[Federal Register: October 30, 2003 (Volume 68, Number 210)]
[Proposed Rules]
[Page 61943-61985]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30oc03-34]
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Part IV
Department of Agriculture
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Agricultural Marketing Service
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7 CFR Part 60
Mandatory Country of Origin Labeling of Beef, Lamb, Pork, Fish,
Perishable Agricultural Commodities, and Peanuts; Proposed Rule
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 60
[No. LS-03-04]
RIN 0581-AC26
Mandatory Country of Origin Labeling of Beef, Lamb, Pork, Fish,
Perishable Agricultural Commodities, and Peanuts
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
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SUMMARY: The Farm Security and Rural Investment Act of 2002 (Farm Bill)
and the 2002 Supplemental Appropriations Act (Appropriations Act)
amended the Agricultural Marketing Act of 1946 (Act) to require
retailers to notify their customers of the country of origin of covered
commodities beginning September 30, 2004. The law also requires the
Department of Agriculture (USDA) to issue regulations to implement a
mandatory country of origin labeling (COOL) program not later than
September 30, 2004. Covered commodities include muscle cuts of beef
(including veal), lamb, and pork; ground beef, ground lamb, and ground
pork; farm-raised fish and shellfish; wild fish and shellfish;
perishable agricultural commodities (fresh and frozen fruits and
vegetables); and peanuts. This proposed rule contains definitions, the
requirements for consumer notification and product marking, and the
recordkeeping responsibilities of both retailers and suppliers.
DATES: Comments must be submitted on or before December 29, 2003 to be
assured of consideration.
ADDRESSES: Send written comments to: Country of Origin Labeling
Program, Room 2092-S; Agricultural Marketing Service (AMS), USDA; STOP
0249; 1400 Independence Avenue, SW.; Washington, DC 20250-0249, or by facsimile to 202/720-3499, or by e-mail to cool@usda.gov. State that
your comments refer to Docket No. LS-03-04. Comments received will be
posted to the AMS Web site at: http://www.ams.usda.gov/cool/. Comments
sent to the above location that specifically pertain to the information
collection and recordkeeping requirements of this action should also be
sent to the Desk Officer for Agriculture, Office of Information and
Regulatory Affairs, Office of Management and Budget (OMB), New
Executive Office Building, 725 17th Street, NW., Room 725, Washington,
DC 20503.
FOR FURTHER INFORMATION CONTACT: Robert Keeney, Deputy Administrator,
Fruit and Vegetable Programs, AMS, USDA, by telephone on 202/720-4722, or via e-mail at: robert.keeney@usda.gov; or William Sessions,
Associate Deputy Administrator, Livestock and Seed Program, AMS, USDA,
by telephone on 202/720-5705, or via e-mail at: william.sessions@usda.gov.
SUPPLEMENTARY INFORMATION:
Questions and Answers Concerning This Proposed Rule
What Are the General Requirements of Country of Origin Labeling?
The Farm Bill (Public Law 107-171) and the Appropriations Act
(Public Law 107-206) amended the Act (7 U.S.C. 1621 et seq.) to require
retailers to notify their customers of the country of origin of beef
(including veal), lamb, pork, fish, perishable agricultural
commodities, and peanuts beginning September 30, 2004. The law also
requires USDA to issue regulations to implement this program no later
than September 30, 2004. The law defines the terms ``retailer'' and
``perishable agricultural commodity'' as having the meanings given
those terms in the Perishable Agricultural Commodities Act of 1930
(PACA)(7 U.S.C. 499 et seq.). Food service establishments are
specifically excluded. In addition, the law specifically outlines the
criteria a covered commodity must meet to bear a ``United States
country of origin'' label.
Why Can't USDA Track Only Imported Products and Consider All Other
Products To Be of ``U.S. Origin?''
The COOL provision of the Farm Bill applies to all covered
commodities. Moreover, the law specifically identifies the criteria
that products of U.S. origin must meet. For beef, pork, and lamb, for
example, U.S. origin can only be claimed if derived from animals that
are born, raised, and slaughtered in the United States. The law further
states 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.'' And, the
law does not provide authority to control the movement of product,
imported or domestic. In fact, the use of a mandatory identification
system that would be required to track controlled product through the
entire chain of commerce is specifically prohibited.
The Internal Revenue Service Essentially Uses Self-Certification,
Backed Up by Selective Audits, for Those of Us Who File Income Taxes.
Why Couldn't Self-Certification Work for COOL?
The COOL law requires firms or individuals that supply covered
commodities to retailers to provide information indicating the
product's country of origin. This information must address the
production steps included in the origin claim (i.e., born, raised, and
slaughtered or produced). Self-certification documents or affidavits
may play a role in assuring that auditable records are available
throughout the chain of custody, but the auditable records must
themselves also be available to ensure credibility of country of origin
labeling claims.
With a Number of Covered Commodities, Particularly Produce Items,
Already Labeled as to Country of Origin at Retail, How Big a Burden
Will Mandatory Country of Origin Labeling Actually Cause?
It is certainly true that some covered commodities, particularly
produce items, are already being labeled as to country of origin at
retail establishments. It is also the case that existing Federal law
and regulation (e.g., PACA) help ensure the truthfulness of such
labels. At the same time, the labeling of such commodities with country
of origin information is neither mandatory nor universal at the current
time. Thus, while the burden of implementing country of origin labeling
for those commodities should be lessened, some additional effort may
still be required. For example, suppliers will need to ensure that
documentation is complete and properly maintained. Retailers will need
to manage their product displays to ensure country of origin
information is being properly conveyed to their customers.
Why Can't USDA Use The Same System To Verify Compliance With Country of
Origin Labeling That It Uses for Meat Products Under USDA's Commodity
Procurement Program?
There are several reasons why the systems must be different. First,
the requirements for origin are not the same. The COOL law for U.S.
origin requires meat products to be from cattle, hogs, and sheep that
are born, raised, and slaughtered in the United States. USDA's
commodity procurement program requires meat products to come from U.S.-
produced livestock. The definition of U.S.-produced livestock excludes
only imported meat and meat
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from livestock imported for direct slaughter.
The system for verifying compliance with USDA's commodity
procurement program is a ``command and control'' type system. USDA,
through various certification or audit programs, confirms the
applicable claim at the beginning of the process, then tracks and
controls the movement of the product throughout the rest of the
marketing chain. A similar system for COOL would require USDA to verify
that livestock were born in the United States, then track and control
the movement of those livestock and resulting meat products through the
marketing chain to retail. However, the COOL law specifically precludes
USDA from imposing this type of control.
How Will the Mandatory Country of Origin Labeling Requirements Impact
Existing U.S. Cow and Bull Herds?
The law requires country of origin labeling for all covered
commodities sold at retail beginning September 30, 2004, and does not
contain a grandfathering provision that would exclude meat from these
animals from the mandatory labeling requirements. If records as to
where these animals were born, raised, and slaughtered do not exist,
retailers could not substantiate a country of origin claim that would
comply with the law.
Are Cattle, Hogs, and Sheep Covered Commodities?
No. However, the law requires suppliers to provide country of
origin information to retailers, including the ``born, raised, and
slaughtered'' information required to make U.S. origin claims for the
covered commodities beef, pork, and lamb. The records needed to
substantiate this information can only be created by persons having
first-hand knowledge of the country designation for each production
step declared in the country of origin claim. Thus, livestock producers
will need to create and/or maintain these records to enable retail
suppliers to provide retailers with correct country of origin
information.
This proposed rule is issued pursuant to the Farm Bill and the
Appropriations Act, which amended the Act.
On October 11, 2002, AMS published Guidelines for the Interim
Voluntary Country of Origin Labeling of Beef, Lamb, Pork, Fish,
Perishable Agricultural Commodities, and Peanuts(67 FR 63367) providing
interested parties with 180 days to comment on the utility of the
voluntary guidelines.
On November 21, 2002, AMS published a notice requesting emergency
approval of a new information collection (67 FR 70205) providing
interested parties with a 60-day period to comment on AMS' burden
estimates associated with the recordkeeping requirements as required by
the Paperwork Reduction Act of 1995 (PRA).
On January 22, 2003, AMS published a notice extending this comment
period (68 FR 3006) an additional 30 days.
In response to these requests for comment, AMS received over 2,400
written comments. In addition, as another means to receive public input
with respect to this rulemaking action, AMS held 12 formal educational
and listening sessions throughout the United States to afford
interested parties the opportunity to provide comments and ideas on the
mandatory COOL program's development. Over 3,300 people attended the
listening sessions and approximately 580 people provided oral
testimony.
AMS has considered all of the comments received to date in
developing this proposed rule. Several key concepts have emerged from
both the written comments and the public testimony from the listening
and educational sessions:
[sbull] General opinions of the law (i.e., both pro and con).
[sbull] Conflicting testimony regarding the costs that will be
incurred by the industry in complying with the law.
[sbull] Opinion that the law will improve the food safety of
covered commodities.
[sbull] Conflicting testimony as to whether there will be
improvement in the marketplace because of consumers' willingness to pay
for U.S. origin of covered commodities.
[sbull] Opinion that poultry will be placed at a competitive
advantage because it is exempt from labeling under COOL.
[sbull] Opinion that significant pricing disparity will exist
between retailers required to label under COOL and those that are
exempt such as fish markets and butcher shops.
[sbull] Opinion that the law requiring mandatory COOL should be
repealed and the program should be made permanently voluntary.
[sbull] Opinions that COOL should be implemented immediately due to
the Canadian BSE incident.
[sbull] Considerable testimony that presumption of U.S. origin
should be allowed.
[sbull] Considerable testimony that only imported products should
be tracked and controlled.
[sbull] Considerable testimonies that COOL should be implemented in
the least costly manner possible.
[sbull] Conflicting testimony on how to interpret the scope of
covered commodities.
[sbull] Considerable testimony that producers should be allowed to
self-certify the origin of their animals.
[sbull] Considerable testimony that required recordkeeping should
be minimized and should allow for the use of existing records to the
maximum extent possible.
[sbull] Testimony that this law may violate United States trade
obligations under the World Trade Organization.
AMS has accepted many of the commenters' recommendations in
developing this proposed rule. However, several of the recommendations
provided by the commenters are not in conformance with the law and were
therefore not adopted. Further discussion on the key concerns raised by
the commenters can be found in each applicable section. AMS has also
included a ``Questions and Answers'' section to address a few of the
more common questions posed by the commenters.
Background
Section 10816 of Public Law 107-171 (7 U.S.C. 1638-1638d) amended
the Act (7 U.S.C. 1621 et seq.) to require retailers to inform
consumers of the country of origin of covered commodities beginning
September 30, 2004.
The intent of this law is to provide consumers with additional
information on which to base their purchasing decisions. It is not a
food safety or animal health measure. COOL is a retail labeling program
and as such does not address food safety or animal health concerns.
Food products, both imported and domestic, must meet the food safety
standards of FSIS and/or the Food and Drug Administration (FDA), as
applicable. In addition, all food products must also meet FDA labeling
standards as well as all other applicable FDA regulations and
standards.
The law defines the term ``covered commodity'' as muscle cuts of
beef (including veal), lamb, and pork; ground beef, ground lamb, and
ground pork; farm-raised fish and shellfish; wild fish and shellfish;
perishable agricultural commodities (fresh and frozen fruits and
vegetables); and peanuts. The law defines the terms ``retailer'' and
``perishable agricultural commodity'' as having the meanings given
those terms in PACA.
The law specifically outlines the criteria a covered commodity must
meet in order to bear a ``United States country of origin''
declaration. In the case of beef, lamb, and pork, the covered
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commodity must be derived from an animal that was exclusively born,
raised, and slaughtered in the United States. In the case of beef, this
definition also includes cattle exclusively born and raised in Alaska
or Hawaii and transported for a period not to exceed 60 days through
Canada to the United States and slaughtered in the United States. In
the case of farm-raised fish and shellfish, the covered commodity must
be derived from fish or shellfish hatched, raised, harvested, and
processed in the United States. In the case of wild fish and shellfish,
the covered commodity must be derived from fish or shellfish harvested
in the waters of the United States or by a U.S. flagged vessel and
processed in the United States or aboard a U.S. flagged vessel. In
addition, the law also requires the country of origin declaration to
distinguish between wild and farm-raised fish and shellfish. In the
case of perishable agricultural commodities and peanuts, the products
must be produced in the United States.
