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    Supermarket FRESH FOOD Business: Controversy of origin

    The industry is sounding off about upcoming country-of-origin labeling regulations, but there appears to be little chance of easing the burdens they will bring.

    The industry has had its say on the contentious and expensive record-keeping and documentation requirements of the country-of-origin labeling law that's just 19 months from becoming a hard fact of food retailing life. And there's only a month left for gripes about the statute's final guidelines.

    A key provision of the farm bill signed by President Bush last May, country-of-origin labeling, described by some Washington insiders as a "deal cut in the 23rd hour among reluctant lawmakers," has all the makings of a fiscal and operational fiasco for the supermarket business, according to a number of food industry leaders.

    In addition to the complex challenges of implementation, all but the smallest grocers face a cycle of potentially overwhelming costs, paperwork, and penalties that will go into effect Oct. 1, 2004. In the meantime, retailers have been asked to initiate a trial run by voluntarily complying with the interim guidelines issued by the Department of Agriculture last October.

    Two years of records

    In a nutshell, retailers who net more than $230,000 annually will be required to keep two years worth of records at each store indicating the country of origin for every SKU of fresh and frozen muscle cuts of beef, veal, lamb, pork, and fish, fresh and frozen fruits and vegetables, and peanuts. Retailers will also be required to label and segregate the items at the point of sale with labels, stamps, marks, placards, and/or other clear and visible signage on the packages, displays, or bins housing them.

    The provisions also spell out what retailers must do in order to label products as originating in the U.S. But what is particularly troubling for grocers is the $10,000 fine each violation will cost them if they fail to comply with the federal mandate.

    During the first round of public comments, which was extended one month to Feb. 21, a number of prominent supermarket operators had petitioned USDA to amend the record-keeping requirements.

    Now, with the clock ticking on the April 9 deadline for final comments, retailers, wholesalers, producers, state and national trade associations, and others are being urged to share their input on how the law should be applied before the department finishes the final blueprint for the guidelines.

    "With any luck, the industry's position on the onerous record-keeping requirements—whereby each and every store will be required to maintain records detailing the country of origin for every meat, produce, seafood, and peanut product for two years—will be taken under consideration," says Kathy Means, v.p. of the Produce Marketing Association.

    "But if retailers have something they want to say about the overall guidelines," adds Means, "they better say it by April 9, because once the mandatory regulations go into effect in the fall of 2004, the law will be the law."

    Barry Scher, v.p. of public affairs for Ahold USA and chairman of the Food Marketing Institute's government relations committee, says he's prepared to "do whatever is necessary to lighten the burden of regulations on the industry."

    Expressing profound disappointment with the current language of the law, Scher says the outlook for drastic changes is not promising because only an act of Congress could block the law from becoming effective.

    "While the food industry was adamantly opposed to country-of-origin labeling, and while we may have lost a major battle with the enactment of the legislation, we have not lost the war," Scher says. "We still have opportunities to provide input to the government in reference to the regulatory issues contained in the Country-of-Origin Labeling Act."

    Noting that the law does little to enhance food safety, Scher says the Sept. 11 terrorist attacks "were the likely impetus that enabled the act to be signed by the president. The industry had already been studying various methods of providing more complete country-of-origin information on a voluntary basis. We still feel that country-of-origin labeling is not necessary to a large extent, and that a voluntary approach would be the best way to go about complying with the intent of what was accomplished legislatively."

    Relying on suppliers

    Ahold USA is soliciting input from all the perishable buying departments in its six operating companies to take a closer look at the problems that will be uncovered and to find ways to ease the burden of implementation on retailers, according to Scher.

    "The burden of compliance must not fall upon the shoulders of retailers, and we will rely heavily on the supplier community to help us comply with the act," he says. "It's going to take a lot of work to comply with the act, and no retailer can afford to wait until a few months prior to September of 2004 to begin the process." (See sidebar.)

    In addition to FMI and PMA, nearly every major food industry trade association opposes the labeling law, including the National Grocers Association, the Grocery Manufacturers of America, the National Food Processors Association, the American Frozen Food Institute, and the National Fisheries Institute. Last summer, many of those same associations joined forces to form the Food Industry Trade Coalition, an ad hoc group opposed to new trade barriers on agricultural products, including the country-of-origin law.

    But no trade group has been more vocal about its opposition to USDA's guidance for implementing the mandate than the American Meat Institute, which calls the law "the most costly, cumbersome, and complex labeling proposal in history."

    Says AMI president J. Patrick Boyle, "USDA's complicated guidelines will result in hundreds and possibly thousands of product labels that must describe where animals were raised, where they were fed, and where they were slaughtered. The U.S. is not an island. We raise animals here, feed them in other nations, and bring them back for slaughter. In other cases, we import livestock from other nations and feed and slaughter them here."

    Making things more difficult is the meat industry's practice of sourcing raw materials for products like ground beef from a host of nations, including Canada, New Zealand, and Australia. Boyle says the guidelines require not only that ground products bear a label indicating the country of origin of every animal that makes up the product, but also that the countries be listed in descending order based on the weight of the raw ingredients.

    "Because U.S. ground beef producers may source beef trimmings and raw materials from different nations in different quantities hour by hour and day by day, depending on cost and supply, this labeling system becomes utterly unmanageable and disrupts the free market," Boyle says.

    If the guidance becomes the final rule, he adds, "it will succeed only in restricting meat trade between the U.S. and other nations, which will trigger the fastest and most blistering complaints against the U.S. to the World Trade Organization that we have ever seen."

