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Livestock Identification and Mandatory COOL: Implications for Domestic Consumers and Foreign Trade

Livestock Identification and Mandatory COOL: Implications for Domestic Consumers and Foreign Trade. Wendy Umberger Asst. Professor, Dept. of Agricultural and Resource Economics Colorado State University 2005 SAEA Meetings Foreign Animal Disease and COOL Organized Symposium

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Livestock Identification and Mandatory COOL: Implications for Domestic Consumers and Foreign Trade

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  1. Livestock Identification and Mandatory COOL: Implications for Domestic Consumers and Foreign Trade Wendy Umberger Asst. Professor, Dept. of Agricultural and Resource Economics Colorado State University 2005 SAEA Meetings Foreign Animal Disease and COOL Organized Symposium Little Rock, Arkansas February 8, 2005

  2. Overview • What were the planned/expected implications of COOL for consumers? • U.S. consumers’ perceptions of COOL • Domestic implications for consumers, COOL vs. Animal ID • Foreign trade implications

  3. Proponents’ Reasoning Behind COOL • Consumer “right to know” • Food safety - U.S. food supply is safest • Protecting the American market • Increase demand for U.S. products • Voluntary labeling will not work • Mandatory labeling program is the only way to get all segments of the food chain coordinated • National Farmers Union, R-Calf, OCM, Consumer Federation of America, American Farm Bureau • Necessary after BSE

  4. Potential Benefits of COOL? • Mandatory COOL may be an Appropriate Policy Tool if (Golan et al, 2000): • Asymmetric information exists • Disclosure of possible negative quality attributes does not exceed the benefits • COOL increases demand for product • Increased Demand? • Market Share • Higher Price • Will Consumers Pay For Country Of Origin Information?

  5. Consumer Questions • Would COOL increase demand? • If so, how? • Does COOL match consumers’ perceptions? • COOL vs. Traceability

  6. Consumer Studies Examining Possible Market Impact of COOL: • 2002 Colorado Supermarket Study: • Loureiro and Umberger. “Estimating Consumer Willingness to Pay for Country-of-Origin Labeling.” Journal of Agricultural and Resource Economics. 28(2)(August 2003):287-301. • 2002 Chicago, IL & Denver, CO Consumer Auction Study: • Umberger et al. “Country-of-Origin Labeling of Beef Products: U.S. Consumers’ Perceptions.” Journal of Food Distribution Research. 34(3)(November 2003b): 103-116. • 2003 Continental U.S. Consumer Study: • Loureiro and Umberger. “Assessing Preferences for Country-of-Origin Labeled Products.” Journal of Agricultural and Applied Economics. Forthcoming April 2005.

  7. 2002 Colorado Supermarket Study:Loureiro and Umberger.“Estimating Consumer Willingness to Pay for Country-of-Origin Labeling.” Journal of Agricultural and Resource Economics. 28(2)(August 2003):287-301. • 243 Consumers surveyed in supermarkets along the Front Range of Colorado • Consumers Very Receptive to COOL • “Mandatory COOL Program” • $183.77/year • $3.53/week • “U.S. Certified Steak” = 38% Premium for label • “U.S. Certified Hamburger”= 58% Premium for label

  8. 273 Consumers in Denver and Chicago Surveyed on WTP for COOL Hamburger and Steak Experimental Process- paid $50 to participate Bid on “USA Guaranteed: Born and Raised in the U.S.” Labeled & Unlabeled Steak 2002 Chicago, IL & Denver, Colorado Consumer Study:Umberger et al. “Country-of-Origin Labeling of Beef Products: U.S. Consumers’ Perceptions.” Journal of Food Distribution Research. 34(3)(November 2003b): 103-116.

  9. Consumers’ Rationale for Preferring COOL:(75 % Preferred Labeled, 22% Indifferent) • Safety and Health of Meat, 45% • U.S. better regulations and standards • Mad Cow Disease • More Information (Awareness of conditions, Identify meat if Outbreak Occurs), 32% • Support Producers 21% • Location (Prefer from certain countries, Learn about importing countries), 12.5% • Quality of Meat Higher in U.S., 11% • Freshness of Meat Closer to Home, 4.5% Source: Umberger et al. “Country-of-Origin Labeling of Beef Products: U.S. Consumers’ Perceptions.” Journal of Food Distribution Research. 34(3)(November 2003b): 103-116.