To convey the country of origin information, the law states that
retailers may use a label, stamp, mark, placard, or other clear and
visible sign on the covered commodity or on the package, display,
holding unit, or bin containing the commodity at the final point of
sale to consumers. Food service establishments, such as restaurants,
cafeterias, food stands, and other similar facilities are exempt from
these labeling requirements.
The law makes reference to the definition of ``retailer'' in PACA
as the meaning of ``retailer'' for the application of the labeling
requirements under the COOL law. Under PACA, a retailer is any person
who is a dealer engaged in the business of selling any perishable
agricultural commodity solely at retail when the invoice cost of all
purchases of produce exceeds $230,000 during a calendar year. This
definition excludes butcher shops, fish markets, and small grocery
stores that either sell fruits and vegetables at a level below this
dollar volume threshold or do not sell any fruits and vegetables at
all.
The law requires any person engaged in the business of supplying a
covered commodity to a retailer to provide the retailer with the
product's country of origin information. In addition, the law states
the Secretary of Agriculture (Secretary) may require that any person
that prepares, stores, handles, or distributes a covered commodity for
retail sale maintain a verifiable recordkeeping audit trail. The law
prohibits the Secretary from using a mandatory identification system to
verify the country of origin of a covered commodity and provides
examples of existing certification programs that may be used to certify
the country of origin of a covered commodity. The law contains
enforcement provisions for both retailers and suppliers that include
civil penalties of up to $10,000 for each violation. The law also
encourages the Secretary to enter into partnerships with States with
enforcement infrastructure to the extent possible to assist in the
program's administration.
Key Components of the Law
Defining Covered Commodities
The law defines the term ``covered commodity'' as: Muscle cuts of
beef (including veal), lamb, and pork; ground beef, ground lamb, and
ground pork; farm-raised fish and shellfish; wild fish and shellfish;
perishable agricultural commodities; and peanuts.
Exclusion for Ingredient in a Processed Food Item
The law excludes items from needing to bear a country of origin
declaration when a covered commodity is an ``ingredient in a processed
food item.'' However, Public Law 107-171 does not define a ``processed
food item.'' Therefore, AMS must define what constitutes a ``processed
food item'' for each covered commodity in the context of Public Law
107-171 for the purposes of this proposed regulation.
In defining ``processed food item'' in the voluntary guidelines (67
FR 63367), AMS recognized that the term ``processed'' has been
previously defined in other regulations promulgated by AMS, such as
those issued in conjunction with the National Organic Program. AMS also
stated that it did not believe that these definitions were suitable for
use in the COOL program because using such a broad definition would
exempt commodities that Congress clearly intended to be governed under
this law.
AMS received numerous comments relating to the definition of a
``processed food item.'' Many commenters suggested that the definition
of processed food item published in the voluntary guidelines (67 FR
63367) resulted in significantly reducing the number of food items
Congress intended to be covered by the Act. These commenters contend,
for example, that a roast remains a muscle cut of beef even if cooked,
salted, or flavored.
Conversely, many other commenters suggested that the definition
published in the voluntary guidelines (67 FR 63367) was too narrow and
resulted in the inclusion of products that Congress did not intend to
be covered by the Act. These commenters contend that any item bearing
an ingredient statement should not be required to be labeled under
COOL.
As this is a retail labeling law, to help guide AMS in determining
how to define a ``processed food item,'' AMS viewed the scope of
covered commodities in the context of how these products are marketed
at the retail level. For example, most peanuts sold at retail are
shelled and roasted. To interpret the law as only applying to green
peanuts would result in the exclusion of most peanuts sold at retail.
Similarly, to exclude canned fish would result in the exclusion of a
large share of the fish products sold at retail.
To address the concerns raised by the commenters, AMS has chosen to
define a ``processed food item'' utilizing a 2-step approach. First, a
retail item derived from a covered commodity that has undergone a
physical or chemical change, causing the character to be different from
that of the covered commodity is deemed to be a processed food item.
Examples include oranges that have been squeezed and made into orange
juice, a fresh leg of pork that has been cured and made into a ham,
peanuts that have been ground and made into peanut butter, or flesh of
a fish that has been restructured and made into a fish stick. These
retail items have undergone a physical or chemical change such that
they no longer retain the characteristics of the covered commodity and
thus consumers would not use the items in the same manner as they would
the covered commodities. Second, a retail item derived from a covered
commodity that has been combined with either (1) other covered
commodities, or (2) other substantive food components (e.g., chocolate,
stuffing) resulting in a distinct retail item that is no longer
marketed as a covered commodity. Examples include a salad mix that
contains lettuce and tomatoes, peanuts in a candy bar, a stuffed pork
chop, or seafood medley.
Alternatively, some commenters suggested that a processed food item
could be defined as to exclude any product that bears an ingredient
statement. These commenters contend that this would establish a bright
line standard that would enable companies throughout the marketing
chain to readily determine whether the commodities they produce or sell
would be covered commodities. Utilizing such a definition would result
in the exclusion of many products, including those products in which
the ingredient statement lists only the commodity itself. Accordingly,
AMS invites further
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comment on the practicality of this alternative definition.
Similarly, some commenters suggested that any covered commodity
that has undergone processing as defined by other existing Federal
regulations (e.g., PACA, National Organic Program, and AMS Processed
Fruit and Vegetable Inspection Program) should be defined as an
ingredient in a processed food item, thereby being excluded from
country of origin labeling under this law. Under this alternative any
food item that represents additional transformation (e.g., canning,
cooking, dehydration, drying, fermentation, milling, the addition of
chemical substances, etc.) of a covered commodity would be considered a
processed food item. In addition, a covered commodity that has been
combined with other covered commodities or other ingredients would also
be considered an ingredient in a processed food item and excluded from
labeling. Utilizing such a definition could result in the exclusion of
many retail products. Accordingly, AMS invites further comment on the
practicality of this alternative definition.
As another alternative, some commenters suggested that a covered
commodity that is further processed (i.e., cured, restructured, etc.)
should not be excluded unless the covered commodity is mixed with other
commodities to create a distinct food item such as a pizza or TV
dinner. Accordingly, AMS also invites further comment on the
practicality of this alternative definition.
AMS invites further comment on its preferred approach, the three
identified alternatives, or any other alternative to the statutory
exclusion for an ingredient in a processed food item.
Muscle Cuts of Beef, Lamb, and Pork
All muscle cuts of beef (including veal), lamb, and pork whether
chilled, frozen, raw, cooked, seasoned, or breaded are covered
commodities and would be subject to these regulations unless they are
an ingredient in a processed food item.
In cases where a retail item is derived from a muscle cut of beef,
lamb, or pork that has undergone a physical or chemical change, causing
the character to be different than that of the covered commodity, that
item is considered a processed food item and would be excluded from
needing to bear a country of origin declaration under these
regulations. For example, products such as restructured steaks and
cured products like hams, corned beef briskets, and bacon would be
considered processed food items as they no longer retain the
characteristics of the covered commodity and thus consumers would not
use them in the same manner as they would the covered commodity. A
consumer who desires a fresh pork leg for roasting would not substitute
a cured product such as ham for the same purpose. In addition, these
products also are not typically marketed with muscle meats at a retail
establishment, but are generally marketed with other excluded meat
products.
In cases where a retail item is derived from a covered commodity
that has been combined with non-substantive components, and the
character of the covered commodity is retained, the resulting product
would not be considered a processed food item and would be subject to
these regulations. Examples include products such as needle-tenderized
steaks; fully-cooked entrees containing beef pot roast with gravy;
seasoned, vacuum-packaged pork loins; and water-enhanced case ready
steaks, chops, and roasts. These items would not be considered
processed food items because the combination of non-substantive
components and a muscle cut of beef, lamb, or pork does not result in a
retail item with characteristics that are different from that of the
covered commodity and would generally be used by consumers in the same
manner.
In cases where a retail item consists of a muscle cut of beef,
lamb, and pork and another covered commodity or other substantive food
components resulting in a distinct retail item that is no longer
marketed as a covered commodity, such an item is considered a processed
food item and would be excluded from these regulations. An example
includes an item such as a shish kabob containing beef and lamb, which
would not be marketed as a muscle cut of beef or lamb, but would
instead be marketed as a shish kabob.
Ground Beef, Lamb, and Pork
Under the law, ground beef, ground lamb, and ground pork are
required to bear a country of origin declaration. FSIS rules and
regulations specifically define the requirements for products to be
labeled as ``ground beef,'' ``ground pork,'' and ``ground lamb.'' As
such, only those products that meet FSIS requirements to be labeled as
``ground beef,'' ``ground pork,'' or ``ground lamb,'' must bear a
country of origin declaration in accordance with this proposed rule.
Fresh and Frozen Fruits and Vegetables
Under the law, perishable agricultural commodities as defined by
PACA are required to bear a country of origin declaration. PACA defines
perishable agricultural commodities as ``any of the following, whether
or not frozen or packed in ice: Fresh fruits and vegetables of every
kind and character; and * * * includes cherries in brine as defined by
the Secretary in accordance with trade usages.'' Therefore, frozen
fruits and vegetables (e.g., a package of frozen strawberries or frozen
french fried potatoes made from sliced potatoes) would be covered
commodities subject to these regulations; however, cooked and canned
fruits and vegetables would be exempt.
In order to maintain consistency with PACA, a frozen fruit or
vegetable would be a covered commodity as long as it is not an
ingredient in a processed food item and thus its ``kind or character''
has not been altered. For example, a retail item derived from a
perishable agricultural commodity that has undergone a physical or
chemical change, causing the character to be different from that of the
covered commodity, is considered to be a processed food item and would
be excluded from these regulations. For example, oranges that have been
squeezed and made into orange juice or apples that have been mashed and
made into fresh apple sauce would be considered processed food items as
they no longer retain the characteristics of the covered commodity and
thus consumers would not use them in the same manner as they would the
covered commodity.
In cases where a retail item is derived from a perishable
agricultural commodity combined with non-substantive components and the
character of the covered commodity is retained, the resulting product
is not considered a processed food item and would be subject to these
regulations. Examples include products such as strawberries packaged
with sugar, a preservative, or other flavoring. These items would not
be considered processed food items because the addition of non-
substantive components does not result in a retail item with
characteristics that are different from that of the covered commodity
and would generally be used by consumers in the same manner as the
covered commodity.
In cases where a retail item is derived from a perishable
agricultural commodity that has been combined with another covered
commodity or other substantive food components resulting in a distinct
retail item that is not marketed as a covered commodity, such an item
is considered a processed food item and would be excluded from
[[Page 61948]]
these regulations. Examples include a frozen prepared pie that includes
frozen sliced apples, a fruit cup containing cantaloupe, honeydew, and
watermelon, or a vegetable tray containing both carrots and celery.
Peanuts
All peanuts, whether raw, roasted, in-shell, shelled, salted,
seasoned, or canned are subject to these regulations unless they are an
ingredient in a processed food item. Under the law, the term ``covered
commodity'' includes ``peanuts.'' Because the vast majority of peanuts
sold at retail are shelled, roasted, and salted, AMS believes these
products were intended to be covered by the law. Accordingly, shelled
and/or roasted peanuts would be subject to these regulations as these
retail items do not have characteristics that are different from that
of a covered commodity. Further, peanuts that have been combined with
other non-substantive ingredients such as oil, salt, or other
flavorings would also be subject to these regulations. However, peanut
products such as candy coated peanuts, peanut brittle, and peanut
butter would not be subject these regulations as they are processed
food items with a character that is different than that of the covered
commodity. In addition, in cases where the peanuts are ingredients in
other food products (e.g., peanuts in a candy bar), they would also be
excluded from these regulations as they are not marketed as a covered
commodity.
