For Updated Livestock Marketing Information Visit The New K-State AgManager Web Site agmanager.info

1. For Updated Livestock Marketing Information Visit The NewK-State AgManager Web Siteagmanager.info

2. How Will The Canadian BSE Situation Affect Our Markets?

3. Canadian Situation • Rapid BSE tests performed on the original quarantined herd were negative. • The infected cow was six years old. • The mother of the infected cow was identified, culled and is undergoing tests. The offspring of the cow are also being traced and will also be tested. • 17 farms quarantined. • All related to the cow, her offspring or suspected feeds. • 1 feedlot that received calves from the original farm has been quarantined. • More animals are being tested.

4. Imports Are An Important Part of Our Beef Supply Source: USDA & LMIC

5. Canada Is An Important Supplier Source: USDA & LMIC

6. Canada’s Also An Important Beef Customer

7. Short Run Impacts • Cattle & beef imports from Canada banned • Net cattle imports from Canada in 2002 totaled 1.55 million head (4.3% of U.S. slaughter) • Net beef imports from Canada in 2002 equaled 3.1% of U.S. beef production • Short run: Smaller supplies in the U.S. • Consumer demand for beef: Holding up well so far

8. Longer Run Impacts • How long will ban be in place? • One isolated incident or first of many? • Canadians holding back cattle • Canadian weights will increase • But Canadian on feed inventory down 30% compared to 2002

9. Long-Run Beef Export Growth Has Been Phenomenal

10. Long-Run Beef Export Growth Has Been Phenomenal Source: U.S. Dept. of Commerce & LMIC

11. Net Import Quantities Have Fallen Sharply Source: USDA & LMIC

12. U.S. Is A Significant Net Beef Exporter In $ Terms Source: Dept. of Commerce & LMIC

13. Largest U.S. Ag. Product Export Customer?

14. Largest U.S. Ag. Product Export Customer? Canada

15. What Is Country of Origin Labeling (COL)? Retailers Must Inform Consumers Of The Country Of Origin Of “Covered Commodities” At Final Point Of Sale • Farm Bill, Title X, Modified Agricultural Marketing Act of 1946 • Voluntary COL Available Oct 11, 2002 • Mandatory COL Starts Sep 30, 2004

16. “Covered Commodities” • Muscle Cuts Of Beef, Pork, & Lamb • Ground Beef, Pork, & Lamb • Farm-Raised & Wild Fish • Peanuts • Perishable Ag Commodities • Fresh & Frozen Fruits & Vegetables

17. Exemptions To “Covered Commodities” • Ingredients In Processed Food Products • Ham, Bacon, Fresh Pork Sausage, Bratwurst • Food Service Establishments • Restaurants • Retailers With Less Than $230,000/Year In Fruit & Vegetable Sales • Butcher Shops, Fish Markets, Small Grocers

18. Exemptions To “Covered Commodities” • Estimated 30-40% Of Beef & Pork Consumption Occurs In Food Service Est. • Processed & Prepared Meat Products Are Increasing Popular • A Substantial Amount Of Meat Won’t Be Labeled

19. Not “Covered Commodities” • Poultry • Chickens • Turkeys • Eggs

20. To Be U.S. Origin… Meat Must Be Exclusively From Animals • Born In U.S. • Raised In U.S. • Slaughtered In U.S. And Will Be Labeled As Such…

21. Example Labels -- For Animals Born, Raised, & Slaughtered In U.S. • “Country Of Origin – United States” • “Product Of The United States” • “Produced In The United States” • “Product Of USA”

22. Example Labels – For Animals Not Born/Raised/Slaughtered In U.S. For Beef From Cattle That Were: • Born In Mexico • Raised In U.S. • Slaughtered In U.S. Label May Read: “From Cattle Born In Mexico And Raised & Slaughtered In The U.S”

23. Example Labels – For Animals Not Born/Raised/Slaughtered In U.S. For Mixed/Blended Meat Of Multiple Origins, Origin Must Be Labeled In Order Of Prominence By Weight: “Product Of Canada, From Cattle Born & Raised In Canada & Slaughtered In The U.S., And Product Of U.S.”

24. Notification To Consumers At Retail Outlet • Label Or Sign On Covered Commodity Or On Package, Display, Or Case • Required For Internet Sales Too (at time of purchase) • So, Some Retailers May • Sell Only Covered Commodities Originating From One Source (U.S. Or Elsewhere) • Need Additional Coolers Or Displays

25. State Programs Do Not Satisfy COL Guidelines

26. COL Does Not… • Provide Food Safety Assurance • There Are NO Safety Standards Or Guidelines In The COL Regulation • Does Not Replace USDA Meat Inspection • However, Some Consumers May Associate Knowing The Origin Of Meat With Safety

27. Mandatory ID System? • COL Legislation Specifically Forbids The Secretary From Creating A Mandatory National Identification System • Secretary May Use Existing Programs • Vertical Alliances May Have An Advantage • Private Firms Can Mandate An ID System • Retailers • Processors

28. COL Verification • 3rd Party Verification? • Driven From Retailers, to Packers, to Producers • Records Must Be Kept For Two Years • Who Will Provide 3rd Party Verification? • It’s Not Yet Clear Who Can Do This, Possibly: • Veterinarians? • Producer Alliances Or Cooperatives? • Business With Technology For Identification?

