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We come today with a cautionary tale: “Be careful what you wish for, you might actually get it”. We begin with the sad, ridiculous and completely predictable story of COOL (country of origin labeling) which has been many years in the telling/making. I will sum it up fast enough to make the point but with enough space to convey the lesson. I cannot brag about this at all since it was the simple application of economics, not some mystical power I possess but I predicted every bit of what has happened with this over the last decade and it is all available for verification somewhere deep in your search engine of choice.
COOL was a misguided piece of legislation championed initially by small cattle and pork producers in the United States with the (unstated) motive of stopping competition from live animal imports from Canada coming into the US. It was essentially a trade barrier masquerading as consumer choice and food safety legislation. The legislation required that meat packages be labeled at the retail level with the country of origin of the live animals or the retailers would face heavy fines.
These producers knew that packing plants in the United States could not keep track of the labeling once the carcass began to be fabricated and became many pieces going to many places. Just to make the point, the so-called “grinders” in the US (large scale processors that exclusively source beef from many other countries and make it into ground beef) would have to have a label that wrapped around the package a few times to name all the countries in a single batch or maybe produce an associated booklet to attach to each package giving all the pedigrees which could change with each batch.
Then came the labeling requirement actually mandated when the legislation was implemented and included such examples as “born in Australia, backgrounded in Canada, finish fed in the United States”. Now imagine a primal cut from such an animal (like the chuck quarter) being sent to the grinder and mixed with fifty other cattle’s parts from the US and all over the world to make ground beef. The cost of compliance and the fines for failure to comply were through the roof as planned in advance by the promoters.
The instigators knew it could not be implemented, so the result would be that packers themselves, under threat from the retailers who faced the fines for failing to make sure the labels were correct, would simply quit purchasing cattle and hogs from Canada and Mexico. Even the USDA, which is required to estimate the economic cost and value of legislation implemented under its governance, told the likely outcome. I am paraphrasing but the official statement was something like, “We can find no benefit that accrues to anyone due to this legislation except those who might from time to time be curious about where their meat comes from”. They went on to list the expected costs for each market chain participant and it was in the hundreds of thousands for each grocery store.
Even though the bill was passed, the legislative branch delayed its implementation for almost a decade by refusing to fund its implementation, but then came the change of administration, and the reigns were passed to the folks who favor this kind of help for their constituents. The fallout was almost immediate. Small to mid-size kill plants out west that processed the complainers animals relied on Canadian and Mexican cattle to fill out the kill. Without those extra animals they could not stay in profitable operation so the very plants the instigators sold their animals to went bankrupt leaving them scrambling for a viable market.
Next, a booming, mutually beneficial and quasi-integrated trade relationship between Canadian and US hog producers had to break up. There was serious disruption to both sides as investment by each in the related assets in the other country was substantial. Canadian producers took care of farrowing and moving large numbers of weaned pigs at very low cost to finishing sites in the United States where that phase could be done inexpensively and near slaughter plants. Both sides benefited tremendously as did the consumers of both nations. When the dust settled, a medium to large sized US packing plant was closed (that formerly had taken large numbers of Canadian sourced pigs) and the consumers of both countries were demonstrably worse off. COOL raised the cost of fresh meat to the US consumer and lowered the cost to Canadian consumers.
Now the United States has lost several appeals and has been judged guilty of restraint of trade and the result will potentially be over a billion dollars of retaliatory tariffs resulting in lower exports for US producers. Increasing net exports is not an option for US producers; it is a necessity with dire consequences attached to failure.
Now after billions of dollars have been wasted with the preparation for implementation and the destruction of perfectly competitive cross border business relationships as well as the loss of profitable packing plants and diminished welfare for the consumers of both countries, the US House has repealed the law and is waiting for the senate to do the same before even more tuition is paid in the school of misguided public policy born of ulterior motives.