Wild and Farm-Raised Fish and Shellfish
All fish and shellfish, whether chilled, frozen, raw, cooked,
breaded, or canned would be subject to these regulations unless they
are an ingredient in a processed food item. This includes fillets,
steaks, nuggets, and other flesh from wild or farm-raised fish and
shellfish.
In cases where a retail item is derived from fish or shellfish that
has undergone a physical or chemical change, causing the character to
be different than that of the covered commodity, that item is
considered a processed food item and would be excluded from these
regulations. For example, items such as restructured shrimp or fish
sticks and smoked and cured products would be considered processed food
items because they no longer retain the characteristics of the covered
commodity and thus consumers would not use them in the same manner as
they would the covered commodity.
In cases where a retail item is derived from a fish or shellfish
that has been combined with non-substantive ingredients such as
seasonings, preservatives, or breading, that item would not be
considered a processed food item as it does not result in a retail item
with characteristics that are different from that of the covered
commodity and would generally be used by consumers in the same manner
as the covered commodity.
In cases where a retail item is derived from a fish or shellfish
that has been combined with another covered commodity or other
substantive ingredients, that item would be considered a processed food
item and would not be subject to these regulations as it results in a
distinct retail item that is no longer marketed as a covered commodity.
Examples include a bag of seafood medley, stuffed salmon, or surimi.
Labeling Country of Origin for Products Produced Exclusively in the
United States
The law prescribes specific criteria that must be met for a covered
commodity to bear a ``United States country of origin'' declaration.
The specific requirements for each commodity are as follows:
(a) Beef--covered commodities must be derived exclusively from an
animal that was born, raised, and slaughtered in the United States
(including from an animal exclusively born and raised in Alaska or
Hawaii and transported for a period not to exceed 60 days through
Canada to the United States and slaughtered in the United States).
(b) Lamb and Pork--covered commodities must be derived exclusively
from an animal that was born, raised, and slaughtered in the United
States.
(c) Farm-raised Fish and Shellfish--covered commodities must be
derived exclusively from fish or shellfish hatched, raised, harvested,
and processed in the United States.
(d) Wild Fish and Shellfish--covered commodities must be derived
exclusively from fish or shellfish either harvested in the waters of
the United States or by a U.S. flagged vessel and processed in the
United States or aboard a U.S. flagged vessel.
(e) Fresh and Frozen Fruits and Vegetables, and Peanuts--covered
commodities must be derived exclusively from perishable agricultural
commodities or peanuts grown in the United States.
Products otherwise meeting the requirements of ``United States
country of origin'' may retain that designation after export for
further processing in a foreign country and reentry into the United
States for retail sale provided a verifiable recordkeeping audit trail
is maintained. However, in the case of meat and meat products,
additional labeling information may be required by other Federal
agencies.
Labeling Country of Origin for Imported Products (i.e., Produced
Entirely Outside of the United States)
Currently, under the Tariff Act of 1930, as amended (19 U.S.C.
1304)(Tariff Act), most imported items, including food items, are
required to be marked to indicate the ``country of origin'' to the
``ultimate purchaser.'' The U.S. Bureau of Customs and Border
Protection (CBP), which administers the Tariff Act, generally defines
``ultimate purchaser'' as the last person in the United States who will
receive the article in the form in which it was imported and defines
``country of origin'' as the country of manufacture, production, or
growth of any article of foreign origin entering the United States.
For example, under the Tariff Act, containers (e.g., cartons and
boxes) holding imported fresh fruits and vegetables must bear a country
of origin declaration (as defined by current CBP regulations) when
entering the United States. However, under current law, a retailer may
remove loose produce from a labeled container and display it in an open
bin, selling each individual piece of produce without a country of
origin declaration. In contrast, this proposed rule would require the
retailer to notify the consumer as to the country of origin of all
covered commodities whether individually packaged or displayed in a
bin.
Currently, under the Federal Meat Inspection Act (FMIA)(21 U.S.C.
601 et seq.), all meat products imported into the United States are
required to bear the country of origin on the labeling of the container
in which the products are shipped. If imported meat or meat products
are intended to be sold intact to a grocer or household consumer (i.e.,
consumer-ready packaging), the country of origin is conveyed to those
recipients. For example, if a bulk shipping container imported from
country X, consists of pre-packaged and labeled meat cuts that are
intended to be sold to grocers or at retail to household consumers as
they are packaged, each package would bear a country of origin
declaration (e.g., product of country X).
Currently, under the Tariff Act, if an article is destined for a
U.S. processor or manufacturer in which it will undergo ``substantial
transformation,'' that processor or manufacturer is generally
considered the ``ultimate
[[Page 61949]]
purchaser.'' As such, products that have been substantially transformed
by a U.S. processor generally are not required to bear a country of
origin declaration. Similarly, under current FSIS policies and
directives, imported meat and meat products that are further processed
in the United States are not required to bear country of origin
declarations on the newly produced products or subsequent products made
from them as these products are now considered to be domestic.
Under this proposed rule, imported covered commodities for which
origin has already been established as defined by this regulation
(e.g., born, raised, and slaughtered in the case of meat products or
grown in the case of peanuts), shall retain their origin, as determined
by CBP at the time the product entered the United States, through
retail sale. For example, if an imported lamb carcass derived from an
animal that was born, raised, and slaughtered in country X, was further
processed in the United States, the resulting products derived from
that carcass would be labeled as ``product of the country X.'' However,
in this example, additional labeling information may be required by
FSIS.
Products imported in consumer-ready packages, including food
products (e.g., frozen green beans or canned ham), are currently
required to bear a country of origin declaration on each individual
package under both the Tariff Act and FMIA. This proposed rule would
not change these requirements.
Labeling Country of Origin When the Product Has Entered the United
States During the Production Process (i.e., Mixed Origin That Includes
the United States)
The law specifically defines the requirements for covered
commodities to bear a ``United States country of origin'' declaration.
However, the law is less specific for products produced completely or
in part outside of the United States. In these instances, the law
requires only that retailers inform consumers as to the country of
origin of a covered commodity at the final point of sale.
Beef, Lamb, and Pork
The law states that only covered commodities derived from animals
that were born, raised, and slaughtered in the United States may bear a
``United States country of origin'' declaration. AMS recognizes that a
number of animals born in foreign countries are raised and slaughtered
in the United States. In addition, some animals born in the United
States are raised in foreign countries and then either slaughtered in
that foreign country or returned to the United States for slaughter.
The requirements for products to bear a ``Product of the United
States'' declaration do not permit products derived from animals that
were born, raised, or slaughtered in a foreign country to be labeled as
``Product of the United States.'' However, AMS recognizes that to label
products of an animal that was only born in country X, but raised and
slaughtered in the United States solely as ``Product of country X''
does not reference the significant production steps that occurred in
the United States. Therefore, under this proposed rule, products that
were produced in both a foreign country and the United States would be
labeled at retail as being imported from the foreign country and also
for the production steps that occurred in the United States. For
example, pork products derived from a pig that was born in country X,
raised and slaughtered in the United States would be labeled as
``Imported from country X, Raised and Slaughtered in the United
States.'' Alternatively, products may also be labeled to specifically
identify the production step(s) that occurred in the country other than
the United States if the animal's identity was maintained along with
records to substantiate the origin claims. For example, products
derived from a pig that was born and raised in country X and
slaughtered in the United States could either be labeled as ``Imported
from country X, Slaughtered in the United States'' or ``Born and Raised
in country X, Slaughtered in the United States.'' AMS invites further
comment on the use of alternative terms for the term ``slaughtered.''
AMS also recognizes that in some cases, an animal will undergo
production steps in two or more foreign countries prior to entering the
United States for additional processing or a final process such as
slaughter. In these cases, the meat products derived from an animal
that was born in country X, raised in country Y, and slaughtered in the
United States would be labeled at retail as being imported from country
Y and for any production steps occurring in the United States. For
example, if a calf was born in country X and raised in country Y before
being imported for slaughter in the United States, the resulting meat
products derived from this animal would be labeled as ``Imported from
country Y, Slaughtered in the United States.'' Alternatively, if the
animal's identity was maintained along with the records to substantiate
the origin claims, the product could be labeled to specifically
identify the production step(s) (e.g., born, raised) occurring in the
country(ies) other than the United States. In the example cited above,
the product could be labeled ``Born in country X, Raised in country Y,
Slaughtered in the United States.''
AMS invites further comment on this approach to the labeling of
beef, lamb and pork, and requests identification of alternative
approaches to labeling such products.
Wild and Farm-Raised Fish and Shellfish
In the case of wild fish and shellfish, the law states that a
covered commodity can only bear a ``United States country of origin''
declaration if it is harvested in the waters of the United States or
aboard a U.S. flagged vessel and processed in the United States or
aboard a U.S. flagged vessel. In the case of farm-raised fish and
shellfish, the law states that a covered commodity can only be labeled
as ``Product of the U.S.'' if it is hatched, raised, harvested, and
processed in the United States. However, the law does not define the
term processed.
AMS received numerous comments requesting that the regulations for
the mandatory COOL program conform to existing regulations of CBP
wherever possible to eliminate redundancies, costs, and conflicts. As
such, for wild and farm-raised fish and shellfish, AMS has defined
``processed'' as any process that effects substantial transformation as
defined by CBP Rules of Origin.
In the case of wild fish and shellfish, if a covered commodity was
harvested in the waters of the U.S. or by a U.S. flagged vessel and
processed in country X or aboard a country X flagged vessel, the
covered commodity shall be labeled at retail as ``Product of country
X.'' For example, if a fish was caught in U.S. waters and processed
into individually quick-frozen fillets in country Y, such product would
be labeled as ``Product of country Y'' because it has been
substantially transformed as defined by CBP and thus does not meet the
requirements to bear a U.S. origin declaration. Alternatively, the
product may also be labeled to include the production step occurring in
the United States if the product's identity was maintained along with
records to substantiate the origin claims. In the example provided
above, the product could be labeled as ``product of country Y,
harvested in the United States.''
If a covered commodity was harvested in country Y and processed in
the United States or aboard a U.S. flagged vessel, the product shall be
labeled at retail as ``Imported from country Y, processed in the United
States.'' In all cases, the covered commodity must also
[[Page 61950]]
be labeled to indicate that it was derived from wild fish and/or
shellfish.
In the case of farm-raised fish, if a covered commodity was hatched
in country X, and raised, harvested and/or processed in the United
States, the product would be labeled as being imported from country X
and for the production step(s) occurring in the United States. For
example, if a fish was hatched in country X and processed in the United
States, the product would be labeled as ``Imported from country X,
Processed in the United States.''
If a covered commodity was hatched, raised, and harvested in the
United States and processed in country X, the product shall be labeled
at retail as ``Product of country X.'' Alternatively, the product may
also be labeled to include the production step(s) occurring in the
United States if the product's identity was maintained along with
records to substantiate the origin claims. In the example given above,
the product could be labeled as ``Product of country X, hatched,
raised, and harvested in the United States.'' In all cases, the covered
commodity must also be labeled to indicate that it was derived from
farm-raised fish and/or shellfish. Farm-raised fish means fish or
shellfish that have been harvested in controlled or selected
environments, including ocean-ranched (e.g., penned) fish and shellfish
confined in managed beds; and fillets, steaks, nuggets, and any other
flesh from a farm-raised fish or shellfish. For example, mussels on
rope culture and oysters on leased land would be considered farm-
raised.
AMS invites further comment on this approach to the labeling of
wild and farm-raised fish and shellfish and requests identification of
alternative approaches to labeling such products.
Defining Country of Origin for Blended Products
Many of the covered commodities required to bear a country of
origin declaration under the law are commingled or blended products
that were prepared from raw material sources having different origins
(e.g., bagged lettuce, ground beef, shrimp, etc.). However, the law
does not specify how these products should be labeled.