  10. 2002 Chicago, IL & Denver, CO Study:Umberger et al. “Country-of-Origin Labeling of Beef Products: U.S. Consumers’ Perceptions.” Journal of Food Distribution Research. 34(3)(November 2003b): 103-116. • “COOL Steak” • 73% Consumers were Willing to Pay Premium • 11% Premium for label • “COOL Hamburger” • 72% Consumers were Willing to Pay Premium • 24% Premium for label • “U.S. Guaranteed Steak” versus Unlabeled Steak • 69% Consumers were Willing to Pay Premium • 19% Premium for labeled steak

  11. $6.00 $5.20 $5.20 Domestic Bid $5.00 Canadian Bid Difference $4.00 $3.59 $3.17 Average Bid ($/lb) $3.00 $2.07 $2.07 $2.03 $2.00 $1.61 $1.00 $0.00 $0.00 Domestic Preferring Canadian Preferring Indifferent Are Consumers Willing to Pay for their Taste Preference?: Canadian vs. US N = 106 45% N = 78 N = 49 34% 21% Umberger, W.J., D.M. Feuz , C.R. Calkins, B.M. Sitz . “ Consumers ’ Preferences and Willingness - to - Pay for Beef Originating from the U.S., Canada, and Australia. ” Paper Presented at the 2003 WAEA Annual Meetings .

  12. $6.00 $5.04 $4.82 Domestic Bid $5.00 Australian Bid Difference $4.00 Average Bid ($/lb) $2.74 $3.00 $2.59 $2.45 $2.08 $2.00 $1.18 $1.18 $1.00 $0.00 $0.00 Domestic Preferring Australian Preferring Indifferent Are Consumers Willing to Pay for their Taste Preference?: Australian vs. US N = 139 60% N = 40 17% N = 54 23% Umberger, W.J., D.M. Feuz , C.R. Calkins, B.M. Sitz . “ Consumers ’ Preferences and Willingness - to - Pay for Beef Originating from the U.S., Canada, and Australia. ” Paper Presented at the 2003 WAEA Annual Meetings .

  13. 2003 Continental U.S. Consumer Study:Loureiro and Umberger. “Assessing Preferences for Country-of-Origin Labeled Products.” Journal of Agricultural and Applied Economics. Forthcoming April 2005. • Mail survey sent during Spring & early Summer 2003 • Representative sample of 5000 households in the continental U.S., 673 respondents • Perceptions of safety of meat, agency for certifying origin, and fairest mechanism to pay for costs of COOL • Would you be WTP for “Certified U.S.” beef, pork, and poultry? • Compare value of COOL, source-verified, tenderness, food safety inspected • Socio-demographics representative of U.S. population

  14. What Meat Attributes Are Most Important?

  15. 5.00 4.23 4.50 3.72 4.00 3.17 3.10 3.50 3.03 2.62 3.00 2.13 2.50 Average Ranking (1-5) 2.00 1.50 1.00 0.50 0.00 United Canada Australia New Denmark Argentina Mexico States Zealand Country of Origin Perceived Safety of Meat Products from Exporting Countries Source: Loureiro and Umberger. “Assessing Preferences for Country-of-Origin Labeled Products.” Journal of Agricultural and Applied Economics. Forthcoming April 2005.

  16. What Country Do You Prefer to Purchase Your Meat From?

  17. Other Local Agencies Producers 2% 13% Government USDA Third-Party Inspection Independent Service Certifiers 63% 22% Who Should Certify COOL? Source: Loureiro and Umberger. “Assessing Preferences for Country-of-Origin Labeled Products.” Journal of Agricultural and Applied Economics. Forthcoming April 2005.

  18. Other (Import Higher tariffs) Income Tax 6% 2% Fees Applied to Producers 12% Use of Existing Government Higher Meat Budget Prices 40% 40% Fairest Mechanism to Pay for COOL? Source: Loureiro and Umberger. “Assessing Preferences for Country-of-Origin Labeled Products.” Journal of Agricultural and Applied Economics. Forthcoming April 2005.

