The Uncool Animal Farm Bill

Congress believes some Americans are more equal than others. How else could it have passed (by overwhelming margins and over a presidential veto) the 2008 Farm Bill, which amounts to about a $7 billion annual transfer from the pockets of American taxpayers to high-on-the-hog agribusinesses?

To leave no doubt that these “farmers” are the exalted class, Congress included a truly Orwellian set of requirements referred to euphemistically as “Country-of-Origin Labeling” (COOL) for agricultural products like beef, chicken, pork, lamb, vegetables, and fruit.

COOL is justified by its proponents as a means of helping consumers make informed decisions. But COOL is nothing more than a ploy to thrust the marketing costs of U.S. producers on processors, packers, wholesalers and retailers, while stimulating demand for U.S. beef, chicken, pork, vegetables and the like by raising the costs of handling imports. And with the supermarket industry operating at about one to two percent profit margins, there isn’t any doubt about who will be flipping the bill.

A story in today’s Wall Street Journal gets right to the bottom line in its opening paragraph: “Grocery bills, already surging because of higher commodities costs, will almost certainly rise as costs are passed along for implementing a new country-of-origin food-labeling law, the supermarket industry says.”

The Department of Agriculture estimates first year compliance costs for entities in the supply chain to be $2.52 billion. But USDA grossly underestimated the cost of implementing COOL for fish and shellfish in 2005: the actual costs were 6 to 11 times higher than estimates.

COOL provisions for agricultural products were originally included in the 2002 Farm Bill, but implementation (for all but fish and shellfish) was stopped by congressional moratorium, as a debate, in which proponents used fears of mad cow disease and other health concerns, raged on. In a 2004 Cato Institute paper on the topic, I wrote

Proponents argue that mandatory COOL is desired by both producers and consumers. A “made-in-the-USA” label, they contend, would help identify U.S. products for consumers who are otherwise unsure and who may be willing to pay a premium to know they are buying American food.

That sounds fair enough. But there’s more to the story. If, in fact, consumers are overwhelmingly in favor of country of origin labeling, then why haven’t domestic producers voluntarily obliged? After all, if there is demand for it, why does there need to be a law mandating it?

Proponents argue that the costs of implementing COOL are small, yet none of them has been willing to implement it voluntarily. Instead, they have been expending considerable time and money to force those requirements further down the supply chain. Processors, wholesalers, and retailers-firms that buy and sell both domestic and imported products-would incur the costs of segregating inventory, keeping records, constructing and maintaining compliance systems, and often physically labeling products. Burdensome compliance costs may induce those firms to limit their sources, in some cases to only domestic suppliers.

Although consumers may be interested in having country of origin information, it is a relatively unimportant determinant of the purchasing decision. If it were important, consumers would be willing to pay higher prices for products labeled with that information, and producers would supply that information voluntarily if the increase in revenues exceeded the increase in the costs of providing it. That such information is not provided voluntarily indicates that any preference for commodities of U.S. origin is marginal.

Mandatory labeling is nothing more than a scheme to pass on what should be the marketing costs of U.S. producers to other firms in the supply chain. It is also intended to drive up the costs and reduce the revenues of businesses that produce, process, distribute, and retail imports.

What was true in 2004 remains true today. Only this time Congress succeeded in doing the bidding of our “more equal” farmers.