In defining country of origin for blended or mixed products in the
voluntary guidelines (67 FR 63367), AMS recognized that it could be
misleading to consumers if only a small percentage of a covered
commodity mixture met the definition of United States origin and yet
the mixture could list the United States first ahead of other countries
in the country of origin declaration on the package. As such, under the
voluntary guidelines, the country of origin declaration was to reflect
the country of origin for each raw material source of the mixed or
blended retail item by order of predominance by weight. In addition,
under the voluntary guidelines, containers of mixed or blended products
in which the individual constituents could be separately identified,
would have to bear a country of origin declaration individually
identifying the country of origin of each constituent.
AMS received numerous comments on this issue stating that to
require labeling in the order of predominance by weight and for each
individual constituent would be cumbersome, impractical, and costly.
In response to these comments, under this proposed rule, the
country of origin declaration of blended or mixed retail food items
comprised of the same covered commodity (e.g., bag of lettuce or
package of ground beef) that are prepared from raw material sources
having different origins must list alphabetically the countries of
origin for all of the raw materials contained therein. For example, a
bag of red and green leaf lettuce from country A and country B would be
labeled as ``Product of country A, Product of country B.'' However,
under this proposed rule, items such as a salad mix or a fruit cup
would not be required to bear a country of origin declaration because
these items would be considered processed food items and would be
excluded from these regulations.
Method of Notification
The law states that the country of origin declaration may be
provided to consumers by means of a label, stamp, mark, placard, or
other clear and visible sign on the covered commodity or on the
package, display, holding unit, or bin containing the commodity at the
final point of sale to consumers.
Under this proposed rule, market participants can utilize a variety
of different labeling nomenclatures to denote the country of origin of
a covered commodity. For example, ``U.K.'' and ``United Kingdom of
Great Britain and Northern Ireland'' would both be allowed under this
proposed rule.
AMS received numerous comments requesting acceptance for labels
containing only the name of the country such as ``USA'' due to the
limited amount of space on many retail items. Therefore, under this
proposed rule, country of origin declarations may be in the form of a
statement such as ``Product of USA,'' ``Grown in Mexico,'' or they may
only contain the name of the country such as ``USA'' or ``Mexico''
provided it is in conformance with other existing Federal laws.
However, the labeling requirements under this proposed rule do not
supercede any existing labeling requirements, unless otherwise
specified, and any such country of origin notification must not obscure
other labeling information required by existing regulatory
requirements.
For those entities that are regulated by FSIS, all country of
origin labels must be submitted to FSIS for pre-approval as required by
current FSIS regulations.
In order to provide the industry with as much flexibility as
possible, this proposed rule does not contain specific requirements as
to the exact placement or size of the country of origin declaration.
However, such declaration must be conspicuous and allow consumers to
determine the country of origin when making their purchases and
provided that existing Federal labeling requirements must be followed.
State and Regional Labeling Programs
The law requires retailers to notify consumers of the country of
origin of covered commodities. Therefore, State and regional labeling
programs such as ``Washington apples,'' ``Idaho potatoes,'' and
``California Grown'' do not meet this requirement and cannot be
accepted in lieu of country of origin labeling.
Existing State-Level Country of Origin Labeling Laws
Several States have implemented mandatory programs for country of
origin labeling of certain commodities. For example, Alabama, Arkansas,
Mississippi, and Louisiana have origin labeling requirements for
certain seafood products. Other States including Wyoming, Idaho, North
Dakota, South Dakota, Louisiana, Kansas, and Mississippi have origin
labeling requirements for particular meat products. In addition, the
State of Florida and the State of Maine have origin labeling
requirements for fresh produce items.
AMS received several comments asserting that these State programs,
particularly the State of Florida's program, should serve as models for
the Federal mandatory COOL program. AMS has reviewed these existing
programs and concluded that most of these programs do not meet the
requirements of the Act. Accordingly, AMS has determined that, in
general, these programs are not suitable models on which to base the
regulations for the Federal mandatory COOL program.
With regard to enforcement activities, while some of these States
actively enforce their respective origin labeling
[[Page 61951]]
laws and impose fines on those found to be in violation and/or seize
product found to be mislabeled, other States conduct no such
enforcement activities. With respect to the Florida law that is
actively enforced by the State, verification of a product's origin
generally consists of the inspector observing the primary container the
product was packaged in to determine if the retailer has accurately
characterized the origin of the product on the shelf. This enforcement
program is based on a presumption of truthfulness that allows the
retailer to rely on the information printed either on the shipping
container or on the product itself. Therefore, AMS does not believe
this type of enforcement program could serve as a model for enforcement
of the Federal program.
Remotely Purchased Products
Many consumers are now purchasing products from retailers prior to
having an opportunity to observe the final package (e.g., Internet
sales, home delivery sales, etc.). In the voluntary guidelines (67 FR
63367), AMS stated its belief that consumers should be made aware of
the country of origin of a covered commodity before the purchase is
made. Thus, under the voluntary guidelines retailers were required to
provide the country of origin information on the sales vehicle (i.e.,
Internet site, home delivery catalog, etc.) as part of the information
describing the covered commodity for sale.
Numerous commenters stated that it would be nearly impossible and
extremely impractical to have current country of origin information on
an Internet site or catalog as this information changes rapidly
depending on the store location or warehouse at which an order is
processed and filled. Therefore, under this proposed rule, retailers
must provide notification of country of origin at the time the product
is delivered to the customer.
Recordkeeping Requirements
The law states that the Secretary may require any person that
prepares, stores, handles, or distributes a covered commodity for
retail sale to maintain a verifiable recordkeeping audit trail that
will permit the Secretary to verify compliance. As such, records and
other documentary evidence to substantiate origin declarations and, if
applicable, designations of wild or farm-raised, are necessary in order
to provide retailers with credible information on which to base origin
declarations.
Under this proposed rule, any person engaged in the business of
supplying a covered commodity to a retailer, whether directly or
indirectly (i.e., distributors, handlers, etc.), would be required to
maintain records to establish and identify the immediate previous
source and immediate subsequent recipient of a covered commodity, in
such a way that identifies the product unique to that transaction, for
a period of 2 years from the date of the transaction. The supplier of a
covered commodity that is responsible for initiating a country of
origin declaration and, if applicable, designation of wild or farm-
raised, must possess or have legal access to records that substantiate
that claim. For an imported covered commodity, the importer of record
as determined by CBP, must ensure that records: (1) Provide clear
product tracking from the U.S. port of entry to the immediate
subsequent recipient, and (2) substantiate country of origin claims,
and, if applicable, designations of wild or farm-raised and maintain
such records for a period of 2 years from the date of the transaction.
To the extent that existing records contain the necessary information
to substantiate an origin declaration and, if applicable, designations
of wild or farm-raised, it is not necessary to create or maintain
additional records.
AMS invites comment on all aspects of recordkeeping requirements.
In particular, comment is invited on whether a shorter record retention
requirement would still afford adequate time to conduct compliance
activities. For example, FDA proposed a 1-year record retention
requirement for perishable goods in their proposed rule, published on
May 9, 2003, implementing sections of the Bioterrorism Act of 2002, and
many firms would have to retain records for both this rulemaking and
the FDA recordkeeping rule. At the same time, retailers and others in
the marketing chain subject to PACA must continue to comply with its 2
year record retention requirement.
For suppliers that handle similar covered commodities from more
than one country, the supplier must be able to document that the origin
of a product was separately tracked, while in their control, during any
production or packaging processes to demonstrate that the identity of
the product wasmaintained.
Under this proposed rule, retailers also have recordkeeping
responsibilities. AMS received numerous comments requesting
clarification of the types of records that must be kept at the retail
level. Many of these commenters also suggested that a 2-year
requirement for maintaining records at the store level was too onerous
and unnecessary given the relatively short amount of time a product is
on the shelf before it is sold. Therefore, under this proposed rule,
records and other documentary evidence relied upon at the point of sale
by the retailer to establish a product's country of origin and, if
applicable, designation of wild or farm-raised, must be maintained at
the point of sale or otherwise be reasonably available to any duly
authorized representatives of USDA for at least 7 days following the
retail sale of the product. Records that identify the retail supplier,
the product unique to that transaction, and the country of origin
information, and, if applicable, designation of wild or farm-raised,
must be maintained for a period of 2 years from the date the origin
declaration is made at retail. Such records may be located at the
retailer's point of distribution, warehouse, central offices, or other
off-site location.
AMS invites comment on all aspects of recordkeeping requirements.
In particular, comment is invited on whether a shorter record retention
requirement would still afford adequate time to conduct compliance
activities. For example, FDA proposed a 1-year record retention
requirement for perishable goods in their proposed rule, published on
May 9, 2003, implementing sections of the Bioterrorism Act of 2002, and
many firms would have to retain records for both this rulemaking and
the FDA recordkeeping rule. At the same time, retailers and others in
the marketing chain subject to PACA must continue to comply with its 2
year record retention requirement.
AMS also received numerous comments from retailers emphasizing the
need to hold retail suppliers accountable as the retailer would be
unable to determine a product's country of origin in the absence of
credible information from thesupplier. Under the statute, suppliers of
covered commodities are required to supply country of origin
information to retailers and sanctions may be assessed against
retailers only for willful violations.
However, to help address the concerns of retailers, AMS invites
further comment on the practicality of requiring suppliers to provide
an affidavit for each transaction to the immediate subsequent recipient
certifying that the country of origin claims and, if applicable,
designations of wild or farm-raised, being made are truthful and that
the required records are being maintained.
[[Page 61952]]
Enforcement
The law encourages the Secretary to enter into partnerships with
States to the extent practicable to assist in the administration of
this program. As such, USDA will seek to enter into partnerships with
States that have enforcement infrastructure to conduct retail
compliance reviews.
Routine compliance reviews may be conducted at retail
establishments and associated administrative offices, and suppliers
subject to these regulations. USDA would coordinate the scheduling and
determine the procedures for reviews. Only USDA will be able to
initiate enforcement actions against a person found to be in violation
of the law. USDA may also conduct investigations of complaints made by
any person alleging violations of these regulations when the Secretary
determines that reasonable grounds for such investigation exist.
Retailers, upon being notified of the commencement of a compliance
review, must make all records or other documentary evidence material to
this review available to USDA representatives and provide any necessary
facilities for such inspections.
AMS invites further comment on all aspects of enforcement of this
retail labeling rule. Specific comment is requested on the implications
of the statutory mandate for retail labeling beginning September 30,
2004, relative to the amount of lead time necessary for firms in the
supply chain to comply with this rule.
Violations
The law contains enforcement provisions for both retailers and
suppliers that include civil penalties of up to $10,000 for each
violation. For retailers, the law states that if the Secretary
determines that a retailer is in violation of the Act, the Secretary
must notify the retailer of the determination and provide the retailer
with a 30-day period during which the retailer may take necessary steps
to comply. If upon completion of the 30-day period the Secretary
determines the retailer has willfully violated the Act, after providing
notice and an opportunity for a hearing, the retailer may be fined not
more than $10,000 for each violation.
AMS received numerous comments requesting a clarification as to how
AMS will apply the standard of willfulness. These commenters urge USDA
to recognize that if a majority of covered commodity items bear a label
indicating the product's country of origin, the retailer has met their
obligation under these regulations. AMS recognizes that many suppliers,
particularly in the case of produce, will apply stickers to individual
covered commodities indicating the country of origin and that such
labeling technology does not result in a 100 percent adhesion level.
AMS also recognizes that consumers may separate hands of bananas that
may only have one or two stickers per hand or otherwise move an item
from one bin to another as they make their selections. AMS will take
these and all other circumstances into account in determining whether
or not a retailer has committed a willful violation.
