much controversy and a major WTO dispute that has yet to be settled. This working paper estimates econometrically differential market impacts of mandatory country of origin labels on cattle raised in Canada and imported into the United States. We find significant evidence of differential impacts of COOL through widening of the price bases and a decline in ratios of imports to total domestic use for both fed and feeder cattle. Résumé L'étiquetage indiquant le pays d'origine (EPO) est une pratique courante qui est appliquée à plusieurs produits par plusieurs pays. Toutefois, son application pour la viande commercialisée aux États-Unis, qui a pour but d'identifier la provenance des animaux à partir desquels la viande est produite, a généré une énorme controverse et fait l'objet d'une dispute à l'OMC qui n'est pas encore réglée. Ce cahier de recherche présente des résultats économétriques des effets de segmentation de l'EPO sur le marché pour les importations américaines de bovins canadiens. Nos résultats indiquent que l'EPO a eu un effet de segmentation important en élargissant les écarts de prix et en réduisant les ratios d'importation et de consommation apparente pour les bouvillons d'abattage et les veaux d'embouche. JEL codes: Q17, Q18, F1, L15. Acknowledgements: We acknowledge support from the Canadian Cattlemen's Association and the Government of Canada for related research at the early stages of this project. Some related analysis was used in the development of Canada's WTO case. The authors wish to thank participants at seminars at the CAES meetings in Banff and at the University of Minnesota for helpful comments. Differential Impacts of Country of Origin Labeling: COOL Econometric Evidence from Cattle Markets Introduction Many countries mandate Country Of Origin Labeling (COOL) for many food products. The market implications of such labeling depend on whether they are mandatory or market driven, the characteristics of the industry, including the role of imports, and how labeling rules are implemented. This article explores econometrically the effects on cattle markets of mandatory COOL applied to sales of beef in the United States. The Farm Security Act of 2002 (the 2002 Farm Bill) required COOL for selected food products sold in the United States. The law specified that retailers, other than very small outlets and food service operations such as restaurants, must notify consumers of the country of origin for muscle cuts of beef (including veal), lamb, and pork; ground beef, lamb, and pork; fish and shellfish; many perishable agricultural commodities; and peanuts. The United States Department of Agriculture (USDA) completed the implementation process for fish and shellfish in 2005. For other products, the USDA had difficulties establishing acceptable rule...

Canadian Cattle Cycles and Market Shocks

“…exchange rate that increased Canadian 1 In the current U.S. cattle cycle, herd liquidation that began in 2006 (after a two-year herd expansion) caused a 5% decline in beef cattle farms from 764,984 in 2007 to 727,906 in 2012 (U.S. Department of Agriculture 2014). 2 Pouliot and Sumner (2014) find that country of origin labeling has significantly widened the price basis of Canadian fed cattle and reduced the ratio of U.S. imports of Canadian feeder cattle to domestic use. cattle prices relative to U.S. prices thereby giving Canadian cattle feeders higher profits on inventories.…”

“…Pouliot and Sumner () find that country of origin labeling has significantly widened the price basis of Canadian fed cattle and reduced the ratio of U.S. imports of Canadian feeder cattle to domestic use.…”

Country of Origin Labeling and Structural Change in U.S. Imports of Canadian Cattle and Beef

“…This study is one of the relatively few ex post assessments of the impact of COOL on U.S. import demand for Canadian cattle and beef. Previous studies by Ward et al (), Schulz et al (), and Pouliot and Sumner () have revealed some injury to the Canadian beef cattle industry due to the law. However, an important issue arises in this analysis: previous studies fix the date of the structural break due to COOL as the date when the law was implemented.…”

“…Impacts on the Canadian beef cattle industry have been analyzed by three econometric studies: Ward et al () find that COOL has led to a decline in fed cattle bases of $3.58/cwt and $1.91/cwt for Ontario and Alberta, respectively, while Schulz et al () find a decline of $6.04/cwt in the Alberta fed cattle basis. Pouliot and Sumner () find a $3.30/cwt (CAD) reduction in the Alberta price basis for fed cattle, and a negative but not so statistically differential effect on the basis for feeder cattle. Instead, they find a significant reduction in feeder cattle imports.…”

Whence the Beef: The Effect of Repealing Mandatory Country of Origin Labeling (COOL) Using a Vertically Integrated Armington Model with Monte Carlo Simulation

“… It should be noted that these new cost estimates are significantly greater than those cited by Canada in their original WTO claim. The Pouliot and Sumner () study that found tangible damages to Canada's market share used costs that were at most three times higher than USTR estimates at the feedlot and slaughterhouse level.…”