Industry innovators attempt to unravel the implications of country-of-origin labeling.

While fierce debates have raged for and against new country-of-origin labeling (COOL), in many ways, COOL is simply another signpost along the path to a broader evolution in animal agriculture.

On this new frontier, product branding and differentiation is commonplace, food production is more closely coordinated from gate to plate, and consumers --albeit with the help of governmental mandates--are increasingly engaged in industry processes. These changes affect the entire food chain, and while change poses challenges, it also creates opportunities.

Here, YIELD examines some areas of the food industry where new trends are emerging or gaining momentum, influenced at least in part by ongoing efforts to implement the controversial new labeling law.

Developing A Taste For Consumer Research

Two years ago, Wendy Umberger was a University of Nebraska graduate student conducting studies to see whether consumers would pay more for a U.S. country-of-origin labeled steak compared with an unlabeled steak.

Had it been a couple of years earlier, Umberger's research probably would have gone largely unnoticed. Instead, her academic inquiry eventually landed her on the front lines of an industrywide civil war over whether to support country-of-origin labeling. It also threw a spotlight on the role of economics.

"As producers move toward being more integrated to the consumer, the ag economists need to be more aware of what food the consumer wants and the effects that has on the commodity market," says Umberger, who is now a beef marketing specialist at Colorado State University.

Part of that challenge is learning to obtain and interpret consumer-preference data more effectively. There's fairly ample evidence that consumers are willing to put a premium on U.S. beef for example. Still, what does that mean in practical terms?

On average, of consumers polled in Chicago and Denver, 73 percent were willing to pay a premium for U.S. origin labeled steaks and hamburger. Those results varied by product and market. Meanwhile, about 89 percent of the product in retail meat counters is a U.S. product. Umberger concludes that even if it is labeled, U.S. beef will have a hard time coaxing a premium out of that kind of market environment.

"The share of the population who wants it must be greater than the amount of steaks that offer that attribute," she says. "We have to make sure the disclosure of negative quality attributes does not exceed the benefits."

Mandating additional consumer information can be counterproductive if it proves confusing or generates undue fears.

Distinguishing yourself in the marketplace can work against you as well as working for you, she says. "If we label it as U.S. beef and we have an E. coli outbreak in the U.S., all of U.S. beef will be perceived to have E. coli. Canadian beef will be associated with mad cow disease. It's that kind of issue," she explains.

Identifying the future

Will COOL usher in an era when high-tech data management comes of age?

A federally mandated individual animal ID system was prohibited by COOL legislation, but the industry as a whole has been moving in that direction in recent years, driven mostly by consumer and governmental groups. The idea of adopting a mandatory ID program in place of COOL has even been raised.

When it comes to coordination, technology and management, the beef industry isn't stuck in the mud, it's stuck in concrete, says one marketing and management consultant.

"I've been frustrated for 12 to 13 years," says Tom Tippens, a fourth generation cattle producer and executive chairman of the board for eMerge Interactive, a data processing company. He is also owner and president of West Oak Commodities in Weatherford, Okla.

"A law like COOL forces us to do something that will be good for us and will help us over time," he concludes.

Essentially, the changing production, marketing and public policy climate is driving the necessity of sophisticated information management technology. Tippens predicts the majority of cattle will be carrying some form of identification within the next two years.

eMerge Interactive grew out of a Florida company that was using infrared technology to detect icebergs for the maritime industry and heat in the joints of performance horses to prevent injury. From there, it moved into the beef industry, buying Tippen's Professional Cattle Consultants data management company in 1999. The group was enthralled by the prospect of bringing the dot-com phenomenon to the beef business. In 2000, a successful initial public offering raised $130 million to launch the spin-off that today consists of an immense database capable of monitoring most of the nation's cowherd.

Tippens has stayed involved in helping the startup restructure and redefine its mission. High-profile clients now include Excel-Kroger-affiliated Ranchers Renaissance closed cooperative beef alliance, the Oklahoma Cattlemen's Association beef quality network and the Texas Southwest Cattle Raisers Association.

"We're trying to put real solutions in place for today's real problems," Tippens says. "We've been working with Ranchers Renaissance for four years now." Roughly 200,000 cattle go through that program every year.

"At the end of the day, the packer will probably mandate the system, because he has the biggest challenge," Tippens observes. "The packers will mandate what will work for them."

Common forms of paperwork will likely be sufficient to provide adequate documentation for COOL, he says. Companies such as eMerge Interactive can help transfer that information along a chain of custody.

"The big question is how do you go from one segment of the industry to the next, and that's where companies like eMerge will have to be involved so cattle stay enrolled as they move through the system," he says. "Handing off information from one segment to the other just doesn't make sense.

"The problem that frustrates me is that the clock is ticking on us," Tippens continues. "Calves born now could drop out of the system, lose their identity and then they'll never get it back. There are a number of producers who are saying they want something today. Enrolling in our database is the simplest way to do something."