In addition to the enforcement provisions contained in the Act,
statements regarding a product's origin must also comply with other
existing Federal statutes. For example, if a firm misrepresents the
State, country, or region of origin of a perishable agricultural
commodity, the firm is in violation of PACA. In addition, both FMIA and
the Federal Food, Drug, and Cosmetic Act prohibit labeling that is
false or misleading. Thus, inaccurate country of origin labeling of
covered commodities may lead to additional penalties under these
statutes as well.
Executive Order 12988
The contents of this proposed rule were reviewed under Executive
Order 12988, Civil Justice Reform. This rule is not intended to have a
retroactive effect. States and local jurisdictions are preempted from
creating or operating country of origin labeling programs for the
commodities specified in the Act and these regulations. With regard to
other Federal statutes, all labeling claims made in conjunction with
this regulation must be consistent with other applicable Federal
requirements. Further, the Act does not restrict or modify the
authority of the Secretary to administer or enforce FMIA(21 U.S.C. 601
et seq.) or PACA (7 U.S.C. 499 et seq.). There are no administrative
procedures that must be exhausted prior to any judicial challenge to
the provisions of this rule.
Civil Rights Review
AMS has considered the potential civil rights implications of this
rule on minorities, women, or persons with disabilities to ensure that
no person or group shall be discriminated against on the basis of race,
color, national origin, gender, religion, age, disability, sexual
orientation, marital or family status, political beliefs, parental
status, or protected genetic information. This review included persons
that are employees of the entities that are subject to these
regulations. This proposed rule does not require affected entities to
relocate or alter their operations in ways that could adversely affect
such persons or groups. Further, this proposed rule would not deny any
persons or groups the benefits of the program or subject any persons or
groups to discrimination.
Executive Order 13132
This proposed rule has been reviewed under Executive Order 13132,
Federalism. This Order directs agencies to construe, in regulations and
otherwise, a Federal statute to preempt State law only where the
statute contains an express preemption provision or there is some other
clear evidence to conclude that the Congress intended preemption of
State law, or where the exercise of State authority conflicts with the
exercise of Federal authority under the Federal statute. This proposed
rule is required by the Farm Bill. While this statute does not contain
an express preemption provision, it is clear from the language in the
statute that Congress intended preemption of State law.
Several States have implemented mandatory programs for country of
origin labeling of certain commodities. For example, Alabama, Arkansas,
Mississippi, and Louisiana have origin labeling requirements for
certain seafood products. Other States including Wyoming, Idaho, North
Dakota, South Dakota, Louisiana, Kansas, and Mississippi have origin
labeling requirements for certain meat products. In addition, the State
of Florida and the State of Maine have origin labeling requirements for
fresh produce items.
To the extent that these State country of origin labeling programs
encompass commodities which are not governed by this regulation, the
States may continue to operate them. With regard to consultation with
States, as directed by the law, AMS has consulted with the States that
have country of origin labeling programs. Further, State officials were
invited to attend, and in many cases did participate in, the 12
educational and listening sessions AMS held across the United States.
Further, States are expressly invited to comment on this proposed rule
as it relates to existing State programs.
Executive Order 12866
USDA has examined the economic impact of this proposed rule as
required by Executive Order 12866. USDA has determined that this
regulatory action is economically significant, as it is likely to
result in a rule that would have an annual effect on the economy of
$100 million or more and therefore has been reviewed by OMB. Executive
Order
[[Page 61953]]
12866 requires that a regulatory cost-benefit assessment be performed
on all economically significant regulatory actions. In accordance with
Executive Order 12866, this preliminary economic impact assessment
contains a statement of need for the proposed rule, an examination of
alternative approaches, and an analysis of benefits and costs.
Summary of the Economic Analysis
The estimated benefits associated with this rule are likely to be
negligible. The estimated first-year incremental cost for growers,
producers, processors, wholesalers, and retailers ranges from $582
million to $3.9 billion. The estimated cost to the U.S. economy in
higher food prices and reduced food production in the tenth year after
implementation of the rule ranges from $138 million to $596 million.
Note that this analysis does not quantify certain costs of the
proposed rule such as the cost of the rule after the first year, or the
cost of any supply disruptions or any other ``lead-time'' issues.
Except for the recordkeeping requirements, there is insufficient
information to distinguish between first year start up and maintenance
costs versus ongoing maintenance costs for this proposed rule.
Maintenance costs beyond the first year are expected to be lower than
the combined start up and maintenance costs required in the first year.
AMS invites further comment on start up costs and maintenance costs for
the first year and beyond for firms directly affected by this proposed
rule.
USDA finds little evidence that consumers are willing to pay a
price premium for country of origin labeling. USDA also finds little
evidence that consumers are likely to increase their purchase of food
items bearing the U.S. origin label as a result of this rulemaking.
Current evidence does not suggest that U.S. producers will receive
sufficiently higher prices for U.S.-labeled products to cover the
labeling, recordkeeping, and other related costs. The lack of
participation in voluntary programs for labeling products of U.S.
origin provides evidence that consumers do not have a strong preference
for country of origin.
Statement of Need
This proposed rule is the direct result of statutory obligations to
implement the COOL provisions of the Farm Bill, which amended the Act
by adding Subtitle D--Country of Origin Labeling. There are no
alternatives to Federal regulatory intervention for implementing this
statutory directive.
The country of origin labeling provisions of the Farm Bill change
current Federal labeling requirements for muscle cuts of beef, pork,
and lamb; ground beef, ground pork, and ground lamb; farm-raised fish;
wild fish; perishable agricultural commodities; and peanuts (hereafter,
covered commodities). Under current Federal laws and regulations,
country of origin labeling is not universally required for covered
commodities. In particular, labeling of U.S. origin is not mandatory,
and labeling of imported products at the consumer level is required
only in certain circumstances.
The Tariff Act, FMIA, and other legislation require most imports to
bear labels informing the ``ultimate purchaser'' of the country of
origin. ``Ultimate purchaser'' is defined as the last U.S. person who
will receive the article in the form in which it was imported. The
Tariff Act requires country of origin declarations on containers (e.g.,
cartons and boxes) holding imported fresh fruits and vegetables when
entering the United States. Under the provisions of this statute, loose
produce in a labeled container can be displayed and sold in an open bin
at retail outlets without country of origin labels on each individual
piece of produce. A placard or other bin label indicating country of
origin is not required. If the produce in a shipping container is
packed in consumer-ready packaging, however, those packages must bear a
country of origin declaration. For example, grapes packaged in bags or
shrink-wrapped English cucumbers must have country of origin labels on
each consumer-ready package. Further, if the food item is destined for
a U.S. processor or manufacturer where it will undergo ``substantial
transformation,'' that processor or manufacturer is considered the
ultimate purchaser. As a result, under the Tariff Act, these covered
commodities are not required to carry a country of origin mark after
processing in the United States.
The strongest case for establishing a market failure justification
for mandatory COOL is inadequate or asymmetric information. Country of
origin is clearly a credence attribute, which means that consumers
cannot observe the attribute before or after purchasing the product.
Without labeling, there is no way for consumers to know the country of
origin of a covered commodity. If the country of origin of the
commodities covered by this proposed rule is an attribute desired by
consumers and there is market failure that impedes the voluntary
provision of this information, then market efficiency could be improved
by providing credible information to consumers. With credible country
of origin information, consumers could select products based on their
preferences for country of origin, and the food industry could respond
to consumer demand signals by providing products according to the
expressed demands of consumers.
Consumer surveys indicate that some consumers desire country of
origin information on foods (Refs. 1, 2, and 3). The consumer surveys
also indicate that consumers may desire COOL not out of any intrinsic
value they place knowing the country of origin, but because it
represents to them a proxy for product safety or quality, serves as an
indicator of desirable environmental or labor practices, or represents
a means for them to support U.S. or another country's producers.
An important question to consider in weighing the economic basis
for mandatory COOL is whether there are any barriers to the voluntary,
private provision of the optimal level of country of origin
information. Private costs incurred by firms in the supply chain
represent the primary barrier to the voluntary provision of country of
origin information. There are no significant regulatory barriers to the
voluntary provision of this information.
For the market to voluntarily provide credible country of origin
declarations, information regarding country of origin must flow between
firms involved in all stages of the food supply chain. Just as it is
for consumers, country of origin information is a credence attribute
for firms in the food supply chain. Firms must incur costs to provide
credible country of origin information. If the increase in price firms
in the supply chain expect to receive for providing consumers with
country of origin information is less than the cost of providing it,
then firms will not voluntarily incur the costs of providing this
information.
If there were profits to be made from country of origin labeling,
there would be strong incentives for firms to advertise and market
country of origin labeled foods. Firms in the food supply chain would
not be expected to forgo opportunities for additional profits.
Retailers would demand that food manufacturers supply them with
products having verifiable origin information. If consumers favored
product by origin, food manufacturers would demand food commodities
specifying origin and verifiable origin information.
U.S. farmers and fish harvesters could benefit financially from
country of origin labels if consumers prefer domestic products to
imports. In this
[[Page 61954]]
case labels would allow consumers to distinguish between imports and
domestic products and make their choices accordingly. As a result,
demand for domestic food products in the United States would rise along
with domestic food prices. Further, domestic products would increase
their market share relative to imports. However, if consumers do not
generally prefer domestic products, labeling would confer little to no
economic benefits to domestic producers.
Overall, there does not appear to be a compelling market failure
argument regarding the provision of country of origin information.
There appear to be no barriers to the provision of this information
other than private costs to firms in the supply chain and low expected
returns. Firms that would incur private costs to provide country of
origin information would also enjoy the private benefits, if any, from
consumer demand for the information. Thus, from the point of view of
society, market mechanisms would ensure that the optimal level of
country of origin information would be provided.
Alternative Approaches
Many aspects of the mandatory COOL provisions of Pub. L. 107-171
are prescriptive and provide little regulatory discretion for this
proposed rulemaking. The law requires a statutorily defined set of food
retailers to label covered commodities regarding their country of
origin. The law also prohibits USDA from using a mandatory
identification system to verify the country of origin of covered
commodities. In its guidance for conducting analyses of regulatory
benefits and costs, OMB suggests several categories of alternative
approaches that agencies should consider during their analysis.
Applicable categories of alternative approaches for this proposed rule
are discussed below.
Different requirements for different segments of the regulated
population: The mandatory COOL law explicitly defines the retailers
required to provide country of origin labeling for covered commodities
(namely, retailers as defined by PACA). Thus, there is no discretionary
authority for designating which retailers are subject to the COOL
labeling requirements. The law also requires that any person supplying
a covered commodity to a retailer provide information to the retailer
indicating the country of origin of the covered commodity. Again, the
law provides no discretionary authority to this requirement.
Neither the law nor the proposed rule requires that any entity that
produces or supplies covered commodities must market those commodities
to retailers as defined by the law. Suppliers of covered commodities
could completely avoid the requirements of this proposed rule by
distributing their products through channels other than to the
retailers subject to the law. Examples include retailers not subject to
the law, foodservice firms, or exports.
The proposed rule does not require specific types of recordkeeping
systems. Thus, retailers and suppliers of covered commodities will be
able to develop their own least-cost systems to implement COOL
requirements. For example, one firm may depend primarily on manual
identification and paper recordkeeping systems, while another may adopt
automated identification and electronic recordkeeping systems.
Alternative levels of stringency: USDA interprets the law as
providing essentially no discretionary authority for providing
alternative levels of stringency regarding the provision of country of
origin information for covered commodities by retailers as defined by
the statute. That is, retailers either provide the required country of
origin information to their customers or they do not, which provides no
scope for alternative levels of stringency. There is, however, some
degree of discretionary authority with regard to how the required
information may be substantiated and how USDA may enforce the law and
ensure compliance with this proposed rule.
USDA received numerous comments suggesting self-certification as a
means to identify country of origin, particularly for producers. USDA
does not consider self-certification alone, absent records to
substantiate the information, as a viable or credible alternative for
compliance with this proposed rule. In addition, with no mechanism to
verify compliance, such a system could be highly vulnerable to
misrepresentation. USDA believes that some type of certification could
be used as a means to transfer country of origin information from one
level of the supply chain to the next, but such certification would
need to be supported by adequate documentation to verify country of
origin claims.
