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MANDATORY COUNTRY OF

ORIGIN LABELING

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JUNE 26, 2003

Serial No. 108–12

(

Printed for the use of the Committee on Agriculture

www.agriculture.house.gov

COMMITTEE ON AGRICULTURE

BOB GOODLATTE, Virginia, Chairman

JOHN A. BOEHNER, Ohio

Vice Chairman

RICHARD W. POMBO, California

NICK SMITH, Michigan

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

JERRY MORAN, Kansas

WILLIAM L. JENKINS, Tennessee

GIL GUTKNECHT, Minnesota

DOUG OSE, California

ROBIN HAYES, North Carolina

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

TIMOTHY V. JOHNSON, Illinois

TOM OSBORNE, Nebraska

MIKE PENCE, Indiana

DENNIS R. REHBERG, Montana

SAM GRAVES, Missouri

ADAM H. PUTNAM, Florida

WILLIAM J. JANKLOW, South Dakota

MAX BURNS, Georgia

JO BONNER, Alabama

MIKE ROGERS, Alabama

STEVE KING, Iowa

CHRIS CHOCOLA, Indiana

MARILYN N. MUSGRAVE, Colorado

DEVIN NUNES, California

RANDY NEUGEBAUER, Texas

CHARLES W. STENHOLM, Texas,

Ranking Minority Member

COLLIN C. PETERSON, Minnesota

CALVIN M. DOOLEY, California

TIM HOLDEN, Pennsylvania

BENNIE G. THOMPSON, Mississippi

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

BARON P. HILL, Indiana

JOE BACA, California

RICK LARSEN, Washington

MIKE ROSS, Arkansas

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico

ED CASE, Hawaii

RODNEY ALEXANDER, Louisiana

FRANK W. BALLANCE, JR., NORTH

CAROLINA

DENNIS A. CARDOZA, California

DAVID SCOTT, Georgia

JIM MARSHALL, Georgia

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

KEN LUCAS, Kentucky

MIKE THOMPSON, California

MARK UDALL, Colorado

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

PROFESSIONAL STAFF

WILLIAM E. O’CONNER, JR., Staff Director

KEVIN KRAMP, Chief Counsel

STEPHEN HATERIUS, Minority Staff Director

ELYSE BAUER, Communications Director

(II)

(III)

C O N T E N T S

Page

Boswell, Hon. Leonard L., a Representative in Congress from the State of

Iowa, prepared statement .................................................................................... 5

Goodlatte, Hon. Bob, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 1

Hayes, Hon. Robin, a Representative in Congress from the State of North

Carolina, prepared statement ............................................................................. 7

Pickering, Hon. Charles W. ‘‘Chip’’, a Representative in Congress from the

State of Mississippi, prepared statement ........................................................... 5

Smith, Hon. Nick, a Representative in Congress from the State of Michigan,

prepared statement .............................................................................................. 4

Stenholm, Hon. Charles W., a Representative in Congress from the State

of Texas, opening statement ................................................................................ 2

WITNESSES

Bryson, Nancy, General Counsel, U.S. Department of Agriculture .................... 11

Prepared statement .......................................................................................... 103

Bull, Ken, vice president, cattle procurement, Excel Corporation, Wichita,

KS .......................................................................................................................... 78

Prepared statement .......................................................................................... 119

Campbell, J.H. ‘‘Jay’’, Jr., president and chief executive officer, Associated

Grocers, Inc., Baton Rouge, LA ........................................................................... 84

Prepared statement .......................................................................................... 128

Caspers, Jon, president, National Pork Producers Council, Swaledale, IA ........ 51

Prepared statement .......................................................................................... 150

Collins, Keith, Chief Economist, U.S. Department of Agriculture ...................... 12

Prepared statement .......................................................................................... 99

Davis, Eric, president, National Cattlemen’s Beef Association, Bruneau, ID .... 53

Prepared statement .......................................................................................... 115

Frederickson, David J., president, National Farmers Union ............................... 48

Prepared statement .......................................................................................... 107

Foutz, Alan, president, Colorado Farm Bureau, Akron, CO ................................ 46

Prepared statement .......................................................................................... 106

Lambert, Charles, Deputy Under Secretary, Marketing and Regulatory Programs, U.S. Department of Agriculture ............................................................. 8

Prepared statement .......................................................................................... 97

McDonnell, Leo Jr., chairman of the board and co-founder, R-CALF USA,

Columbus, MT ...................................................................................................... 49

Prepared statement .......................................................................................... 109

Peterson, Bruce T. Jr., senior vice president/general merchandise managerperishable foods, Wal-Mart Stores, Inc., Bentonville, AR ................................. 80

Prepared statement .......................................................................................... 120

Ray, Gary, executive vice president, refrigerated foods, Hormel Foods Corporation, Austin, MN ........................................................................................... 86

Prepared statement .......................................................................................... 146

Stenzel, Thomas E., president and chief executive officer, United Fresh Fruit

and Vegetable Association ................................................................................... 44

Prepared statement .......................................................................................... 105

Walker, Arthur ‘‘Ray’’, chief executive officer, Patterson Frozen Foods, Clovis,

CA .......................................................................................................................... 82

Prepared statement .......................................................................................... 123

White, Deborah R., associate general counsel, regulatory affairs, Food Marketing Institute .......................................................................................................... 75

Prepared statement .......................................................................................... 116

Page

IV

SUBMITTED MATERIAL

American Sheep Industry Association, submitted statement .............................. 144

Boyle, Patrick, president, American Meat Institute, submitted statement ........ 135

Cady, John, president, National Food Processors Association, submitted statement ...................................................................................................................... 141

Cressy, Peter H., president and chief executive officer, Distilled Spirits Council of the United States, Inc., submitted statement .......................................... 137

Johnson, Hon. Tim, a Senator from the State of South Dakota, submitted

statement .............................................................................................................. 133

Langelier, E. Lisa, customs compliance manager, Ocean Spray, Middleboro,

MA, submitted statement .................................................................................... 137

Sophos, Mary, senior vice president, government affairs, Grocery Manufacturers of America, submitted statement ................................................................. 158

Thomas, Shawna, Washington liaison, National Meat Association, submitted

statement .............................................................................................................. 161

Troyak, Dick, chairman, American Peanut Manufacturers, Inc., submitted

statement .............................................................................................................. 131

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MANDATORY COUNTRY-OF-ORIGIN LABELING

THURSDAY, JUNE 26, 2003

HOUSE OF REPRESENTATIVES, COMMITTEE ON AGRICULTURE, Washington, DC.

The committee met, pursuant to call, at 9:35 a.m., in room 1300,

Longworth House Office Building, Hon. Bob Goodlatte (chairman of

the committee) presiding.

Present: Representatives Boehner, Pombo, Smith, Lucas of Oklahoma, Moran, Jenkins, Gutknecht, Ose, Hayes, Osborne, Rehberg,

Graves, Putnam, Janklow, Burns, Rogers, King, Chocola,

Musgrave, Nunes, Neugebauer, Randy, Stenholm, Peterson, Dooley,

Holden, Thompson of Mississippi, Etheridge, Baca, Ross, AcevedoVila ́, Alexander, Cardoza, Scott, Marshall, Pomeroy, Boswell, Lucas

of Kentucky, Thompson of California, Udall, Larsen and Davis.

Staff present: William E. O’Conner, Jr., staff director; Brent

Gattis, Pete Thomson, John Goldberg, Elizabeth Parker, Callista

Gingrich, clerk; Claire Folbre, Kellie Rogers, Andy Baker, and Lisa

Kelley.

OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF VIRGINIA

The CHAIRMAN. Good morning. This hearing of the House Committee on Agriculture to review the mandatory country-of-origin labeling will come to order.

I want to thank you all for coming to the committee hearing this

morning. The topic of today’s hearing is a review of mandatory

country-of-origin labeling. As you all know, this committee has

worked hard on this. Several years ago, then-Livestock Subcommittee Chairman Pombo and Ranking Member Peterson began a process to explore country-of-origin labeling. They started out with a

hope that it could be accomplished in a way that provided an effective tool for producers to earn more in the marketplace.

The subcommittee proceeded to meet with interested parties and

the administration to develop the idea. Subsequently, the fiscal

year 1999 Agriculture Appropriations directed the Secretary to conduct a comprehensive study on the potential effects of the idea.

During an April 28, 1999 Livestock Subcommittee hearing, the

Clinton administration testified about the variety of regulatory regimes for labeling that could be adopted and further asserted that

they believed there would probably have to be some kind of paperwork traceback system.

2

The GAO pointed out that there is going to be significant costs

associated with compliance and enforcement. Concerned that the

costs outweighed the benefits for producers, Mr. Pombo and Mr.

Peterson turned their attention to working with the U.S. Department of Agriculture to develop a credible voluntary program that

allowed producers and processors to work together. Meanwhile, the

GAO released its report in January 2000 stating that mandatory

labeling ‘‘Would necessitate change in the meat industry’s current

practices, create compliance costs across all sectors of the industry,

and asserting that U.S. packers, processors and grocers would, to

the extent possible, pass their compliance costs back to suppliers,

U.S. cattle and sheep ranchers, in the form of lower prices or forward to consumers in the form of higher retail prices.’’

On September 8, 2000, interested parties submitted a petition to

USDA for a voluntary program and the Livestock Subcommittee

conducted another hearing on September 26, 2000 to review studies

and USDA’s progress on the petition. In early 2001, Under Secretary Bill Hawks wrote the industry to commit the Agriculture

Marketing Service to begin action on the petition requesting a

USDA voluntary, User-Fee-Funded Certification Program that will

enable a label for beef products. That same month, on July 26 and

27, the House Agriculture Committee conducted a markup of the

farm bill. The transcript of that markup has 12,463 lines of text

with 3,167 lines on amendments to create a mandatory Countryof-Origin Labeling Program. Fully 25 percent of the markup was

devoted to this proposal, which was ultimately rejected because of

concerns that the costs outweighed the benefits.

An amendment for fruit-and-vegetable labeling only was adopted

on the House floor. For those that attended the farm bill conference

meetings that labeling was a major topic of discussion there as

well. Despite a complete lack of any hearing reader on the subject,

the Senate insisted on his provision requiring labeling of beef pork,

lamb, fruits, vegetables, peanuts, and fish.

So today we will hear from the administration, producers, packers, processors, and retailers now that they have had time to review that law and gauge its impact.

For many of my colleagues, this will also sound very familiar.

For our new members, I believe you will find this to be quite interesting. As we proceed, I would ask members to consider the question whether: If what Congress has done, is what Congress had intended? On balance, will mandatory country-of-origin labeling help

or hurt the producers it was intended to benefit?

It is now my pleasure to recognize the ranking minority member,

the gentleman from Texas, Mr. Stenholm.

OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. STENHOLM. Thank you, Mr. Chairman. Thank you for holding this hearing on a very important, but complicated, subject.

Many of us, as you have already indicated, have spent countless

hours on this issue because we realize how important it is to get

this one right.

There are costs implications for our domestic producers, processors and retailers. There are trade implications and consumer

3

issues that must all be thoroughly examined before this law is implemented.

One purpose of making country-of-origin labeling voluntary in

the farm bill for the first 2 years was to give everyone a chance

to determine whether we should make changes in the law before

implementing a mandatory program. With the Appropriations

Committee action last week, it looks like we might get a little more

time on the meat side of this question which, in my opinion, we

need this time to get it right.

This committee has conducted a series of briefings on country-oforigin labeling to educate staff on implementation of the requirements. Today, we will hear a broad spectrum of views from our

three panels of witnesses, and I understand that subcommittee

chairman Hayes has indicated he will hold additional hearings on

this issue in the near future, and that is a very positive development.

As we proceed today, I hope we can get a better sense of the objectives of proponents of mandatory country-of-origin labeling. We

have heard that mandatory labeling of meat is intended to address

the consumers’s right to know. But this seems hard to believe,

given that those pushing hardest for the legislation are not consumers, but rather producers who do not deal in cattle from Mexico

or Canada. I also question the wisdom of a mandate to include on

labels every piece of information that a random consumer survey

identifies as something that consumers want to know. Many consumers in Europe want to know whether their beef contain hormones and many of us have argued against such labeling requirements. Current U.S. food labeling requirements are based on the

attributes of the food itself, such as nutritional composition, ingredients, special safety considerations such as the presence of allergens and required handling and conditions of safe use. This was

pointed out by the previous administration in a letter to the EU

concerning biotechnology.

Every additional piece of information we require on a label by

Government mandate diminishes slightly the information that is

already there. And as the National Grocers Association points out,

if the goal is to provide important information to consumers, why

are some of the products not covered? And why are some retailers

and all restaurants left out?

Another objective mentioned recently by a COOL proponent was

to reduce the dominant market control enjoyed by packers, retailers and USDA. I believe that mandatory COOL is at best an indirect and ineffective tool to address concerns about market control.

A third goal sometimes mentioned is to promote U.S. product. As

more and more cattlemen become aware of the requirements of the

law, there have been increasing concerns that the paperwork burden may not be worth the perceived benefit of labeling. It seems

unclear from the information that I have seen that a mandatory

program will enhance producers’s bottom lines, but we do not know

that today, and that is why this hearing is so important today to

examine and hear from those who are advocates, proponents and

opponents of the issues that I have mentioned in my opening remarks.

4

I would also note that while our trade agreements allow us to

implement a Country-of-Origin Labeling Program, they require

that we do so in the least trade-restricting manner possible. To the

extent that our trading partners regard the program as a nontariff

trade barrier, we should expect to face new trade dispute actions.

We should expect it. So my caution has been all along on this

issue, be careful what we ask for, lest we get it. But let’s be darned

certain that what we do continues to allow this committee and all

who are advocates of United States agriculture to continue to say

to the world and in particular to the people of the United States

of America: Aren’t we blessed to live in a country that has the most

abundant food supply, the best quality of food, the safest food supply at the lowest cost to our people of any other country in the

world? That has not happened by accident, and we can do real

damage if we begin to make mistakes regarding how we address

our ability to keep producing and selling not only to the U.S. customers, but to our world customers.

Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

In light of the fact that there is great interest in this hearing,

we have 15 witnesses ahead of us, we are going to make other

opening statements a part of the record and go to our first witnesses.

[The prepared statements follow:]

PREPARED STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF MICHIGAN

Thank you Chairman Goodlatte and Ranking Member Stenholm for holding this

highly important and timely hearing on the implementation of mandatory country

of origin labeling. Also, I would like to thank the witnesses for giving us their opinion and input on this matter. As we have heard today, mandatory COOL is a controversial policy to which there is much dispute over the consequences of its implementation. One thing that can’t be denied, however, is the far-reaching effect it will

have on producers, processors, retailers, and consumers. I applaud the actions taken

by the appropriators last week to put a halt to the implementation of mandatory

COOL. It is only fair to all parties involved to try and gain a more thorough understanding of the far-reaching impacts of this legislation before implementation.

In theory, mandatory COOL doesn’t sound like a bad idea. After all, our producers

and processors produce some of the highest quality commodities in the world, that

consumers may favor if competitively priced. Surveys have shown that American

consumers would prefer to buy U.S. products if all other factors are equal. The fact

must not be lost, however, that these same survey also show labeling information

such as freshness, nutrition, as well as storage and preparation instructions rank

ahead of country of origin in the degree of importance to consumers. Clearly the consumer demand for COOL is not as high as some groups would lead us to believe.

The key question to this whole debate is: do the benefits of mandatory COOL outweigh the costs? Can the potential increase in demand for US products possibly outweigh the costs that will be born by producers, processors, retailers, consumers, and

even taxpayers to implement and enforce mandatory COOL? I have yet to see any

hard data that would suggest that mandatory COOL would be anything other than

a tax on the entire food-chain system with little if any economic gain for anybody

involved.

Some would argue that cost estimates for mandatory COOL implementation are

exaggerated. Regardless, I continually hear from hog producers in my district, however, that say whether it costs $2 or $10/head, the increased cost of production to

meet the standards that will be required will make the profit/loss margin even

tighter than it already is for most producers. Additionally, mandatory COOL may

have the unintended consequences of accelerating vertical integration, particularly

in the livestock industries, as it will be easier for companies to verify a commodity

origin, streamline processing logistics, and convey information to their customers.

Mandatory COOL may also have the unintended consequence of encouraging retailVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
5

ers and processors to only handle products of a particular origin, thus limiting consumer choice. As a result, mandatory COOL may actually hurt the very groups it

was intended to help—producers and consumers.

I find it particularly telling that despite the supposed ‘‘need’’ for COOL and the

market enhancement it will provide, relatively few if any have participated in the

voluntary program. The potential for increased demand simply has not outweighed

the costs. Thus, I believe that it would be unwise to push forward with mandatory

COOL when all we know for sure is: (1) that it will definitely increase costs for producers, processors, retailers, and consumers, and (2) it may or may not increase

market share for U.S. labeled commodities. It is my belief that we should leave

COOL a voluntary program and let market forces determine its fate.

PREPARED STATEMENT OF HON. CHARLES W. ‘‘CHIP’’ PICKERING, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MISSISSIPPI

Chairman Goodlatte, I want to thank you for holding this hearing today before

the Agriculture Committee to address the various concerns surrounding the issue

of country-of-origin labeling, as passed in the 2002 farm bill. Obviously, this has become a very controversial topic that has as many opponents as proponents. I believe

it’s crucial that we have a forum like this to address the matter. I have no doubt

that while we continue to move closer to the mandated implementation date, we will

address the various concerns and decide on the best course of action for the labeling

issue.

I support the intent of the country-of-origin labeling provision that passed in the

farm bill. I think it’s important for consumers to know where their food comes from,

and I also believe that given the choice, consumers will choose an American product

over foreign goods as long as there is not a significant variation in price.

I know there are many on both sides of this issue, and it seems to me that USDA,

Congress, producers, packers, distributors, and retailers are not singing from the

same sheet of music regarding labeling. I’ve seen a number of studies, some purporting extremely high implementation costs and extensive paperwork and others which

refute such costs and bureaucratic record-keeping. I think it’s clear that we need

more meaningful discussion regarding the implementation of country-of-origin labeling and I believe the listening sessions and hearings that Chairman Hayes’ subcommittee has conducted around the country, as well as this one, are of great benefit to us all as we work to implement a labeling system that works the way Congress intended.

I applaud the work that USDA has done so far to implement the measures Congress instructed in the farm bill. But, I do think that we can do a better job of implementing the country-of-origin labeling provision. The current methodology the department is using is a bureaucratic nightmare. I think that’s something everyone

agrees on. I believe in the premise of country-of-origin labeling, and I believe there

is a way to do it without enormous costs and burdensome red tape and paperwork.

This issue is not going to simply go away. We’ve got to develop a logical and effective methodology for implementing it that is less complicated than that the department has proposed. I hope we can work together to accomplish the task that is before us, and I appreciate the work of everyone as we work toward doing that.

PREPARED STATEMENT OF HON. LEONARD L. BOSWELL, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF IOWA

Mr. Chairman, I am pleased you convened this timely and topical hearing to review an issue which has become quite important as implementation has begun. Last

year’s farm bill contained a provision calling for country of origin labeling for meat

products, which was developed with the best of intentions. However, as USDA regulations have been issued, many have begun to question how compliance will be accomplished and at what cost.

Although ensuring consumers are aware of the origin of the products they purchase is a laudable and important goal, the current country of origin labeling may

very well cause more difficulty than good within our Nation’s agricultural sector.

Proponents of country of origin labeling certainly have the best interests of consumers and producers at heart. However, the lengthy and costly requirements to

producers, sellers and everyone in between leave me very concerned about the current proposal.

Much of our agriculture sector is under a tremendous economic strain. To require

additional expensive record keeping and verification could have a tremendous negative impact on not only on agriculture, but on the national economy as well.

With implementation costs estimated in the billions, we must examine more cost

efficient alternatives and reexamine how best to balance the goal of increased inforVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
6

mation at the supermarket with the need to maintain an strong agriculture sector

in our economy.

I look forward to hearing the testimony from today’s witnesses to learn more

about the impact of this new provision. The law of unintended consequences may

well be at work in the case of country of origin labeling.

7

8

The CHAIRMAN. At this time, we would like to invite our first

panel to the table. Dr. Charles Lambert, Deputy Under Secretary

for Marketing and Regulatory Programs of the U.S. Department of

Agriculture; Ms. Nancy Bryson, General Counsel of the U.S. Department of Agriculture, and Dr. Keith Collins, Chief Economist of

the U.S. Department of Agriculture.

Ladies and gentlemen, we are delighted to have all of you with

us. We know that this has been a major challenge for each and

every one of you, and we look forward to hearing your comments

on the state of affairs at the Department on this issue.

The gentleman from Iowa.

Mr. BOSWELL. Thank you, Mr. Chairman, I will not interrupt the

flow, but we will have an opportunity to have a statement put in

the record, and I would like to do that.

The CHAIRMAN. Absolutely.

Mr. BOSWELL. And also take this moment, I implored to your

predecessor but some of us on this committee are on other committees, and it seems like there is always a conflict. And this is a very,

very important hearing, and we have another one going on, some

of us, so I can’t stay for all of this because of that situation. I ask

that you use whatever influence you have got to try to get some

coordination with the Transportation and some—I think your staffer can share with you that several us are on other committees and

whatever progress you could make would be helpful. It would be

difficult, but I ask you to give it a look.

The CHAIRMAN. We certainly will try to make it possible for maximum amount of participation today. And at this time, we will

begin by welcoming Dr. Lambert. Thank you for your participation

today, Dr. Lambert.

STATEMENT OF CHARLES LAMBERT, DEPUTY UNDER SECRETARY, MARKETING AND REGULATORY PROGRAMS, U.S.

DEPARTMENT OF AGRICULTURE

Mr. LAMBERT. Mr. Chairman, Mr. Stenholm and members of the

committee, thank you for the opportunity to discuss the farm bill’s

mandatory country-of-origin labeling provision and, more specifically, what USDA is doing to implement this mandate. I am Chuck

Lambert, Deputy Under Secretary for Marketing and Regulatory

Programs at the USDA. Mr. Chairman, as you may know, the Office of Management and Budget’s Statement of Administration Policy on S. 1731, the Agriculture Conservation and Rural Development Act of 2001, found the provision requiring mandatory country-of-origin labeling highly objectionable. The administration’s position and the reasons for that position have not changed.

We feel these new requirements will not have a positive effect

overall and that the unintended consequences on producers and the

distribution chain could be significant. At the same time, let me be

clear that we do not oppose consumers having adequate information to make informed purchasing decisions. We do, however, have

concerns about the approach that this law takes.

Notwithstanding the administration’s view and the narrow parameters Congress adopted for this very prescriptive piece of legislation, USDA is fully committed in working diligently in implementing this provision of the farm bill. Significant efforts have

9

been made in the development of the voluntary guidelines announced last October and in our initiation of the rulemaking process for mandatory labelling to consult with interested parties including the public, industry groups consumer groups trade associations foreign governments and Congress.

The USDA met with over 40 groups and associations in formulating the voluntary guidelines and we have received well over 1,500

comments since the guidelines were released. In preparation for

rulemaking on mandatory country-of-origin labeling, Secretary

Veneman announced last March that the USDA would hold a series of listening and education sessions in 12 States across the

country to gain more public input and provide interested parties

more information about the new country-of-origin labeling law.

Today, the last of those listening sessions is being held in Lancaster, Pennsylvania. Over the past few months, USDA has also

provided numerous additional presentations and briefings. More

than a thousand written and oral comments have been received

thus far on the mandatory program. A common theme throughout

these sessions and comments are the concerns expressed by both

the proponents and the opponents of country-of-origin labeling regarding the complexities and the costs associated with implementing this law.

The law requires retailers to label at the final point of sale beef,

lamb and pork, both muscle cuts and blended product, fish, shellfish, perishable agriculture commodities and peanuts must also be

labeled as to their country of origin. Further, fish must be labeled

as to whether it is wild or farm-raised. The law defines retailer, according to the Perishable Agriculture Commodities Act, as a business that sells fresh or frozen fruit and vegetables with an annual

invoice value of more than $230,000. Approximately 4,200 PACA

retail licensees operating more than 31,000 retail outlets fall into

this definition.

By using this definition, Congress exempted retail butcher shops,

fish markets and small retailers, in addition to the restaurants and

other food service establishments that the bill specifically exempts

from labeling requirements.

The farm bill defines criteria for a covered commodity to be labeled as U.S. Country of Origin. To receive this label, beef, lamb

and pork must be derived exclusively from animals born and raised

and slaughtered in the United States. There is an exemption for

beef and cattle born and raised in Alaska or Hawaii and transported through Canada for not longer than 60 days. Wild fish and

shellfish must be derived exclusively from fish or shellfish harvested in U.S. waters or aboard a U.S. flagged vessel and processed

in the United States or aboard a U.S. flagged vessel. Farm-raised

fish and shellfish must be derived exclusively from fish or shellfish

hatched, raised harvested and processed in the United States. Fish

and frozen fruit and vegetables, as well as peanuts, must be exclusively produced in the United States.

The Act says ‘‘covered commodities’’ must be labeled unless they

are an ingredient in a processed food item. There are several covered commodities that, while they undergo slight processing, still

retain the original identity of the commodity, while others change

form as a processed food item. Although the farm bill provides a

10

very specific definition for U.S. Country of Origin, less statutory

guidance is provided for imported, mixed, or blended products. Imported products, of course, were already subject to existing labeling

laws and regulations. For some products, like imported boxed beef

or boxed pork original country of origin labels do not have to be

maintained through the retail level once these products are subjected to further processing.

Products that include production or processing steps that occur

in the United States and in an another country create a unique labeling challenge. Blended products provide a related challenge.

These are produced with commodity components that can be distinguished such as a salad mix, or indistinguishable product components, such as ground beef. In both cases, components are of different origins but combined together for retail sale.

Consumer notification as to the country of origin of covered commodities can occur in a variety of ways. Many fruits and vegetables

already have country of origin labels directly on the product. Some

beef, lamb, and pork products also have labels on their packages.

The farm bill language allows for these labels, as well as signs on

a display or bin, or other forms of notification.

The law requires any person in the business of supplying a covered commodity to a retailer to provide information to that retailer

about the country of origin of that commodity. It further provides

the authority to require persons in the distribution chain to maintain a verifiable recordkeeping audit trail to verify compliance.

However, the law does not specify what records are acceptable to

verify country-of-origin labeling, and the law prohibits the Secretary from establishing a mandatory identification system to verify the origin of a covered commodity. Thus, it is left to retailers

and their suppliers to determine which records will be retained to

verify the country of origin of covered commodities.

With the 12 listening sessions that USDA has been holding

around country, the process of developing a regulation for mandatory country-of-origin labeling has begun. We expect to publish a

proposed rule this fall with ample opportunity for public comment.

A final rule will be published as soon thereafter as possible.

Due to the significant nature of the mandatory country-of-origin

legislation, a comprehensive economic impact analysis will be prepared as part of the rulemaking to evaluated the costs and benefits

associated with implementing this rule.

The USDA has experience in supporting industry’s use of various

marketing claims. We have a number of programs where industry

is already making credible, verifiable claims in the marketplace.

However, these programs have several points in common. They are

voluntary and market-driven, reflecting focused marketing opportunities for consumers who are willing to pay for the information provided. These programs do not attempt to cover all products to all

consumers. The programs operate under standardized program protocols and records requirements. And being market-driven, the incentives for compliance stem from increased sales and profits, not

the threat of punitive fines.

Mr. Chairman, the Congress has tasked USDA with the responsibility of implementing a Country-of-Origin Labeling Program for

a wide range of food products. We take this mandate seriously and

11

will do our utmost to implement a program that meets the requirements of the law and minimizes the burdens on all correspond.

I will be happy to answer any questions from you or other committee members. Thank you.

[The prepared statement of Mr. Lambert appears at the conclusion of the hearing.]

The CHAIRMAN. Dr. Lambert, thank you. Ms. Bryson we are also

pleased to have you with us today. Welcome.

STATEMENT OF NANCY S. BRYSON, GENERAL COUNSEL, U.S.

DEPARTMENT OF AGRICULTURE

Ms. BRYSON. Mr. Chairman and members of the committee,

thank you for the opportunity to appear before you today to discuss

the mandatory country-of-origin labeling provisions and the legal

requirements that USDA is required to implement.

As Deputy Under Secretary Lambert has testified, the law requires mandatory country-of-origin labeling beginning on September 30, 2004 for covered commodities. As a legal matter, this information constitutes a marketing claim. It is designed to allow the

consumer to choose between similar commodities based on the factor of country of origin. By requiring mandatory disclosure of this

information, Congress has determined, as a matter of law, that this

information is material to consumer purchasing decisions. The validity of the claim depends on its truthfulness and reliability. These

characteristics are measured by the evidence which substantiates

the claim.

The mandatory COOL provisions contain a number of specific

provisions which USDA has no discretion to modify. These include

the following: The content of the claim, the person responsible for

the claim, the method of notification, the requirement that suppliers to the retailer provide information indicating the country of origin of the covered commodity, and the requirement that USDA enforce the requirement against both retailers and packers but may

not rely on a mandatory identification system in doing so.

What is USDA’s job under the statute? The statute, as I have

said, authorizes USDA to enforce the program, and it authorizes

USDA to issue regulations to implement the program.

The statute also says USDA may require that any person that

prepares, stores, handles, or distributes a covered commodity for

retail sale maintain a verifiable recordkeeping audit trail that will

permit the Secretary to verify compliance.

The statute also provides USDA with guidance on how to verify

the country of origin of a covered commodity by citing several existing certification programs as models. These include programs for

carcass grading and certification, voluntary country-of-origin beef

labeling, voluntary certification of certain premium beef cuts, and

origin verification systems carried out under the National School

Lunch Program and the Agricultural Trade Act of 1978. Each one

of these certification programs described in the statute includes

record keeping requirements that enable the agency to verify the

accuracy of the claim.

As also indicated by Deputy Under Secretary Lambert, the voluntary guidelines which were issued by USDA in October of 2002

do precisely this. They provide guidance on the type of recordVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
12

keeping which will be required to establish a verifiable recordkeeping audit trail. There is, to be sure, a great deal of discussion

over the scope of the recordkeeping audit trail requirement for the

mandatory program. And particularly with respect to livestock producers who are neither suppliers of covered commodity meat products nor packers subject to USDA enforcement actions under the

statute.

However, the law requires that the factual content of the claim

‘‘exclusively produced from animals exclusively born, raised, and

slaughtered in the United States’’ be substantiated. And two-thirds

of the relevant information in the case of covered commodity meat

products is in the possession of such livestock producers.

How retailers and packers secure this information is a matter of

contract that will be determined by the marketplace. Is there some

flexibility as to the quality and quantity of that information? Yes,

and AMS is exploring that in the rulemaking proceeding. I have

addressed several other legal issues in my written statement which

has been submitted, but in the interest of time let me stop here.

I will be happy to answer any questions.

[The prepared statement of Ms. Bryson appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Ms. Bryson. Dr. Collins welcome.

STATEMENT OF KEITH COLLINS, CHIEF ECONOMIST, U.S.

DEPARTMENT OF AGRICULTURE

Mr. COLLINS. Thank you, Mr. Chairman, Mr. Stenholm, committee members. I appreciate the invitation to join you all this morning to talk about the economic effects of mandatory country-of-origin labeling.

This forthcoming rule has been declared economically significant

under Executive order 12866. That triggers as a result an in-depth

cost-benefit analysis on the part of the USDA. AMS is the leading

agency for conducting that analysis, and they are drawing upon an

interagency team of analysts to do so. While this effort is incomplete, earlier work by USDA and other analysts sheds some light

on the economic effects of country-of-origin labeling.

And it is this work, I think, that illustrates why concerns have

been raised, such as those by Dr. Lambert, regarding the economic

effects of this program. The expected benefits arise from the belief

that consumers want label information so they can buy products by

country of origin. Some expect consumers to buy more U.S. product,

raising the prices and quantities sold. The general point is that for

some benefits to be realized in the first place, consumers must believe the label information which requires an adequate recordkeeping program sufficient to ensure against false claims.

More fundamentally, I think there is evidence that consumer

preference for domestic product is weak. This evidence is the lack

of voluntary programs that provide products labeled as domestic origin. USDA has been offering the opportunity for a U.S.-origin

meat abeling program for years and there have been no takers.

If consumers distinguish goods depending on their country of origin, market incentives exist for suppliers to act without Government intervention, just as they do under voluntary certification

programs such as for organic foods. There, consumers willing to

13

pay a premium sufficient to cover the additional costs of the program. While the market has given us evidence that consumers

would be willing to pay for organic, if has not done so for U.S. origin.

Other evidence comes from some of the comments USDA has received. Two retailers, for example having 105 stores, told us that

out of 60,000 customer communications they received last year,

only one pertained to country of origin of a covered commodity. Despite such evidence of weak demand for country-of-origin information, some believe otherwise, citing studies asking consumers what

they are willing to pay for U.S. meat. Such studies do not tell us,

however, whether consumers actually would pay more if they were

spending from their household budgets, and they do not tell us

whether consumers will be willing to pay more day in and day out

after the survey date.

The uncertain nature of this work led the authors of the most

cited study to state recently, quote, it is unwise to apply these results in estimating the benefits of country-of-origin labeling, unquote.

I have little doubt that some consumers value knowing the origin

of a product, but what worries me is whether that will translate

into a price premium in the marketplace. The supply of U.S. origin

meat, for example, exceeds 80 percent of the available U.S. supply.

That far exceeds the quantity demanded by those who would actually pay more for origin information.

Regarding the costs of country-of-origin labeling, they depend on

the extent to which firms have to implement new control and verification systems including recordkeeping, reconfiguring processing

and handling, producing signage and labels and training and educating their staff. The Government will incur costs as well to the

extent it conducts audits and other compliance activities.

To date, the USDA has issued a recordkeeping cost estimate of

a voluntary program under the assumptions required by the Paperwork Reduction Act. Some have claimed these costs are seriously

overestimated. Some have claimed these costs are seriously underestimated.

Several studies have estimated costs for the cattle/beef and hog/

pork sectors at up to several billion dollars annually, after examining all costs for the entire supply chain, including segregation and

identity preservation.

There is also a concern about who will bear these direct costs.

If retailers push their costs on to consumers who do not care or

who are not willing to pay much for U.S. origin information, consumer welfare would decline.

The risk our producers face, I believe is that their direct costs,

plus costs passed back to them, may outweigh quantifiable benefits

if consumer preference for origin information is weak.

That completes my statement, Mr. Chairman.

[The prepared statement of Mr. Collins appears at the conclusion

of the hearing.]

The CHAIRMAN. Dr. Collins, thank you very much.

We will now proceed with questions, and we will very tightly enforce the 5-minute rule, including on myself in recognition of the

large number of questioners that it appears we have..

14

Dr. Lambert, some proponents of country-of-origin labeling have,

in my opinion, irresponsibly muddled Canada’s BSE problems with

the debate about the implementation of this new law. Does the administration see any linkage between these two issues?

Mr. LAMBERT. Mr. Chairman, these are two completely different

systems and there is no linkage. Animal health issues require a

proactive and preemptive Federal control of animals in the manufacturing process, and those cases the Government negotiates the

blueprint, and we do that on science and then we inspect as the

product moves through the system to assure that the blueprint is

followed.

The country-of-origin labeling law that we have to implement

provides for a retail market label, and it requires government to

conduct an after-the-fact verification of food product records as the

product moves through to retail. So, in effect, there is no linkage

between these two programs.

The CHAIRMAN. Thank you. Ms. Bryson, in addition to the regulations that the Department will put forward later this year, is

there anything in this law that would bar a retailer or a packer

from specifying the certification criteria that they would require of

their suppliers, given that the law places a great deal of liability

on those retailers and packers?

Ms. BRYSON. I see nothing in the COOL statute that would bar

retailers or purchasers from specifying the certification criteria

they are going to require.

The CHAIRMAN. In other words, no matter how the Department

might write these regulations—and I am sure try to be as friendly

as possible to those who are going to have to comply with them—

if the retailers are concerned about their ultimate liability and they

impose their own certification scheme, including various types of

records that they might require be produced to assure themselves

that they are not going to be held liable for falsely labeled products, there is nothing in this law that would bar them from doing

that?

Ms. BRYSON. That is correct.

The CHAIRMAN. Some of the proponents have argued that if meat

products are not labeled as imported, they should be deemed as to

be domestic in origin. Should such a scheme be permitted under

the law?

Ms. BRYSON. I think not, Chairman Goodlatte. And the reason is

that the criteria for the claim, which I referred to, are specified in

the statute and those are matters of fact. A legal presumption is

not adequate to substantiate issues of fact.

The CHAIRMAN. So in other words, failure to comply with the law

or a lax procedure followed by somebody is going to put them afoul

of the law? It will not exempt them from the law?

Ms. BRYSON. Yes, that is right.

The CHAIRMAN. And Dr. Collins, I think you have shed some

light on this already but perhaps you could amplify what I think

is the critical question here in terms of our efforts to try to help

producers of these various products. Will country-of-origin labeling

for imported beef result in higher livestock prices or higher profits

for producers?

15

Mr. COLLINS. Mr. Chairman, in a nutshell, I think the prospects

are not good. First of all, livestock are not a covered commodity,

so what happens to livestock producers is a consequence of the

market adjustments from this rule. Generally, when there is an increase in marketing cost like this rule would require, those costs

would get passed on to consumers, and they would get passed back

to suppliers—passed back to suppliers in the form of decreased demand for their product. That is one possible consequence livestock

producers face, decreased demand because of increased marketing

costs. Then they have their own direct increase in costs themselves

that will be forced on them by suppliers. The prospect is that livestock prices would be the same or decline and profits probably decline. The only thing that would overcome that is demand in retail

expands far out to overcome those effects, and as I stated, I think

the prospects of that are low.

The CHAIRMAN. Thank you very much. The gentleman from

Texas, Mr. Stenholm.

Mr. STENHOLM. Our three largest markets for our exports of

meat have country-of-origin labeling requirements at the retail

level. Could you please describe in detail the labeling requirements

in Mexico, Japan and Korea for meat? And tell us if any of them

require that to be eligible to be labeled as domestic product at the

retail level, the meat must be from an animal born, raised and

processed in that country?

Mr. LAMBERT. The country-of-origin labeling requirements that

you refer to, Congressman Stenholm, are based on processed-only

product. In other words, that product was processed from and

shipped to the importing country.

Mr. COLLINS. Let me just follow up, as part of this rulemaking

process we have going on. We do have our Foreign Agricultural

Service taking an inventory of country-of-origin labeling programs

around the world, and we will be incorporating that information

into this process as we go forward. I think in 2002, the European

Union did adopt a labeling program that requires beef to be labeled

by country of origin. They are not one of the countries you mentioned. You asked for export destinations. I think the closest one

to COOL is beef in Japan, where they have made an effort to try

and get premium prices and protect the price structure for Wagyu

cattle. The other countries, as Mr. Lambert said, are not on a par

with country-of-origin labeling, but we will have more information

on that and will be happy to provide that to you.

Mr. STENHOLM. The 2002 farm bill prohibits the Secretary from

using a mandatory identification system to verify country of origin.

In light of the grave concerns caused by a single case of BSE in

one Canadian cow, is a mandatory system needed in the United

States?

Mr. LAMBERT. USDA and AFIS, along with several State Government representatives and industry have been working on an animal ID program, and there is a program in place that is in the

process of being developed and implemented.

Mr. STENHOLM. I know the beef industry itself has been looking

at this question now for several months. A lot of times we tend to

get the cart before the horse in this endeavor. And I personally

really believe that traceback is going to be an absolute right. As

16

you answered the chairman’s question a moment ago, there is a

tendency to mix up the BSE question with country of origin and

there is no real relationship. Only indirectly is there a relationship.

But also, those of us in the cattle industry and sheep and goat and

everywhere else understand the importance now of traceback. That

is a consumer issue and also a producer issue and it is one in

which we must be sensitive.

And that is why I think today’s hearings, as you have testified,

the complexity, the unintended consequences that you point out in

your testimony of well-intentioned and well-meaning desires on the

part of our industries, our own industry in this country. We have

got to take a good hard look at that. So I hope that my colleagues

and all understand that the process that you have gone through,

the process that we begin today is going to be critical in answering

those questions and doing it in the context that it doesn’t shoot

ourselves in the foot in the world market. Because that is where

the future—in this case, we are talking mainly about meat, but the

future for all production in the United States is in the international marketplace. And if we end up putting things on that others are going to put on us, it is not going to have the desired effect.

So I appreciate your early answer there from the standpoint of

looking at other markets. I think that is going to be critical. And

perhaps, Mr. Chairman, as we go further into this, it might be that

we want to on this committee address this question in a way in

which we have learned from everything to this point and do it in

a way that will be consistent and will also be a way that will not

have an adverse effect on the prices to the producers, which Dr.

Collins, I happen to agree with your analysis as a producer myself

in the answer to the question. But thank you for your testimony.

The CHAIRMAN. I think the gentleman’s observation is very welltaken.

The gentleman from Kansas, Mr. Moran.

Mr. MORAN. Mr. Chairman, thank you.

One of my interests in this topic is the legislative language that

was included in the farm bill. So I think this is a question for Ms.

Bryson. How much of the difficulties USDA is facing in developing

a program is just the direction that the statute requires you to

comply with? Is there a way to make the language work better?

Ms. BRYSON. Our job at this point, obviously, is to implement the

law that Congress passed for us. And looking at that, I think that

the question you asked is one that is going to be illuminated in the

rulemaking that USDA has yet to undertake. Certainly, the listening sessions have given us a lot of additional information. To the

extent that the legal requirements that we have to work under,

that are in the statute, need to be changed, that is a matter for

the legislature to consider.

Mr. MORAN. No recommendation?

Ms. BRYSON. We have no recommendations at this point.

Mr. MORAN. The solution in the coffee shops of Kansas is to require those who import meat products that would not meet that

definition of a U.S. product, that we label those as being non-U.S.

products. Is that an option either under the legislative language

that you have to deal with or under trade agreements that we have

17

already entered into with other countries? Is that kind of commonsense solution to this problem possible?

Ms. BRYSON. We haven’t analyzed that question. I would say two

things about it. One, I don’t think that it is permissible for us to

adopt that kind of approach under the language that we have right

now. And that is because the language doesn’t say, doesn’t define

the claim of U.S. origin as anything that doesn’t have an import

record. It doesn’t say that.

The question of whether the change you suggest could be written

legislatively in a way that does not affect our trade agreements is

one that we at USDA would have to defer to USTR on.

Mr. MORAN. Anything else Dr. Collins or Dr. Lambert?

Mr. COLLINS. If you ask what makes this thing complicated, I

think from a cost-benefit point of view, one of the things that

makes it complicated is the statutory definitions. When you require

born, raised, processed in the United States, and the covered commodities starts at the slaughter house, not where the animal is

born, those kinds of things make it very complex and those are

statutory requirements. With fruits and vegetables, the covered

commodity is when it is grown; the process starts there.

So I think there are lots of aspects to this rule that do make it

difficult. I have no recommendations for change, however. I am

simply pointing out some of the things that show up as reasons

why the costs go up for this.

Mr. MORAN. The definitions are obviously important. And one of

the things in your testimony that caught my attention was the

question out there as to whether or not consumers will believe,

whether that label will have credibility. And obviously the definitional aspect of the requirement may play a significant role in that

consumer confidence in the label. So, changing the definition, although it may make the process simpler, also may eliminate the

belief that this product is superior. So I think—I don’t mean to put

words in your mouth, but I think there is a catch–22. If you solve

this problem by making it easier to comply with, the benefits that

are at least perceived to be there perhaps are diminished as well.

Does that make sense?

Mr. COLLINS. Yes. If those benefits are there in the first place.

Mr. MORAN. Yes, sir.

Mr. Chairman, thank you.

The CHAIRMAN. I thank the gentleman.

The gentleman from Minnesota, Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman. And thank you for

calling this hearing. I think it is important that we sort through

all of this.

I don’t remember which one of you said, I guess Dr. Lambert,

that the mandatory animal ID issue is really not—BSE is not connected to this. But the fact that we put in the farm bill that you

cannot do this, I think, draws the connection, because I have been

following—there has been a lot of press accounts in Minnesota

about this Canadian situation, where these five bulls came in to

Canada, and they were shipped to different places. And we have

tried to trace this down. We think that five of them went to Minnesota, but they still have not been able to tell me where they went

from that point. And I think that, in my judgment, is my concern

18

about this whole situation, that you are prohibited from even looking at national animal ID, because if we for some reason got a hoof

and mouth case in this country or a BSE case, it looks to me like

we don’t have the ability to trace that down and figure out where

it came from on any timely basis. Because this was reported on

May 20, and we are here June 26 and we still can’t tell where

these went. Am I wrong?

Mr. LAMBERT. We haven’t been able to trace forward the bulls

that went from that one ranch that had imported those five animals. Those were traced forward to individual packing plants, and

so the trace forward was possible.

But I do not disagree with the concept of an identification system. As I indicated, there is a process under way where representatives of Federal Government, State government, and the industry

have worked, reached consensus on a plan. And, for animal health

reasons, that system is moving forward.

Mr. PETERSON. And you are involved in that process?

Mr. LAMBERT. USDA is involved in that process.

Mr. PETERSON. What was put in this COOL law would prohibit

you, if you did come up with a solution, from implementing it. Am

I not——

Ms. BRYSON. If I might help out here. The Department’s position

would be that, under the authorities of APHIS with respect to animal and plant health, if a mandatory identification system were

needed as an animal health protection measure, we would have authority under that statute to develop that kind of program. Obviously, it couldn’t be used for COOL purposes because of the prohibition on against a mandatory identification system for the labeling

program. But because we view animal health as separate from labeling, we think the health statutes allow us the authority.

Mr. PETERSON. OK. So that is what I was getting at. So we don’t

have to repeal that provision in COOL in order for you to be able

to do this from an animal health and food safety view?

Ms. BRYSON. That is correct.

Mr. PETERSON. Well, I just want to—I have been spending some

time looking into this, and the more I look into it, I become convinced that we need to do this in this country for a lot of different

reasons, terrorism, and all this other stuff that is going on. And in

the research that I have been doing, they are telling me that the

cost of this would be something like 5 cents a transaction? Is that

correct? You know, putting these chips in or whatever? If it is—

have you seen any of that information? Some study that I read said

that it is 5 cents a transaction to put this identification in, and

there may be six transactions a year for livestock.

Mr. COLLINS. I don’t know the answer to that.

Mr. PETERSON. You haven’t gotten that far into this to look into

the types of systems, what the cost would be, and that sort of

thing?

Mr. COLLINS. We are doing that now. I think——

Mr. PETERSON. How soon will you have some of that information

available?

Mr. COLLINS. Well, we are not going to make it available until

we publish the proposed rule. We will publish the detailed cost

analysis as part of the proposed rule.

19

Mr. PETERSON. But that is on COOL.

Mr. COLLINS. I am sorry.

Mr. PETERSON. I am talking about setting up an animal ID.

Mr. COLLINS. Yes. That, I can’t answer. I don’t know the answer

to that.

Mr. PETERSON. Is there any part of this process going on where

we are going to get an answer to that, what it would cost to set

something up?

Mr. LAMBERT. Yes, Congressman. I will make sure we get back

to you with an answer on that question. I know that there is a

group working on that. The steering committee, if you will, is slated to meet the 1st of July. And so that process is under way, and

we will get you the information on what they have with respect to

cost of that program.

Mr. PETERSON. Thank you.

Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

The gentleman from Nebraska, Mr. Osborne.

Mr. OSBORNE. Thank you, Mr. Chairman. Thank you for being

here today.

My questioning is going to be a little bit along the lines of Congressman Moran. We are out there with a lot of folks who are a

little skeptical of the process. They got burned on mandatory price

reporting. And so sometimes the intent of legislation, what the people out in the field want is fairly clear; and yet, by the time we

are done parsing words and coming up with legal definitions here

in Washington, we get something very different. And so the conventional wisdom out there is, well, we are able to label almost everything else, whether it be T-shirts, socks, other products. And so

what they are saying is, well, why can’t we have every meat product, particularly that comes into the country labeled as Argentine,

Japanese, whatever. And then what that does is leave everything

else U.S. I realize that may not meet the statute, but those are the

kinds of questions we have to be able to answer.

And so my question would simply be this: Given the statutory requirements, is there any way that you can see that this can be implemented without throwing a huge cost back on the producer?

That is question No. 1.

And then No. 2. This would be for Dr. Collins. I think you were

generally skeptical as to whether this would really increase prices.

But is it possible to have some surveys, to actually survey the consumer in a way where we get some feedback? It may not be foolproof, but it doesn’t seem like we have done a whole lot to this

point where we have really gone out and tried to get the data. Dr.

Lambert, if you would want to take a shot at the first question,

then Dr. Collins.

Mr. LAMBERT. Now, as defined in the statute, you know the origin begins with the producer, but the producer knows where that

livestock was born. So that begins that trail. So the cost and the

complexities of the system that is required is determined by the

definition of the product as is in the statute.

Mr. OSBORNE. So you really see no way that this could be implemented any other way than what you have outlined, and that it is

going to be somewhat time consuming and expensive.

20

Mr. LAMBERT. Congressman, as we have defined it, and as I

think interpreted by legal counsel, this is the way that we are restricted to implementing that law.

Mr. OSBORNE. OK. Thank you.

Dr. Collins?

Mr. COLLINS. You asked about getting more analysis of demand.

Economists love to do demand analysis. And what we like to do is

go out and look at actual market transactions, look at all of the different factors that might be involved in a consumer purchase decision, run all kinds of statistical relationships, and isolate those factors, so that we can know the effect of each one, so that we would

know what the effect of origin information is. The problem is, we

don’t have any data because origin labeling has not been done in

the United States. Now, there are some other countries, as we

talked about earlier, that have done it, and we could probably look

at some foreign country demand-analysis. But I would be very

skeptical about applying that to U.S. consumers.

So then that gets to your suggestion that we go out and survey

consumers’ opinions. And that has been done. There has been some

work done the last couple of years on that. Economists call that

contingent valuation, willingness to pay studies. They do it several

ways. They ask people simply how much they would be willing to

pay for that information, or they have mock auctions where they

give consumers $50 or $100 and let them bid in an isolated room

on different pieces of meat. This has been done for steak, and it

has been done for ground beef. And they do show that there are

consumers that are willing to pay more. The question is, how much

weight do you put on those studies? And in my opening comment,

I quoted the authors of probably the most prominent of those studies, who said in a statement issued a month or so ago that they

thought it would be unwise to use that type of analysis for benefit

analysis, because it is a very hypothetical and uncertain situation.

It does suggest to me that there are consumers that value this information. But to go from that to think that we are going to have

enough increase in demand that it is going to raise price, to me it

is just too much of a stretch at this point based on what we know.

But, this COOL legislation has set in motion the interest of the

academic community. So there is no doubt that we are going to see

more studies about this as we go down the road.

The CHAIRMAN. The time of the gentleman has expired. I thank

the gentleman.

There are about 6 minutes remaining on the first of three votes.

The committee will stand in recess until immediately after the

third vote, and I would ask the panel to remain. I am sure there

will be plenty more questions. Thank you.

[Recess.]

The CHAIRMAN. The committee will come to order.

The Chair recognizes the gentleman from California, Mr. Baca.

Mr. BACA. Thank you very much, Mr. Chairman.

I would like to ask this question to Dr. Lambert. We recently saw

the discovery of one cow in Canada that tested positive for mad

cow disease. Would the country-of-origin labeling help boost consumers’ confidence? Is question No. 1.

21

Number 2, is it possible labeling could help restrict through the

market the importation of meat from countries with mad cows? Is

the second question.

Mr. LAMBERT. I think I will take the last one first. Food safety

guidelines basically say, if it isn’t safe, we don’t import it. So labeling is not an issue there. And we say that if the inspection is not

equivalent to ours, then we do not bring that product into the

United States.

As I indicated earlier, country-of-origin labeling is a completely

separate issue from the rules and regulations that we put into

place to address animal health issues, and those are based on

science. And we have a prescribed system that we put into place

in those cases.

