[Senate Hearing 108-096]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 108-096
 
    THE POTENTIAL BURDENS ASSOCIATED WITH THE NEW COUNTRY-OF-ORIGIN 
                          LABELING (COOL) LAW
=======================================================================

                                HEARING

                               before the

      SUBCOMMITTEE ON MARKETING, INSPECTION AND PRODUCT PROMOTION

                                 OF THE

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION


                               __________

                             APRIL 22, 2003

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov






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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                  THAD COCHRAN, Mississippi, Chairman

RICHARD G. LUGAR, Indiana            TOM HARKIN, Iowa
MITCH McCONNELL, Kentucky            PATRICK J. LEAHY, Vermont
PAT ROBERTS, Kansas                  KENT CONRAD, North Dakota
PETER G. FITZGERALD, Illinois        THOMAS A. DASCHLE, South Dakota
SAXBY CHAMBLISS, Georgia             MAX BAUCUS, Montana
NORM COLEMAN, Minnesota              BLANCHE L. LINCOLN, Arkansas
MICHEAL D. CRAPO, Idaho              ZELL MILLER, Georgia
JAMES M. TALENT, Missouri            DEBBIE A. STABENOW, Michigan
ELIZABETH DOLE, North Carolina       E. BENJAMIN NELSON, Nebraska
CHARLES E. GRASSLEY, Iowa            MARK DAYTON, Minnesota

                 Hunt Shipman, Majority Staff Director

                David L. Johnson, Majority Chief Counsel

               Lance Kotschwar, Majortiy General Counsel

                      Robert E. Sturm, Chief Clerk

                Mark Halverson, Minority Staff Director

                                  (ii)




                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

The Potential Burdens Associated With the New Country-of-Origin 
  Labeling (COOL) Law............................................    01

                              ----------                              

                        Tuesday, April 22, 2003
                    STATEMENTS PRESENTED BY SENATORS

Talent, Hon. James M., a U.S. Senator from Missouri..............    01
                              ----------                              

                               WITNESSES

Blunt, Hon. James M., a Reprsentative in Congress from the State 
  of 
  Missouri.......................................................    03
Hawks, Bill, Under Secretary of Marketing and Regulatory 
  Programs, U.S. Department of Agriculture.......................    04

                                Panel I

Bull, Ken, Vice President, Cattle Procurement, Excel, Wichita, 
  Kansas.........................................................    18
O'Brien, Mike, Vice President of Produce, Schnuck Markets, Inc...    16

                                Panel II

Disselhorst, Ken, President, Missouri Cattlemen's Association....    29
Howerton, Phil, Missouri Port Association........................    25
Owens, Steve, Co-Owner, Joplin Regional Stockyards, Inc..........    23
Thornsberry, Max, President, Missouri Stockgrower's Association..    27

                               Panel III

Day, David, Board Member, State Board of Directors, Missouri Farm 
  Bureau.........................................................    39
Kremer, Russ, President, Missouri Farmers Union..................    37
                              ----------                              

                                APPENDIX

Prepared Statements:
    Talent, Hon. James...........................................    44
    Bull, Ken....................................................    89
    Day, David...................................................   110
    Disselhorst, Ken.............................................   103
    Hawks, Bill..................................................    66
    Howerton, Phil...............................................    95
    Kremer, Russ.................................................   106
    O'Brien, Mike................................................    73
    Owens, Steve.................................................    93
    Thornsberry, Max.............................................   100
Document(s) Submitted for the Record:
    Boyle, Patrick J., President and CEO, American Meat Institute   118
    Casey, Richard, on behalf of the National Grocers 
      Association, Missouri Grocers Association..................   122
    Johnson, Hon. Tim............................................   116
    National Grocers Association.................................   124
    Schachtsiek, Lowell..........................................   121
    Tyson Foods, Inc.............................................   132



    THE POTENTIAL BURDENS ASSOCIATED WITH THE NEW COUNTRY-OF-ORIGIN 
                          LABELING (COOL) LAW

                              ----------                              


                        TUESDAY, APRIL 22, 2003

                                       U.S. Senate,
        Subcommittee on Marketing, Inspection, and Product 
        Promotion, Committee on Agriculture, Nutrition and 
                                                  Forestry,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
the Mills Anderson Justice Center Auditorium, Missouri Southern 
State College, Joplin, Missouri, Hon. James M. Talent 
presiding.
    Present or submitting a statement: Chairman Talent.

STATEMENT OF HON. JAMES M. TALENT, A U.S. SENATOR FROM MISSOURI

    The Chairman. The subcommittee will come to order. This is 
an on-the-record hearing of the Subcommittee on Marketing 
Inspection and Product Promotion of the Committee on 
Agriculture in the U.S. Senate. It is a great pleasure for me 
to be here and to welcome our witnesses in the audience.
    I want to thank Missouri Southern for providing these great 
accommodations. It is, as I said, a great pleasure to be here. 
I am going to explain the procedures a little bit and then make 
a brief opening statement and then recognize my good friend and 
colleague, Roy Blunt, in whose district we are now.
    Because this is an actual hearing, one of the points here 
is to collect information on the record with the view for 
making some recommendation to the Senate later this year. We 
are constrained at least in some degree by the actual 
procedures of the Senate.
    What we are going to do is, I am going to give an opening 
statement, which is typical, and then defer to Mr. Blunt who is 
a guest of the subcommittee today. He can give one if he wants 
to.
    Then we are going to have three panels. The first panel is 
only one witness, and I will introduce him in just a minute. 
Then there will be several witnesses on the second panel, and 
two witnesses on the third panel.
    After everybody in each panel has given their statements--
and we will encourage the witnesses to be brief with their 
statements. I have spoken with them, and most of them have done 
that, then we are going to have an opportunity to ask 
questions. Then when we finish the three panels, we will be 
finished with the hearing.
    If this were a town hall meeting, or sometimes we will call 
a less formal meeting, I'd be happy to take questions from the 
audience. A couple of people have asked me about that. There's 
no procedure in the Senate which allows us to do that. I will 
be around afterwards and very willing and eager to visit with 
people who have forums or concerns.
    Because the point here today is to get information about 
how we are going to implement the Country-of-Origin Labeling 
law that Congress passed in the Farm bill last year, I did want 
to get Congressman Blunt to come to the hearing.
    In the bill that passed last year, the Department of 
Agriculture was required to promulgate recommendations for 
mandatory country-of-origin labeling for beef, pork, lamb, and 
other fresh commodities by September 30th, 2004.
    The official implementation date for mandatory COOL, as we 
call it, the Country-of-Origin Labeling law, is not until 2004, 
but the beef, lamb, and pork industries have to prepare now for 
the auditing and recording provision in the law.
    Producers are entitled to know and need to know what they 
will be expected to provide in order to comply with the law, 
and that is the reason for the hearing. The research that we 
have done at this point, and a lot of it is just informal 
contacts with people from various parts of the industry on 
different sides of this issue.
    I believe that there is still a consensus, as there was 
last year, that country-of-origin labeling is a good idea, at 
least in principle. I am a huge believer in value-added 
enterprises in the agricultural sector. Labeling products as 
coming from the United States gives us an additional market. In 
addition, consumers would like to know, conveniently, where 
their foods come from. I believe that as a consumer. The 
producers I have talked to also believe that as consumers as 
well.
    The first thing is that there is a consensus that the 
Country-of-Origin Labeling law is good, at least in principle.
    The second thing I want to say is that there certainly is a 
great deal--there is a great deal of controversy over how this 
law is going to be implemented. The concern has been raised by 
producers as well as other parts of the food production chain 
whether the cost of implementation may not be so great, 
particularly on producers, as to cancel out part or all of the 
benefits of the law.
    What I want to do is to collect information as, if you 
will, an honest broker--I don't come into these hearings with 
any preconceptions--and then forward a recommendation to the 
Senate.
    Earlier this year I sent a letter to Under Secretary Bill 
Hawks requesting the Department of Agriculture hold a series of 
listening sessions around the country to give producers an 
opportunity to share their concerns and to get information 
about the new regulations. They have agreed to those and, in 
fact, have begun them. I do want to thank Under Secretary Hawks 
for that and also for being here today.
    I will close by saying I have always been a proponent of 
value-added agriculture. It is the future of family production. 
If identifying and labeling beef, pork, lamb and other products 
means greater profits to the American producers, I will 
strongly support that.
    However, I am also a former chairman of the Small Business 
Committee, and I do know that new laws and new regulations can 
bring new regulatory burdens, and often we don't anticipate at 
the time when we pass the law what the full extent of those 
burdens are going to be.
    I am looking forward to the testimony today, and I am 
certain that we will all gain a better understanding of what 
effects COOL is going to have on farmers and consumers here in 
Missouri and around the United States.
    [The prepared statement of Senator Talent can be found in 
the appendix on page 44.]
    With that I am happy to welcome and to recognize my friend 
and your great Congressman, I will make that editorial comment, 
and, yes, that is for the record, Congressman Roy Blunt.

STATEMENT OF HON. ROY BLUNT, A REPRESENTATIVE IN CONGRESS FROM 
                     THE STATE OF MISSOURI

    Mr. Blunt. Senator, thank you for holding this hearing 
here. Thank you for the interest and the leadership you are 
showing in this issue. It is a great privilege for us to see 
you chairing this important subcommittee, and dealing with this 
issue and bringing this hearing here to Southwest Missouri.
    I can certainly argue that based on the dynamics of this 
entire question, that the Southwest Missouri area may very well 
be Ground Zero in terms of the long-term impact of what's 
finally decided by the Senate and the House, and if we have to 
take further action and more likely what's decided by our 
friends at the Department of Agriculture.
    If you took 100-mile circle almost anywhere in the seven 
congressional districts, you would find more cows and calves 
than anywhere else in the United States. Of course, that chain 
of ownership, the determination of where animals came from 
starts right there.
    Secretary Hawks and I were visiting earlier. We both had 
experience in the past where we were in the registered cattle 
business, and both decided somewhere in that process that the 
ranching business, for us at least, was not worth the effort of 
identifying which of those were black Angus calves belonging to 
which of those blank Angus cows. Many others have made that 
same determination in producing superior quality beef for 
market.
    Lakeland, as you suggested, Senator, is a positive 
marketing tool and is often used voluntarily by many people who 
produce products. There is concern about the language in the 
2002 Farm bill that I voted for and how that language is 
implemented. Some of that concern is justified; some of it 
probably will turn out not to be justified.
    That's the purpose of the hearings that you have asked the 
Department and the Secretary to hold. What we don't want to 
have here is another example of the law of unintended 
consequences where we move forward with an idea that has 
positive merit in terms of marketing and turn it into a 
nightmare because of the regulations that are established.
    The intent of the law is not to create mandated record 
keeping that challenges the record that you have to do for the 
IRS. The intent of the law was to use labeling as a marketing 
tool and not as a way to come up with some regulatory nightmare 
forcing people out of the market or forcing small owners out of 
the market for sure.
    The statute states that USDA cannot, quote, ``Use a 
mandatory identification system,'' end quote, to verify origin. 
What is to be required to document the place of birth of a 
Southwest Missouri animal--a pig, a cow, a sheep, another 
animal, a lamb--that would be on the way to market? How do you 
identify that animal, and how do you identify that animal 
through the entire chain that eventually winds up at the 
supermarket or the meat counter?
    This and many other questions need to be answered through 
hearings like this one. I know your good friend and mine, our 
new agricultural chairman in the House, Chairman Goodlatte, is 
interested in this as well. Of all of the districts in the 
country, his district in Southwest Virginia agriculturally is 
as near to mine as almost any other, a high concentration of 
beef and poultry, and dairy. He is interested in these topics 
certainly. I appreciate your interest and was glad to have the 
opportunity to join you here at this hearing we are having in 
Southwest Missouri.
    The Chairman. I want to thank Congressman Blunt. Every new 
law causes some concern because change causes some concern. The 
thing to do is to find out the extent to which that concern is 
valid and what, if anything, we need to do about it. That's the 
purpose of this.
    Without any further ado, we will go right to our first 
panel which consists of one witness, Mr. William. T Hawks, who 
I will introduce simply as the Under Secretary of Marketing and 
Regulatory Programs for the Department of Agriculture.
    Secretary Hawks, we want to thank you for coming again to 
Southwest Missouri and this time anticipating testifying 
formally before the subcommittee. Please give us your 
statement.