An alternative to the proposed recordkeeping requirements would be
to supplement the recordkeeping requirements with required affidavits
attesting to the veracity of country of origin claims. Suppliers could
be required to provide an affidavit for each transaction to the
immediate subsequent recipient certifying that the country of origin
claims and, if applicable, designations of wild or farm-raised, being
made are truthful and that the required records are being maintained.
This system of providing affidavits could provide enhanced assurance
that each participant in the supply chain is fully accountable for
providing valid country of origin claims.
Alternative effective dates of compliance: The law states that
country of origin labeling shall apply to the retail sale of a covered
commodity beginning September 30, 2004. USDA interprets this
requirement as providing no discretionary authority for alternative
effective dates of compliance.
Alternative methods of ensuring compliance: Country of origin
labeling is, by its very nature, an information-based activity. Thus,
USDA believes that there are essentially no alternatives for verifying
compliance other than through the use of an audit-based system to
review the information which is both generated to substantiate country
of origin claims and passed along the supply chain. USDA is precluded
by law from implementing any mandatory system that might be used to
verify country of origin information.
In terms of compliance activities, the law states that USDA shall,
to the maximum extent practicable, enter into partnerships with States
having enforcement infrastructure to assist in the administration of
the law. USDA will seek to enter into such partnerships with States
where possible to conduct compliance activities at retail
establishments. Because suppliers of covered commodities are often
located outside of a particular State's boundaries and jurisdictions,
USDA concludes that it would be most practicable for States to focus
their enforcement activities on entities in the supply chain within
their boundaries.
Informational measures: Providing information to consumers is the
intent of this proposed rule and is the chosen regulatory alternative.
More market-oriented approaches: There is no regulatory alternative
to implementation of mandatory COOL by the statutorily specified
retailers. The proposed rule, however, provides flexibility in allowing
market participants to decide how best to implement mandatory COOL in
their operations.
Considering specific statutory requirements: Within the parameters
established by the legislation, one area which allows for regulatory
discretion relates to the definition of an ingredient in a processed
food item. The legislation provides that the term ``covered commodity''
does not include an item
[[Page 61955]]
``if the item is an ingredient in a processed food item.'' The
legislation does not, however, define a processed food item, nor what
constitutes an ingredient in a processed food item. Therefore,
alternative definitions of a processed food item are possible. The
scope of commodities, or number of items, covered by the proposed rule
changes under alternative definitions of a processed food item.
Analysis of Benefits and Costs
The baseline for this analysis is the present state of the affected
industries absent mandatory COOL. USDA recognizes that some directly
affected firms have already begun to implement changes in their
operations to accommodate the law and the expected requirements of this
proposed rule. The benefits and costs examined in the analysis
represent incremental impacts relative to their state prior to any
changes resulting from the mandatory COOL statute or this proposed
rule. If consumers would pay extra for the certainty that their food
was produced in a particular country, and if labeling is relatively
inexpensive, there is an economic incentive to make consumers aware of
this product characteristic. Retailers, food manufacturers, and
producers would share the increased net revenues and have an incentive
to voluntarily label. Given that retailers and food manufacturers have
the greatest incentive to be informed about what consumers desire, the
fact that they do not currently provide country of origin information
to consumers on a widespread basis suggests that they believe that the
costs of labeling outweigh the returns.
Some analysts argue that country of origin information does not
matter to U.S. consumers (See, for example, Ref. 4). Freshness,
quality, price, and other factors may be more important to consumers
than country of origin. If country of origin does not influence demand,
there is no incentive to provide country of origin labels. Retailers or
food manufacturers providing country of origin labels would incur
labeling costs (including the cost of segregating domestic and imported
products) but receive no corresponding benefits. Even if consumers do
favor labeled products over unlabeled products, labeling costs may
outweigh the increase in market returns from increased demand and
prices.
In any event, economic efficiency of mandatory COOL will be
maximized by implementing the program so that it reduces the cost of
providing this information as much as possible.
Benefits: The expected benefits from implementation of this rule
are difficult to quantify. However, we believe that the benefits will
be small and will accrue mainly to those consumers who desire country
of origin information. We find little evidence to support the notion
that consumers' stated preferences for country of origin labeling will
lead to increased demands for covered commodities bearing the U.S.-
origin label.
There is considerable research indicating that a majority of
consumers have at least some interest in their food's origin, and a
smaller but significant proportion of consumers that have a strong
desire to know where their food was produced. However, this research
indicates that consumer desire for country of origin labeling stems
primarily from their concerns about the safety of the food they eat. To
a lesser extent, this research indicates that consumer desire for
country of origin labeling stems from concerns about the quality and
freshness of products and a preference to support U.S. producers.
There is less research on how much consumers would pay to know the
origin of the food they eat. Some recently conducted surveys, however,
report that 71 percent to 73 percent of consumers are willing to pay
more to know the origin of their food (Refs. 1 and 2). Measures of
willingness to pay, however, do not necessarily translate directly into
measures of what consumers would actually pay when faced with
marketplace decisions.
One frequently cited study, Umberger, et al. (Ref. 2) assessed
consumers' willingness to pay for labeled beef of U.S. origin. They
found that 73 percent of survey participants in Denver, Colorado, and
Chicago, Illinois, were willing to pay premiums of 11 percent or more
for steak and 24 percent or more for ground beef when labeled as beef
of U.S.-origin. These findings have been cited by others as an
indicator of the potential benefits that would accrue from country of
origin labeling.
For example, using the average amounts that consumers were willing
to pay for U.S.-labeled beef from the Umberger, et al. study,
VanSickle, et al. (Ref. 5) estimated that benefits to consumers for
country of origin labeling of fresh beef muscle cuts and ground beef
would equal $5.8 billion per year based on recent per-capita
consumption figures and price data for January and February 2003. We
believe, however, that this estimate is based on an inappropriate use
of the results from the Umberger, et al. study.
There are several limitations with the willingness-to-pay studies
that call into question the appropriateness of using this approach to
make determinations about the benefits of this proposed rule. First,
consumers in such studies often overstate their willingness to pay for
a product. This typically happens because survey participants are not
constrained by their normal household budgets when they are deciding
which product or product feature they most value. In the case of the
Umberger, et al. study, consumers ranked the importance of country of
origin information 8th out of 17 factors, with food safety and
freshness receiving the highest rankings. This suggests that, when
faced with a real budget constraint, consumers might actually be
willing to pay considerably less for the country of origin information
than they indicate when surveyed.
Second, in most of these willingness-to-pay studies, consumers are
not faced with the actual choices they would face at retail outlets.
For example, consumers in the Umberger, et al. study were only faced
with making a hypothetical choice between U.S. beef and generic beef.
Under the proposed rule, however, they may be faced with choosing
between U.S. beef, beef from several other specific countries, and beef
from a mixture of countries including the United States. In addition,
the labels they see in the store will contain information about price
and quality that may also affect the value they place on country of
origin information. Visual characteristics and presentation of products
in the store would also influence choice in addition to label
information.
Third, consumers' willingness-to-pay as elicited from a survey is a
function of the questions asked. Different questionnaires will yield
different results. For example, if consumers were told that nearly all
of the beef they currently consume came from the United States before
they were asked about their willingness to pay for U.S.-labeled beef,
the strength of their preference for origin information would probably
be less than if consumers were not told about the correct origin of the
beef they consume.
Finally, the results reported from these studies do not take into
account changes in consumers' preferences for a particular product or
product attribute over time. While consumers may be willing to pay more
for a given attribute initially, as time goes on and they gain more
experience with the product attribute, they may be less willing to pay
for products with this attribute.
The authors of the Umberger, et al. study acknowledge many of these
limitations (Ref. 6). They state that the
[[Page 61956]]
results obtained from these types of surveys do not always predict
consumer behavior. They also state that because of the limitations
inherent in willingness-to-pay studies, the results of their study
should not be used to determine the economic impact of COOL.
This is not to say that willingness-to-pay studies, such as the
study conducted by Umberger, et al., are not useful. They are valuable
for improving our understanding of consumer preferences for product
characteristics. The results of these studies support the notion that
at least some consumers desire this information and are willing to pay
some amount for it.
With respect to agricultural producer benefits, even if consumers
are willing to pay more for U.S.-labeled products, this does not
necessarily mean that U.S. producers would benefit from an increase in
the demand for their products. U.S. producers will only benefit if the
country of origin labeling increases demand and ultimately the farm
price enough to cover producers' costs of labeling itself. Current
evidence on country of origin labeling, however, does not suggest that
U.S. producers will receive sufficiently higher farm prices for U.S.-
labeled products to cover the costs of labeling. Moreover, it is even
possible that producers could face lower farm prices as a result of
labeling costs being passed back from retailers and processors.
For the past 3 years, FSIS and AMS have offered a voluntary program
by which suppliers can place U.S.-origin declarations (certified to be
accurate by USDA) on many of the meat products covered by this rule.
However, no suppliers of these covered commodities have participated in
this program.
The lack of participation in government-provided programs for
labeling products of U.S. origin provides evidence that consumers do
not have a strong preference for country of origin labeling. At the
very least it indicates that retailers and food manufacturers do not
believe consumer preferences for country of origin information are
strong enough to cause demand and prices for labeled products to
increase sufficiently to pay for the costs of implementing a labeling
program.
We can see what happens when consumers do have a strong desire for
labeling by contrasting the lack of participation in the U.S.-origin
labeling programs to the high level of participation in the organic
labeling program. Labeling provided under the organic program provides
compelling evidence that processors and retailers will provide
consumers with the information they desire when they believe that
consumers have a strong preference for this information and are willing
to pay for it.
Some may point to the fact that many of the commodities covered by
this rule are already labeled as to country of origin as proof that
consumers do desire this information. The existence of country of
origin information by itself, however, does not indicate that consumers
place any value on this information. For many covered commodities, the
cost of identifying country of origin is minimal, and producers and
processors face little added expense in differentiating their product
from others by country of origin.
The primary indication of the strength of consumer preference for
country of origin information would be whether processors and retailers
were able to extract a price premium for promoting this information.
While many products sold by retailers have country of origin labels,
there appear to be far fewer of these products that retailers attempt
to sell based on this information. Even when they do, there is little
evidence that they are able to extract a premium for country of origin
information.
The results from consumer surveys provide additional evidence that
country of origin labeling may not lead to higher demand and prices for
U.S.-labeled products. The results from these surveys indicate that the
number of consumers with strong preferences for U.S.-origin labeled
products is not sufficient for U.S. producers to benefit from labeling.
This occurs because the supply of U.S.-origin products is likely to
exceed the total quantity demanded by those who would pay a higher
price for U.S. origin products (see, for example, Ref. 7).
While consumers often state a preference for country of origin
information, they also indicate that they desire this information
because they believe it provides them with important information about
the safety of their food. This suggests that consumers may use country
of origin labeling as a proxy for food safety information.
Country of origin labeling, as formulated under the proposed rule,
does not provide valid information regarding food safety. This is
because the proposed rule does not provide the traceability required to
permit the government to rapidly respond to a contamination or disease
outbreak.
Furthermore, the country of origin information provided under this
rule could cause some consumers to incorrectly attribute greater risks
to products from a specific country than is justified. If this
sentiment causes enough consumers to avoid this product and
consequently pay a higher price for a competing country's product, the
result would lead to a decline in consumer welfare.
Costs: To estimate the costs of this proposed rule, USDA employed a
two-pronged approach. First, USDA estimated implementation costs for
firms in the industries directly affected by the proposed rule. The
implementation costs on directly affected firms represent increases in
capital, labor, and other input costs that firms will incur to comply
with the requirements of the proposed rule. These costs are expenses
that these particular firms must incur, but are not necessarily costs
to the U.S. economy as measured by the value of goods and services that
are produced. USDA then applied the implementation cost estimates to a
general equilibrium model to estimate overall impacts on the U.S.
economy after a 10-year period of economic adjustment. The model
provides a means to estimate the change in overall consumer purchasing
power after the economy has adjusted to the requirements of the
proposed rule.