Mr. BACA. Is there a possibility that it could get through? Even

though you are saying that there is an inspection to make sure it

is safe, is there that possibility? Because we are talking about the

consumers now that want to know the product, and if there is possibility. They read in the paper, they read about some kind of infection or others coming from that origin or a certain country, then

it comes in. That possibility could exist though. Right?

Mr. LAMBERT. No, sir.

Mr. BACA. None at all?

Mr. LAMBERT. No.

Mr. BACA. Guaranteed. Right?

Mr. LAMBERT. Guaranteed.

Mr. BACA. You would bet your life on it, job on it. Right?

Mr. LAMBERT. Yes, sir.

Mr. BACA. OK. Can you answer the first portion of the question?

Then you answered the second. Would the country-of-origin labeling help boost consumer confidence?

Mr. LAMBERT. As I said, country-of-origin labeling is a marketing

issue that is at retail. And it is a system that we would be basically

verifying, trace back through the system, and it is a completely different system than would be in place to address animal health type

of issues.

Mr. BACA. Thank you.

The next question is for Ms. Bryson. National Fair and other

groups have been using the case of mad cows in Canada to justify

the need for a national animal identification system. Would you

find such a proposal advisable? And do you believe that it could

help eliminate confusion for producers in complying with COOL?

Ms. BRYSON. I am not sure that is really a legal question. I

would look to APHIS for the decision on whether or not as a matter

of protecting animal health mandatory identification programs

would be required under the animal health statutes as a health

measure.

Mr. BACA. OK. No further questions, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

The gentleman from Montana, Mr. Rehberg.

Mr. REHBERG. Thank you, Mr. Chairman.

You know, I can’t be struck by the fact that the conversation

around here is, if you are opposed to country-of-origin labeling, you

don’t want to see a connection between BSE and country-of-origin

labeling. There is a connection. Any way you look at it, there is a

22

connection between healthy food, safe food, and the products that

we bring in from foreign countries or this country.

Now, Dr. Lambert, can you deny that the FDA is a scientific

label that exists on a product that gives us some assurance that

it has been inspected or researched and developed in this country?

It is the whole conversation about prescription drugs. Why can’t we

use the health certificates that follow the animals in from Canada

or from Mexico? If we are so sure that they are coming in from

other countries and we are so sure that they are safe and they

have got that documentation, why can’t you make that applicable

to the country-of-origin labeling in livestock or fruit?

Mr. LAMBERT. Again, it goes to the definition as prescribed in the

law.

Mr. REHBERG. So the administration will support it if we change

the definition, so we can make it similar to some of the other labeling procedures?

Mr. LAMBERT. We will implement the law in accordance with the

legislation. If the legislation changes, obviously we will modify our

implementation strategies.

Mr. REHBERG. I just get the sense, Mr. Chairman. You know, I

have been a rancher all my life and a farmer. But to make ends

meet, I also had to do something called real estate. And one of the

gimmicks we learned in the real estate business is, make something so complicated that the buyer can’t do anything but hire a

realtor to either list their home or sell their home.

You know, that is the feeling I am getting from the Department

of Agriculture. Now, there is no question that the President opposes country-of-origin labeling, because I sat on the Air Force One

and talked to him about it, and said, if you want it so badly, why

don’t you just do it voluntarily? I am not a proponent. And it seems

like ever since we have attempted to, through legislation, to ask

the administration to work with us on crafting those regulations,

you have done everything possible to make it as complicated as

possible so it will implode upon itself and not work. Now, how can

it be that difficult when you know those livestock are labeled,

whether it is a job brand coming in from Mexico, a health certificate coming in from Canada? How can it be that difficult to determine the origin of that livestock?

I would ask Ms. Bryson that.

Ms. BRYSON. I appreciate the view that you are expressing, Congressman. As I was pointing out in my statement, the law that we

have to work with is the one that Congress passed. And the law

defines the content of the claim, and it defines it for animals of

U.S. origin as those meat products coming exclusively from animals

exclusively born, raised, and slaughtered in the United States.

Mr. REHBERG. Do you deny that there is a process for determining what livestock come in from out of country?

Ms. BRYSON. I have no independent knowledge of that. I would

look to Dr. Lambert for that.

Mr. REHBERG. Dr. Lambert.

Mr. LAMBERT. Yes. Those animals are ID’d as they come into the

United States.

Mr. REHBERG. Well, there you go. Solved the problem. We already know which livestock are coming into the country. So from

23

that point forward, it would seem as if we could trace that livestock

up.

Dr. Collins, clearly we are getting into a philosophical discussion

of cheap food policy. Clearly, you have made the determination in

your economic model that any cost adds to the cost, thereby making our product at a competitive disadvantage. Is that correct?

Mr. COLLINS. I think it is almost a fundamental economic principle that, when you add to marketing costs, those get paid somewhere in the system.

Mr. REHBERG. So it is supply and demand.

Mr. COLLINS. But I haven’t concluded definitively yet because we

haven’t issued our cost-benefit analysis yet. But I think there are

certainly risks to be faced here about who is going to pay these

costs.

Mr. REHBERG. Dragging back to my old days in ag-econ at Washington State, if I remember correctly, it is supply and demand that

really justifies or dictates the marketplace and price. In following

your reasoning, you would suggest we vote against any trade packages that bring additional livestock into America because it diffuses the supply and all of a sudden, price goes down. And if we

truly want to protect the price for our livestock producer, we should

not let more supply into the marketplace.

Mr. COLLINS. That strikes me as a rather strained conclusion

from anything I said, Mr. Rehberg. I didn’t say anything about

trade agreements.

Mr. REHBERG. No. But what I am saying is that you have got two

ways of changing your price at the marketplace.

Mr. COLLINS. Right.

Mr. REHBERG. One is by branding, positioning.

Mr. COLLINS. Sure.

Mr. REHBERG. And the other is by affecting supply and demand.

If you are not going to cooperate as an agency in developing regulations to allow this branding, the only conclusion I can make is the

only place we can bring a higher price to our livestock producers

is affect the supply.

The CHAIRMAN. The time of the gentleman has expired. We will

allow Dr. Collins to respond.

Mr. COLLINS. Thank you.

I think you are wrong to state that we don’t cooperate with

branding. As you probably know, we have something on the order

of 40 various process verification programs that permit an abundance of brands. Those have occurred where people can capture a

return to the cost of the branding program. We certainly support

that fundamentally. We think that is an important way to expand

the demand for agricultural products. To go out and provide information to the consumer that the consumer will act on, absolutely.

To arbitrarily restrict supplies and opposde trade agreements? No,

I think that is a non sequitur from anything I had to say.

Thank you.

The CHAIRMAN. The gentleman from North Dakota, Mr. Pomeroy.

Mr. POMEROY. Dr. Collins, what I heard you say is, problems,

problems, problems, problems, costs, costs, no demonstration the

consumers care, no demonstration of increased market opportunities. You know, where the statute is drafted there is all kinds of

24

problems. Any suggestions? No, I offer no suggestions. That is a

quote. I offer no suggestions.

Now, I just will be content to observe here for a moment. You

know, you keep trying to look at where people are coming from on

this issue based on, among other things, what their prior position

has been. Those members of the Agriculture Committee that represent significant packer interests, well, the packers hate this.

They love bringing in that imported beef, blending it all up and

putting it out on the shelves so people can’t tell what is U.S., what

is not. And in light of packer concentration, just about three of

them, with 80 percent of the market, they are not going to break

ranks one with another and start a U.S. label on a voluntary basis.

We have got plenty of years to demonstrate that pretty convincingly. And so packer interests are going to be against this.

On the other hand, those of us like Congressman Rehberg that

represent ranchers, family, farmer ranchers, these guys are breaking their neck to produce a top quality product for the American

consumer. They ship it off to the packer, it is blended in with who

knows what from who knows where, ends up at the shelf. And all

of their effort to put the top quality product out there on the shelf,

the expense they go to, no more, because the consumer cannot distinguish on the grocery store shelf.

Some years ago, during a price slump, I wanted to have a an

event in Bismarck to salute the North Dakota-produced product.

All of the product, virtually all of the product through Bismarck

then was supplied by IDP, and not a single vendor could tell me

it was North Dakota or, for that matter, U.S.-grown.

You know, I am—so that is where the members are coming from.

I think it is interesting to view USDA testimony today. But you

can’t view USDA testimony today in isolation. It is well-established

that USDA under Secretary Veneman was dead against this provision coming into this farm bill, dead against. So I am not at all surprised you are finding all kinds of problems and expense in implementing it.

I would just ask, I think we all have a right to expect that Congress pass this thing, we expect a good-faith effort to implement it.

In that regard, I want to know a little more about these listening

sessions and the input that you receive from the broad perspective

in the marketplace relative to putting a package together. And, if

there are problems, do you contemplate a technical corrections

package to bring something forward? Dr. Lambert?

Mr. LAMBERT. In the listening sessions, we have had, the wide

range of comments that you will likely hear in the subsequent panels, Congressman. You know, concerns about the cost, questions

about is USDA making this unduly complicated and we have answered that from a legal standpoint, that we intend to implement

this and working to implement this to the best of our ability to

minimize the cost to the participants. We are beginning the proposed real process, and we are taking all those concerns and comments into consideration and are moving forward in that process,

taking all that input into consideration.

Mr. POMEROY. Well, I am happy to hear that. What I see is pretty carefully orchestrated effort where, the very week you have got

the Agriculture Appropriations Subcommittee, barring any funding

25

for the implementation of this law. Did the U.S. Department of Agriculture comment on that action by the subcommittee?

Mr. LAMBERT. Not to the best of my knowledge.

Mr. POMEROY. No? No comment, no comment when they take

their money away for you to do this. We then have a full committee

hearing on this with what looks to me, just as one member, kind

of an orchestrated effort to basically augment the action that has

occurred in the Agriculture Appropriations Subcommittee.

What I find particularly curious about this isn’t the orchestration

to stop the Meat Labeling Bill that has been enacted, but the fact

that this would happen even while we have an import ban with our

major beef exporter into the United States, Canada, in light of the

mad cow situation.

The CHAIRMAN. The time of the gentleman has expired.

Mr. POMEROY. To me, it seems just incredibly curious and unfortunate. I yield back.

The CHAIRMAN. I thank the gentleman.

The gentleman from Florida, Mr. Putnam.

Mr. PUTNAM. Thank you, Mr. Chairman.

Mr. Chairman, you opened your comments by asking rhetorically,

‘‘Has Congress done what the Congress intended to do?’’ I would

modify that a little bit and ask: Has USDA done what Congress intended it to do? And I think, from my experience and observation

of this process, they have not. They were against it from the beginning, they have deliberately and methodically set about ways to

make it as complicated, as expensive, as burdensome as it possibly

can be from the farm gate to the grocery store, and have created

a situation where, while there are models for successful implementation in several different States, you have created a situation

where I am embarrassed to go home to some of my largest employers and talk about this beast that we have created. And it is not

the beast that was in the law, it is the beast that is coming out

of USDA.

Now, we have labeling requirements for juice under the nutrition

act. I have an empty bottle here of Tropicana orange juice. It says

it contains concentrates from Brazil, Mexico, and the United

States. Is that based on weight, the percentage content, or is that

an alphabetical listing? Do any of you know?

Mr. COLLINS. No.

Mr. PUTNAM. But yet your voluntary guidelines for COOL would

be a weight content, when I would imagine that this is probably

alphabetical, Brazil, Mexico, and the United States. It is hard for

me to believe that Mexico has more juice content in there than the

United States.

Under this labeling provision, there is a presumption of truthfulness, the same that exists in the PACA legislation. Why does that

same presumption of truthfulness not extend to the implementation of COOL?

Ms. BRYSON. I will try.

Mr. PUTNAM. Well, hurry. I only have 5 minutes.

Ms. BRYSON. Well, the bottle that you are reading from is labeled

under the Federal Food Drug and Cosmetic Act under a program

that is run by the Food and Drug Administration, and I don’t know

whether it has country-of-origin labeling requirements in it or not.

26

As we have said, what we are doing is implementing the words of

the COOL statute that have been written. You are suggesting that

there be a presumption?

Mr. PUTNAM. The same presumption that exists in the PACA.

Retail grocers are legally entitled to rely on the honest declaration

of country of origin by a produce vendor, eliminating the need for

audits and independent verification. Is that not the case? We will

hear testimony later that indicates that. Is that not the case with

PACA as it exists today? Did you review PACA to serve as a model

for the implementation of COOL legislation?

Ms. BRYSON. Yes, we did.

I think the best thing might be for us, if you would permit us,

to answer your question in writing.

Mr. PUTNAM. Well, I look forward to that as well. But it would

be helpful, since this is the place where we have these hearings,

not 2 or 3 weeks later when I receive your written responses, to

hash some of these things out and reflect the depth of investigation

that USDA put into the research to develop these implementations.

Mr. COLLINS. Mr. Putnam, could I make a comment about what

you are saying? It raises a general point, and that is that we have

not issued the proposed rule yet. And I just don’t want you to presume that what is in the voluntary guidelines will be the proposed

rule. As part of issuing the voluntary guidelines, that was an information gathering exercise. And we have learned a lot from all the

comments and specific estimates of how people are going to behave

under this rule. One of the things you just mentioned was the ingredients in a product. What is the identity of the ingredients in

a product when they are combined, say a blended product? And you

suggested in the COOL voluntary guidelines those countries have

to be identified by order of predominance. That is an excellent

issue for us to discuss as we issue the proposed rules. And whether

that is necessary or not——

Mr. PUTNAM. I hate to interrupt. I really do. I am glad you raised

the point that you still in the exploration stage, because we passed

it a year ago. And you guys did a great job of getting the grain

checks out as quickly as possible, and you did a great job of getting

the conservation, the high-profile environmental programs out

there. And, in fact, against Congressional, or to some opinions

against Congressional wishes, shifted some funds around to get

those things going as quickly as possible. And now with COOL, we

are getting dangerously close to the drop-dead point where grocers

and retailers and distributors and wholesalers are going to have to

make some serious capital spending decisions, but you all have

waited until the last possible moment to do this. And your silence

and inability to explain some of these things are terribly frustrating.

And there goes my time. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

The gentleman from California, Mr. Cardoza.

Mr. CARDOZA. I pass.

The CHAIRMAN. The gentleman from Georgia, Mr. Burns.

Mr. BURNS. Thank you, Mr. Chairman.

Thank you, Mr. Chairman. I appreciate the panel providing the

input. I share some of the frustrations perhaps that you hear this

27

morning. I think my question is quite simple. We need a good faith

effort on the part of USDA to implement the wishes of Congress

and the statutes in such a way that it is not onerous to the producer or to the packer. COOL was a good idea; at least that is what

folks led us to believe. And the implementation now has become a

very frustrating experience.

How would you suggest we move forward with COOL? Let’s stop

the rhetoric and end the fingerpointing and say, folks, we want to

implement this thing in a reasonable, viable way that is not onerous to any party. You know, let’s do not create things that make

no sense at all. Let’s just do the right thing.

Mr. LAMBERT. As indicated, we are moving forward with the

rulemaking process. We are taking into account all of the input

that we have had.

Mr. BURNS. When do you anticipate the rules being available?

Mr. LAMBERT. We expect that the rule will be out some time by

September 2003. And then the producers and the packers and the

various entities that would be involved would then have an opportunity to respond to that?

Mr. LAMBERT. With an ample comment period. Included in that

process will be the economic analysis of costs and benefits. And

then the final rule would follow just as soon as possible after that

process concludes.

Mr. BURNS. Good question. We are looking at the rules coming

out in September 2003 and then a comment period. When do you

anticipate they would be finalized so that folks who were involved

would know what they are dealing with?

Mr. LAMBERT. I think, as I indicated in my comments and testimony, by sometime next spring, spring of 2004.

Mr. BURNS. So we are looking at the April time frame of 2004

with the mandatory implementation of?

Mr. LAMBERT. September 2004.

Mr. BURNS. That is a pretty short fuse.

Thank you, Mr. Chairman.

The CHAIRMAN. The gentleman from Pennsylvania.

Mr. HOLDEN. I had several questions, but my staff told me that

they were already asked and answered except one, and Mr. Burns

just asked that, so I will yield back.

The CHAIRMAN. The gentleman from Indiana, Mr. Chocola.

Mr. CHOCOLA. Thank you, Mr. Chairman. I have got producers

and processors and retailers all in my district, like I am sure most

members do, and I have heard from all of them and they are all

clearly confused and probably frightened about the unknown application of this and what it is going to do to their daily life. I heard

you talk about the listening sessions. What is going to be the educational effort? What can I go home and tell them next week when

I have got a lot of meetings, where they can go, how they can expect to be educated on what they need to do exactly to comply with

this?

Mr. LAMBERT. I think part of the purpose of the listening session

was a two-way to inform the participants and the attendees at

those sessions about what was in the law, the interpretation of the

law and the guidelines that have been published to date.

28

The next steps in that process as we go through rulemaking are

to provide comments. We have information on the USDA Agricultural Marketing Service Web site where individuals and producers

can go to gain a variety of information about the implementation

of country of origin. As this proposed rule comes out there will be

an opportunity to study and review that, and, as I said, to provide

an ample period of time to provide questions and reaction to those

proposed rules.

Mr. CHOCOLA. Will you have any regional education sessions, listening sessions? Do you anticipate that?

Mr. LAMBERT. The last of the 12 listening sessions that were

scheduled was in Lancaster, Pennsylvania. Today, and at this date,

there are no plans to have additional listening sessions or educational sessions as the proposed rule comes out. I will say the Department has to date responded to requests for information and to

the degree that that is still allowed, we continue to respond to

those requests.

Mr. CHOCOLA. Ms. Bryson, somebody mentioned possible audits.

Is there going to be an audit mechanism? How would that work?

Will there be a staff of people that will be required to conduct audits on the documentation and compliance?

Ms. BRYSON. That is something that the agency will determine

when it issues the regulations. In general, what I said about the

law is that the law says the Secretary has the authority to require

an audit trail to demonstrate compliance with the law. And the examples that are given for how this might work are those that are

in the other listed programs identified in the statute.

What we have done in the voluntary guidelines is make available

the offer that USDA would, on a fee-for-service basis, evaluate people’s audit programs and comment on them.

Mr. CHOCOLA. Thank you. I yield back, Mr. Chairman.

Mr. POMBO [presiding]. Mr. Scott.

Mr. SCOTT. Thank you very much, Mr. Chairman. And let me

also commend you for having this hearing and for our panelists

and their presentations.

I would like to ask a question following a line that was sort of

established that we are working on here. I am concerned about the

terrorist threat to our food chain. Our food supply. I would like to

ask the Department what is the relationship between our countryof-origin labeling and food safety? And also do you see any potential within this law for shoring up the safety of our food system

from terrorists’ threats? And also as you answer that, I am particularly concerned about the weakness in—not just the labeling but

the food inspection process. That is not as severe, it is not as good

as ours. Is that a potential in view of food coming into our country?

Because we are becoming, in my estimation, unfortunately, more

and more dependent on our food chain from foreign sources.

And I often use the example of tomatoes that now 80 percent of

which are coming from out of this country, and some of these countries do not have the standards of inspection and protection as we

do. Could you address the possible threat to our food supply in

terms of terrorist attacks and whether or not we can do something

in this legislation to shore that up?

29

Mr. LAMBERT. Country-of-Origin labeling is a marketing label

that just provides the information to consumers, Congressman. The

safety and security of our food supply is dependent upon the border

protections that we have, the inspection system that we have in

place, and in the harmonization of our inspection system with other

countries who we trade with.

If their standards do not meet up to ours, if they cannot assure

the same consistency of safety as is provided by domestic product,

then that product is not allowed to enter into the country.

Mr. SCOTT. So you do feel that the American people can breathe

a sigh of relief and know that our food supply is safe; that there

are no concerns from the Department of Agriculture that there

could be any terrorist threat to our food supply?

Ms. BRYSON. I think those might be two different questions, Congressman. USDA is convinced that the American food supply is

safe; and particularly with respect to meat, as Dr. Lambert indicated. Inspection is done on product that comes in from foreign

countries in the same way that inspection is done here in order to

assure that the meat products are safe.

We are working, and we have been working hard since September 11, to develop additional safeguards for the security of the food

supply. It is something that is very much on our mind all the time,

and we are working on it. We do not equate it with the countryof-origin labeling statute because of the nature of that statute,

which says, here is a piece of information for consumers to distinguish between products of U.S. origin with all the specificity in the

statute, but to distinguish based simply on country of origin and

not on food safety.

Mr. COLLINS. And could I add to that another fact that demonstrates that this is not a food safety statute? It is that products

sold from butcher shops, fish markets, and the whole food service

industry, restaurants, are exempt from country-of-origin labeling.

Mr. SCOTT. Thank you.

Mr. POMBO. Mr. Neugebauer.

Mr. NEUGEBAUER. Thank you, Mr. Chairman.

Some of my other colleagues were here during the debate that

may—discussion that went on when this bill was passed. I was not,

so pardon me if my question is a little simple, but as I was looking

through this issue, basically the labeling begins on the birth of that

animal. In other words, we are certifying that that animal was

born in the United States, for example? So if I had a Canadian cow

and a Mexican bull, but as long as that calf was born in the United

States, then I could follow that animal through the chain and certify that that was American-raised beef; is that correct?

Mr. LAMBERT. That could be correct. The location where that animal is born determines the ‘‘born in.’’

Mr. NEUGEBAUER. It is not about the pedigree or the history of

the parents of those animals, it is about where that animal was

born; is that correct?

Mr. LAMBERT. That is correct.

Mr. NEUGEBAUER. So as you follow that animal through the

chain to the auction barn to a feeder to a cow-calf operator—or

from a cow-calf operator to the feeder to the processor to the wholesaler to the consumer, we create a fairly substantial chain along

30

the way, is that correct, of certifications that have to be passed on

for each animal?

Mr. LAMBERT. That is correct. Go ahead. Keep in mind that the

retailer is the one that certifies that all of those previous activities

took place. So having access to that information and transferral of

that information through the system is——

Mr. NEUGEBAUER. But they are relying on that.

Mr. LAMBERT. Exactly.

Mr. NEUGEBAUER. And I know that a lot of retailers now are preparing documents of indemnification, making everybody up the

chain indemnify them that the representations are made. I think

one of the things that concerns me about this process is two things

when we talk about enforcement and litigation from a consumer

group, for example. From the agency’s standpoint as far as it goes

to enforcement, we have a different enforcement standard for the

retailer and a different enforcement standard for the rest of the

chain, as I understand it; is that correct?

Ms. BRYSON. Yes, it is.

Mr. NEUGEBAUER. And so—but that is just from an enforcement

standpoint. But from—let’s say, a consumer group files a class action suit against a certain retailer because they found out that

there has been contamination in the chain here. There is really not

any indemnification for those other people in the food chain or in

the chain of events there for protection against those lawsuits. In

fact, you could sue the whole chain to a certain degree or back to

the point of origin; is that correct?

Ms. BRYSON. There are other statutes which are implicated by

the fact that Congress made COOL a mandatory claim. For example, in the Lanham Act, which the Federal Trade Commission enforces, and which prohibits unfair and deceptive trade practices,

there is a section that defines false statements concerning country

of origin as false and misleading claims. The courts have held that

competitors have a right to take enforcement action based on false

and misleading claims. So the retailer in this situation does face

enforcement from USDA. But there is also the potential for these

other sorts of actions in district court by competitors.

Mr. NEUGEBAUER. I think one of the things that concerns me is

trying to keep track of all of those different transactions animal by

animal is very onerous, it appears to me. And I am trying to, if the

purpose of the bill—and I think it was made, the point a while ago,

this is not a food safety bill. So we are keeping track—we are asking the Federal Government and we are asking producers to keep

track of a lot of different transactions, assuming that the marketplace is going to recognize some benefit that this product was born

in a certain country.

And I think the point I would make, and it was talked about,

mad cow coming in from Canada. This process is not designed for

certifying that the pedigree of that particular animal did not come

from a pedigree of where there was mad cow disease; is that correct?

Ms. BRYSON. That is correct.

Mr. NEUGEBAUER. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman. The gentleman from Minnesota, Mr. Gutknecht.

31

Mr. GUTKNECHT. Thank you, Mr. Chairman. I think some of the

questions and comments that I wanted to make have already been

made.

But a quick statement. First of all, I was never a big fan of this

idea. I want to put that on the record. And the research that I have

seen, the evidence from people whose opinions I respect is that the

folks who are really going to get hurt in this are the small producers.

If I am in the business of turning pork into quality products like

Spam, I am going to be really concerned about where those hogs

come from. And particularly if I am buying from a small producer

who only brings in a small load of 10 hogs every 6 weeks. I think

the people who are going to get hurt the most in this deal are small

producers. If I am raising 50,000 pigs, this is not a big problem for

me. But if I am raising 500, it is a big deal. So I am not a fan of

this.

I want to make a point in this. I have a burr under my saddle,

and it is going to stay there until this administration wakes up.

Because we inspect food with two different agencies; one is the

FDA and the other is the USDA. And we import thousands of tons

of food every day. The last year we have numbers for, we imported

318,000 tons of plantains. I was surprised to learn that.

But here is where I have the burr under my saddle. This administration has built a wall a mile high for things like pharmaceuticals because of safety. And yet we import thousands of tons of

food every day and we consume it, and very few people get sick.

But worse than that, we know what the numbers are in the imported pharmaceuticals. It is an easy number to remember. How

many people have died from taking imported pharmaceuticals? We

keep records. It is a round number. It is zero.

And I want you to go back and tell your Secretary and other people in the administration, this issue is going to continue to fester

until this administration gets its act together. You can’t have one

standard, FDA for drugs, and another standard for food. It is going

to come back to bite you.

I yield back the balance of my time.

The CHAIRMAN. I thank the gentleman. The gentleman from

California, Mr. Pombo.

Mr. POMBO. Thank you, Mr. Chairman.

Ms. Bryson, during the questions, Mr. Rehberg brought up the

health certificate on animals coming out of Canada. And I had the

staff grab one for me. And in looking at this, this does not meet

the requirements on COOL. This does not have the information on

it that is necessary to certify under the country-of-origin labeling.

So how would you use this to certify that something came from

Canada or anywhere else? Would it be possible?

Ms. BRYSON. I am going to go back to the requirements of the

statute, which is all I really can answer about, the degree of substantiation that is required by the law is substantiation that the

animal was born, raised, and slaughtered in the United States in

order to qualify at the retail level for labels on meat products from

that animal.

Mr. POMBO. But does the law also not require for something to

be stamped Canadian, that it be born, raised and slaughtered?

32

Ms. BRYSON. The statute is much less specific on those sorts of

things. It does not have the same words in it that are used to define U.S.——

Mr. POMBO. So what would qualify as coming from a certain

country?

Ms. BRYSON. That is a question which is being interpreted in the

regulations that are going to be issued. Is that correct, Dr. Lambert?

Mr. LAMBERT. That will be correct.

Ms. BRYSON. That is one of the areas where USDA has discretion

to more broadly define the claim based on the definitions in the

statute.

Mr. POMBO. So how would you—what are you going to do, how

are you going to say something is from a different country if it has

a different standard? If this is about the consumer’s right to know

or providing them with information as a mandatory program, how

would you possibly put a requirement on that was different for

coming from another country than it would be coming from the

United States?

Mr. LAMBERT. Congressman, the participants in those systems

will be the ones that determine the verification of the information

that they require, and then USDA will be the enforcement or auditing agency that determines that those records are in place. But ultimately, the amount of records or the verification system that

must be in place is determined by the participants in that supply

chain.

Mr. POMBO. By the participants, you mean if we are getting beef

shipped in from Canada, it would be up to Canada to certify that

it is Canadian?

Mr. LAMBERT. If a retailer wanted to market product of Canada

beef, they would present a proposal as to the records that they

would have in place to verify and to document that that claim was,

in fact, valid.

Mr. POMBO. And if they bought—would it be required that if they

brought beef out of Canada that it be labeled?

Mr. LAMBERT. Yes. The existing law requires that.

Mr. POMBO. But it would be up to that foreign country to determine whether or not it was Canadian? I am just trying to understand the practical realities of this. Mr. Rehberg talks about being

a rancher. I have been a rancher my whole life, too, and I am trying to figure out how this affects me. And to be real honest with

you, a lot of my producers back home on the cattle side, on the livestock side, are scared to death of this thing because they do not

know what it means to them. And there is a huge confusion over

how are you going to do this without some kind of a mandatory

identification system. Because there are animals coming through

my place that I don’t know where they came from. So how are we

going to do this?

The CHAIRMAN. The time of the gentleman has expired. We will

give you an opportunity to respond, Dr. Lambert.

Mr. LAMBERT. That is an excellent question and very indicative

of the things that we are grappling with as we begin to go into the

rulemaking process.

The CHAIRMAN. The gentleman from California, Mr. Dooley.

33

Mr. DOOLEY. Thank you, Mr. Chairman.

I would like you to be more clear in terms of what is the potential liability for various parties under this mandatory labeling? Ms.

Bryson, I think maybe you can be best to address my concerns or

my issues here. As I understand it, at the retail level, a failure to

have a product, a meat product, labeled as to country of origin

would pose liability and potential penalties for that retailer; is that

correct?

Ms. BRYSON. That is correct.

Mr. DOOLEY. Now, the processor who provides that product to

the retailer, are they subject to any—what liability would they be

subject to?

Ms. BRYSON. The enforcement section of the law is incorporates

by reference a section called section 253, that section provides that

any packer that violates the requirements can be assessed a civil

penalty of up to $10,000 per day per violation and also can be subject to cease and desist orders, with a notice and opportunity for

comment and appeal from a decision issued.

Mr. DOOLEY. Now, the processor with that type of liability and

with USDA prohibited from having any type of producer traceback,

how is the—how do they protect themselves from liability with the

animals or livestock that is going to be provided to them?

Ms. BRYSON. I believe that the statute leaves that as a matter

that will be determined by the marketplace through contracts between the processors and their source of supply.

Mr. DOOLEY. So the processors most likely then will require a

signed contract from the producer or whoever is supplying the livestock that these animals, in fact, meet the requirements of the statute which were born, raised, fed in the United States?

Ms. BRYSON. Correct.

Mr. DOOLEY. Now, what penalties, what liability does a producer

have if they violate that contract? Would that then be a civil penalty? I mean a civil dispute?

Ms. BRYSON. Yes. USDA does not have jurisdiction to take enforcement action against producers.

Mr. DOOLEY. Say, though, that a processor was found to have labeled a product as born, raised, and fed based on a producer’s basically signed contracts that it was in fact meeting that, but then it

was found not to; what is going to happen in that situation?

Ms. BRYSON. Well, when the Government decides to take enforcement action, it does it because there is a fact pattern that is presented which demonstrates conduct which is illegal. In the situation that you describe, the provision in the statute that says we

should issue guidelines that describe how people in the chain can

rely on records and an audit trail to establish verification essentially is what creates the method of substantiation of the facts required for the claim.

A processor who had arranged through a contractual mechanism

for verification from the producer as to the relevant requirements

of the statute, born and raised in the United States, could rely on

that process if it was the sort of independent audit trail that exists

in the other statutes that are given to USDA to use as illustrations.

34

Mr. DOOLEY. Is there any potential for a third party to bring a

legal action against a processor or retailer based on information

that they might have gathered that a produce misrepresented the

origin of their livestock that they supplied?

Ms. BRYSON. As I mentioned in response to one of the other questions earlier, there is an independent cause of action under the

Lanham Act regarding false and deceptive unfair trade practices.

A competitor of a retailer a have a cause of action against that retailer in which he might allege that false labeling which was false

on his products was an unfair trade practice, and the litigation in

that case would look at the evidence that was presented about the

information the retailer relied on in making the claim that appears

on the packages in his store.

The CHAIRMAN. The time of the gentleman has expired. The gentleman from Michigan, Mr. Smith.

Mr. SMITH. Mr. Chairman, thank you.

Last month, I was a member of the interparliamentary meeting

with Canadians, and this discussion came up of labeling and

should we be putting identification on livestock and cattle from the

very start and putting some kind of ear tag or whatever that might

last. And so a combination of being able to track back an animal,

where it came from in terms of if something ever happened as far

as contaminated meat supply; also in terms of that kind of recordkeeping as far as country-of-origin labeling. And of course with

Michigan, quite often we buy the calves from Canada, raise that

calf, and it very well might go to Mexico for meat. If that was the

case, what would go on the label? Whose country of origin is it?

Mr. LAMBERT. As proposed in the guidelines, anyway, that calf

that was born in Canada and fed in Michigan would be labeled

product of livestock born in Canada, raised and processed in the

United States.

Mr. SMITH. And how is that—right now, I think we have a $450

million balance of trade or something like that, as we buy a lot of

feeder cattle from Mexico, the United States farmers do, and then

they sell beef back to Mexico. How is the Mexican market going to

react to this type of labeling in terms of affecting our trade with

Mexico?

Mr. LAMBERT. I think, first of all, it is important to recognize

that this is a U.S. retail labeling law only. So the product that we

are talking about labeling is only that product that would be sold

through U.S. retail outlets as defined in the law.

Mr. SMITH. Does Mexico do some of this labeling now on country

of origin?

Mr. LAMBERT. Not necessarily.

Mr. SMITH. It is strictly voluntary? So you are saying no effect

in terms of if it is the other way around; and I don’t know how

often that happens, but your guess is and, Dr. Collins, your guess

is no effect on our balance of trade with Mexico or Canada, the labeling requirements that we might impose?

Mr. COLLINS. I do not have a guess on that yet. We have not

heard from the Mexican Government on this. I don’t believe they

have commented during our comment period. So any effects that

would occur I think probably would be either some kind of action

35

in Mexico, a policy action, or some response to market forces in the

United States. And I do not know what that is at this point.

Mr. SMITH. Is USDA talking about evaluating, earmarking cattle

from birth, to know where they came from and how they process

through the industry?

Mr. LAMBERT. We have been working with a coalition of both

State government officials and industry representatives to develop

a national ID system. And that coalition has brought forward a

plan. There are meetings as early as the 1st of July to discuss

these plans and move forward with implementation. So that is a

process, a system that is under way, Congressman.

Mr. SMITH. Is there a high-tech system that you can put some

kind of a scanner ID under the skin of an animal and it is there

for life?

Mr. LAMBERT. The committee, the steering committee that is

working with this group have evaluated all the technologies. I

know they have some recommendations for how we move forward

with which technologies. And at this stage, that is about the extent

of my knowledge of that program.

Mr. SMITH. Mr. Chairman, thank you.

The CHAIRMAN. I thank the gentleman. The gentleman from

Oklahoma, Mr. Lucas.

Mr. LUCAS of Oklahoma. Thank you, Mr. Chairman.

Dr. Collins, you mentioned earlier part of the statute that points

out that food service and restaurant products are exempted from

these requirements. Could you or Dr. Lambert point out what percentage of the total U.S. food consumption is consumed, for curiosity’s sake, in those food service establishments and restaurants?

Mr. COLLINS. On an expenditure basis, about 45 percent of

household food expenditures are in food service, food away from

home. About 37 percent of the volume of food is food away from

home.

Mr. LUCAS of Oklahoma. So it is a substantial percentage, then.

And would it tend to be the higher cuts of meat, for instance, that

would be consumed in such establishments?

Mr. COLLINS. Food away from home? Yes, often it is.

Mr. LUCAS of Oklahoma. OK. And you also mentioned earlier

that we had on the books prior to this a voluntary label program,

a U.S. identification program. Can you tell the committee what

kind of interest or activity that the industry showed at the time

that that option was available?

Mr. COLLINS. We have had that option available for some time.

We promoted it substantially in the late 1990’s, early 2000. It was

a joint effort of the Food Safety Inspection Service and AMS. And

there has been no interest—no one has asked to participate in that

program. We have had two companies inquire about it here recently; however, I think that obviously has been motivated by this

legislation.

Mr. LUCAS OF Oklahoma. Fair enough, Doctor. I guess I would

just like to cut to the chase and ask the panel the question that

is being discussed back home in the coffee shops in the Third District of Oklahoma. There is a view out there among my constituents that the concept of identification is wonderful and that the

language in the farm bill was probably something that was doable.

36

But there is a perception—and there are always perceptions back

home among the real people about what goes on here in the Nation’s Capital and in your agency in particular, sometimes they are

fascinating. But there is a perception that the Department has consciously or unconsciously decided that it does not want to do this

and that therefore you are working on rules that are so horrendous, so onerous, so ominous, so evil, that it is predetermined for

failure. So for the benefit of my folks back home, how do you answer that?

Mr. LAMBERT. From our viewpoint, we are making an earnest,

honest effort to implement this to the best of my ability, with the

least cost implications back to the production processing chain. We

are very aware of that perception out there. We have heard it repeatedly in the listening sessions that we are having around the

country. I think both the opponents and proponents talk about the

costs and the complexities of the law as passed. The question is

where they lay the blame and we are very well aware that there

are some individuals that have that claim.

But as Ms. Bryson testified earlier, we are restricted. This law

is very prescriptive and restrictive in allowing us latitude in what

we can and cannot do, and in many ways the perception that we

are purposely doing something is not because we are doing that,

but because the law—that is what forces us to do that.

Ms. BRYSON. I might add that the Department is doing a great

deal to provide for public comment on how and what we should do

with this law, given the legal constraints we have. We got an enormous number of comments on the voluntary guidelines. It is not

typical that the Department would have as many listening sessions. We have to make sure we are hearing from everybody with

a viewpoint on this. And all of that information is going to be considered when we issue the proposed rules, which will again have

a public comment period and another opportunity for people to tell

us what they think it is USDA ought to be doing or that is different

than what we are doing.

Mr. LUCAS of Oklahoma. One of the challenges back home in the

real world is explaining the nature of the legislative process, noting

that we pass legislation on a variety of topics that we cannot put

every comma and every period in every implementation process in

every bill. That ultimately you, as fellow servants of the people,

have to implement that language. So are you saying in effect to my

constituents that this language is written in such a way that you

are doing what you have to do, the guidelines that have to be followed?

Ms. BRYSON. I think that is the answer to the constituents.

USDA is taking the law and implementing it as best we can. We

are not permitted to require a mandatory identification system. We

are required to enforce the law to make sure that the claims that

are made at the retail level are truthful. The law requires that

those claims be very specific for U.S. country of origin and demonstrate that the product is born, raised, and slaughtered in the

United States; and that is because the Congress made the finding

that it is that factual information that is important to consumers

in making their purchasing decisions. Our job is to put out guidelines that say ‘‘here is a way to substantiate it.’’

37

The retailers and the producers may say there are additional

ways they want to use to substantiate that. But that is our position

about what we are doing.

Mr. LUCAS OF OKLAHOMA. Thank you. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman. The gentleman from

California, Mr. Ose.

Mr. OSE. Thank you, Mr. Chairman.

Dr. Collins, have you done any analysis in terms of the practical

implications of segregating product in the processing line?

Mr. COLLINS. We are doing that now. This statute which was just

described by Ms. Bryson does require information to be provided by

suppliers to retailers as to the origin of the product. We think that

that is going to require, obviously, a verification and recordkeeping

system that allows for the identity to be tracked through the system for those products. That identity preservation might require

segregation. It might not require segregation.

In the comments that we have gotten from the different sectors

in the chain, some have said that the only way I see myself being

able to fill these requirements is through segregation. Others have

said no, I think I can do identity preservation, but it is a system

that is going to require me to put a sticker on every piece of food

or whatever. So there are alternative ways to approach this. The

approach we are taking at the moment is to try and look at each

of the sectors—that is production, processing, distribution, and retailing—for each of the commodities, because the commodities are

different, and then try and sort of engineer out how those market

participants will be able to meet these informational requirements.

And we are using some of the information that has been provided

to us through the comment period from the different sectors in the

chain. We are looking at that.

Now, if we find there are two approaches for one aspect of the

chain of processing for some commodity and one is cheaper than

the other, one involves identity preservation without segregation,

that is the cost we will assume, the low-cost alternative.

Mr. OSE. Speaking of the costs, have you been able to make any

judgments on what the necessary impact return to producers will

be?

Mr. COLLINS. We haven’t done that yet. There are a lot of other

studies that have been done. There are 10 to 12 fairly detailed academic studies that have been done and they get different results.

Some believe there will be positive returns for producers because

they see consumers responding very positively to this program.

Others believe that that is not going to be the case, that there will

be little effect on the demand and there will be a high cost and

therefore negative returns for producers. We are evaluating those

and we are going to take the nuggets out of them and use it for

our analysis.

Mr. OSE. I almost prefaced my remarks by recognizing the fact

that you are listed as an economist. So the one hand/the other

hand thing.

Mr. COLLINS. I am very, very careful.

Mr. OSE. If in fact segregation of product is required, there will

be a significant capital cost involved in implementing that. And as

38

a result, the margin for the producer is going to narrow. And it

seems like common logic to me.

Mr. COLLINS. I think that is absolutely correct. For example, we

have heard from feed lots that handle both domestic and Canadian

cattle that they mix them up now by grade, and they say they are

not going to be able to do that. They will have to segregate these

herds. That is a simple example of what we heard through the

chain.

Mr. OSE. If the producers’ margins narrow, what are they going

go do? What is the market response if the processor, for instance,

has a narrower margin than they had yesterday?

Mr. COLLINS. The market response is two things. Processors try

to seek higher prices from those who buy their product and they

try to pay lower prices to those who supply them with their inputs.

Mr. OSE. I appreciate that input.

Mr. Chairman I have a huge number of questions about this capital requirement. I do not have the time to get to it. I have to say

that when I lay in bed at night wondering what I have done over

the course of my career, one of the things that I am worried about

is chickens and one of the things that I am trying to figure out,

are the eggs of a chicken subject to country-of-origin labeling?

Mr. COLLINS. Poultry is exempt from the country of origin.

Mr. OSE. All poultry?

Mr. COLLINS. All poultry.

Mr. OSE. Whether chicken or turkey or anything like that?

Mr. COLLINS. Yes, sir.

Mr. OSE. OK. How about fish?

Mr. COLLINS. Fish are covered.

Mr. OSE. Fish are covered. So we have an aquaculture farm in

my district and they have fingerlings. How are you going to track

the fingerlings?

Mr. COLLINS. That is what the law says, they will have to be

tracked, and that is where the marketplace—the market—participants will have to figure out how to keep records on that.

Mr. OSE. Will you have to brand all of those fingerlings or staple

some tag to them?

Mr. COLLINS. You will need an awfully small brand. These are

the difficulties. Fish are not unlike cattle, but fish are obviously a

little bit different. But that is the issue. It is going to be easier for

some people and it is going to be difficult for others. We have been

accused here today of creating something that is going to impose

huge costs on everybody. The costs are not going to be huge on

some people. Some will already have records, the breeding records

and feeding records and veterinary records, and it will not be that

difficult for some cow-calf operators to comply. But for others, particularly as you go down the chain, it becomes more and more complicated. As these fingerlings grow out and get passed around

through the chain, then it becomes more difficult because that

identity has to be tracked through the system.

Mr. OSE. Mr. Chairman, I appreciate your generosity. I wanted

to make sure that I understood Dr. Collins’ testimony that the impact of reduced margins to processors is that they either have to

raise the price for their end-use product or reduce what they pay

to suppliers.

39

The CHAIRMAN. Mr. Janklow is recognized.

Mr. JANKLOW. Thank you, Mr. Chairman.

I come from as much cattle country as anybody and I am a supporter of the labeling. I am very concerned about marketing. The

fact of the matter is we talk about Japan. It is not that the Japanese label their goods. It is that that they charge ours 30.5 percent

duty to get into the country. That is the real way they keep American beef out of Japan.

But other countries have found ways and American merchants

have found ways to peddle goods in America by using country of

origin. They talk about South African lobster tails being the premium lobster tails. Or Danish hams or Polish hams or Russian caviar. Nova Scotia salmon, Atlantic salmon. Norwegian sardines.

These are marketing gimmicks that are very successful in our

country. I am really haunted by the fact that Canada produces

good meat. I am concerned that once this is all implemented, the

Canadians are going to send a lot of meat down here that is finished and packaged and it is going to say in their advertising campaigns on radio, television, and newspapers: Canadian beef, the finest, approved for import by the U.S. Department of Agriculture—

or the U.S. Food and Drug Administration, whichever agency allows it to come into the country.

But something that really bothers me, really bothers me, is that

there is not just a lack of enthusiasm, the word coming out of the

USDA for the last year are all the reasons this will not work.

Every comment that has ever been made has been negative. The

rule of law is that Congress proposes and the Executive disposes

with respect to the implementation of the laws.

Let me ask you, Mr. Lambert, have you been in any discussions

ever over at USDA about the fact that you know there are problems with this law, but you are going to never suggest anything on

how to fix it? Have you ever been in a discussion like that?

Mr. LAMBERT. No.

Mr. JANKLOW. How about you, Ms. Bryson?

Ms. BRYSON. No.

Mr. JANKLOW. How about you, Dr. Collins?

Mr. COLLINS. To the contrary.

Mr. JANKLOW. I wonder if you have been in a conversation like

that.

Mr. COLLINS. No, absolutely not. I have been in opposite conversations.

Mr. JANKLOW. Is this the typical way to react when you have a

law you do not like? You just kind of drag your feet on it? How long

have you been working on these proposed rules?

Mr. LAMBERT. The guidelines were published in October and, as

I said, the listening session—today is the last one. We are beginning now to go into the proposed rule process.

Mr. JANKLOW. And so you think they will become final when?

Mr. LAMBERT. The target objective is the spring of 2004.

Mr. JANKLOW. So what, about a year and a half?

Mr. LAMBERT. That is close.

Mr. JANKLOW. About the length of the Korean War—about half

the length of the Korean War it is going to take to you get these

rules promulgated. Is there any way you can speed them up? What

40

I am interested in is if there is something wrong with them, your

proposed rule once it is announced, that is when you are really

going to get input as to what it is going to take to make this work

or not work. Isn’t that really the case?

Mr. LAMBERT. We have, as I said, we have had over 1,500 comments in response to the guidelines and another 1,000 in response

to the——

Mr. JANKLOW. That is the guidelines and another 1,000 in response to the—but what I am talking about, the proposed rule

when it gets that specific, that is when you are going to really get

the meat of what works and what does not, isn’t it?

Mr. LAMBERT. There will be another comment period that accompanies the proposed rule.

Mr. JANKLOW. One last question. If the appropriations language

stays in for beef, will you just stop promulgating rules that applies

to red meat, to beef?

Mr. LAMBERT. I don’t know that that determination has been

made at this stage.

Mr. JANKLOW. Ms. Bryson?

Ms. BRYSON. I would say, given the assumption that the appropriations provision which prohibits USDA from spending any

money on this program is passed into law, that the administration

cannot spend any dollars.

Mr. JANKLOW. Would you just then stop promulgating the rules

as it applies to meat?

Ms. BRYSON. We would have to defer that until we have appropriations. We can’t spend dollars under Federal law on programs

that we are not authorized to do.

Mr. JANKLOW. Is that a yes or a no?

Ms. BRYSON. Yes, we will stop.

Mr. JANKLOW. Thank you very much.

The CHAIRMAN. The time of the gentleman has expired. Mr.

Hayes from North Carolina.

Mr. HAYES. Thank you, Mr. Chairman. It certainly has been an

interesting discussion. Congressman Janklow and I spent a great

time out in Nebraska with some others talking about similar

issues, and the only clear answer is that there is no overwhelming

consensus except that there are problems and we want to help try

and fix them.

On the issue, Dr. Collins, if you would briefly just give us a snapshot of what the process is because I don’t think it is clear how you

all are evaluating the data in trying to help us reach a positive decision. If you could just run through that briefly and tell us how

you are getting the data, when you are going to have it, and how

you are going to evaluate it.

Mr. COLLINS. Very quickly, we are required under various laws

and Executive orders to do a cost-benefit analysis. Much of what

goes into that is proscribed. It involves assessing the costs and benefits of what we are going to propose as well as feasible alternatives. So we will be looking at feasible alternatives. On the cost

side, as I said earlier, we are going to look at each of the commodities, we will look at each of the functional areas in the supply

chain—production, processing, distribution, and retailing—and try

41

and assess the costs of meeting the information requirements of

this statute.

We will also be trying to assess the benefits. Will there be an expansion in demand for the covered commodities? Also we will look

at alternative commodities, uncovered commodities, will there be

an effect on uncovered commodities? The demand side effects are

complicated.

For example, I suspect that the cost of implementing this for fish

is probably less than for beef. That might mean that what gets

translated into prices in the marketplace would be less for fish

than beef. Would that cause consumers to substitute fish for beef?

Then we have to look at the covered commodities and the uncovered commodities such as poultry, and then we will look at the

trade effects of this as well. We will array all of the costs and all

of the benefits and we will try to calculate a quantifiable net benefit. There are some of these things that we will not be able to quantify, however.

Mr. HAYES. We look forward to hearing from you. The committee

itself in its wisdom decided that COOL was not that good an idea

when it came through the committee. It was later when we made

that decision in the full House.

Ms. Bryson, is it possible for States to pass parallel laws with

separate enforcement mechanisms and fines?

Ms. BRYSON. Yes.

Mr. HAYES. The law prohibits the USDA from establishing an ID

and traceback system. It requires that there be aa verifiable audit

trail. Are retailers and packers barred by the statute from developing their own verification requirements?

Ms. BRYSON. No, not at all.

Mr. HAYES. Under the statute, if a packer or processor refuses

to accept the delivery from a hog or beef cattle producer because

they have determined the producer has incomplete records, can

GIPSA take enforcement action under the mandatory country-of-origin labeling law against the meat processor packer?

Ms. BRYSON. No.

Mr. HAYES. Are there additional problems that you see or anticipate being created by that sort of exchange of information?

Ms. BRYSON. I think the way the law is written, there could be

a lot of issues that arise in a contractual form between the processor and the producer.

Mr. HAYES. I would yield to the chairman for a moment if he

would like to clarify that particular question that I was working

on.

The CHAIRMAN. Well, I am not quite sure what the gentleman is

referring to, but if he would yield to me, I have a couple of points

that might be worth clarifying here.

One, I know Mr. Dooley would like to know whether the legislation and, therefore, any regulations emanating from the legislation,

contains a private right of action so that if an independent group

or an individual had a complaint about a mislabeled product, could

they bring a private action? Or is this something that would be enforced strictly by governmental entities?

Ms. BRYSON. The COOL provision which was passed by the

House does not, itself, contain a private right of action, which

42

means if you just look within the four corners of the COOL statute,

the Secretary of Agriculture and States under a memorandum of

agreement are the ones that could enforce that. What I was describing, when I gave my earlier answer to Congressman Dooley,

is the fact that, because what has been created by Congress is a

labeling provision which is mandatory, it fits into a whole other

realm of laws that relate to how claims are made and who can enforce them.

And as I indicated, the separate statute, the Lanham Act, also

addresses false information about country of origin. It defines that

information as a deceptive business practice. And the courts have

held that competitors can bring private actions to enforce that provision.

Mr. DOOLEY. Will the gentleman yield?

The CHAIRMAN. I yield.

Mr. DOOLEY. I guess let’s use a scenario, that PETA, which is

motivated by a broader agenda, takes an action against a retailer

in order to try to reduce the consumption of red meat. Now, would

they have standing to file an action against USDA for failure to

adequately enforce or would they have the ability to file an action

against the retailer or the processor or potentially the producer for

not providing adequate information? And, in fact, if they actually

did an investigation where they found a producer did supply animals that were not within the country-of-origin definition, do they

have a standing to take that action against USDA or take it, actually, against the processor, actually, clear back to the producer?

Ms. BRYSON. I will try to give you a simple, quick answer but it

will be difficult. That is because the law in these causes of action

is evolving. We are seeing much more aggressive use of the Administrative Procedure Act as the basis for a cause of action. We have

a lot of cases on appeal, and some at the Supreme Court level that

are looking at this question of how broad the scope of jurisdiction

is under the Administrative Procedure Act to bring cases like this.

And the issue of whether one has standing is an important element of that question. So I can’t give you a definitive answer on

that.

