Leo McDonnell: The Dismantling of COOL and a market
March 21, 2017
I was asked to speak at the Farmers Co-op Ag Expo in Rushford, Minnesota, in early February. The first day of my talks was given at the Root River Community Church. I've been asked to share some of my comments by some folks who were there and others that just heard about it. This will be Part 1.
How fitting it is that we are having this program in this beautiful church, because we are going to talk about a couple Golden Cows that this industry has, and like any Golden Cow, they have cost us much damage by taking our focus off what is truly important. One is free trade, and the other is our beef checkoff that was structured differently than the other commodity checkoffs for the intention, I believe, of subsidizing politically active groups that at times lobby against you. I'll hold these two for a later discussion.
I'm not going to say the loss of COOL was responsible for the collapse in the cattle market, but it certainly played a part in it. In fact in 2014, a friend who is in the beef importing business told me that COOL was having a definite impact in the ground beef market, and when you consider we market 60 percernt of beef as ground then obviously you have a positive impact for US ranchers.
He specifically noted US 90 percent fresh lean beef vs imported 90 percent frozen beef. Recent USDA historical price differences were $4 – $15 per hundredweight for the most part– sometimes favoring US product, sometimes imported product. This all started to change in 2014, when more retailers, became aware that US beef under the COOL law actually meant US beef, and started to shift their demand to a straight US product vs ground product that was labeled from possibly several countries. This would be consistent with consumer demand reports that stated that consumers wanted to know where their food comes from.
In 2014 USDA reported US 90 percent lean bringing up to $38 per hundredweight premium over imported. Then starting in 2015, a year that was predicted to bring record cattle and beef prices here in the US, the January US 90 percent lean was reported by USDA at $302.90 vs imported at $256 per hundredweight.. Record high for US lean. But then in June of 2015 Congress started the process to repeal COOL with the House voting to repeal it and the Senate holding a hearing to support the repeal of COOL. By September US 90 percent lean was down to $263.23 and imported $236.90 and with the full repeal of COOL in December USDA reported US 90 percent lean at $199.80 and imported $195, and in 2016 we again at times saw imported lean bringing a premium to US lean, as any product, imported or US, if it was slaughtered , processed, or ground could now be labeled US beef. That is, the US beef label which was your identity in a global market, was reverted back to an international commodity blend label. Remember, this collapse took place in a year when we saw all time record high retail prices and interestingly, imported 90 percent lean dropped only $60 per hundredweight while US 90 percent dropped $103 as US producers lost their ability to have their product differentiated in our own US market.
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While we are talking about the value of COOL, I want to point out that statements made by opponents to COOL that consumers would not pay a premium for COOL are simply not true. Remember under our Checkoff Act we are not allowed to identify and promote US beef as a country of origin product; however, in the international market, which is a very robust and competitive market, we are allowed to use our Checkoff dollars for such.
I sat on the Beef Checkoff Global Growth Committee where we spend about $8 million a year promoting US beef in foreign markets. One of our core strategies was to "Leverage the brand equity of the US beef industry to promote US beef in foreign markets." Our directive to NCBA and USMEF was to promote US beef at all times and to build a following for US beef culture.
So in the only major market (the international market) where US beef was actually promoted, identified and marketed, what were the results? US beef, as reported by USMEF in 2015, brought $3.37 per pound while the next closest competitor, Canada, brought $2.52 per pound. So for Beef Checkoff contractors, such as NCBA, AMI (packers), KSU so say COOL had no value, defies empirical evidence which states otherwise. It also ignores years of research supporting that there is tremendous value in differentiating your product in the markets, especially if you have the higher quality products.
US consumers are not given the choice today to buy US beef, but I believe if they were, they would not want beef from substandard foreign packing plants that USDA FSIS has reported in recent years. There is also a growing number of consumers who don't want beef from countries where there has been massive destruction of rainforests, or reported use of slave labor such as Brazil.
And there are a lot of these consumers who don't want to eat meat from countries such as China and Mexico where products such as clenbuterol are used in production of livestock. In fact, Reuters reported that the world soccer governing body FIFA considered the presence of clenbuterol in Mexican cattle a public health problem—and there are a lot of soccer moms out there.
And finally, what we all know now is a growing population that simply wants transparency in where their food comes from, and wants to put America first.
I was disappointed that NCBA commented to our District Courts when they were involved in filing a case against COOL that"beef is beef no matter where it comes from." Believe me there is a huge difference and hopefully this helps you understand why the packing industry, foreign countries, and groups like NCBA fought so hard to repeal COOL. Problem is, once the consumer is given the choice, there is ONLY ONE place these folks can buy it—from the US rancher, and the packers and many retailers know that would limit where they can buy product and compromise there purchasing power.
By the way, didn't NCBA state the COOL was costing us $12 per hundredweight on our cattle prices to implement? If that was truly the case, shouldn't our cattle prices of gone up in 2016 instead of collapsing with the repeal of COOL? After all, US beef production for 2016 levels was still down from 2013 levels when we had $1.26 feds and $5.29 choice retail. Hard to understand why that $12 per hundredweight windfall on COOL costs wouldn't have shown up. Especially with annual choice retail prices for 2016 at $6.