ERS says estimated cost of COOL outweigh perceived benefits.

Food & Drink Weekly, March 1, 2004

In response to consumer demand, U.S. food manufacturers each year put about 100,000 new food products on the market, all with an ever longer list of attributes, according to USDA's Economic Research Service (ERS). And with profits driving companies to find and advertise the right mix of attributes, "consumers usually end up knowing a lot about the foods they purchase." In effect, this competitive disclosure among manufacturers allows consumers to make appropriate inferences about foods, says ERS.

Assuming, as many proponents of country-of-origin (COOL) do, that U.S. consumers would find domestic products more desirable than imported products, sales of voluntarily labeled U.S. products would be expected to expand. However U.S. COOL labels are not common in retail advertising. This infrequency of voluntary COOL suggests to ERS that food suppliers believe any additional profits are less than the additional costs of labeling. There may be several reasons for this, according to researchers.

The present lack of domestic COOL on meat suggests that most consumers "neither give the product's country of origin much thought, nor view imported product as inferior," says ERS. This may be due to the fact that USDA allows only meat imports that meet U.S. safety standards. What is more, the absence of a niche market for domestic meats for those consumers concerned about safety of imported product suggests that most consumers trust and accept the assessment of food safety regulators that imports are as safe as domestic meat products, says ERS.

Another reason for the lack of COOL is that consumers may view imported products as superior. Unlike foreign suppliers that choose to use geographic indicators to set quality standards so their country's label becomes associated with superior quality, U.S. food suppliers would have little incentive to supply a "Made in USA" label for foods where domestic product quality varies widely, says ERS. "Instead, individual firms align their products in consumers' minds with a smaller, specialized group of products." Furthermore, even if some consumers prefer domestic product over imports, their willingness to pay more might not be enough to cover labeling costs, adds ERS.

There is no clear evidence of a market information failure, where market conditions make it impossible for truthful food suppliers to convince consumers that labels are reliable, says ERS. The report offers as evidence the lack of participants in an ongoing, voluntary USDA program that allows fresh muscle cuts of beef to be identified as "U.S. Beef." Insufficient competition is also not an issue, according to ERS, as market structure would not be a stumbling block in the face of an economic incentive created by consumer demand.

Using cost estimates from USDA's Agricultural Marketing Service for direct incremental record keeping and operating costs, an ERS model found that U.S. production of the covered commodities--red meats, fish, shellfish, fresh and frozen fruits and vegetables and peanuts--plus livestock "would experience a modest decline, and trade would decrease relative to the base period. Moreover the overall price level for these commodities would increase, which reduces consumer welfare."

"We find little evidence that the market is not efficiently meeting the preferences of consumers for country of origin information and labels," concludes ERS.