On the Lanham Act issues that I was talking about, the case law

so far has limited the private cause of action to competitors. There

is a National Law Journal article that I will be happy to provide

for the record that says, right now that right of action has not been

extended to consumers. However, the language of the statute in the

Lanham Act is, ‘‘any person’’.

The CHAIRMAN. Thank you. And one other area of clarification

based on the question from the gentleman from South Dakota, Mr.

Janklow, I think what he was trying at and I know Mr. Smith was

interested in this too, the question if the language that is in the

agriculture appropriations bill were to pass and become law and

that deals only with cattle and pork, how would you treat that—

in other words, you are in mid-process of writing regulations, and

you are told to cease expending funds for beef and pork, what effect

will that have on the regulations you are writing for fruits and

vegetables, fish, peanuts, whatever else is in the statute?

Ms. BRYSON. Well, I think as a matter of law, we follow the direction of the Appropriations Committee as to what we can and

43

cannot spend our money on. And if the only thing we are prevented

from spending our money on is implementing regulations for beef

and pork, then we would proceed with the other aspects of the program.

I would like to point out because of the way the statute is written, the requirement on retailers to do country-of-origin labeling on

September 30, 2004, is not really affected by the suspension of appropriations. We are not going to be writing our regulations. But

if you look at the statute, our requirement to write regulations is

separate and apart from the requirement that the retailers provide

the information on September 30, 2004.

The CHAIRMAN. Thank you, and I think the point the gentleman

from North Carolina was driving at was that if separate and apart

from these regulations, because the statute imposes liability on the

retailer and the packer to put forward country-of-origin labeling

that is accurate, no matter what you do—and we certainly hope

you write regulations that are as sensitive as possible to the compliance with the law, but also the ease with which producers and

others involved in this process can comply with the law. That is

certainly the congressional intent. But in addition to what you do,

there may be other independent certification requirements to provide protection to retailers and packers, and there is nothing in the

law that would prohibit them from having those additional requirements, whatever they might desire as a requirement of doing business with them, that a producer or other individual in the supply

chain must comply with.

Ms. BRYSON. That is correct. So long as those requirements are

fairly applied across the board to all of the suppliers. And I would

like to add that it is definitely the intent of the department to do

exactly what you just described, Mr. Chairman, and that is to implement this provision as best we can in a way that is user friendly

and as easy as possible, but consistent with the requirements of

the law, which is that the claim be supported by fact information

as to ‘‘born, raised and slaughtered in the United States’’.

The CHAIRMAN. Thank you. Well, you have quite a challenge

ahead of you. And so does the Congress as it continues to wrestle

with very conflicting viewpoints about this issue. So we thank you

all again for your very generous gift of about 3 hours of your time

for what is just the first of several panels. And, again, thank you.

And there were some questions posed to you, and if you would respond to those, in writing, within 10 days, the committee would be

very appreciative.

We are now pleased to invite our second panel to the table.

Thomas Stenzel, president and CEO of United Fresh Fruit Association; Dr. Alan Foltz, president of the Colorado Farm Bureau of

Akron, Colorado; David Frederickson of the National Farmers

Union, Washington, DC; Mr. Leo McDonnell, Jr., chairman of the

board and cofounder, R-CALF USA, of Columbus, Montana; Mr.

Jon Caspers, president of the National Pork Producers Council of

Swaledale, Iowa; and Eric Davis, president of the National Cattlemen’s Beef Association of Bruneau, Idaho.

I will remind all members of the panel that their full statement

will be made a part of the record and ask that you limit your reVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
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marks to 5 minutes, and we will start with you Mr. Stenzel. We

are pleased to have you with us. Welcome.

STATEMENT OF THOMAS E. STENZEL, PRESIDENT AND CEO,

UNITED FRESH FRUIT AND VEGETABLE ASSOCIATION

Mr. STENZEL. Thank you, Mr. Chairman. I have changed my introduction to ‘‘good afternoon.’’ My name is Tom Stenzel, I represent over a thousand members of the fresh produce industry. We

commend you for holding this oversight hearing.

I think you can tell, from the discussion this morning, there is

a tremendous amount of uncertainty that is out in the industry

right now. For the fresh produce industry, we believe the crux of

this issue does come down to USDA’s regulations to implement the

statute. Will the Department continue on its current course outlined in the voluntary labeling guidelines which impose huge needless costs and radically alter our ability to deliver fresh produce to

consumers, or will the USDA implement a simple country-of-origin

labeling system for produce which has minimal impact on the industry while complying with the statute?

Consensus on this issue in my industry has never been easy, but

our overall reading of the law is that USDA does have sufficient

flexibility with regard to produce to implement a fair and practical

system if they so choose. We provided an extensive regulatory road

map to the Department, which is attached as part of my written

testimony today. Let me briefly highlight four main principles

where I believe USDA needs to focus.

First, USDA has the authority to develop regulations tailored to

different commodities. I personally have no idea of the complexities

with regard to the meat industry, but I am confident that a

produce-specific labeling system can be much more simple and less

intrusive than the guidelines proposed thus far.

Second, USDA needs to rely on existing law and regulations

wherever possible. Congressman Putnam mentioned earlier the

Perishable Agricultural Commodities Act, PACA. PACA requires all

produce traders, buyers, and sellers to tell the truth in their processing. That means retail grocers must be legally entitled to rely

upon the declaration of country of origin by a produce vendor.

USDA regulations should specifically state that a retailer would

face no liability under COOL for the accuracy of information provided to him by a produce seller since PACA already requires that

information to be accurate.

Third, USDA should use its discretion to comply with the intent

of the statute, not create needlessly punitive and disruptive regulations. I am glad we are not the only people who have that sense.

We are concerned that the Department seems more intent on making the law as onerous as possible rather than practical. Let me

give some examples. The voluntary guidelines have created a new

concept of labeling blended products by order of weight in a container with specific items and countries identified. In a fruit cup,

we would have to label cantaloupe from Guatemala, watermelon

from Mexico and honeydew from Honduras and hope that we get

the weight right and the order of the commodities right.

45

Instead, we urge USDA to propose a labeling system for blended

products that allows use as language such as: Contains product of

country X, country Y, and/or country Z.

This type of label would provide the flexibility to fresh produce

processors who frequently must change the source of ingredients

due to product quality and availability but would comply with the

intent of the statute.

Further examples: Under the voluntary guidelines a retail sign

‘‘Washington apples’’ or ‘‘Idaho potatoes’’ would not be good enough

to comply without the additional words ‘‘product of U.S.A.’’ Maybe

we need to do a better job with our geography lessons, but I think

the intent of the statute was not to prohibit the use of a sign that

says Washington apples from being sufficient disclosure.

A country name such as Costa Rica on a sticker on a banana

would not comply with the voluntary guidelines proposed by the

Department without the additional words ‘‘product of.’’ this gives

you a sense, Mr. Chairman, of some of the silliness that exists with

those voluntary guidelines. I am looking forward to the proposed

regulation when it does come out to see where some of these issues

go. With those stickers, even if the stickers on the fruit were in

compliance that says ‘‘product of Costa Rica’’ if a few of them fell

off the bananas in transit, a retailer could still be fined $10,000 for

putting those bananas out for sale. It just does not make sense.

Finally, let me talk about record keeping and verification. The

voluntary guidelines impose a 2-year recordkeeping requirement

for verification. At retail store level no less. It is absurd. There is

only one moment in time when verification of country-of-origin labeling matters under the statute, and that is at the precise moment that the consumer is making the choice at point of sale. Is

the sign or sticker they are tells me where the produce came from

accurate? To verify the accuracy of that moment all you have to do,

an inspector walks into the grocery store looks at the sign and says

prove it. That is it.

The store manager should have a reasonable period of time to

consult with his corporate staff, check the computer records, what

produce was delivered to has store, and verify that indeed the sign

that he has or the stickers match what was on the box. It is not

that complicated.

Let me ask under what circumstances would you want an inspector to walk into a store and ask what countries the tomatoes were

from 6 months ago? It is irrelevant. USDA should only require contemporaneous records necessary to verify the country of origin of

products at the time of their retail sale.

In conclusion, I hope the committee can see our industry’s dilemma we believe the statute could be implemented in a practical

way, but the voluntary guidelines are about as impractical as possible. That is why we believe this oversight hearing is so important. At present, the mandatory date of September 30th is a sword

of Damocles hanging over our heads. If we knew the final regulation would mirror the voluntary guidelines, we would be here today

seeking repeal. But if the final regulations are fair and sensible,

that step will not be necessary.

Our strong request to the committee is to urge the Department

to proceed with great haste in publishing this proposed rule. And

46

with all due respect to Appropriations, cutting off the funding does

not change the enforcement date of September 30, 2004. However,

should the committee wish to pursue legislative fix to this bill, to

this law at this time, we would look forward to working with you

on specific provisions that we believe would help make this law

more practical.

Thank you very much.

[The prepared statement of Mr. Stenzel appears at the conclusion

of the hearing.]

Mr. HAYES [presiding]. Thank you for your testimony.

I would remind the panelists to be as careful as you can with the

time. And I might observe this is the Federal Government you are

asking to move quickly and expeditiously in the way you want

them to go.

Dr. Foutz.

STATEMENT OF ALAN FOUTZ, PRESIDENT, COLORADO FARM

BUREAU, AKRON, CO

Mr. FOUTZ. Mr. Chairman, members of the committee, good

afternoon. My name is Alan Foutz. I am the president of Colorado

Farm Bureau and currently farm 1,800 acres of wheat, sun flowers

and millet near Akron, Colorado. I am here on behalf of the American Farm Bureau Federation and appreciate the opportunity to

provide comments to the committee on the country-of-origin labeling law.

The Farm Bureau supports mandatory country-of-origin labeling

as passed in the 2002 farm bill, and we look forward to working

with the United States Department of Agriculture on the implementation of the program.

Congress debated the country-of-origin labeling last year during

the farm bill discussion and overwhelmingly voted in favor of mandatory labeling. Farm Bureau has participated in the USDA listening sessions and has been working with the Under Secretary and

the Agricultural Marketing Service on implementation of the law.

We believe the program can be implemented in a fair manner to

all producers, without large costs and burdensome paperwork requirements.

Much of the debate of country-of-origin labeling seems to be focused on meat and meat products. Farm Bureau supports a verification system that livestock producers can use to prove claims

made as to country of origin to the packers. We have included the

program details in our written statement.

A traceback mechanism is not necessary to carry out the intent

of the labeling law. The law specifically prohibits USDA from implementing a mandatory ID program. The law only requires that

the country of origin be identified and labeled at the retail level.

We do support a process verification system that all segments of

the industry can utilize to carry out intent of the law. I think it

is important to note that country-of-origin labeling is simply a labeling program to distinguish U.S. products. Our producers have a

responsibility in working with all segments of the industry to carry

out the labeling law.

The Farm Bureau will be presenting comments at the last listening session scheduled in Lancaster, Pennsylvania, in favor of manVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
47

datory country-of-origin labeling. The USDA has had over 8 months

to compile comments, and we urge the Department to issue a final

rule before the end of the year.

The Farm Bureau supports the country-of-origin labeling law for

the following reasons: Labeling allows consumers to clearly differentiate U.S. And foreign products. Most U.S. consumers support

additional labeling information and recent studies and surveys of

consumers indicate support of country-of-origin labeling. Our foreign customers support United States labeling because they know

the U.S. products are the safest and the highest quality. For example, last week Japan asked for assurance that the product they

were receiving from us was a U.S. product because they, as well

as our domestic customers, trust U.S. labels and products.

Number 2, the labeling law passed in the farm bill can be implemented with little burden and additional costs to the producers.

The Department has stated support for a process verification system that all segments of the industry can utilize to verify claims

as to country of origin. Livestock producers with assembled herds

of U.S., Canadian and/or Mexican stock will have to set up a system to segregate their animals in order to verify any claims they

make. Obviously, these producers will have more work to do than

a producer with all U.S.-born and raised animals; however, this is

a reality of the law and our producers are willing to work with

USDA to verify the origin of these animals.

Three, country-of-origin labeling allows U.S. agriculture producers to promote the excellent products they take great pride in providing. This committee has worked diligently on behalf of United

States producers. You have debated numerous farm bill Programs

with the goal of providing the American people with the most

abundant, highest quality and safest food at the lowest cost to the

consumer of any country in the world. The House Agriculture Committee should be proud and willing to support a law to label U.S.

products.

Number 4, voluntary country-of-origin labeling will not work.

Voluntary country-of-origin labeling will not work. There has been

a voluntary meat-labeling regulation for almost a decade and very

little U.S. product is labeled in the grocery stores today. A mandatory program is the only way to get all segments of the food chain

industry coordinated to label products for our consumers. Mandatory nutritional labeling is an example of a successful informational

program. There was a great resistance to label the nutritional

value over a decade ago. Now, consumers expect nutritional labeling on all food items they purchase.

Five, the labeling law includes meat, fruits vegetables peanuts

and fish. It is important to carry out the law as passed in the farm

bill and not separate out commodities because it weakens the labeling program. All of the covered commodities in the law can be verified without great cost and recordkeeping requirements in cooperation between all segments of the industry.

The Farm Bureau supports mandatory country-of-origin labeling

and will continue to work with the USDA to implement the program. We look forward to the rulemaking process and working with

the Department to carry out the intent of the labeling law as

passed in the 2002 farm bill. Thank you.

48

[The prepared statement of Mr. Foutz appears at the conclusion

of the hearing.]

Mr. HAYES. Thank you. Mr. Frederickson.

STATEMENT OF STATEMENT OF DAVID J. FREDERICKSON,

PRESIDENT, NATIONAL FARMERS UNION

Mr. FREDERICKSON. Thank you, Mr. Chairman for holding this

hearing on an issue of utmost importance to the members of the

National Farmers Union. I request that my full testimony be included in the record, and Mr. Chairman, I will try to hit the highlights.

Recent action in the House Appropriations Committee attempt to

undermine the landmark legislation by blocking funding for further

implementation of labeling on beef, lamb, and pork and fish. As

many folks use the words unintended consequences, keep in mind

unintended consequences go both ways. House Appropriators actions may have far greater unintended consequences than anyone

can imagine. Consumer confidence in our meat products is essential to keeping our livestock industry healthy. Given the recent incident of mad cow disease in Canada, American consumers should

be able to differentiate the food they eat and feed their families.

The potential to lose our No. 1 and No. 3 beef export markets, as

my colleague from the Farm Bureau has also indicated, is very real

if we cannot meet the demands of Japan and Korea to differentiate

our products from Canadian products.

These two circumstances could be the most devastating unintended consequences on American agriculture. Opponents suggest

there is no consumer demand for mandatory country-of-origin labeling. On the contrary, numerous surveys and studies have indicated

American consumers overwhelmingly support mandatory labeling

and are even willing to pay a premium for that information. Currently, 3.2 billion pounds of beef are imported into this country and

yet American consumers have no idea of where the meat comes

from.

In fact, most consumers believe if a product carries a USDA inspection and grade designation sticker the product is of U.S. origin.

The U.S. labeling law does not violate our trade commitments. The

law doesn’t impose any additional restrictions in the form of tariff

rate quotas or nontariff barriers to imports. The requirements

apply to both the domestic and imported commodities enumerated

in the statute. National Farmers Union has always supported mandatory labeling as a promotional tool for our domestic producers to

promote the superiority of their products. We produce the best

products and we want consumers to know what they are buying.

This is no different than the retail production differentiation

sought by processors and retailers when they label a brand products as a means to gain acceptance, loyalty and increase their

share of the market.

A recent decision by the WTO to uphold U.S. laws on determining country of origin on textile and apparel products was characterized as a, quote, victory for the American textile trade, by U.S.

Trade Representative Zoellick. I would hope the administration officials and certainly Congress would regard the agricultural industry in the same manner. While debate over the law continues both

49

here and in the countryside, mandatory country of labeling for beef,

pork, lamb, fruits vegetables peanuts and fish was approved by

Congress and signed into law by President Bush. It is the law of

the land. Preempting the rulemaking process at this time I believe

is premature. No one knows how burdensome or costly implementation will be because USDA has not written the final rules. We

should all be focused on the development of rules and regulations

that allow implementation to be the most efficient and least burdensome for consumers, producers, processors and retailers.

The National Farmers Union believes the implementation challenges can most easily be met by, No. 1, utilizing the models of existing USDA labeling programs; two, expand and extend the country of origin information already collected on imported agricultural

products throughout processing distribution and marketing system;

and three to allow maximum flexibility in adapting existing recordkeeping and verification information and new information requirements to the audit provisions of the law.

Finally, I urge the members of this committee to not dismantle

the new farm bill before it has even had a chance to work. Changing the farm bill now before it is implemented is a slippery slope

that could jeopardize many farm programs including providing an

opportunity for farm program critics to scale back funding of these

vital programs. The unintended consequences of the Appropriations

Committee would have an overwhelming negative impact on American agriculture. It is the hope of the National Farmers Union that

you disregard the misinformation being circulated about mandatory

labeling and work with USDA to implement the law as quickly and

efficiently as possible.

I would ask also consent to submit into the record a letter signed

by 133 agricultural and consumer groups sent to the House appropriators in support of COOL.

Thank you very much, Mr. Chairman, for the opportunity to testify this morning, and I welcome an opportunity to answer any

questions.

[The prepared statement of Mr. Frederickson appears at the conclusion of the hearing.]

Mr. HAYES. Thank you, sir. Mr. McDonnell.

STATEMENT OF LEO MCDONNELL, JR., CHAIRMAN OF THE

BOARD AND COFOUNDER, R-CALF USA, COLUMBUS, MT

Mr. MCDONNELL. Mr. Goodlatte, Mr. Stenholm and members of

the committee, thank you for inviting me here to testify on behalf

of the U.S. cattle industry. I am Leo McDonnell, president of RCALF USA, the United Stock Growers of America.

My wife and I own and operate Midland Bull Test, which is the

largest bull genetic evaluation center in North America, and we

provide genetics worldwide. We also ranch in both Montana and

North Dakota.

Making change is never easy, and the landmark reform embodied

within mandatory country-of-origin labeling is no exception. Maybe

the problem is that packers and retailers stand to lose the economic benefits they have long enjoyed by not disclosing the origin

of beef, along with the ability unmarked imports have given them

to distort consumer demand signals to U.S. producers.

50

If one is not allowed to differentiate their product, then how do

they compete in a market, and how do they maintain consumer

confidence in their product if defective imported product comes into

this country? You cannot. You cannot maintain consumer confidence. Packers claim that that tracking beef derived from livestock of various origins is difficult if not an impossible task. However, packers presently participate in various labeling programs,

many of which are more complicated than maintaining country-oforigin labeling. Among these is Certified Angus Beef, a program

that we participate in. Here packers have considerable experience

in maintaining the identity of every carcass originating from blackhided cattle without requiring traceback to the farm.

Maintaining the origin and identity of covered commodities

throughout the packing-retailing-processing chain is simple, cost-effective, it has been done for a long time and consistent with

present industry practices. Presumption of origin for COOL at the

packer-slaughter level exposes the packer to no more liability than

they already have under programs such as CAB.

USDA claims it cannot implement COOL without a complex,

auditable recordkeeping trail to confirm the origin claims of livestock. That is not true. However, USDA is confirming origin claims

for beef every day under its USDA purchase programs without imposing a single cost on producers, without requiring a single record

from producers, without requiring a single self-certification from

producers, and without requiring a mandatory ID system or violating either trade or domestic laws. It is also important to note that

USDA now requires that Uruguayan beef coming into the United

States be solely born, raised and slaughtered in Uruguay. Why

does USDA feel they need to individually trace back cattle to producers but not the individual peanut, the tomato, the head of lettuce, or even Uruguayan beef from the recently FMB-infected country?

To substantiate an origin claim, the USDA already employs a

combined marketing system and a presumption of domestic origin.

This enables USDA to identify all products that do not meet the

definition of domestic-only product and by this process of elimination to identify all products that do meet the definition. This is

simple, it has good historical performance. It identifies beef products marked with a foreign marking which is already required. It

identifies cattle imported directly for slaughter. And under COOL,

all imported cattle, feeder cattle, which I would imagine under

Homeland Security is going to be required to be marked anyway.

And it also considers that all that other products then would be

products of the United States. It does not cost the producers anything. It minimizes regulation.

By the way, it was also recommended in the law that USDA use

these types of presumptions. I believe that Congress would be of

considerable assistance to USDA if it would initiate a request to

the Treasury Secretary asking that livestock be delisted from the

J-List requiring better marks on imported livestock. And if you can

do that, you will take away all cost risks to your producers. Thank

you.

[The prepared statement of Mr. McDonnell appears at the conclusion of the hearing.]

51

Mr. HAYES. Thank you, sir. Mr. Caspers.

STATEMENT OF JOHN CASPERS, PRESIDENT NATIONAL PORK

PRODUCERS COUNCIL, SWALEDALE, IA

Mr. CASPERS. Mr. Chairman, Mr. Stenholm and members of the

committee, I am John Caspers, president of the National Pork Producers Council, and a pork producer from Swaledale, Iowa. I operate a nursery-to-finish operation marketing 18,000 hogs a year. I

would like to thank the chairman for holding this hearing and ask

that my complete written statement being submitted for the record.

It has become clear that the issue of mandatory country-of-origin

labeling is far more complicated than simply identifying live animals at the U.S. border or affixing a label to a package of pork

chops in the grocer’s retail meat case. We believe that the mandatory country-of-origin labeling provision in the 2002 farm bill offers

little value for either U.S. pork producers or for U.S. consumers.

The law will not result in long-term higher hog prices for U.S.

pork producers. It will not provide additional food safety assurances for U.S. consumers. It will not provide adequate traceback to

handle a foreign animal disease. But it will reduce U.S. pork exports by creating advantages for our export competitors and place

U.S. pork producer in a financial peril because of the need to indemnify their customers against damages that a producer error

might cause. It will favor vertically-integrated pork production systems at the expense of small independent producers, and it will impose onerous requirements and additional costs on U.S. pork producers if the label is to be at all credible for U.S. consumers. And

finally, it will create a permanent cost advantage for poultry.

All of these issues will limit the long-term economic health and

growth of the U.S. pork industry.

I would like to highlight a number of these issues and supply

why the National Pork Producers Council is urging Congress to replace the mandatory labeling provision with a workable voluntary

program for hogs and pork. A workable voluntary program is one

that producers, processors, and retailers will choose to participate

in, and one that rewards entrepreneurial pork producers. It should

include all pork, not just retail pork. USDA must ensure, as they

currently do with other successful programs such as the Organic

and Certified Angus Beef Programs, a dependable and legitimate

label for U.S. consumers.

First, regarding food safety, and I quote, ‘‘I must stress at the

outset that country-of-origin labeling is a marketing issue and not

a food safety issue.’’ Those words were spoken by Dan Glickman,

former Secretary of Agriculture, in a Senate Agriculture Committee

hearing on May 26, 1999. The mandatory country-of-origin law is

not a food safety law. It is a trade protectionist law designed to restrict access to U.S. retail meat cases. The law will not enhance the

U.S. Government’s ability to address food safety emergencies or foreign animal disease outbreaks, such as BSE, nor will it provide additional food safety assurances for U.S. consumers.

The law allows consumers to determine the country of origin for

fresh fork only in retail meat cases, not for pork that is either sold

by food service establishments or further processed. This excludes

over 50 percent of the pork consumed in the U.S. today.

52

The information required by this law is not sufficient to find the

State, let alone the county or the farm of origin in order to respond

to food safety emergency or for an animal disease outbreak. In fact,

it actually prohibits the Secretary from requiring animal identification.

If this law is intended to ensure the safety of U.S. meat supply,

why prohibit an animal identification system? Why do we exempt

the ribs—these ribs that we eat in a restaurant—while only covering those pork ribs like these purchased in a grocery store? Do

these products not pose an equal potential food safety or animal

disease risk? Those that argue that mandatory country-of-origin labeling guarantees a safer U.S. meat supply are distorting the facts.

My second point is that the law fails miserably regarding the

consumers’s right to know. U.S. consumers indicate they are concerned about the price, convenience, nutrition, freshness and flavor

of pork and pork products, and only after these factors do consumers mention the origin of food. Today, U.S. pork producers are currently capable of delivering such an origin-labeled product report,

but not one buyer has requested this product. Again, maybe we

should heed the advice of former Secretary of Agriculture Glickman, and I quote, ‘‘I also think it is important to consider fully the

implications of basing the mandatory labeling requirement on the

theory of a consumer’s right to know. As the committee is well

aware, the European Union believes its consumers have a right to

know if food products contain genetically modified organisms. It is

possible that imposing country-of-origin labeling in the United

States could weaken our ability to object to other labels requirements sought by our trading partners.’’

My third point addresses the long-term impacts on North American hog and pork production in prices. The law will raise North

American hog and pork production and drive prices down. Why?

Because Canadian feeder pigs will be discounted in our marketplace and Canadian pigs will be kept north of the border and fed

Canadian feed and processed in Canada. U.S. hog finishing buildings will stand empty leaving U.S. producers to increase their production. Increased hog supplies in North America lowers prices.

My final point regarding exports is that low- or no-cost certification and audit systems for producers will not eliminate the law’s

negative impact on U.S. pork producers. I have a chart that explains our economist’s projections. The top line is the base line projection of the Food and Agricultural Policy Research Institute, their

projections into the year 2011. The middle line shows what would

happen if country-of-origin labeling—their projections—if it was

implemented using a full traceback system which traces each individual animal to individual retail package, which is a very highcost system and certainly a system that because of the cost, we do

not expect it is likely this program will be implemented that way.

But more likely we will have a certification with audit system,

which is lower cost and more likely to be implemented. And with

that that is the bottom line which projects that by the year 2011

our exports out of this country will be half what they would have

been without the implementation of this law.

53

In conclusion, the National Pork Producers Council urges Congress to repeal mandatory country-of-origin labeling and replace it

with a workable voluntary program.

Thank you, Mr. Chairman and members of the committee for the

opportunity to present this testimony.

[The prepared statement of Mr. Caspers appears at the conclusion of the hearing.]

The CHAIRMAN [presiding]. Thank you, Mr. Caspers.

Mr. Davis, welcome.

STATEMENT OF ERIC DAVIS, PRESIDENT, NATIONAL

CATTLEMEN’S BEEF ASSOCIATION, BRUNEAU, ID

Mr. DAVIS. Thank you, Mr. Chairman, Mr. Stenholm, members

of the committee. Perhaps no issue in recent memory has stirred

the passions of beef producers more than the country-of-origin labeling issue, and that is for good reason.

We are a proud lot and a lot proud of the beef we produce. Therefore, labeling and promoting our product, especially U.S. beef, is an

easy argument to win when talking to ranchers. If labeling product

is so popular, then why all this discord? Members of the committee,

the ongoing debate of the country-of-origin labeling is not about the

merits of labeling, but rather how to provide country-of-origin labeling information to the consumer in a way that does not cause

producers pain.

Since the day NCBA first adopted policies supporting country-oforigin labeling, many have struggled with it. Our policy has

evolved over time from one brief statement of support for labeling

to a finely detailed description. We have tried to strike a balance

between the demands of producers and the reality of cattle and

beef production marketing and distribution.

My predecessors have sat before this committee and received indepth questions about country-of-origin labeling. Sometimes they

were praised by members of the committee and occasionally we

were excoriated. The record on this issue demonstrates that a recordkeeping component would be part of any mandatory labeling

law. A congressional hearing to review labels NCBA and those

other organizations in attendance were urged to develop a voluntary consensus approach to the country-of-origin labeling idea.

We did that.

The National Cattlemen’s Beef Association and other groups negotiated way voluntary program which was submitted to USDA.

Unfortunately, the Clinton administration did not act on the petition and the Bush administration’s actions were quickly overtaken

by the events of the farm bill. During the markup of the House version of the farm bill in July of 2001, this committee endured a 6-

hour debate on the topic. Fully 25 percent of the markup record is

related to this topic alone. During this markup USDA attested that

the law would be records intensive, complex and that it would entail being able to trace records because to the level of production.

Members of the committee during the 107th Congress well remember that markup. I recommend that new members of this committee avail themselves to that markup record to better understand

the total record on this issue. During the farm bill conference in

the spring of 2002, House conferees worked to answer significant

54

questions about country-of-origin labeling before the law passed,

but many of the difficult questions remained unanswered in the

conference. Statements by Senate conferees intentionally left many

difficult issues to the Department. And judging from the outcome

of the conference proceedings and the fact that we are here today,

the only clear intent of Congress was to leave many of the difficult

questions to USDA.

The current country-of-origin labeling law was never fully analyzed and no hearing was held on the impact or interpretation of

its provisions. The last Congress held many hearings and investigations on country-of-origin labeling generally, and this record suggests that that law is turning out as many predicted: Problematic.

The provisions of the current law simply ignore many years of

collective knowledge and debate on the subject. As a result the

USDA has had to make some tough decisions that may appear arbitrary. These decisions and the implementation guidelines that

USDA has released are creating concern for producers. Several

issues of concern include the self certification issue, documentation,

information requirements, and USDA’s interpretation of the statute.

The committee has heard testimony this morning from USDA

outlining the country-of-origin labeling program and the reasons

that the Department is taking the approach they have chosen.

There are clearly easier and less costly ways to implement a country-of-origin labeling program other than what is contained in the

statute.

The challenge for USDA and this committee is to determine if an

alternative method of implementation are allows under the current

statute. If the current statute allows alternatives then we are committed through rulemaking to working with USDA to implement

the law in a less burdensome manner. If, however, the statute does

not allow other alternatives, then we must either change the law

or live with its consequences. Clearly, the testimony given today

and the frustration felt by all producers on USDA’s current thinking demonstrates that living with the law as outlined by USDA is

not acceptable.

The petition submitted to USDA and this committee in September 2000 still represents a manner that could be employed to implement a country-of-origin labeling program that could benefit

producers and consumers. National Cattlemen’s Beef Association

supports country-of-origin labeling. We want producers to be able

to market and promote U.S. beef. But after all the hearings, all the

discussion, all the debate, all the acrimony, all the USDA listening

sessions, we believe our approach of a voluntary producer-led and

market-driven effort offers the greatest opportunity to benefit producers because it avoids the costly mandates of the current law.

Thank you, Mr. Chairman, and I will stand for questions at the

appropriate time.

[The prepared statement of Mr. Davis appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you Mr. Davis.

Mr. Stenzel, I understand that bagged salad is the second fastest selling item in U.S. grocery stores, and it is estimated to be a $2

billion a year business. Can you give us a detailed example of how

55

the country-of-origin labeling law would work for these very popular bagged lettuces? Have you heard any concerns from your members who are engaged in this sector of the fruit and vegetable industry, and if so, what are those concerns?

Mr. STENZEL. You are exactly right. It is one of the great success

stories in the fresh produce industry now. Under the proposed

guidelines, we would be faced with exorbitant, costly system and

really put a stop on the growth of a lot of those types of product.

The Department has proposed for blended products under COOL

requiring labeling of each individual item according to which country it came from, and also maintaining that in order of predominance of weight. So for one of those bagged salads that might have

two or three snowpeas inside the overall bag of different lettuces,

those snowpeas may come from Guatemala or Peru or different

countries, and yet we would have to constantly, as we are changing

the contents—because of availability of the product from different

countries—still comply with that order of predominance.

What we have suggested to the Department is that they have

much more discretion than that. Simply to comply with the law, to

have a product label on that bagged salad contains product of, Mexico, Peru and/or the United States would be sufficient.

For those individuals who are proposing mandatory labeling so

that consumers can buy American, as long as the country name is

on there—may contain product of Mexico—they have the ability to

make a choice. We believe the Department has flexibility to implement that type of regulation.

The CHAIRMAN. What if Wal-Mart were to say, great, but our

reading of the law is a little different and our concern about our

liability is a little different, so we want to make sure that all of

that information is on there, and that if you have got three

snowpeas, we want to make sure they are all from Guatemala and

not one from Guatemala and one from Mexico and one from the

United States?

Mr. STENZEL. The implementation of this law is critical to everyone in the distribution chain, grower or retailer, and we are committed to making sure that the law is implemented to meet WalMart’s needs or a small independent grocer’s needs or a producer’s

need.

What has got to happen, Mr. Chairman, is for the Department

to go back and look at existing law. Right now, the supplier of

produce under the PACA is required to present truthful and honest

information. So the issue in terms of the retailer needing a separate verification system or audit system, under present law they

should be allowed to rely upon the declaration of the produce salesperson. That is something that needs to be specified, however, in

the final regulation.

The CHAIRMAN. Thank you. Mr. Davis, Mexico is the No. 1 market for U.S. beef. The U.S. buys 1 million head of feeder cattle from

Mexico and the balance of trade, considering both of these points

is $450 million positive for the United States, how should we expect to see Mexico react to this situation for cattle? Is this worth

the risk?

Mr. DAVIS. I suspect that there will be a certain amount of consternation south of the border with the implementation of this law.

56

I don’t know exactly what route that will take employ we do know

that there is currently a petition before their Government asking

for—what is the proper term—safeguards against U.S. beef being

imported into that country. This issue, I think, plays into that

thinking. But to specifically put a number on what is related to

country-of-origin labeling, and what is related to other issues with

them, I can’t put a number on it, but I would anticipate it would

have a negative impact.

The CHAIRMAN. Mr. Stenholm.

Mr. STENHOLM. A moment ago Secretary Glickman was quoted

as saying, country-of-origin labeling is not a food safety question

but a marketing question. Each of you, do you agree or disagree

with that statement?

Mr. STENZEL. Mr. Stenholm, we would definitely agree with that

statement.

Mr. FOUTZ. The American Farm Bureau would agree with that

statement.

Mr. FREDERICKSON. Mr. Stenholm, I think I referenced it also in

my testimony, but I agree with the statement.

Mr. MCDONNELL. I would agree with the statement except that

in the event that imported product coming into the United States

is contaminated and domestic producers are not able to differentiate their product, if the safety of that food supply becomes an

issue with consumers, then obviously it is going to affect their confidence.

Mr. STENHOLM. With all due respect, that is not what I am asking now. There can be exceptions, but I am asking with the statement—I will get to a second question in just a moment you would

agree with the statement?

Mr. MCDONNELL. With the statement, yes.

Mr. CASPERS. I agree, sir.

Mr. DAVIS. Yes, sir.

Mr. STENHOLM. The next question, and I will phrase this to you,

Mr. McDonnell, but others I would like to ask also. Do you believe

that we should import any cattle from Mexico or Canada or any

other country?

Mr. MCDONNELL. Yes, we do personally.

Mr. STENHOLM. So you believe we should import?

Mr. MCDONNELL. Yes, there is no problem with me. We haven’t

satisfied domestic demand with U.S. production since 1952.

Mr. STENHOLM. Anyone disagree with Mr. McDonnell that we

should import cattle from Mexico and Canada and any other country which we can do so safely?

Mr. FREDERICKSON. Mr. Chairman, Congressman Stenholm, I believe the opportunity ought to be there.

Mr. STENHOLM. Then that—I am glad you answered that way,

but that is what I was getting at. If this is a marketing issue, food

safety is a separate question and one in which we must do as good

a job as humanly possible to preserve the safety of the food supply,

whether it is domestically produced or imported there should be no

question about that. But I happen to agree with the basic context

of Mr. Davis that we are mixing apples and oranges in this debate.

And I think it is critical that we begin to understand that countryof-origin labeling is not a food safety question. The question is

57

whether or not our rules and regulations on the import and the inspection of the product is such that it will provide a safe

consumable product.

Mr. McDonnell, I know of many, many, many producers of beef

who are beginning to market proudly with a label on it their individual product. That is the way I think we should go. The concern

that I have with the implementation and the language—and reference has been made that the language of this law left a lot to

be desired. We did not do the job we should have done regarding

how we implement this in the passage of the farm bill. Period.

And I would hope that as we pursue this now, we are going to

have country-of-origin labeling. It is going to happen. It is going to

be there. The question is under what circumstances will it be there

and will it be helpful or harmful? That is a legitimate question for

all of our industries to ask and have asked and that is what we

are attempting to do with the hearings today.

Now, what the appropriators have done is said to USDA no more

funds can be utilized in the administration of this act. I am not

sure that that is exactly what we need to do. Because I think, as

I said in my opening statement, that we need to take a good look

at this whole question of country-of-origin labeling, take the time

and get it to where it does not punish us.

From a beef standpoint, can you imagine for just a second that

if that one BSE cow in Canada had showed up in Montana first,

what we would be doing and saying today? And it could have happened. We do not know what is causing BSE conclusively. It can

happen and now we are being asked by countries like Japan to certify under country-of-origin labeling that the beef we are sending

them is from the United States and not from Canada.

Now, that is potentially very damaging to an industry in which

I still participate along with all of you. And it is something that

we really need to think through. But I am very happy to hear the

answers you gave because I think that is significant to begin getting the message out to producers, this is not a food safety issue.

It is a marketing issue. And U.S. producers are perfectly willing to

play by the rules that are established in world trade by how and

what we sell and how we label it. Remember the arguments we

have been making on beef on hormones, remember the biotech, remember the WMO, all of the arguments that we are making.

Now, if we are really ready to go down that road, and we really

believe that an industry of agriculture like the United States that

exports more than we import and the growth potential for the future of our country and our producers, if it is really going to be

turning inward, then so be it. But if it is going to be saying, let’s

do it the way most of you have testified to today, let’s accept we

are going to have competition, let’s accept that we want it to be

safe because that is in our best interest, but let’s get away from

this idea that country-of-origin labeling is a food safety issue, it is

a marketing issue. And it is one in which we will continue to look,

and I will be very active and interested, as I know all members of

this committee will be, and I hope that maybe we will find a way

to reach a consensus that will not do the harm to our industry that

we could if we have a literal interpretation of the law as passed

58

by the Congress. That is what USDA has been attempting to implement.

I get sick and tired of lawyers as much as anybody else, but I

understand the law, and I understand the way in which it can be

interpreted. I think we can do some cleanup which will accomplish

what each of you has testified for in a slightly different way today.

Thank you, Mr. Chairman.

The CHAIRMAN. The gentleman from Nebraska, Mr. Osborne.

Mr. OSBORNE. Thank you, Mr. Chairman. As I listened to you,

it seemed like there was a slip, 5 to 1 in agreement with some type

of country-of-origin labeling, maybe one opposed sounds like there

is a fair amount of frustration with the way the regulations are

coming down and frustration on the part of the committee as well

that maybe USDA is not do doing a good job or all it can to implement some simple, understandable regulations that would not put

an undue burden on the producers, at least that is what I think

I am hearing.

And I understand that. I represent a district with the overwhelming majority of cattlemen at least would say that country-oforigin labeling is something that they want, something that is

workable, something that can be done. I think also the pork producers are probably less convinced.

I guess my question is, is it reasonable that we might have a

two-track system? We right now exempt poultry. Does it seem reasonable to you that the cattle industry and the pork industry possibly would come out of two different places in terms of countryof-origin labeling? Or is that unrealistic?

Mr. CASPERS. Well, Congressman, I will answer on behalf of the

pork industry. Certainly, we have had a long-standing position in

opposition to country-of-origin labeling because of the cost and the

little benefit to consumers, and we certainly would like to see pork

withdrawn from the mandatory provisions of the law.

Mr. DAVIS. From the National Cattlemen’s Beef Association

standpoint would suggest that we would be opposed to that bifurcations for the very reasons that Mr. Caspers stated in his testimony,

that then we become at a cost disadvantage, depending on how the

final implementation comes down to one of our competitive proteins, as well as one that is already left out. And so I would hope

we could go down this road together, as we have tried to in the

past, and work with the committee and with the Department in

rulemaking, if it is voluntary or mandatory, and come up with a

system that works. That is what we need. I agree with Mr. Stenholm that we are going to have it. Let’s just do it right.

Mr. OSBORNE. It currently is the law that pork is included, but

it does seem like there is a general split nationally, less acceptance

from the pork industry than the cattle industry.

I have a question for Mr. McDonnell. You mentioned that you

would like to see cattle delisted from the J-List and you lost me

there. Can you explain what that means and what the implications

might be?

Mr. MCDONNELL. The J-List is a list of imported products that

are not required to carry country-of-origin marks, and that is done

at the discretion of the Treasury. Although our imported cattle

right now do carry tags, or in the case like Mexican cattle carry

59

an M-Brand, so they can trace them back for health reasons that

is more for TB. We are asking that Congress ask the Treasury to

take cattle off the J-List and that they carry a mark of origin or

in the case of Canada or in the case of Canada say ‘‘Canada’’ on

the tag. That would make it much easier more packers to implement presumption of origin, and it is already being done on 90 percent of the products coming into the United States, and I believe

Homeland Security will require it anyway. Just simplify the process.

Mr. OSBORNE. I think I understand better. This is a general

question. I have heard it said many times that we really need some

type of an animal identification system in the United States. And

do any of you feel that this would in some way alleviate the need

for country-of-origin labeling?

Mr. CASPERS. As the prior panel testified, APHIS has a group

meeting starting January 1 in Kansas City, and I will be participating in that group. That group is going to take a look and make

recommendations to upgrading the animal identification and

traceback abilities in this country for livestock.

Sir, we’ve had a mandatory identification program on pigs in

force since 1988, and so we have a virtual 100 percent trace-back

ability today on the market hogs.

Now, there are some things that we can do to upgrade that system. There are some things that we can do today to speed traceback because with the threat of bioterrorism and things like that

I think certainly there are other dangers that exist today that really weren’t as apparent back when that rule was written.

So we will be trying to upgrade that, and there will be other livestock sectors participating in that.

Mr. FREDERICKSON. Mr. Chairman, I—on two points that you

made, Mr. Chairman and Mr. Osborne: On the issue of dual tracking earlier on, you asked the question; and from a National Farmers Union perspective, we are a 100-year-old general farm organization, and so we would not be in favor certainly of a split process

where one is out and the other is in. And we have consistently supported all products, chicken included.

And the second issue, I don’t believe that it is an either/or situation. I think that we probably have our heads in the sand if we are

considering that there is no need at some point in time for some

kind of a tracking system.

I know that Congressman Peterson has a serious interest in this

issue, and I think that the one enhances the other. And so I think

that it is not an either/or. I think it is probably both at some times.

Mr. HAYES. The time of the gentleman has expired.

The gentleman from Minnesota, Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman. I will follow up on

that. I think I heard the pork producers and the Farmers Union,

but for the rest of you, do you support mandatory, Governmentsanctioned animal ID with trace-back?

Mr. FOUTZ. Mr. Chairman, if I might respond to that, the Farm

Bureau has supported for many years a voluntary ID program

for—particularly for APHIS to follow animals in terms of health

and disease problems. And so I think that is the direction that we

would like to see that go right now. I don’t know if we would necVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
60

essarily support a mandatory program, but certainly at least a program whereby producers could voluntarily get involved to make

sure that there is some—that their animals can be traced in terms

of diseases and so forth.

One of the questions that I think was asked a second ago was,

if that—if there were mandatory program through APHIS for animal health would that eliminate the need for COOL, and I guess

I would respond that they are two different issues. The country of

origin labeling, as we are seeing, as presented here and as in law,

is an informational labeling system just to inform the customer

where the product is from and nothing more than that. And so I

don’t see the two related, and I don’t see one obviating the other

or requiring or not requiring the other to happen in that instance.

Mr. DAVIS. May I respond as well?

Mr. HAYES. Sure.

Mr. DAVIS. I think it is important to draw the distinction between the marketing tool of country of origin labeling and the MID

tool. But with that said, animal ID has been an important part of

ensuring animal health and food safety and other regulatory programs for a long time, but it must be used in conjunction with a

science-based health and food safety infrastructure to ensure that

food is safe and animals are healthy and free of disease.

Mandatory or voluntary animal ID must not be used in a—must

be used in addition to a science-based infrastructure and not in lieu

of it.

Mr. HAYES. Mr. McDonnell.

Mr. MCDONNELL. Yes, sir. An organization that I belong to, RCALF USA, does not support a mandatory ID. But we are involved

in this coalition of industry groups helping to develop national

standards, performance standards to use it. Personally, on our answer and in our feedlot, we are already doing it. You know, I think

it is going to happen down the road.

Mr. PETERSON. All right. I am concerned that, whatever we do

here, we don’t hurt producers, and people are going to actually

make more money and not less money.

Every year I go to the Canadian-American interparliamentary

meeting with the members of the Canadian parliament, and I

talked to some of their agriculture people this time that are on the

Agriculture Committee. They claim to have market research polling

that indicates that Americans think that Canadian beef and pork

is superior to American beef and pork, and that they think that if

you label our products it is actually going to give them an ability

to increase market share.

Do you have anything to dispute that, those of you that support

this, as a way to increase consumption or sales and therefore profits to your producers, do you have anything that would say that is

not true?

Have you done meat market research or—I am concerned about

it. I mean, they seem to be very convinced, and I have a publication

off of their Web site where they basically say that they—they say

the same thing in this Web site that they put out. So I—do you

have any comments?

Mr. FREDERICKSON. Well, Mr. Chairman, Congressman Peterson,

I guess the question would be then, why aren’t they doing it presVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
61

ently on a voluntary basis if they believe firmly that they could

have a leg up?

Mr. PETERSON. Well, they are on some products, voluntary. But

the Government—I mean, I asked them that, and they haven’t

wanted to go through the hassle, the process of getting this in place

and the expense and so forth, but they think if we did it, that

would then give them the ability to do this without having to put

anything on their folks.

Mr. FREDERICKSON. Good. I don’t know, Mr. Chairman and Congressman Peterson, but we, to answer your question specifically,

no, we do not have, from an NFU perspective, any kind of research

that indicates one way or the.

Mr. PETERSON. How about you, Mr. McDonnell, do you?

Mr. MCDONNELL. Well, I am kind of a competitive guy, so I welcome the challenge. I think it would have to be handled in the

right way, though.

Obviously, there has been some studies out about barley-fed cattle versus corn-fed cattle and the incidence of some problems; and

this was done in the State of Washington and was released last

winter. And Canada is a heavy user of barley, and they found some

real problems with barley-fed cattle. So we also have a stronger

predominance of British breeds here in the northern part, the

northern States, which is definitely higher-quality beef.

Mr. PETERSON. Well, I used to feed my steers barley, and I had

the grand champion steer 4 years in a row when I was in 4–H.

Mr. MCDONNELL. I have, too, but it is an interesting study.

Mr. DAVIS. Mr. Chairman, may I respond?

Mr. HAYES. Yes, sir.

Mr. DAVIS. Mr. Peterson, I—we all agreed here a minute ago that

we see country of origin labeling as a marketing issue; and therefore, I think it would only be prudent of the Canadians to look at

it the same way and use it as a marketing tool if they see an advantage to it.

I hope that their consumer surveys are wrong.

Mr. CASPERS. Mr. Chairman, if I could respond. I guess I have

not seen that data, sir, but that has been a concern of ours. When

you take a look at the pork industry, 89 or 90 percent of the product that is available, that is sold, is going to be strictly product of

the United States, and so even if we have a high percentage, 50

or 75 percent, of consumers that say that they want to buy U.S.

product, we are oversupplying that market; and so what is going

to be differentiated in the market is foreign products. And I think

that is a concern, that we are handing them the ability to promote

their own product.

And I would say that we do know that Canada is the No. 1 exporter of pork around the world, and so they are very competitive,

and I would expect them to pursue that market aggressively.

Mr. HAYES. Thank you.

I have a question specifically directed to Mr. Foutz, Mr.

Frederickson and Mr. Leo McDonnell. If you will think back a

minute to Dr. Collins’ testimony, it pointed out the importance, for

consumer confidence, in the labeling as an incentive for them to

pay for it. It seems logical that for there to be accurate labeling

62

claims a verifiable recordkeeping system is required from the producer to the retailers.

And in Ms. Bryson’s testimony, she says the statute is clear that

self-certification by producers would not provide an adequate basis

in proving the truthfulness of the information.

So why is there an insistence that self-certification should be sufficient? You are the ones who want the law to work. So why aren’t

you, one, willing to provide the information; two, can’t really provide the information; or three, is it impractical and too expensive

to do that, remembering this is the Federal Government in Washington?

Whoever would like to take a first crack at it.

Mr. MCDONNELL. I’ll start.

I don’t know if I can remember everything you asked in there.

But I guess the main reason is, why do we want self-certification

and why do we want to provide more of an audit trail such as mandatory ID or whatever? And obviously, the bill was introduced for

country-of-origin labeling.

One of the things that bothers me, we also have a mandatory

price reporting system where the packers report the prices, and we

allow them to use self-certification on that. The Uruguayan beef

being—the foot-and-mouth disease being lifted, and we are

—USDA is allowing Uruguayan beef in. And USDA has said it has

to strictly be born and raised and slaughtered from USDA—or from

Uruguay; and in that case, USDA is allowing self-certification by

the Government itself, by the Government vets.

So why do we have to tax U.S. producers with more responsibility than you require of other segments or other countries?

Presumption of origin has worked very well, sir, and would

produce no cost to the U.S. producers and the same end result, and

that is a credible country-of-origin program.

Mr. FREDERICKSON. Mr. Chairman, I could take a shot at that

also.

The issue of self-certification, I think, to the rank-and-file producers across the country, is an issue of—I mean, it is not an issue.

They very easily could step up to the plate and certify one way or

the other whether the product is born, raised and slaughtered in

the United States or born and raised.

I was just thinking back to the number of times that we all have

to self-certify. It wasn’t too long ago, when you went to the airport,

you had to self-certify whether you packed your own bags; and we

trusted that. And so all of a sudden the whole concept of self-certification becomes questionable as to whether or not folks are telling the truth. And I think the fact that it is—the law is silent, and

it has now become an issue at USDA; and of course, when you get

two USDA lawyers working it over, you are probably going to get

three opinions——

Mr. HAYES. Mr. McDonnell?

Mr. MCDONNELL. I believe I already answered that, sir.

Mr. HAYES. OK. I am sorry.

Let’s see, who am I missing? I had three here.

Mr. Foutz.

Mr. FOUTZ. Yes, I think, Mr. Chairman, if you would look at the

talking points that we have provided with the testimony that—we

63

talked about that just a little bit. And it is our belief that if we

have three options really here.

You have a producer who produces his own beef, he grows his

own beef. And obviously, with that, he should be able then, as he

sells that, to verify that that beef is his own. I mean he’s grown

it; he has got the records to prove that.

You have on the other side of that issue, one who purchases only

foreign beef and that obviously can be verified, and so that should

be very easy for them to do. The issue is going to be for those producers who use both foreign beef, foreign-born beef and those that

they raise born in their own—on their own farms, and they are

going to have to be a little more careful how they segregate and

deal with the issue.

But simply by saying and signing a paper and going through a

process—it may be through the State or some agency that would

say, I only raise beef born on my farm or in this State or in this

country—then that should be sufficient without having to have an

individual tracking system for each individual animal.

Mr. HAYES. Thank you, sir.

Just in conclusion, in listening to your earlier testimony, in

Washington, if we say too little in legislation, the lawyers fill in the

blanks. If we say more, they turn around and tell us what we said.

So with that in mind, next time you come to Washington for

help, think of that.

Mr. David Scott is next and then, Mark, you are next; and then,

Gil, you would be next.

Mr. SCOTT. Thank you very much, Mr. Chairman.

I would like to talk for a few minutes and get your responses on

some issues that are of particular concern to my constituents in

Georgia, particularly the country-of-origin labeling effects on beef

producers, especially Georgia beef producers. There are a number

of concerns that I would like for you to respond to.

The first concern we have is the timing of the current law. It

could create several inequities for Georgia cattle producers having

to come under the mandatory provisions by September of 2004.

Second, the final regulations are not required to be published

until September of 2004, which are simultaneous with their implementation, which allows very little time for understanding them.

And third, there are still numerous concerns about how the audit

trail would be verified or certified and how that process would be

paid for and controlled.

Those are the three major concerns, and while my Georgia cattlemen support country-of-origin labeling, I would like to see the bill

amended to make the transactions equitable across all sectors of

the industry. I would like to see the program remain voluntary, as

our Georgia cattle producers would, because for them, a U.S. beef

brand is a major, major selling point. They want to put that on

their product. But they need to be free to do it in the most costeffective manner possible.

