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What Problems Does mCOOL Solve?: Part 2

What If They Got What They Want?

Edi. Note: Last time, we covered some key things in our current situation that mCOOL would not fix. But what would happen if R-CALF and OCM got what they really want? We are not prophets but here are our best guesses.

Labeling imported beef is really just a substitute for what R-CALF and OCM really want, which is to ban all imports of beef, variety meats and by-products. They have said they don’t really care about exports, as they don’t believe it helps cow/calf producers, because the packers would keep all the money.

A word about research. “Unaided” questions, that is, asking consumers what factors they consider in buying beef, always shows tenderness, taste, price and convenience at the top of the list. Neither food safety nor origin ranks high on the list. Shoppers expect USDA and their retailer to take care of that. They rely on USDA grades and their retailer to provide them quality products.

Claims that most consumers consider origin important are virtually always “aided questions,” i.e. asking the respondent specifically if they consider origin important in purchasing beef. Most consumers are going to answer yes if the information is provided free. Six years of actual experience with the mCOOL proved previous research that not only they didn’t want to pay extra for that information, when they had it, only a very small percentage used it to make buying decisions. It did not boost demand.

Let’s say import opponents get what they want -- a ban on all beef imports and exports. The U.S. would be an “island,” with no cross border movement and consumers would be totally dependent on the U.S. beef marketing chain. R-CALF believes that would instantly make their cattle worth more and the beef business would be more profitable because the beef industry would have consumers at their mercy.

But R-CALF does not understand how markets work. They believe that with a ban, the price of cull cows would go up because no lean beef would be coming in from anywhere else. They are correct that cow prices would go up. Problem is, the price of ground beef would go up. So consumers would tend to buy less ground beef and eat fewer hamburgers at fast food and casual dining restaurants. Consumers at retail would opt more often for chicken, especially if they could get whole chicken cuts like breasts at or cheaper than the price of ground beef. Fast food patrons would opt for more chicken sandwiches or go to chains with predominantly chicken or chicken only menu items.

So while the price of cull cows would initially go up, they would tend to go back down, as the higher price of ground beef lowers demand for it.

As for the packers, the price of 50/50 trim would go down, as the dearth of lean beef for the grinding business means they would need less trim and it would go to rendering. Packers would offer lower prices for fed cattle, because of that drop in revenue on less ground beef sold and lower return on 50/50 trim, hurting their bottom line.

With no exports, the average $300-350/fed animal the packer gets for selling beef, variety meats and by-products around the world goes away. Do some back of the envelope figuring, use the middle figure and roughly $8 billion a year goes away. Figuring 26 million head of fed cattle/year, 1,350 lb. fed average at $110 amounts to $38.6 billion a year.

Does anyone believe that if the packers give up $8 billion/year, roughly 20 percent of the $38 billion they would pay out to cattle feeders, that it wouldn’t affect the price they would pay for cattle?

Now realistically, all that income from exports wouldn’t go away in just that fashion. The variety meats have little value here at home, so they would likely end up as pet food, not returning many dollars compared to their value overseas. The larger supply of muscle cuts would drive down the price at retail and foodservice, initially driving down fed cattle prices but ultimately meaning we would need fewer cows to bring beef supplies more in line with reduced demand quantities.

And R-CALF is one of the loudest groups decrying anything that drives down cow numbers.

Then there is the overall effect on trade beyond cattle and beef. Some countries are going to slap tariffs or put in non-tariff trade barriers on the U.S. in retaliation for no beef trade, no access. Countries around the world have developed a taste for American beef and variety meats. A prohibition, just like the mCOOL law, could draw billions of dollars in retaliation on foods, wines, electronics, autos and apparel, for example.

It is no secret that some folks do want protectionism. They want government to protect their operation. They want the government to protect their vision of what the beef industry, ahem, excuse me, the cattle industry should be. (They don’t believe in the “beef” industry -- really only the cow/calf and stocker segments count for them. They don’t care much for any of the rest of the production chain.)

At AFF, we have said for years that the industry is a pyramid, with consumers at the top and all the rest of the production chain arrayed below them, striving to compete or cooperate among themselves to produce what consumers want.

Some folks still insist it’s the cow/calf sector at the top of the pyramid. We believe that’s upside down. The cow is the foundation of the industry -- but not the ultimate customer at the top.

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