          STATEMENT OF BILL HAWKS, UNDER SECRETARY OF 
            MARKETING AND REGULATORY PROGRAMS, U.S. 
                   DEPARTMENT OF AGRICULTURE

    Mr. Hawks. Thank you, Senator Talent, Congressman Blunt. It 
is certainly a pleasure to be in Southwest Missouri for the 
hearing where the vast majority of these cattle come from. 
Certainly it is a great place to be.
    It is always a pleasure to be out in countryside anytime 
but a special pleasure to be here today and to discuss the 
mandatory Country-of-Origin Labeling law. As he said, I am Bill 
Hawks, Under Secretary for Marketing and Regulatory Programs, 
and I have the ultimate responsibility of implementing this 
law.
    As you know, the 2002 Farm bill mandated country-of-origin 
labeling at the retail point of sale for beef, lamb, pork, 
fish, shellfish, perishable agricultural products as well as 
peanuts after 2 years. We also want to make clear that the 
Office of Management and Budget's Statement of Administration 
Policy on Senate Bill 1731, the Agriculture, Conservation, and 
Rural Enhancement Act of 2001 found this provision was 
objectionable, highly objectionable. We felt like there would 
be some unintended consequences and have some potential impact 
on trade.
    Having said that, I assure you that we at USDA are fully 
committed to carrying out the intent of this law to the best of 
our abilities. These provisions are part of the Farm bill, and 
we are working diligently to implement them.
    This program began on October 11, 2002, when we published 
the ``Guidelines for the Voluntary Country-of-Origin Labeling'' 
in the Federal Register. The voluntary guidelines became 
effective upon publication and are to be used by retailers who 
wish to notify their customers of country of origin of the 
covered commodities they purchased prior to the mandatory 
implementation on September the 30th, 2004.
    The Farm bill defines the criteria for covered commodities 
to be labeled as ``U.S. Country of Origin.'' To receive this 
label, beef, lamb, and pork must be derived exclusively from 
animals born, raised, and slaughtered in the United States.
    Although the COOL provision of the Farm bill requires that 
all covered commodities be labeled at retail as to their 
country of origin and provides a very specific definition of 
``U.S. Country of Origin,'' it does not specify how to label 
imported, mixed, or blended product. Under the COOL 
requirement, the original country-of-origin identity would need 
to be carried through to the retail level.
    Products with an origin that includes production or 
processing steps that occur in more than one country would need 
to bear labels that identify all of those countries. For 
example, pork from animals born in Canada and raised and 
slaughtered in the United States would have to be labeled in 
that manner.
    The COOL legislative language does not specify what records 
are acceptable to verify country of origin claims. It only says 
that the Secretary may require persons in the distribution 
chain to maintain a verifiable record keeping audit trail to 
verify compliance. The law also requires any person in business 
of supplying a covered commodity to a retailer to provide to 
the retailer information indicating the country of origin of 
the covered commodity. At the same time, the law prohibits the 
Secretary from establishing a mandatory identification system 
to verify the country of origin of a covered commodity. 
Therefore, retailers and their suppliers must maintain records 
that verify the country of origin of covered commodities.
    Mr. Chairman, just as I had stated, the Secretary's 
prohibited from implementing a mandatory identification system. 
Therefore, AMS has posted on its website examples of documents 
and records that may be useful to verify compliance with the 
country-of-origin labeling law, and I would like to submit 
those from the website for the record.
    The Chairman. The information will be made part of the 
record.
    [The information referred to can be found in the appendix 
on page 46.]
    Mr. Hawks. The law directs the United States Department of 
Agriculture to partner with the States to assist in the 
administration and enforcement of these provisions. As you are 
aware, the USDA has a long history of working with States, and 
we proved that working together worked. The State of Florida, 
for instance, has had a longstanding law of country-of-origin 
labeling for fruits and vegetables. I was there just week 
before last, and we have had people to go and visit. Clearly 
fruits and vegetables are not as problematic as the labeling of 
the meat products.
    The Chairman. Mr. Secretary, before you get into the record 
keeping, let me just clarify a couple things for me, the record 
and people in the audience of what you just said, including the 
major exceptions to the law of which are poultry----
    Mr. Hawks. Correct.
    Senator Talent [continuing]. Is not covered under the law. 
Also, any of the meat that are--or otherwise would be covered 
with that end up in the food service industry, which is 
restaurants. I asked this question just informally visiting 
before, but it is your understanding that a product sold at 
retail but packaged for the consumer to open up and eat, for 
example, a dinner that they sell in the deli section of the 
store--that would be food service and would not be covered?
    Mr. Hawks. That is correct.
    The Chairman. I guess nuts other than peanuts.
    Mr. Hawks. Nuts are still included and would require the 
country of origin. We also think that if you have mixed nuts, 
that they bring on another issue. It is contents. It is 
components of the production.
    The Chairman. OK.
    Mr. Hawks. Thank you, Senator Talent.
    The Chairman. Go ahead with the rest of the statement.
    Mr. Hawks. OK. It is apparent that the country-of-origin 
labeling would require the maintenance of these records to 
satisfy these concerns.
    On November the 21st of 2002, in accordance with the 
Paperwork Reduction Act, the Department of Agriculture issued a 
``Notice of Request for Emergency Approval of a New Information 
Collection'' and record keeping requirement. The costs 
associated with the new record keeping generated a lot of 
comments and a lot of concerns. I have said that on any given 
day I would have one group in my office telling me the numbers 
were too low. In the afternoon, they would be too high. The 
next morning, one would be too high, and the next morning it 
would be too low. Therefore, we extended the comment period for 
an additional 30 days to have opportunity for everyone to have 
the input there. We have gone out for public comments on 
numerous times.
    As a matter of fact, I would like to submit for the record 
these Federal Register notices. The first one is the October 
11th, 2002, Notice establishing the voluntary country of origin 
guidelines. The next one is the November 21st, 2002, Notice for 
information collection. The next one is the January 22nd 
extension of the time period for cost estimates on the record 
keeping component.
    The Chairman. Sure, without objection.
    [The information referred to can be found in the appendix 
on page 53.]
    Mr. Hawks. Once a proposed rule for the Mandatory Country-
of-Origin Labeling requirements are drafted and published, we 
will then formally go out and ask for additional public 
comment. In addition to that, we will be holding, as you have 
talked about, the 12 listening sessions around this country. 
They are about to begin. I will personally be at about half of 
those. My administrative aide, A. J. Yates, will be at the 
other half of those. You can see that we are taking this 
information gathering very, very seriously. It is certainly 
incumbent upon us to work with you, the Members of the Congress 
and the public to try to make sure that anything we do in the 
Department of Agriculture minimizes the burden on the 
producers.
    Mr. Chairman, in keeping with your time parameters, I will 
end my comments there and prepare to answer questions.
    [The prepared statement of Mr. Hawks can be found in the 
appendix on page 66.]
    The Chairman. Thank you, Mr. Secretary, and I do appreciate 
your shortening your statement for the purposes of testimony 
today. The entire statement, of course, will be put in the 
record, and I encourage those who are interested to read it, 
and my office will be happy to make it available.
    One thing I want to establish at the outset is that what 
you have done at this point administratively is very 
preliminary. I am not going to ask you to go through all the 
tortuous details as to how you pass a regulation, but that is 
all your preliminary estimates; is that correct?
    Mr. Hawks. That is correct. I may, just for the record and 
for your benefit as well, talk a little bit about that 
regulatory process. From here, as we prepare to do the 
mandatory regulation, we will be doing an extensive cost 
benefit analysis. We will work with the economists there in the 
Department of Agriculture to try to determine the costs 
associated with country-of-origin labeling. We will be then 
circulating governmentwide this regulation before it is 
published in the Federal Register. We will have had then the 
listening sessions and these sessions that you are doing as we 
prepare this final mandatory regulation, hopefully later this 
fall.
    The Chairman. Can you tell me what steps you are taking to 
make sure that you hear from all sides of this and all sectors 
of the----
    Mr. Hawks. Yes, sir. It is very important for us to hear 
from all sides and all concerns. Just as you are doing in your 
hearing today, you are having multiple people from multiple 
sides of this. We will have the same things. The listening 
sessions are open to the public. We will be giving our 
presentation on the law. We will be giving a presentation on 
the issues that we consider our current thinking of those 
issues that are not that prescriptive in the law. We will allow 
participants there to enter their comments on anything that 
they wish to take into that. Hopefully we shall have a broad 
cross section of input. After we have done that, then there 
will be an additional comment period for the mandatory 
regulation.
    The Chairman. I want to emphasize that that is very 
important and I appreciate your candor in saying right up front 
that the Administration through the Department did not support 
this law in the first place. There's a natural inclination on 
the part of the producer community to believe that we may be--
not you in particular--that the Department may be biased in 
implementing it and biased in completing some figures. One of 
the ways that you can refute that bias is by showing everybody, 
look, we are listening to all sides and trying to be impartial 
in terms of who you are hearing.
    Mr. Hawks. Senator, we certainty did. As I alluded in my 
comments, my office is always open. My door is always open. I 
would have proponents and opponents come in the same day. 
Sometimes they do that intentionally to me. I intend to hear 
all sides and hear all comments as we move forward as I am sure 
you have.
    The Chairman. I am going to ask one more question, and then 
I am going to defer to Congressman Blunt, and I will probably 
have some more after that.
    Several ways of solving the record keeping requirement or 
at least lessening the burden on producers have been suggested, 
and I want to know your opinion, first of all, whether these 
ways would be allowed under the current law. Second, just maybe 
in general what you think of them. OK?
    First, we are going to have people here today testifying on 
the second panel who are going to suggest that we grandfather 
in, if you will, cows that are already in the system because 
you can't go back and make up or reconstruct a verification 
record for a dairy, let's say, that you have had for eight or 
10 years.
    Then the second thing is a suggestion for a self-
certification system where a producer would be able to certify 
on their own where a cow came from, or for that matter, a hog. 
First of all, do you think the current law permits that, or do 
you have to change the law to allow that, if necessary bend a 
little backward a little bit, if you can, and allow us to do 
that? Second, what do you think in general of those?
    Mr. Hawks. Senator, I am always open to bending over 
backward when it comes to farmers, having farmed all my life in 
Mississippi. The fact of the matter is the law is very 
particular. We do not have the latitude with the current 
reading of the section. I can assure you that we've had 
multiple attorneys from the Department of Agriculture to review 
that. The answer to that grandfathering is that the law does 
not allow us to do that.
    The second part of that, the self-certification can be a 
component, but we have to have an auditable and verifiable 
trail so we think that the self-certification would not in and 
of itself be sufficient to meet the letter of the law. We feel 
very compelled to protect the integrity of this law. It is the 
right of the consumer to know that the USDA says that this is a 
U.S. made product, born, bred, and processed in the U.S.A. We 
feel very compelled to make sure that that's correct.
    The Chairman. I recognize Congressman Blunt.
    Mr. Blunt. Well, let's talk about that, Mr. Secretary. Does 
the USDA administer the school lunch program now?
    Mr. Hawks. Yes.
    Mr. Blunt. Is that a yes?
    Mr. Hawks. Yes, sir.
    Mr. Blunt. Is it a requirement in that program to buy U.S. 
products?
    Mr. Hawks. Yes, sir, it is.
    Mr. Blunt. Why haven't we had this kind of chain of 
ownership requirement in that program you administer, is the 
first question? The second question is, isn't there some way 
you can take the current administrative structure that has 
apparently worked successfully for the school lunch program, 
and use that same process that the Department has defended for 
years now to determine these questions of country of origin for 
other nonschool-consumed items?
    Mr. Hawks. Yes, sir. To answer your question for the 
record, very clearly we do administer the school lunch 
programs. As a matter of fact, that is one of the--I have that 
responsibility as well. The second part of your question, did 
the system that we use for the school lunch program as well as 
B.S.E. 30--there are several of these. It is a command and 
control type system. We basically take control of that, and we 
walk it through. The law is--with the current reading is that 
it is a process verification. We've got to verify those records 
for the trail. The current thinking is those would not meet the 
letter of the country-of-origin labeling.
    Mr. Blunt. I guess I don't understand how you think you 
meet the letter of the law now for the school lunch program. 
Just explain the difference to me. Now, the school lunch 
program says that you use U.S.-produced products, right?
    Mr. Hawks. Right.
    Mr. Blunt. You verify some way that that is the case?
    Mr. Hawks. Correct.
    Mr. Blunt. How do you do that now?
    Mr. Hawks. Right now, the way we do that is, as I 
explained, it is a command and a control.
    Mr. Blunt. That's what I didn't understand.
    Mr. Hawks. We basically take control of that product at a 
point in time there. We actually control the flow. This one is 
just a chain of custody verification. Our current thinking is 
that this would not.
    Mr. Blunt. On hamburger day at the school cafeteria, at 
what point does the school know you certify the school that 
this is a U.S. hamburger patty that they're going to be serving 
that day?
    Mr. Hawks. When we purchase that hamburger. We actually do 
the purchasing. That is part of the purchasing requirement, 
that it be a U.S. product. At that point in time, we literally 
take control of that product.
    Mr. Blunt. Your current view of the school lunch program is 
that it is purchased in the United States, not produced in the 
United States?
    Mr. Hawks. It is. There's also some additional things here. 
We talk about warm breath slaughter in the United States. Right 
now it is processed. The slaughter part is what you are dealing 
with there.
    Mr. Blunt. Do you understand my confusion on the two things 
being so dramatically different?
    Mr. Hawks. Yes, sir. It is a valid question. To be quite 
frank with you, that is one that I struggled with myself, and I 
asked those same questions of my staff.
    Mr. Blunt. Well, maybe that has some merit for further 
study, but I want to think about that. I may want to get back 
to you on that topic and see what we could do there. As you 
well understand, there will be real reluctance to reopen the 
Farm Act in a way that redefines this fact, the point where 
most people thought we were headed.
    What I believe I heard you say in your testimony was that 
you clearly do not have the ability to mandate an 
identification system under the law. It may be expressly 
prohibited as I indicated in my earlier comments. Is that 
right?
    Mr. Hawks. I will object to that term. We are expressly 
prohibited from creating a mandatory----
    Mr. Blunt. Did I also hear you say that you were prohibited 
from doing that because of the way the law is written that 
retailers must do that?
    Mr. Hawks. Yes, sir, retailers must, and retailers may 
require the chain back for the country of origin.
    Mr. Blunt. Can or must require?
    Mr. Hawks. They must.
    Mr. Blunt. The way the Department's interpreting the law 
right now is that the law was written in a way that USDA 
couldn't come up with a system but that retailers had to.
    Mr. Hawks. That is correct. Let me explain just a little 
bit as to how I would see the way we would administer this. The 
law is very explicit that it has to be labeled country of 
origin at the retail level. What I can see is we would go into 
the supermarket, if you will. We would look at the product and 
see it is labeled our product of U.S.A. We would ask that 
retailer to provide us information back through the chain, the 
process, the feed lot, the producer.
    All the way back through that chain, we would have to have 
a verifiable, auditable trail back. What the retailer requires 
of the people down the chain, the law is very explicit there. 
The retailer has to require that, or the person that's 
supplying to that retailer has to furnish that information to 
them so that they can meet the letter of the law.