So if you could respond to that—again, the timing issue, with October 1, 2004 bearing down on us, and give us a real sense of how

to address the inequities of the law, the implementation.

The other factor, with the final regulations of the country-of-origin labeling are not required to be published again until 2004 SepVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00067 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
64

tember and doesn’t give little time for understanding that. Very serious concerns for my cattle producers in Georgia, and I would like

to get your response. And certainly we would love to hear from you

on that, Mr. Davis, as the head of the cattle producers.

Mr. DAVIS. Thank you, Mr. Scott.

Mr. Chairman, the consternation that your producers in Georgia

are having over what needs to be done now to be ready by September of 2004 is not unique to your constituency. We are all having

that quandary in our mind. That is why our organization had

asked for the listening sessions and asked for congressional hearings because we have got people asking right now, what do we do

to be ready? And we do not have the answers today.

The implementation part of it, yes, it must have sounded OK in

the beginning when it was passed, but when the timing for the

final rules coincides with the implementation of the program, that

certainly adds to the consternation, especially when you consider

the biological requirements of the time it takes to raise a calf to—

and processing.

If we had our druthers—and our policy states it very clearly—

the mandatory provision in this law would be dropped and it would

be voluntary. We would agree with you on that.

I will refer you again to my testimony, that we believe that the

petition that was submitted to USDA and to this committee in September 2000 still represents a manner in which a voluntary system

could be implemented while these questions and consternations are

addressed.

Mr. SCOTT. Thank you, sir.

Mr. FOUTZ. Mr. Chairman, Mr. Scott, your question, I think, is

very pertinent.

The effects of the timing right now are very critical to the producers. We are setting out here and we don’t have—we don’t even

have any proposed regulations, so we have to go through proposal

of regulations, the hearing periods, the final rule to be established.

We just heard that that probably would be done sometime in the

spring.

It is interesting that when we look at this timing process, the

cattle, the calves that are going to be born in January, February

and March that are going to be—that the effect is going to be taken

on in August is overlapping here. So all of our producers who are

in the process of trying to figure out what they are going to do with

the animals that are born in this January-February-March-April

time frame and what is going to happen in August is very critical.

And for that reason, I think we made a comment that the rules

need to be proposed immediately, so that we can, as an industry,

look at them and see where that places us. I think that is a real

issue.

Concerning the audit trail, we don’t think that you need to have

an audit trail for each individual animal. We really do think that

the buyers, the producers can verify that they produce either domestic beef or they have foreign beef, and if they have a mixture,

that they have a mixture; and how they segregate those—that is

what is necessary—and that we don’t have to have an audit trail

on each individual animal to comply with the COOL law.

65

Mr. SCOTT. Mr. Davis, let me go back to you for a moment. If the

law is implemented without any changes, just currently as it is

written, what changes can we expect in the way the U.S. beef industry operates?

Mr. HAYES. I am going to have to cut you short there. I am sorry;

we are out of time, David.

Mr. Udall.

And I might just caution members that we have got some very

patient third panel members sitting there who are suffering from

fatigue, I suspect; so if you can carry on with that in mind——

Mr. UDALL. Thank you, Mr. Chairman.

I want to welcome the panel and thank you for your testimony.

I wanted to begin by associating myself with the other remarks of

Ranking Member Stenholm. As always, he seems to have an excess

of common sense, and I think he really put his finger on the challenges.

But the opportunity that we face—I also want to thank my colleague, Congressman Osborne, from the great State of Nebraska;

I also wanted to commend him for his perspective. And in particular, we are always, in Colorado, looking to gain a little bit of favor

with Nebraskans because as Dr. Foutz, now we tend to try and

keep their water. Or they think that is what we are trying to do.

But we have sent a little bit of good moisture their way this week,

so that is some good news.

I wanted to acknowledge a fellow Coloradan, Dr. Foutz, and your

important testimony and ask you again just to talk about your

point of view on whether voluntary country-of-origin labeling would

work and whether or not you support that approach.

Mr. FOUTZ. Mr. Chairman, Mr. Udall, American Farm Bureau

supports the mandatory program that is in place now in the 2002

farm bill. There has been a voluntary program in place for a period

of years. As of today, there is very little, if any, product that is labeled and sold through the markets in terms of meat and meat

products; and therefore, we don’t see that working. And in order for

the labeling, informational labeling program to work, we do think

it needs to be mandatory rather than voluntary.

Mr. UDALL. Dr. Foutz and other members of the panel, would

you briefly outline the costs that you think are attached to implementing this provision and how they might be amortized over time,

if, in fact, that is the path down which we travel?

Mr. FOUTZ. Mr. Udall, there has been a lot of discussion on cost

this afternoon, and I am not sure how those numbers were derived

because we don’t have any idea of what the proposed regulation

would even look like. And so I am not sure that a discussion of cost

is even—we can do that today, because we don’t know what USDA

is going to make this regulation look like.

My guess is that we can look at some programs that are fairly

low in cost, such as I have just talked about here, where we have

some verification, you don’t have to follow an animal with individual identification all the way up to the point where you ear-tag

each animal and they are followed through a very complicated procedure.

66

Now, we have—my neighbor is now doing that right now, and I

just happened to talk to him Tuesday as I left Colorado, and that

is costing him $4 an animal. So there is going to be a cost involved.

But we don’t think—American Farm Bureau doesn’t think you

have to go to that high cost—individual labeling of an ear-tag, followed with identification systems and so on—to make this informational labeling system work. It can be done on at much less cost.

However, that is the consternation that our growers and producers are dealing with, because they don’t know and they don’t understand and there haven’t been any proposed rules put out there

so we can make definitive estimates on what these costs might be.

And that is part of why there is—that is—part of why the consternation and the unsettledness in the country with our producers

is simply because we don’t know what is going to be there.

Mr. UDALL. Mr. Davis, in the interest of fair play—and I know

that you mentioned being excoriated, and I can tell you, all the

members up here on the panel, we have been excoriated a few

times.

So would you like to give your perspective?

Mr. DAVIS. Thank you, Mr. Udall, yes.

I guess—not to appear flippant, but I have yet to see an estimate

that says it is going to be cost free. I don’t know what the total

cost will be either to an individual producer or through the whole

system, but we know there is going to be some cost involved.

Mr. UDALL. One of the arguments that I find compelling is that

if we all join hands and do this together, and we look where we

are going, we are not actually stepping off a cliff, but we are actually creating more opportunity for ourselves.

But I take note of your concerns. If I could just make one final

comment——

Mr. DAVIS. Excuse me.

Mr. UDALL. Yes, sir, go ahead.

Mr. DAVIS. That is why our policy calls for a market-driven approach, and there is a program, a voluntary program in California

now that is being used, and that is market driven.

Mr. UDALL. Duly noted.

Mr. Chairman, just one final, quick comment. I think—as a

layperson, I am interested in hearing the talk today about marketing versus safety issues, and I do think we have an educational opportunity, but also a challenge, because I think a lot of consumers

are going to think this is a safety seal of approval. And that may

be a positive thing, but we ought to go into this with our eyes open.

Again, I want to thank the panel and thank you, Mr. Chairman.

Mr. HAYES. I thank the gentleman.

The gentleman from Minnesota, Mr. Gutknecht.

Mr. GUTKNECHT. Mr. Chairman, I will try to keep it brief.

And, first of all, let me say to the panel, thank you for coming,

and we apologize. Every day around here is busy, but this is probably one the busiest days of the year we have ever had, and so

Members are coming in and out. And we appreciate your coming,

many of you from very long distances, to be with us to talk about

this issue. It is very important.

67

I raised the issue earlier about what I think will be one of the

profound impacts, and that is on smaller ranchers and producers.

I wonder if you might comment on that.

And then, second, if you might each just talk about the issue of

self-certification. It seems to me, that doesn’t—well, I would like

the interaction again, because I am not really clear if, ultimately,

the producers have to satisfy the packers and the packers have to

satisfy the retailers. I am not sure how that—it is sort of, ‘‘the neck

bone’s connected to the backbone, the backbone’s connected’’—I

mean, somewhere along the line, ultimately, the retailer has got to

be satisfied, or the whole thing starts to fall apart, doesn’t it? That

is one question.

And the second question is, do you think there is a legitimate

concern about what this will do to smaller producers that may or

may not be able to provide the packers with the kind of certification or documentation that they want?

Mr. Stenzel, maybe you want to start?

Mr. STENZEL. Well, Mr. Gutknecht, I do feel a little bit the odd

man out here in the fresh produce industry, so I won’t deal with

the specifics of the meat issue. But given the platform, I will answer a couple of questions.

We are very concerned about impact on the small producer, small

grocers, everyone in the distribution chain. It is yet another reason

why the Department has got to use its utmost flexibility in developing its regulations.

Earlier, there was a question asked, should pork and beef be separated, and while I can’t weigh in on that issue, I do suggest that

if Mr. Stenholm is correct and there needs to be a cleaning up of

this legislation, that produce be a part of that as well. I just don’t

think it is appropriate at this point in time to start divvying up the

legislation and putting different categories that are currently under

the law into separate camps; so we would like to be a part of that

process as well.

And then Mr. Scott’s last question, just so I make the rounds,

about implementation date. The same issues are holding forth in

the produce industry in terms that these proposed regulations are

not forthcoming in adequate time to prepare. So as the legislative

fix is being contemplated, an extension of that implementation

date, even if mandatory goes forward, would be in order.

Mr. FOUTZ. I think—to respond to that question, Congressman—

obviously, we are concerned with the issues around the small

rancher and farmer in this. Otherwise, we wouldn’t be concerned

about what the cost might be. Because it is the cost issue that is

going to create the problem there, and so we are concerned about

that.

And if we get into some of these verification programs, they get

very expensive and quite voluminous, then obviously it is going to

have a negative impact on the small producer in the process. And,

again, that is why we are suggesting there are possibilities for reducing that cost and still working under the mandatory system.

And that is—coming back to the verification that is in our—that

we have given in our testimony whereby simply saying that you

are a producer, which could be verified, of only domestic product—

for example, which could be verified by your state department of

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agriculture through your own records and so forth, then that ought

to be sufficient to carry through the line. If, in fact, there is a willful violation of that, then I think, from what I heard from USDA,

there are methods by which that can be taken care of in the system.

So I don’t think we have to be overly burdensome in how we verify these things, because everybody along the line has some penalty

associated with a willful violation; and I think we need to be aware

of that, too.

Mr. FREDERICKSON. Mr. Chairman, Congressman Gutknecht, I

don’t know if I can add much more to what has already been said.

I assumed that as this debate and discussion went on that the

issue of small farmers was front and center during the process and

that there was never an intent to cause undue fiscal harm for

small- and medium-sized producers across the country. And it

seems to me that the debate as to how much trouble is going to

be caused right now happens to be with USDA, and in the rulemaking process that is ongoing.

So I guess the responsibility there, or the responsibility is to

really focus attention on the rule-making process to make sure that

that doesn’t occur.

Mr. GUTKNECHT. Dave, with all due respect, everything we have

tried to do over the last 40 years has not—the intent was not to

hurt small producers.

The CHAIRMAN [presiding]. The time of the gentleman has expired.

The gentleman from California, Mr. Dooley.

Mr. DOOLEY. Thank you.

And, Dr. Foutz, you spent a lot of time in your testimony where

you gave references to a number of the other panelists that one of

the most compelling arguments for this mandatory country-of-origin labeling is because consumers have a preference and would like

to know this information. If the American Farm Bureau buys into

that type of policy, then how are you going to make a compelling

argument against a consumer interest when they might want to

have the right to know whether or not a commodity was genetically

modified?

Mr. FOUTZ. Well, Congressman Dooley, the bill that we are talking about here is simply an informational issue relating to letting

the consumers know where this product is grown. It is not a rightto-know issue.

Mr. DOOLEY. Precisely. You are making the argument and the

contention that the consumers have an interest and need the information on where a product was grown.

So why would that be any different if those same groups of consumers, which you have polled, if they wanted to know whether or

not a product was genetically modified, is the American Farm Bureau going to endorse that policy? And how do you make an intellectual distinction between a consumer’s interest in wanting to

know where a product was produced versus whether or not a product was genetically modified?

Mr. FOUTZ. Well, I guess there would be a real philosophical disagreement here maybe. But in terms of what we are talking about,

we are talking about a generic—in a sense, a generic statement

69

that we are making that this product happens to be grown in the

United States. Well, when we begin to talk about genetics, biotechnology, all of those issues, those are individual decisions that

an individual grower makes; and to separate those out and to specifically identify an issue which might be used——

Mr. DOOLEY. What is the scientific basis for where a product is

grown in terms of—you also made allusion to where mandates on

the nutritional contents of various products that are out there—you

are a plant geneticist, I understand, have a degree in agronomy.

All the labeling that we have that we require now by a mandate

has an impact in terms of the nutritional content or the safety of

a product. I mean, that is scientifically based.

Now, country-of-origin labeling, when we are embracing the policy that you are trying to, that the American Farm Bureau is embracing, as well as the National Farmers Union, you are opening

up Pandora’s box. We are having to fight with the EU right now

in terms of how we should label products that are generically modified.

We have the American Farm Bureau supporting the administration’s decision to take on the EU through the WTO, based on their

labeling issues that they are having out there. And then you are

coming before this Congress and you are asking us to embrace a

labeling regime, a mandatory labeling regime that has no basis in

science.

At least the action we are trying to promulgate with the WTO

and the EU is science-based. I mean, what is the science behind

a country-of-origin label?

Mr. FOUTZ. Mr. Chairman, just a couple of comments.

Number 1, I am really not a geneticist. I am a physiologist, so—

I mean, I don’t want to get into the genetics because that is really

not my field.

But, what we are talking about here—and I think—in my mind,

there is a distinction. What we are talking about here is simply an

informational label; and that is different than a label which specifies some food safety or food quality requirement that we are talking about.

We are not talking about a food safety issue. We are simply saying this material or this product is grown in the United States.

Now, that doesn’t, at least to my mind, quantify any kind of quality

or safety.

Mr. DOOLEY. Obviously we have an intellectual and a philosophical difference, and I think I am being more intellectually consistent

than I think the Farm Bureau is being on this.

Mr. McDonnell, do you have any concern about the exposure to

increased liability that a lot of your members are going to have if

we now have a mandatory approach here that has fines and penalties associated with it; that we can now have PETA and other

animal rights organizations that are interested in advancing their

social agenda—and part of that is to reduce the consumption of red

meat—and now we are giving them an opportunity to initiate a private right of action, exposing retailers, processors and even producers to increased legal liability.

Do you have any concerns whatsoever in terms of how that might

pose increased jeopardy to your members?

70

Mr. MCDONNELL. I don’t see how that will happen as we expand

country-of-origin labeling for cattle and meat to the consumer. I

don’t see the relation between PETA and COOL for the consumer.

Mr. DOOLEY. Well, if you have PETA that is going to be able to

make a case against a retailer that they weren’t—didn’t have the

adequate information to guarantee that that produce or that livestock was actually raised and grown—raised and processed in the

United States, what is going to preclude them from taking an action against USDA for failure to enforce their regulations?

The CHAIRMAN. The time of the gentleman has expired. We will

give the witness an opportunity to respond.

Mr. MCDONNELL. I would say if that is the case, they already

could be doing it under presumption of origin with our school lunch

programs, which we presume to be U.S. Product.

Mr. DOOLEY. Is this not an expansion of the way——

The CHAIRMAN. The gentleman’s time has expired.

The gentleman from Oklahoma, Mr. Lucas.

Mr. LUCAS. Thank you, Mr. Chairman, and I would offer the observation to this panel that I offered to the previous panel, that is,

that there is a sincere belief back home in my part of Oklahoma

that the Department of Agriculture chooses not implement this and

that by creating a set of rules that are so onerous, so complicated,

so horrendous, that would inflict so much pain that they will compel a response from this Congress to do something. Now, that is the

belief back home in the field.

I would also offer you this observation, having worked now with

USDA to address how conservation funds are allocated, which I

thought was very clearly laid out in the 2002 farm bill, but thanks

to actions of appropriators and thanks to actions of the other body

and thanks to rulings from Justice and the USDA’s own lawyers,

now put us in a position where the conservation title, at least the

technical assistance costs are being implemented rather dramatically different, was intended in the farm bill.

Now, I offer you that thought because I have been a part of a

crusade with a number of my colleagues here for some months to

try and turn the ship, the USDA, in a different direction and to put

them back on focus with what was called for in the 2002 farm bill.

We have not been able to do that.

So my question to the whole panel is—and I’d love your response—if we can’t clean up something as simple as the way technical assistance issues have been botched, and if my constituents

back home are correct that USDA consciously or unconsciously

doesn’t want to do this and, therefore, is creating a set of rules that

are horrendous, how do we protect those folks back home who have

to live with this stuff? Do we let this become, in effect, law by the

rule-making process and then subject all of our people to this and

attempt in future years to correct it? Do we slow the process down?

Tell me, guys, how do we protect our people from this Pandora’s

box that was added in the final days of the conference committee

report on the farm bill?

Mr. STENZEL. Mr. Lucas, on behalf of the fresh fruit and vegetable industry, I share your concern. Whether it is intentional or

naive, the Department guidelines thus far clearly are not fulfilling

the intent of the law in the way that they could. What gives us any

71

hope that they will? In the proposed final regulation, I don’t know;

I’m not a betting man that way.

We do believe we have provided a road map of specific regulatory

options that the Department could follow that would make its implementation much more acceptable to everyone in the produce distribution chain, all the way through. It is not just about protecting

U.S. produce growers. We want to make sure that it is fair and equitable for importers of fresh produce, whom we depend on for

healthy, fresh produce in the United States, as well as for our retail partners.

But your question is, what is your role as the Congress. I believe

if you see law being implemented through regulation, with all due

respect, I think you will have to trump that with your own action.

Mr. LUCAS. Clearly, in response to my question, the esteemed

people on the first panel responded that they were following the

rules. I believe that is an indication that they will continue down

this present course in the rule-making process, and we are going

to wind up with something amazing in September. And ironically,

of course, the intent in the 2002 farm bill was to do something good

and positive, not only for the consumers, but the producers.

But the process of turning good concepts into law and ultimately

into real regulations that implement that spirit sometimes run

awry. So I am just curious, any——

Mr. FREDERICKSON. Mr. Chairman, Congressman Lucas, I don’t

know who has the biggest hammer. I guess you do. And I do know

that—Congressman Gutknecht indicated that everything we do

here has the best of intentions for small- and medium-sized producers across the country. I don’t disagree with that and I compliment

you and commend you for that. I know you have done that all your

career. But I don’t know how to correct this thing. And I guess that

you have the biggest hammer.

I sat in the other room and listened to their testimony this morning, and they all started out by saying they didn’t like the law.

They didn’t particularly care for it. Well, OK, having said that, how

do we go ahead and force them to comply with the intentions of

Congress? And I guess that becomes more your responsibility, I am

sorry, than ours.

Mr. LUCAS. You are exactly right. And our constituents ultimately expect us to not only do the right thing, but to protect them

from what they perceive as the Federal Government also. And if,

in some instances, it becomes clear as a result of this hearing that

it is necessary to bring this whole process to a stop and start over,

then we have to—we have to work in the best interests of those

folks back home who depend on you, their representative organizations, and us, their representative members.

I wish it had not worked out this way is what I guess I am saying.

Mr. FREDERICKSON. Mr. Chairman, as long as ‘‘stop’’ is defined

as just a stop on the side of the road as opposed to a permanent

stop, I would think.

Mr. CASPERS. Congressman, if I could respond, I would suggest

it is probably a lot simpler in that we believe that really the problem is the law and not how USDA is implementing it.

72

I think the perception, indeed, is out there, and I think it is out

there because the proponents of this legislation have said that it

is USDA’s fault. Any time we hear anything that goes wrong or a

turn that takes the wrong—takes us down the wrong path, it is

USDA’s fault. I don’t think that is the case. I think—and that is

why we are proposing that we stop this and that we take pork and

beef off of the—out the mandatory portion of this law.

The CHAIRMAN. The time of the gentleman has expired.

The gentleman from California, Mr. Cardoza.

Mr. CARDOZA. Thank you, Mr. Chairman.

I am interested in the panel’s telling me exactly—I know I may

have missed some of it prior, while I wasn’t here; I apologize for

that. But I am a huge supporter of country-of-origin label in general. I am not pleased with the fact that administration folks this

morning said that they are not in favor of the law. I believe it is

their job to implement the law.

Having said that, I also think that there should be things that

we can do to correct the problems for the pork and cattlemen’s associations to correct the problems that we will hear in the third

panel from some of the frozen food packagers who have different

kinds of mixes that come through their lines at different times and

have huge packaging issues that we are going to have to deal with

somehow and that should be able to be dealt with under the law.

Or we should be able to be talking about small fixing rather than

having to jettison the whole concept, which I think is one that both

the consumers want, that benefits a vast majority of our agriculture interests and is good public policy.

So, with that, I will just throw it open to the committee and see

if anyone would like to respond, if there is anything within the purview of what I have outlined that can be done.

Mr. DAVIS. I think there is. I think the committee has the purview, and I think we are at the first step here today in fixing what,

for whatever reasons and by whoever’s interpretation, what needs

to be fixed. I think Mr. Stenholm alluded to that in his remarks,

that it would have been nice to have the answers to these questions

before the bill was passed.

The fact that we are still asking those questions today indicates

that whether you agree with USDA’s interpretation or someone

else’s, I think it is a clear indication that there is great disagreement, and I commend this body for having this hearing and trying

to get to the bottom of it. And as I said in my testimony, we would

stand ready to help through a voluntary program, as is our policy,

producer-led, market-driven program, but we stand willing to work

with the committee and the USDA in either a legislative role or a

rule-making role to make the thing work.

Mr. CASPERS. We would agree that we also need to move to a voluntary program, market-driven, that producers if they can find a

market, if there is a demonstrated benefit, that they can go after

that. This law doesn’t accomplish that.

Mr. MCDONNELL. Voluntary always reminds me of telling a

group of preschoolers they can go to the bathroom wherever they

want. So it is kind of a spooky deal. And I think as you look at

what is going on and, hopefully, what comes out of this committee

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with the extension of time, you are going to have to hold USDA’s

feet to the fire.

If you look at the voluntary rules and the fact that they have put

in there they want audit trails on producers, which they weren’t allowed under the law, the fact that they have excluded cooked meat,

which is a preparation to consume that beef, just like prewashing

fruits and vegetables, I think it is clearly the intent of USDA to

undermine this legislation.

I can tell you, as a voter from Montana, I hope you elected officials can make them do the right thing.

Mr. FREDERICKSON. Mr. Chairman, Congressman Cardoza, the

three points I made in my initial testimony, and those were to utilize the model of existing USDA programs, so in other words, don’t

reinvent it; expand and extend the country-of-origin information already collected on imported products; and No. three, to just plain

allow maximum flexibility, i.e. self-certification.

Mr. FOUTZ. Mr. Cardoza, I think one of the concerns that I have

is the fact that we are sitting here debating amongst ourselves on

a lot of issues that we don’t even know yet are going to be proposed

in the rule-making process. And I think one of the gentlemen this

morning made the point that the voluntary guidelines may not be

anywhere near what the proposed rules would be. We are talking

about issues that we have concerns about, as organizations.

But until we really see what the proposed rules are, it is very

difficult to sit here and make specific requirements or make specific

suggestions on how we might change some of these things. And I

think all of us have in our testimony, in our written testimony,

given some ideas on how we might see the projects, see the labeling

regulations written; but until we see that, until we see some of that

initial writing, it is going to be very difficult to make any comments.

Mr. STENZEL. I would agree with that, Mr. Cardoza, that we really have just got to get these proposed regulations out as quickly as

possible. Our interpretation is different from USDA’s general counsel on several issues, and we—if they are going to go forward and

propose the regulation, then let’s have at it; and if some of that

needs to be cleaned up legislatively, as proposed, for the regulatory

process, that is when we will have to do it.

The CHAIRMAN. I thank the gentleman. The gentleman’s time

has expired, and I want to thank all the members of the panel.

I would take note of the fact that not only did the administration

witnesses state that—quite honestly, that the administration did

not support this concept prior to its becoming a part of the farm

bill, but they also stated that they would make every effort to enforce the law in the manner in which it is drafted and in a manner

that is as friendly as it possibly can be to producers and to everybody else in the food chain process to provide the most useful information to consumers.

And I think that the examination here needs to be in the law

itself, because I think—some of the assumptions here about how

much flexibility the administration has, I think, may be mistaken.

I understand the gentleman from Georgia had asked a question

and there was not an opportunity afforded to answer that question.

And I think it was directed to Mr. Davis. And the question was,

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if the law is imposed as currently written, what changes can we expect in the way the U.S. beef industry operates? And will that

change be beneficial or will the costs outweigh the benefits?

Is that correct, Mr. Scott?

Mr. SCOTT. Yes.

The CHAIRMAN. Let’s give Mr. Davis an opportunity to answer

that question.

Mr. DAVIS. Do you wish me to answer it now or take the

time——

The CHAIRMAN. Yes. You can answer it now and all of you can

supplement it later with a written answer.

Mr. DAVIS. OK.

It gets back—and you might have to bring me back to the question because there are a lot of parts in it, but it gets back to some

of the other things that we have talked about, the changes that it

will drive in the opinions of a lot of our producers of why we, over

the years, as our policy evolved, at one time we supported mandatory, and we backed up to voluntary because of the very concerns

that are raised here today as to, do the benefits outweigh the costs

and what does it do to small producers?

The average herd size in this country is just under 50 head, so

we are pretty much talking about everybody. What the end result

will be is unforeseen in my eyes, but I will stick my neck out here

and say that it won’t be what a lot of us have envisioned when you

consider that we are not covering all of the product in the first

place, what are we actually doing here and how much are we affecting; and it is—there are just many, many more questions to be

answered.

The CHAIRMAN. I thank the gentleman.

I believe the gentleman from Texas had a closing comment he

wanted to make.

Mr. STENHOLM. Mr. Chairman, just kind of a summation of what

I have attempted to say and what I think I have heard today.

You know, go back to when we marked up the farm bill in this

committee. The majority of this committee opposed mandatory labeling, country of origin. I did very strongly for the reasons that

have been articulated today.

Mandatory country-of-origin labeling with absolute requirements

of trace-back to those that ultimately are responsible for certifying

that it is grown in the United States is a problem. And I don’t

make a habit of defending this administration, but I think that

they are interpreting the law as it was written. And as it was written on the House floor, you remember, only fruits and vegetables.

Some of us are opposed to this for the same reasons because

whether we are talking about meat or fruits and vegetables, you

are talking about the same problems that have to be dealt with.

And then we got to the conference and the Senate insisted on

their language, their language, which I trust was never vetted at

the type of a hearing that we have had today; and that we will

have additional hearings as we attempt to work out a solution.

Now, I am for country-of-origin labeling. It is marketing. It

makes good sense. If you have got a product that consumers want

and is better than your competition’s, they are going to buy it. That

is called marketing. We have agreed today, everyone agreed that

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this is not a food safety issue. You have got to separate the food

safety from marketing, and we have agreed.

Mr. Dooley—I won’t repeat it. He says it so much better than I.

I hope all of you here at this table and all others interested in this

listen carefully to what Mr. Dooley was saying, because there was

a certain ring of consistency that we had better be prepared to

have others interpret the marketing of their product exactly like

some of us are attempting to mandatorily say with country-of-origin labeling.

If you believe that it won’t come back to haunt you in the world

market as the pork producers have been the ones most clear on

this all the way through, then I am wrong and you are right.

So I think this has been an excellent hearing. I think the panel,

the questions, the manner in which you have answered them, I

think all of us have learned something today. And I hope as we

proceed now—remember what the appropriators have done. Legislating on an appropriations bill has precluded the administration

from working out a solution, as Mr. Lucas was talking a moment

ago—can’t do anything, can’t spend any money solving a problem,

which means that you like it just like it is.

Now, that is going to be the debate we have on the floor after

July 7. I hope and I expect that this committee might be able to

come up with something that will be helpful, that will please every

one of you at this table almost unanimously, but maybe not totally.

Thank you.

The CHAIRMAN. I will say amen to the remarks of the gentleman

from Texas and amen to this panel. I want to thank you for your

valuable contribution today. We have a series of votes on the floor.

So the committee will stand in recess and take up with the third

panel as soon as the third vote is concluded.

And we will stand in recess.

[Recess.]

The CHAIRMAN. The committee will reconvene. And we welcome

our third and final panel to the table. Ms. Deborah White, associate general counsel for regulatory affairs of the Food Marketing Institute; Mr. Ken Bull, of Wichita, Kansas, vice president for cattle

procurement of the Excel Corporation; Mr. Bruce Peterson, of

Bentonville, Arkansas, senior vice president and general merchandise manager of perishable foods for Wal-Mart Stores; Mr. Ray

Walker of Clovis, California, CEO of Patterson Frozen Foods; Mr.

Jay Campbell, Jr., of Baton Rouge, Louisiana, president and CEO

of Associated Grocers, Incorporated; and Mr. Gary Ray of Austin,

Minnesota, executive vice president of Refrigerated Foods of

Hormel Foods Corporation.

Ladies and gentlemen, we are delighted to have you with us this

afternoon. We remind you that your full statement will be made a

part of the record. We would ask that you limit your remarks to

5 minutes so we get done during daylight hours. And we will start

with Ms. White. Welcome.

STATEMENT OF DEBORAH R. WHITE, ASSOCIATE GENERAL

COUNSEL, REGULATORY AFFAIRS, FOOD MARKETING INSTITUTE

Ms. WHITE. Thank you very much.

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Good morning, Mr. Chairman, Mr. Stenholm, and members of

the committee. My name is Deborah White. I am associate general

counsel of the Food Marketing Institute. Thank you for including

FMI in this important hearing on the implications of section 10816

of the 2002 farm bill. I am going to read my statement, but I really

look forward to the questions and answers afterwards.

We believe that many of the inevitable and far reaching consequences of this relatively brief provision were never intended by

Congress. This hearing represents an important step toward understanding the law and its full ramifications, many which stem from

the actions that retailers will be forced to take to comply with section 10816. We may disagree with the law’s premise and foresee its

negative consequences, but there is a law in the books and American grocery stores must take those steps necessary to ensure that

they will be able to offer food to consumers in compliance with the

law on September 30, 2004.

In order for retailers to achieve compliance, however, growers,

cattlemen, packers, and distributors of covered commodities will

have to change the way they do business. The law will prohibit retailers from partnering with suppliers who are unwilling to make

those changes. Today, retailers voluntarily engage in a wide variety

of State and country awards and labeling programs, programs that

work well for producers, retailers, and consumers alike.

Section 10816 is different though. The market drivers built into

this brief amendment to the Agricultural Marketing Act are powerful and will have a profound impact on the dynamics of the entire

food and production distribution system, especially on smaller lesscompetitive producers for the following reasons:

First and foremost, the law places the responsibility for informing consumers of the country of origin of all covered commodities,

imported and domestic, on the retailer, the one link in the distribution chain that has no firsthand knowledge of or control over this

information. Under the much more thoroughly-debated and carefully-crafted Nutrition Labeling and Education Act, the manufacturer is responsible for identifying the relevant information about

the food and placing it on the label. The retailer sells the fully-labeled finished food product. The same is true for other country-oforigin labeling laws. Reference was made earlier today about clothing and how many articles of clothing have the country of origin

specified. Well, Hanes is responsible for making the determination

of the country of origin for their underwear. The department store

sells it fully-labeled, but the department store isn’t the one that is

responsible for that information. The manufacturer or the importer

of record is responsible for the labeling because only they know the

facts about the product. Section 10816 stands this traditional common sense approach for labeling on its head. Further, retailers are

subject to Federal and State enforcement and penalties of up to

$10,000 for willful violation, for failing to meet their legal responsibilities.

Second, the law covers an extremely wide range of products, beef,

pork, lamb, fresh and frozen seafood, fresh and frozen fruits and

vegetables, and peanuts, and necessitates information on the entire

life cycle of each and every one, and in the case of seafoods, the

food’s method of production. We heard today from a number of

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folks who represent individual segments of that chain, we are responsible for them all.

None of this information is self-evident to the retailer. A retailer

can’t look at a hand of bananas and know whether it is properly

labeled product of Guatemala or whether it is actually from Honduras. A retailer cannot look at a filet of salmon and know which

flag flew on the vessel that caught it or whether it was actually

raised on a farm in Asia. A retailer can’t look at a chub of hamburger and know whether one of the cows from whence it came

ever sojourned in Mexico or Canada. The only way that retailers

can fulfill their obligations to consumers under this law is to ensure to the greatest extent possible that they receive accurate information from their suppliers. Silence is not sufficient. We were

asked or several people discussed the issue of self-certification or

presumption of domestic origin in the absence, so that domestic

producers wouldn’t have to actually state that the product was produced in the United States. Retailers are responsible for informing

consumers of the country of origin of all products under this law,

both domestic and imported. We can’t rely on silence.

Toward this end, our members are beginning to execute broad

and far-reaching changes in their supplier relationships. Although

the programs vary, most retailers are requiring their suppliers to

do the following: First, sticker or label each individual food item

with the required country of origin.

Second, sign contracts to indemnify retailers and ensure that

suppliers are keeping verifiable audit trails. In some cases, such as

in produce and the produce industry, parties have been doing business on a handshake basis for decades. They are now going to have

to enter into written contracts.

Third, undergo third audits. Retailers will be liable for the accuracy of the information that their suppliers provide to them. Retailers have no choice but to require their suppliers to provide them

with objective third-party documentation that the information is

trustworthy. This model is not without precedent. The Organic

Food Production Act requires third-party certification for organic

production claims which are also marketing claims. And to this

point, I would later like to have the opportunity to address the

issues that Congressman Putnam raised with respect to PACA.

A typical grocery store easily sells 1,000 different commodities,

comprised of hundreds of thousands of individual food items, received from thousands of suppliers several times each week over

the course of the year. The law forces retailers to put this type of

system in place to control the large amount of information attendant to this volume of food, and it will force retailers to make difficult marketplace choices to minimize their liability and maximize

their compliance with the law. For example, retailers will source

cover commodities only from those who can afford the systems to

document country of origin to the extent required by the law.

Smaller suppliers will have a difficult time affording these costs.

Vertically integrated producers are virtually ready to comply now.

So, despite the fact that section 10816 was intended to assist small

independent producers, the law is actually a strong driver toward

concentration of vertical integration.

78

Retailers will also limit the countries from which they source

product, sometimes to the detriment of U.S. producers. For example, at least one significant member has concluded that the domestic salmon industry cannot supply a sufficient amount of fish all

year long to meet their needs, but that other countries such as

Canada, Norway, or Chili can.

Third, they will reduce or eliminate U.S. product source during

the short seasons.

Fourth, the participation and State of origin promotional programs will be limited.

In short, we believe that section 10816 is fundamentally flawed.

Mandatory country-of-origin labeling, particularly as prescribed by

section 10816, will inevitably result in less consumer choice and

higher production costs that far outweigh any potential benefits to

consumers and producers.

Thank you for your time. I look forward to your questions.

[The prepared statement of Ms. White appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Ms. White.

Mr. Bull, welcome.

STATEMENT OF KEN BULL, VICE PRESIDENT, CATTLE

PROCUREMENT, EXCEL CORPORATION, WICHITA, KS

Mr. BULL. Thank you. Thank you, Mr. Chairman, for giving me

the opportunity to discuss what I believe is a well-intentioned, yet

severely-flawed law.

The COOL law represents unmistakable harm to the U.S. beef

and pork industry. At a time when we have finally reversed the

long downward trend in beef demand, Government is implementing

an initiative that will add tremendous cost and complexity to the

segments of the beef and pork production chain.

Supporters of COOL generally rally around one of several points.

Food safety, and I think that one got discussed at length this morning. It is clearly not about food safety. Consumers right to know,

but this can’t be about right to know, because the law exempts all

of food service, not to mention poultry, cheese, almost the rest of

the grocery store. Protecting the American market. Many supporters are more motivated by trying to block cattle and hogs from

coming in from Canada and Mexico.

Protection of sentiments does not hold water in light of the fact

that Mexico is now the No. one market for U.S. beef where we currently enjoy a $450 million trade surplus. Supporters must realize

that striking out against one of our most important buyers, stands

to have consequences.

As the committee knows, this is a retail labeling law that mandates there must be a verifiable audit trail to prove that the labels

on products are true and accurate. AMS staff in Washington has

ensured that our read of the law is right. A verifiable audit trail

means that we must be able to provide documents that back up the

claims made on the meat we market to our retail customers. We

have no choice but to require all producers from whom we buy to

certify that they are maintaining records that prove identification

and traceability of their livestock. Additionally, we may choose to

audit records on a spot basis to further ensure that labeling will

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stand up under regulator scrutiny. We and other major processors

have been notified by retailers that if we intend to sell them meat

after October 1, 2004, we will have to assume liability for any misrepresentation of their labels.

Another concern to us is the Meat Inspection Act administered

by FSIS which covers labeling. To apply a false label to a product

is to ship misbranded product. This is punishable as a felony, and

the product involved is likely subject to recall. Our interpretation

of the Meat Act was confirmed when I met with the Deputy Administrator of FSIS and the Chief of the Labeling Branch.

The branding we do today is based on attributes that reflect the

market niche a retailer wants to uniquely fill. These brands rely

on factors that are within our control and importantly, are cost effective. The COOL brand relies on factors from the birth of the animal, following it through our plants, then into distribution, on to

retail, all at significant costs. These are costs that we do not believe are recoverable in the marketplace, and we and livestock producers will have to absorb them. There is much speculation on the

cost of COOL, and I certainly have my own ideas, but, frankly, I

believe that true cost is that there stands to be significant change

in the cattle and hog industries as a result of this law. We have

done cost estimates that quickly led us to conclude that we are not

going to make the investments it would take to build and run our

plants the way we do today. To create the kind of identity preservation systems of this law would cost would be unimaginable. A

more likely scenario is that packers would call only on feeders that

we know have the best, most reliable audit-proof systems. I met

with the Deputy Administrator of USDA Packers and Stockyards

to ensure that this was consistent with P&S law, and I have ensured that such steps are entirely within the scope of the law.

We believe one probable outcome of the law is that packers

would most likely dedicate plants as U.S. only or mixed origin and

then segregate production. This move would eliminate marketing

alternatives for producers. We fear an unexpected outcome of the

law is that the market would move to one that differentiates price,

not just on the basis of quality, but on two new factors, reliability

of records and origin status of cattle. Each with these kind of

changes, we estimate we would have to invest a minimum of $20

to $25 million per plant to ensure compliance. Of particular concern is something we learned from AMS. There is zero tolerance for

error. In our meeting with AMS, we painted a hypothetical scenario. Say we process a group of cattle, and in reviewing the

records in an audit found that a mistake was made and an animal

of Mexican origin was in the batch of 1,500 head of U.S. born,

raised, and slaughtered. We then learned in that scenario all 1,500

head would be in violation of the law. We would then have to notify

retailers that we have misbranded product and would assume that

product would be recalled.

Another huge concern for us is the impact on the cow-calf operators in the dairy industry. We buy many of these cold cows at auction. We do not believe they have the proper kind of documentation

necessary under this law. Under this law, because producers cannot guarantee the animal’s birth and residence of its entire lifeVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00083 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
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span, this beef would be relegated to food service as its only market.

I want to leave you with one final point. In the past 15 years,

our firm has had only two requests for labeled country of origin

from U.S. retailers. They were both for Australian beef.

I would be happy to answer any questions you have later.

[The prepared statement of Mr. Bull appears at the conclusion of

the hearing.]

Mr. LUCAS of Oklahoma [presiding]. Thank you, sir. Mr. Peterson.

STATEMENT OF BRUCE T. PETERSON, JR., SENIOR VICE

PRESIDENT, GENERAL MERCHANDISE MANAGER, PERISHABLE FOODS, WAL-MART STORES, INC., BENTONVILLE, AR

Mr. BRUCE PETERSON. Thank you, Mr. Chairman. And good

afternoon to you and the other members of the committee.

My name is Bruce Peterson, and I am the senior vice president,

general merchandise manager of perishables for Wal-Mart Stores,

Inc., based in Bentonville, Arkansas.

Wal-Mart is the Nation’s and world’s largest retailer, with facilities in all 50 States and 10 countries. The company operates more

than 2,870 discount stores, super centers, neighborhood markets,

and more than 520 Sams Clubs in the United States.

Mr. Chairman, I would like to ask that my full, written testimony be submitted into the record, but in the interest of time, I

will just touch on the highlights of that testimony.

As a major portion of our business focuses on the marketing of

food, I would like to share Wal-Mart’s perspective regarding country-of-origin labeling. This law requires retailers to inform consumers of the country of origin of all covered commodities, both domestic and imported, as of September 30, 2004.

Wal-Mart believes that marketing high-quality, affordable food

made in the USA is essential to our customers’s needs. However,

despite the law’s best intentions, it is fundamentally flawed inasmuch as it diverts retailers from marketing, and places the onus

on product labeling information validation. We believe that there

is a better method to promote U.S. agriculture than implementing

a flawed law with unduly burdensome regulations.

With respect to our suppliers in the food industry, Wal-Mart has

been reported as the Nation’s largest grocer, with 1,333 super centers and 52 neighborhood markets.

We highly respect the relationships that we have built with the

agricultural communities who supply our stores. Over the years, we

have also established strong partnerships with State departments

of agriculture to market key State products. We also maintain well

over 1,000 relationships with local growers in order to bring hometown produce to local Wal-Mart outlets. Because of our near symbiotic relationship, the continued financial health and success of

our suppliers is directly linked to our ability to provide everyday

low-priced food products to our consumers. Any overzealous regulations or laws which unduly burden our suppliers, many of whom

are small and medium-sized enterprises, ultimately provides a disservice to our customers.

81

Because customer trust is our top priority in providing quality,

safe, affordable food products, we felt that it was necessary to take

steps to ensure that the country of origin information provided by

our suppliers for each of the covered commodities is accurate and

verifiable. After all, with 500 products in 1,300 stores in produce

alone, we have over 650,000 opportunities to make a mistake every

day, not to mention those in the supply chain. Simply put, if someone inadvertently hangs the wrong sign, the result is that the consumer is misled, not informed, making execution of the program

untenable.

In our written remarks, Mr. Chairman, there was reference this

morning to some options that retailers may take to have other requirements of our suppliers, and those requirements are detailed in

my written remarks.

Specifically, we are concerned about our small suppliers who may

not be able to comply with those requirements that enable us to

implement the program. The law simply does not distinguish between large and small operations, and could force further consolidation. Wal-Mart would rather promote local products than lose

suppliers.

Next, we are concerned about the implementation for our suppliers. While the meat industry, except poultry, is required to demonstrate origin on the front end, the produce industry must be cautious on the back through signing and an ever changing perishable

market. For example, under this law, one fruit bowl could require

25 different labels depending upon the time of year. This is particularly worrisome for American produce growers who have international interest in marketing their product year-round through

off-season supplements of foreign markets.

In summary, we share the view that it is vitally important for

Congress to revisit this law in order to allow the marketplace, not

the USA, to implement a successful voluntary marketing program

that works. This will help everyone in the supply chain satisfy our

customers, and support rather than hinder our suppliers, especially

those on the farm and ranch. We would also stress that this solution should be applied to all covered commodities on an equal basis

to avoid any further inconsistencies that fail to deliver a quality

marketing program.

Wal-Mart is an excellent example of how success in the grocery

industry directly supports agriculture and agricultural jobs in the

United States. We are proud that our relationships with State departments of agriculture and local producers to market and

produce U.S. agriculture products will only continue to strengthen.

As we increase our number of stores overseas, we will continue to

provide additional markets for U.S. products sold in our international operations. We look forward to continuing to work with

our suppliers on a voluntary basis, so that we may continue to

bring high-quality, low-cost, safe food products to our customers,

our top priority.

On behalf of Wal-Mart Stores, I thank you for the opportunity to

testify here today.

[The prepared statement of Mr. Bruce Peterson appears at the

conclusion of the hearing.]

Mr. LUCAS of Oklahoma. Thank you, sir.

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Mr.Walker, when you are ready.

STATEMENT OF ARTHUR ‘‘RAY’’ WALKER, CEO, PATTERSON

FROZEN FOODS, CLOVIS, CA

Mr. WALKER. Thank you, Mr. Chairman, and members of the

committee.

I am Ray Walker, president and CEO of Patterson Frozen Foods,

a processor and grower of frozen produce located in Patterson, California. I also serve on the Board of Directors of the American Frozen Food Institute. I appreciate the opportunity to appear before

the committee today to discuss country-of-origin marking requirements for food products, specifically the frozen produce commodities covered under the 2002 farm bill.

I have in my career seen the logic of both sides in this issue. As

a member of AFFI’s board, I have participated in many, many discussions on country-of-origin labeling. And I must admit, there are

those, including me, who have advocated vociferously for ways to

mandate the promotion of U.S. produce. However, the members of

AFFI’s board of directors are unanimously opposed to this concept

as it was legislated in the 2002 farm bill.

While I am here to testify specifically about the products my

company processes, I do want to mention some additional concerns

with country-of-origin labeling that AFFI raised in comments submitted to USDA jointly with the Grocery Manufacturers of America, the National Food Processors Association, and the National

Fisheries Institute. The concerns centered on the USDA guidelines

for implementation which prescribed country-of-origin labeling

rules for products already required to display such labeling, creating the prospect of duplicative, confusing, and even conflicting regulations.

Among the processed foods we believe to be outside the scope of

the farm bill requirements that will nevertheless be required to

bear labeling if the current voluntary guidelines become permanent

are, processed peanuts, mixed-processed foods including mixedprocessed produce, and frozen seafood products. More detailed testimonies on these and other issues concerning processed foods are

being submitted by the other organizations for the hearing record.

Unfortunately, if the USDA guidelines issued last fall become

mandatory, they will have significant unintended consequences on

members of the frozen food industry who grow, process, and distribute frozen produce in a blended form. They will be incentivized

to increase sourcing of products from abroad and limit sourcing of

domestic products and to relocate domestic manufacturing facilities

to locations abroad. This outcome is ironic, given that the intent of

the new labeling regulation was to aid U.S. agriculture. These unintended consequences are anticipated because of the ambiguity of

the processed food exemption as it relates to frozen produce. Congress wisely excluded ingredients in processed products from coverage under the act. At the same time, by using PACA as the

framework for the produce provisions, it appears Congress inadvertently included frozen produce in the new labeling scheme.

USDA has interpreted the legislation to include frozen, yet the

complexity in labeling is no less for blended frozen produce than for

other processed product.

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For my industry, this issue is not one of tracking or segregation.

We currently know not only a product’s lot number and plant of repackaging, but also the country of origin and the portion of the

grower’s field from which the product was harvested. It is extremely more difficult and considerably more costly, however, for

U.S. processors to implement the legislation as written for blendedproduce products which does not apply to foreign competitors. Frozen produce of foreign origin already is required to bear a countryof-origin marking under section 304 of Tariff Act of 1930. For example, frozen okra grown in Mexico and frozen in Texas must be

marked product of Mexico. For a product that contains produce

from multiple countries of origin, each of these must be listed on

the package. Therefore, right now in any supermarket in America

a consumer who wishes to know whether the frozen broccoli he or

she is about to purchase came from outside the United States need

only to read the product’s label. The USDA guidelines will complicate substantially the country-of-origin labeling scheme for

blended frozen produce. For example, a product such as a frozen

mixed fruit salad or a frozen vegetable stir fry will be subject to

different labeling requirements depending upon the location of the

processing. If any processing occurs in the United States, the label

must identify all source countries in the order of predominance by

weight as well as the fact that the processing occurred in the

United States.

To demonstrate my concerns, let us look at the poster showing

a label for a typical domestically-processed vegetable stir fry as it

would have to appear under in the legislation. As you can see, this

product contains seven ingredients, and each of these, along with

this country of origin and location of processing, would have to be

displayed. Unfortunately, there are several complicating factors. As

you can see on the next poster, there are variations in raw material

sources. The seven ingredients can be sourced over time from 9 different countries including the United States. This means there are

216 possible declaration combinations for this example. Clearly, it

would be impractical to preprint this label because of sourcing

changes due to seasonal and other conditions.

Currently, processors use an ink jet machine to comply with the

country of origin requirements under section 304. However, under

the duplicative country-of-origin regulations now proposed by

USDA, this would not be possible. The current ink jet coding capabilities of industry only allow a maximum of two lines and up to

25 characters. As a result, the labeling required in this example is

not possible under existing technology.

In fact, if the blending occurred in Mexico and produce from the

United States were excluded, the product could be shipped in bulk

to the United States for repackaging. USDA would regard the product as having retained the country of origin as determined for Customs. As you see, the label is much simpler and can be printed

using the current technology.

The disparity between the complex scheme of country-of-origin

labeling required for the product blended in the United States and

much more simplified labeling for the bulk or retail-packed import

product reveals that the new labeling scheme creates a major disincentive to blend in the United States and use U.S. produce. Large

84

and medium-sized processors that have overseas blending operations will divert blended value-added processing to those facilities.

Small- and medium-sized firms who do not have an overseas operation will be inclined to confine their production to lower-value,

single-ingredient products.

Some might argue that by using only U.S. produce, you could

preprint the package and thus comply. Unfortunately, there are a

variety of reasons this is not practical. Some commodities are not

available in the United States on a consistent year-round basis;

others are not available in the United States at all. In addition, it

is clear that a frozen food processor’s belief the simple Made-in-theUSA mark would provide a marketing advantage, more processors

would produce and market such a product. Current law allows for

voluntary use of Made-in-the-USA labeling, assuming the product

qualifies for such designation.

In conclusion, I would like to report that there is good news in

the world of produce. Due to the increased awareness of the importance of fitness and nutrition, consumption of frozen produce has

increased, and I am hopeful that trend will continue. The blended

products I have described are leading the way in providing a nutritious, convenient, and value-added choice to consumers in the

produce category. It would be a shame, however, if, due to good intentions, U.S. farmers were not able to participate in this growth.

The unintended consequences for regulating our products twice

are a good reason why this type of Government-mandated market

intervention, however well-meaning, should be avoided.

Thank you for the opportunity to present my views. I would appreciate to answer any questions you may have.

[The prepared statement of Mr. Walker appears at the conclusion

of the hearing.]

Mr. LUCAS of Oklahoma. Thank you, Mr. Walker. Mr. Campbell,

when you are ready.

STATEMENT OF J.H. ‘‘JAY’’ CAMPBELL, JR., PRESIDENT AND

CEO, ASSOCIATED GROCERS, INC., BATON ROUGE, LA

Mr. CAMPBELL. Thank you, Mr. Chairman. My name is Jay

Campbell. I am the president of Associated Grocers in Baton

Rouge, Louisiana. Our company is a retailer-owned company and

services 245 independent community-based and community-focused

independent grocers in four States: Texas, Louisiana, Arkansas,

and Mississippi.

I want to thank the Committee on Agriculture and Chairman

Goodlatte and Mr. Stenholm for allowing us to be here today to

represent their interests. I would also request that our written

comments be placed into the record as well.

I have been very interested in listening to the testimony on the

other two panels, as well as my copanelists on the third panel, and

it is quite obvious that the purpose of the country-of-origin labeling

is very much in doubt. Was it food safety? Was it food security?

Was it consumer information or marketing? Or was it truly just

protectionism to ensure that American producers and processors

could compete with foreign competition?

The debate over country-of-origin labeling has gone on for approximately a decade, and I think we are at a crossroads today to

85

determine what type of public policy we want to present in the

United States as it relates to the origin of food products. Do we

want to have a public policy where only selected products available

in selected retail outlets are subject to costly, burdensome, and useless labeling on certain products to protect certain domestic providers, producers, and processors, and truthfully place the burden and

risk—financial risk, I might add, on retailers and distributors who

have no firsthand knowledge of where the country of origin of the

product was?

Or, do we want to promote a type of public policy that adequately

funds USDA and FDA, and provides more efficient and effective

food inspection efforts at the borders of the United States?