To develop its estimates of implementation costs, USDA drew upon
available studies, comments and testimony received on the voluntary
COOL guidelines and this rulemaking, and its knowledge of the affected
industries. USDA developed a range of estimated implementation costs to
reflect the likely range of first-year costs for directly affected
firms. At a minimum, all directly affected firms will need to comply
with the recordkeeping requirements of the proposed rule. Thus, the
lower range of incremental cost estimates reflect the costs to modify
and maintain current recordkeeping systems. USDA believes, however,
that firms will incur other capital and operational costs to comply
with the proposed rule. For example, firms may need to modify their
production, storage, distribution, and handling systems to enable
country of origin information to be tracked and maintained from start
to finish. Thus, the upper range of incremental cost estimates reflect
not only additional recordkeeping costs, but also additional payments
by the directly affected firms for capital, labor, and other expenses
that will be incurred as a result of operational changes to comply with
the proposed rule.
Estimated first-year incremental costs for directly affected firms
range from $582 million to $3.9 billion. Estimated costs per firm range
from $180 to $443 for producers, $4,048 to $50,086 for intermediaries
(such as handlers,
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importers, processors, and wholesalers), and $49,581 to $396,089 for
retailers. Although the estimated incremental costs represent
additional payments individual firms will incur to comply with the
proposed rule, the sum of such payments does not represent the overall
impacts of the proposed rule on the entire U.S. economy.
In effect, these incremental costs represent increases in the costs
of production for the affected firms. Firms will need to recover these
costs to stay in business in the long run. To do this, firms will
either pass the higher costs back to their suppliers by paying lower
prices for inputs or pass the higher costs forward to their customers
by charging higher prices for outputs. The directly affected industries
as well as other, indirectly affected sectors of the economy will thus
adjust over the longer run to the higher costs imposed by the proposed
rule.
To estimate the overall impacts of the higher costs of production
resulting from the proposed rule, USDA used a model of the entire U.S.
economy. USDA adjusted the model by imposing the estimated
implementation costs on the directly impacted segments of the economy
in a computable general equilibrium model developed by the USDA's
Economic Research Service (ERS). The model estimates changes in prices,
production, exports, and imports as the directly impacted industries
adjust to higher costs of production over the longer run (namely, 10
years). Because the model covers the whole U.S. economy, it also
estimates how other segments of the economy adjust to changes emanating
from the directly affected segments and the resulting change in overall
productivity of the economy.
Annual costs to the U.S. economy in terms of reduced purchasing
power resulting from a loss in productivity after a 10-year period of
adjustment are estimated to range from $138 million to $596 million.
Domestic production for all of the covered commodities at the producer
and retail levels is estimated to be lower and prices to be higher. In
percentage terms, however, the production declines are larger than the
price increases, so estimated industry revenue declines for all of the
covered commodities. In addition, U.S. exports are estimated to
decrease for all covered commodities, and U.S. imports also are
estimated to decrease for all covered commodities except fish, which
shows no change to a slight increase.
It may appear counterintuitive to have first-year incremental costs
ranging from $582 million to $3.9 billion for directly impacted firms,
but smaller overall costs ranging from $138 million to $596 million in
reduced consumers' purchasing power after 10 years of adjustment.
Nonetheless, these results are consistent with each other.
Directly affected firms incur additional costs to implement the
requirements of the proposed rule, which take the form of additional
payments for capital, labor, and other operating expenses. For the most
part, however, such additional expenses for directly affected firms
ultimately return to the economy. For example, additional human
resource costs incurred to develop and maintain recordkeeping systems,
segregate and display product properly, and so forth are also wages
that will be spent on food, transportation, housing, and other goods
and services in the economy. Likewise, capital costs for warehouse
reconfiguration or changes in processing plants involve equipment and
supplies purchased from firms that pay wages, purchase raw materials,
and supply goods and services. Thus, the implementation costs incurred
by directly affected firms are not entirely lost to the economy, but
these incremental costs do increase the costs of production and
decrease the productivity of the affected industries.
The findings indicate that directly affected industries recover the
higher costs imposed by the proposed rule through slightly higher
prices for their products. With higher prices, the quantities of their
products demanded also decline to the extent that total industry
revenues also decline. Consumers pay slightly more for the products and
purchase less of the covered commodities. Overall, however, the covered
commodities account for a comparatively small portion of the U.S.
economy and of consumers' budgets. Thus, the ``deadweight'' economic
burden of the proposed rule is considerably smaller than the
incremental costs to directly affected firms. The remainder of this
section describes in greater detail how USDA developed the estimated
direct, incremental costs and the overall costs to the U.S. economy.
Cost assumptions: The industries directly affected by this proposed
rule are those responsible for producing and marketing the covered
commodities at retail stores as defined by the law. Consumers of the
covered commodities at these retail outlets are also directly affected
by this proposed rule.
This proposed rule directly regulates the activities of retailers
(as defined by the law) and their suppliers. Retailers are required by
the proposed rule to provide country of origin information for the
covered commodities that they sell, and firms that supply covered
commodities to these retailers must provide them with this information.
In addition, all other firms in the supply chain for the covered
commodities are potentially affected by the proposed rule because
country of origin information will need to be maintained and
transferred along the entire supply chain to enable retailers to
correctly label the products at the point of final sale.
In general, the supply chains for the covered commodities consist
of farm or fishing operations, processors, wholesalers, and retailers.
Table 1 contains a listing of the number of entities in the supply
chains for each of the covered commodities.
The total cost of this proposed rule will depend on the number of
entities affected and the incremental cost to each affected firm in the
supply chain for the covered commodities. The proposed rule requires
that retailers provide consumers with country of origin information for
the covered commodities and also requires that their suppliers provide
them with the information needed to substantiate these country of
origin claims. To provide credible country of origin claims, firms in
the supply chain will need to create, maintain, and transfer
information from one level of the chain to the next. The proposed rule
allows industry participants to determine the recordkeeping and
information transfer mechanisms needed for compliance. Consequently,
firms will modify existing recordkeeping systems and business practices
as necessary to ensure compliance with the proposed rule.
Number of firms and number of establishments affected: USDA
estimates that approximately 1,377,000 establishments owned by
approximately 1,339,000 firms would be either directly or indirectly
affected by this rule. In general, the supply chain for each of the
covered commodities includes agricultural producers or fish harvesters,
processors, wholesalers, and retailers. Imported products may be
introduced at any level of the supply chain. Other intermediaries, such
as auction markets, may be involved in transferring products from one
stage of production to the next. Table 1 provides estimates of the
affected firms and establishments.
[[Page 61958]]
Table 1.--Estimated Number of Affected Entities
------------------------------------------------------------------------
Type Firms Establishments
------------------------------------------------------------------------
Beef, Lamb, and Pork:
Cattle and Calves...................... 1,032,670 1,032,670
Sheep and Lambs........................ 64,170 64,170
Hogs and Pigs.......................... 67,150 67,150
Stockyards, Dealers & Market Agencies.. 7,775 7,775
Livestock Processing & Slaughtering.... 3,098 3,358
Meat & Meat Product Wholesale.......... 3,185 3,305
Fish:
Farm-Raised Fish and Shellfish......... 3,540 3,540
Fishing................................ 76,499 76,452
Seafood Product Preparation & Packaging 741 823
Fish & Seafood Wholesale............... 2,897 2,980
Perishable Agricultural Commodities:
Fruits & Vegetables.................... 47,986 47,986
Frozen Fruit, Juice & Vegetable Mfg.... 163 257
Fresh Fruit & Vegetable Wholesale...... 9,026 12,879
Peanuts:
Peanut Farming......................... 12,221 12,221
Roasted Nuts & Peanut Butter Mfg....... 140 159
Peanut Wholesalers..................... 83 83
General Line Grocery Wholesalers........... 3,183 3,993
Retailers.................................. 4,512 37,176
--------------
Totals:
Producers.................... 1,303,846 1,303,799
Intermediaries............... 30,291 35,612
Retailers.................... 4,512 37,176
--------------
Grand Total............. 1,338,649 1,376,587
------------------------------------------------------------------------
Supply chains for the covered commodities are mostly specialized
from farm production through manufacturing levels. After manufacturing,
the degree of specialization diminishes, until products reach retail
outlets where most affected retailers sell many of the covered
commodities. Even after manufacturing, however, there are specialized
wholesalers who distribute the products to retail outlets. Firms and
establishments that specialize in the production and distribution of
each covered commodity are listed within each group. General-line
wholesalers and retailers that handle several of the covered commodity
groups are listed separately at the bottom of the table.
For all covered commodities, the numbers of manufacturing and
wholesaling establishments are estimated from the 2001 County Business
Patterns (Ref. 8) and the 2000 Statistics of U.S. Businesses (Ref. 9).
An establishment is a single physical location where business is
conducted or where services or industrial operations are performed. A
firm is a business organization consisting of one or more domestic
establishments in the same industry that was specified under common
ownership or control. The firm and the establishment are the same for
single-establishment firms. County Business Patterns and Statistics of
U.S. Businesses report data for companies with at least one paid
employee.
Nonemployer Statistics are also reported by the U.S. Census Bureau
(Ref. 10). Nonemployer Statistics reports data for companies with no
paid employees, such as independent contractors. Because nonemployer
businesses are generally very small, we assume that nonemployer
manufacturing and wholesaling businesses do not supply commodities to
retailers of the size covered by this proposed rule (i.e., retailers
selling fresh and frozen fruits and vegetables with an invoice value of
at least $230,000). Such small businesses likely are engaged in
localized specialty operations that would not supply larger retailers.
Therefore, nonemployer businesses are not included in the assessment of
the firms and establishments impacted by the proposed rule. We invite
comments on the validity of this assumption.
We assume that all firms and establishments identified in Table 1
will be impacted by the proposed rule, although some may not produce or
sell products ultimately within the scope of the proposed rule. While
this assumption likely overstates the number of affected firms and
establishments, we believe that the assumption is reasonable. Detailed
data on the number of entities categorized by the marketing channels in
which they operate and the specific products that they sell are not
available.
Beef, lamb, and pork: USDA estimates that there are 1,032,670
operations with cattle and calves (Ref. 11), 64,170 operations with
sheep and lambs (Ref. 12), and 67,150 operations with hogs and pigs
(Ref. 13). For farming operations, the firm and the establishment are
considered to be one and the same. We assume that all of these
livestock production operations are affected by the proposed rule, even
though we recognize that substantial portions of the covered
commodities produced from the livestock of these operations will fall
outside of the proposed rule. Covered commodities sold at foodservice
establishments, exported, used as ingredients in processed food items,
or sold at retail outlets not covered by the proposed rule are outside
the scope of the proposed rule. When livestock are born, the producer
typically does not know the ultimate destination for the final product.
We assume that all producers will seek to keep their market options
open, whether the final product moves to a covered retailer or to
another marketing outlet. In addition, there are 7,775 posted
stockyards, bonded dealers and market agencies that are involved in
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buying, selling, and marketing livestock (Ref. 14). Some of these
stockyards, dealers, and market agencies may deal exclusively with
other species such as horses, but that number is small and expected to
minimally impact the estimated number of firms and establishments.
We estimate that there are 3,358 livestock slaughtering and
processing establishments and operated by 3,098 firms. These numbers
may be slightly overstated, since businesses that do not slaughter or
process cattle, sheep, or hogs are included in these totals. For
example, a plant that slaughtered only bison would be included in the
totals, but the number of such businesses is very small. Also, some
plants that process beef, lamb, or pork may produce only processed
products that are excluded from the scope of the proposed rule. The
number of such firms and establishments is unknown, but expected to be
small. The number of meat and meat product wholesale firms is estimated
to be 3,185 and the number of establishments is estimated to be 3,305.