    Mr. Blunt. Every indication to our packers has been exactly 
that since the regulations went out, that they don't want to 
buy cattle for future consumption that they can't trace the 
chain of ownership back to the calf. This may be an unfair 
question, but since you are a good guy who's farmed all his 
life.
    The Chairman. This is a congressional hearing.
    Mr. Blunt. I said that particularly for the Senator. Do you 
have a sense, Secretary, of what would be the easiest way you 
could do this if--do you still have a herd of cattle is another 
question, I guess. This is an aside.
    Mr. Hawks. Well, Senator, on the record----
    Mr. Blunt. No, no, I am just a Congressman.
    Mr. Hawks. Forgive me. I understand that, Congressman. To 
answer a couple of your questions, no, I do not have a herd of 
cattle now. Actually, AVIS, the agency that I went to put me 
out of the cattle business some years ago. I have said in my 
Senate confirmation hearing that I was really looking forward 
to having responsibility for that agency. I do not have a herd 
of cattle now.
    Mr. Blunt. Do you have a sense, Mr. Under Secretary, is my 
question. As a person that understands this industry, what 
would be in your view--give me a pattern here that you were 
going to try or if you were a producer trying to figure out the 
easiest way to do this. Is this a cow vaccine, ear tag kind of 
chain, or how do you really do this?
    Mr. Hawks. Congressman, in light of the law being so 
prohibitive of me or the Department of Agriculture prescribing 
that system, I would be very reluctant to share that with you 
here today. That's the purpose of having these hearings. That's 
the purpose of having this session. Maybe some of our 
presenters later today will have some good ideas. I'd prefer to 
hear from them.
    Mr. Blunt. That's not a bad position to take, and hopefully 
at the end of these listening sessions, you will produce, as a 
result of this session, some ideas that you've heard that may 
make this workable. The other thing I want to pursue before I 
turn this back to Senator Talent and move on to the other great 
witnesses that have assembled here today, this whole idea of 
current animals. How do you propose that be dealt with?
    Mr. Hawks. Congressman, the law is very prescriptive again 
as we talked about earlier. The animals that--particularly 
those that are the breeding animals, older animals today that 
we will be marketing after the mandatory system comes in, 
unless they have a verifiable trail, they will not be able to 
go into retail as I see it today. I would just have to say if I 
was a cattle producer today and I had a calf crop on the ground 
I would find some way to verify where they came from.
    Mr. Blunt. Senator, thank you.
    The Chairman. Thank you, Mr. Blunt, for those questions. I 
just noticed that on my cup of coffee from McDonald's they say 
the beans come from Columbia, Brazil, and Central America, so 
they've done some product-of-origin labeling. Maybe we need to 
check with McDonald's for that.
    I want to push you a little. I understand why you don't 
want to say how you would do it. As tempted as I am to insist 
with you, to the extent that I can, I am not going to because I 
understand you are in a situation where if you don't say 
anything, we get all over you. If you do say something, then it 
is all over the press. As long as you have these listening 
sessions that are open and taking information, I can live with 
that.
    I do want to push you on the whole question of how 
prescriptive this is. Let me just suggest a couple of things to 
you and get your comments on it. First of all, there is a 
provision in the law, as you say, prohibiting you from a 
mandatory national tracing system. That can be taken as some 
indication from the Congress that you have some discretion not 
to require such extensive records as you might otherwise think. 
Then the second thing is that the law says that the Secretary, 
quote, may require a verifiable record keeping audit trail, not 
shall require. Why don't those two provisions give you more 
discretion than you are saying you now have?
    Mr. Hawks. Senator, having served in the legislature before 
coming to Washington, DC, I certainly understand the difference 
between may and shall. I also feel in this one, as we stated, 
that it is very explicit that we are prohibited from doing this 
kind of deed. I feel in order to protect the integrity of this 
system, we have to have that verifiable trail. If we do not 
have the capability of absolutely determining the origin, then 
we would be doing a disservice to the public. We would be doing 
a disservice to the consumer that would be taking this product 
and believing that this is from the United States.
    My answer to that is to protect the integrity of this 
system, we've got to have some kind of a system in place or 
some kind of a process in place where we are prohibited from 
doing the system. These guidelines--not necessarily guidelines, 
these suggestions that have been made be used to do this. 
They're very good. I would say that with our current thinking, 
our hands are basically tied on that.
    The Chairman. Let me just make sure I have covered 
everything for the record and also some other areas of interest 
to me. Congressman Blunt mentioned the school lunch program. Of 
course, many states also have labeling programs in place. I 
haven't heard a lot of controversy about them. Now, wouldn't it 
be possible for you to take the processes of, to canvass the 
states, pick the one that seems to be working the best, use 
that one so that we all know we have a model out there that's 
working?
    Mr. Hawks. Well actually, Senator, we looked at a lot of 
those state laws. As I alluded to earlier, we sent people to 
look at some of the various states that have those. They are 
not as prescriptive. The born, raised, slaughtered on the meat 
side of this is one that's more difficult. Another issue there, 
assuming we took the state program, then that would potentially 
get us in trouble. What would prevent us from using a province 
in Canada or something other than that? That's one of the 
reasons that we are trying not to do that. There are some 
excellent state programs, and we are visiting those, and we are 
trying to make sure that we are doing what we are needing while 
staying within the prescriptive confines that we have in this 
law.
    The Chairman. You said both the respective school lunch 
programs and the state programs, a big issue you see is the 
fact that the law as it was passed would require three-fold, in 
essence, reporting or labeling requirements. Those laws and 
those orders or those guidelines don't, so that changes it. In 
your judgment that's the big reason why they won't work.
    Mr. Hawks. Yes, sir, Senator, that is exactly the reason. 
The school lunch program is one that the requirements there are 
different as I alluded to in my comments to Congressman Blunt. 
The law there is not the born, raised, slaughtered so that gets 
us in some trouble. We have multiple definitions across 
government of what is in a product. This one is so explicit.
    The Chairman. I'd like your department or staff to produce 
in more detail the differences you see between the school lunch 
and this statutory requirement. Like Congressman Blunt, I don't 
understand the details here. I am not going to ask you to go 
into greater depth here, but I am going to want to know that. 
We may come back at a subsequent time and ask for further 
testimony. Let's get some more for the record there. Just tell 
me for the record about how much of the meat sold in the retail 
market in the United States is U.S. beef. What percentage of 
the market is imported, do you know?
    Mr. Hawks. Well----
    The Chairman. I am switching gears here.
    Mr. Hawks. You are switching gears on me. My number says it 
is approximately 10 to 20 percent.
    The Chairman. Imported?
    Mr. Hawks. Imported.
    The Chairman. OK. That's at retail? That doesn't----
    Mr. Hawks. That's at retail.
    The Chairman. That does not include food service?
    Mr. Hawks. No.
    Mr. Blunt. Well, how do we know that?
    Mr. Hawks. Because I have a very good staff.
    Mr. Blunt. You know what I am saying. We know that now, and 
if we know that 80 to 90 percent is not imported, why can't we 
come up with some of that same chain that produces that same 
kind of verification?
    Mr. Hawks. The reason we know now is we do track it as it 
comes across the border. We know how much is coming in. Where 
we lose that identity is where it is being processed from 
there.
    Mr. Blunt. Well, maybe I am not making my point clear. If 
we know that, if we know what's coming in, why can't we produce 
a set of rules and regulations that require the exclusion 
rather than inclusion of it? If not only you know what comes in 
as a finished product, my sentiment is that it is also easier 
to know what cattle come across the border in a truck and 
identify them than it is to identify the 80 to 90 percent of 
the beef that's already here.
    Why do we put the obligation on the U.S. producer instead 
of putting the obligation on the livestock that comes across 
the border or comes in across the border some way?
    Mr. Hawks. Congressman, that is an excellent question. The 
answer to that is very simple. The law requires that it is 
born, raised, slaughtered in the United States.
    Mr. Blunt. Maybe the law can be viewed in a way that you 
can identify what is born, raised, and slaughtered in the 
United States in another way that's easier for American 
producers, is what I am saying, Mr. Secretary. There are 
borders and there are checkpoints. I know one of the big 
concerns is what about the cattle that come in from South 
America or Mexico and come to a feed lot in Missouri or Kansas. 
It seems to me it would be easier to identify those animals 
than it would be to identify the 90 percent of the animals that 
don't come in.
    Mr. Hawks. I very clearly hear what you are saying and 
understand what you are saying. There again the law is so 
prescriptive. It says that we have to identify them in this 
manner, and we identify those that are coming in. It is not as 
prescriptive on how we identify those that come in from other 
countries.
    Mr. Blunt. Go ahead.
    The Chairman. What Congressman Blunt is saying, look, you 
require that you keep a close touch on cattle that comes in 
from another country, and you keep track of that. Then anything 
that is not one of those is American. Now, it doesn't eliminate 
all the problems because it comes in and then it goes to 
American feedlots and then it is processed. That would be like 
born in Mexico, raised in United States, processed in United 
States, and you still have the complications, but----
    Mr. Blunt. My point is, you are tracking so many fewer 
animals that way. You have animals in a feed lot and I am also 
assuming that of the 10 to 20 percent that's sold at retail 
that's not of American origin, that a very relatively high 
percentage of that comes in already as a slaughtered animal. We 
are only dealing with the live animals that come in in some 
process of their life headed, I assume, toward a feed lot or to 
a packing plant that have to be identified.
    It seems to me you say you have 3 percent of the animals at 
a feed lot, are animals that came in after they were born came 
in the United States, shouldn't it be easier to keep track of 
that 3 percent than it is to expect American producers to keep 
track of the other 97 percent? Obviously we can look at this 
very specifically and see it, that it is absolutely possible to 
go in that direction. Just common sense would lead you to 
believe that we know it is easier to check these animals coming 
in than it is to verify every animal that's here.
    The Chairman. We will give you time to answer that, and 
then we will bring it up at the next panel.
    Mr. Hawks. Well, thank you, for the input. There again, the 
law is so prescriptive we feel like from a thorough reading of 
the law that we are not allowed to do that right. I very 
sincerely hear what you are saying. I understand what you are 
saying. I have heard that. Being a farmer myself, it makes 
sense. The law is so prescriptive that we don't feel that----
    Mr. Blunt. I don't want to belabor this. I am lucky to be 
part of this hearing that the Senator's had here and invited 
us. Anyway, I don't want to go too far with this. I don't know 
why the stores couldn't require the packers to give that 
information on nondomestic animals rather than to give them 
information on domestic animals. All we say is each store must 
keep records documenting country of origin for all covered 
commodities, and retailers and/or packers found to be in 
violation of the law will be fined up to $10,000 for violation. 
It seems equally reasonable to me and much easier if the stores 
approach that from the other direction, that they tell the 
packers that the packers have to tell them which animals came 
in that were not animals that originated here.
    The Chairman. Whatever tracing system that were in place, 
it would only apply to imported beef.
    Mr. Blunt. Absolutely.
    The Chairman. If it was not one of those, then you would 
know that at various stages it was in America. That would cut 
down on the record.
    Mr. Blunt. I will assume the full----
    The Chairman. Mr. Secretary, you probably know a whole lot 
more than I know about this, but if you spend enough time in 
Southwest Missouri, we are going to figure this thing out for 
you.
    [Applause.]
    Mr. Hawks. Senator, I have never doubted that they call it 
the Show Me State for a reason.
    The Chairman. Welcome to Missouri.
    Mr. Hawks. It is always a pleasure to be in Missouri, and I 
am earnestly wanting to work with you to find a common sense 
solution.
    The Chairman. I am not going to make you give up any more 
of a legal analysis at this point. That is also something I am 
going to followup on. I'd like the materials that you used to 
draw that conclusion that the law required you to do this 
rather than to allow people to prove, in effect, negatively 
that if it is not marked as something that comes from outside 
the country, than it was from America.
    Mr. Blunt. It would seem to me that the packer and the 
retailer has the penalty if they fail to do that. Easier to 
trace a relative handful of livestock through the system and 
see if the packer's failing to identify them than it is to 
trace the vast preponderance of the animals through the system. 
We might have some variable to----
    The Chairman. Well, we will followup on that line with the 
next panel also. I just want to make certain there's nothing 
else. Just let me get your opinion on an issue that some of the 
packers have raised because if we assume that this will require 
a very extensive identification system in place, beginning at 
the producer level--and certainly there's a danger of that. 
That's the point of having a hearing.
    The smaller producers, part-time ranchers, may not want to 
go ahead and do that or may not do that as well. The packers 
raise the issue that well, OK, one way they could deal with 
that would be simply to bid on livestock that comes from the 
bigger producers who can do that in a more sophisticated 
fashion. Some of the concerns we have, No. 2, if that were to 
happen, is there a possible violation of packers having to do 
that? I want you to think about that. Unless Congressman Blunt 
has further questions, we will let you go.
    Mr. Hawks. Senator, in response to that, it is quite 
reasonable for a packer to because they're obligated to provide 
to the retailer the information as to the country of origin. 
There are some figures there. They're entitled to ask for any 
information that is needed to meet the letter of the law. It is 
also reasonable to accept any business practice that they can 
justify. They have to be applied uniformly, and it will not 
adversely affect any person in a group. To say that they have 
the same opportunity , everybody has the same opportunity.
    The packers would need to notify the producers up front as 
to what the requirements were. It just goes without saying that 
anyone in this industry should have the right to run their 
business in a manner that is prudent. With those criteria met, 
there would be no violations of the practice.
    The Chairman. Well, that's certainly a sentiment that we 
can all go away with. Everybody should be able to. We will end 
your testimony on this panel unless Congressman Blunt has----
    Mr. Blunt. Thank you, Mr. Secretary.
    The Chairman. We do thank you for coming and for allowing 
yourself to be questioned in this fashion. There's a lot of 
people in the government that wouldn't want to do that, and we 
really do appreciate you for being here, and I look forward to 
working with you, Mr. Secretary. Thanks so much.
    Mr. Hawks. Thank you, Senator, and Congressman Blunt.
    The Chairman. If the next panel will get assembled, we will 
go right to you.
    While you are assembling, I will say that the record will 
remain open for 5 days after this hearing so that people can 
submit written statements.
    Mr. Blunt. Senator, while this panel's getting ready, I 
would love to be able to stay, but I worked this into my 
schedule. I have to leave by quarter after 11, but it won't be 
because of lack of interest in this panel and what they have to 
say. I know I will have access to the record on the hearing. 
This is particularly important in this part of our state, and I 
am grateful for you taking the time as you are.
    The Chairman. Thank you. All of you just got an example of 
why your Congressman is such a great Congressman. He made some 
really good points, and we appreciate your being here.
    Mr. Blunt. Thanks so much.
    The Chairman. You are welcome. Now that the official 
administration person is not testifying, I will just say we 
want to keep this informal. If you have a question you want to 
ask during the recitation, since you have to leave, just jump 
in. I want to make certain you have a chance to get through 
your testimony, but that doesn't mean that we can't jump in 
with questions. All right. We will go from left to right as I 
am looking at you. I will just introduce each one of you as you 
are ready to go. First, we have Mr. Mike O'Brien who is the 
vice president of produce for Schnuck Markets. Thank you for 
being with us, Mr. O'Brien.