I have heard testimony earlier today where USDA was footed

with the blame for all that has occurred in this process, when in

truth and fact, the audit trails and the penalties and the fines were

all legislatively placed into the laws which they are mandated to

enforce.

I think we would be better off with a public policy which promotes current domestic producers to voluntarily label their products and use their domestic origin as a marketing advantage with

consumers, no different than Florida does with oranges, Nebraska

does with beef, Idaho does with potatoes, and I can assure you Louisiana does it with crawfish.

If safety and security were the issues, then why were food service, convenience stores, grocery stores below a certain volume level,

airlines, passenger trains, hospitals, restaurants, and nursing

homes, retirement homes, school cafeterias, and fast-food outlets

exempt? Do we not want to protect them as well, the young, the

elderly, the infirmed, the ill, the travelers, the retired, and obviously the general restaurant-going public?

What difference does it make where the banana came from if it

is bought in a grocery store or it is actually provided in a restaurant, a school, a nursing home, an airline, a retirement home,

or a hospital? The difference is marked in this law, where, one you

would have to though its country of origin, the other you would not.

Those same questions could be asked of beef, pork, lamb, seafood,

fish, and produce items.

The time limit today will not permit me to go into the extraordinary recordkeeping and retention requirements and the fines and

penalties associated with that, but I can assure you that the maintenance of 2 years worth of records is untenable, is unbearable, and

is almost unbelievable to comprehend, and yet that is in the law

and there are significant financial penalties and sanctions for failure to do so.

In closing, I think our better course of action is that we should

ensure, with proper legislation, safety of products for consumption.

And we should do that at the borders in our country, and we

should ensure that USDA and FDA are funded properly and that

they follow process and procedures that are objectively and consistently applied to ensure the safety and security of the American

product. But we should also encourage our domestic producers and

processors to state that their products voluntarily are domestically

raised and produced, and take advantage on a marketing basis that

the peaches came from Georgia or the strawberries from California

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or the oranges came from Plaquemines Parish in Louisiana or the

gulf waters of our Gulf of Mexico.

We enjoy the greatest variety, selection, and choices of food products for the American consumer each and every day. We should

preserve that free marketplace and never be afraid of the diversity

of choice we enjoy, but strive for continued food safety and security

regardless of the source of the product’s origin.

The Made-in-America label or the domestically-produced label

should be a badge of honor, and the availability of imports should

never, ever be viewed as a threat to our American producers and

consumers.

I would honor the opportunity to answer any questions to you,

and thank you for the opportunity to be with you today.

[The prepared statement of Mr. Campbell appears at the conclusion of the hearing.]

The CHAIRMAN [presiding]. Thank you, Mr. Campbell. Mr. Ray,

welcome.

STATEMENT OF GARY RAY, EXECUTIVE VICE PRESIDENT, REFRIGERATED FOODS, HORMEL FOODS CORPORATION, AUSTIN, MN

Mr. RAY. Thank you, Mr. Chairman. My name is Gary Ray, the

executive vice president of the Hormel Foods Corporation based in

Austin, Minnesota. I am speaking here today on behalf of the

Hormel Foods Corporation and also Jenny-O Turkey Store, one of

our subsidiaries based in Wilmer, Minnesota. We would like to

share with you our thoughts on the country-of-origin labeling law

that has been enacted.

Hormel Foods slaughters and processes hogs raised by producers

located basically in the Midwest, many of whom purchase piglets

born in Canada that are shipped to the United States after 18 to

21 days of birth. The law requires country-of-origin labeling for

livestock born, raised, or slaughtered in a foreign country. The

country-of-origin labeling, if enacted, would require Hormel Foods

to implement several hog procurement practices in order to comply

with the requirements of the law. Under the current language, this

would put a vast majority of the requirements back on our 3,000

hog producers that are required under the country-of-origin labeling to maintain up-to-date recordkeeping systems. Hormel Foods,

per the country-of-origin law, would require from our producers’

third-party verified documentation and audit trail providing where

the animals were purchased and where they were born and raised.

The producer will be required to sign a legal affidavit with each

load of hogs stating there is a third-party verified audit trail in

place which identifies the origins of the hogs of each load delivered

to our plants each day. Hormel Foods will also be required to perform random producer audits, verifying that the accuracy audit

trail is in place so that we can comply with the country of origin.

This must be approved by the USDA certified third-party. If

Hormel Foods is issued a fine or a penalty resulting from a producer noncompliance, that fine will be assessed to the party responsible.

Because of the large variety of items, over 3,500, that Hormel

Foods manufacturers, tracking packages that are both U.S. and CaVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00090 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
87

nadian origin will be extremely difficult. It will require keeping the

Canadian hogs separate in the holding pens, keeping raw materials

separate in the coolers, across the cutting floors, and all the way

through the processes into a proper labeled package. It will require

a substantial capital investment on Hormel’s part.

You were all aware of the categories covered within the countryof-origin labeling. What is perplexing is the inconsistency in which

the law was written. First, poultry, one of the highest consumed

products of proteins in the United States, is not included. Second,

the law exempts products sold through the food service via restaurants, channels where billions of pounds of these categories are

consumed annually. Finally, it does not include products that are

further processed which use many of the same meats that are

under the other provisions.

If this is a right-to-know issue, why were these categories excluded? Other food products today carry labeling identifying only

the location of the final manufacturing. Wheaties doesn’t identify

the origin of the wheat, Minute Rice doesn’t identify the origin of

the rice. Meat shouldn’t be any different.

We are certainly not proponents of adding additional categories.

Rather, this is to point out that these are all contradictions that

are confusing to the manufacturer, producer, and consumers alike.

If the purpose of country-of-origin labeling is to provide the consumer with the right to know, we question the bill.

Despite the law’s applicability in only a relatively small percentage of our company’s pork products, we must out of necessity know

the origin, where every pig was born for every pig that Hormel

Foods slaughters, because different parts of that same pig wind up

in processed foods which is exempt, food service channels, which is

exempt, and fresh and refrigerated, which is nonexempt. Requiring

so much information for so little doesn’t make a lot of sense. There

is a lack of depth and quantifiable consumer preference that perceive need for country-of-origin labeling. Studies have been referred

to——

The CHAIRMAN. Mr. Ray, we have a vote on the floor. Can you

wrap up?

Mr. RAY. Sure. Studies have shown that the Colorado University

and Nebraska University conducted studies of 273 random people,

and on country-of-origin labeling it ranked 8 out of 17 of importance, much more behind food safety and freshness of the product.

So, in closing, I would just like to say—and I would like to have

all my testimony put into place. But we would support a volunteer

program for country-of-origin labeling. Hormel Foods thinks it is

very viable that we serve our customers, must continue to stay in

contact with our customers, and, even more importantly, listen to

our customers. The customers are not asking for this information

on the label, and we would like your cooperation in working with

you to undo some of the burden that will be put on many small

producers.

[The prepared statement of Mr. Ray appears at the conclusion of

the hearing.]

The CHAIRMAN. Thank you, Mr. Ray. And we will stand in recess

and come back for questions in a minute.

[Recess]

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The CHAIRMAN. The committee will come to order.

Ms. White, a new concern has recently arisen about the implications of this mandatory country-of-origin labeling law. It has been

asserted that misrepresentation of country of origin may also give

rise to third-party civil actions by competitors for injunctive relief

and monetary damages. I appreciate that your organization may

not have had an opportunity to fully evaluate this threat, but

would you like to offer any observations about this potential problem for the companies that your organization represents?

Ms. WHITE. I would. Thank you very much, Mr. Chairman, for

the question.

Indeed, we do perceive that retailers could be subject to additional liability because of the country of origin claims that they are

going to be forced to put on their products and the products that

they sell in their stores as a result of the information they receive

from suppliers, if that information is inaccurate, or if it is perceived

to be inaccurate. Ms. Bryson this morning spoke about the potential liability under the Lanham Act. We believe that this is a concern. Certainly there are State laws that give consumers the right

to sue for violation of other laws, of Federal laws. So that even

though there isn’t a private right of action that is specifically specified in section 10816, we do perceive that the claims that are made

could subject retailers to liability under State laws, under the Federal Meat Inspection Act, under the Food, Drug, and Cosmetic Act,

under the Lanham Act, and indeed under the Federal Trade Commission Act as well.

The CHAIRMAN. Very good.

Mr. Bull, many are concerned that a country-of-origin labeling

requirement will add cost to the processing and marketing of meat

products. The USDA has produced a figure of $1.9 billion. What do

you think of that figure, No. 1. And, No. 2, what mechanisms

would prevent these costs from being shifted to producers who are

traditionally the price-takers in livestock markets?

Mr. BULL. Thank you, Mr. Chairman. First of all, I think the cost

estimates that I have seen out of the USDA reflect their estimate

of all covered commodity and recordkeeping costs alone. We have

tended to try and look more at the studies that look within a segment for the total cost, which would include redoing our businesses

to comply with the law as well as recordkeeping and other nuances

to the law. Those costs for the beef industry generally range from

$1.5 billion to $3 billion. And I think those are real costs. Within

our business, clearly, we are going to have to retool and change the

way we do business. We are going to have to figure out how to attach a label from an animal coming in our door to a box going out.

That is going to require some major changes within our plant operations, and those are not cheap.

So I believe that costs are clearly there. And all of us that are

middle-players in this type of system, whether you are a feed lot

operator or a packer processor, we are operating on thin margins.

And additional cost, whether they are added to our business or

whether they are added to the retailer or whether they are added

to the feed lot in compliance will then get spread to the industry.

If it is not going to be covered by a consumer by paying higher

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costs, then it will have to be moved back to the initial point of production.

The CHAIRMAN. Is it going to be cheaper for you to buy foreignproduced beef?

Mr. BULL. I think, if the question is, do I see price differentials

coming in different origin of animals? I clearly see that happening.

And that will really be more a function of the nuances, I think,

that were addressed by some of the retailers in handling multipleorigin animals. The early responses we have had back from retailers is that it is much simpler in this type of system to deal with

one or two origins of animals rather than multiple origins. And so

as we see that ripple back through the industry, there will be price

responses paid for multiple origins only on the basis of nuances

rather than the quality of meat.

The CHAIRMAN. Thank you.

Mr. Peterson, how much correlation is there between what consumers say they would prefer and what they actually buy and consume? Do you have any data to tell us whether their purchase habits parallel some of the surveys that have been cited by some to

justify COOL?

Mr. BRUCE PETERSON. We do, Mr. Chairman. It depends a lot

upon how the question is phrased to the consumer. For example,

if you were to ask the consumer: Would you like to see the country

of origin marked on a package? almost universally they will say

yes. If you frame the question: What are the decisions that you go

through in selecting a product or item at the point of purchase?

country of origin doesn’t even show up. What most customers are

looking for is quality, price, appearance, and those types of things.

So a lot depends on how the question is framed. But if you were

to look, for example, in the organic industry, if you were to ask the

question of consumers: Do you feel that organically grown food is

healthier or safer, almost universally customers will say yes. But

that represents less than 1 percent of the total purchases within

our various commodity businesses.

So there is a very definite disparity between oftentimes what

consumers say in a survey and their actual behavior in purchase

patterns.

Mr. OSBORNE [presiding]. Thank you very much. My time has expired. The gentleman from Texas, Mr. Stenholm.

Mr. STENHOLM. I think today we have seen a consensus develop

that COOL is not a food safety program, it is a marketing program.

It is a marking issue. Now, the supporters of COOL, even though

they admit to that, also imply that the consumers will be reassured

about safety if they know where their food came from. Now, you

just commented on that. From the standpoint of consumers. From

the identification of where it comes from. The obvious conclusion on

the food safety, and this is my question to you, do you believe that

traceability and identity preservation will become a necessity in

the marking system of food in the near future? All of you.

Ms. WHITE. Well, I would be happy to address a couple of points

that you raised. First, I agree, FMI certainly agrees that food safety and food marketing are two entirely different things, and I think

a number of very good points were made today by yourself included

regarding food safety and country of origin.

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To that I would add on the meat side that all meat that is processed in the United States is processed under continuous FSIS,

USDA inspection, so regardless of where that cow was born, regardless of where it was fed, it is all governed by the same standards once it come to processing. Do I think trace-back is an inevitable consequence in our food supply? Possibly, but maybe if you

need a—if it is decided that it is necessary for food safety or food

security or animal health or animal welfare, this is a marketing

law as has been pointed out and we believe that there are serious

flaws in that marketing law. So to try to shoe-horn in a trace-back

system into a flawed marketing law we think is doomed to failure.

Mr. STENHOLM. Anyone else wish to comment?

Mr. WALKER. Mr. Stenholm, in my industry the frozen fruit and

vegetable industry, we have the ability to trace back currently. We

can trace product back to the not only the country of origin but the

field of harvest. And we have—we keep records, have our providers, whether they be growers or outside bulk providers, keep

records as to every chemical that’s been applied to that product

during the growing process and so that we can, at any time, know

literally everything there is to know about that product.

Mr. STENHOLM. I think that will be sufficient. Anyone else wishes to comment on the record. And in my remaining time, I wish to

just ask for your help. I think there is a consensus that the law

we are talking about is flawed badly. We have now got a situation

in which we have told or could be telling the USDA don’t fix it. I

am not sure that’s a good solution. But if we are going to fix it,

we need to have folks help us to fix it. So I would ask you to consider and then provide for the record and even a little quicker than

that to this committee, suggestions of how we can take the law and

fix it so that it accomplishes what we need to accomplish regarding

country of origin without doing the damage that the current law

will do if enforced as we wrote the bill.

Not as it’s being interpreted, but as we wrote the bill. So that

is the challenge that this committee has and we will appreciate the

help, if you have got any from each of you, to help us do that in

a way that will solve the overall political problem which can very

fast become an economic problem for the very producers that are

advocating it as strongly as they advocate it today which is certainly something that I am interested in, very much so. And so if

you can help us on that, we would appreciate it.

Mr. OSBORNE. Thank you, Mr. Stenholm. I certainly would echo

Mr. Stenholm’s remarks that this is not a matter anymore of debating whether it is a good idea or not. It is something that’s going

to happen and therefore we certainly need to be as proactive as we

can be. I have just two or three questions I’d like to ask. First of

all, it is my understanding that there are roughly 60 countries that

require country of origin labeling right now.

Apparently this has not been so burdensome that they have not

initiated it and stayed with it. So I wonder if any of you would care

to comment on how effective this has been, why you see country

of origin labeling practiced in other countries where apparently as

an industry, the packers and processors are so much against it

here today. And you are obviously in the arena you get a chance

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to see this played out, and so any thoughts that you have, I would

appreciate it on this issue.

Mr. BULL. I will give it a shot. You know, I am not familiar with

all of the different nuances of country of origin labeling in different

countries. We know that some were in response to different thing

that occurred in their country. I think it was more of a trace-back

system that was built in some countries to deal with an outbreak

of BSE or foot and mouth as a trace-back system, rather than more

of a country of origin labeling. Some have initiated country of origin labeling for those particular reasons. I doubt if they are anywhere near as burdensome as this is, and particularly because I

doubt if other countries have the nuances in agriculture that we

face here today.

Mr. OSBORNE. OK. Thank you.

Mr. Campbell.

Mr. CAMPBELL. I would just add that I don’t think you would find

in another country where they are so penal and challenge and hold

accountable the retailer or the distributor who has no control over

where the item in question came from in the first place.

Mr. WHITE. I would echo what Mr. Campbell said. I was going

to make the same point. I would also add that people have suggested that applying the system that is used in Florida might be

one way to make this country of origin labeling law the Federal law

work for smoothly. But I would suggest to you that the Florida law

is entirely different in the way it is written and the way it is structured than the Federal law. The Florida law only requires—first of

all, it only applies to imported food products. It only applies to

fresh produce, bee pollen and honey. And it only requires that the

food products imported products be marked. And then the only prohibited act under that statute that is for the retailer is to remove

the labeling.

So you have got a very different structure from which to work,

and so although some and particular in the produce industry have

said well just use the Florida model, I would suggest that that really isn’t applicable in this case, since the laws are structured so very

differently.

Mr. WALKER. Mr. Chairman, I might comment that in our industry, the frozen food and fruit and vegetable industry we already

label with country of origin under the section 304 of the Tariff Act

of 1930. And our comment simply is we don’t need to be mandated

a second time. We are already doing it. It is already there. The consumer has the information available to them. Why do it twice?

Mr. BRUCE PETERSON. Congressman, my comments were going to

mirror much the same as Ms. White’s comments were, except I was

going to use Canada as a reference. And very recently I have traveled quite a bit around Canada to see how they implement the law

which they have enacted and apparently that has been there for

about 30 years. And what I find most interesting, particularly in

the produce area, is that more often than not, the signing that is

placed there is more misleading than accurate. Because of the

quick-changing of produce that comes in and out of their departments a sign, for example, may say the bananas are from Colombia

when the little sticker on the banana says it is from Ecuador. And

I see that more often than not.

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So unfortunately, the customers there are being misled almost as

often as they are being informed.

Mr. OSBORNE. Well, thank you. I think you can sense the frustration on the part of many producers because what they thought was

going to happen doesn’t seem to be what’s going to be implemented.

And I know I can sense your frustration as well. And so we have

got a little bit of a dilemma here and we are going to have to figure

out how to get a way out of it. And with that, I would yield to Mr.

Gutknecht.

Mr. GUTKNECHT. Well, Mr. Chairman, I don’t have the way out

of that dilemma, but I do have a couple of questions or comments

and I would like to address my first, I guess, comment and or question to Ms. White, Mr. Peterson and Mr. Campbell. You talk to consumers every day. You and/or your organizations talk to consumers

every day. Is it your assumption, or is it your belief that consumers

really don’t want this because the advocates say the consumers do?

And I heard a little bit of what Mr. Peterson said earlier and programs you can just—what is your assessment in terms of what consumers want?

Ms. WHITE. I will start. Consumers want, first and foremost,

they want high quality reasonably priced food. They want it all

year long. They want to be able to walk into the store and regardless of whether it is October or it was a bad rainy season in Mexico

or the growing season hasn’t started yet in the United States. They

want to be able to pick up a fresh bag of good tasting grapes or

beautiful strawberries. That is what they really want. Our members have looked at some of these issues. A 64 store high end privately held retailer went back and they received 38,000 customer

communications in 2002. 332 of those were about labeling. None

was about country of origin. They had 92 million customers in that

store during that time.

Consumer data that was presented this year, United Fresh Fruit

and Vegetables conference showed that 59 percent of consumers

when asked said they don’t look for country of origin labeling at all.

Another 27 percent said they sometimes look but it is not a major

concern. That’s 86 percent. The Umberger study that was cited earlier today, even though it is only of a handful of consumers, when

they were asked to rank things that they might find of interest,

country of origin came in 8 or 9 well behind freshness quality price

and a number of other characteristics.

So while we certainly wouldn’t say that consumers aren’t interested in country of origin, we think they place a premium on quality, fresh products that are reasonably priced.

Mr. BRUCE PETERSON. Congressman, we have over 40 million

customers a week shopping in our stores for food. I have never had

a single request caller or otherwise a consumer asking about the

country of origin of a given product they shopped in the stores.

What the customers are looking for when they shop into our stores

is fresh, wholesome products that look great that is priced right

and that they can rely on that the retailer working with their suppliers have insured the safety of, and we are fortunate that our

Federal regulatory bodies ensure that whether it be domestic or

imported so the customer is really looking for that value proposition every single time they shop and country of origin frankly

93

doesn’t even register into that decision process unaided when they

make that purchase.

Mr. CAMPBELL. I would echo exactly what my counterparts have

just said about that. I might just add the only time we have found

people are interested in a country of origin or a country of location

issue is to differentiate an item they want as opposed to one they

do not want. In other words, if they are looking for Norwegian

salmon, they want to see it is Norwegian salmon. And they will go

for that. Or they want Louisiana crawfish, which is, by far, the best

as opposed to something that comes from an imported item. But

they want to know that that particular item may be that way, but

it is from a differentiation standpoint.

It is never a question that they are curious about it. When you

put bananas on the rack they truly do not know if they are coming

from Costa Rica or coming from Honduras or Ecuador or any of the

producing countries, and they really don’t care. They are just looking for a wholesome item that they can have to get the vitamins

and nutritious ingredients that they are looking for.

Mr. BRUCE PETERSON. Congressman, may I add one other thing

to what my colleagues have suggested?

Mr. GUTKNECHT. Sure.

Mr. BRUCE PETERSON. That when you think about it a retailer

is the closest entity to the consumer. Day in, day out they are shopping in our stores. And it would almost appear rational that if

there was an outcry from the public for country of origin labeling,

retailers would have already done it. We wouldn’t be waiting for

legislation or regulatory activity to cause that to happen because

every day we listen to our customers’ concerns. And if we are not

responsive to that, the customers won’t shop our stores.

Mr. GUTKNECHT. Markets work, right?

Mr. BRUCE PETERSON. Markets work.

Mr. GUTKNECHT. Let me go back to Mr. Bull and Mr. Ray, because I raised the issue earlier about what potentially the impact

could be to the smaller producer, particularly of livestock. What’s

your general assessment of that? I mean, if you have to be—if

these folks begin to push back on you and you begin to push back

on the farmers and ranchers, who gets hurt in the deal?

Mr. BULL. Well, I think you have hit on the point that is concerning for the small producer. We have some alliance systems that

could more easily adopt and already have some sort of trace system

of their animals. The producers that don’t are generally the smaller

ones that haven’t adopted those type of systems, and so as we are

putting pressure on us by AMS and the regulatory fashion or by

our retail partners to guarantee that we can stand up to these audits, we are going to be looking to producers that could also stand

up to audits and give us the information we need and so anybody

that’s not able to do it is going to be in peril.

Mr. RAY. I think another point with small producers is that, let’s

say that they might have 20 feeder pigs from Canada mixed in

with a hundred pigs from the United States. To keep them separate in, say, one building, they are going to have to construct walls

put up pens. It is much more difficult for a small producer versus

a large produce are that might have numerous buildings that he

can actually separate the hogs versus the small producer.

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Mr. GUTKNECHT. Thank you.

The CHAIRMAN [presiding]. The gentleman from Michigan, Mr.

Smith.

Mr. SMITH. I am going to ask you a question that isn’t a subject

of the hearing. But we have had legislation introduced that says

we should have labeling to tell whether or not the food product contained any genetically modified foods. And going back to the market, have you experienced any demand in the marketplace from

Greenpeace or others trying to insist that the store make an effort

to label biotech derived products?

Mr. WHITE. I would be happy to start with that as a representative of FMI. We have not seen a huge outcry from consumers. In

fact the situation is somewhat parallel. If you ask consumers do

you want to know whether the food has been genetically modified,

consumers may say, yes, sure, what the heck. But if you ask them

just generally what are you looking for in food products? Again,

that’s not likely to come up very often. There was a more of a public interest a couple of years ago when it was big in the press, but

since then, we really haven’t seen very much focus on the issue.

Mr. SMITH. Mr. Peterson.

Mr. Bruce PETERSON. Congressman, we have heard from some

fringe groups asking us to label genetically modified organisms. We

are not hearing that from consumers at all. I think inherent in the

American psyche is the belief that the American food supply is, in

fact, safe and so there is a dependency upon our regulatory bodies

as well as the retailers and suppliers working together to ensure

that to be true. But from a consumer standpoint, we are not hearing it. There are some fringe groups that have been talking about

it a little bit.

Mr. SMITH. OK. Back to country of origin. Even if we had a perfect bill, I have always been a little nervous that you might start

using it as a marketing tool. Buy U.S. beef or buy U.S., produced

wholesome health products produced under more regulations than

any other country in the world or something. So you start advertising ‘‘buy U.S.’’ And what should make us nervous is other countries

saying look, don’t buy U.S. They have got genetically modified

foods and they—so I am a little nervous considering the fact that

we export overall one-third of our agricultural products that you

get into a war of what country you should buy from. Is that a real

possible concern or not?

Mr. WHITE. I believe so. And I believe it goes back to the very

good point that Congressman Dooley made earlier as well. How can

we stand up and say in trade negotiations with the European

union, how do we say on the one hand there is no sound science

behind requiring biotech labeling, but, oh, yes, we want everybody

to label for country of origin, and we have to put in place this very

complex intensive costly system. I think it is hard to say that that’s

not a trade barrier, but what the EU is doing as well. And I think

the same argument goes for you know if you ask consumers what

do they want to know, if you ask them if they want to know what

pesticides were applied to their apples or whether or not growth

hormones were applied to beef. You ask a consumer if they want

information, they are going to say yes.

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Mr. SMITH. So can I, for the record, can I briefly get the comments of anybody that wants to comment that they think this is

a real potential that might develop into some kind of a trade war

that might end up being to our disadvantage?

Mr. Bruce PETERSON. I concur with what Ms. White said 100 percent. I think that is an absolute possibility.

Mr. SMITH. Anybody else?

Mr. RAY. I would also concur. I think the Canadians, in talking

to them, they are very much looking for this because they feel that

there will be a marketing advantage on their pork into the United

States.

Mr. BULL. I think there is the other angle on the trade war is

with the Mexicans. There’s no doubt that in my mind, they are not

going to allow us to continue to ship the amount of meat products

into Mexico we do today without some sort of retaliation, given that

we are going to be putting some labeling laws out that could limit

their market access up here as well.

Mr. SMITH. Yes. That was one of my earlier questions and I sure

agree. In fact I just finished meeting with the Canadian Wheat

Board, and it evolved into this question of—because I am from

Michigan and we buy some calves from Canada that are 3 or 4

weeks old. We feed them out to 600 pounds and sometimes they go

back to Canada for finishing and just would be tremendously difficult at a time that we are trying to work for greater cooperation

and greater free trade in Canada.

Mr. Chairman, that’s all I have. Thank you. Gentlemen, thank

you. And Mrs. White.

The CHAIRMAN. I thank the gentleman. I believe the gentleman

from Texas wants to introduce something into the record.

Mr. STENHOLM. Yes. It is a little reminder in this morning’s

Washington Post of the thin ice that we are walking on with mandates and trade areas going back to Mr. Dooley’s question. It says

here fearing a ‘‘Buy American’’ law, U.S. defense firms expect foreign backlash. A vote passed in the House in which we said you

have got to buy more stuff American. And we are for that.

It is hard not to be for that. But when you put it into the law,

other countries will retaliate under the same law. As I implored

you a moment ago to help come up with a solution, our producers

are kind of struggling right now, and many of you with the market

buying power that you have got a little advantage over individual

producers, and you use it to your advantage, which is what the

market is all about. That creates a backlash.

And as we look for a solution to this, it will be very helpful if

more and more of those of us who are, or you who are the customers of those of us who produce can show a little bit more evidence of being sensitive to the question of competitiveness, and

whether other governments are interfering with the marketplace

that are allowing you to buy a product cheaper because other governments policy are making this cheaper.

So we have got a little problem with Boeing with airplanes in

which air bus is subsidized, and yet we keep talking about the

market and we ignore what other governments are doing, and

there is just a little bit of that in this whole question of country

of origin labeling because as you know, not every country plays by

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the same rules we do. And that becomes a real problem, and one

of which we have got to do a better job, a better sensitive job of

addressing that or otherwise our producers are going to continue

to feel as they do towards many of you. And they will be right.

I know in the cotton industry, forever I have been told we have

got to produce better quality cotton. There was a big article out just

in the last 2 weeks that I saw that showed that the better quality

cotton that we produce, the lower the price. Price is what is sensitive. And I will never forget my first day on the—well, first year

on the cotton incorporated board back way before Congress in

which, at that time, we cotton farmers thought we ought to mandate that the American housewife buy all cotton shirts. And I

thought it was a real good idea as a cotton farmer until I went

home and tried to explain to my wife Cindy why she had to buy

a cotton shirt and iron it, when a synthetic blend was non iron.

I lost that argument and we changed our mind. And then we

found, lo and behold, that by blends and producing what the consumer wanted we sold more cotton. And we got a little problem in

that area also. But as I asked you a while ago, this is an area in

which we need to really come up with a constructive middle ground

solution to this one. And you all can help with that, I do believe,

and we will appreciate it if you will. Otherwise we have got to do

it ourselves. And that gets dangerous.

The CHAIRMAN. Well, I thank the gentleman for his comments.

And I want to thank all the members of this panel. You have made

a very important contribution today. You know, when Congress

passes legislation, sometimes we can’t see all the way down the

road to what the ultimate outcome is. And I know the gentleman

from Texas and others had concerns with this from the outset and

didn’t want to go down that road, but the majority and the Congress approved the provision as it was contained in the farm bill.

And that’s where we are right now. But as we move closer to

that reality, we are getting a clearer and clearer picture of what

the consequences of that action taken a year ago are. It is also true

that you, who have had to look ahead and think about how this is

going to impact those of you who are in the retail business, your

customers, those of you in the supply chain, the people you are

going to be selling to, and your participation here today, has helped

to paint that picture a little more clearly for us.

And I am very concerned. I am concerned about the ramifications

of a system that may wind up costing U.S. producers more than

their foreign competition. I am concerned about a system that

places liability on folks who very understandably are going to take

a whole host of different actions to protect themselves and assure

that they don’t run a foul of the law. And in doing so, they may

add even additional burdens that the Department of Agriculture,

no matter how hard they work, to write regulations that are friendly to the consumer and friendly to the producer will still have to,

the way this law is written, acknowledge the fact that other entities can take measures to require certification. I think that this is

going to create not just a cost difference, but a convenience difference that will make it more attractive to use foreign produced

goods. Exactly the opposite intent of I think well intentioned people

who have promoted this effort.

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I am also very, very concerned that we are going to run afoul,

as the gentleman from Texas noted, of some trading relationships

as a result of this and to very little benefit. We are going to find

that we will see retaliation in ways that we didn’t intend, and we

will find competition in ways that we didn’t intend.

So it is my hope that we will have the opportunity to find that

middle ground that allows us to voluntarily promote the purchase

by American citizens of American grown and produced products.

That is something that everybody on this committee strongly supports, I strongly support, and we would like to see that happen.

But, we need to find a different course of action in order to accomplish it. And slowing down the direction of where we are heading,

I think, is a very good start.

So I thank you all again for your participation. Somewhere here

in all this, I have some language that I need to share with you.

Without objection the record of today’s hearing will remain open for

10 days to receive additional material and supplemental written responses from witnesses to any question posed by a member of the

panel. This hearing of the House Committee on Agriculture is adjourned.

[Whereupon, at 4:30 p.m., the committee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF CHARLES LAMBERT

Mr. Chairman and members of the committee, thank you for the opportunity to

appear before you today to discuss the farm bill’s mandatory country of origin labeling provision and, more specifically, what USDA is doing to implement this farm

bill mandate. I am Chuck Lambert, Deputy Under Secretary for Marketing and Regulatory Programs at the U.S. Department of Agriculture.

Section 10816 of the 2002 farm bill requires the Secretary of Agriculture to implement a mandatory country of origin labeling program at the final point of retail sale

for beef, lamb, pork, fish, shellfish, perishable agricultural commodities, and peanuts after a 2-year voluntary program. Congress provided clarification for dealing

with wild fish in the fiscal year 2002 Supplemental Appropriations Act, signed into

law on August 2, 2002.

Mr. Chairman, as you may know, the Office of Management and Budget’s Statement of Administration Policy on S. 1731, the Agriculture, Conservation, and Rural

Enhancement Act of 2001, found the provision requiring mandatory country of origin labeling highly objectionable. The administration’s position and the reasons for

that position have not changed. We feel these new requirements will not have a

positive effect overall and that the unintended consequences on producers and the

distribution chain could be significant. At the same time, let me be clear that we

do not oppose consumers having adequate information to make informed purchasing

decisions. We do have concerns, however, about the approach that this law takes.

Notwithstanding the administration’s view and the narrow parameters Congress

adopted for this very prescriptive piece of legislation, USDA is fully committed and

working diligently to implement this provision of the farm bill.

Implementation of this program began on October 11, 2002, when USDA published its ‘‘Guidelines for the Voluntary Country of Origin Labeling of Beef, Lamb,

Pork, Fish, Perishable Agricultural Commodities, and Peanuts’ in the Federal Register. The voluntary guidelines, effective upon publication, may be used by retailers

who wish to notify their customers of the country of origin of covered commodities

offered for retail sale prior to the implementation of mandatory labeling on September 30, 2004.

Significant efforts have been made in the development of the voluntary guidelines

and in our initiation of the rulemaking process for mandatory labeling to consult

with interested parties, including the public, industry groups, consumer groups,

trade associations, foreign governments, and Congress. USDA met with over 40 different groups and associations in formulating the voluntary guidelines; we have received well over 1,500 comments since their release. In preparation for rulemaking

on mandatory country of origin labeling, Secretary Veneman announced on March

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5, 2003, that USDA would hold a series of listening and education sessions in 12

States across the country to gain more public input and provide interested parties

more information about the new country of origin labeling law. Today, the last of

those listening sessions is being held in Lancaster, Pennsylvania. Over the past few

months, USDA also has provided numerous additional presentations and briefings.

More than 1000 written and oral comments have been received thus far on the mandatory program. Throughout the listening sessions, other presentations, and comments received, proponents and opponents of country of origin labeling alike expressed concerns regarding the complexities and costs associated with implementing

this legislation.

The law requires retailers to label, at the final point of sale, beef, lamb, and

pork—both muscle cuts and ground fish, shellfish, perishable agricultural commodities, and peanuts as to their country of origin and further label fish as either wild

or farm-raised. The law defines retailer according to the Perishable Agricultural

Commodities Act as a business that sells fresh or frozen fruit and vegetables with

an annual invoice value of more than $230,000. Approximately 4,200 PACA retail

licensees operating some 31,000 retail outlets fit within this definition. By using this

definition, Congress has exempted butcher shops, fish markets, and small retailers,

in addition to the restaurants and other food service establishments the bill specifically exempts from the labeling requirements.

The farm bill defines the criteria for a covered commodity to be labeled as ‘‘U.S.

Country of Origin.’’ To receive this label, beef, lamb, and pork must be derived exclusively from animals born, raised, and slaughtered in the United States. There is

an exception for beef from cattle born and raised in Alaska or Hawaii and transported through Canada for not longer than 60 days before slaughter in the United

States. Wild fish and shellfish must be derived exclusively from fish or shellfish harvested in U.S. waters or aboard a U.S. flagged vessel and processed in the United

States or aboard a U.S. flagged vessel. Farm-raised fish and shellfish must be derived exclusively from fish or shellfish hatched, raised, harvested, and processed in

the United States. Fresh and frozen fruit and vegetables, as well as peanuts, must

be exclusively produced in the United States.

The Act says ‘‘covered commodities’’ must be labeled unless they are an ‘‘ingredient in a processed food item.’’ USDA believes there are some covered commodities

that, while they undergo slight processing, still retain the original identity of the

commodity. Examples include solution-enhanced and seasoned pork loins, frozen

peas and carrots, frozen ground beef patties, and bagged salads. A ‘‘processed food

item,’’ as we defined it in the Voluntary Guidelines, would be a materially changed

covered commodity or an item that has a combination of ingredients that include

the covered commodity but the identity of the food item is different from that of the

covered commodity. Examples of such items would include ready-to-cook Beef Wellington, ground beef in a meal mix, fish in sushi, apple slices in a pie, or peanuts

in a candy bar. Other processed food items include cooked, cured or smoked meats

and fish, and fruit juice.

The farm bill requires that all covered commodities be labeled at retail as to their

country of origin and, as already noted, provides a very specific definition for ‘‘U.S.

Country of Origin.’’ For imported, mixed, or blended products, less statutory guidance is provided. Imported products, of course, are already subject to existing labeling laws and regulations. For some products, however, such as imported sides of

beef, original country of origin labels currently do not have to be maintained

through to the retail level once those products enter a U.S. plant for further processing.

Products with an origin that includes production or processing steps that occur

in the United States and in another country create a labeling challenge. For example, fruit produced in another country and processed in the United States or meat

from animals born in another country and raised and slaughtered in the United

States clearly do not meet the statutory definition of U.S. origin.

Blended products provide a related challenge. These are products with covered

commodity components that can be distinguished, such as salad mix, or indistinguishable product components, such as ground beef that are of different origins but

combined together for retail sale.

We recognize that a number of State and regional labeling programs already

exist. While farm bill country of origin labeling requirements do not preclude the

use of these labels, they do not meet the criteria of an actual country of origin label

designation. First, the law says country of origin, not a State or region of origin.

Second, the labeling requirements for the existing certification programs, such as

Iowa Pork, do not meet the labeling requirements of the Federal law. And third,

if this sort of substitution were to be accepted for domestic product, similar treatVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00102 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
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ment would likely be required for imported product, allowing State, Provincial, or

other regional labels U.S. consumers might not equate to particular countries.

Consumer notification as to the country of origin of covered commodities can occur

in a variety of ways. Many fruit and vegetables already have country of origin labels

directly on the product. Some beef, lamb, and pork have labels on their package,

too. The farm bill language provides scope for these labels, as well as signs on a

display or bin, or other forms of notification.

The law requires any person in the business of supplying a covered commodity

to a retailer to provide to the retailer information indicating the country of origin

of the covered commodity. It further provides the authority to require persons in the

distribution chain to maintain a verifiable recordkeeping audit trail to verify compliance. However, the law does not specify what records are acceptable to verify country of origin claims and it prohibits the Secretary from establishing a mandatory

identification system to verify the county of origin of a covered commodity. Thus,

retailers and their suppliers must determine which records will be retained to verify

the country of origin of covered commodities.

With the 12 listening sessions that USDA has been holding around the country,

the process of developing a mandatory country of origin labeling program has begun.

We expect to publish a proposed rule this fall with ample opportunity for public

comment. A final rule will be published as soon thereafter as possible.

Due to the significant nature of the mandatory country of origin regulation, a

comprehensive economic impact analysis will be prepared as part of the rulemaking

to evaluate the costs and benefits associated with implementing this rule. The costs

of product segregation, inventory management, and all other costs throughout the

supply chain will be considered. This analysis will be important because with food

handlers and retailers tending to operate on margins, we are concerned that America’s farmers and ranchers will bear the ultimate costs.

As you know, USDA has experience in supporting industry’s use of various marketing claims. We have quite a number of programs under which industry is already

making credible, verifiable claims in the marketplace. These programs have several

points in common. They are voluntary and market-driven reflecting focused marketing opportunities where consumers are willing to pay for the information provided.

They do not cover all products to all consumers. They operate under standardized

program protocols and records requirements. And, being market-driven, the incentives for compliance stem from increased sales, not the threat of punitive fines.

Mr. Chairman, the Congress has tasked USDA with the responsibility of implementing a country of origin labeling program for a wide range of food products. As

I have already noted, we take this mandate seriously and will do our utmost to implement a program that meets the requirements of the law and minimizes the burdens on all concerned. I will be happy to answer any questions from you or the other

committee memebrs. Thank you.

STATEMENT OF KEITH COLLINS

Mr. Chairman and members of the committee, thank you for the invitation to this

hearing to provide information on section 10816 of the 2002 farm bill, the mandatory country of origin labeling provision for meats, fish, perishable commodities and

peanuts. My comments focus on the economic analysis the Department of Agriculture must conduct in support of the proposed rule that is expected to be promulgated this year.

Analysis Requirements. Various laws, orders, and regulations prescribe the analyses that have to be conducted as part of a rule making process. USDA will provide

an in-depth economic analysis to accompany the proposed and final rules for mandatory country of origin labeling. USDA and the Office of Management and Budget

have determined that the rule for mandatory country of origin labeling is economically significant under section 3 (f) (1) of Executive Order 12866 (Order). This means

that the rule is likely to result in an annual effect on the economy of $100 million

or more or have other material effects, such as on a sector of the economy or on

competition or other factors. Under this classification, the Order requires that

USDA must provide an assessment of the benefits and costs of the planned action

and of potentially effective and reasonably feasible alternatives to the planned action.

A cost-benefit analysis generally estimates the consequences of the changes in behavior of those affected by the regulation. The consequences are presented in monetary terms to the extent possible. Data, models, assumptions and uncertainties

should be identified. Although a range of options should be examined for any rule,

that range may be limited by the legislation.

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The Agricultural Marketing Service (AMS) is responsible for ensuring that adequate economic analyses support the mandatory country of origin rule, and it is

drawing on a team of experts from around USDA to conduct the cost-benefit analysis. The team is using the best available information on the costs and benefits of

labeling as well as information provided to AMS through the three public comment

periods it has held to date and from the education and listening sessions held

around the country since March.

While the cost-benefit analysis to accompany the proposed rule is now underway,

USDA staff and others have previously conducted analyses on the economic effects

of mandatory country of origin labeling. That work is the basis for USDA concerns

that have been raised about the expected net benefits of the rule. I want to illustrate these concerns by discussing several factors affecting the benefits and costs

identified by these analyses.

General Observations on Benefits. Starting with the benefit side of mandatory

country of origin labeling, some suggest that expected benefits stem from consumers

preferring to have the label information so that they can choose to buy products by

country of origin. Some claim that if consumers prefer to buy products of domestic

origin over those that are not labeled or are labeled as originating in a foreign country, then there would be increased quantities demanded of retail domestic products

and the likelihood of increased prices of retail domestic products. These higher

prices and quantities at retail would generate higher prices and production through

the system back to the farm. Consumers would benefit by having the information

they need to make the choices they want, and those supplying the products would

benefit by selling more at a higher price. USDA’s cost-benefit analysis will assess

whether these benefits occur.

For consumers to believe the label information, the program must be enforced to

ensure against false claims. Some have proposed self-certification or raised questions about the level of recordkeeping that may be required. A general point is that

if recordkeeping is inadequate to ensure the integrity of the program, consumers

will not believe the label information and no benefits are likely. Trust requires verification and verification comes at some cost.

There is compelling evidence that the strength of consumer preference for domestic products is weak. This evidence is the lack of active voluntary programs that provide products labeled as domestic origin. Several years ago, USDA’s Food Safety and

Inspection Service in conjunction with AMS began offering the opportunity for a

U.S.-origin meat labeling program for processors and others. FSIS would permit

product to be labeled as domestic, and AMS would provide the process verification

program to verify the label claim. No firms or organizations have participated in the

program. Assuming that there are at least some U.S. processors who could implement a process verification program at reasonable cost, this lack of participation

suggests that retailers and their suppliers believe consumer demand for domestic

product compared with imported product is not strong.

If consumers do distinguish goods depending on their country of origin, strong incentives exist for industries to act without government intervention, that is, on a

voluntary basis. A similar example to the preference for buying products by country

of origin is the demonstrated preference by some consumers for organic foods. Like

the attribute U.S. origin, the attribute organic generally cannot be discerned by

taste or smell. Under various voluntary certification schemes, consumers can express their preferences and are willing to pay a premium, which is sufficient to

cover the additional costs incurred by organic producers and sellers. This marketdriven outcome is preferable to mandating that all food be organic or that all food

be labeled according to method of production. While the market has given us the

evidence that consumers are willing to pay for organic, it has not done so for U.S.

origin.

Although some have argued that there is a benefit to a consumer’s right to know

that should be considered even if there is no demand effect of labeling, that benefit

is not quantifiable.

We do not know of studies that have measured through actual market transactions the effect of country of origin labeling on consumer demand and concluded

that the effect is large or that it will persist. One approach to gauging the preference of consumers for country of origin labeling comes from comments USDA received on the voluntary guidelines. A food retailer with five stores in the mid-Atlantic region noted that it received 38,000 customer communications last year, and

none were about country of origin labeling. Similarly, another food retailer with 100

stores in the Midwest and South indicated that it received 22,000 customer calls

last year. Only nine calls pertained to country of origin, and only one of those dealt

with a covered commodity.

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To measure the strength of consumer preference in the absence of market data,

some economists have tried so-called willingness-to-pay methods to estimate the existence and strength of consumer demand for domestic over imported product or

product without an origin label. Willingness to pay studies show that as many as

75 percent of U.S. consumers are willing to pay more for beef identified as U.S. born

and raised, compared with beef that is not. Reasons suggested are that consumers

perceive U.S. beef as safer, they believe it is higher quality or they desire to support

U.S. agricultural producers. There are no data to suggest that imported beef sold

in the U.S. is less safe than U.S. beef, nor can one conclude that imported meat

is inferior in quality. Regardless of the reasons for consumers expressing a desire

for this information, what is one to make of studies that say U.S. consumers are

willing to pay more for U.S. beef? Such work must be treated with great care because the results are highly uncertain.

First, the survey respondents reactions are a function of the questions asked. A

different questionnaire will yield a different outcome. For example, one recent study

asks if consumers will pay more for U.S. beef but the question does not include compared to what. The respondent is left to decide whether they want U.S. beef or beef

from who knows where. If consumers already believe they are buying U.S. beef and

suddenly the package is labeled U.S. beef, it seems unlikely a price premium for

domestic beef would emerge in the market.

Second, the respondent faces no real budget constraint. They are asked if they are

willing to pay more, and may be asked to bid, but they are not spending funds from

their household’s budget.

Third, if consumers say they are willing to pay more initially, will they be willing

to pay more the next day, the next month or the next year? Other industries with

country of origin labeling, such as apparel, suggest origin preference will not persist

if imported product provides similar quality at similar or better prices. An interesting example was recently reported in a trade publication concerning a Danish company that had stopped selling pork certified to have been produced with non-biotech

feeds. The company had offered the pork as a test product, selling at a 10–15 percent premium. However, consumers were unwilling to pay the premium, despite surveys that indicated consumers wanted bio-tech free food.

The willingness-to-pay studies are an important contribution to our understanding of consumer preference and they support the notion that some consumers are

indeed willing to pay more for U.S. beef compared with imported beef. But, even

if some consumers are in fact willing to pay more for U.S. beef, can a price premium

be captured in the marketplace? The chances are that it cannot, because the supply

of U.S. beef is likely to far exceed the quantity demanded by those who actually

would pay more. If studies show 75 percent of consumers hypothetically express a

willingness to pay more for U.S. beef, then in the budget-constrained real world, the

share of the population that actually would pay more is likely to be less, perhaps

far less, than 75 percent, while the U.S. beef share of the total U.S. market exceeds

80 percent. Any attempt to price U.S. beef at a premium would result in excess supplies of U.S. beef at the premium price, which would result in the premium being

competed down to a market clearing price.

While more analysis of benefits of mandatory country of origin labeling must surely be done, the work to date suggests very modest quantifiable benefits at best. The

above discussion assesses consumer and producer benefits apart from the costs of

implementation. If costs imposed on suppliers and retailers are large and exceed the

benefits to consumers, then while prices of the covered commodities may rise, the

quantity of meat demanded by consumers may decline. This result occurs when the

implementation costs passed forward to consumers exceed the price premium consumers would pay for the origin information. In this case, farmers and ranchers

could see lower farm-level prices, a lower market share, and higher operating costs

for some. Let me now turn to a brief discussion of the costs of mandatory country

of origin labeling.

General Observations on Costs. The expected costs of country-of-origin labeling

fall into several categories. A 2000 USDA study, as requested by the 1999 Agriculture Appropriations Act, noted the major costs associated with country-of-origin

labeling of meats were related to segregating and preserving the identity of imported and domestic product, labeling, and enforcement. The ultimate costs of country-of-origin labeling will depend on the number of the new activities required to

comply with the regulations, and on the extent to which any new activities differ

from current production and marketing practices. Firms will incur resource costs to

the extent they have to reconfigure processing systems; implement new control/verification systems, including recordkeeping systems; produce signage or labels, and

train staff. The government will incur costs to the extent that it conducts audits and

other compliance activities.

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Last fall, as part of the requirements of the Paperwork Reduction Act of 1995 associated with publishing the interim voluntary guidelines, AMS estimated the annual recordkeeping costs of creating and maintaining a voluntary country-of-origin

system to be nearly $2 billion. These costs did not include any other resource, labeling, or enforcement costs. The estimates were preliminary and based on limited data

and several critical assumptions. The estimate assumed all producers, handlers, and

retailers would participate in the country-of-origin program, although in actuality

all do not engage in producing or buying and selling the covered commodities. AMS

also assumed that no records or record-keeping systems incorporating country of origin information and already otherwise required by Federal regulation were in place,

and completely new systems would have to be created a critical assumption. AMS

noted costs would decline over time and would be about $1.4 billion in subsequent

years. Relaxing any of these assumptions would reduce the recordkeeping costs.

Several studies have reviewed the AMS estimates and the views range widely,

from the belief the costs are seriously underestimated to the opposite view that costs

are significantly overestimated. Therefore, reviewing these recordkeeping cost estimates will be a crucial component of the USDA cost analysis. Because the legislation is not specific as to what records will be required, except to note that the Secretary cannot mandate an identification system, the analysis of various options for

verification systems may be necessary to assess least-cost alternatives. Much of the

information on country of origin likely exists, but there is little reason for it to flow

from one step in the supply chain to the next. Thus, there will be costs in transmitting that information through the system.

In addition to recordkeeping costs, another key area for the analysis will be the

resource costs, which have been variously described as costs of segregation or preserving the identity of domestic versus imported product. These costs will reflect

both the share of imported product used in domestic processing and retailing, as

well as the specific manufacturing processes for each sector. USDA will likely have

to analyze these costs on a sector-by-sector basis. In that regard, several studies

have focused specifically on meats and live animals because of the highly integrated

nature of North American beef and pork sectors.

Several studies have estimated costs for the cattle/beef and hog/pork sectors at be- tween $1–3 billion annually, after examining costs for the entire supply chain, including identifying and tracking animals, reconfiguring processing plants, and retail

tracking and labeling. Other studies have estimates above and below this range.

The studies note that over 80 percent of U.S. beef consumption and almost 90 percent of pork consumption comes from domestic sources. Because food service establishments, restaurants, and ingredients in processed products are exempt from

country-of-origin labeling, the implications for end use of imported versus domestic

product in the beef and pork sectors will be a crucial area to examine.

Less work has been done on other covered commodities, but a few studies have

looked at the cost implications for frozen food, fish and seafood, and fresh produce.

We are not aware of any studies on peanuts. Again, depending on the assumptions

used in the studies, the costs of implementation could be significant. We will examine these studies carefully as we conduct our cost-benefit analysis.

Another key question is who will bear the costs, which relates directly to the issue

of assessing benefits from country-of-origin labeling. The direct burden of labeling

falls on retail establishments, but where and how these and additional costs are distributed along the supply chain from farmers to consumers depends on the ability

of the various participants to absorb or pass the additional costs on to buyers or

back to suppliers. Although producers of covered commodities farmers and ranchers

are not directly affected by the requirements, many are concerned that costs of segregation and identity maintenance will be pushed back onto them, in addition to

their recordkeeping costs.

On the other hand, retailers may attempt to push their costs on to consumers.

To the extent consumers do not care where their food comes from, increased costs

would reduce their welfare. Consumers might prefer domestic products, but not

enough to cover labeling costs. For producers, even if consumers do favor domestic

over imported products to the point that it expands demand, costs imposed on producers directly and passed back to them may outweigh the benefits from increased

demand.

Other Impacts. USDA will also examine the implications of mandatory country of

origin labeling for trade, both on the import and export side. Depending on the commodity, trade accounts for a significant share of production and consumption. As

noted above, over 80 percent of U.S. beef consumption and almost 90 percent of pork

consumption comes from domestic sources, but exports of beef and pork have become

increasingly important. Fish and shellfish imports now account for over two-thirds

of U.S. consumption of these products. About 9 percent of vegetable consumption

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comes from imports and almost 20 percent of fruits and nuts consumption (includes

juices) is accounted for by imports. Exports of fruits, nuts, and juices account for

over 13 percent of domestic output, and the share for vegetables is 8 percent, up

from 5 percent a decade ago. For peanuts, exports have ranged from 15–20 percent

of production, while imports have grown as a result of trade reform and are now

almost 10 percent of domestic food use. Trade implications will mainly derive from

potentially price effects on covered commodities. Again, the implications may be

most significant for the beef and pork sectors because of the flows of animals and

meats in an integrated North American market.

That completes my statement and I would be pleased to respond to questions.

STATEMENT OF NANCY S. BRYSON

Mr. Chairman and members of the committee, thank you for the opportunity to

appear before you today to discuss the mandatory country-of-origin labeling provisions, and the legal requirements which USDA must implement under this farm bill

mandate. I am Nancy Bryson, General Counsel of the U.S. Department of Agriculture, and I am pleased to be here today.