29. Enforcement • Secretary of Agriculture Enforces COL • Retailer Is Responsible • Violations • Secretary Notifies Retailer • Retailer Gets 30 Days To Comply • Willful Violations After 30 Days Result In $10,000 Fine For Each Violation • Each Day Is A Violation • Others In The Supply Chain Could Be Held Responsible, Either By USDA Or By Buyers Of Their Product

30. COL Isn’t Likely To Go Away • Legislative Repeal or Change? • Possible, but does not seem likely at this time • But would not have to open up entire Farm Bill • Some Early Proponents Are Now In Favor of Voluntary COL Only • But COL Could Become A Consumer Issue

31. Impacts & Economic Assessments

32. So Why Hasn’t Voluntary COL Taken Off?The Costs Probably Outweigh The Benefits “Though The Benefits And Costs Of The Voluntary Program Are Difficult To Quantify, The Agency Believes That Retailers Will Only Choose To Participate If The Benefits Outweigh The Costs.” ~Ag Marketing Service, USDA K-State Research & Extension

33. Cost Estimates… • AMS  $1.97 Billion For Recordkeeping • This Is For All Covered Commodities • Does Not Cover Other Costs To The Industries, Or Impacts On Markets Or Trade

34. Cost Estimates… • COL With A Trace Back System  $1.02 Billion For Pork Industry • 10% Increase In Farm Costs, or $10.22/hd • Plus Loss Of Export Business Source: Hayes and Meyer

35. Cost Estimates… • U. of Florida study says that costs would be much lower if only imported commodities are tracked • Most attorneys think COL legislation precludes this approach • Consumer Labeling Issue

36. Potential Benefits of COL COL Proponents Expect Demand Increase • Market Share • U.S. Already Has 90% Of Domestic Beef & Pork Market, So Little To Gain • Higher Price • Little Research To Suggest Consumers Will Pay For Country Of Origin Information

37. Consumer Willingness-To-Pay For “U.S. Certified Beef” • Loueiro & Umberger Found That A Select Group of Consumers, In A Survey Conducted In Grocery Stores Would: • Pay $183.77 Per Year For Mandatory COL • Pay $1.53/lb. More For Steak • $0.70/lb. More For Hamburger

38. Consumer Willingness-To-Pay For “U.S. Certified Beef” • Umberger et al. used an experiment with a select group of consumers & found: • 73% Were Willing To Pay A Premium for Beef Labeled For Country Of Origin • 11% Premium For Steak • 24% Premium For Hamburger • But NCBA estimates that only 5% of beef in retail stores is not U.S. origin • Likelihood of price premium is very low

39. Potential Problems • World Trade Organization Violations? • Foreign Competitors Use COL To Their Advantage • Verification System Isn’t Clear Yet • Packer’s Transaction Costs Increase, So They Buy From Fewer Producers • Retailers/Processors Design Proprietary ID Systems, Limiting Marketing Flexibility

40. Potential Problems • Packers Will Segregate Plants Or Shifts • Costs Rise & Prices Paid to Producers Fall • Retailers Will Move To Case-Ready • Already Seeing A Shift To This • Allows Retailers To Shift All of Liability to Suppliers • Retail Pork & Beef Price Could Increase Relative To Poultry • Result: Poultry Demand Increases • Costs Likely To Exceed Benefits • If 95% of Beef in Grocery Stores is U.S. Origin, How Do You Charge A Premium For It?

41. Possible Effects • Unverified Meat Will Go To HRI Or Export • High Value Markets, But Blended/Mixed Product Will Be Hardest To Verify • Audit Trail (Or Trace Back) Exposes Producers To Other Liabilities • Food Safety • Canada Increases Packing Capacity & Exports Pork Instead of Hogs • U.S. Pork Exports Decline

42. Possible Effects • Pork & Beef Demand Decline • Higher prices lead consumers to shift towards relatively cheaper poultry • Some U.S. Producers Quit • Some U.S. Packers Go Out Of Business • Pork & Beef Demand Improve • Consumers “tastes & preferences” shift because of COL

43. Livestock Producers’ Alternatives Stick Your Head In The Sand & Hope This Goes Away • Not Likely To Go Away Your Buyer Won’t Allow You To Do Nothing Because Your Buyer Has To Do Something

44. Requirements For Hogs Born In Dec 2003 & Calves Born Now : 1. Have 3rd Party Verified Documentation Proving Where Animals Were Born & Raised.

45. Requirements For Hogs Born In Dec 2003 & Calves Born Now: 2. Sign An Affidavit For Each Load Stating There Is A 3rd Party Verified Audit Trail & Identifies Hog’s Origin.

46. Requirements For Hogs Born In Dec 2003 & Calves Born Now: 3. Swift & Co. Will Conduct Random Producer Checks To Verify Audit Trail.

47. Requirements For Hogs Born In Dec 2003 & Calves Born Now: 4. Swift & Co. Will Pass Any Fine/Penalty It Receives To Party Responsible.

48. Liability For COL Accuracy • Will Be Passed Down The Supply Chain, Likely Through A Series Of Affidavits Or Contracts • These Would Require The Supplier Of The Product To Provide Country Of Origin Information & Confirm That The Information Can Be Verified • The Ultimate Responsibility For Determining & Documenting Country Of Origin Will Fall Upon Livestock Producers

49. What Should Producers Do Now? • Document Location Of Birth For Livestock Born On Farms & Ranches, Along With Other Production Records • Retain These Records For At Least 2 Years • Be Ready To Make Them Available When Selling The Livestock • Obtain Country Of Origin Information, Documentation, & Verification (If Possible) For Livestock Purchases

50. Livestock Producers’ Alternatives Become a preferred supplier that has reliable information paper trail