 STATEMENT OF MIKE O'BRIEN, VICE PRESIDENT OF PRODUCE, SCHNUCK 
                         MARKETS, INC.

    Mr. O'Brien. Senator Talent, members of the agricultural 
subcommittee, fellow panelists and other distinguished guests. 
I am Mike O'Brien, vice president of produce for St. Louis-
based Schnuck Markets, Incorporated, a family owned and 
operated supermarket chain of 100 stores in six states.
    I am here today to help communicate concerns regarding the 
Farm Security and Rural Investment Act of 2002 as it relates to 
country-of-origin labeling. At Senator Talent's request, I will 
be speaking on behalf of the Food Marketing Institute and its 
2,300 member companies representing 26,000 stores.
    Although well-intended, we believe that part of the law 
specific to country of origin misses its mark. Designed as a 
way to show support to domestic farmers and producers, the COOL 
law gained credibility through claims it would enhance food 
safety and security.
    From our standpoint, it will do neither. What it will do is 
level repercussions upon the industry. The COOL law, as it 
stands, will have a far-reaching and negative impact on the 
entire food distribution marketplace--from growers and ranchers 
to wholesalers and retailers--and ultimately to consumers.
    I want to emphasize that retailers are not opposed to 
country-of-origin labeling. Schnucks, like many retailers, has 
been providing this type of information to consumers on a 
variety of products for quite some time. However, country of 
origin as defined by the law extends back to the farm or ranch 
on which the product originated.
    Let me take you through a few of the finer points of the 
COOL law as retailers fully understand it. The COOL law 
requires that retailers be made primarily responsible for 
informing customers of the country of origin of similar to a 
law now in effect in Florida, but there are big differences.
    Florida's Produce Labeling Act of 1979 only requires signs 
or labels for imported produce. It makes no mention of record, 
segregation, audits, or $10,000 fines. The Florida law was 
designed to help sell more Florida produce. Should our 
government really be involved in marketing?
    No one knows our customers better than we do. We work hard 
to deliver what our customers tell us they want and need. Last 
year, out of 22,000 calls logged by the Schnucks Consumer 
Affairs team, only nine even remotely pertained to country of 
origin. I am certain that most people would favor having as 
much information as possible provided at the point of purchase, 
but at what price?
    The USDA estimates that the food production and 
distribution system will spend $2 billion in labor alone to 
establish record keeping systems in the first year. However, 
these early estimates do not take into account the impact of 
potential fines or additional expenses retailers will face from 
farmers, shippers, handlers, wholesalers, distributors and 
other retailers if they overhaul their entire record keeping, 
labeling, warehousing and distribution systems--all of which 
will be passed on to the consumer.
    The supermarket industry as a whole operates on a very 
small margin basis. The industry average before tax net profit 
is 1 percent of sales. That means we only make a penny for 
every sales dollar.
    Schnucks estimates that in the first year alone the 
implementation process will easily exceed $3 million. Imagine 
what a devastating blow this would be to the profitability of 
smaller retailers, suppliers and producers. Under the law, the 
Missouri tomato grower, for instance, the epitome of a small 
farmer, must adhere to the same guidelines as the large growers 
in Florida and in Mexico. Simply put, this law will be a burden 
to the very people it is trying to protect.
    After the retailer, cow and calf operators will be the 
hardest hit by this law. Cattle born in February of this year 
fall under the law. That means farmers should be reacting to 
this law right now, and many still have no idea of what to 
expect.
    There are some glaring inconsistencies in this law. For 
instance: I mentioned earlier that food service facilities were 
excluded, yet they represent 50 percent of the market for the 
same covered commodities retailers receive. Poultry is 
noticeably excluded from the list. Peanuts must be marked for 
the country of origin but not pecans, almonds or pistachios. 
Why include peanuts at all? Planters, Fishers and Schnucks 
Private Label company all currently source 100 percent of their 
products from the United States.
    The Chairman. Mr. O'Brien, where are you in your testimony? 
I am trying to follow it.
    Mr. O'Brien. I cut it back for you. I am on page 8.
    The Chairman. The committee members can go on as long as 
they want, but we encourage witnesses to be as brief as 
possible. I am sorry to interrupt.
    Mr. O'Brien. Fresh and frozen vegetables are treated 
differently. Birds Eye, for instance, must now include country 
of origin on frozen green beans, but the law does not apply to 
Del Monte's canned green beans. Frozen apples are covered, but 
frozen apple pies are not. We ask that you re-evaluate this 
legislation and consider the unintended results that may follow 
its implementation. I thought of four off that.
    1) In reality, this law may make it cheaper to buy from 
foreign rather than domestic sources.
    2) The law could give chicken and turkey products an unfair 
advantage in the marketplace over beef, pork and seafood.
    3) In order to limit exposure under this law, retailers 
will be compelled to source covered commodities only from those 
who can afford the systems necessary to comply. This will 
devastate some of our smaller suppliers and make maintaining 
product nearly impossible.
    4) Retailers cannot absorb the cost associated with 
implementing the law. Consequently, we will have to ask 
suppliers and producers to share the load. This will inevitably 
and unavoidably result in higher costs to consumers.
    Again, we thank Senator Talent for holding this hearing 
today. We are all in support of the consumer's right to know. 
If that was the intention of the law, we don't think it gets us 
there.
    Consumer confidence today is very low, and spending habits 
have become more conservative. This has put a strain on all 
types of retailers. We are asking that you help ensure that 
this legislation does not further burden the food system.
    In conclusion, let me say that our customers always come 
first. If our customers want country-of-origin labeling and are 
willing to pay for the additional costs associated with such a 
program, the supermarket industry will meet that demand as it 
meets consumer demand every day. On behalf of Schnuck Markets, 
FMI and its member retailers, I thank you for your time and 
consideration of the issue.
    [The prepared statement of Mr. O'Brien can be found in the 
appendix on page 73.]
    The Chairman. Thank you, Mr. O'Brien. Our next witness is 
Mr. Ken Bull, vice president of cattle procurement.

  STATEMENT OF KEN BULL, VICE PRESIDENT, CATTLE PROCUREMENT, 
                     EXCEL, WICHITA, KANSAS

    Mr. Bull. Thank you very much, Senator Talent and 
Congressman Blunt, for giving me the opportunity to testify 
before your committee today on what I believe is a well-
intentioned, yet severely flawed law.
    Mandatory country-of-origin labeling--COOL for short--for 
beef and pork is a concept that has been discussed for many 
years. As I understand it, supporters believe that American 
consumers want to know more about where their food comes from 
and are willing to pay more to support the infrastructure 
necessary to identity preserve their food. Some supporters, I 
believe, are motivated by another reason. That is to block the 
trading of cattle and meat with U.S. trading partners, 
especially Canada and Mexico.
    COOL is now the law, and we are actively trying to figure 
out how we are going to comply with it. I appreciate the chance 
today to highlight for the committee the complexities that we 
will face as a result of the law.
    First, this is a retail labeling law that mandates there 
must be a verifiable audit trail to prove that the labels on 
products are true and accurate. The law also prescribes 
penalties of $10,000 for violations.
    In an effort to better understand the law, I recently met 
with AMS staff in Washington to ensure that my read of the law 
was correct, and it is. A verifiable audit trail means that I 
must be able to provide documents that back up the claims made 
on the meat I market to our retail customer. In order for me to 
do this, the feeder or auction barn from who I buy must be able 
to provide these documents, and I must be able to attach these 
documents to the meat I sell at retail.
    In addition, I have been notified by retailers that if I 
intend to sell them meat in the future, I will have to assume 
liability for any misrepresentation on their labels. You can 
imagine I am going to take every step necessary to ensure that 
I am keeping my customer and myself in compliance with the law. 
Finally, retailers are demanding that I develop an auditable 
record keeping system that will give them the assurance the we 
will be able to comply and not subject them to possible 
problems.
    An additional concern that has not been identified is that 
under the Meat Inspection Act, which is governed by another 
agency, the Food Safety Inspection Service, to apply a false 
label to a product, is to ship a misbranded product. This is 
punishable as a felony, and the product involved is likely 
subject to recall. I am not going to risk going to jail for 
selling the product, or going to subject my company to a 
recall. Again you can bet I am going to do everything I can to 
follow the law. I simply cannot certify anything I do not know 
to be absolutely true. This interpretation of the Meat Act was 
confirmed when I met several weeks ago with the Deputy 
Administrator of FSIS and the chief of the labeling branch.
    While we already do some branding today and we support 
branding, it is based on attributes that reflect the market 
niche a retailer wants to uniquely fill. These brands are 
reliant on factors that are applied in our plant and more 
importantly are cost effective. The COOL brand relies on 
factors from the birth of the animal, following it through the 
production phase, into our plants, then on to retail, all at 
significant cost and questionable demand.
    We invest significant revenue in developing and marketing 
brands. These investments are done only after significant 
research to demonstrate that the benefits or returns will far 
outweigh the costs.
    There is much speculation on the cost of COOL, and 
certainly I have my own idea, but frankly I believe the true 
cost is that there stands to be a significant change in the 
cattle and hog industry as a result of this law. We have done 
cost estimates that quickly led us to conclude that we are not 
going to be able to make the investments it would take to be 
able to run our plants the way we run them today.
    To create the kind of identity preservation system this law 
requires would cost us $40-50 million per plant. Then even then 
we would be at the risk of an unintentional mistake.
    A far more likely scenario is that packers would call on 
feeders that have the best, most reliable, audit proof record 
systems, especially electronic ear tags. I met with the Deputy 
Administrator of the USDA Packers and Stockyards Administration 
to ensure that this was consistent with P&S regulations, and I 
have been assured that steps such as these are entirely within 
the scope of the law. We will seek to maintain a proactive 
dialog with the Agency as this unfolds. We believe we are on 
solid footing with P&S in saying that if we suspect records are 
not reliable, we will have a difficult time being able to bid 
on those livestock.
    We believe one probable outcome of the law is that packers 
would most likely dedicate plants as U.S.A.-only origin or 
mixed origin plants and then segregate production by days so 
that only like-origin animals are processed on given days. This 
would eliminate marketing options that producers currently 
enjoy.
    Today we sort beef carcasses in 27 different ways--by 
grade, by certified programs, and other factors. Under this 
law, we layer in at least a doubling of these sorts. Our 
coolers are the size of football fields and the changes this 
law necessitates are not cheap. One example of an unrealized 
cost is that currently FSIS has regulations that require us to 
leave 3-minute gaps between grade sorts and grade changes. 
Downtime in our plant is around $1100 a minute, so increasing 
the number of these 3-minute gaps adds up in a hurry.
    Of particular concern is something we learned from AMS, and 
that there is zero tolerance for error. In our meeting with 
AMS, we painted a hypothetical scenario that goes like this: 
Say we processed a group of cattle on Monday, and in reviewing 
our records, we found that somebody made a mistake, either 
ourselves or the producer, and a Mexican-born animal got into 
the mix of 1500 head of U.S. born, raised and slaughtered. We 
learned from AMS that in that scenario all 1500 head would be 
potentially mislabeled or misbranded meaning that we have 
possibly created a huge list of violations for our retail 
customers. We must notify the retailer, and the retailer must 
not market the product because it would be a willful violation 
on every package of meat from that 1500 head of livestock. All 
of the product from these 1500 head that was going into retail 
is now subject to a Class III recall, bringing great harm to 
our reputation and our brand. This meat would now have to be 
diverted into a food service channel at additional cost and 
substantial discount--all by virtue of a simple human error--
with no impact to food safety whatsoever.
    Another huge concern for us is the impact on cow/calf 
operators and the dairy industry. There are beef cows as much 
as a dozen years old, and many of these animals do not have 
acceptable documentation. Dairy cows live five to 8 years, and 
many have crossed the Canadian border. There is insufficient 
documentation in the dairy industry as well. Much of the cow 
beef ends up as lean trim that is blended with less lean trim 
for ground beef production and sold at either retail or food 
service. Under the law, this cow will be relegated to food 
service as its only market for a long time. If you are a cow/
calf or dairy operator, you'll want to pay close attention to 
this loss of the retail demand base and the marketability of 
these animals. AMS again has confirmed our observations, and I 
would strongly encourage producers to understand this likely 
possibility.
    In closing, there is much to learn about the law as its 
enforcement unfolds. USDA has to implement the law that was 
passed, and from where I sit, the Department is doing just 
that. My hat is off to Under Secretary Hawks and his team in 
doing this unenviable job. AMS, P&S, FSIS all have their work 
cut out for them. Do we? I am happy to answer any questions you 
might have.
    Mr. Blunt. Well, I do have a question while I am here and 
you are here. I appreciate your job, being responsible for 
buying and keeping track of these animals. I'd like to go back 
to the question I asked Secretary Hawks.
    Assuming that you have to identify virtually one of the two 
groups of animals or maybe you have to identify every animal 
that you buy, how much more difficult would it be or less 
difficult for you to only identify the animals that have 
crossed the border?
    Mr. Bull. That's a great question, Congressman. First of 
all, this is just to clarify, packers aren't the ones that'll 
be doing the identification. We are basically the buyers of a 
commodity. The question that you are asking is how many are 
coming across the border and is there some mechanism that could 
be put in place.
    You might have people describe that that would be a trade 
violation. That's up to markets to interpret, whether or not 
putting that burden only on imported animals is a problem. If 
animals are coming directly from a country directly into our 
packing plants as the only method of entering the country, then 
you might get a solution. The problem is you have anywhere from 
500,000 to 1.2 million feeder cattle coming across the border 
from Mexico and going to cow/calf grazing countries where 
they're out on stockers. They go into the feedlots. They're 
commingled at auctions. They're blended in. Then in looking at 
the other border, the Canadian border, we have feeder cattle 
coming across the border. We have fat cattle coming across the 
border. There appears to be cows that come across that border 
as well. These animals all get dispersed within the system in 
the United States and commingled with other cows. You would 
have to create a system that no one can alter on those animals.
    Mr. Blunt. That's exactly the same system you have to have 
for all the other animals, be it imported or domestic animals.
    Mr. Bull. That's correct.
    Mr. Blunt. It is just so many more animals you are keeping 
track of on the same basis.
    Mr. Bull. The other problem is let's say we come up that 
imported animals have to have electronic ear tags.
    Mr. Blunt. Right.
    Mr. Bull. Maybe that's one solution. You are a producer and 
you have more marketability if your animals don't have an 
electronic ear tag which designates them as U.S. It would be 
very easy to make sure that that animal loses its ear tag. You 
almost have to do the converse as a way to police your system. 
In other words, you have to identify the animals that become 
part of the population, wherever the animal is from.
    Mr. Blunt. Well, either that, or you have to set up a 
violation regimen where you really watch those animals more 
closely and enforce the violation.
    Mr. Bull. It is easier because really that person has to go 
back to the producers who are buying those animals and having 
to understand how they're managing those animals and how they 
would feel for their part. Our job is to take whatever label is 
identifying those animals when they get to our plant and make 
sure that label is there.
    Mr. Blunt. You said 500,000 head of cattle come across the 
Mexican border?
    Mr. Bull. Yes, it is 500,000 who will make it through this 
year will be about----
    Mr. Blunt. Out of a total of what?
    Mr. Bull. Slaughtered in the United States, about 28 
million.
    Mr. Blunt. We have an option of keeping track of 800,000. 
It is 28 million less 800,000.
    Mr. Bull. You have about a million six coming from Canada. 
It is about 2 and a half million out of the 28 million or 
slightly under 10 percent.
    Mr. Blunt. You are helping me even feel more strongly about 
the point I am trying to make, Mr. Bull. Thank you.
    The Chairman. Yes, I see where Mr. Blunt is headed. Now, 
what Mr. Hawks said was that the statute doesn't let us do 
that. First of all, the question was the statute does or 
doesn't let you do that. The second thing, this is if it truly 
doesn't or if we need to clarify that, that might be something 
we could recommend. If we had a system that you felt secure 
enough for tagging or marking animals that had come from 
another country or I guess that went to a less common feeder 
lot from another country and then if the animal didn't have 
that mark or that tag, then that would be the documentation 
saying that it was an American animal because of what it didn't 
have.
    I am thinking out loud here. I understand the Department's 
reservation about that in part because that's not how a 
bureaucracy does things. It is a little too logical. You know 
what I mean? It is like the IRS is not going to let you use the 
absence of something to prove the validity of the deduction. In 
the right circumstances, there's no reason for why you 
couldn't.
    Mr. Bull. The bigger issue, that really faces us is not 
whether or not we can identity preserve those 2 and a half 
million animals that are interspersed in our system. The real 
problem is how we comply with this at the retail labeling end. 
Let's assume that you are right and we are able to identify 
those 2 and a half million head.
    My job, then, if an animal comes to me and bears none of 
those identifications, then I get to assume that you passed 
that on to Schnuck as a product of the United States. Let's 
assume that in the record keeping system somebody going back 
through that trail now finds that that's a Mexican animal that 
had an ear tag removed somewhere in that system. Now, I have 
now got that whole batch of animals in violation, and Schnuck's 
now has all that product that they can't----
    Mr. Blunt. You also have the same problem if somebody takes 
that domestic ear tag and puts it in the ear of an animal that 
comes into the system. If somebody wants to violate that 
system, it is relatively easy to do. The only thing that stops 
you from doing that is the penalty. Part of the question here 
is what's really best for the U.S. producer and what's the 
easier group of animals to keep track of.
    The Chairman. I agree with you. If I was your lawyer, I 
would raise the prospect of that hypothetical you gave me. A 
herd of 10,000, you find out one of them is a Mexican cow. 
That's a bureaucratic tendency, to come in and say the whole 
thing's shot. You've got to recall them all.
    One way of dealing with that would be either--in this case 
with more legislation, if necessary, to give people a different 
place in the production chain, a safe harbor. In other words, 
to say look, if you have done thus and so, you are safe. Spell 
it out.
    I certainly have no--and I don't think any other supporters 
still have problems saying if you had done your 
responsibilities to check all the tags to make sure that 
whatever system goes into place, that it is not a foreign 
animal and then you find out through fraud or some mistake that 
there's one animal in there we can create safe harbors for you. 
It is complicated, but we are beginning to make some progress. 
If you need to go----
    Mr. Blunt. I do need to. Thank you, sir, for including me 
this morning. Thank you all for taking time out for this. I 
will take the testimony with me, and we will take a look at it.
    [The prepared statement of Mr. Bull can be found in the 
appendix on page 89.]
    The Chairman. Next is Mr. Steve Owens who is the co-owner 
of Joplin Stockyards. I am very interested to hear your 
comments on all these issues.