COUNTRY-OF-ORIGIN LABELING

The Secretary of Agriculture is required to implement a mandatory country-of-origin labeling program commencing on September 30, 2004. From that date on, all

‘‘covered commodities’’must be labeled with their country of origin at the final point

of retail sale. In effect, the statute mandates that retailers must make a marketing

claim informing consumers of the country of origin of each covered commodity.

At the outset, it is important to note that country-of-origin labeling must be

viewed in the broad legal context of other kinds of marketing claims, since the country-of-origin label distinguishes a commodity from similar commodities with different country-of-origin characteristics. In general, marketing claims are made to

provide consumers with information that has been determined to be useful or material to a purchasing decision by them. As such, their truthfulness and reliability is

paramount, and the laws require those providing such information to be able to substantiate its accuracy. Health claims must be supported by scientific studies. Other

kinds of claims must be substantiated with data and records that will enable an

agency exercising oversight to verify the truthfulness of the claim. The usefulness

to the consumer of the information contained in the marketing claim would be nullified if the accuracy of the claim cannot be independently audited and verified.

STATUTORY REQUIREMENTS APPLICABLE TO RETAILERS AND OTHERS

The statute contains a number of very specific requirements, which USDA has no

discretion to ignore or modify. Responsibility for making the country-of-origin marketing claim is placed upon the retailer by the statute, and USDA has no authority

to adopt regulations that place that responsibility elsewhere. Additionally, the labeling of covered commodities of U.S. origin must meet highly specific statutory requirements that vary by commodity. For example, with respect to muscle cuts of

beef, lamb, and pork, or ground meat made from them, the statute requires that

the product be ‘‘exclusively from an animal that is exclusively born, raised, and

slaughtered in the United States.’’ To bear a U.S. country-of-origin label, wild fish

must be either caught by a U.S. flagged vessel or caught in U.S. waters, and must

be processed in the United States or aboard a U.S. flagged vessel. The retailer is

required by the statute to make these claims, and USDA has no discretion to modify

them. Furthermore, the statute does not authorize USDA to create a presumption

that covered commodities are of U.S. origin if they are not claimed to be products

of another country. Covered commodities cannot be assumed by default to be products of the United States.

The statute imposes an affirmative obligation on retailers to substantiate any

claim of U.S. origin. How will the retailer obtain the information necessary for it

to make this statutorily required marketing claim? The statute mandates that ‘‘any

person engaged in the business of supplying a covered commodity to a retailer shall

provide information to the retailer indicating the country of origin of the covered

commodity.’’ With respect to beef, lamb, and pork of U.S. origin, the information

must be sufficient to substantiate the statutorily mandated claim that the animal

was born, raised, and slaughtered in the United States.

An issue created by the statutory language is that the term ‘‘covered commodities

’’does not include livestock, but much of the information that retailers must have

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to meet their statutory burden of verifying and labeling country of origin can only

be obtained from producers and handlers of livestock. However, USDA is not authorized by the statute to require them to provide the necessary information to packers

and retailers.

It has been suggested that USDA could provide for a self-certification program,

under which those who produce livestock could merely certify to packers and others

who supply covered commodities to retailers that the livestock is born and raised

in the United States. However, it is clear from the statute as a whole that self-certification by producers would not provide an adequate basis for those who supply

covered commodities to retailers to substantiate the truthfulness of the information.

Therefore, the retailer would not be able to verify and make the country-of-origin

claim. Unless a country-of-origin claim can be independently verified, it will not provide consumers with reliable information that the Congress has determined that

consumers want and need.

USDA RESPONSIBILITIES UNDER THE STATUTE

The statute authorizes USDA to require that ‘‘any person that prepares, stores,

handles, or distributes a covered commodity for retail sale maintain a verifiable

record keeping audit trail that will permit the Secretary to verify compliance . . .

.’’ Additionally, the statute requires that, if the Secretary determines that a retailer

has violated its provisions, the Secretary shall provide the retailer with notification

of the determination, and a 30-day period to achieve compliance. The statute also

provides authority for USDA to fine retailers up to $10,000 for each willful violation

after providing notice and an opportunity for a hearing. Other statutory provisions

incorporated in the country-of-origin labeling law allow the Secretary to take enforcement action against those who supply covered commodities to retailers.

Although the Secretary’s authority to impose specific regulations requiring a verifiable record keeping audit trail is discretionary, it is clear from the statute as a

whole that a retailer must be able to substantiate the country-of-origin labeling

claim that the statute requires the retailer to make, even absent a regulation requiring the retailer to do so.

The statute provides USDA with guidance on how to verify the country of origin

of a covered commodity by citing several existing certification programs as models.

Those programs include carcass grading and certification, voluntary country-of-origin beef labeling, voluntary certification of certain premium beef cuts, and origin

verification systems carried out under the National School Lunch Act and the Agricultural Trade Act of 1978. It is important to note that all of these certification programs include record-keeping requirements that enable the agency to verify the accuracy of the claim.

APPLICABILITY OF OTHER LAWS TO COUNTRY-OF-ORIGIN LABELING CLAIMS

The country-of-origin labeling provisions require retailers to make specific marketing claims in the mandatory labeling of covered commodities. The truthfulness of

these claims will have implications under other statutory authorities. For example,

claims as to covered commodities subject to the Perishable Agricultural Commodities Act will be scrutinized for truthfulness under the provisions of that law. Mandated labeling claims regarding beef, lamb, and pork will also be subject to the labeling provisions of the Federal Meat Inspection Act. The Food and Drug Administration and the Federal Trade Commission may take action under their statutory

authority over these claims as well. Finally, misrepresentation of country of origin

may also give rise to third-party civil actions by competitors for injunctive relief and

monetary damages under the Lanham Act.

Mr. Chairman, the country-of-origin labeling law requires USDA to implement a

program for a wide range of food products. The Office of the General Counsel is

working closely with the Agricultural Marketing Service as it designs and implements a program that faithfully carries out the provisions that Congress has incorporated in this statute. I believe that USDA is carrying out its obligations fully in

accordance with the law, and is working to develop a regulatory program that is

no more onerous than that which the law requires.

I am grateful for the opportunity to appear before you this morning and I will

be happy to answer any questions from you or other members of the committee.

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STATEMENT OF THOMAS E. STENZEL

Good morning Mr. Chairman and members of the committee. My name is Tom

Stenzel and I am president of United Fresh Fruit and Vegetable Association

(United).

United is a nonprofit association of produce growers, packers, shippers, distributors and marketers of fresh produce, working together with our retail and

foodservice customers and allied suppliers. Our members range from the smallest

family businesses to large multi-national companies.

We commend you for holding this oversight hearing today on USDA’s implementation of the country of origin labeling statute as passed in the 2002 farm bill. For

fresh produce, we believe the crux of this issue comes down to USDA’s regulations

to implement the statute. Will the Department continue on its current course outlined in its voluntary labeling guidelines, imposing huge needless costs and radically

altering our ability to deliver fresh produce to consumers? Or, will USDA implement

a simple country of origin labeling system for produce that has minimal impact on

the industry, while complying with the statute.

Some of my members will argue that the whole issue has become so complex and

potentially onerous that the quick fix is to pass a new law. Others argue that the

intent of the statute to increase consumer information was wise, and that the key

to fair implementation relies upon USDA’s regulations. Consensus on this issue has

never been easy, but our overall reading of the law is that USDA has sufficient

flexibility with regard to produce to implement a fair and practical system if they

so choose. We have provided an extensive regulatory roadmap to the Department

which is attached as part of my written testimony today.

Let me highlight four main principles that we believe USDA needs to adopt.

First, USDA has the legal authority to develop regulations tailored to different

commodities. I have no idea the complexities of the meat industry, but am confident

that a produce specific labeling system can be more simple and less intrusive than

the voluntary guidelines.

Second, USDA needs to rely upon existing law and regulations wherever possible.

For example, produce traders are already subject to the Perishable Agricultural

Commodities Act, and as such, are required to tell the truth in their buying and

selling of produce. Retail grocers are legally entitled to rely upon the honest declaration of country of origin by a produce vendor, thus eliminating all need for audits

or independent verification. Should a produce vendor present false information,

USDA’s COOL regulations should specifically state that a retailer would face no

consequences for a willful violation under the Act.

Similarly, the Tariff Act of 1930 already governs the labeling of blended or processed imported products. Yet, USDA’s voluntary guidelines have created a new concept of labeling blended product by order of weight in a container, with specific

items and countries identified. In a fruit cup, we’d have to label cantaloupe from

Guatemala, watermelon from Mexico, and Honeydew from Honduras, and hope we

got the weight of each commodity in the right order. We urge USDA to propose a

labeling system for blended products that allows the use of language such as ‘‘Contains product of Country X, Country Y and/or Country Z.’’ This type of label would

provide flexibility to fresh produce processors who frequently must change the

source of ingredients due to product quality and availability, but would comply with

the statute and still provide adequate disclosure to any consumer wishing to only

‘‘Buy American.’’ In addition, USDA should consider some diminimus level of content in a blended product that would not trigger special labeling.

Third, USDA should use its discretion to comply with the intent of the statute,

not create needlessly punitive and disruptive regulations. There are a host of issues

I could talk about here, but the committee’s patience would run thin. Suffice it to

say, we’re concerned that the Department almost seems intent on making the law

as onerous as possible, rather than practical.

• For example, a retail sign ‘‘Washington Apples’’ or ‘‘Idaho Potatoes’’ would not

be good enough to comply, without the additional words ‘‘Product of USA.’’

• A country name such as ‘‘Costa Rica’’ on a banana sticker would not comply

without the preceding words ‘‘Product of.’’

• Even if the stickers on the fruit were in compliance, if a few of them fell off

in transit, a retailer could be fined $10,000 for putting them out for sale. The voluntary guidelines simply fail the laugh test, although no one is laughing.

Finally, let me talk about record-keeping and verification. The voluntary guidelines impose a two-year record-keeping requirement, at retail store level no less.

That is absurd. There is only one moment in time that verification of country of origin labeling matters under this statute that is at the precise moment a consumer

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is making a choice at point of sale. Is the sign or sticker that tells me where the

produce was grown accurate?

How does USDA verify the accuracy of that moment? An inspector walks into a

grocery store, looks at the signage, and says, ‘‘Prove it.’’ That’s all. The store manager should have a reasonable period of time to consult with his corporate staff,

check the records for what produce has been delivered to his store, and verify that

his sign matches the bill of lading or country name on the box. You’ll recall I said

earlier that if a produce vendor puts produce of one country in a different country’s

box, he can already be prosecuted under PACA.

Verification is not that difficult, and cannot conceivably require extensive historical recordkeeping. Under what circumstances can you imagine an inspector walking

into a store and asking what countries the tomatoes were from—that were offered

for sale six months ago? It’s irrelevant, and those records are simply extraneous to

the intent of the statute. Yet, that is what is required in the voluntary guidelines.

In conclusion, I hope the committee can see our industry’s dilemma. We believe

the statute could be implemented in a practical way, but the voluntary guidelines

issued by the Department are about as impractical as possible. That is why we believe this oversight hearing is so important.

At present, the mandatory date of October 1, 2004 is a sword of Damocles over

our heads. If we knew the final regulations would mirror the voluntary guidelines,

we would be here today urging repeal of the law. But, if the final regulations are

fair and sensible, that step would not be necessary. That’s our challenge. Every day

that USDA does not propose final regulations makes it more difficult for the industry to wait, and risk a train wreck that we do not believe is inevitable. Our strong

request to the committee is to urge the Department to proceed with great haste in

publishing a fair, practical and balanced proposed final rule so we can see what our

future options need to be.

However, should the committee wish to pursue legislative modifications to the

country of origin labeling statute at this time, we offer to work closely with you in

evaluating specific recommendations for improvement.

STATEMENT OF ALAN FOUTZ

Good Morning. My name is Alan Foutz. I am president of the Colorado Farm Bureau and currently farm 2,500 acres of wheat, sunflowers and millet in Akron. I am

here on behalf of the American Farm Bureau Federation, and appreciate the opportunity to provide comments to the committee on the country-of-origin labeling law.

Farm Bureau supports mandatory country-of-origin labeling as passed in the 2002

farm bill and we look forward to working with USDA on implementation of the program.

Congress debated country-of-origin labeling last year during the farm bill discussion and overwhelmingly voted in favor of mandatory labeling. Farm Bureau has

participated in the USDA listening sessions and has been working with Undersecretary Hawks and the Agricultural Marketing Service on implementation. We believe

the program can be implemented in a fair manner to all producers without large

costs and burdensome paperwork requirements.

Much of the debate on country-of-origin labeling seems to be focused on meat and

meat products. Farm Bureau supports a process verification system that livestock

producers can use to verify any claims made as to country-of-origin to the packer.

We have included the program details in our statement. A trace-back mechanism

is not necessary to carry out the intent of the labeling law. The law specifically prohibits USDA from implementing a mandatory ID program. The law only requires

the country-of-origin to be identified and labeled at the retail level. We support a

process verification system that all segments of the industry can utilize to carry out

the intent of the law.

Country-of-origin labeling is simply a labeling program to distinguish U.S. products. Our producers have a responsibility in working with all segments of the industry to carry out the labeling law. Farm Bureau will be presenting comments at the

last listening session scheduled in Lancaster, Pennsylvania, in favor of mandatory

country-of-origin labeling. USDA has had over eight months to compile comments

and we urge USDA to issue a final rule before end of the year.

Farm Bureau supports the country-of-origin labeling law for the following reasons:

Labeling allows consumers to clearly differentiate U.S. and foreign products. Most

U.S. consumers support additional labeling information and recent surveys indicate

support for country-of-origin labeling. Our foreign customers support U.S. labeling

because they know that U.S. products are the safest and of the highest quality. For

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example, last week Japan asked for assurances that the product they were receiving

from us was U.S. product, because they as well as our domestic customers trust in

U.S. labels and products.

The labeling law passed in the farm bill can be implemented with little burden

and little additional costs to producers. USDA has stated support for a process verification system that all segments of the industry can utilize to verify claims as to

country-of-origin. Livestock producers with assembled herds of U.S., Canadian or

Mexican stock will have to set up a system to segregate their animals in order to

verify any claims they make as to country-of-origin. Obviously these producers will

have more work to do than a producer with all U.S. born and raised animals. However, this is a reality of the law and our producers are willing to work with USDA

to verify the origin of their animals. Florida has a fruit and vegetable labeling law

that works very well and it is a cooperative program between the retailers and the

Florida Department of Agriculture.

Country-of-origin labeling allows U.S. agricultural producers to promote the excellent products they take great pride in producing. This committee has worked diligently on behalf of U.S. producers and debated numerous farm bill programs with

the goal of providing the American people with the most abundant, highest quality

and safest food at the lowest cost to the consumer of any country in the world. The

House Agriculture Committee should be proud and willing to support a law to label

U.S. products.

Voluntary country-of-origin labeling will not work. There has been a voluntary

meat labeling regulation for almost a decade and very little U.S. product is labeled

as to origin in the grocery stores. A mandatory program is the only way to get all

segments of the food chain coordinated to label final products for consumers. Consider if speed limits on highways, the U.S. taxation system, Federal security programs or nutrition labeling programs were voluntary. There was a great resistance

in the food chain to label nutritional value on food products over a decade ago. Consumers have now come to expect nutrition labeling on all retail food items they purchase.

The labeling law purposefully includes meat, fruits, vegetables, peanuts and fish.

It is important to carry out the law as passed in the farm bill and not split up commodities during implementation because it weakens the entire labeling program. All

of the covered commodities in the law can be verified without great cost and record

keeping requirements in cooperation between all segments of the industry.

Farm Bureau supports mandatory country-of-origin labeling and will continue

working with USDA to implement the program. We look forward to the rulemaking

process and working with USDA to carry out the intent of the labeling law as

passed in the 2002 farm bill.

STATEMENT OF DAVID J. FREDERICKSON

Thank you Chairman Goodlatte and Congressman Stenholm for holding this hearing on an issue of utmost importance to the National Farmers Union. Mandatory

country of origin labeling (COOL) has been a cornerstone issue for the over 300,000

members of NFU. As one of the largest general farm and ranch organizations in the

country, our membership felt a major sense of accomplishment with the passage of

COOL in the 2002 farm bill.

Unfortunately, recent actions in the House Agriculture Appropriations Subcommittee attempt to undermine this landmark legislation included in the 2002

farm bill. Not only did the subcommittee take aim at halting further rule writing

by USDA, meat and meat products were singled out as the only target. Meat products are one of the four covered commodities included in the law. Given the current

volatility of consumer confidence within the beef industry, it is simply counter-productive to tie the hands of USDA at this time.

Many opponents of mandatory COOL use the buzzwords, unintended consequences. We absolutely agree that there could be unintended consequences of

COOL, should the U.S. Department of Agriculture and other opponents continue to

railroad implementation. At a time when our largest beef export market is demanding assurances that beef products from the U.S. are born, raised and processed, and

contain no Canadian products, the unintended consequences of the House Agriculture Appropriations Subcommittee could have catastrophic unintended consequences. Not only could this potentially jeopardize our largest beef export market,

but it also erodes the confidence of U.S. consumers in domestic beef products.

We currently import 3.2 million pounds of beef into this country. Opponents of

COOL continually argue that the market is consumer driven and there is no evidence of consumer demand for mandatory COOL. This is simply not true, nor is

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there evidence to suggest this assumption is accurate. Numerous survey’s and consumer studies have indicated American consumers overwhelmingly support mandatory COOL and are willing to pay a premium for that information.

A study completed by North Carolina State University in February of this year

concluded that four out of five U.S. consumers believe U.S. produced food is fresher

and safer than imported product. Consumers in Denver and Chicago were surveyed

in March 2003, and asked to indicate their willingness to pay more for labeled beef.

Seventy-three percent of surveyed consumers said they would be willing to pay more

for beef with country of origin labeling. An average of those respondents indicated

they would be willing to pay an eleven- percent premium for COOL on steak and

a twenty-four percent premium on hamburger meat. Opponents continue to say consumers are not demanding COOL or consumers are not willing to pay a premium.

This data clearly demonstrates to me a different story. Another stark fact is there

is no data that refutes any of the consumer studies completed to date.

Similar to American consumers expressing a lack of confidence in beef products,

our largest beef trading partners, Japan and Korea have expressed their concern

over the 2.4 million pounds of beef exported out of the U.S. every year. Prior to the

actions in the House Agriculture Appropriations Subcommittee, the U.S. was on the

right path to provide the requested information to our trading partners. These actions could not have come at a worse time. It seems only prudent that USDA speedup the process of implementing mandatory COOL not be slowed down. The reason

the Congressional authors delayed mandatory labeling by two years was to allow

USDA time to implement it correctly. Unfortunately, opponents of meat labeling

have disseminated misinformation and scare tactics among producers during this

timeframe, which has lead to a doomsday mindset among those in the countryside.

Country of origin labeling also provides U.S. producers, as well as those from

other countries, with a mechanism that allows for product differentiation in the

marketplace. This is really no different than the retail product differentiation

sought by processors and retailers when they label or brand products as a means

to gain acceptance, loyalty and increase their share of the market.

Country of origin labeling is not a new phenomenon in the United States. A large

number of consumer goods, including many retail-ready food products, already contain a label as to their country of origin. Most recently, the World Trade Organization (WTO) upheld U.S. laws on determining the country of origin of textile and apparel products in a dispute brought by India challenging these rules. After the WTO

decision, U.S. Trade Representative Robert B. Zoellick stated, ‘‘This is an important

victory for American trade laws and American textile trade.’’ I find it alarming that

administration officials do not regard the agricultural industry in the same manner.

The passing of mandatory COOL in the farm bill was an important victory for

American agriculture, yet the administration and opponents continue to attack its

merits.

Furthermore, COOL is not a new phenomena the global world. The U.S. has trade

relations with 60 countries that already have country of origin labeling systems in

place and working. The U.S. labeling law also does not violate our international

trade agreement commitments in that it does not impose any additional restriction

in the form of tariffs, quotas or non-tariff barriers to imports and the requirements

apply to both the domestic and imported commodities enumerated in the statute.

While debate over the merits of the law continues, country of origin labeling for

the listed agricultural products was approved by Congress and agreed to by President Bush. It is the law of the land. We should all be focused on the development

of the rules and regulations to allow for the law’s implementation in the most efficient and least burdensome manner possible in a way that provides accurate and

appropriate information to consumers while minimizing the cost and potential liability for producers, processors and retailers.

National Farmers Union believes the implementation challenges can most easily

be met by:

• Adapting the requirements of existing programs that require country of origin

labeling to the new law.

• Expanding and extending the country of origin information already collected on

imported agricultural products, which represents a small portion of the total product

volume subject to the act, through the U.S. processing, distribution and marketing

system.

• Allowing maximum flexibility in adapting existing record keeping and verification information and new information requirements to the audit provisions of the

law.

Thank you Mr. Chairman for the opportunity to testify this morning. It is the

hope of National Farmers Union that you disregard the misinformation being cirVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00112 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
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culated about COOL and work with USDA to implement the law as quickly and efficiently as possible. I welcome the opportunity to answer any questions you may

have.

The new law instructs grocery stores to label fresh meats, fish, fruits, vegetables,

and peanuts with the country in which it was grown and processed by September

2004. The corporate giants that would profit most from American consumers not

knowing their foods origin have launched an anti-labeling campaign primarily

fueled by misinformation and scare tactics.

STATEMENT OF LEO MCDONNELL

Chairman Goodlatte, Ranking Member Stenholm, and members of the committee,

thank you for inviting me to testify before you today on behalf of the United States

cattle industry. I am Leo McDonnell, president of the Ranchers-Cattlemen Action

Legal Fund-United Stockgrowers of America (R-CALF USA). My wife and I own and

operate Midland Bull Test which is the largest performance genetic evaluation center in North America and we ranch in Montana and North Dakota. Bulls from our

test center have been sold in both hemispheres, with several bulls standing in the

major United States and international A.I. studs. R-CALF USA focuses on protecting and promoting the interests of cow-calf producers and independent

backgrounders and feeders who constitute the heart of this country’s cattle and beef

industry.

Accepting change is never easy and the landmark reform embodied within mandatory country of origin labeling is no exception. In today’s marketplace, consumers

are left uninformed as to the origins of their food and this limits their choices at

the retail counter. This deficiency provides processors and retailers with a significant economic advantage over both livestock producers and consumers. This has

been particularly frustrating for U.S. cattle producers who contribute approximately

92 percent of the available funding for beef promotion. What U.S. cattle producers

have discovered is when packers are afforded exclusive control over where they

source the inventories to satisfy beef demand, an increase in beef demand no longer

translates into a comparable increase in demand for cattle born and raised in the

U.S., or an increase in domestic live cattle prices. Our domestic markets are not

functioning properly and the lack of consumer information regarding product origins

contributes greatly to this problem. COOL is absolutely necessary in order to ensure

that competition remains the controlling force in the marketplace, not the undue influence of dominant market participants.

Beef industry representatives and Federal officials have repeatedly told cattle producers that they must learn how to compete in a global market or they will perish.

We have heeded this advice and find that the single most important factor in either

domestic or global competition is the ability to distinguish one’s product from among

the competitors’ product. COOL will enable us to do just that and, already, our largest trading partners, Japan and Korea, have reinforced the need for COOL by demanding we certify that our meat exports are derived exclusively from animals

born, raised, and slaughtered in the United States. We also learned that no industry

can hope to be successful if it doesn’t do what its customers ask. The Nation’s largest consumer groups, representing over 50 million American consumers strongly

support mandatory COOL, and every published consumer survey regarding COOL

strongly suggests COOL is desired by U.S. consumers.

Consumers and producers are the intended beneficiaries of the COOL law. We are

dismayed at the tactics our opponents are using in their attempts to undermine the

new law, but we understand the packing and retailing sectors opposition. They

stand to lose the economic benefits they have long enjoyed by not disclosing the origin of beef sold in the United States. They stand to lose their ability to capture consumer demand signals and to satisfy those signals with products originating from

the country of their choosing. COOL will give U.S. cattle producers the ability to

differentiate their products from that of their importing competitor’s products.

A. USDA HAS GENERATED UNNECESSARY CONTROVERSY OVER COOL

The COOL Act (Act) is well written and timely. If USDA were to implement the

Act properly, it would impose no costs or burdens on U.S. cattle producers; it would

create no two-tiered pricing scheme for live cattle; it would provide no incentives

for downstream segments to impose arbitrary conditions on producers; it would be

consistent with existing trade agreements; it would enable origin verification of all

beef within the meat supply chain; it would facilitate voluntary labeling by food

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service establishments; it would minimize costs for packers, processors, and retailers, and it would allow competitive market forces to dominate the market.

However, in its October 11, 2002, Voluntary guidelines USDA has asserted jurisdiction over persons and commodities without Congressional authorization; USDA

has imposed regulatory burdens on U.S. producers without Congressional authorization; USDA has delegated authority to the COOL opponents contrary to Congress’s

mandate; and USDA has ignored Congress’s directive to use existing verification

programs to implement COOL.

There is only one class of cattle slaughtered in the United States that is both ineligible for the USA label and of unknown origin. This class consists exclusively of

unmarked cattle imported into the United States for feeding or breeding purposes.

Rather than work to develop an efficient system for affirmatively identifying these

cattle, which represent only a fraction of one percent of all U.S. cattle inventories,

USDA has seen fit to impose a complicated record keeping system on the cattle industry, creating confusion and instilling doubt in the minds of the very U.S. cattle

producers who worked with Congress to pass this landmark legislation.

B. CONGRESS WITHHELD JURISDICTION OVER CATTLE AND PRODUCERS OF CATTLE

Congress did not include cattle or cattle producers under USDA’s jurisdiction.

Congress clearly defined what commodities were covered by the Act. For the beef

industry, it included only muscle cuts of beef and ground beef as covered commodities. USDA has recently acknowledged that cattle are not covered commodities. Because cattle producers produce live cattle which are not covered commodities, they

do not supply covered commodities to retailers and, therefore, are not a regulated

entity under the Act.

C. CATTLE PRODUCERS ARE NOT SUBJECT TO USDA’S RECORD KEEPING

REQUIREMENTS

Congress reinforced this exclusion by stating that only persons who prepare,

store, handle, and distribute covered commodities are subject to USDA’s discretionary authority to require a verifiable record keeping audit trail. Because cattle

producers do not prepare, store, handle, or distribute covered commodities, USDA

has no jurisdiction over cattle producers and cannot subject cattle producers to a

verifiable record keeping audit trail.

D. CATTLE PRODUCERS ARE NOT SUBJECT TO USDA’S INFORMATION TRANSFER

REQUIREMENTS

The Act states, ‘‘Any person engaged in the business of supplying a covered commodity to a retailer shall provide information to the retailer indicating the country

of origin of the covered commodity.’’ Cattle producers supply live cattle to persons

who substantially transform the live cattle into covered commodities through a manufacturing process. These covered commodities are ultimately supplied to retailers.

Cattle producers have no involvement in the process of manufacturing covered commodities. If Congress intended cattle producers to be subject to USDA’s information

transfer requirements it would have expressly included live cattle and live cattle

producers in the Act.

E. CONGRESS PURPOSELY WITHHELD JURISDICTION OVER CATTLE AND CATTLE

PRODUCERS

Congress reinforced its purposeful omission of cattle and cattle producers by expressly prohibiting USDA from using a mandatory identification system to verify

the country of origin of covered commodities. A mandatory identification system

would necessarily involve regulatory authority over live cattle and the persons who

supply live cattle. Congress withheld jurisdiction over cattle and persons who raise

cattle for good reason: such jurisdiction is unnecessary for carrying out the purpose

of the Act.

F. CONGRESS DIRECTED USDA TO BEGIN THE ORIGIN VERIFICATION PROCESS AT THE

POINT OF SLAUGHTER

Congress directed USDA to begin the origin verification process at the point of

slaughter. The first transaction applicable to USDA’s jurisdiction is the point at

which live cattle are substantially transformed into covered commodities—the point

of slaughter. Congress knows that USDA already has an effective and operational

origin verification system to accurately verify origin requirements for beef without

regulating cattle or cattle producers. Congress directed USDA to model both volVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00114 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
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untary and mandatory COOL implementations on the very programs that USDA

uses to ensure the integrity of labeling programs such as those required by the National School Lunch Act and other Federal food purchase programs.

G. USDA ALREADY USES A PRESUMPTION OF DOMESTIC ORIGIN MODEL TO VERIFY

PRODUCT ORIGINS

USDA administers a Domestic Origin Verification program for persons who supply meat and meat products to USDA for Federal purchase contracts as a contractor, subcontractor or raw material source. This domestic origin verification program

is used to ensure compliance with domestic only labeling requirements of the National School Lunch Act and the various national programs requiring domestic only

products. This is the ideal model for verifying whether livestock were born and

raised in the U.S. or if they originated in a foreign country. The Domestic Origin

Verification program uses a proven, reliable system to substantiate origin claims

without imposing a single cost; requiring a single record; or requiring a single selfcertification from cattle producers; and, without requiring a mandatory identification system or violating either trade or domestic laws.

Under this program, USDA is charged with confirming that only products manufactured from livestock raised in the United States are clearly marked with the

label ‘‘Domestic Only Product. The COOL Act introduces a new definitional standard: that of reserving the USA label only for products manufactured from livestock

that are both born and raised in the United States. This new standard can be readily incorporated into USDA’s existing verification system.

To verify an origin claim under the various national programs requiring domestic

only products, USDA employs a ‘‘Marking System’’ for all inputs entering the manufacturing process.

It uses existing authority under international trade law, Article IX of GATT 1994

and Article 3 of the WTO Agreement on Rules of Origin, which allow all countries

to identify imported cattle and beef with a mark of origin.

It uses existing domestic law, the Tariff Act of 1930 and the Federal Meat Inspection Act, which require all imported beef products to be marked as to country of origin.

It uses the exception contained in the Tariff Act of 1930 to affirmatively identify

livestock imported directly for slaughter without requiring a foreign marking.

Using these preexisting authorities, USDA affirmatively identifies all the inputs

that do not meet the definition of ‘‘Domestic Only Product,’’ and through the process

of elimination considers all inputs that are not excluded to meet the definition:

• It rejects inputs marked with a foreign marking.

• It rejects inputs imported directly for slaughter.

• It considers all other inputs to be raised in the United States.

This same system can be used to verify the origins of all inputs entering the manufacturing process under the COOL Act:

Under section 304 of the Tariff Act of 1930 as amended (19 U.S.C. 1304), the U.S.

Customs Service requires imported beef to be marked with its country of origin to

the ‘‘ultimate purchaser’’ (defined as the last U.S. person who will receive the article

in the form in which it was imported) in the United States. Further, the Federal

Meat Inspection Act as amended (21 U.S.C. 601 et seq.) requires all meat and poultry products entering the United States to be labeled with its country of origin.

USDA can read these marks of origin and employ its new authority to establish a

verifiable recordkeeping audit trail to ensure the proper origin label is communicated to the retailer as required by the COOL Act. Thus no new verification system is required for USDA to ensure the proper labeling of all imported beef and beef

products to the retailer. Further, the first transaction applicable to USDA’s jurisdiction is the point at which the ultimate purchaser receives the beef or beef products

for further processing.

Existing authority provides the means of identifying the origins of all livestock

imported for immediate slaughter. The United States’ general marking requirements provide that if the ultimate purchaser knows the country of origin of the imported article then the article need not be marked. See 19. U.S.C. section

1403(a)(3)(H). Livestock imported for immediate slaughter are already accompanied

with USDA mandated paperwork and the person who substantially transforms

these livestock (the packer) receives documentation as to the livestock’s country of

origin. Thus, no new verification system is required for USDA to ensure the proper

labeling of all imported beef and beef products derived from livestock imported directly for slaughter. Further, the first transaction point applicable to USDA’s jurisVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00115 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
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diction is the point at which these live animals are substantially transformed into

beef and beef products, i.e., the packer.

The origin of all live cattle imported from Mexico is known to whoever slaughters

these cattle because USDA regulations already require all imported steers and

spayed heifers from Mexico to be marked with a Mexico mark of origin (an M

brand). All other cattle imported from Mexico are required to be tagged with a numbered, blue metal ear tag. Thus, no new verification system is required for USDA

to ensure the proper labeling of all beef manufactured from cattle imported from

Mexico. Further, the first transaction point applicable to USDA’s jurisdiction is the

point at which these Mexican cattle are substantially transformed into beef and beef

products, i.e., the packer. The packer can readily read the mark of origin on these

animals or the metal eartags at the point of slaughter and USDA can employ its

auditable record keeping system to ensure the proper origin label on all beef and

beef products manufactured from these marked cattle.

There is only one class of livestock, and one class only, slaughtered in the United

States that is both ineligible for the USA label and not of known origin. This class

consists exclusively of unmarked livestock imported into the United States for feeding or breeding purposes. The only live cattle not presently marked by the U.S. Customs Service or by USDA are live cattle imported from Canada for feeding and

breeding purposes. On an annual basis, these imported Canadian cattle number

593,000 head, representing only 0.006 percent of the total cattle inventories in the

United States. Thus, USDA need only to cause a mark of origin to be placed on imported live cattle from Canada and any other country which may import live cattle

in order to affirmatively identify the origins of all imported cattle slaughtered in the

United States.

With a marking requirement for all imported live cattle, USDA has a fail-safe

method of affirmatively identifying all livestock ineligible for the USA label and all

livestock imported from a foreign country. The marks of origin can be read by the

person who slaughters the livestock or by USDA inspectors and USDA can initiate

its Congressional authority to require the packer to establish a verifiable record

keeping audit trail to ensure the resulting meat is properly labeled to the retailer

according to the mark of origin on the livestock.

Because the origin of all livestock ineligible for the USA label can be affirmatively

identified with a mark of origin signifying the livestock’s country of origin, the absence of a foreign mark would be affirmative evidence that the livestock did not pass

through the U.S. border and, therefore, could be none other than born and raised

in the U.S. There is no risk of error, assuming proper enforcement by the U.S. customs service.

This is precisely the methodology USDA uses today to ensure the integrity of the

Domestic Only label for beef and beef products served to our military troops and

to our school children. It is a fail-safe method of accurately determining the eligibility of input products at the point of slaughter for both the USA label and a foreign label of origin.

H. USDA APPEARS TO BE IGNORING CONGRESSES INSTRUCTION TO USE THE

NATIONAL SCHOOL LUNCH ACT AS A MODEL FOR VERIFYING ORIGIN CLAIMS

USDA appears unmoved by Congress’s instruction to use the origin verification

system presently used to carry out the domestic origin requirements of the National

School Lunch Act. USDA claims on its website that the model is not applicable because the definition of origin is different in COOL. USDA appears to be missing the

point. The differing definition of origin in COOL does not detract from the system’s

ability to accurately identify the origins of livestock at the point of slaughter

through the use of an input marking system combined with a presumption of domestic origin. It is an ideal model for effective COOL implementation.

I. USDA Has at Least Two Options to Effect Origin Markings on Imported Livestock

USDA must focus its efforts on ensuring that all livestock crossing the border into

the United States are clearly marked with a mark of origin. USDA has at least two

options with which to effect this requirement:

USDA currently has the authority to regulate the importation of animals, including the requirements that the animals bear documentation or markings denoting

their origin. USDA presently exercises this authority to require all imported cattle

from Mexico to bear a mark of origin.

USDA and Congress can work cooperatively with the Department of the Treasury

to remove livestock from the present list of products exempted from the general requirement that all imported products be marked with a mark of origin. This list of

exemptions is called the J-List, so named for section 1304(a)(3)(J) of the statute. The

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items included on the J-List, including livestock, were placed there pursuant to regulations of the Treasury Secretary and can be removed to facilitate proper identification for labeling purposes.

J. USDA HAS DELEGATED AUTHORITY TO COOL OPPONENTS CONTRARY TO

CONGRESS’S MANDATE

In its October 11, 2002, Voluntary Guidelines, USDA signaled its intent to abrogate its congressionally assigned, discretionary duty to require a verifiable recordkeeping trail and to verify compliance by empowering retailers to ‘‘. . . ensure that

a verifiable audit trail is maintained through contracts and other means. Congress

granted only the Secretary of Agriculture the authority to require ‘‘. . . that any person that prepares, stores, handles, or distributes a covered commodity for retail sale

maintain a verifiable audit trail that will permit the Secretary to verify compliance

with this subtitle (including the regulations promulgated under section 284(b)) We

do not believe Congress intended to the Secretary of Agriculture to delegate this authority. Therefore, the Secretary of Agriculture must reserve its exclusive authority

to require a verifiable audit trail, along with its exclusive authority to conduct any

audits of such a trail, in order to prevent retailers and packers from imposing arbitrary conditions upon U.S. cattle purposes for purposes of verifying labeling claims.

Moreover, the standard of willfulness for determining violations of the Act make

any surveillance or audits between and among retailers and persons who prepare,

store, handle, or distribute covered commodities unnecessary. Retailers could not be

held liable for a misrepresentation of a packer or distributor, for example. Under

a willful violation standard, only if a retailer willfully mislabeled a covered commodity would the retailer be subject to the Agency’s enforcement actions. Therefore,

there is no reason for retailers to be afforded anything other than a representation

of origin verification from its immediate upstream supplier.

K. USDA HAS REDUCED THE COMMODITIES CONGRESS INTENDED TO COVER

We do not understand why USDA would attempt to carve out exceptions to the

list of products Congress included as covered commodities. However, in its October

11, 2003, Voluntary Guidelines, USDA appears to allow ground beef to be excluded

from labeling if water, salt, or other flavoring, seasoning, or extenders are added

in the grinding process. This significantly reduces the products that should be covered by the Act and it provides an unjust means of circumventing the intent of the

Act. The Agency should ensure that ground beef remains covered by the Act even

if water, cereal, soy or other derivatives, other extenders, salt, sweetening agents,

flavoring, spices or other seasoning is added. The addition of any one or more of

these additives, enhancers, or extenders does not change the fact that the resulting

product is ground beef.

Further, the Voluntary Guidelines appear to greatly expand the scope of products

Congress excluded from the Act. Congress said an otherwise covered commodity

would be excluded from coverage only ‘‘if the item is an ingredient in a processed

food item. We believe this means that if a covered commodity is further processed,

i.e., cooked, cured, restructured, or flavored, it will remain covered by the Act unless

the covered commodity is also commingled, mixed, or incorporated with other commodities to create a distinct food item such as pizza, ravioli, soup, or TV dinners,

for example. A roast remains a muscle cut of beef even if it is cooked, salted, or

flavored. Therefore, a cooked, salted or flavored roast should remain covered by the

Act. The Agency appropriately recognized this fact with respect to peanuts, allowing

the coverage of peanuts that are shelled, roasted, salted, or flavored. We believe

USDA’s definition of material change should be abandoned.

L. PACKER CLAIMS THAT COOL COMPLIANCE IS TOO DIFFICULT/COSTLY ARE

UNFOUNDED

Packers claim that segregating and tracking beef derived from livestock of various

origins is a difficult, if not impossible task. However, packers presently participate

in various labeling programs, many of which are more complicated than merely

maintaining the origin identity of beef. Among these is the Certified Angus Beef

program. Here, packers have considerable experience in maintaining the identity of

every carcass originating from a black hided animal. The identity of this carcass as

to the color of its hide is maintained until the carcass is graded. If the carcass

grades according to CAB specifications, the identity of the resulting meat products

cut from the carcass is maintained to ensure the integrity of the CAB label. This

is a more complicated process than required by COOL. With COOL there is no secondary segregation step involving grading; the identity as to origin is simply mainVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00117 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
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tained throughout the manufacturing process. Maintaining the origin identity of

covered commodities throughout the packing and retailing processing chains is simple, cost-effective, and consistent with present industry practices.

M. USDA CLAIMS THAT COOL AND COOL IMPLEMENTATION VIOLATES TRADE LAWS

ARE UNFOUNDED

USDA claims that COOL will negatively impact trade. R-CALF USA conducted

legal research in April, 2003, to determine if the United States has the authority

under existing domestic laws and trade laws to require marks of origin on both beef

and live cattle for purposes of implementing COOL. Our legal research concludes

that we have the needed authority and it is consistent with trade laws. The International Agricultural Trade and Policy Center at the University of Florida conducted a legal analysis of COOL in May of 2003 which includes a legal analysis of

COOL’s compatibility with trade agreements. This study reinforces R-CALF USA’s

contention that COOL can be easily implemented by requiring all imported livestock

to be marked with a mark of origin. USDA has received copies of both these studies

but has offered no response. Instead, the agency continues disseminating disparaging trade related comments in its new Question and Answer document found on its

webpage under COOL Resources. In the eyes of U.S. cattle producers and consumers

the Agency charged with implementing the COOL law appears, instead, to have

joined forces with the packers and retailers in an effort to repeal or weaken it.

Consumers must be doubly frustrated. The promised consumer benefit of liberalized trade and more imports is that consumers would have more choices. However,

USDA is sending the message that consumers can’t have a choice when it comes

to where there food is grown.

It is important to note that while the United States may require a mark of origin

on imported livestock for purposes of ultimately identifying the origin of meat derived from such livestock, no additional information may be required of imported

livestock that is not also required of domestic livestock. Article IX of GATT 1994

is substantively identical to the provision that was contained in the original GATT

(now known as GATT 1947). The provisions of Article IX of GATT 1947 was construed by a 1956 Working Party report. The 1956 Report of the Working Party on

Certificates of Origin and Marks of Origin (cited by the WTO Panel in Korean Beef)

clarifies that while countries can require marks of the country of origin, marking

requirements going beyond the mere indication of country of origin should be limited. Specifically the Working Party considered that the question of additional marking requirements, such as an obligation to add the name of the producer or the place

of origin or the formula of the product should not be brought within the scope of

any recommendations dealing with the problem of origin. The point was stressed

that requirements going beyond the obligation to indicate origin would not be consistent with the provisions of Article III, if the same requirements did not apply to

domestic producers of like products. Working Party Report, Certificates of Origin,

Marks of Origin, Consular Formalities, adopted 17—November 1956, BISD—5S/102,

para. 13. Requiring that cattle have the country of origin markings as they cross

the border, in the form of brands, tattoos or ear tags comports with this Working

Party report. However, imposing additional record keeping requirements on only imported products or requesting information beyond the country of origin of the imported product may not.

N. CRITICS COMPLAIN THAT COOL GOES BOTH TOO FAR AND NOT FAR ENOUGH

Ironically, opponents criticize the Act not only for what it does, but also for what

it does not do. The exclusion of poultry and food service establishments are among

the most frequent complaints of COOL opponents. This is disingenuous at best.

Given the tremendous opposition to COOL without having evoked opposition from

the vertically integrated poultry industry and the powerful restaurant lobby, COOL

would likely have failed in Congress. R-CALF USA supports the labeling of commodities sold by these industries but the political reality strongly suggests we approach

labeling one step at a time.

O. R-CALF USA SEEKS CONGRESS’S HELP IN IMPLEMENTING COOL

Congress would be of considerable assistance to USDA if it would initiate a request to the Treasury Secretary asking that livestock be removed from the J-List

described in Paragraph I above. The removal of livestock from the J-List would immediately solve USDA’s challenge of how to cost-effectively and accurately ascertain

the origins of livestock at the point of slaughter. Further, Congress could issue a

directive to USDA instructing the Agency to use the resulting marks of origin on

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livestock, and the absence of such marks, to verify the origin labels required by the

Act.

Congress could also help in the COOL implementation process by encouraging the

Office of the United States Trade Representative to begin supporting Congress’s

born, raised, and slaughtered standard as the appropriate standard for determining

origin under the WTO rules of origin. This would help ensure that future conflicts

do not arise between the United State’s definition of origin and the WTO’s definition. The United States continues to support ‘‘substantial transformation’’ as the

international standard of origin. This appears particularly inappropriate given the

recent demands on the U.S. to certify all beef exports to Japan and Korea as originating from cattle born, raised, and slaughtered in the U.S. It also appears inappropriate given the United States’ proposed action of requiring all beef and beef products from Uruguay to be accompanied with a certificate stating that the beef was

derived from cattle born, raised and slaughtered in that country.

We urge Congress to direct USDA to implement COOL on schedule and as Congress intended, without imposing an undue burden on U.S. cattle producers or on

the packing and retailing segments of the food industry.

STATEMENT OF ERIC DAVIS

Mr. Chairman and members of the committee, I am Eric Davis, president of the

National Cattlemen’s Beef Association. I am a rancher and feeder from Bruneau,

Idaho. I am pleased to be here with you today to discuss Country of Origin Labeling,

an issue that has been before this committee on numerous occasions.

Perhaps no issue in recent memory has stirred the passions of beef producers

more than country of origin labeling for good reason. We are a proud lot and proud

of the beef we produce. Therefore, labeling and promoting our product, especially US

beef, is an easy argument to win when talking to ranchers. If labeling product is

so popular, why all the discord?

Members of the committee, the ongoing debate of country of origin labeling is not

about the merits of labeling, but rather how to provide country of origin labeling

information to the consumer in a way that does not cause producers pain.

Since the day NCBA adopted policy supporting country of origin labeling, we and

other groups, organizations and producers have struggled with it. Our policy has

evolved over time from one brief statement of support for labeling, to a finely detailed description. We have tried to strike a balance between the demands of producers and the reality of cattle and beef production, marketing, and distribution.

My predecessors have sat before this committee and received in depth questions

about the pros and cons, the costs and benefits, and the potential unintended consequences of country of origin labeling. We have been praised by members of the

committee, and occasionally excoriated.

In 1999, our president, George Swan sat before then Livestock and Horticulture

Chairman Pombo and Mr. Peterson, and presented testimony consistent with the labeling legislation that had passed the Senate but was stricken in conference in

1998. The USDA under President Clinton testified that there would be some kind

of paperwork trace-back system and that monitoring through private, third party

certifiers were possibilities. Producers were advised during this hearing by Chairman Pombo that not enough thought put into what the actual impact is on producers. Mr. Peterson worried that the law might end up putting a ton of paperwork

and a burden on people it should not be put on. NCBA and those organizations at

that hearing were urged to work to develop a voluntary, consensus approach to the

country of origin labeling. We did.

In January 2000, a General Accounting Office study, written at the request of this

committee, stated that U.S. producers could be required to track and maintain detailed records of the movements of their livestock and have controls in place to ensure the accuracy of this information. A USDA study, mandated by Congress, was

published in January 2000. This study stated that Country of Origin Labeling is certain to impose at lease some costs on an industry which will either be passed back

to producers in the form of lower prices or forward to consumers in the form of higher prices.

These two studies spurred the National Cattlemen’s Beef Association, American

Farm Bureau Federation, National Farmers Union, American Meat Institute, Food

Marketing Institute, National Meat Association and American Sheep Industry Association to negotiate a voluntary program which was submitted to USDA. Incidentally, the NFU did not join us on that petition, but since that time, NCBA members

have changed our policy to be in line with the position held by NFU at the time.

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Unfortunately, the Clinton administration did not act on the petition and the

Bush administration’s action were quickly overtaken by farm bill events.

During the markup of the House version of the farm bill in July 2001, this committee endured a 6 hour debate on the topic. Fully 25 percent of the markup record

is related to this topic alone. During this markup, USDA attested that the law

would be records intensive, complex, and that it would entail being able to trace

records back to level of production. Members of this committee during the 107th

Congress will surely recollect the markup. I recommend that new members of this

committee avail themselves to this markup record to better understand the record

on this issue.

During the farm bill Conference in the Spring of 2002, House conferees worked

to answer significant questions about country of origin labeling before the law

passed. But many of the difficult questions remained unanswered in the conference.

Statements by Senate conferees intentionally left many difficult issues to the department. Judging by the conference proceedings, the only clear intent of Congress

was to leave many difficult questions to USDA.

The current country of origin labeling law was never fully analyzed and no hearing was held on the impact or interpretation of its provisions. Nonetheless, Congress

has held many hearings and investigations on country of origin labeling generally,

and this record suggests that this law is turning out as many predicted problematic.

The provisions of the current law simply ignore many years of collective knowledge

and debate on the subject.

As a result, USDA has had to make some tough decisions that may appear arbitrary, unnecessarily bureaucratic, and costly. These decisions and the implementation guidelines that USDA has released are creating concern for producers. Several

issues of concerns include: • the inability for producers to self-certify the origin of livestock;

• requirements that US producers document where animal was born, raised and

processed; • statements by packers and retailers that they will require more information

from producers than the law requires; • the manner in which USDA is interpreting the statute.

The committee has heard testimony this morning from USDA outlining the country of origin labeling program and the reasons that the department is taking the

approach they have chosen. There are clearly easier and less costly ways to implement a country of origin labeling program other than what is contained in the statute. The challenge for USDA and this committee is to determine if alternative methods of implementation are allowed under the current statute. If the current statute

allows alternatives implementation guidelines, then we are committed, through

rulemaking, to working with USDA to implement the law in less burdensome manner. If, however, the statute does not allow other alternatives, then we must either

change the law or live with its consequences. Clearly, the testimony given today and

the frustration felt by all producers on USDA’s current thinking demonstrates that

living with the law as outlined by USDA is not acceptable.

The petition submitted to USDA and to this committee in September 2000 still

represents a manner that could be employed to implement a country of origin labeling program that would benefit producers and consumers. Our policy today supports

Country of Origin labeling that is voluntary and industry and producer led and we

are hopeful that this approach could be used as a model for any modifications to

the statute.

I would like to conclude my testimony with the following comments:

The National Cattlemen’s Beef Association supports country of origin labeling. We

want producers to be able to market and promote US beef. After all the hearings,

all the discussion, all the debate, all the acrimony, and all the USDA listening sessions, we believe our approach of a voluntary, producer led effort offers the greatest

opportunity to benefit producers because it avoids the costly mandates of the current law.

I would be happy to take your questions.

STATEMENT OF DEBORAH R. WHITE

Good morning, Mr. Chairman and members of the committee. My name is Deborah White. I am associate general counsel, regulatory affairs, of the Food Marketing

Institute. Thank you for including FMI in this important hearing on the implications of section 10816 of the 2002 farm bill.

We believe that many of the inevitable and far-reaching consequences of this relatively brief provision were never intended by Congress. This hearing represents an

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important step toward understanding the law and its full ramifications, many of

which stem from the actions that retailers will be forced to take to comply with section 10816. We may disagree with the law’s premise and foresee its negative consequences, but there’s a law on the books and American grocery stores must take

those steps necessary to ensure that they will be able to offer food to consumers in

compliance with the law on September 30, 2004. In order for retailers to achieve

compliance, however, growers, cattlemen, packers and distributors of covered commodities will have to change the way they do business. The law will prohibit retailers from partnering with suppliers who are unwilling to make those changes.

FMI represents 2300 food retail and wholesale companies with 26,000 individual retail locations and $340 billion in annual sales. Our membership includes small,

single store operators, as well as the largest food retailers in the country. As such,

our membership has a unique understanding of consumers’ expectations regarding

their retail food purchases and we know that, first and foremost, consumers expect

their local grocery stores to deliver high quality, reasonably-priced food products

from all over the world, every single day, regardless of weather, seasonality, or regulatory constraints.

Today, retailers voluntarily engage in a wide variety of state and country of origin

labeling programs, programs that work well for producers, retailers and consumers

alike. Section 10816 is different, though. The market drivers built into this brief

amendment to the Agricultural Marketing Act are powerful and will have a profound impact on the dynamics of the entire food production and distribution system,

especially on smaller, less competitive producers.

First and foremost, the law places the responsibility for informing consumers of

the country of origin of the covered commodity on the retailer—the one link in the

distribution chain that has no firsthand knowledge of or control over this information. Under the much more thoroughly debated and carefully crafted Nutrition Labeling and Education Act, the manufacturer is responsible for identifying the relevant information about the food and placing it on the label; the retailer sells the

fully labeled finished food product. The same is true for other country of origin labeling laws. The manufacturer or the importer of record is responsible for the labeling because only they know the facts about the product.