  19. Results of WTP for COOL of Meat • 60% preferred a mandatory COOL program for meat • 38% did not want a mandatory COOL program for meat • ~30% were WTP a premium greater than 5% for “Certified U.S.” meat products • Premiums for “Certified U.S.” • chicken breasts = $0.05/pound (2.5% more than initial price) • pork chops = $0.09/pound (2.5% more) • beef = $0.20/pound (2.9% more)

  20. Costs Across Livestock Industries • Beef • $47-52/head • ~$0.10/pound • Pork • $3.25-$10.25/head • ~$0.075/pound • Fish and Seafood • $0.05 to $0.075/pound

  21. Why Would You Pay for COOL?

  22. Why Wouldn't You Pay for COOL?

  23. Relative Value of Beef Attributes

  24. Voluntary vs. Mandatory COOL • Average WTP estimates for “Certified U.S.” meat products are relatively the same • Probably not enough to cover costs • And, costs are lowest for poultry • Premiums would likely not exist under MCOOL because of supply • Under voluntary COOL, firms could target market and possibly achieve a premium, but must be a traceable product

  25. Summary of Benefits to Industry “The fact that 65% to 75% of Americans profess to be willing to pay a premium for certified U.S. origin beef does not translate into a higher price for U.S. origin beef when 89% of the steaks and roasts and 75% of the trimmings are already of U.S. origin.” Plain, R. and G. Grimes. 2003. “Benefits of COOL to the Cattle Industry.” Department of Agricultural Economics Working Paper, University of Missouri, AEWP 2003-2. Available at http://agebb.missouri.edu/mkt/cool.htm.

  26. Other Issues Related to Verification of Country of Origin • Concerns regarding how COOL can be implemented in an auditable system since a mandatory animal ID system can not be created to maintain an animal’s origin information • Without individual ID, source verification becomes difficult and potentially requires more costly segregation

  27. Why Individual Animal ID? • Live animal traceability • Disease surveillance • Document origin • Homeland security • Bio-security • Food safety assurance • Reduce the financial and social impacts of animal health incidents • Market Access • Value-added • Opportunities for Genetic and Product improvement

  28. USDA National Database • USDA Required • Animal ID number • Previous premises number • Current premises number • Dates and times of transfer • Potential • Industry Use • Examples: • Birth Records • Health Records • Genetic Information • Carcass Data Third Party Database Public vs. Private Needs and Uses

  29. Why NAIS: To Maintain Market Access! Within the U.S. and for Export Markets Countries with national ID • Europe, Australia, Canada, Japan • Countries implementing ID • Brazil, Argentina, Uruguay, Mexico

  30. US Beef Export Market • About 10% of production • Japan 32%Mexico 26%S Korea 24%Canada 10%30 other 8% • High quality beef • Variety meats and hides (70% of tongues are exported) • Drop of 9% in demand would cause price to drop by 15% 82%

  31. AMS Beef Export Verification Program Joint Press Statement for Resumption of Trade of Beef and Beef Products – Jim Riva, Chief, AMS, 3 Nov 2004 • Individual Animal Age Verification • Group Age Verification • Insemination Age Verification • Animals enrolled in an Approved USDA Process Verified Animal Identification and Data Collection Service that includes age

  32. Store Brands Distributor Brands Japanese Branded Beef

  33. Australian Japanese Beef Retail Positioning • Consumer trend in Japan for “Anshin”. • Australian chilled Wagyu beef grain-fed for for 450 days • Australian chilled grain-fed Chungjungwoo beef (Sydney Galbi and Bulgogi) and Australian chilled Chungjungwoo beef grain-fed for 300 days • 3) Australian chilled Chungjungwoo beef grain-fed for more than 200 days • 4) Australian Chungjungwoo chilled beef grain-fed for 100 days • 5) Australian chilled beef (above marbling grade 4) • 6) Australian chilled Chunjungwoo young beef • 7) Australian chilled grain-fed beef

  34. Australian Traceability System • 10 digit number. • Type of breed. • Gender. • Date of birth/location. • Name of producer & change • in ownership.

  35. Trace Back System by Mobile Phone

  36. John Hayes, Senior Director of U.S. supply for McDonalds(CNNMoney 2 July 2004) • "We do have a captive supply of poultry. The animal ID program for us currently is most focused on cattle," he said. • "We'll continue over the next few years to increase the amount of traceable animal ID products that we can buy, and at some point in the not-too-distant future we'll draw a line in the sand and say that after a certain date, all of our animal products will be from animals that are under an animal ID program," Hayes said.

  37. Summary • Appears consumers have misconceptions about what COOL is, when asked directly if they are WTP for COOL • COOL is NOT TRACEABILITY • Placement of label and other meat attributes • U.S. versus importers? • Consumers value both COOL and Traceability, but what they appear to really want is traceability.

  38. Summary • Consumers’ needs and wants should play a dominant role in food production. However the needs of each member of the food system must also be met for the system to exist and to function efficiently.

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