STATEMENT OF STEVE OWENS, CO-OWNER, JOPLIN REGIONAL STOCKYARDS, 
                              INC.

    Mr. Owens. I also want to thank you, Senator Talent, for 
inviting me to this, and also Congressman Blunt.
    Again, my name is Steve Owens. I am the vice president and 
co-owner, along with Jackie Moore, of Joplin Regional 
Stockyards, and we have two locations in Southwest Missouri. 
Our first location is what we call the Joplin facility, and it 
is located 13 miles east of here on I-44. We also have a 
facility in Springfield which is located at Kansas and Division 
in Springfield, Missouri.
    Our primary business is marketing cattle for producers 
located in Missouri, Oklahoma, Arkansas and Kansas. Joplin 
Regional Stockyards has 105 employees to help service our 
approximately 20,000 cattle producers. Over the last 2 years we 
have averaged selling approximately 455,000 cattle per year at 
a value of $225,485,000. Our services include three regular 
weekly auctions, seasonal value-added sales, commingled cattle 
sales, video cattle sales, and all of our auctions are 
broadcast live over the internet.
    Our primary market area is within a 150-mile radius for a 
facility that's not used based on how cattle flow. This primary 
market area includes 27 countries in Missouri, 6 counties in 
Arkansas, 8 counties in Oklahoma and 6 counties in Kansas. Our 
service area for our video cattle reaches out to about a 400-
mile radius. Within our primary market area, there are 43,805 
producers representing 2,855,901 total cattle and 1,315,543 
beef cows. This is based on 1997 census information.
    The 2002 Farm bBill includes law that requires mandatory 
country-of-origin labeling at the retail level on certain 
commodities which includes beef. This mandatory labeling will 
start on September 30th, 2004. For beef to be labeled as U.S. 
beef, it must be from an animal that is exclusively born, 
raised, and slaughtered in the United States. The law also 
states that a verifiable record audit trail be maintained by 
those who prepare, store, handle and distribute a covered 
commodity, but specifically says that a mandatory 
identification system shall not be used. There will be a fine 
of $10,000 per violation incurred at either the retail or 
packer level. This labeling law is only in effect on beef sold 
in the retail sector (grocery stores) and is not on the beef 
that's sold in the food service industry.
    We have spent the last 4 months trying to determine how 
this law is going to effect Joplin Regional Stockyards and more 
importantly how it is going to effect the cattle produced in 
our market area. We support the labeling of beef United States 
producers produce because of its quality and safety 
characteristics when compared with that of other countries. We 
also feel that the system utilized to achieve it needs to be 
taken into consideration to determine the cost and benefits. 
From our investigations, and our meetings and discussions with 
various people in the industry and the government, the 
following is our projected effect the mandatory labeling law 
will have on our producers:
    We feel that the system will be mandated by retailers and 
packers to meet the requirements of the law, because that's 
where the law is directed, at the retailers and packers. We 
feel that this system will require that suppliers of cattle, 
(that being feed yards, stockers, calf/cow producers) will need 
to maintain accurate record keeping for these animals born and 
raised in the United States.
    Even though the law specifically prohibits a mandatory 
identification system for producers, it also requires the 
country of origin be specified for all commodities, including 
those of United States origin. This is how we view the USDA is 
interpreting that law. Since the law is directed at the 
retailer/packer, they will mandate an identification system 
from their suppliers.
    Producers will be required to maintain records that will 
prove U.S. origin and identify these cattle in some way before 
or at the time of first marketing. The producer will be 
required to sign an affidavit or possibly--and it appears this 
is more likely--some type of third-party verification to these 
facts.
    From our discussions with our producers in our area, they 
are more concerned about the facts and potential scenarios 
leading us to believe that a significant number of them will 
elect to either not participate or quit raising cattle 
altogether. There will be a cost of meeting the requirements of 
this law that include record keeping, identification and 
additional cooler space at the packer and retail level. These 
costs will more than likely be passed back to the producer.
    The benefits of mandatory labeling are harder to determine. 
Will the consumer pay more for U.S. beef? We believe that a 
majority of Americans do desire beef born and raised in the 
United States. Do they have enough extra money to spend on U.S. 
beef to make the law beneficial to U.S. cattle producers?
    We believe that this is yet to be determined. We feel that 
a bigger concern for the producers in our area is the 
additional hassles that this law creates. The majority of our 
producers are part-time or hobby cattlemen. They raise cattle 
as an income supplement to another job. In Missouri there are 
60,204 beef cow operations of which 47,137 have less than 50 
head. The average cow herd in our market area is 30 head, which 
means there are significant producers who have 20 or less cows.
    The potential requirements of this law will outweigh any 
financial benefit that the small producer will receive from 
mandatory labeling. Missouri is reflective of what the average 
beef cow producer resembles in the United States.
    Joplin Regional Stockyards is supportive of labeling of 
beef, but we feel that the requirements of the current 
mandatory guidelines as we understand them will be very 
burdensome, especially on smaller cattle producers. We feel 
that a system that does not require the producer to identify 
his cattle or a voluntary system that will help us determine 
the true benefits of product labeling is a more prudent choice 
at this time. The risk of permanently damaging the cattle-
producing segment of our agriculture economy is significant.
    [The prepared statement of Mr. Owens can be found in the 
appendix on page 93.].
    The Chairman. Thank you, Mr. Owens. Our next witness is 
Phil Howerton, Chairman of the Pork Producers. Phil, it is good 
to have you here today and hear your comments. Please go ahead.

     STATEMENT OF PHIL HOWERTON, MISSOURI PORK ASSOCIATION

    Mr. Howerton. Senator Talent and distinguished guests, my 
name is Phil Howerton, a pork producer from Chilhowee, 
Missouri, and I am here to testify on behalf of the Missouri 
production costs to hog operations, it will reduce U.S. pork 
exports globally, it will decrease domestic U.S. pork 
consumption, and it provides an unfair economic advantage to 
the chicken and turkey products, to name a few. Let me 
embellish further on each of these points.
    Mandatory COOL will not raise live hog prices long-term and 
could result in lower hog prices due to the law's requirement 
of extensive record keeping, segregation and tracking of 
imported animals by producers and packers. Given the lack of 
research evidence of consumer interest in country-of-origin 
labeling for pork, the increased packer, processor, retailer 
and USDA costs associated with labeling will be passed back to 
producers in the form of lower hog prices.
    Mandatory COOL will add production costs to my hog 
operation in order to meet the burdensome verifiable record 
audit trail standard set in the law. It appears to us that any 
certification and audit system must have at least three 
components--a detailed records system, legal documents to 
guarantee origin, and third-party audits of these records. All 
of these impose direct costs on producers, not to mention the 
potential liability for noncompliance.
    Mandatory COOL will reduce U.S. pork exports. An economic 
analysis of the mandatory COOL program performed by economists 
for the U.S. pork industry and Iowa State University concluded 
that by the year 2010, U.S. pork exports could be 50 percent 
lower than they would be without the labeling program. This is 
because Canada, which currently supplies 5.7 million head of 
live hogs to the U.S., would be forced to process these hogs in 
Canada. Canada's pork output would increase, and since 
consumption will not grow by that much, this pork will compete 
directly with U.S. pork both inside the U.S. and in the common 
export markets. Lower U.S. exports would reduce the U.S. pork 
industry's value-adding effect for corn and soybean, thus 
impacting all of the U.S. agriculture. The U.S. will likely 
once again become a net importer of pork.
    Mandatory COOL will cause a reduction in domestic pork 
consumption. According to the same study, a full trace-back 
system implemented under COOL will increase U.S. farm-level 
pork production costs by 10 percent or $10.22 a head. This is 
equivalent to a 10 percent increase in the cost of on-farm 
production or approximately $1.02 billion for the U.S. pork 
industry. Assuming the 10 percent increase in costs is passed 
on to the retail level, U.S. consumers will likely demand 7 
percent less pork due to higher prices. A presumably less 
costly certification and audit system will have a smaller but 
still negative effect on U.S. consumption.
    Mandatory COOL puts small independent producers at a 
significant economic disadvantage to large integrated 
operations. A recently published study conducted estimated that 
pork supplier implementation costs for integrated hog 
production or packer processing systems to be $3.25 a head. The 
process for farms with non-integrated production systems was 
$6.25 to $10.25 per head. This leads to a $7 per head 
disadvantage for small producers that would quickly put them 
out of business. Another recent study conducted also cites the 
loss of over 1,000 independent farmer and large integrators in 
their place.
    Mandatory COOL provides significant economic advantage to 
chicken and turkey products. Poultry is the main competitor of 
beef and pork in the retail meat case and is exempt from 
mandatory COOL and thus will not face any additional costs to 
the poultry chain.
    The flawed mandatory country-of-origin meat labeling law 
also raises more questions than it answers. Here are two that 
really trouble me: Why does mandatory COOL exempt chicken and 
turkey products and the entire food service sector--
restaurants, fast-food establishments, lunchrooms, cafeterias, 
lounges, bars and food stands? Does Congress believe that U.S. 
consumers only have the right to know where their pork, beef 
and lamb come from but not their chicken and turkey--and only 
when they eat out--and only when they eat at home and not when 
they dine out? The second one, USDA's mandatory COOL guidelines 
clearly have periodic audits in mind when they require a 
verifiable record keeping audit trail. How frequently and how 
in-depth will such audits be and who will pay for them?
    Additionally, will the legal affidavit requirements by 
packers be required of producers for each load of hogs? 
Finally, what are the liability ramifications of these 
requirements?
    Senator Talent, it is becoming increasingly clear that due 
to the effort of providing mandatory country-of-origin meat 
labeling, it is going to be a very costly experiment. The 
additional costs including the liability issues required by 
this program far outweigh any benefits that might accrue to 
pork producers at the farm level. Thus, the Missouri Pork 
Association urges you to oppose the implementation of the 
mandatory country-of-origin meat labeling. We believe that the 
mandatory country-of-origin meat labeling program should remain 
voluntary and be market driven rather than government mandated.
    Thank you for allowing me to testify today, and I would be 
pleased to answer any questions.
    [The prepared statement of Mr. Howerton can be found in the 
appendix on page 95.]
    The Chairman. I appreciate that. Let me make one thing 
clear on behalf of the subcommittee and what I feel is 
certainly within our purview and what isn't. You are perfectly 
free to express your opinions, and Mr. O'Brien and Mr. Thorn 
were also. The only thing about mandatory country-of-origin 
labeling is whether it is a good idea or not. I am not going to 
go into that in terms of deliberation with the subcommittee 
because that was a decision made when Congress passed the law.
    What I do want to get into is how we can implement it in 
such a way that it ends up helping, or at least not hurting, 
the producers that this was designed to help. Now in the 
context of that, I do expect the most vigorous proponents of 
COOL to answer the concerns that have been raised about whether 
or not it will be extremely costly.
    When you say it is going to increase the cost of the 
average producer of hogs by 10 percent, that's a real 
significant profit. We need to make certain that that does not, 
in fact, happen. I don't think anybody wants that to happen. 
That's really what I am going into. I appreciate your 
testimony, and we will go now to Max Thornsberry, who's 
president of the Missouri Stockgrower's Association.