Section 10816 stands this traditional, common sense approach to labeling on its

head. Further, retailers are subject to Federal and state enforcement and penalties

of up to $10,000 per willful violation for failing to meet their legal responsibilities.

Second, the law covers an extremely wide range of products beef, pork, lamb,

fresh and frozen seafood, fresh and frozen fruits and vegetables, and peanuts and

necessitates information on the entire life cycle of each and every one, and, in the

case of seafood, the food’s method of production.

None of this information is self-evident to the retailer. A retailer can’t look at a

hand of bananas and know whether it is properly labeled ‘‘Product of Guatemala’’

or whether it’s actually from Honduras. A retailer cannot look at a fillet of salmon

and know which flag flew on the vessel that caught it or whether it was actually

raised on a farm in Asia. A retailer can’t look at a chub of hamburger and know

whether one of the cows from whence it came ever sojourned in Mexico or Canada.

The only way that retailers can fulfill their obligations to consumers under this law

is to ensure to the greatest extent possible that they receive accurate information

from their suppliers.

Toward this end, our members are beginning to execute broad and far-reaching

changes in their supplier relationships. Although the programs vary, most retailers

are requiring their suppliers to do the following:

1. Sticker or label each individual food item with the required country of origin

information. In the case of demonstrated impossibility, suppliers are asked to provide labels or signs that can be added at store level.

2. Sign contracts to indemnify retailers and ensure that suppliers are keeping verifiable audit trails. In some cases, such as in the produce industry, parties that have

done business on a handshake basis for decades will need to enter written contracts.

3. Undergo third party audits. If retailers will be liable for the accuracy of the

information that their suppliers provide to them, retailers have no choice but to require their suppliers to provide them with objective, third party documentation that

the information is trustworthy. This model is not without precedent. The Organic

Food Production Act requires third party certification for organic production claims,

which are also marketing claims

A typical grocery store easily sells a thousand different covered commodities, comprised of hundreds of thousands of individual food items, received from thousands

of suppliers several times each week over the course of the year. The law forces retailers to put this type of system in place to control the large amount of information

attendant to this volume of supply.

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And it will force retailers to make difficult marketplace choices to minimize their

liability and maximize their compliance with the law.

Retailers will source covered commodities only from those who can afford the systems to document country of origin to the extent required by the law. Smaller suppliers—including growers and ranchers will have a difficult time affording the costs

imposed by the law and, thus, competing with their larger economic rivals. In contrast, vertically integrated producers are virtually ready to comply now. So, despite

the fact that section 10816 was intended to assist small, independent producers, the

law is actually a strong driver toward concentration and vertical integration.

Retailers will limit the countries from which they source product, sometimes to

the detriment of US producers. For example, at least one significant member has

concluded that the domestic salmon industry cannot supply a sufficient amount of

fish all year long to meet their consumers’ demands, but that other countries, such

as Canada, Norway or Chile, can. Rather than dealing with the costs and liability

associated with carrying supply from multiple countries of origin, they intend to

contract with suppliers from a single country that can satisfy their needs.

Retailers will reduce or eliminate US products sourced during the ‘‘shoulder’’ seasons. For example, retailers source grapes from both North and South America, depending on the season. Traditionally, retailers will purchase the early US crop even

if it’s not enough to fill their needs. After September 30, 2004, retailers expect to

delay purchasing U.S. products until the crops are fully in.

Participation in state of origin promotional programs will be limited. USDA advises that, because of international trade obligations, state of origin designations

(e.g., Florida citrus, Idaho potato) will not be sufficient to satisfy the Federal law.

Therefore, a statement of United States origin will be necessary for those products

that meet the new Federal standard. State labeling may no longer fit on existing

labels or signs.

In short, we believe that section 10816 is fundamentally flawed. Mandatory country of origin labeling, particularly as defined by section 10816, will inevitably result

in less consumer choice and higher production costs that far outweigh any potential

benefit to consumers and producers.

Addendum to Testimony of Deborah R. White Food Marketing Institute:

The Enforcement Provisions of section 10816

Perhaps one of the most interesting aspects of the law, though, is the way the

enforcement provisions operate. As I’ve gotten to know this law better I’ve come to

realize that the enforcement provisions against producers are actually more stringent than those against retailers.

If we are going to be honest about this, this law was designed to protect and promote American producers—we believe it is flawed in part because of this premise—

but even if we start from the assumption that domestic protectionism is a worthwhile goal, the law is inherently inconsistent. Here’s what I mean.

Section 283, Enforcement, is divided into three paragraphs. Paragraphs (b) and

(c) are the penalty provisions that apply to retailers. Collectively, these provisions

essentially state that, if USDA believes that a retailer has violated section 282

which requires the retailer to inform the consumer of the country of origin of the

covered commodity USDA must notify the retailer of the potential violation and give

the retailer 30 days to remediate. If, at the end of the 30 days, USDA concludes

that the retailer willfully violated the statute, then the retailer is subject to penalties of up to $10,000.

The penalties Congress imposed against anyone else who violates the statute including farmers, ranchers, growers, and packers—are actually more substantial

than the penalties against retailers. These penalties are identified in paragraph (a)

of section 283, which simply states as follows: ‘‘Except as provided in subsections

(b) and (c), section 253 shall apply to a violation of the subtitle.’’ Section 253 of the

Agricultural Marketing Act of 1946 is codified at 7 U.S.C. section 1636b and states:

‘‘Any packer or other person that violates this subchapter [which includes Subtitle

D] may be assessed a civil penalty by the Secretary of not more than $10,000 for

each violation. Each day during which a violation continues shall be considered a

separate violation.’’

Two important things to note. First, retailers are subject to penalties under Subtitle D if and only if USDA concludes that they willfully violated the statute USDA

must essentially prove that retailers intentionally violated or knowingly disregarded

the statute. In contrast, the supplier liability provision does not include a mens rea

element. That is, a supplier can be liable for penalties under the statute simply for

making a mistake; it doesn’t matter what they were thinking.

Second, the penalties against non-retailers are cumulative that is, each day that

a violation continues is subject to an additional penalty. The law does not impose

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accumulating penalties against retailers only against their suppliers. The law, as

written, holds suppliers to a much higher standard than retailers.

STATEMENT OF KEN BULL

Thank you Mr. Chairman for giving me the opportunity to testify before your committee today to discuss what I believe is a well intentioned, yet severely flawed law.

I want to start by thanking this committee for the leadership you showed in making

this subject the most lengthy debate of your consideration of the new farm bill.

The COOL law represents unmistakable harm to the U.S. beef and pork industry.

At a time when we have finally reversed the long downward trend in beef demand

government is implementing an initiative that will add tremendous cost and complexity to all segments of the beef and pork production chain.

Supporters of COOL generally rally around one of several points:

Food safety—but it isn’t about food safety because no one should be allowed to

sell unsafe food simply by being willing to put a country of origin label on it.

Consumer right to know—but this can’t be about ‘‘right to know’’ because the law

exempts all of food service, not to mention poultry, cheese and almost all the rest

of the grocery store.

Protecting the American market—many supporters are more motivated by trying

to block cattle and hog imports from Canada and Mexico. But protectionism makes

no sense either.

Protectionist sentiments do not hold water in light of the fact that Mexico is now

the number one market for U.S. beef—where we currently enjoy a $450 million

trade surplus in beef trade. Supporters must recognize that striking out against our

most important buyer stands to have consequences.

COOL is now the law, and we are trying to figure out what we’re going to do to

comply with it.

As the committee knows, this is a retail labeling law that mandates there must

be a ‘‘verifiable audit trail’’ to prove that the labels on products are true and accurate. The law also prescribes $10,000 penalties for violations of the law.

I recently met with AMS staff in Washington to ensure that our read of the law

was right—and it is. A verifiable audit trail means that we must be able to provide

documents that back up the claims made on the meat we market to our retail customers. In order for us to do this, we have not choice but to require all producers

from whom we buy to certify that they are maintaining records that prove identification and traceability of their livestock. Additionally we may choose to audit

records on a spot basis to further ensure that labeling will stand up under regulator

scrutiny.

We and other major processors have been notified by retailers that if we intend

to sell them meat after October 1, 2004 we will have to assume liability for any misrepresentation on their labels so you can imagine we are going to take every step

necessary to ensure that we are keeping our customers and company in compliance

with the law.

An additional concern few have talked about yet is that under the Meat Inspection Act, which is governed by another agency, the Food Safety Inspection Service,

to apply a false label to a product is to ship misbranded product. This is punishable

as a felony and the product involved is likely subject to recall. In light of this I’m

sure you understand that we simply cannot certify anything we do not know to be

absolutely true. Our interpretation of the meat act was confirmed when I met with

the Deputy Administrator of the FSIS and the chief of the labeling branch.

While we already do some branding today it is based on attributes that reflect

the market niche a retailer wants to uniquely fill. These brands are reliant on factors that are within our control and importantly, are cost effective. The COOL brand

relies on factors from the birth of the animal, following it through our plants, then

distribution and retail, all at significant cost. These are costs that we do not believe

are recoverable in the marketplace and we and livestock producers will have to absorb them.

We invest significant revenue in developing and marketing brands. These investments are done only after significant research to demonstrate that the benefits or

returns will far outweigh the costs.

There is much speculation on the cost of COOL and I certainly have my own idea

of the cost, but frankly I believe the true cost is that there stands to be significant

change in the cattle and hog industries as a result of this law. We have done cost

estimates that quickly led us to conclude that we are not going to make the investments it would take to be able to run our plants the way we do now. To create the

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kind of identity preservation system this law would cost unimaginable sums and

even then, there would be the risk of an unintentional mistake.

A more likely scenario is that packers will call only on feeders we know have the

best, most reliable, audit proof record systems especially electronic ear tags. I met

with the deputy administrator of the USDA Packers and Stockyards Administration

to ensure that this was consistent with the P&S law, and I have been assured that

steps such as this are entirely within the scope of the law. We will seek to maintain

a pro-active dialogue with the agency as this unfolds. We believe we are on solid

footing with P&S in saying that if we suspect that records are not reliable we will

have a difficult time being able to bid on livestock.

We believe one probable outcome of the law is that packers would most likely

dedicate plants as U.S. only or mixed origin and then segregate production by days

so that only like-origin animals are processed on given days. This move would eliminate marketing options that producers currently enjoy. We fear an unexpected outcome of the law is that the market will move to one that differentiates price not

just on the basis of quality but on two new factors: reliability of records and origin

status of livestock. Even with these kinds of changes we estimate we would have

to invest a minimum $20–25 million per plant to ensure compliance.

Today we sort beef carcasses in about 27 different ways by grade, certified programs and others. Under this law we layer in at least a doubling of these sorts. Our

coolers are the size of football fields and the changes this law necessitates aren’t

cheap. One example of an unrealized cost is that currently FSIS regulations require

us to leave a three-minute gap between grade sorts. Down time in our plants is

about $1100 per minute so increasing the number of these three-minute gaps adds

up in a hurry.

Of particular concern is something we learned from AMS that is there is zero tolerance for error. In our meeting with AMS we painted a hypothetical scenario that

goes like this—say we processed a group of cattle on Monday and in reviewing

records in an audit on Thursday we found somebody made a mistake and a Mexicoborn animal got into the mix of 1,500 head of U.S. born, raised and slaughtered.

We learned from AMS that in that scenario all 1,500 are potentially mislabeled or

misbranded meaning we possibly have created a huge list of violations. We must

notify all retailers and they must not market the product because it would be a willful violation on every package of meat from that 1,500 head of livestock. The product from these 1,500 head that has going into retail is now subject to a class three

recall bringing great harm to our reputation, our brand and our customer. This

meat would have to be diverted into some other food service channel at a substantial discount all by virtue of a simple human error with no impact of food safety

whatsoever.

Another huge concern for us is the impact on cow/calf operators and the dairy industry. We buy many of these culled cattle at auction and they do not have the kind

of documentation that this new law requires. Dairy cows live 5 to 8 years, and many

have crossed the Canadian border. Much of the cow beef ends up as lean trim that

is blended with less lean trim for ground beef at retail. Under the law, because producers cannot guarantee the animal’s birth, and residence of its entire lifespan, this

beef will be relegated to food service as its only market for a long, long time. If

you’re a cow calf or dairy operator you’ll want to pay close attention to this loss of

the retail demand base, and the marketability of these animals. AMS again has confirmed our observations and I would strongly encourage producers to learn this for

themselves.

I want to leave you with one final point to think about in the past 15 years our

firm has had only two requests from U.S. retailers for country of origin labeled beef

it was for Australian beef.

As you can see there are some far-reaching implications in this law and I appreciate the committee’s time looking into them here today.

I would be happy to address any of your questions.

STATEMENT OF BRUCE PETERSON

Good morning, Mr. Chairman and members of the committee, my name is Bruce

Peterson and I am the senior vice president and general merchandising manger of

Wal-Mart Stores, Inc. Based in Bentonville, Arkansas, Wal-Mart is the Nation and

world’s largest retailer, with facilities in all 50 States and 10 countries. The Company operates more than 2,870 discount stores, Supercenters, Neighborhood Markets and more than 520 SAM;S CLUBS in the United States. Internationally, the

Company operates in Argentina, Brazil, Canada, China, Germany, Korea, Mexico,

Puerto Rico and the United Kingdom. Wal-Mart also owns a 31 percent interest in

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Seiyu in Japan with options to purchase up to 66.7 percent of that company. WalMart employs more than 1 million associates in the United States and more than

300,000 internationally.

As a major portion of our business focuses on the marketing of food, I would like

to share Wal-Mart’s perspective regarding country of origin labeling. This law requires retailers to inform consumers of the country of origin of all ‘‘covered commodities’’ both domestic and imported—as of September 30, 2004. Wal-Mart believes

that marketing high quality, affordable food made in the U.S.A. is essential to our

customers’ needs. However, despite the law’s best intentions, it is fundamentally

flawed inasmuch as it diverts retailers from marketing and places the onus on product labeling and information validation. We believe that there is a better method

to promote U.S. agriculture than implementing a flawed law with unduly burdensome regulations.

I would first, however, like to discuss the importance of Wal-Mart’s relationship

with our customers and our suppliers which directly relates to how we build trust

and confidence in our supply chain. At Wal-Mart, we have worked with our suppliers to create and protect our relationship with our customers. They are, and will

continue to be, the guiding force behind our decisions. Because of their comments,

we have created stores that offer every day low prices (EDLP), quality merchandise,

wholesome and safe food products in addition to fast and friendly service. Our one

million U.S. associates are also involved with individuals and families in their respective communities. Last year alone, our associates raised and contributed more

than $200 million to support communities and local nonprofit organizations. We aspire to be an important part of our customers’ communities and to provide products

and services that raise the standard of living for the working families of America.

This includes providing safe, quality, affordable food to feed those families.

With respect to our suppliers in the food industry, Wal-Mart has been reported

as the Nation’s largest grocer with 1333 Supercenters (retail and full-line grocery)

and 52 Neighborhood Markets (grocery). We highly respect the relationships that we

have built with the agricultural communities who supply our stores. Over the years,

we have also established strong partnerships with State Departments of Agriculture

to market key state products. A few produce examples include: radishes, squash and

corn from the State of Ohio grapefruit, oranges tangerines and avocados from the

State of California; tomatoes, watermelons, oranges and cucumbers from the State

of Florida; and onions, mushrooms, and berries from the State of Texas.

We also maintain well over a thousand relationships with local growers in order

to bring hometown produce to the local Wal-Mart outlet. Because of our near symbiotic relationship, the continued financial health and success of our suppliers is directly linked to our ability to provide EDLP food products to our consumers. Any

overzealous regulations or laws which unduly burden our suppliers, many of whom

are small and medium-sized enterprises, ultimately provides a disservice to our customers.

IMPLEMENTATION CHALLENGES

At Wal-Mart, we value our customers and suppliers and that is why we are so

concerned about the Farm Security and Rural Investment Act of 2002. As stated

above, the law as it stands, requires retailers to both label and verify the country

of origin of all covered commodities—both domestic and imported—as of September

30, 2004. While this may seem a while away, recent regulations promulgated by the

U.S. Department of Agriculture (USDA) during the voluntary period are already beginning to impact our supply chain. We understand that the USDA has hosted a

series of field hearings to solicit comments about implementation. Proponents of the

law continue to claim that problems with country of origin are regulatory rather

than legislative; but we would disagree. While the regulations are excessively burdensome, and will no doubt be revised, they pale in comparison to the law’s fundamental requirement that retailers properly identify products for our customers.

In order to better prepare for the anticipated impact and recognizing the extent

of preparation necessary to implement such a program, I coordinated a meeting with

over 700 of Wal-Mart’s key suppliers in February to discuss the steps necessary to

comply with the law and the proposed guidelines. What many in that room did not

realize is that under the proposed guidelines, the required country of origin goes beyond the simple classification of country. Rather, the declaration extends back to the

farm or ranch where the food originated and must reflect all countries where subsequent processing occurred. The law then requires retailers to provide our consumers

with information. Retailers face penalties of up to $10,000 if the information is missing or inaccurate—even though our suppliers are the only ones who can verify the

information.

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Because customer trust is our top priority in providing quality, safe, affordable

food products, we felt that it was necessary to take steps to ensure that the country

of origin information provided by our suppliers for each of the covered commodities

is accurate and verifiable. After all with 500 products in 1300 stores, we have over

650,000 opportunities to make a mistake every day not to mention those in the supply chain. Simply put, if someone inadvertently hangs the wrong sign, the result is

that the consumer is misled, not informed, making execution of the program untenable.

In order for us to comply with the current regulatory guidelines and to fulfill our

responsibility to our customers, Wal-Mart has requested that our suppliers ensure

that they are capable and willing to do the following:

Sticker all covered commodities with country of origin information that fully complies with the Federal standards set forth in the statute as interpreted by USDA.

A sufficient number of signs (one for each retail display) or stickers (one for each

retail-sized package) will be required to accompany every shipment of products that

cannot bear labels.

Maintain records and a verifiable audit trail to establish the accuracy of the country of origin information that we receive for your covered commodity.

Indemnify us for any fines or other costs that we incur as a result of the country

of origin information that you provide or fail to provide.

Segregate all covered commodities by country of origin throughout the production

chain until they are delivered to us and maintain documentation verifying the efficacy of your segregation plan.

Audits. Provide us with the results of an audit conducted by USDA or another

mutually acceptable independent third party to establish that you have the systems

in place to ensure the accuracy of the country of origin information that you provide

us.

In the interim, so that we may have some assurance that our suppliers will be

able to comply with the law in a timely fashion, we have requested that all covered

commodity suppliers provide us with a country of origin labeling action plan and

Letter of Assurance by September 30, 2003 that states their intent: (1) to provide

Wal-Mart with the results of a third party audit of their country of origin labeling

programs and (2) to sign a contract with a commitment (a) to reimburse Wal-Mart

for any fines or other costs that may incur as a result of the supplier’s country of

origin declaration and (b) to maintain (and hold suppliers responsible for maintaining) a verifiable audit trail.

The Letter of Assurance must also provide a sample or mock-up of the country

of origin label, sign or other mechanism that suppliers provide to us with their products, as well as a description of how that information will be provided, e.g., affixed

to every product at a particular rate of adhesive effectiveness; number of signs or

labels per box; printed directly on the packaging or product overwrap that apply,

etc. It also asks suppliers to describe how they intend to ensure that all necessary

information is available in sufficient time to allow us to offer such products to consumers on September 30, 2004 in full compliance with the law.

Wal-Mart believes the steps enumerated above are necessary in order for us to

meet the requirements for implementation. And, as you will recall, suppliers who

fail to fulfill the law’s mandate may also be subject to penalties of up to $10,000

under the law. Accordingly, supply chain veracity is critical.

UNINTENDED CONSEQUENCES

There is an emerging consensus that, our current system frequently functions in

ways that undermine, rather than strengthen, American competitiveness at home

and abroad. Little did we realize that in the case of country of origin labeling what

was originally intended as a means to support and promote U.S. agricultural products may turn into a program that (a) hinders U.S. competitiveness, (b) adds an

undue financial burden to these same producers and (c) confuses customers resulting in mistrust.

Almost immediately after receipt of this letter, calls from suppliers unaware of the

actual ramifications of the law, started to pour in—many of whom, did not realize

the extent and cost of implementation. Their testimony at today’s hearing is the

best indication that some of the best-laid plans have unintended consequences.

Specifically, we are concerned about our small suppliers who may not be able to

comply with those requirements that enable us to implement the program. The law

simply does not distinguish between large and small operations and could force further consolidation. Wal-Mart would rather promote local products than lose suppliers.

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Next we are concerned about the implementation for our suppliers. While the

meat industry, except poultry, is required to demonstrate origin on the front end;

the produce industry must be cautious on the back—through signing in an everchanging perishable marketing environment. For example, under this law, one fruit

bowl could require 25 different labels depending on the time of year. This is particularly worrisome for American produce growers who have an international interest

in marketing their product year round through off-season supplements from foreign

markets.

Here, as growing seasons collide, supply intermingles in order to provide customers with consistent product availability. The quality of this year-round supply

whether produced in the U.S. or imported is reinforced by adherence to the administration’s food wholesomeness and safety standards. Wal-Mart has worked hard to

build year-round markets for perishable commodities for our American producers

and these efforts are in jeopardy if the law goes into effect as written. Furthermore,

competing signage in stores may very well detract from the produce market promotion efforts we have developed with State Departments of Agriculture.

Our supply chain is equally affected. Under the current regulations agricultural

producers must provide information, shippers must maintain separate compartments, our associates in our distribution centers must provide separate storage

space, and our store associates must manage a continually changing display of signs

as well as maintain voluminous documentation for two years. At each step in this

cumbersome process, we move further and further away from our original objective:

to promote U.S. agriculture.

From the retail standpoint, disruption in the supply chain is beginning to spawn

questions about why some in the food business are not subject to the law. If country

of origin is intended to promote U.S. agriculture, how do we tell our customers that

while the majority of food products are subject to labeling, others are exempt. Such

inconsistencies are certain to shatter consumer confidence.

From a practical standpoint, this system may simply collapse under its own

weight.

In summary, we share the view that it is vitally important for Congress to revisit

this law in order to allow the marketplace, not the USDA, to implement a successful, voluntary marketing program that works. This will help everyone in the supply

chain satisfy our customers and support, rather than hinder, our suppliers—especially those on the farm or ranch. We would also stress that this solution should

be applied to all covered commodities on an equal basis to avoid any further inconsistencies that fail to deliver a quality marketing program.

Wal-Mart is an excellent example of how success in the grocery industry directly

supports agriculture and agricultural jobs in the United States. We are proud that

our relationships with State Departments of Agriculture and local producers to market and promote U.S. agricultural products will only continue to strengthen. As we

increase our number of stores overseas, we will continue to provide additional markets for U.S. products sold in our international operations. We look forward to continuing to work with our suppliers on a voluntary basis so that we may continue

to bring high quality, low cost, safe food products to our customers—our top priority.

On behalf of Wal-Mart Stores, Inc., I thank you for the opportunity to testify

today.

STATEMENT OF RAY WALKER

Thank you, Chairman Goodlatte and members of the committee. I am Ray Walker, president and chief executive officer of Patterson Frozen Foods, Inc., a processor

and grower of frozen produce located in California’s central valley.

I also have the honor of serving on the Board of Directors of the American Frozen

Food Institute (AFFI) of McLean, Virginia. AFFI is the national trade association

that represents frozen food processors, marketers and suppliers to the industry.

AFFI’s membership of more than 500 companies is responsible for approximately 90

percent of the frozen food processed annually in the United States, valued at approximately $70 billion. I appreciate the opportunity to appear before the committee

today to discuss country of origin marking requirements for food products, specifically the produce commodities covered in the 2002 farm bill.

OVERVIEW

I have in my career seen the logic of both sides of this issue. As a member of

AFFI’s Board of Directors, I have participated in many discussions on country of origin labeling and I must admit there are those, including me, who have advocated

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for ways to mandate the promotion of U.S. produce. However, the members of

AFFI’s Board of Directors are unanimously opposed to this concept as it is proposed

in the 2002 farm bill.

As a grower of many types of vegetables, we at Patterson obviously have a strong

incentive to sell our own products that are grown in the United States.

Unfortunately, if the country of origin marking guidelines issued in 2002 by the

U.S. Department of Agriculture (USDA) were made mandatory, they likely would

have significant unintended consequences on members of the frozen food industry

who grow, process and distribute frozen produce in a blended form. Among these

consequences are incentives to increase sourcing of some products from abroad and

cease sourcing of domestic products, and to relocate domestic manufacturing facilities to locations outside the United States. These consequences are ironic given that

the purported intent of new labeling regulations was to aid U.S. agriculture.

These unintended consequences can be anticipated because of the ambiguity of

the processed food exemption as it relates to frozen produce. In its deliberations on

this section of the farm bill, Congress wisely excluded ingredients in processed products from coverage under the Act because of the complexity and the negative impact

of doing so. At the same time, by using the Perishable Agricultural Commodities Act

(which considers frozen produce among its covered commodities) as the framework

for the produce provisions, it appears Congress inadvertently may have included frozen produce in its efforts to achieve country of origin labeling for raw produce.

USDA has interpreted the legislation in such a way to include frozen produce, yet

the complexity in labeling is no less for blended frozen produce as it is for other

processed products.

In the case of frozen produce, consider the following facts:

• A departure from the country of origin marking protocol established in the Tariff

Act of 1930 would establish different marking requirements based on the location

of the site at which products from various sources are blended, and the origin of

the source materials. In some cases, companies would face simpler and less costly

requirements if processing facilities are housed outside the U.S. and if no U.S. products are used.

• A new mandatory country of origin protocol in the image of the current voluntary guidelines established by USDA would present food companies with a Catch–

22 situation. They obviously must comply with the law. Yet companies blending domestic and imported ingredients in U.S.-based facilities would find compliance unnecessarily difficult—even unachievable—given existing methods and infrastructure

for product storage and processing.

• In addition to logistical complexities, the new country of origin marking scheme

would impose significant costs. It is important to note that these costs should not

be considered in a vacuum. Rather, additional costs should be analyzed from the

business perspective; that is, in the context of other costs of operating in the U.S.,

including but not limited to regulatory compliance, labor and taxes.

• The logistical quandaries and costs of the new country of origin labeling scheme

would not be outweighed by actual marketing benefits of selling products that list

the U.S. as a source of the contents. Surveys conducted independently for AFFI in

1996 and again in 2003 found that less than one percent of respondents cited country of origin as a factor influencing their purchasing decisions related to frozen

produce. This result was virtually identical in the 1996 and 2003 surveys, despite

the high level of publicity related to country of origin labeling proposals in the intervening years.

• Peculiarities of the new country of origin labeling scheme would make it possible

for some companies to avoid the logistical quandary and costs associated with it by

eliminating U.S.-sourced product from its blends, and/or relocating their blending

operations to locations outside the U.S. Furthermore, considered simultaneously

with other costs and burdens faced by U.S. businesses, these steps likely would be

less costly than maintaining their current sourcing patterns and facility locations

under the new requirements.

In short, the law of unintended consequences may turn a perceived boon for U.S.

growers of produce destined for frozen produce processors into a bust.

For my industry, this issue is not one of tracking or segregation. Currently,

through the product code required on each package we have the capability to identify not only the lot number and plant in which the package was produced, but also

the country of origin and the portion of the grower’s field from which the product

was harvested. It is extremely more difficult and considerably more costly, however,

for U.S. processors to implement the legislation as written for blended produce products, which does not apply to foreign competitors.

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THE LEGISLATION

The regulations to be issued in 2004 will require country of origin labeling for

each of the covered commodities, which are defined in the statute as muscle cuts

of beef (including veal), lamb and pork; ground beef, lamb and pork; fish and shellfish; and perishable agricultural commodities (as defined according to the Perishable

Agricultural Commodities Act [PACA], which includes frozen produce). Under the

statute, country of origin labeling may be accomplished by labeling the package or

the individual item, or by displaying signs at the retail point of sale.

USDA’s implementation of the farm bill labeling provisions will directly regulate

food retailers (except food service establishments, which are exempted by the statute) but will affect food producers as well. When fully implemented, the new law

will require persons supplying covered commodities to retailers to provide the retailers with information indicating the country of origin of the covered commodity. The

statute also empowers USDA to issue regulations (to be effective after the 2-year

voluntary period) requiring producers and distributors of covered commodities for

retail sale to maintain a verifiable recordkeeping audit trail that will permit the

Secretary [of Agriculture] to verify compliance with this subtitle and regulations

there under; the guidelines indicate that the recordkeeping period will be two years.

Even absent such regulations, producers will be affected by the new law, as food

retailers will demand that products supplied to them be accompanied by labeling

in compliance with the new law, and if supplied in bulk, by the origin information

necessary for compliance by the retail establishments.

The farm bill’s country of origin labeling provision contains two important exclusions. First, it excludes from coverage any product that is an ingredient in a processed food item. Under the second exclusion, a retailer is not required to provide

any additional information if the covered commodity is already individually labeled

for retail sale regarding country of origin. These exclusions are important in that

some of the products included in USDA’s guidelines, and perhaps ultimately in the

mandatory requirements, arguably need not be included to satisfy the legislative intent.

EFFECTS OF THE FUTURE USDA REGULATIONS ON FROZEN FOOD PRODUCTS

As stated previously, frozen produce of foreign origin already is required to be labeled for country of origin under section 304 of the Tariff Act of 1930. Under this

Act, as interpreted according to current U.S. Customs Service practice, fresh fruits

and vegetables that undergo cutting, sorting, steam blanching and freezing, but not

further processing such as cooking or combining with a sauce, are considered to retain the origin of the country in which they were grown for country of origin marking purposes.

For example, frozen okra grown in Mexico and frozen in Texas must be marked

Product of Mexico. Hence, most types of frozen produce that are of foreign origin

are required to display country of origin marking on the containers in which the

product reaches the ultimate purchaser. For a product that contains produce from

multiple countries of origin, each of the countries must be listed on the package.

Therefore, at this moment, in any supermarket in America, a consumer who wishes to know whether the frozen broccoli he or she is about to purchase is from outside

the United States need only read the label on the package. That holds true for

produce processed abroad as well as that processed here in the United States.

Frozen produce that is a product of the United States, which is not now subject

to mandatory country of origin labeling under section 304, also would be affected

by the new regulations. This would go well beyond the current situation in which

companies in my industry promote their goods as a Product of the USA if they so

desire; the new marking scheme would mandate such marking. In effect, the new

regulation would mandate a marketing strategy that makers of qualifying products

in my industry already are free to employ if they choose to do so. And, since produce

grown abroad is already subject to this labeling, the burden of this legislation falls

on those who have chosen to source domestically.

GENERAL EFFECT OF THE USDA GUIDELINES ON FROZEN PRODUCE

The USDA guidelines, if promulgated as regulatory requirements, would not require an enormous burden for single ingredient items such as a bag of frozen peas,

green beans or blueberries. The industry already is tracking the information required and this information is already labeled on produce of foreign origin. Although

implementation of the farm bill provisions will cause processors who source U.S.

produce to incur additional costs, for single ingredient items it is not a magnitude

of cost that would substantially affect the manner in which we operate.

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The provisions, however, will complicate substantially the country of origin labeling scheme for blended frozen produce. Under the guidelines, if the United States

is one of multiple source countries for a commingled fungible good (i.e., a package

of the same type of commodity from various sources) or a mixed produce product

(i.e., a package of various types of commodities), the country of origin label would

be required to list the United States as a source country. Additionally, in either

case, all source countries would be required to be listed in the order of their predominance by weight. This not only would require massive labeling changes upon

implementation of the new regulation, but also would require numerous labeling

changes throughout the regulation’s existence in the event of sourcing changes in

the composition of the product.

The USDA guidelines further depart from current country of origin marking practice under section 304 by requiring country of origin labeling for produce ingredients

in a mixed produce product that underwent blending or processing in the United

States. That is, the country, or countries, of origin would be required to be listed

in a way that identifies the source countries, including the United States, on an ingredient-by-ingredient basis. If there are multiple source countries for an ingredient,

the source countries would be required to be listed on the label, in the order of predominance by weight. Here also, changes in sourcing would require frequent

changes in the retail labeling of the finished product.

Further complicating the origin labeling changes for U.S.-grown produce is

USDA’s interpretation of the farm bill’s limitation of U.S.-origin designations to

produce that is exclusively produced in the United States. Produce grown in the

United States and exported for processing to, for example, Canada, would be required under the USDA labeling scheme to identify the role of each country, e.g.,

Grown in the United States, Processed in Canada.

DIFFERENT LABELING REQUIREMENTS DEPENDING ON THE LOCATION OF BLENDING

A product containing imported produce such as a frozen mixed fruit salad or frozen vegetable stir-fry would be subject to different labeling requirements depending

on the location of the processing. If any processing occurred in the United States,

the label would be required to identify both the source countries in the order of predominance by weight, as well as the fact that processing occurred in the United

States.

To demonstrate my concern with this concept, consider the label for a typical, domestically processed vegetable stir-fry as it would have to appear under the new legislation, shown in Attachment 1. In this example, the product contains seven ingredients and each of these along with its country of origin and location of processing

would be required to be displayed.

Unfortunately, there are some complicating factors. As demonstrated in Attachment 2, there are variations in raw material sources. The seven ingredients are

sourced over time from nine different countries, including the United States. This

means there are 216 possible declaration combinations for this example. Clearly, it

would be impractical to pre-print this label on the package because of sourcing

changes due to seasonal and other conditions.

Currently, frozen food processors use an ink-jet machine to comply with country

of origin marking requirements under section 304. However, under the duplicative

country of origin regulations being proposed by USDA, this would not be possible.

The current ink-jet coding capabilities of the industry only allow a maximum of two

lines and 12 to 17 characters. As a result, a labeling outcome such as the one in

the example in Attachment 2 could not be accomplished under current technology.

In contrast, in the example used previously, if all processing occurred in Mexico,

and produce from the U.S. were excluded, USDA would regard the product as having retained the country of origin as determined for Customs purposes at the time

of importation, i.e., as determined for purposes of section 304. The resulting required labeling is demonstrated in Attachment 3, clearly showing that the labeling

is much simpler and can be printed using the current technology.

The disparity between the complex scheme of country of origin labeling required

for the product blended in the United States and the much more simplified labeling

for the bulk or retail-packed imported product reveals that the labeling scheme currently contemplated by USDA creates a major disincentive to blend in the United

States using U.S. produce. As a result, large- and medium-sized processors that

have overseas blending operations will divert blended, value-added processing to

those facilities. Small- and medium-sized firms that do not have an overseas operation likely will have to confine their production to lower-value single-ingredient

products.

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Some might argue that a sufficient incentive would counteract, or perhaps outweigh, the disincentives. Some might argue that consumers’ interest in buying food

products Made in the U.S.A. would provide such an incentive; however, indicators

do not provide hope that this is the case. Perhaps the most clear indicator of this

position is that if frozen food processors believed a simple Made in the U.S.A. marking were necessary to compete, or would provide a marketing advantage, more processors would ensure their products could be so labeled and market them accordingly. As I said, current law even prior to USDA’s issuance of voluntary guidelines

in 2002 allows for voluntary use of Made in the U.S.A. labeling, assuming it qualifies for such designation.

Use of Made in the U.S.A. labeling as a marketing strategy may not even be possible in some instances. Some commodities are not available in the United States

on a consistent basis throughout the entire year; others are not available in the

United States at all. These facts prohibit reliance on a Made in the U.S.A. marketing strategy for most companies. However, as has been stated, those companies for

whom such a strategy is possible are free to pursue it under current law.

Consumer opinion provides further evidence that even if a Made in the U.S.A.

marketing strategy were possible for more companies, it would unlikely meet with

sufficient success. Opinion Research Corporation conducted an independent nationwide survey for AFFI in January 2003, regarding factors that affect consumer purchasing decisions related to frozen fruits and frozen vegetables. Less than one percent of respondents stated a response related to country where a product is from

as a main factor.

Significantly, this is the same result revealed by an identical survey fielded by

the same company for AFFI in 1996. Between 1996 and 2003, there has been ongoing public debate about country of origin marking proposals offered by members of

Congress and Federal agencies. Advocates of changes in country of origin marking

requirements have waged aggressive campaigns in the media. Still, amid an onslaught of publicity, less than one percent of respondents consider country of origin

as important to their purchasing decisions when it comes to frozen produce.

The top five motivators stated by survey respondents were the same in 2003 as

in 1996; however, their rank order changed slightly. Price, taste, brand, quality and

nutritional value were the top five motivators in 2003, in that order. In 1996, brand

ranked ahead of taste.

A WORD ABOUT SURVEYS BY PROPONENTS OF NEW REGULATIONS

Proponents of new country of origin marking regulations point to surveys commissioned by them that they maintain indicate strong consumer support for such regulations. However, it is important to note differences in survey methodology that may

inflate the perceived value placed by consumers on country of origin labeling in

those survey results.

To determine top-of-mind factors that affect purchasing decisions, the question

posed by AFFI regarding these factors did not list potential answers. It was up to

respondents to name factors important to them, unaided by those conducting the

survey. By contrast, surveys by other organizations may list country of origin as a

potential answer. Still other surveys may focus solely on whether consumers would

desire product label information on country of origin. In surveys in which country

of origin is made a focus of the questioning, it is likely for responses to be skewed

in a manner that overstates consumers preferences for additional regulations.

• A report by the Congressional Research Service (CRS) described factors that influence respondents answers in surveys related to the country of origin of food products. Interesting findings reported by CRS, and sources cited by CRS, include the

following:

• Stated preference methods amount to polling consumers about the importance

they attach to different product characteristics or about their willingness to pay for

hypothetical products. The major problem with these methods is verification. It is

impossible to know whether consumer responses to a survey match their marketplace behavior.

• When consumers are polled about country of origin and nothing else (often denoted as a single cue study), they overstate the importance of country of origin. Asking consumers to rank multiple characteristics reduces the overstatement. Chao

notes that many single cue studies indicate country of origin to be important to consumers, while some multiple cue studies indicate that country of origin does not affect consumer perceptions.

These findings may put into perspective those that otherwise would seem to indicate strong consumer support for new regulations. An example is a survey conducted for the Desert Grape Growers League in 1996, as cited in testimony by the

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General Accounting Office (GAO) before the U.S. Senate Committee on Agriculture,

Nutrition, and Forestry. This survey found that approximately half of respondents

would be willing to pay a little more to get U.S. produce. The GAO testimony noted,

However, the survey did not specify the additional amount that consumers would

be willing to pay.

The GAO testimony also cited a survey conducted by the fresh produce industry,

in which between 74 and 83 percent of respondents favored mandatory country of

origin labeling for fresh produce, although respondents rated other product information as more important to them. In this survey cited by GAO, consumers ranked

information on country of origin fifth out of six factors, when the six factors were

explicitly provided as options from which respondents could choose.

The insights into survey responses described in the CRS report support the conclusion that consumers may not be as willing to pay more for domestic produce, nor

nearly as supportive of new country of origin marking regulations, as surveys by

proponents of new regulations would have one believe.Conclusion

In conclusion, it is important to note that there is good news in the world of

produce. Due to the increased awareness of the importance of fitness and nutrition,

consumption of produce, including frozen produce, has increased. The blended products described in this testimony are leading the way in providing a nutritious, convenient and value-added product to consumers in the produce category. It would be

a shame, however, if due to good intentions, U.S. farmers were not able to participate in this growth.

The unintended consequences described that result from duplicative regulating

produce are a good reason why this type of government-mandated market intervention, however well meaning, should be avoided.

Thank you for this opportunity to present my views. I would be happy to answer

any questions you may have.

STATEMENT OF J.H. CAMPBELL, JR.

Good morning, Chairman Goodlatte and members of the committee, and thank

you for this opportunity to provide you with the views of the Nation’s independent,

community-focused retail grocers and wholesalers regarding the impending Country

of Origin Labeling (COOL) program.

My name is J.H. Campbell, Jr., and I am president and chief executive officer of

Associated Grocers, Inc., which is a retailer-owned company with headquarters in

Baton Rouge, Louisiana, servicing more than 245 independent retail grocers in Louisiana, Texas, Arkansas, and Mississippi. I am also a past chairman and a member

of the Board of Directors of the National Grocers Association (N.G.A.), on whose behalf I testify today. N.G.A. is the national trade association representing the retail

and wholesale grocers that comprise the independent sector of the food distribution

industry. An independent retailer is a privately owned or controlled food retail company operating in a variety of formats. Most independent operators are serviced by

wholesale distributors, while others may be partially or fully self-distributing. Some

are publicly traded but with controlling shares held by the family while others are

employee-owned. Independent retail grocers are the true entrepreneurs of the grocery industry and are dedicated to their customers, associates, and local communities.

At the outset, it is important to note that the Country of Origin Labeling program

was the subject of political debate and discussion for at least a decade. The issue

of whether or not it was good public policy to pass protectionist legislation covering

food products has been discussed for at least the last ten (10) years. Country of Origin labeling was ultimately passed by Congress not long after the tragedy of September 11. Since then, all have had time to reflect and consider the consequences

of this legislation. Congress, the Federal Government, and private enterprise have

all had time to objectively assess our Nation’s security needs. We are here today

to suggest to you that, in the light of a calmer time, it is appropriate to evaluate

two different forms of public policy intended to make our food system more secure

and to produce more pertinent information for consumers.

One policy option would require that only certain products, sold only in certain

retail formats, have certain labels indicating the product’s country of origin. This

option is extremely costly, burdensome, misleading to consumers, and inequitable.

This is the option our Nation is facing, and we are asking this committee to begin

working to repeal the COOL program as envisioned under the 2002 farm bill.

An alternative policy option, and one that our industry can support, would involve

taking the billions upon billions of dollars it will cost to implement the current

COOL program and give a portion of that appropriation to the USDA and to the

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Food and Drug Administration to further improve their food inspection efforts and

increase the number and quality of import inspections. These services are currently

underfunded, and improving food security in this regard would produce real, tangible benefits to our Nation’s food security and food safety. In the meantime, we

suggest that U.S. producers of agricultural commodities who are concerned about

foreign competition take the opportunity to voluntarily label their own product and

leverage their domestic products as a marketing advantage (i.e. Florida oranges;

Idaho potatoes; Georgia peaches; Louisiana crawfish; Nebraska beef, etc.).

Looking at these two broad policy options, one must ask: Which one is best for

the American consumer? N.G.A. believes strongly that the second option, one with

real food security improvements and voluntary labeling of products, is the best and

most effective course of action.

The alternative, the COOL program currently slated to go into effect in 2004, will

be extraordinarily burdensome, would require extensive and unrealistic recordkeeping, and will merely add costs to food products routinely and customarily sold

at retail to all Americans—all the while providing no increase or improvement in

food safety or product security.

Country of Origin Labeling has been presented as a law intended to give more

information to consumers. Our industry strongly supports informing consumers, and

we continue to believe that voluntary, industry-led efforts are the best way to provide that information. But this reasoning, that consumers can only be informed

through a mandatory program that includes only certain products sold through certain retail formats, ignores the fact that this program has been a political issue for

years. We believe that, in fact, this program will misinform consumers, by falsely

implying imported products are either inferior or less safe. We believe this program

will confuse and mislead consumers, giving them only an irrelevant piece of information a certain product’s country of origin with no supporting information with

which to make an informed buying decision.

Ultimately, at the heart of this debate, has been the desire of domestic agricultural producers to resist foreign competition. The implication is that labeling would

somehow improve the safety and security of the Nation’s food supply.

If our goal is to provide vital information to consumers, then why does COOL

cover only certain food sold or provided at certain retail outlets? Why are some products covered and not others?

The Nation’s community-focused retail grocers and their wholesalers are committed to food safety, and support workable, effective measures to increase the Nation’s

food security. With today’s high technology and instant communications capability,

and in coordination and cooperation with Federal and state agencies, retailers and

wholesalers throughout America currently are able to rapidly recall products for any

food safety related reasons. This is routinely and efficiently done when there is a

factual determination, where deleterious or dangerous materials are contained in

any type of food product.

With this in mind, which would you rather see: A government inspector checking

actual food products to ensure that they are free from contamination, or a government inspector auditing the records of a retail grocer to determine if a certain banana, sold months previous, was actually from Costa Rica rather than Honduras?

It seems clear that only one of those inspectors is doing something that is actually

increasing the Nation’s food safety and security.

It is particularly worth noting, in reviewing the COOL program, that its recordkeeping requirements would be extraordinarily complex, voluminous, costly, and

burdensome. The guidelines would require every entity, or person, that prepares,

stores, handles, or distributes a covered commodity to a retail store to keep those

records on the Country of Origin for a period of at least 2 years. This requirement

forces all producers, handlers, packers, processors, importers, retailers, and wholesalers to maintain auditable records documenting the origin of the items covered.

Retailers must ensure that there is a verifiable audit trail through either contracts,

invoices, or other means, identifying all suppliers throughout the production and

marketing chain, and retailers must maintain supporting records at the place of

sale.

This provision will require retailers and wholesalers, much less the producers of

the products, to have readily available an audit trail covering the hundreds of items

that are stocked, sold, and changed on a daily basis in most retail stores. As an example, our company distributes more than 120 separate beef, lamb and veal items,

as well as over 90 pork items and over 75 different seafood items. We completely

turn (sell) these commodities (and their replacement items) in our distribution center more than 35 times each year. We buy on the average of 17 loads of beef and

11 loads of pork each week. An average retail grocery store or supermarket will

have to maintain records on more than 600 products that turn in inventory daily.

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This will require adding the country of origin to all of the invoices for covered

commodities by every industry segment. This will expand tremendously the volume

of paperwork, which, by the way, over 75 percent of N.G.A. retailers report is being

done manually. For example, our company may receive a shipment of bananas from

four different countries. As a wholesaler, we will have to track and put on each invoice to our retailers the country of origin for each case shipped to them. This is

a product that would be shipped three times each week. This is for just one product.

Records must also be maintained for domestically produced and/or processed products, identifying the location of the growers and production facilities. When similar

items are present from more than one country of origin in a display case for sale,

a segregation plan must be in place, and for the imported items, records must provide clear product tracking from the port-of-entry into the United States. The USDA

has not disclosed what will be considered adequate segregation of product in the distribution center or retail store.

These recordkeeping costs are not only burdensome, but also excessive in cost.

The USDA has estimated that the recordkeeping requirement alone will cost the industry almost $2 billion, with $628 million imposed on retailers, $340 million on

food handlers such as wholesalers, and $1 billion on producers or manufacturers.

N.G.A. believes, however, that the true costs will be much higher, and will result

in unnecessarily higher prices for products routinely purchased in supermarkets in

our country every day. It is important to note that recordkeeping is only one part

of the compliance costs. It does not include costs of computers, software, labels, additional labor, and more that would be required to change our processes to comply. Under the law, wholesalers are subject to fines of up to $10,000 per violation for failure to comply, and fines of up to $10,000 per violation for willful violations. The

USDA has indicated that it intends to have state agencies enforce the law.

With states facing severe budget deficits, it is not hard to envision this program

becoming a target for state agencies seeking to subsidize their budget restraints

through a series of targeted sting operations to catch retailers for trivial paperwork

violations. It is not hard to imagine how that could occur. For example, a wholesaler

could receive 12,000 cases of bananas in a week, and have to distribute those cases,

each weighing 40 pounds, to hundreds of retailers.

Currently, we are not concerned with mixing bananas from various countries. If

one has a good, wholesome, ripe banana that just happens to come from Costa Rica,

and adjacent to it is another good, wholesome, ripe banana that just happens to

come from Honduras, or wherever, what difference does it make which country it

came from? The consumer just wants a fresh banana to slice over his morning cereal. It should be noted that both should have been previously inspected and approved at the port-of-entry, and therefore can be assumed to be equally nutritious

and delicious.

But under COOL, those bananas have to be segregated, possibly even individually

hand-labeled, in order to protect the wholesaler and retail grocer from liability

under COOL—and to provide the consumer with a bit of useless, trivial, and unnecessary information.

When you look at the requirements which our industry will have to satisfy to comply with this law, it makes the law’s omissions all the more glaring and questionable. If consumers have a right to know from where the food they purchase at retail

comes, then why is more than one half of the food that Americans consume excluded

from this law? Why were food service products, and their distributors, and their outlets excluded?

Excluded from this law are: convenience stores, small supermarket formats that

sell less than $230,000 worth of fresh fruits and vegetables per year, airlines, passenger trains, restaurants, fast-food outlets, hospitals, school cafeterias, and very

significantly, dining facilities on military bases and military commissaries. Consumers who get their food in these places get no information about the country of origin

of the food they are provided—none! Over one half of the food consumed by Americans would not be covered under this law.

It is interesting to note that the products sold in grocery stores and supermarkets

have a mandatory nutritional label on each and every product sold, and yet, you

or I can enter any restaurant in America and be served any item on the menu and

be told nothing about the contents, ingredients, recipe, preparation technique, or

anything else about the product that will be served. It is the restaurant customer’s

personal responsibility to ask if they are interested or concerned about the menu

item that they desire.

While only certain retail formats are covered, only certain food products are covered under COOL. But why is it important for consumers to be informed of the

country of origin of just those certain commodities? Why must their beef, lamb or

pork carry a label, but not their chicken, or turkey?

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And commodities covered under COOL are excluded if they are an ingredient in

a processed food item. It just seems absurd and totally inconsistent. Peanuts must

be labeled, but not our peanut butter. Pork must be labeled, but not our pork sausage. Oranges have to be labeled, but not our orange juice.

Finally, in order to accurately label products, wholesalers and retailers have to

assess a commodity’s whole biography. Beef can be labeled as U.S. product, but only

if it has spent 60 days or less outside the country. Fish can be labeled U.S. so long

as it was caught in U.S. waters or on a U.S.-flagged vessel.

Members of the committee, as you examine this program, and weigh the excessive

costs and burdens it will place upon our industry against the fragmentary and misleading information it will provide to consumers, we hope you will agree that this

legislation requires immediate repeal. N.G.A. and its members have provided USDA

with extensive comments regarding the program and the published guidelines. Attached to my testimony are N.G.A.’s comments submitted recently to USDA on the

voluntary guidelines, and I would ask that these also be incorporated into the record

of today’s hearing.

Community-focused grocers believe in giving their customers information about

the products that they sell, but we believe this is best accomplished through voluntary means driven by consumer demand and marketing leverage. With regard to

food safety, a) the systems currently in place with USDA, FDA, and the various

state departments of agriculture, and b) the notification provisions, procedures, and

processes, that we currently have in place, and c) the voluntary compliance that

manufacturers, producers, processors, wholesalers, and retailers, currently utilize

with each other; all ensure a safe, sound, secure, product supply indicating no need

for any additional, mandatory labeling.

Food safety and security are indeed high priority items for anyone in the food

business. In our marketplaces across America we have available the broadest variety, selection, and choices of food products for the American consumer to enjoy each

and every day. We should work to preserve that free marketplace and adequately

fund the USDA and FDA so that port-of-entry inspections are thorough and complete to maintain the safety and security of the food products we enjoy from abroad.

Thank you very much for this opportunity to testify before the committee today.

I would be pleased to answer any questions you might have.

STATEMENT OF DICK TROYAK

We welcome this opportunity to comment on the country of origin labeling provisions as set forth in the Food Security and Rural Investment Act of 2002 (i.e., the

farm bill). The American Peanut Product Manufacturers, Inc. is a national trade association representing the companies that manufacture a majority of the peanuts

produced in the United States into snack peanuts, peanut candy and peanut butter.

As a result of the 2002 farm bill, more-extensive country of origin labeling requirements will be imposed on certain commodities. This law establishes country of

origin labeling requirements for a number of covered commodities, including peanuts. Section 10816 of the farm bill (7 U.S.C. 1638) also specifically excludes a covered commodity from the labeling requirements ‘‘if the item is an ingredient in a

processed food item.’’