Some estimates of COOL costs have ranged as high as $2 billion industrywide, but Tippens sees a golden opportunity to create new pricing opportunities.

"What if we put a U.S. product side-by-side with a foreign product? I think the consumer is going to buy the U.S. product," he says. "Let's give them an opportunity to pay something extra for U.S. beef.

"I predict that COOL will costa penny and a half a pound at the meat counter. For the first time, we've labeled a product and given the consumer recognition about it. I'm convinced they will pay a nickel a pound more for it, and it increases the margins we can have in this market. The management strategy changes too," he concludes.

In addition to management companies and consultants, new programs with source-verification capabilities could come from a variety of other sources, such as breed associations, farm organizations and farmer-owned cooperatives.

For example, the American Angus Association recently announced a new AngusSource program to provide the framework for "genetic-, source-, or management-verified programs."

"The key to implementing such a system is to keep the labor requirements and costs to a minimum," according to Matt Perrier, AAA director of commercial marketing. "The AngusSource program requires nothing more than the $1 ear tag investment, which will provide information on state of origin, a premise ID, within-herd ID number, and a unique 15-digit ID number. This tagging system will provide the framework for genetic-, source-, or management-verified programs."

Tagging And Branding

Many livestock marketing alliances and branded programs already have their own versions of source verification or are uniquely positioned to deliver a source-verified product, giving them a jump, theoretically at least, over commodity beef in meeting COOL obligations.

Some farms have already made proactive public announcements that they are prepared to comply with the new labeling law. The first was Missouri's Premium Standard Farms (PSF), a vertically integrated hog producer. PSF operates under a USDA-certified Process Verified Program, which means every animal can be traced to its applicable source farm. USDA was consulted prior to PSF's public release regarding its compliance with voluntary COOL guidelines.

Entities that receive certification from USDA under the Process Verified Program, whether for the voluntary COOL guidelines or another type of program, are listed on the Agricultural Marketing Service Web site at http://www.ams.usda.gov/lsg/arc/audit.htm. John Butler, president and CEO of Ranchers Renaissance beef alliance, based in Parker, Colo., has been documenting the steps in its production program and working with Washington, D.C., officials with the intent of making a similar announcement. "We believe tracking and identifying cattle all the way through has a whole lot of other values besides COOL compliance, but if there is a value to COOL compliance, we don't want to miss the boat," he says.

As a cooperative, Ranchers Renaissance already has strategic partnerships with individual member ranchers, Excel meatpacking company, national food retailers Kroger and Safeway and regional retailer Harris Teeter in the Southeast.

"By 2005, our goal is to be 100 percent source-verified," Butler says. "We currently have an ID on the animal all of the way to fabrication," he explains. "But when that animal is lifted off of the rail to be fabricated, that's where we lose the identification. I can't tie a particular package or cut back to a particular animal. To be honest, today I don't see a real value in that."

Individual animal ID and country-of-origin source verification likely will become simply a cost of doing business, he says.

"The research we've done shows consumers would appreciate knowing where cattle come from on an individual basis, but, when we ask whether they would pay more for that, we don't get a positive response," he summarizes.

Based on that research, he foresees discounts for cattle that are not COOL compliant but few, if any, premiums for those that do.

"I've seen growing interest in our program, but I don't believe it's tied to COOL at all," he says. "Ranchers who approach us are interested in being part of a value-based systems approach. We have the structures and systems in place to accommodate that."

So far COOL is getting a cool response from retailers, he adds. "We haven't seen any positioning by our big retail partners," Butler says. "We're not seeing it as a way to have more leverage over dictating price. I don't know if that will happen or not."

Private Labeling Initiatives

Carolyn Carey wants to avoid establishing a whole new federal bureaucracy. The Alturas, Calif., rancher started her own private source-verification and labeling initiative for livestock, Born & Raised in the USA. She is the CEO of Western Ranchers Beef Cooperative, a membership group that has been selling branded beef for more than six years to regional markets, and the organizer of the WRB Certified Premium Feeder Program.

To join her program and qualify for the label, cattle producers pay 50 cents a head. Retailers can also sign up to use Born & Raised in the USA decals to promote source-verified meat that comes with a USDA-approved traceback protocol. The Food Safety Inspection Service also approved her program.

These days she's promoting it as a form of insurance for future compliance with COOL. "This doesn't guarantee quality. It guarantees that it was born, raised and processed in the U.S.," she says.

WINNERS AND LOSERS UNDER COOL

Competitive Advantage        Competitive Disadvantage

Food service                 Retail
Producers                    Retailers/processors
Seafood, poultry, swine      Beef
Vertically aligned systems   Highly dispersed systems

Source: Wendy Umberger, Colorado State University

Candace Krebs is a freelance writer based in Enid, Okla.