STATEMENT OF MAX THORNSBERRY, PRESIDENT, MISSOURI STOCKGROWER'S 
                          ASSOCIATION

    Mr. Thornsberry. Senator Talent, I thank you for allowing 
us to be here today, and it is a distinct honor to testify for 
you on behalf of the Missouri Stockgrower's Association. We are 
a relatively new organization in the State of Missouri that 
represents cattle, hogs, lambs and meat goats. We are 
affiliated with R-CALF-USA which is a national affiliate of 
nearly 10,000 members representing grass-roots cattlemen and 
cattlewomen all over the United States.
    I am not here today to discuss the negative or positive 
aspects of this law. I am here to visit with you about a law 
that has already been passed and signed by our President and 
approved by our Congress. I am here today to visit with you 
about why we think it should be implemented and how we could do 
that in the best manner for our producers. We have just held 
two informational gathering meetings in the state of Missouri. 
I am not following my testimony. You have it in written form.
    The overwhelming majority of those people who attended 
those meetings gave us basically two opinions: One was we want 
the opportunity to differentiate our product in the 
marketplace, and we believe the country-of-origin labeling is 
that method. Two, we want this law to cause us the least of 
amount of grief and record and government regulation.
    Senator Talent, it appears like common sense is falling out 
the window when it comes to the USDA. We hear one group in USDA 
saying third-party verification is not a part of the law. 
That's what Mr. Bill Sessions told us at both of our meetings, 
that it is not required. Yet Mr. Hawks today said that if a 
packer wants to require third-party verification, that's their 
business.
    We believe that opens the door for a Pandora's box of 
opportunities for these packers to gain proprietary information 
about our inventory, about our operations and other aspects of 
our business that are private. That's between us and the IRS 
and nobody else. If we open the door and allow them to require 
or give them the opportunity and allow them to review our 
records, to review our verification and audit trails, then they 
will know exactly how many cattle I own, what sections I own, 
how many calves I produce.
    They already have a computerized system in inventory 
control that bar none is the best in the world. I don't believe 
that we need to allow those in an adversarial role to have 
complete control of our inventory and business. We do believe 
that this law can be implemented with policies, and we believe 
that there are a couple of things we should discuss today.
    First off, the Missouri Association believes a grandfather 
period should be attached to the country-of-origin labeling 
law. I am not in agreement with Mr. Hawks that that cannot be 
accomplished. Cattle that are purchased prior to September 2004 
may not be legally identified as born and raised in the U.S.A. 
A grandfather period would allow these older animals to enter 
the food chain without discrimination.
    The USDA identifies all imported live animals. At the 
present time because of tuberculosis, we brand every calf that 
comes across the border of Mexico with an M on its cheek. That 
brand follows that animal all the way through the box. It would 
be very easy to do the very same thing with cattle or meat 
coming from other locations. Meat that comes into this country 
from Australia and New Zealand carries on the side of that box 
a product of whichever country it is coming from. It would be 
very easy to track that with the computerized system we have.
    For many reasons, some proof of ownership is reasonable as 
several times we've mentioned. It is possible for an enemy of 
the United States to rustle a load of cattle, inject them all 
with a prohibited medication or disease and sell them 
throughout several states, particularly states like Missouri 
that do not have a brand identification law. Under the current 
system of operations, many states do not require any proof of 
ownership to sell cattle. States without a brand law do not 
follow cattle ownership closely. A minimum proof of ownership 
will greatly reduce the chances of this terrorist scenario that 
I have defined.
    The USDA has put out a list of required records to prove 
proof of ownership. They are very simple. They are veterinary 
bills, feed bills, cow/calf records that we keep in the normal 
process of operation. Here my colleagues testify that this is 
going to be such an onerous system that nobody will ever 
possibly be able to comply. Yet Bill Sessions tells us it is 
going to be a very simple, easy system.
    I say today, Senator Talent, that common sense must 
prevail. Our producers want to differentiate our product in the 
marketplace. As the Free Trades of America Act reaches its 
maturation, we are going to be in a very negative position. If 
we allow meat in here from every country throughout the world, 
we need to find a way to differentiate our meat. We need a way 
to draw attention to our meat.
    That's all we are asking for. We are not asking for 
something that's complicated and unusual and difficult. 
Missouri has a country-of-origin labeling law that functions 
very effectively right now. I'd like to add one thing, Senator 
Talent, The Missouri livestock producers--we are the No. 2 cow/
calf state in the nation. There is well over 2 million 
independent--or calf/cow in this nation, and almost 70,000 in 
cow/calf producers.
    We pay a dollar a head on every animal we sell. Sometimes 
that animal goes at auction for three, four, or nine and 
generates three more dollars. Those dollars have been used to 
develop a demand in our country for beef. That demand is the 
best in the world bar none. Every nation in the world wants to 
participate in what we get paid for.
    Yet Canada did not support us in our war on terrorism. 
Mexico did not support us in our war on terrorism, and Brazil 
actually offered political asylum to Saddam Hussein. We have 
more at stake here than just labeling our own product. There is 
an element of patriotism that exists in this country, and I 
believe those consumers will support Missouri producers if 
given an opportunity. Thank you.
    [The prepared statement of Mr. Thornsberry can be found in 
the appendix on page 100.]
    The Chairman. Thank you. Our final witness on this panel is 
Ken Disselhorst, president of the Missouri Cattlemen's 
Association.