Fish. Fish production includes both farm-raised or aquaculture
production and wild-caught fishing operations. Aquaculture operations
include those producing food fish, crustaceans, and mollusks, and the
estimated number of operations is 3,540 (Ref. 15). Most wild fish
harvesting operations are nonemployer businesses. Census Bureau data
are used to estimate the number of fishing, seafood product preparation
and packaging, and fish and seafood wholesale establishments and firms
(Refs. 8, 9, and 10). As with the beef, lamb, and pork firms and
establishments, some of these fish and seafood firms and establishments
may not produce or sell covered commodities. While the number of such
entities is unknown, we assume that all firms and establishments will
be impacted by the proposed rule.
Perishable agricultural commodities: Census of Agriculture data
provide estimates of the number of fruit and vegetable farming
operations (Ref. 16). The total number of fruit farms is estimated at
81,956 and the total number of vegetable farms at 31,030. USDA
estimates that 34.6 percent of fruit production and 62.0 percent of
vegetable production is used for fresh and frozen products. USDA
assumes that fruit and vegetable producers generally know whether their
production is destined for fresh or processing use, meaning that some
producers will be unaffected by the proposed rule depending upon the
marketing channels for which they produce. Data on the number of
farming operations categorized by the ultimate end uses of the products
do not exist. Therefore, USDA assumes that the number of farms
producing fruits and vegetables for fresh and frozen use is
proportional to the production of fresh and frozen fruits and
vegetables relative to total production. Hence, the number of affected
fruit farms is estimated at 28,357 and the number of vegetable farms at
19,339, for a total of 47,696 farming operations producing fruits and
vegetables that will be impacted by this proposed rule.
Businesses that process frozen fruits and vegetables and fresh
fruit are estimated from Census Bureau data (Refs. 8, 9, and 10), and
are estimated to include 163 firms operating 257 establishments. These
estimates may be overstated by the inclusion of businesses that produce
frozen juice and businesses that produce frozen fruits and vegetables
in forms not covered by the proposed rule. Businesses wholesaling
frozen fruits and vegetables are included in packaged frozen food
wholesale firms and include 9,026 firms operating 12,878
establishments.
Peanuts: Census of Agriculture data provide an estimate of 12,221
peanut farming operations (Ref. 16). Businesses that roast nuts and
manufacture peanut butter are estimated from Census Bureau data to
include 140 firms operating 159 establishments (Refs. 8, 9, and 10).
These numbers include companies that produce only peanut butter (not a
covered commodity) or that may roast nuts not covered by the proposed
rule, but the number of such operations is unknown. Businesses that
wholesale peanuts are estimated from peanut marketing agreement data
(Ref. 17) to include 83 firms and the same number of establishments.
General-line wholesalers and retailers: In addition to specialty
wholesalers that primarily handle a single covered commodity, there are
also general-line wholesalers that handle a wide range of products. We
assume that these general-line wholesalers likely handle at least one
and possibly all of the covered commodities. Therefore, we include the
number of general-line wholesale businesses among entities affected by
the proposed rule. This includes 3,183 firms operating 3,993
establishments.
Retailers covered by this proposed rule must meet the definition of
a retailer as defined by PACA. The number of such businesses is
estimated from PACA data (Ref. 18). The PACA definition includes only
those retailers handling fresh and frozen fruits and vegetables with an
invoice value of at least $230,000 annually. Therefore, the number of
retailers impacted by this rule is considerably smaller than the total
number of food retailers nationwide. Census Bureau data show that there
were 92,383 food store firms and 102 warehouse club and superstore
firms in 2000 (Ref. 9). There were 127,566 food store establishments
and 2,051 warehouse club and superstore establishments in 2001 (Ref.
8). Thus, we estimate that there are 92,485 retail firms and 129,617
retail establishments that account for most of the retail sales of the
covered commodities. However, only 4,512 retail firms operating 37,176
retail establishments are included under the statutory definition of a
PACA retailer.
Source of cost estimates: Data on costs to implement mandatory COOL
are largely unavailable. There are State programs for country of origin
labeling of some products, CBP and regulations specify labeling
requirements for imported products, and some companies choose to
provide country of origin labels for marketing purposes. There are,
however, no mandatory programs with similar requirements and coverage
that would provide substantive guidance for estimating the costs of
this proposed rule.
On October 11, 2002, USDA published voluntary guidelines (67 FR
63367) for country of origin labeling of the covered commodities. USDA
invited public comments on the utility of these guidelines, including
the costs and benefits of the program. USDA also prepared an estimate
of the information collection burden that would be associated with
implementation of the voluntary guidelines and invited comments on the
estimated information collection burden. In addition, USDA also sought
comments on this rulemaking for mandatory COOL and held 12 public
listening and information sessions across the country. We also met with
many industry groups and individuals to discuss this rulemaking and
visited facilities at all levels of the supply chain to learn about
current industry practices and changes that would be required to
implement mandatory COOL. In addition, a number of studies have been
produced to address various issues relating to the economic impacts
associated with implementation of mandatory COOL.
To develop estimates of the cost of implementing this proposed
rule, we reviewed the comments received on the voluntary guidelines,
the comments received regarding this rulemaking for mandatory COOL, and
available economic studies. No single source of information, however,
provided
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comprehensive coverage of all economic benefits and costs associated
with mandatory COOL for all of the covered commodities. We applied our
knowledge about the operation of the supply chains for the covered
commodities to synthesize the available information about the proposed
rule's potential costs.
Cost drivers: This proposed rule is a retail labeling requirement.
Retail stores subject to this proposed rule will be required to inform
consumers as to the country of origin of the covered commodities that
they sell. To accomplish this task, individual package labels or other
point-of-sale materials will be required. If products are not already
labeled by suppliers, the retailer will be responsible for labeling the
items or providing the country of origin information through other
point-of-sale materials. This may require additional retail labor and
personnel training. A recordkeeping system will be required to ensure
that products are labeled accurately and to permit compliance and
enforcement reviews. For most retail firms of the size defined by the
statute (i.e., those retailing fresh and frozen fruits and vegetables
with an invoice value of at least $230,000), we assume that
recordkeeping will be accomplished primarily by electronic means.
Modifications to recordkeeping systems will require software
programming and likely will entail additional computer hardware. We
expect that retail stores will also undertake efforts to ensure that
their operations are in compliance with the proposed rule.
Prior to reaching retailers, most covered commodities move through
distribution centers or warehouses. Direct store deliveries (such as
when a local truck farmer delivers fresh produce directly to a retail
store) are an exception. Distribution centers will be required to
provide retailers with country of origin information. This will require
additional recordkeeping processes to ensure that the information
passed from suppliers to retail stores permits accurate product
labeling and permits compliance and enforcement reviews. Additional
labor and training may be required to accommodate new processes and
procedures needed to maintain the flow of country of origin information
through the distribution system. There may be a need to further
segregate products within the warehouse, add storage slots, and alter
product stocking, sorting, and picking procedures.
Packers and processors of covered commodities will also need to
inform retailers and wholesalers as to the country of origin of the
products that they sell. To do so, their suppliers will need to provide
documentation regarding the country of origin of the products that they
sell. Maintaining country of origin identity through the packing or
processing phase is more complex if products from more than one country
are involved. For example, the identity of fresh kiwi fruit from
California and New Zealand entering the same packing house would need
to be maintained throughout the packing operation. The efficiency of
operations may be affected as products are segregated in receiving,
storage, processing, and shipping operations. For packers and
processors handling products from multiple origins, there may also be a
need to separate shifts for processing products from different origins,
or to split processing within shifts. In either case, costs are likely
to increase. Records will need to be maintained to ensure that accurate
country of origin information is retained throughout the process and to
permit compliance and enforcement reviews.
Processors handling only domestic origin products or products from
a single country of origin may have lower implementation costs compared
with processors handling products from multiple origins. A processor
that already sources products from a single country of origin would not
face additional costs associated with product segregation and tracking.
Procurement costs also may be unaffected in this case, if the processor
is able to continue sourcing products from the same suppliers.
Alternatively, a processor that currently sources products from
multiple countries of origin may choose to limit its source to a single
country of origin to avoid costs associated with product segregation
and tracking. In this case, such cost avoidance would be partially
offset by additional procurement costs to source supplies from a single
country of origin. Additional procurement costs may include higher
transportation costs due to longer shipping distances and higher
acquisition costs due to supply and demand conditions for products from
a particular country of origin, whether domestic or foreign.
At the production level, agricultural producers and fish harvesters
will need to create and maintain records to establish country of origin
information for the products they sell. This information will need to
be transferred and maintained as the products move through the supply
chains. In general, additional producer costs include the cost of
establishing and maintaining a recordkeeping system for country of
origin information, animal or product identification, and labor and
training.
Recordkeeping burden: On November 21, 2002, USDA published in the
Federal Register a Notice of Request for Emergency Approval of a New
Information Collection (67 FR 70205) for the interim guidelines for
Voluntary Country of Origin Labeling for Beef, Lamb, Pork, Fish,
Perishable Agricultural Commodities, and Peanuts that were published on
October 11, 2002 (67 FR 63367). The Notice provided USDA's estimate of
the recordkeeping burden imposed by voluntary COOL, under the
requirements of PRA. That PRA cost estimate related solely to the
recordkeeping burden and did not consider other costs imposed by COOL.
Also, PRA requirements do not address the benefits of a program. Thus,
PRA recordkeeping burden published by USDA did not reflect the full
costs and benefits of voluntary COOL.
Cost analyses: Despite the numerous comments that USDA has received
on the voluntary guidelines and on this rulemaking, there is
surprisingly little quantitative evidence on the likely costs of
mandatory COOL. The proposed rule does not specify the systems that
affected entities must put in place to implement mandatory COOL.
Instead, market participants will be given flexibility to develop their
own systems to comply with the proposed rule. There are many ways in
which the proposed rule's requirements may be met, and this contributes
to the difficulty in arriving at a quantitative assessment of cost
impacts. Nonetheless, a number of studies and submitted comments shed
light on the potential costs of mandatory COOL. Generally, comments
addressed costs for a particular firm or a segment of a particular
supply chain for a given covered commodity. Of the studies on potential
economic impacts of mandatory COOL, only a handful developed estimated
incremental implementation costs for market participants. We use the
results of these studies, comments received, and knowledge of the
affected industries to develop a range of the estimated incremental
cost impacts of this proposed rule.
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Estimated costs from the studies considered by USDA are summarized
in Table 2. The studies are VanSickle, McEowen, Taylor, Harl, and
Connor (Ref.5); Sparks Companies Inc. (Ref. 19); Hayes and Meyer (Ref.
20); and Davis (Ref. 21). All of the studies report annual costs, and
the costs shown in Table 2 are assumed to represent first-year costs
for mandatory COOL. In those cases in which the studies do not state so
explicitly, USDA infers from the construction of the estimates that
they represent first-year costs.
BILLING CODE 3410-02-P
[GRAPHIC] [TIFF OMITTED] TP30OC03.005
BILLING CODE 3410-02-C
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At a minimum, mandatory COOL will entail the transfer of
information through the respective supply chains, from production
through retail sales. While information currently flows through the
system as products move through the supply chains, there is little
evidence that country of origin information typically is a component of
this information flow. Thus, we believe that transfer and maintenance
of records to establish COOL claims will be accomplished through
modification of the current recordkeeping and systems used for
accounting, purchasing, sales, production, and related operations.
VanSickle, et al. (Ref. 5) address the recordkeeping cost to
producers in their critique of USDA's estimate of the recordkeeping
burden for the voluntary COOL guidelines. This study notes that
producers currently maintain a variety of records for taxes, health
rules, and other programs and they conclude that producers would
require no new recordkeeping. As part of their critique of USDA's
recordkeeping burden estimates, VanSickle, et al. recalculated the
recordkeeping burden using different producer numbers and different
labor costs. Although the study does not separately show calculations
for each t