    Boyle says there is no suggestion AMI can give USDA for improving its guidance other than to start over. "And even then," he says, "the industry continues to question the value of any mandatory country-of-origin labeling program in the absence of any proven benefits to consumers or industry."

    In comments to the Farm Journal Forum in Washington, D.C. last December, John Tyson, chairman and c.e.o. of Springdale, Ark.-based Tyson Foods, echoed AMI's position that the law should be reconsidered in view of the tremendous burden to the livestock and meat industries.

    "Since this law will only harm the people it was purportedly designed to help, we strongly encourage our Congressional representatives to take another look at this issue," said Tyson, who noted the USDA's cost estimate of almost $2 billion in the first year alone. Half of that would be shouldered by farmers, ranchers, and other producers forced to develop and maintain record-keeping systems to comply with the regulation.

    "The rest will be handled by retailers and food handlers," he said. "I sure hope the proponents of this country-of-origin labeling mandate are helping the nation's farmers and ranchers get their systems in place soon, because come September 2004, if the 'born in' and 'raised in' documentation is not adequate, their livestock will not be saleable for the U.S. retail food trade."

    Time to get started

    Mark Dopp, AMI's s.v.p. of regulatory affairs and general counsel, says he is operating on the assumption that the final regulations will mirror fairly closely what is in the voluntary guidelines, so he is advising the association's members "to move ahead with the expectation of full compliance come September 2004—and it's not too soon to start."

    To the contrary, he adds, "That's an understatement for the meat industry, since the timeframe for fed cattle to be born, raised, and ready to go to slaughter is not that far down the road for the animals that will soon be born and that will need to be labeled pursuant to this law."

    Dopp says he's been working hard to inform AMI's members "that they need to be talking to their livestock suppliers to let them know they need accurate and complete records on where the animals were born and raised. And for somebody to suggest—as I've seen it suggested—that the records begin at the packing house is disingenuous and doesn't recognize reality."

    Packers have to impress upon producers that they should be keeping records that are as detailed as possible, notes Dopp. "Simply giving an affidavit isn't going to be good enough for retailers or the USDA. And the reason is that there's going to be tremendous incentives for suppliers to assert that an animal is all-American when in fact it's not, because if plants are in a situation where they decide they're only going to buy all-American, there is ample motivation for some suppliers to not necessarily be completely truthful."

    The produce and seafood industry's largest trade associations, PMA and NFI, are opposed to mandatory country-of-origin labeling for reasons both similar to and different from those of the meat industry.

    "Signs placed above bulk displays of produce cannot accurately cover the commingling of items that takes place regularly, nor can they be maintained properly with the ongoing shifts in sources of supply that occur at retail," says PMA's Means. "Labeling every piece of fruit or vegetable with its country of origin would add significant costs to shippers, repackers, and retailers, thereby increasing costs to consumers as well."

    Means says PMA has formed a task force to evaluate the law relative to the produce industry, including how its members view enforcement of labeling, what qualifies as sufficient labeling, what records must be kept, who will do retail inspections, what penalties will be assessed for non-compliance, and on which parties in the distribution chain.

    NFI's main beefs parallel PMA's stance that it's impractical to individually label the many seafood products carried in the average supermarket, particularly fresh items.

    The law says that all seafood items, both domestic and imported, sold in U.S. supermarkets will be required to carry labels that indicate not only their county of origin, but also whether the fish or shellfish is farm-raised or caught in the wild.

    Citing a 1999 report by the General Accounting Office that raised numerous questions about the effectiveness, cost, and enforceability of mandatory country-of-origin labeling, NFI officials argue such requirements convey no unique health or safety information to consumers. Moreover, NFI fears that such labeling will raise the cost of imported seafood unnecessarily and could induce retaliatory measures by other nations against U.S. exports.

    Proponents of country-of-origin labeling—including groups such as the American Farm Bureau Federation, Consumer Federation of America, U.S. Apple Association, California Tomato Growers Exchange, Florida Citrus Packers, Florida Fruit & Vegetable Association, Georgia Peanut Producers Association, Independent Cattlemen's Association of Texas, and the Texas Vegetable Association—contend the mandate will ensure more equitable markets for both domestic and foreign products by ensuring that point-of-sale information is consistent and accurate.

    'Made in U.S.A.' marketing

    Advocates further maintain that consumers who have a preference for food products from a particular country, based on flavor, seasonality, reputation, or other factors, will use country-of-origin labeling to make informed choices. However, producers' and growers' most convincing argument is tied to potential marketing opportunities that could help them promote their products based on their "Made in the U.S.A." appeal.

    The National Grocers Association isn't buying it. In a recent action alert to its members, NGA says, "What this is really about is domestic agricultural producers seeking to discredit their foreign competitors and using fears of terrorist activity to their own advantage—and leaving independent retailers and wholesalers, as well as consumers, to pay the bill. Furthermore, it is shameful that certain groups have taken political advantage of the Sept. 11, 2001 attacks on America to achieve private gain."

    Some states, including Wyoming, Kansas, North Dakota, and South Dakota, have already adopted mandatory labeling programs requiring all meat retailers to clearly label imported meat with the country of origin. Other states have passed similar laws, such as a 1979 Florida statute that requires country-of-origin labeling for fresh produce and honey and allows "Produced in Florida'' labels. A Maine law passed in 1989 requires country-of-origin labeling of any produce imported from countries with pesticide standards lower than those established by U.S. regulations.

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