 STATEMENT OF KEN DISSELHORST, PRESIDENT, MISSOURI CATTLEMEN'S 
                          ASSOCIATION

    Mr. Disselhorst. Thank you very much. Good morning. My name 
is Ken Disselhorst. I am currently serving as president of the 
Missouri Cattlemen's Association. The Missouri Cattlemen's 
Association is a producer's group organization with a 
membership of 107 counties across the state of Missouri, and it 
is also affiliated with the National Cattlemen's Beef 
Association. I am proud to be here today to discuss with you 
country-of-origin labeling. The issue is a concern to me and 
the members of the Missouri Cattlemen's Association as well as 
beef producers across the country. Members of the Missouri 
Cattlemen's Association have also had many opportunities to 
hear presentations from the United States Department of 
Agriculture staff as well as many industry experts.
    We again have identified about six key issues in this 
debate that certainly concerns us. I will just briefly touch on 
them because many of them have already been discussed with some 
of the other panelists. Again, the use of animal 
identification, how's that going to affect our industry, and 
how we are going to comply with producers to verify an 
auditable trail. Also, industry demand of a third-party 
verifier, who those people are going to be, what's obviously 
going to be the cost of those folks. Certainly I don't believe 
there will be very many of those or any of those folks who will 
do that for free. What's the kind of burden that's going to be 
putting on the consumer demand and industry demand requirement 
as we see it right now? The impossibility, again, of verifying 
cows, cows that have been purchased and not necessarily born on 
a producer's property. Again, we support some kind of a 
grandfather clause or something that's going to allow these 
producers to sell the product, sell their cows, and have the 
opportunity to at least make it into the retail chain.
    The Chairman. Let me jump in there because you and Max both 
mentioned the grandfather clause which makes sense on the 
surface of it to me. The problem is that it is not so much a 
question of whether that cow could be sold without having to be 
labeled, but the problem that's being raised is how you prove 
where a particular cow comes from or what category it belongs 
to.
    If you say these cows are grandfathered, the retailer and 
therefore the producer--here's the argument on the other side 
of that--is that someone has to be able to prove that that cow 
is one of the grandfathered cows.
    Mr. Thornsberry. It is simple. What----
    The Chairman. You are going to have to tag the cow with 
something to show it is a grandfathered cow. How do you write 
that into it? How do you trace it? What kind of records do you 
have to supply? Do you see what I am saying?
    Mr. Thornsberry. Yes.
    The Chairman. Otherwise if someday USDA goes and does an 
audit of a retailer and the retailer says, Oh, no, this stuff 
isn't labeled that way because these were all cows that were 
grandfathered. They say, OK, well, prove that. How do they 
prove that?
    Mr. Disselhorst. This is one of the unintended 
consequences, I believe, with the law itself is the fact that, 
again, how is a producer going to present documentation that 
that calf was born or that cow was born in this country if he 
had purchased that cow through Joplin Regional Stockyards as a 
break cow or what have you and he doesn't know who the owner 
was, and that cow may have had a couple of owners before it 
went through the stockyards for purchasers? Again, it is one of 
those unintended consequences that a producer just simply isn't 
going to be really able to comply with. That is a concern, and 
I understand the other side of it. It is really a----
    The Chairman. Would you guys be satisfied with-- forget for 
a second, although the current law permits it, which is 
something lawyers fight over. Would you be satisfied with a 
self-certification? In other words the producer certifies--I am 
giving an affidavit to the auction barn or wherever this is a 
grandfathered cow. I have had this cow four or 5 years old. I 
certify this. Whoever then is audited produces that 
certification. That's it then. The law--you can't go behind 
that certification. I kind of thought that's where you were 
headed, Max. Is that what you are thinking?
    Mr. Thornsberry. What I'd personally like to see is 
identify the foreign cattle and foreign meat and leave our 
domestic cattle alone by default. They're born, raised and 
slaughtered in the United States. You just can't do that. It is 
not possible. Sure, it is possible. We trace every Mexican 
steer through the United States. We have an international 
health paper for every day he's here in the United States. All 
it would require is a little bit more effort on our part, and 
we could do that.
    The Chairman. Right. That's very intriguing. We've talked 
about that before. You say you do not require that because if 
it is not a foreign-born animal or raised or processed, then 
you'd assume it is an American. Our producers don't have to do 
anything. That's your answer?
    Mr. Thornsberry. Yes.
    The Chairman. You prefer to stick with that, and as long as 
that's possibly workable, then you don't have to get into self-
certification anyway.
    Mr. Thornsberry. Yes, our problem is we are dealing with a 
market-driven program. We are concerned about extra costs to 
the beef system, not only costs to identify the calves at the 
producer level but also what of our friends in the retail, the 
packers, the feeders, the stocker grower, what they have to do 
to comply with the language of the law.
    Mr. Disselhorst. I am not sure that self-certifications 
maybe eases the burden from the cow/calf guys, but what's the 
cost that's still going to be there for the rest of the beef 
system? That was another thing I wanted to mention was that 
Ernest Davis, a professor at Texas A&M, had indicated that they 
felt like the costs to the beef system could be as high as $8.9 
billion.
    We've already heard some testimony about who's going to pay 
that bill. In our opinion, the consumers probably aren't going 
to be as willing to pay for that as what some may have hoped. 
As they talked about already, that cost is going to end up 
being passed down the chain. Certainly the cow-calf producer 
has no one to end up absorbing that cost.
    Even though we are going to have motivation to comply with 
the law if self-certification is allowed, what are those calves 
actually going to be worth? They're going to be worth probably 
less than what they would have been worth because of all the 
added costs of implementing the law all the way through the 
beef system. That's certainly a big concern of ours. I want to 
be clear about the fact that, again, we have this important 
right as beef producers to be able to market and promote 
product made in the U.S.A. However, again, we believe it to be 
a market-driven approach.
    I wanted to talk about a program that I am aware of. One 
labeling program is being promoted by Carolyn Carey in 
California. I had an opportunity to visit with her quite a bit 
this week. Miss Carey has done a tremendous job about promoting 
a ``Born in the USA'' label. She has put forth an effort to 
make the labeling program effective. In fact, her program has 
been approved by the Food Safety Inspection Service at USDA. 
She has also had a tremendous interest in her program and is 
currently marketing beef in the San Francisco Bay area as 
``Born in the USA.''
    Based on producer participation as well as consumer 
interest, Miss Carey's labeling program has certainly been a 
success. Under her program, producers and processors alike are 
required to keep information that guarantees the accuracy of 
this label. I brought a copy of this label with me. That's the 
label that goes on that product that they're labeling in the 
retail chain. My point is that a voluntary program, if the 
producers are willing to do what it takes to verify that label 
under the current program, can be successful.
    Again, if there are markets out here in the country with 
consumers who are willing to pay extra to verify this trail or 
to pay extra for a product that is labeled in the USA, we 
definitely want to give producers the opportunity to do that. 
That's why the markets should drive this issue.
    It was interesting, the comments about out of 22,000 calls 
to the Schnuck's store, only nine consumers had indicated about 
country of origin or country of origin and the product. We 
believe consumers are more concerned about egg food safety, 
making sure that they purchase a product that is very safe and 
wholesome for the family that they can obviously serve. 
Certainly consumers will brand rate it--brand or Kraft or what 
have you--all over the stores and are more brand conscious 
about products maybe than they are of country of origin.
    We certainly believe a market-driven approach that, if 
there are segments in the country and obviously out in San 
Francisco there are retailers and there are places--that people 
are demanding this type of product and identification, that 
producers certainly have that opportunity to participate in 
that. There are several reasons involved.
    Again, I want to finally stress the urgency of this issue. 
Cow/calf producers sold this fall. Again, we have to gear up 
this industry of being able to meet the demand of people that 
are buying our cattle, which has already been stated, and 
certainly the Missouri Cattlemen's Association wants to promote 
the beef that our members produce and are proud of the label of 
USA.
    The challenge is in identifying a labeling system that will 
help us do that and not put us at risk. I want to commit to 
working with you and your staff and all these producers to 
identify changes in the law or regulations that will help 
accomplish this task. Thank you very much.
    The Chairman. Go ahead.
    Mr. O'Brien. I just want to make a couple of comments on 
the general retailers, though. In the first place, this seems 
to be--and I am kind of a minority here because I am the 
produce guy and not a meat guy. I heard from a couple of 
panelists that fruits and vegetables will be easy. It will not 
be very easy. It will be very laborious, and it'll be very 
difficult for us to keep records. Keep in mind that you are 
asking us to keep records at store level where you can walk in 
and ask the produce manager or----
    The Chairman. Explain the laborious part.
    Mr. O'Brien. The laborious part is keeping the records at 
store level. For example, bananas, where do we grow bananas 
from in the United States? They come from South America, and 
they come from Central America, and they're marked that way. 
Now, the banana code for our warehousing system is the same, 
and it goes to all stores. We can track it to the back door, 
but we cannot track it to the store, whether it comes from 
Costa Rica or whether it comes from Nicaragua. It says to keep 
bananas.
    The produce system's not all that easy. We've got a PLU 
code for an asparagus. It is the same PLU code. It is an 
industry code for asparagus whether it comes from Peru, 
California, or whether it comes from Mexico. To keep those 
records at store level when we've got possibly asparagus from 
Peru and Mexico within our system, we are not really sure how 
to do this.
    What we have to do is to really overhaul our warehousing 
system and our invoicing system and start over. That's going to 
be very expensive. That's not just Schnuck's Markets. It is the 
entire industry, and we are not sure how we are going to do 
that. It is not just meat. It is produce and the seafood, too. 
I want to make that point. The other point I want to make is on 
self-certification. It sounds very----
    The Chairman. Let me see if I can establish some consensus 
here on some of this. I will get back with you on that. You are 
talking about the extra cost to retailers. You talked about 40 
or 50 million per plant. I want to get into why you think it is 
40 or 50 million per plant. Now, are we in agreement that to 
the extent that this generates extra costs, those will, at 
least in large part, get passed down the chain to the 
producers? Does anybody disagree with that?
    Mr. Bull. Senator Talent, just a comment on that. We have 
increased our marketing budget from 10 years ago from half a 
million dollars to over $20 million. That is all in marketing 
and branding products. We totally support that as a way to 
bring revenue into the industry. All of our brands have sent 
back a revenue that goes to producers. They're very expensive.
    Make no mistake that what Mr. O'Brien's bringing up are 
very real costs of trying to identity preserve different things 
to our system. If we come up with a self-certification system 
at the ranch, that may save that cost burden there. It doesn't 
get the fee line out of their cost burden in trying to make 
sure their segment is properly managed. Those cattle can go 
from pen to pen. It sure doesn't relieve my burden in my 
packing plant to identity preserve those animals more to the 
retailer as well.
    To address my costs, $40- to $50 million would be the costs 
if we tried to take each and every animal coming through our 
business and tried to identity preserve that animal through 
the--and as I said in my testimony, we can't afford to do that. 
What we would have to do is take alternate ways of trying to 
come up with a way of identity preserving batches of animals to 
try and bring that cost down.
    It would bring it down significantly, but still it would be 
a $15-to $20 million per plant to re-tool to try and identity 
preserve even batches of animals on this type of level to our 
modern packing facilities today.
    The Chairman. The point that Ken made was that there was a 
great danger of this getting passed down to the producers, as I 
understood it.
    Mr. Thornsberry. I disagree with that. I disagree quite 
adamantly as a matter of fact. If you read the law and I am 
assuming that everybody has sat down and read the law. With the 
words of the law, this is a retail law. The onus of this law is 
on the retailers. I am sorry, but that's the way it was 
written. That's the way it passed. That's the way it was 
signed. It is their responsibility to identify the product, 
nobody else.
    I agree with Ken. Most of our Missouri producers are 
sophisticated enough to identify their own cattle. The idea 
that nobody has any records of any kind is ridiculous. I deal 
with people every day as a veterinarian. I give them a bill. I 
show them where I worked the cattle and how many I worked. How 
many calves I castrated. How many heifers I vaccinated. Every 
farmer has these records and has to have them for IRS and tax 
purposes. That's what the USDA says it requires.
    Now, I do agree with Ken that if we are forced to deal with 
a third-party verification subcommittee does everything it can 
to make sure that common sense does prevail, that these costs 
are as low as possible, because I am concerned otherwise they 
will get passed on.
    Let me talk about what you said about third-party 
verification. I disagree with you about this, Max. The 
Department, whatever its other failures in this, is, I believe, 
correct in assuming that it is supposed to enforce this in such 
a way that will allow for meaningful audits and checks. In 
other words, it shouldn't assume that Congress passed a law 
that said, OK, it is very important that this be done, but you 
can just take everybody's word for the fact that it is being 
done.
    Mr. Thornsberry. I don't mean to imply that. We do have the 
records to back up our own--they were there. What I am saying 
is they should not allow the packing industry to force third-
party verification on us when the USDA does not require third-
party verification anywhere in the system that I am aware of. 
If I sign up for drought resistance and I walk in there, I sign 
my name. That's all they require.
    I am not saying that because it does have to be born and 
bred in the U.S. that it should not require some verification. 
Who's going to be the third party? Is it going to my pastor? Is 
it going to be my veterinarian? Is it going to be a local 
lawyer? Is it going to be a county commissioner? You know, if 
we get into that, we've opened a Pandora's box that is just 
phenomenal, in my opinion.
    Plus, we should not be forced to give them that 
information. If the USDA wants it, that's fine. Let them audit 
it back here. I should not be forced to give that information 
to a packing company that is basically in an adversarial role 
with me. He's trying to buy my cattle as low as he can buy 
them, and I am tying to sell them as high as I can.
    The Chairman. You are saying it is one thing to have to 
keep the records, but they shouldn't audit you through the 
packers.
    Mr. Thornsberry. That's correct. The USDA can audit----
    The Chairman. You don't think that this will resolve down 
the--let's forget about the idea we talked about just a second. 
If I understood you right, and you suggested it. It may be a 
gigantic way to reduce this burden, just documenting foreign 
produce or animals or whatever. I will get to you in just a 
second. Assuming we don't do that. Then if we do have to be 
able to identify domestic cattle, you don't think the record 
requirements will flow then on our producers?
    Mr. Thornsberry. If we are allowed to follow the guidelines 
that William Sessions has given us--we all have feed bills, 
veterinarian bills, cow/calf records. We already have them. 
They're in our shoe box, and we know where they are, and we can 
provide them when they're asked for.
    The Chairman. I am pushing you on this because it is 
precisely the issue here you've thought a lot about all of 
this. Wouldn't you at least have to be able to prove that that 
cow that he sold at the auction barn or that went up through 
the system from him were the cows to which that record 
pertains? You know what I am saying. You can always produce the 
record saying yeah, I had a cow in here, and I bought this much 
feed and the rest of it, but how do we know that that's the cow 
that got sold?
    Mr. Thornsberry. That's where you get into the provisions 
of a mandatory identification system. They're not asking to 
know the identification of every cow. They're asking to know if 
you owned this old cow.
    Mr. O'Brien. Max, I am going to approach this from a retail 
standpoint. Because of the $10,000 fines, we have to insist on 
third-party audits because self-certification doesn't really 
mean a lot to us when it comes to identity of a shoe box. We 
need to make sure whether it is a tomato from Florida because 
we don't have ownership until it comes to our door. We are 
going to have to ask for a third-party audit because we are the 
ones that have to pay the $10,000 fines because it does come 
down to retail.
    Mr. Bull. You are in a position where you have to----
    The Chairman. Maybe to reference this point, the packing 
industry has no desire to be auditors of records. Just as the 
USDA has no desire to be auditors of the records. The last 
thing I want to do is to be training staff to go out and audit 
records.
    We are seeing the packers come out and say we need some 
assurance these records are going to be accurate in trying to 
comply with the retailers and with our read on the law. Without 
our ability to understand with a high level of integrity when 
those animals are coming to us, we can't possibly label them 
correctly. Hoping that Max or his producers have these records 
properly done in a shoe box, when that animal comes into my 
plant, how will I know with any type of assurance that that 
animal is going to be properly labeled? I am the one putting 
up--so what are you going to require, then, from the producers 
you buy from? What kind of things would you anticipate as a 
buyer?
    Mr. Bull. Again, Senator, we can only respond to what 
retailers have asked us to do and our interpretation of the 
risks. Clearly, if we are going to put a label on an animal, we 
need to know what that animal is. We need to have an assurance 
that that label is proper when we put it on. We are going to 
need an identification system that helps us, when that animal 
leaves our plant, we know those things. Clearly, we are going 
to need to know that before that animal leaves the plant.
    The Chairman. What would satisfy that?
    Mr. Bull. Here lies the biggest problem as far as we are 
concerned, and that's because the USDA is specifically limited 
from defining that structure. They're leaving it up to industry 
to try and figure that out. That's where we are all having the 
problem. I say to producers, for us to be able to comply to 
apply that proper label on there to meet their requirement and 
to give them that assurance, we need to have that information 
prior to that animal coming to our plant.
    Mr. Owens. The third-party verification--let's assume that 
the mandatory identification system, as described in the law, 
that every animal's going to have to have identity from my 
producers. The third-party certification or self-certification. 
If the system requires hiring a third person to come inspect 
the farm operations of a guy that's got 5, 10, 15 cows, that 
might be the last straw.
    If that system does stay in the same place, I believe that 
there is some benefit to self-certification by the person who 
delivers it to my market. He signs off that these cows were 
born and raised on my farm and that he does have the records to 
prove that. In the law, by him signing that affidavit, that 
should relieve the retailer packer or whoever's above--relieves 
them of that obligation. To me, the third-party verification on 
farms is--it will not be----
    The Chairman. There's no reason why. Whatever the current 
law requires, if that's what everybody approves, we ought to 
do, because normally it is possible to do that with some kind 
of provision so that the tracing stops at the point where you 
reach self-certification. I can trace it back to this kind of 
cattle, and this herd is certified born and raised on this 
farm, and that's it. Then you are protected because that's good 
enough. You agree with that. They're required by law to accept 
that.
    Mr. Owens. I'd have to agree with Congressman Blunt because 
if the guy that serves my producers identify those cattle 
coming in, I assume that's probably the ideal situation on 
labeling systems.
    The Chairman. That still leaves you all with all the----
    Mr. O'Brien. Time.
    The Chairman. I was intrigued, Mr. O'Brien, with your 
testimony because I hadn't thought of it. Actually this will 
require you to change all your labeling machines?
    Mr. O'Brien. In the meat department, we have to change all 
our labeling. If we buy product that was born in Canada, raised 
and slaughtered in the United States right now, we don't have a 
labeling machine that would handle that long label. We have to 
work out the details in labeling, and plus the fact we have a 
line through all our stores.
    As you are working through boxes and if the next box 
changes, you have to change that label. You have to stop the 
assembly line for ``Manufactured in the United States'' and 
start over. That's going to really slow down our activity. The 
biggest point is our warehouse will not handle it right now. It 
just doesn't handle that. We'd have to completely buy a new 
warehousing system and inventory system that we are required to 
keep in stock for 2 years, whether it is born and raised in the 
United States or not.
    The Chairman. It doesn't seem plausible, but the very fact 
that you are required to keep track of something new is going 
to require you to change your system. Now, whether you can do 
it with software or something, that's another issue.
    Mr. O'Brien. Well, that's something we are looking into and 
trying to figure out how to do. You have to think about the 
tonnage that we run through our warehouse and our produce 
department and meat department and seafood department. It is 
huge. That's how we operate. We operate as a buying business, 
and we only make a penny out of every dollar; that's it. We 
turn that thing three times a week.
    The Chairman. All right. We have another panel, and I have 
asked----
    Mr. Disselhorst. Senator, many of our members are all 
concerned about liability issues that come back to them as 
producers, whether they will be able to generate beef business 
in a commodity-based business, where if there had been e. coli 
or some breakouts, that break usually stops at the processors.
    Obviously, with this type of auditable trail, that's not 
one of the liabilities that's going to be on producers. It is 
not fair to someone who may be unable to produce or purchase 
liability insurance for issues such as this, whether it be 
injectionsites, what have you. That is a concern, and something 
I'd like your committee to at least talk with the insurance 
industry about so we can get some answers.
    The Chairman. Well, I will say if self-certification is the 
answer to the extent that the answer is on the part of the 
producer, you are right, Max. We need to go over the law again 
and make certain about what it says. That's an unusual enough 
thing. Well, you are right. In agriculture it is a little bit 
less unusual. Maybe they do have the liability to do it. I am 
saying what's the simplest way to get us to that point? We will 
wrap things up here, and I thank you all for coming. It is been 
a vigorous and good panel. I will excuse you and then ask the 
next panel to come up, Mr. Kremer and Mr. Day.
    [The prepared statement of Mr. Disselhorst can be found in 
the appendix on page 103.]
    The Chairman. I am pleased to have this last panel and 
maybe get a larger overview from Mr. Kremer and Mr. Day. Let's 
start with Russ Kremer who is the president of the Missouri 
Farmers Union.

