COOL policy burns Canadian hog farmers

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Published on Monday, 21 January 2013 04:40

Written by Katie Mick, DTN Markets Editor

OMAHA (DTN) -- The U.S.'s mandatory country-of-origin labeling (COOL) policy has caused $2 billion of damage to Canada's live swine trade, according to a report from the Canadian Pork Council released earlier this week.

The law, put in place in 2008 and recently overruled by the World Trade Organization, also led Canada to lose $357 million in pork exports to the U.S., and suppressed the price of Canadian-born feeder pigs exported to the U.S. by $85 million over four years, the study stated.
Additional damages from slaughter hog price suppression on Canada's domestic market and the indirect impact of a 15% decrease in the sow herd wasn't included in the study's analysis.

"In the event the U.S. does not come into compliance or find resolution to the COOL dispute, the report's findings that the current annual rate of damage accumulation is almost $500 million, can be used to estimate retaliatory tariffs on U.S. exports to Canada," Canadian Pork Council Chairman Jean-Guy Vincent said in a press release. "Faced with continuing damages measured in tens of millions of dollars a month, Canada's pork industry would prefer a timely resolution to the dispute and an end to the damaging trade restrictions as soon as possible."

The World Trade Organization has sided with Canada and Mexico, deeming the labeling unfair. The United States has until May 23 to comply with the WTO's ruling before Canada is allowed to impose tariffs.

The exclusion of Canadian-born livestock from being labeled as a "Product of USA" caused Smithfield Foods and other meatpackers to adopt a U.S.-only purchasing strategy, quickly shuttering the market to Canadian hogs.

The study established a baseline monthly volume estimate by using the average monthly trade volume from the year before COOL started affecting the market in March 2008. The monthly average smoothed out monthly variations and seasonal factors, creating a "snapshot of trade patterns before the disruption, which reasonably reflects the trade potential. However, this methodology does not account for any trend to growth in trade volumes, and thus may underestimate the impacts of MCOOL where trade volumes were trending higher," the report states.

Actual trade volume was subtracted from the baseline to gauge the impact, which the report pegged at roughly $497 million each year or nearly $2 billion by the end of 2012.

"Taking into account the lost growth potential, the actual damages to Canada's swine producers may exceed these estimates," the report stated.

The law also created disruptions in the pork market, the report explained, noting that COOL allows imported pork to go into products for further processing but essentially eliminated imports for direct retail sales. That has led to an increase in pork imports by Canada from the U.S., with much of the product going directly into Canadian retail chains without country-of-origin labeling.

A large portion of the $357 million of damage to the pork trade was passed on to hog producers in the form of reduced demand for live swine.

Also, following COOL, the prices paid for Canadian feeder pigs were considerably lower than the going market price, averaging from $2/head for isoweans and heavy feeders to $5.62 for intermediate weight feeder pigs. The total price suppression effect so far has reached $85.3 million.

The cost of COOL will keep adding up for Canadian hog producers, Vincent said.

"COOL is costing Canadian hog and cattle producers tens of millions of dollars every month and needs to be dealt with sooner rather than later," said Vincent. "The WTO has concluded its review and the initial findings have been confirmed on appeal and found that the U.S. must change COOL. There is no further appeal."

The group warned that retaliatory tariffs on U.S. pork exports could virtually eliminate the market, but noted that tariffs aren't limited to retaliation in the red meat markets or agriculture sectors.



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