The initial guidelines developed by USDA’s Agricultural Marketing Service (AMS)

on October 11, 2002, are correct in excluding peanut candy and peanut butter from

the requirements of the new Federal country of origin labeling statute. Unfortunately, these initial guidelines are over-inclusive in extending the scope of the statute to include most snack peanut products. In these initial guidelines, AMS has

taken the rather arbitrary position that peanuts that are shelled, roasted, salted

and/or flavored (which are hereinafter collectively referred to as snack peanuts) for

retail sale are not excluded from the country of origin labeling requirements of the

statute. Snack peanuts are a processed food item that has been materially changed

during the roasting process, and therefore must be excluded from country of origin

labeling requirements.

We strongly oppose recent efforts by peanut growers to have peanut butter included in the country of origin labeling guidelines. Peanut butter is clearly a processed product that involves the grinding of peanuts and the addition of other ingredients to make a product that is materially changed from raw peanuts.

Snack peanuts and peanut butter must be excluded from coverage under the plain

meaning of the statute as well as the language of the guidelines themselves and an

existing agency definition of processed food. The guidelines as currently written to

include snack peanuts and any expansion of the guidelines to cover peanut butter

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will cause considerable economic hardship for a vital sector of the U.S. peanut industry and potentially raise serious trade concerns.

ESTABLISHED USDA REGULATORY DEFINITION OF PROCESSED PRODUCT

An existing Federal regulatory definition governing inspection and certification of

processed food products defines the term processed product as a food product which

has been preserved by any recognized commercial process, including, but not limited

to canning, freezing, dehydrating, drying, the addition of chemical substances, or by

fermentation (see 7 C.F.R. 52.2(b)). This definition outlines USDA’s long-standing

approach for determining whether a particular food product is a processed product.

This current regulation clearly would treat any peanuts and peanut products in the

form of canned snack nuts, peanut candy and peanut butter as processed peanut

products. Under this existing definition, only in-shell peanuts that are available in

bulk or loose form for retail sale at grocery stores would be subject to country of

origin labeling.

SNACK PEANUTS & PEANUT BUTTER FIT THE PROCESSED FOOD EXCLUSION OF THE

STATUTE

Under the country of origin statute, a covered commodity is expressly excluded

from the scope of the country of origin labeling provisions if the item is an ingredient in a processed food item. Snack nut products, including cocktail peanuts, dry

roasted peanuts, and honey roasted peanuts, which are generally sold at retail in

cans, jars or bags are finished processed products that contain at least two or more

additional ingredients. Therefore, snack peanut products may start out as peanuts

meeting the statutory definition of a covered commodity, but the peanuts themselves

are just one of the ingredients in what becomes a processed food item in the category of products referred to as snack nuts. Snack peanut products fall within the

plain meaning of the processed food labeling exclusion of the statute. An interpretation to the contrary by AMS would be in violation of the clear statutory language.

Similarly, peanut butter fits the processed food exclusion of the country of origin

labeling statute. Peanut butter is sold in jars as finished processed products that

contain at least two or more additional ingredients, where the original peanuts have

been processed through grinding, such that the resulting peanut butter is a food

product that does not even look like peanuts.

Snack Peanuts & Peanut Butter Are Excluded Under the Proposed Agency Definition

If the proposed AMS definition contained in the guidelines for processed food item

is applied to snack peanuts, such products would be excluded from the country of

origin labeling requirements. In its guidelines, AMS defines a processed food item

as either of the following:

1. a combination of ingredients that may include a covered commodity but the

identity of the processed food item is different from that of a covered commodity;

or a covered commodity that has undergone a material change.

Snack peanut products appear to fall under both tests set forth in the guidelines

for the processed food item exclusion. Pursuant to the first test, snack peanut products are made from a combination of ingredients that result in a product with an

identity different from that of the covered commodity (that is, peanuts).

Application of the second alternative test presents even a stronger case that snack

peanuts fit within the scope of the processed food item exclusion. A raw peanut undergoes significant physical and chemical changes during the roasting process. The

chemical reactions triggered by roasting changes the raw peanut kernel irreversibly

and generate a characteristic roasted flavor not present in the raw kernel. Among

other things, roasting denatures the peanuts storage proteins to produce flavor compounds and aroma, as well as brown pigments.

Proper roasting also produces the desired crisp texture of a roasted nut, while

antioxidants generated by the application of high heat help preserve the freshness

of the roasted product. When combined with proper packaging, these desired roasted

product attributes can be preserved for years.

The roasting process clearly consumes amino acids, sugars, peptides, and other

components to produce the characteristic flavor, color, and physical structure of a

roasted peanut. None of these features exists in a raw peanut. Thus, roasted peanuts have been materially changed from raw peanuts, just as the second definition

requires, and thereby qualify as a processed food item.

Likewise, peanut butter has been materially changed from its original state as

peanuts through grinding and the addition of ingredients.

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SIGNIFICANT COSTS FROM EXPANSION OF THE STATUTE TO COVER SNACK PEANUTS &

PEANUT BUTTER

Some of our member companies that manufacture and market roasted peanut

products as well as peanut butter will incur significant unnecessary costs if AMS

fails to exclude snack peanut products and peanut butter from its country of origin

labeling guidelines. Neither the statute nor the definition of a processed food item,

which is contained in the proposed guidelines require such labeling for snack peanut

products. The same is true for peanut butter, which is not a covered commodity

under any reading of the country of origin labeling statute.

If AMS proceeds to arbitrarily require labeling for snack peanuts or expands the

guidelines to include peanut butter, it will cause the substantial commitment of individual company resources to implement and comply on an ongoing basis with the

country of origin labeling requirements. Significant implementation and compliance

costs will be associated with product segregation, audit trail, record keeping, labeling, and customer assurance.

ONLY IN-SHELL PEANUTS FIT THE DEFINITION OF A PROCESSED FOOD ITEM

We do not believe that AMS has followed the explicit language in the statute in

applying the country of origin labeling requirements to snack peanuts in its initial

guidelines. AMS should limit its regulation to in-shell peanuts because snack peanut products, such as shelled and roasted peanuts clearly fit within the exemption

for an ingredient in a processed food item. Thus, before the current voluntary guidelines are issued as a proposed rule, we urge the committee to work with USDA to

ensure that mandatory country of origin labeling regulations issued by the Department apply to only in-shell peanuts, and not processed peanut products, like shelled,

roasted, and other snack peanuts.

Thank you for allowing us to provide our views on this issue of significance for

the U.S. peanut industry. We believe that the committee can provide much-needed

assistance in minimizing the adverse and unproductive aspects of the mandatory

country of origin labeling legislation.

STATEMENT OF HON. TIM JOHNSON, A SENATOR FROM THE STATE OF

SOUTH DAKOTA

Mr. Chairman, thank you for the opportunity to submit written testimony for today’s hearing. I appreciate your willingness to accept this statement in support of

the country of origin labeling law.

As a former member of the House of Representatives and this committee, I

worked to enact legislation requiring country of origin labels on food items. Last

year, thanks to support for labeling in both bodies of Congress, mandatory country

of origin labeling for beef, pork, lamb, fruits, vegetables, peanuts, and fish was included in the farm bill. The U.S. Department of Agriculture is developing rules for

labeling, set to begin in September of 2004.

Recently, the House Subcommittee on Agriculture Appropriations included language in the fiscal year 2004 bill to effectively restrict USDA from issuing regulations to implement labeling for meat and meat products. If agreed to by Congress,

this language would dismantle our only law to ensure consumer confidence in beef

and jeopardize our most valuable export markets.

Support for the mandatory country of origin labeling law is bipartisan and broad.

In the House, Reps. Bill Janklow (R-SD), Earl Pomeroy (D-ND), and Mary Bono (RCA) are strong leaders who support the law. I worked with Sens. Chuck Grassley

(R-IA) and Mike Enzi (R-WY) in the Senate to include labeling as part of the Senate

farm bill last year.

The most important and influential farm and consumer organizations in the Nation support the labeling law, including the American Farm Bureau Federation, National Farmers Union, and Consumer Federation of America. In fact, 134 groups

supporting the labeling law sent a letter to Members of Congress to express their

opposition to steps in the House to delay implementation of this critical program.

I have included a copy of this letter for the committee record. Altogether these organizations represent more than 50 million Americans—each one a consumer who supports the right to know where their food comes from and the law we passed last

year. The only groups that oppose labeling are the narrow special interests in the

meatpacking, food processing and major retailing sectors. These well-funded opponents and their politically connected allies appear to have significant influence in

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the House. It is unfortunate the clear majority who support the law have been overruled in the House by a smaller fraction of special interests with power and money.

I think it is important to address some of the frequent criticisms that opponents

of the labeling law use to defend their position. Opponents of the law have complained about the lack of Congressional hearings on this issue. However, today’s

hearing marks the seventh time since the late 1990’s that a Senate committee,

House committee, or conference between the two bodies have met to discuss labeling. Opponents go on to suggest labeling somehow violates our trade commitments.

What they don’t want the public to know, however, is that 34 nations already require country of origin labeling for beef cuts and 33 require labeling for ground beef.

In fact, some meatpacking firms who allege it is impossible to carry out a labeling

program already comply with labeling laws in order to export meat products to

Japan and the European Union. Opponents are also quick to cite inflated cost estimates for the program released by USDA. However, through a Freedom of Information Act request, the Consumer Federation of America obtained documents which

reveal these cost estimates were developed after groups opposed to the law met with

USDA. The University of Florida completed the only objective cost analysis which

indicates the cost of labeling can be contained to around $200 million versus the

USDA and opponent’s claim of $2 billion. It is also common for opponents to assert

labeling will not result in any benefits. But these arguments ignore the many consumer surveys and University of Florida analysis, all which demonstrate consumers

are willing to pay a premium for information about the origin of their food.

Finally, opponents of the labeling law contend it is complex and impossible for

USDA and the industry to implement. However, those of us who wrote the law permitted USDA broad authority to piggy-back existing government and industry programs to ensure easier implementation. For instance, the new labeling law can be

modeled after the National School Lunch program, Department of Defense subsistence program, and the Market Access Program—all Government-run to ensure the

origin and identity of food products are retained. Moreover, the labeling law can be

modeled after existing industry programs such as the USDA grade certification system, Certified Angus Beef, and other systems meatpackers use to provide special

marketing labels for meat products. But opponents misconstrue the law to scare producers these programs won’t work. Worse yet, USDA has turned a blind eye to packer threats against livestock producers regarding on-farm surveillance and thirdparty certification. Some packers have resorted to letters to producers threatening

costly third-party certification and mandatory identification programs, which are not

permitted under the law. These scare tactics are inappropriate and only intended

to kill the law.

I will conclude my statement with some thoughts concerning Canada, mad cow

disease, and Japan, our most valuable export market for beef. Mad cow disease in

Canada demands that USDA and Congress take careful and appropriate steps to

protect our cattle industry and restore confidence in beef supplies. Despite enormous

pressure from the meatpacking lobby and Canadian government to lift the ban on

imports of Canadian beef and cattle, I have called upon USDA Secretary Veneman

to fully implement labeling before completely lifting the ban. Labeling won’t prevent

BSE but it will allow consumers to differentiate between U.S. and Canadian beef.

We shouldn’t take this issue lightly since the U.S. imports more beef and cattle from

Canada than any other nation in the world.

Japan has sent a letter to USDA insisting that all beef exports are certified by

July 1 so as to indicate their country of origin. Japan purchases around 1 billion

pounds of valuable U.S. beef each year, but without a labeling guarantee, Japan

cannot certify whether Canadian beef is being laundered through our borders and

disguised as coming from the U.S. However, USDA asked for a delay of the July

1st deadline which now has been granted by Japan. The U.S. now has until September to certify all beef exports as U.S.-origin only. The entire world is waiting to see

how we respond to Japan’s request, and USDA now has more time to meet it. I believe we should comply with their request to certify the origin of beef exports, using

the U.S. labeling law as a model. Otherwise, we are carelessly jeopardizing our most

valuable export market for beef.

Mr. Chairman, action in the House to delay country of origin labeling for meat

is misguided. Dismantling our only way to differentiate and identify beef given the

BSE scare in Canada recklessly risks consumer confidence. Ignoring requests from

important beef customers to certify exports by country of origin is taking a serious

gamble with our most valuable export markets. Rather than stalling the law or contending it is too difficult to administer, we should encourage USDA to accelerate implementation and hold USDA responsible to carry out the intent of Congress. BSE

in Canada and Japan’s request creates a unique circumstance and the opportunity

for the U.S. to act responsibly. Indeed, the significance of BSE in Canada and JaVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00138 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
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pan’s desire to import only U.S. beef compel us to swiftly move ahead and implement the mandatory country of origin labeling law.

Thank you once again, Mr. Chairman.

STATEMENT OF J. PATRICK BOYLE

Good morning. I am J. Patrick Boyle, president & CEO at the American Meat Institute (AMI), the Nation’s oldest and largest meat industry trade association. AMI

represents packers and processors of about 95 percent of the beef, pork, lamb, veal

and turkey produced in the U.S. About two-thirds of these companies are small

businesses with fewer than 100 employees. The remaining third are mid-to-large

firms, including some major international food processing companies.

AMI has long-standing policy opposing mandatory country-of-origin-labeling

(COL) for meat and poultry products. During consideration of the 2000 farm bill,

we opposed mandatory COL for meat products and were successful in helping to defeat amendments offered during the House Agriculture Committee mark up of the

bill. When mandatory COL was passed on the House floor during farm bill consideration, meat products were exempt from the bill. During Conference Committee deliberations between the House and Senate, the House voted unanimously, twice,

against the mandatory COL provisions for meat products included in the Senate

passed bill.

During my tenure at AMI, I have yet to hear an argument from proponents of

mandatory COL that makes sense for the producer, packer/processor, retailer or for

the consumer. Proponents of mandatory COL initially argued that concerns about

food safety was reason enough to impose mandatory COL. When it was established

that meat products coming from countries eligible to ship product into the U.S. were

inspected under a food safety system equivalent to U.S. standards; reviewed annually by USDA food safety experts; subject to reinspection at the port of entry; and,

ultimately, inspected by USDA inspectors in federally inspected meat plants—that

argument subsided. The argument is even more fallacious when one considers that

mandatory COL will apply not only to imported meat, but also to the meat from

animals slaughtered in USDA inspected plants in this country. Many of those animals are born in Mexico or Canada, often raised in the United States, and all of

those animals are subject to the very same inspection system as animals born,

raised, and slaughtered in the U.S. When the same USDA inspector looks at both

animals, the illogic of the COL proponents food safety argument becomes readily apparent.

Then we heard proponents argue that mandatory COL was a consumer-right-toknow issue. In fact, it was the consumer-right-to-know premise that led to mandatory COL’s inclusion in the 2002 farm bill. However, this argument too rings hollow.

Mandatory COL is required for a select group of commodities (red meat, fruits and

vegetables, peanuts and fish) and not all commodities. Equally troubling, mandatory

COL only applies to certain product lines within those commodity groups—for instance, not all red meat products, fish products or peanut products are required to

be labeled, just some of them. This suggests a level of fickleness among consumers

beyond comprehension!

Perhaps the greatest flaw in the consumer-right-to-know logic is that the law applies to covered commodities sold in retail establishments but the same commodities

sold in restaurants are exempt from mandatory labeling. So, what does this mean?

A consumer has the right-to-know where their hamburger, lettuce and tomato come

from when they purchase it from the grocery store, but they do not have that same

right when they purchase it from a diner or restaurant. It is ironic that proponents

assert that the consumer has a right to know the country-of-origin regarding the

hamburger he or she purchases at a retail store, but does not have the same right

regarding the hamburger they ate at a restaurant just before going grocery shopping

(even though both hamburgers could have come from the same animal. Where’s the

logic?

Lately, we have heard from some producer segments that mandatory COL for

meat products will lead to increased profits for red meat sales. They claim that consumers are willing to pay more for products with a ‘‘Made in the U.S.A.’’ or ‘‘Product

of the U.S.A.’’ label. For the sake of argument, let us suppose that to be true. Let

us also suppose that such a labeling regime will lead to an increase of 1-cent, 5-

cents or 25-cents per pound. If so, we should also assume that the USDA cost estimate for implementing mandatory COL will cost $1 billion in paperwork alone. Indeed, AMI’s conservative estimates of the capital costs alone for the approximately

120 largest cattle and hog slaughter facilities are about $2.4 billion. Those costs are

in addition to the substantial annual costs of implementing such a labeling system.

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Now, the following questions must be answered: if increased revenue is realized

by retailers for meat products bearing mandatory COL, will that revenue off-set the

cost of mandatory COL that retailers and packer/processors will incur? If the answer is no, producers are not likely to realize additional revenue to offset their cost

of implementing mandatory COL. Even if the answer is yes, and I do not believe

there is evidence to support that answer, how much of the ‘‘profit,’’ if any, will

‘‘trickle down’’ to producers?

There is simply no credible data or evidence available to suggest that the cost of

implementing mandatory COL will offset, much less exceed, those costs.

Let me also briefly comment on another problem. The law imposes the responsibility for accurate labeling, and provides for civil penalties for errors in such labeling,

on the retailer and those in the distribution chain who supply covered commodities

to the retailer. In the livestock and meat industry the only people who can provide

accurate information as to the country of origin of livestock are livestock producers

(not the packer and not the retailer. Yet, some producers deny their accountability

and seek to shirk that responsibility, asserting that they should be able just to declare the country of origin of their livestock. Packers and those up the chain must,

however, must be able to rely on something more because it is the packer, the

wholesaler, the retailers and others in the chain who will bear the brunt of the regulatory burden if the producer’s information is wrong, either through negligence or

fraud.

Since the adoption of NAFTA, the North American livestock and meat industry

has aggressively pursued free trade opportunities and efficiencies among Canada,

Mexico and the U.S. Annually, we export more than $1.2 billion worth of beef and

pork to Canada and Mexico. Some argue, make it simple—just track the imports.

But the national treatment provisions of our international trade agreements require

that the country-of-origin provisions law, including the necessities of recordkeeping,

be applied equally to everyone - whether they import livestock or raise hogs or cattle

domestically. To do otherwise violates the WTO and create a non-level playing field

- a playing field decidedly in favor of those who advocate that AMS should ‘‘just

track the imports.’’

The issue of COL is complex in that its proponents see it as a means to a variety

of ends. For some, it is a means to limit competing imports. Frustrated by Canadian

or Mexican imports, some see such labeling as a way to discriminate against other

North American agricultural products and thereby improve the position of U.S.

products in the U.S. marketplace. For others, COL is a way to promote U.S. products to consumers. If Americans only knew how to choose U.S. products, they reason, then they would prefer to purchase those products and help American agriculture in the process.

AMI shares the goal of those who seek to promote U.S. products, but we oppose

the goal of those who seek to discriminate against imported products. In our view,

mandatory COL will create untenable barriers to imported meats, damage our ability to export U.S. meats and mandate significant new costs throughout our industry.

There is, however, another approach that we continue to believe is responsive to

the desire to provide country-of-origin labeled meat in the marketplace without creating an expensive, administratively burdensome, protectionist mandate. That approach is a voluntary U.S. meat certification program.

As you may know, Mr. Chairman, AMI joined the National Meat Association,

Food Marketing Institute, American Farm Bureau Federation and National Cattlemen’s Beef Association in petitioning USDA one year ago for a new, voluntary, U.S.

beef certification program. This program would be administered by the Agricultural

Marketing Service and would be available to anyone in the beef packing business,

for a fee, to provide certified U.S. beef. Importantly, the livestock used for this voluntary program would be subject to an animal identification program to ensure that

they, too, meet the standards to be certified U.S. beef under the terms of the program. Under this system, the market would provide for what COL proponents profess to be the case (that the American consumer will prefer and pay more for meat

products from animals born and raised in the United States. Under this program,

those that believe that to be true could enter the market with those products and

if the benefits outweigh the costs, succeed.

Thank you for this opportunity to testify.

STATEMENT OF E. LISA LANGELIER

On behalf of Ocean Spray Cranberries, Inc. we appreciate the opportunity to submit the following comments as part of the hearing record on the new Country of

Origin Labeling Regulations now being considered by the U.S. Department of AgriVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00140 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
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culture to implement provisions included in the Farm Security and Rural Investment Act of 2002.

Ocean Spray is an agricultural cooperative with members in the United States

and Canada who supply fresh cranberries for retail sale as well as fresh cranberries

for processing into various cranberry drinks and food products. We request consideration of the following points of concern:

• Ocean Spray believes that the current Country of Origin labeling regulations as

administered by the Bureau of Customs and Border Protection (formerly U.S. Customs) are adequate to protect the consumer. The current regulations are understandable and there is a well-developed body of law to support the interpretation

of the regulations. Therefore, new country of origin regulations as proposed by

USDA are both un-necessary and an unjustified regulatory burden.

• As presently proposed, these regulations will be very costly to Ocean Spray to

implement due to the expensive reporting and auditing procedures and further impact the ability of our cooperative and its grower members to recover from low commodity prices and continue to grow demand. Additionally, in order to comply with

the new USDA proposed regulations, supermarket retailers are requiring suppliers

such as Ocean Spray to conduct expensive third party verifications of these reporting and auditing procedures. These costs will be passed along to consumers, or in

the alternative will be absorbed by struggling cranberry farmers.

Ocean Spray endorses the comments submitted by the National Food Processors

Association, the American Frozen Foods Institute and the Grocery Manufacturers

of America, and request that careful consideration is given to their concerns and recommendations.

We appreciate the committee’s efforts to review and address the potential negative implications of the new Country of Origin Labeling Regulations and hope that

you will not hesitate to contact Ocean Spray if we can provide any additional information to you or your staff.

STATEMENT OF PETER H. CRESSY

Over the past decade, the export market for U.S. distilled spirits products has become increasingly more important to the U.S. distilled spirits industry. In fact, since

1990, U.S. exports of distilled spirits worldwide have doubled, growing to over $550

million in 2002. While the Uruguay Round Negotiations produced significant benefits for U.S. distilled spirits exporters, numerous barriers still remain. Therefore,

the U.S. distilled spirits industry actively supports the U.S. Government’s efforts to

seek the elimination or reduction of these remaining barriers within the context of

the ongoing World Trade Organization negotiations, and in other multilateral and

bilateral trade negotiations. Improving market access for U.S. distilled spirits products worldwide is necessary in order to ensure the continued growth of the U.S. distilled spirits industry.

II. WORLD TRADE ORGANIZATION: DOHA DEVELOPMENT AGENDA

The Distilled Spirits Council has had a long and active involvement with the

World Trade Organization (WTO), and remains a strong supporter both of the organization and its ongoing work program, as well as the Doha Development Agenda

negotiations. The Distilled Spirits Council and its member companies are enthusiastic supporters of efforts to liberalize international trade and to strengthen the rulesbased multilateral trading system administered by the WTO.

Unquestionably, the U.S. distilled spirits industry has benefited significantly from

the leadership role the United States government has assumed in the WTO. The

tariff elimination commitments on distilled spirits, secured during the Uruguay

Round and subsequent negotiations under the WTO’s auspices as part of the U.S.

Government’s ‘‘zero-for-zero’’ initiative, have paved the way for a significant increase

in U.S. spirits exports. The industry has reaped the rewards of the WTO’s dispute

settlement mechanism, which the United States government has used to challenge

successfully the discriminatory excise tax regimes of Japan, Korea and Chile. The

provisions of the Agreement on Trade-Related Aspects of Intellectual Property

Rights (TRIPS Agreement) include important protections for geographical indications for spirits, including Bourbon and Tennessee Whiskey, which are essential for

the protection of these distinctly and exclusively American products. And the reporting mechanisms established by the Agreements on Technical Barriers to Trade (TBT

Agreement) and Sanitary and Phytosanitary Standards (SPS Agreement) have, in

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latory changes that could have significant—and sometimes adverse—effects on the

industry.

The improvements in market access achieved under the auspices of the WTO—

and before it, the General Agreement on Tariffs and Trade—have led directly to a

sharp increase in U.S. spirits exports. For example, since the Uruguay Round agreements entered into force in 1995, U.S. exports of Bourbon—the leading U.S. distilled

spirit export—have increased 57 percent over their 1994 levels, reaching $351 million in 2002.

A. MARKET ACCESS NEGOTIATIONS— AGRICULTURAL PRODUCTS

Distilled spirits are processed agricultural products classified under HTS headings

2207.10.30 and 2208, and fall within the scope of the ongoing negotiations on agriculture. As noted previously, distilled spirits (HTS 2208) were included in the Uruguay Round’s zero-for-zero negotiations and yielded significant benefits to the industry. However, participation in the spirits zero-for-zero agreement has been limited.

Until recently, only the United States, the European Union, Japan and Canada,

were participants in the agreement with respect to most categories of spirits. More

recently, Taiwan joined the spirits zero-for-zero agreement upon its accession to the

WTO in January 2002. Macedonia has also agreed to phase out its 48 percent tariff

on distilled spirits in connection with its WTO accession.

Notwithstanding the progress that was achieved during the Uruguay Round and

more recent accession negotiations, however, the U.S. distilled spirits industry continues to face pervasive, and in some cases prohibitive, tariffs in a number of the

industry’s most important markets. This is particularly true with respect to emerging markets. For example, in India imported spirits are assessed a base tariff of 166

percent ad valorem. As noted below, the central government also levies an additional customs duty on top of the base tariff, which results in effective tariffs rates

ranging from 240 percent to 578 percent ad valorem. In addition, although South

Africa applies a tariff of 5 percent ad valorem (arguably a nuisance tariff) on imported spirits, its bound rates are exorbitant, ranging from 67 percent for bottled

brandy, whisky, rum and gin to an astronomical 597 percent for vodka and liqueurs.

South Africa represents a potentially lucrative market for U.S. distilled spirits exports, and is itself a significant producer of distilled spirits products. Moreover, pursuant to its recently-concluded free trade agreement with the European Union,

South Africa will reduce and eventually eliminate (by 2012) its tariffs on imports

of EU-produced spirits. Thus, one of the U.S. spirits industry’s objectives in the

Doha Round is to secure South Africa’s commitment to bind its tariff on spirits at

zero. Furthermore, in some developed country markets the tariff burdens on imported

spirits are significant, which add significantly to the costs of doing business. For example, Australia also applies a nuisance tariff of 5 percent ad valorem, which, despite being relatively low, imposes a high tariff burden: more tariffs were assessed

on the importation of U.S. spirits into Australia ($2.7 million) in 2001 than were

assessed by any other government. Similarly, New Zealand applies a tariff rate of

zero on imports of whisky, brandy and rum, but assesses a 5 percent nuisance tariff

on liqueurs and a 6.5 percent tariff on vodka and gin.

Moreover, since the conclusion of the Uruguay Round, the U.S. spirits industry

has encountered setbacks in a number of its priority markets:

The margins of preference extended to distilled spirits produced in the European

Union (EU) by a number of the Central and Eastern European countries in the process of acceding to the EU have progressively increased, putting U.S. distilled spirits

at an even greater competitive disadvantage. For example, Bulgarias tariff on EU

spirits is approximately half the rate applied to U.S. spirits. EU spirits enter the

Czech Republic subject to duty rates that are 40 percent - 70 percent lower than

the rates applied to U.S. spirits. In Poland EU spirits are assessed tariffs ranging

from 52.5 percent to 73.5 percent (within a quota of 3,000 liters of pure alcohol),

while U.S. spirits exports face tariffs ranging from 75 percent to 105 percent.

We have seen a significant improvement, however, in Romania, where the import

tariff on Bourbon was reduced recently from 70 percent ad valorem to 35 percent

ad valorem, which is the same rate that is currently applied to whisky imported

from the European Union (EU). The action was prompted, in part, by a Distilled

Spirits Council petition seeking the withdrawal or suspension of Romania’s benefits

under the Generalized System of Preferences (GSP) program. (The petition, therefore, was subsequently withdrawn.) Unquestionably, this successful result would not

have been possible without the persistent efforts of the U.S. Government.

When India lifted its quantitative restrictions on distilled spirits on April 1, 2001,

it simultaneously imposed additional duties on spirits imports, on top of its already

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prohibitive base tariff. Currently, additional tariffs ranging from 25 percent to 150

percent ad valorem or US$40 to US$53.20 (depending on the case price) apply to

imported spirits, on top of India’s base tariff of 166 percent ad valorem. Thus, the

current effective tariff on imported spirits ranges from 240 percent to 578 percent

ad valorem. When India fully phases in its Uruguay Round commitment in 2004,

the base tariff will still be an exorbitant 150 percent, wholly apart from the additional customs duties imposed in April 2001.

The EU’s free trade agreement negotiations with the Mercosur countries (Argentina, Brazil, Paraguay and Uruguay) continue to move forward, with the prospect

that EU spirits will at some point enter these markets duty-free. U.S.-produced spirits will continue to face significant tariffs (applied rates currently range from 13.5

- 21.5 percent). The Distilled Spirits Council strongly supports the ongoing negotiations for the Free Trade Area of the Americas (FTAA), but also urges the United

States government to make reductions in the Mercosur countries’ spirits tariffs, on

an MFN basis, a high priority.

In the current Doha Development Agenda negotiations, the industry seeks the

broadest possible participation in the spirits zero-for-zero agreement, and views

those developed countries whose spirits tariffs constitute, in essence, nuisance tariffs (including Australia, New Zealand and Switzerland) as prime candidates. China,

Korea, and Thailand should also be encouraged to join the zero-for-zero agreement,

just as Taiwan and Japan have done. Although U.S. negotiators secured significant

tariff concessions from China in the spirits sector (a reduction from a base rate of

65 percent to 10 percent over five years) in the context of its WTO accession negotiations, the next logical step—and one that is consistent with China’s role as a major

spirits producing- and consuming-nation-is full adherence to the zero-for-zero agreement. Both Korea and Thailand are also major spirits producers. Korea’s current

applied rates range, however, from 15-20 percent, while its fully-phased in bound

rate is 30 percent ad valorem. Thailand currently applies a complex tariff, with an

applied rate of 55.2 percent or 59.8 Baht per liter, whichever is higher, on gin, and

a rate of 60 percent or 120 Baht per liter, whichever is higher, on all other spirits.

(Thailand’s bound rate on gin is 55.2 percent or 59.8 Baht/liter, whichever is lower;

for other spirits, the bound rate is 62 percent or 124 Baht/liter, whichever is lower.)

In parallel with these objectives, we seek the U.S. Government’s support in ensuring that the Central and Eastern European countries implement the EU’s common

external tariff on spirits zero immediately upon their accession to the EU. Ten of

the EU-accession countries are scheduled to accede in May 2004, while others are

not currently scheduled to join until 2007 at the earliest.

With respect to the industry’s other priority countries, the Distilled Spirits Council seeks significant cuts in the effective tariff rates, i.e., reductions that will yield

rates that are substantially below the currently applied rates. Anything short of this

goal would fail to achieve any real improvements in market access. We continue to

urge that negotiations be conducted on the basis of applied, rather than bound,

rates, and applaud the U.S. Government’s success in the FTAA negotiations to proceed largely on the basis of applied rates.

In the context of the Doha Development Agenda, we understand that certain

countries whose current applied tariffs are below their bound rates have objected

to this approach because they fear that they will not be given credit in the negotiations for having undertaken unilateral tariff liberalization. In order to address this

concern, a method could be developed whereby the country in question could receive

credit toward its overall tariff-reduction commitment in the agriculture sector for

any such unilateral tariff cuts that occurred before the beginning of the new round.

If it is not possible to negotiate on the basis of applied rates, a formula should be

employed whereby cuts in bound rates translate immediately into commensurate

cuts in applied rates: without such an approach, there will likely be no real improvements in market access in countries maintaining the highest tariff barriers, as was

the case for distilled spirits products in the Uruguay Round. At the very least, we

urge that the U.S. government insist that WTO members adopt a benchmark measure for real market access that would quantify the actual improvements in market

access—i.e., a quantitative assessment of the differences between the rates applied

at the beginning of the Doha Development Agenda negotiations and the bound rates

agreed at the conclusion of the Round—in order to provide a more accurate assessment of actual improvements in market access. Indeed, one of the agreed goals of

the market access negotiations should be to seek a significant improvement in this

real market access indicator.

For the U.S. distilled spirits sector, the following goals for the WTO agriculture

negotiations are of paramount importance:

• a minimum reduction of 50 percent or more for each line item;

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• a ceiling rate for all line items once reductions are phased in, e.g., 20 percent

for developing countries; 5 percent for industrialized countries; • elimination of current nuisance tariffs of 10 percent or less;

• no exceptions for individual products or participants;

• a 5-year maximum for staged implementation; and

• the binding of tariffs at the intermediate stages, as well as at the final stage.

The Distilled Spirits Council also strongly believes that any special and differential treatment accorded least developed countries should be reflected in longer implementation periods, rather than by exempting these countries altogether from

their obligations to improve access to their markets.

B. GEOGRAPHICAL INDICATIONS—AGRICULTURE NEGOTIATIONS

The Distilled Spirits Council and its member companies have a direct and significant interest in the negotiations under Article 23.4 of the TRIPS Agreement on the

establishment of a multilateral system of notification and registration of geographical indications (GIs) for wines and spirits. Although the inclusion in the TRIPS

Agreement of provisions specifically mandating the establishment by all WTO member countries of a legal means of protecting GIs associated with distinctive distilled

spirits was, in our view, a major achievement of the Uruguay Round, protection of

internationally-recognized GIs remains uncertain in many WTO member countries.

Accordingly, our objective in the ongoing negotiations is to secure more certain

recognition and protection, in all WTO member countries, of internationally-recognized GIs for spirits such as Bourbon and Tennessee Whiskey. We are concerned

that certain proposals currently under review will do little to achieve this goal,

while other proposals appear to incorporate complex and cumbersome procedures

that may impose significant additional and unnecessary costs on industry. Moreover, we are concerned that the effort on the part of certain WTO member states—

in the context of the agriculture negotiations—to extend the TRIPS Agreement’s

current enhanced protection of geographical indications for wines and spirits to

other products has unfortunately deflected attention from the negotiations on wines

and spirits, which were specifically mandated by the Doha Declaration.

The Distilled Spirits Council and its members stand ready to work with the U.S.

negotiating team to design a system that would secure more certain protection for

internationally-recognized GIs for spirits without constructing cumbersome and costly new procedures for doing so.

C. NON-TARIFF BARRIERS

With respect to non-tariff measures, the Distilled Spirits Council urges that particular attention be given to seeking improvements under GATT Article X (transparency). In that connection, the Distilled Spirits Council and its members have witnessed a proliferation of new and proposed regulatory measures concerning, e.g.,

product labeling requirements and food safety standards. Although the TBT and

SPS Agreements incorporate basic notification and consultation obligations, a number of these new regulatory proposals are simply never notified, or are notified well

after they have entered into force, thus nullifying the benefits of any existing notification obligation. We urge the U.S. government to ensure that the Article X negotiations embrace improvements in the TBT and SPS notification and consultation procedures.

III. OTHER MULTILATERAL AND BILATERAL TRADE NEGOTIATIONS

The Distilled Spirits Council and its members also strongly support the United

States’ efforts to further open markets within the context of the negotiations towards a Free Trade Area of the Americas (FTAA), and in the ongoing bilateral negotiations towards free trade agreements (FTAs) with Australia, Central America, Morocco, and the Southern African Customs Union. Pursuing these negotiations provides an unparalleled opportunity to liberalize further these markets for U.S. distilled spirits products.

The objectives of the U.S. distilled spirits industry for these regional and bilateral

negotiations are consistent with those identified above for the Doha Development

Round. These include, for example, securing the immediate elimination of the import duties on distilled spirits products from the United States. As stated above, the

United States has already eliminated tariffs on nearly all spirits products from all

countries. In contrast, U.S. spirits currently face tariffs ranging from, for example,

5 percent to 40 percent in Central America, and up to 133 percent in some Caribbean countries. Securing the immediate elimination of these duties will enable U.S.

spirits entering these markets to be accorded the same tariff treatment as spirits

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from these countries entering the United States. Furthermore, since some of these

countries have already concluded free trade agreements that include tariff preferences for spirits products, U.S. spirits exports are currently at a competitive disadvantage vis-a-vis, for example, spirits products from the EU (in South Africa),

Canada (in Costa Rica) and Mexico (in Colombia and Venezuela). Thus, securing the

elimination of these tariffs on U.S. spirits products will place U.S. spirits exports

on a level playing field with our competitors.

Second, the Distilled Spirits Council and its member companies place a very high

priority on securing certain protections for Bourbon and Tennessee Whiskey as distinctive products of the United States within the context of regional and bilateral

negotiations. Such protection will ensure that only spirits produced in the United

States, in accordance with the laws and regulations of the United States may be

sold as Bourbon and Tennessee Whiskey.

Third, these negotiations provide an opportunity to address the specific technical

barriers to trade affecting imports of U.S. distilled spirits products into some of

these markets. These include, for example, certain technical standards in, inter alia,

El Salvador, Nicaragua, South Africa and Australia, labeling requirements in Australia and Morocco, and burdensome brand registration, certification and import licensing requirements in some Central American countries. These negotiations,

therefore, provide a significant opportunity to seek the elimination of these practices

that impede trade in U.S. spirits products.

Finally, the Distilled Spirits Council and its member companies enthusiastically

support the prompt entry-into-force of the free trade agreements with Chile and

Singapore, which will bring about significant and measurable benefits for U.S. sprits

exporters. The agreements eliminate several of the barriers that U.S. spirits exporters currently face in these markets. Prompt implementation of the FTAs will permit

U.S. spirits exporters to benefit from improved market access to Chile and Singapore, thus contributing to the continued growth of the U.S. distilled spirits industry.

The U.S. distilled spirits industry views the Doha Development Agenda as providing the industry with its best—and in some cases only—opportunity to address a

broad range of significant market access problems that continue to impede U.S. exports of distilled spirits. As described in greater detail above, our principal objectives for the WTO market access negotiations on agricultural products are:

Elimination, where possible, or, at a minimum, significant reductions in both

bound and applied tariffs on distilled spirits products, including through an expansion of the zero-for-zero agreement;

Improvements in regulatory transparency through focused negotiations targeting

procedural improvements in the TBT and SPS Agreements; and

More certain recognition and protection of geographical indications associated

with distinctive distilled spirits.

Similarly, the industry’s goals within the context of the FTAA negotiations and

the various bilateral free trade agreement negotiations are to:

Secure the immediate elimination of import duties on U.S. distilled spirits products;

Obtain certain protections for Bourbon and Tennessee Whiskey as distinctive

products of the United States; and

Remove the technical barriers to trade that unnecessarily impede the import of

U.S. distilled spirits in these markets.

We stand ready to work with the Congress and the administration to ensure that

these goals are achieved in the multilateral and bilateral agriculture negotiations.

Thank you very much for your consideration.

STATEMENT OF JOHN CADY

Mr. Chairman, Ranking Member Stenholm and members of the committee. We

want to thank you for providing an opportunity to comment upon this matter.

The National Food Processors Association (NFPA) is the voice of the $500 billion

food processing industry on scientific and public policy issues involving food safety,

nutrition, technical and regulatory matters and consumer affairs. NFPA’s three scientific centers, its scientists and professional staff represent food industry interests

on government and regulatory affairs and provide research, technical services, education, communications and crisis management support for the association’s U.S.

and international members. NFPA members produce processed and packaged fruit,

vegetable, and grain products, meat, poultry, and seafood products, snacks, drinks

and juices, or provide supplies and services to food manufacturers.

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NFPA urges Congress to expand upon the actions taken in the Appropriations

Committee and Agriculture Appropriations Subcommittee and effectively repeal the

country of origin labeling mandate. This would relieve the entire food industry of

these onerous and ultimately counterproductive mandates. Absent that, we strongly

urge stringent oversight of the approach USDA has taken in its recently proposed

Guidelines, which, if issued as binding regulations, would be administratively unsound and in some respects, NFPA believes, legally impermissible. The Guidelines

would over-regulate by prescribing country of origin labeling rules for products already required to display such labeling, creating the prospect of duplicative, confusing, and even conflicting regulations.

In implementing its country of origin labeling regulations, NFPA believes USDA

should adhere to the fundamental principle of regulating only where necessary and

to the extent necessary to effectuate the statutory purpose. Specifically in implementing regulations NFPA believes USDA should:

• Provide that mixed processed food products are outside the scope of Subtitle—

D, as required by section 281(2)(B) of that statute;

• Delete from the implementing regulations the requirement in the Guidelines to

display the country where processing occurred;

• Exclude from the scope of its implementing regulations all frozen produce;

• Exclude from the scope of its implementing regulations all frozen seafood;

• Delete from the implementing regulations the requirement in the Guidelines

that multiple countries of origin be listed in the order of predominance by weight;

and

• Define the scope of the implementing regulations to apply to inshell peanuts but

not peanuts that are shelled and roasted.

1. Effective Date. Absent repeal of the country of origin labeling mandate, NFPA

requests that Congress make clear to USDA that it should not impose labeling or

recordkeeping requirements on products packaged before the date the mandatory

rules become effective. To require labeling to be in place at the store level for such

products will have the effect of making the voluntary guidelines mandatory, contrary to what we believe was Congress’ intent in requiring the agency to have a

final rule in place by September 30, 2004.

NFPA believes it reasonable and practical for the agency to provide for packaged

covered commodities that are in the channels of commerce prior to the promulgation

of any final rule be permitted to continue in commerce. Product that has entered

the food chain (e.g., packaged frozen peas) and which otherwise complies with existing regulations (including existing country of origin marking requirements for packaged goods) but that may be at variance with any final rule issued by USDA, should

be permitted to continue to proceed through the food chain to retail sale without

the need to relabel or repackage the product. In any event, all imported packaged

produce (including bulk shipments repackaged for retail sale) is subject to country

of origin marking requirements established by the Bureau of Customs and Border

Protection (formerly the U.S. Customs Service) regulations (19 CFR Part 134) under

the Tariff Act of 1930. Among other advantages, a phase-in period will provide time

for the agency to issue guidance to industry regarding what it will consider to be

adequate to satisfy the recordkeeping requirements to verify the country of origin

declaration.

2. Definitions. NFPA requests that Congress consider directing USDA to consider

amending the following definitions offered for comment in the Guidelines as follows:

a. Material Change

Fresh and Frozen Fruits and Vegetables. Because frozen packaged fruits and

vegetables are covered by Bureau of Customs and Border Protection country of origin marking requirements at 19 CFR Part 134, we believe it is important to delete

the definition’s reference to frozen fruits and vegetables in order to be consistent

with current law or for USDA regulations for this product to be identical with existing Bureau requirements.

b. Peanuts. With regard to peanuts, we also request the agency recognize that the

roasting of peanuts is a material change from the raw peanut and so incorporate

roasting into the regulations definition of material change for this commodity.

Wild and Farm-raised Fish. We believe the final regulations should recognize

freezing and smoking as constituting a material change. The amended definition

may read, for example:

5. Wild fish and farm-raised fish: Altered to the point that its character is no

longer that of the covered commodity. Includes the freezing, smoking, cooking and

canning of fish and shellfish. Examples include canned tuna and canned sardines,

frozen and/or smoked fish, Surimi, and restructured fish sticks.

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b. Perishable Agricultural Commodity. The definition of Perishable Agricultural

Commodity should be interpreted to read as follows:

Perishable Agricultural Commodity means fresh fruits and vegetables of every

kind and character where the original character has not been changed (for example

fresh green beans would be covered, frozen or canned green beans would not; fresh

oranges would be included, frozen concentrated orange juice would not).

This interpretation will recognize that the Bureau of Customs and Border Protection has established regulations effecting country of origin marking for packaged

frozen produce.

3. Consumer Notification

a. Labeling of Imported Products

We agree with the statement that imported products ‘‘Shall be labeled with the

country from which it was exported in conformance with existing Federal laws.’’

NFPA interprets this statement as recognition that the Bureau of Customs and Border Protection has jurisdiction over the country of origin marking requirements for

imported products at port of entry as well as the labeling of packaged products containing imported ingredients including those repackaged in the United States.

USDA should recognize Bureau of Customs and Border Protection jurisdiction and

permit Customs rulings on such marking to continue in place or adopt regulations

identical to those provided for by such Customs rulings. For packaged food products

this means the package bears a statement Product of Country X with X representing the country in which the product was prepared and packaged in its final form.

This is not necessarily the country from which it was finally exported to the United

States. During the West Coast Dock strike many ships carrying products from Asia

were diverted to ports in Mexico or Canada then transported by truck or rail to

their final destination in the United States. Simply entering the United States from

Mexico or Canada did not make them a product of either of those countries.

b. Consistency with Bureau of Customs and Border Protection Regulations

With regard to those parts of the proposed regulations that turn upon the conclusion that a product has been substantially transformed, we believe that the final

rules should be made consistent with the long-standing interpretation of substantial

transformation of product as determined by the Bureau of Customs and Border Protection at 19 CFR Part 134 under the Tariff Act of 1930. With respect to the example label statement in this section Grown and packed in Country X and Processed

in the United States, we believe the current labeling permitted by Customs Product

of Country X is sufficient to inform the consumer of the origin of the product. We

agree that an additional voluntary declaration Processed in the United States may

be provided for fruits and vegetables and request that it be made voluntary for seafood.

c. Blended Products

We disagree with the proposed requirement that the source of each individual

item be identified and that the sources be identified in order of predominance by

weight. The proposed interpretation could require a statement for mixed frozen peas

and carrots each from country X and Y where X= Mexico and Y = Guatemala

Peas from Mexico, Carrots From Guatemala, Carrots from Mexico, and Peas From

Guatemala, Processed in the United States.

The requirement will create an unreasonably complex and likely unworkable labeling and recordkeeping nightmare for each product code lot while diverting resources from important food safety and security issues. Minor variations in the

quantity of each item for individual code lots can require a new label. We believe

an appropriate label statement Product of Mexico and Guatemala or Product of Guatemala and Mexico with no requirement for addressing the individual components

or the order of predominance of individual ingredients will provide the purchaser

with adequate information concerning the origin of the product and meet the intent

of the law and the requirements of the current Bureau of Customs and Border Protection regulations for imported product under the Tariff Act of 1930 which apply

to this product.

Order of Predominance. NFPA also believes that USDA’s voluntary guidelines further depart from the requirements of Subtitle—D in addressing the country of origin

of covered commodities having multiple countries of origin. Such commodities, which

under the section 304 regulatory scheme are regarded as commingled fungible

goods, are required under that regulatory scheme to display the multiple foreign

countries of origin, but not in any particular order. For commingled fungible goods,

USDA’s voluntary guidelines require that the countries be listed in the order of

their predominance by weight, even though no such requirement appears in Subtitle—D. The requirement to disclose this level of detail in country of origin information, which is of dubious value to the consumer, will greatly complicate the recordVerDate 11-SEP-98 13:56 Aug 19, 2003 Jkt 088900 PO 00000 Frm 00147 Fmt 6633 Sfmt 6633 F:\DOCS\10812 HAGRI PsN: HAGRI
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keeping and other compliance-related burdens on the U.S. food industry and require

frequent, and costly, labeling changes. Any reference to listing of countries in order

of predominance should be removed from the final document.

4. Markings

a. AbbreviationsWe support the abbreviations provided in the voluntary guide and

request that additional country name abbreviations be provided consistent with current Bureau of Customs and Border Protection list of permissible abbreviations (December 19, 1997 letter from Sandra Bell, Chief, Special Classification and Marking

Branch, U.S. Customs Service copy attached). That list includes the following:

Country/Abbreviation

Great Britain/Gt. Britain

United Kingdom/U.K.

Luxembourg/ Luxemb or Luxembg

Federal Republic of Germany or Fed. Rep. of Germany

Mexico/ Mex. (only if used in conjunction with names of cities or state initials)

Switzerland/Switz.

Republic of Korea/Rep. of Korea/ or South Korea or S. Korea

Dominican Republic/ Dominican Rep.

Sierra Leone Sa. Leone

South Africa/S. Africa

Additional country abbreviations may be provided for where they clearly indicate

the country of origin.

5. State or Regional Labeling Programs. We disagree with the agency’s position

regarding state or regional labeling programs, which states that these programs

were inadequate to insure domestic origin. It is our position that State and regional

labeling programs are designed or could be designed to provide proper documentation that the fresh fruit or vegetable included in the program does, in fact, originate

in that State or region of the United States and the labeling of the product at retail

Washington State Apples clearly communicates to the consumer that it refers to a

geographic region in the United States. Clearly such programs should be considered

to be in compliance with the intent of the law. We believe that such programs and

the labeling permitted under those programs provides the consumer with sufficient

information to determine that the produce originated in a specific geographic region

of the United States. We request that Congress consider directing USDA to reevaluate its position and provide as a part of any final rule a list of State and regional

labeling programs which fulfill the intent of the law subject to periodic review of

the recordkeeping provisions of such program(s) to ensure compliance. We encourage

Congress to direct USDA to work with State and regional groups so that programs

currently judged as not meeting the minimum criteria of the compliance program

can be brought into compliance.

Again, we thank the committee for this opportunity to comment on the country

of origin labeling issue.

STATEMENT OF THE AMERICAN SHEEP INDUSTRY ASSOCIATION

On behalf of the 64,000 lamb producers in the United States, we appreciate this

opportunity to re-iterate our support for mandatory country of origin labeling of

lamb. The long-standing policy of the association supports positive identification of

the origin of lamb at retail.

The sheep industry supported the labeling provision authorized last year in the

farm bill. In fact testimony provided to the committee on April 28, 1999 by ASI remains very relevant today. Mr. A.H. Denis III, representing our association, spoke

of his role in our industry as a lamb producer, lamb feeder and Chairman of the

Board of Ranchers Lamb of Texas (one of the largest lamb slaughter and processing

companies in the U.S) and the need to label lamb meat at retail. Mr. Denis remains

committed as does the national board of directors of ASI to support mandatory labeling of lamb for country of origin.

We provide for today’s hearing, key points from our comments in support of the

USDA/AMS proposed rule regarding labeling of lamb.

ASI commends USDA/AMS for developing what we believe is a workable approach

for implementing voluntary COOL guidelines that should form a framework for the

mandatory regulation.

For the past decade, the American Sheep Industry Association (ASI) has worked

toward implementing a national system that would ensure consumers’ ability to accurately recognize the origin of lamb on the shelves of American supermarkets.

ASI’s policy was never aimed in such a way to prevent the importation of foreign

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lamb—merely to identify it at retail. Mandatory Country of Origin Labeling (COOL)

was designed to provide consumers with the type of assurance they already have

with some food products—in that they know where those products originated.

• Most of the major lamb companies now handle both U.S. and foreign lamb.

Product blending and substitution does occur to achieve a less expensive price point

without differentiation of the product origination.

• Many of the U.S. lamb companies and retailers do not label country of origin

on their products.

• Consumers are willing to pay more for product labeled American lamb as compared to product merely labeled lamb. Therefore, the financial rewards to the U.S.

sheep industry for COOL-labeled product would be substantial conservatively, an estimated extra $40 million annually. (This figure was generated through the utilization of data from two sources the U.S. International Trade Commission (USITC) and

USDA’s Economic Research Service (ERS) both of which identified a 40-cent price

differential between foreign ($3.90 a pound) and domestic ($4.30 per pound) product.

• The U.S. lamb industry now has the American Lamb Board to promote its product. Labeling American lamb as such will enhance the board’s promotional efforts

in getting consumers to seek out and purchase American lamb.

• Implementation will be enhanced in the U.S. lamb industry due to the very

small number of live lambs imported to the U.S. (typically 80,000 live lambs imported annually therefore the extreme range is 1–3 percent of U.S. slaughter).

• Additionally the lamb checkoff precludes imported lamb so an audit trail exists

already on imported live lambs, which are not assessed. A limited number of individuals and firms import live lambs. Since nearly all-major lamb processors participate in the USDA commodity purchase program, segregation plans are already in

place if any Canadian born lambs enter the plant.

• The born, raised and slaughtered definition for U.S. origin is appropriate as that

is the license requirement in place today to use the American lamb seal on packaging.

• Congress has authorized labeling and sheep leaders believe private industry will

find the most economical and efficient manner to implement this legislation.

We greatly appreciate the support and leadership of the committee on the critical

agricultural issues regarding competitiveness of the farm and ranch families that

produce the Nation’s lamb and wool. Labeling is but one of those issues. We look

forward to working with the members of the committee on this and additional key

issues facing our industry.

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