  STATEMENT OF RUSS KREMER, PRESIDENT, MISSOURI FARMERS UNION

    Mr. Kremer. Thank you, Senator Talent. I truly appreciate 
this opportunity to testify before this committee regarding the 
country-of-origin labeling law passed by Congress as a 
provision of the 2002 Farm bill. My name is Russ Kremer. I am a 
diversified livestock producer and president of the Missouri 
Farmers Union. I am going to abbreviate this here to try to 
help you out. We believe that the mandatory country-of-origin 
labeling law, long supported by Farmers Union and other farm, 
ranch and consumer groups, is the single most important effort 
to help ensure the survivability and enhanced economic 
opportunities for the U.S. independent livestock and produce 
farmers.
    We have supported mandatory country-of-origin labeling of 
agricultural commodities and products as a way to provide 
consumers with the knowledge to make more informed choices 
about the products they purchase and to serve as a beneficial 
marketing tool for U.S. producers. In the global economy, our 
farmers and ranchers play on an unlevel field. We are at a 
disadvantage because of the value of our dollar and are 
oftentimes forced to compete with countries that produce in a 
system with much lower labor, environmental and sanitation 
standards than our U.S. producers and processors produce under.
    I am an independent producer who is very proud of what I 
produce. I feel that we produce a Cadillac product that is 
safe, wholesome, free of unnecessary chemicals and additives, 
processed under very rigid high standards for sanitation, labor 
and environment. Yet when I take this product to marketplace, 
this Cadillac product is not differentiated from the lower 
value imported model with its uncertain assurance of quality 
and safety. I wish there was a consumer testifying today 
because consumers overwhelmingly throughout the U.S. would 
overwhelmingly support this law.
    First, there was a study by Colorado State that found 73 
percent of consumers in Denver and Chicago surveyed last March 
would be willing to pay much more for beef with a country-of-
origin label. On average, those respondents would be willing to 
pay an 11 percent premium for a country-of-origin label on a 
steak and a 24 percent premium on hamburger meat. Preference 
for labeling source of origin, a strong desire to support U.S. 
producers. These are some things that we found as a farmers 
union to develop a value-added meat cooperative.
    The Chairman. Mr. Kremer, before you go on, let me ask: Are 
all of you in agreement that these costs are going to get 
passed on, can everybody agree with that? If it is true that 
some people are willing to pay a little bit more, some of the 
one-time costs, in particular, might get passed on to the 
underbrush.
    In other words, you might be able to charge a little bit 
more. Nobody wants to raise the costs, particularly if it is a 
one-time thing for a new warehousing system or something like 
that. It gets passed on and dumped. You raise a good point. If 
those surveys are correct, then there might be more money 
coming in to the system to support it.
    Mr. Kremer. We've also done studies in the area around St. 
Louis where consumers would be willing to pay a 10 to 20 
percent premium if they knew where the product came from. We 
could very well pass the volume to----
    The Chairman. Maybe St. Louis is the front doorstep, but 
the beautiful backyard is right here in our area.
    Mr. Kremer. We've talked about the misinformation, about 
some of the horrors that's happened, and quite frankly we feel 
that that's a misinterpretation we have of the guideline that 
we were asked to follow as far as mandatory. People have made 
that seem like it is a mandatory requirement, and we have not 
written the rules yet. That's why we are here today, to 
interpret that and find practical solutions.
    Our organization's deal is that voluntary labeling is not 
the answer. We've had this for 30 years, and we've had various 
success with that. I really feel like COOL is a great measure, 
and the intent is clear, and it can be implemented with little 
burden to producers at a minimal cost. Last year in Southwest 
Missouri, a mandatory country-of-origin labeling for meat for 
very little costs at all was implemented quite successfully. In 
fact, it is a society bill, and retailers elected not to have 
anything to do with that.
    That's what the intent of this law is to do, to promote 
American meat. To the extent existing record systems and import 
information can be utilized and tailored to meet country-of-
origin labeling requirements for consumer notification, the 
less costly and more efficient the labeling system will be for 
all parties. The most practical one that has been brought up 
and effective means of verifying the country of origin is to 
accurately identify the produce or meat and animals that come 
into this country and to strongly enforce the verification and 
traceability of those products.
    The vast majority of U.S. livestock and crop producers do 
not import any livestock or produce products that would subject 
their operations to foreign origin verification. If import 
labeling procedures are strictly enforced, then all other 
products could be presumed U.S. produced, thus preventing 
burdensome record keeping and verification procedures imposed 
on those producers who choose to continue a ``domestic only'' 
production system.
    Programs such as the School Lunch Program currently operate 
under similar procedures. Farmers and ranchers who do market 
imported products should have an appropriate record system. 
Existing identification programs, such as health certificates 
from the USDA Animal and Plant Inspection Service or import 
information gathered by U.S. Customs Service can be coordinated 
and used to identify the country of origin for imported 
commodities.
    We also suggest that USDA consider the following when 
writing the rules for mandatory COOL:
    No. 1, we've heard this before but establish a grandfather 
or grandmother clause that will allow all livestock presently 
in the United States to be considered products of the U.S.
    No. 2, USDA must ensure that retailers cannot impose a 
greater burden on suppliers than is required by the law or the 
rules. USDA can accomplish this by stating that only USDA may 
conduct audits, and all suppliers and retailers must rely 
solely on the markings on livestock or representations made on 
sales transaction documents.
    No. 3, USDA should interpret the law to maximize the number 
of commodities that will be labeled. For example, enhancing a 
commodity by adding water, flavoring should not exclude a 
commodity from the labeling.
    In conclusion, we are very excited about the potential 
benefits of a successfully implemented COOL law. I believe that 
stronger farmer-consumer relationships will be forged. 
Consumers will support our U.S. farm families and demand and 
choose our quality products. Family farm operations will become 
more profitable, and the consumer will be assured safe, 
wholesome food. It is a win-win situation. Thank you.
    [The prepared statement of Mr. Kress can be found in the 
appendix on page 106.]
    The Chairman. The next witness is Mr. David Day who's a 
board member of the Missouri Farm Bureau.

STATEMENT OF DAVID DAY, BOARD MEMBER, STATE BOARD OF DIRECTORS, 
                      MISSOURI FARM BUREAU

    Mr. Day. Good afternoon, Senator. My name is David Day. I 
am a cattle producer from south central Missouri, and I serve 
on the Missouri Farm Bureau State Board of Directors. The 
Missouri Farm Bureau is the state's largest general farm 
organization with over 99,000 family members. In addition, our 
organization is part of the American Farm Bureau Federation 
which represents a majority of the nation's livestock 
producers. The Farm Bureau appreciates the opportunity to 
comment on country-of-origin labeling. Senator Talent, we want 
to say a very special thank you to you for your continued 
interest and leadership on this issue.
    Farm Bureau does support mandatory country-of-origin 
labeling. Many farmers and ranchers feel that the products they 
grow in the United States should be labeled as a product of the 
United States at the retail level. Today, more and more 
products are being imported to the United States, giving our 
consumers greater choices in the marketplace.
    By and large, people know little about where these products 
originated. By including country-of-origin labeling in the 2002 
Farm bill, we believe Congress intended to provide a program 
that would help consumers make informed decisions when 
purchasing products at the retail level and help producers 
receive a value-added return on their agricultural products.
    While our organization supports COOL, we are concerned 
about the impact the unintended consequences could have on our 
state's livestock producers. USDA has done an admirable job of 
developing rules for the voluntary program, and we applaud 
their willingness to seek input from those the regulations will 
affect the most.
    Currently, many producers have misconceptions about COOL 
because they have not received adequate information to 
determine how the program will affect their operations. In 
addition, under the current USDA guidelines for voluntary 
labeling, we are uncertain of the benefits or costs associated 
with the program. It is crucial that USDA develop a program 
that does not hinder producers with burdensome regulations or 
significantly increase their production costs.
    In labeling products as to the country of origin, we have 
several concerns on how covered commodities will be traced from 
the farm level to the retail level. First, we strongly believe 
that the statute prohibits USDA from instituting the proposed 
record keeping requirement. This has been talked about earlier. 
The statute clearly states and I quote, ``The Secretary shall 
not use a mandatory identification system to verify the country 
of origin of a covered commodity,'' end quote. Nevertheless, 
the Agricultural Marketing Service, or AMS, proposes that each 
producer and others in the supply chain keep a record of every 
covered commodity for at least 2 years.
    The proposed rule also mandates that these records be 
available for inspection by AMS to verify that each animal, or 
covered commodity, is of the origin claimed. The only possible 
way that we see to accomplish such a record keeping requirement 
would be to have every animal identified. Again, that would be 
a mandatory identification system, which is specifically 
prohibited.
    Second, we believe that any record keeping requirement must 
be uniform in nature. Since AMS does not outline a uniform 
record keeping system, each retailer may implement a system 
that differs from others. As a result, producers may lose 
opportunities as they could be forced to select which supply 
chain they enter. We believe there should be some degree of 
uniformity to insure all market opportunities are maintained 
for all producers.
    Last, producers will not be prepared to meet mandatory 
guidelines in September 2004 because as it is written now, the 
older animals will not be documented for country of origin. 
Once outstanding questions about the program are resolved, we 
strongly recommend that USDA implement a transition period as 
the voluntary guidelines become mandatory to prevent producers 
from being adversely effected. In addition, we believe all 
members of the supply chain must actively be involved in 
developing the final program rules.
    Again, we commend you, Senator, and your subcommittee for 
holding this hearing. In closing, I would like to enter into 
the record comments that Missouri Farm Bureau sent to the USDA.
    [The information referred to can be found in the appendix 
on page 112.]
    [The prepared statement of Mr. Day can be found in the 
appendix on page 110.]
    The Chairman. Sure. No objection to including it in the 
record. It seems to me that one of you said something about we 
have to be doing something about cows that are currently in the 
system where nobody's kept records on them because nobody knew 
they had to do that. You both talked about grandfathering in 
some respect.
    As I said, I don't know if that gets us past the other 
issues because you are still going have to prove it is a 
grandfathered cow. At least as to that, would you agree that we 
have some consensus? We need something to make certain there is 
no liability on people for those cows they've had in the system 
for some time. Is there agreement on that?
    Mr. Bull. Yes, there is.
    Mr. O'Brien. Export for everything presumed, and basically 
let everything that's currently in the system now----
    The Chairman. Be presumed USDA.
    Mr. O'Brien. Be presumed U.S. produced. That's the simplest 
way.
    The Chairman. You know, I do think just from what I have 
heard that both sides of this issue are open to some simple 
changes. I do want to say we are all frustrated with the 
bureaucracy and nobody more so than I. We have to allow for the 
possibility that they may be correct in saying the statute 
doesn't give them a lot of flexibility in all of these areas.
    This just might require somebody else on the staff. Nobody 
in Congress is going to want to reopen this. To get some 
consensus that some simple changes or common sense changes 
allow us to get 95 percent of what we want here while relieving 
everybody of a bunch of costs, then surely that's a direction 
that we ought to go in.
    Mr. Bull. I agree. If we can track the animals that are 
imported, that would certainly lighten the burden on the 
producer out in the field. Again, the fact that it is common 
sense may be the barrier here, but I do think it makes a lot of 
common sense to go that route.
    The Chairman. What I found is that there's a huge 
percentage of what you are trying to do, everybody agrees on 
doing, and they want to do. The problems arise in the more 
extreme cases or the unusual case. It would be better if 
everybody would just lighten up a little bit.
    OK. What I am saying is somebody tells you there may be one 
cow in a herd of 10,000 that may be mismarked. So what? We have 
to allow some flexibility to be in this kind of rule in those 
circumstances so you don't have to recall the whole thing or 
send it back. Nobody wants to do that, not packers, not 
retailers, nobody.
    Mr. O'Brien. The overwhelming response in the event is that 
producers say don't make us the victims. Let's come up with 
something appropriate, and I feel we couldn't do that.
    The Chairman. I don't want to make anybody a victim of this 
because part of the problem is this. If anybody is really 
nailed, anybody in the chain, that cost is going to get spread 
all over the place. If we can make some common sense changes 
that preserve those kind of things--or get them to do it. Get 
the Department to do it and preserve what we are trying to do 
and lessen the costs and trouble for everybody, then clearly, 
we ought to move in that direction.
    This lead that we got from Congressman Blunt, about marking 
and tracing only the animals we import. He raised all sorts of 
issues there. It is a very promising lead. We have to see what 
the trade laws would say. You know, on the other hand, after 
the way the Europeans treated our genetically modified product, 
I don't think that we should go to any great length to warrant 
reviews of trade laws ourselves.
    Obviously, I am wrapping up. Do any of you have anything 
you want to add? I do want to make clear before we adjourn the 
hearing that everybody has 5 days to submit a written 
statement. That includes members of the audience. I have a card 
here with the address. It'll be right up here. If anybody wants 
to, they can copy off the address or the e-mail address.
    You send your comments to Robert E. Sturm, S-t-u-r-m, who 
is the Chief Clerk of the Committee on Agriculture. He is at 
328-A Russell Senate Office Building, Washington, DC, 20510. E-
mail address is Robert underscore Sturm, S-t-u-r-m, at 
agriculture dot senate dot gov (robert--sturm at 
agriculture.senate.gov). Or if you just want, you can get the 
testimony in my office or Congressman Blunt's office. I am sure 
they will be happy to get that. Thank you all again, and this 
subcommittee is adjourned.
    [Whereupon, at 12:22 p.m., the Subcommittee adjourned.]
      
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                            A P P E N D I X

                             April 22, 2003



      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                             April 22, 2003



      
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