Food labels to pressure grocery prices
August 28, 2008
(Dow Jones) – Grocery bills, already surging because of higher commodities costs, will almost certainly rise as costs are passed along for implementing a new country-of-origin food-labeling law, the supermarket industry says.
“We’re an industry with a net profit of just one percent to two percent of sales, so any increase is going to have an effect on cost to consumers,” said Bill Greer, director of communications for the Food Marketing Institute, the supermarket industry’s largest trade group.
Under the federal mandate, supermarkets, large grocery stores and wholesale clubs must let consumers know where staples such as beef, chicken, pork, lamb, vegetables and fruit originate. The law, part of the 2008 Farm Bill passed this summer, takes effect at the end of next month, reported the Wall Street Journal.
The Department of Agriculture, the agency charged with policing the new edict but never an enthusiastic backer of the plan, says the benefits from the country-of-origin labeling law “will be small and will accrue mainly to those consumers who desire” this kind of information.
The Agriculture Department has estimated it will take $2.52 billion for retailers, producers and intermediaries, such as packers, to get their operations into compliance with the law during its first year.
Consumer groups that want the labeling have complained for years that the USDA tends to overestimate the costs for implementation of the law.
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The Department of Agriculture estimates it will cost food retailers $26,149 per store to put in systems to comply with the law. The first-year cost for food retailers is pegged to be the most for any of the affected groups: $952 million. On a consumer level, the $952 million equates to an increase of seven cents a pound for beef and four cents a pound for pork, lamb and goat, with the difference attributed to processing costs.
If the implementation goes anything like what happened in 2005 when companies had to start labeling fish and shellfish, the outlays will be much higher. The Agriculture Department had estimated the cost for getting the seafood program up and running to be roughly $1,530 per store, but the actual price tag ranged from $9,000 to $16,000, according to a Food Marketing Institute survey of members who collectively operated more than 1,000 supermarkets and other large food stores.
Also, there will be further expenses down the line in the form of an estimated $247 million in annual maintenance costs for retailers’ systems.
Food suppliers and intermediaries are facing significant costs – the rest of the $2.52 billion, as well as the annual maintenance charges – and these fees could also find their way down to the retail level and then to consumers, food-industry analysts say.
Target Corp. spokeswoman Brandy Doyle said the retailer, which has been making a push into the grocery field, has been working with its vendors for the past few months trying to coordinate systems and asking them to pass along as few price increases as possible. Passing the costs to customers “is a last resort,” Ms. Doyle said.
Safeway Inc. “will be in complete compliance,” spokeswoman Teena Massingill said. “There will be no negative effects on customers.”
Spokeswomen at Wal-Mart Stores Inc. and Kroger Co. wouldn’t discuss any expected impact on customers, saying only that their companies were working with suppliers to assure compliance with the law.
The Food Marketing Institute has had “reservations about the new labeling for some time,” Mr. Greer said. “But now we will go about implementation in as cost-effective manner as possible.”
Hopefully, lessons learned from the seafood-labeling program could make the new requirements for the other foods easier to implement, Mr. Greer said.
The impact is expected to vary by what kinds of systems supermarkets already have in place and how easily they can be modified, as well as how effectively staff is trained.
Mom-and-pop grocery stores are exempt from the new law, as are restaurants, school cafeterias, food stands and other smaller purveyors of food.
The food labeling can be done through stick-ons, tags, placards or other designations in or around bins or on packaging.
Supermarkets must keep their country-of-origin records for one year, and they face fines of as much as $1,000 for each violation of the law.