[Federal Register Volume 73, Number 149 (Friday, August 1, 2008)]
[Rules and Regulations]
[Pages 45106-45151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-17562]
[[Page 45105]]
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Part II
Department of Agriculture
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Agricultural Marketing Service
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7 CFR Part 65
Mandatory Country of Origin Labeling of Beef, Pork, Lamb, Chicken, Goat
Meat, Perishable Agricultural Commodities, Peanuts, Pecans, Ginseng,
and Macadamia Nuts; Interim Final Rule
Federal Register / Vol. 73, No. 149 / Friday, August 1, 2008 / Rules
and Regulations
[[Page 45106]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 65
[Docket No. AMS-LS-07-0081]
RIN 0581-AC26
Mandatory Country of Origin Labeling of Beef, Pork, Lamb,
Chicken, Goat Meat, Perishable Agricultural Commodities, Peanuts,
Pecans, Ginseng, and Macadamia Nuts
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Interim final rule with request for comments.
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SUMMARY: The Farm Security and Rural Investment Act of 2002 (2002 Farm
Bill), the 2002 Supplemental Appropriations Act (2002 Appropriations),
and the Food, Conservation and Energy Act of 2008 (2008 Farm Bill)
amended the Agricultural Marketing Act of 1946 (Act) to require
retailers to notify their customers of the country of origin of covered
commodities. Covered commodities include muscle cuts of beef (including
veal), lamb, chicken, goat, and pork; ground beef, ground lamb, ground
chicken, ground goat, and ground pork; wild and farm-raised fish and
shellfish; perishable agricultural commodities; macadamia nuts; pecans;
ginseng; and peanuts. The implementation of mandatory country of origin
labeling (COOL) for all covered commodities, except wild and farm-
raised fish and shellfish, was delayed until September 30, 2008.
The 2008 Farm Bill contains a number of provisions that amended the
COOL provisions in the Act. These changes include the addition of
chicken, goat, macadamia nuts, pecans, and ginseng as covered
commodities, the addition of provisions for labeling products of
multiple origin, as well as a number of other changes that are
discussed more fully in the Supplementary Information portion of this
rule. However, the implementation date of September 30, 2008, was not
changed by the 2008 Farm Bill. Therefore, in order to meet the
September 30, 2008, implementation date and to provide the newly
affected industries the opportunity to provide comments prior to
issuing a final rule, the Department is issuing this interim final
rule. This interim final rule contains definitions, the requirements
for consumer notification and product marking, and the recordkeeping
responsibilities of both retailers and suppliers for covered
commodities. The provisions in this interim final rule do not affect
the regulatory requirements for fish and shellfish that were published
in the October 5, 2004, Federal Register.
DATES: This interim final rule is effective September 30, 2008.
Comments must be submitted on or before September 30, 2008 to be
assured of consideration. The requirements of this rule do not apply to
covered commodities produced or packaged before September 30, 2008.
ADDRESSES: Comments should be submitted through the Internet at http://www.regulations.gov. Send written comments to: Country of Origin
Labeling Program, Room 2607-S; Agricultural Marketing Service (AMS),
USDA; STOP 0254; 1400 Independence Avenue, SW., Washington, DC 20250-
0254, or by facsimile to 202/354-4693. All comments received will be
posted on the Web site at: http://www.regulations.gov. Comments sent to
the above location that specifically pertain to the information
collection and recordkeeping requirements of this action should also be
sent to the Desk Officer for Agriculture, Office of Information and
Regulatory Affairs, Office of Management and Budget (OMB), New
Executive Office Building, 725 17th Street, NW., Room 725, Washington,
DC 20503.
FOR FURTHER INFORMATION CONTACT: Erin Morris, Associate Deputy
Administrator, Poultry Programs, AMS, USDA, by telephone on 202/720-
5131, or via e-mail at: [email protected].
SUPPLEMENTARY INFORMATION: The information that follows has been
divided into three sections. The first section provides background
information including questions and answers about this interim final
rule, a summary of the history of this rulemaking, and a general
overview of the law, including the changes contained in the 2008 Farm
Bill. The second section provides a discussion of the rule's
requirements, including a summary of changes from the October 30, 2003,
proposed rule as well as a summary of the comments received in response
to the relevant prior requests for comments associated with this
rulemaking and the Agency's responses to these comments. The prior
requests for comments include: The proposed rule published in the
October 30, 2003, Federal Register (68 FR 61944); the interim final
rule for fish and shellfish published in the October 5, 2004, Federal
Register (69 FR 59708); the reopening of the comment period (for costs
and benefits) for the interim final rule that was published in the
November 27, 2006, Federal Register (71 FR 68431); the reopening of the
comment period for all aspects of the interim final rule that was
published in the June 20, 2007, Federal Register (72 FR 33851); and the
reopening of the comment period for the proposed rule for all covered
commodities that was published in the June 20, 2007, Federal Register
(72 FR 33917). The last section provides for the required impact
analyses including the Regulatory Flexibility Act, the Paperwork
Reduction Act, Civil Rights Analysis, and the relevant Executive
Orders.
I. Background
Questions and Answers Concerning This Interim Final Rule
What are the general requirements of Country of Origin Labeling?
The 2002 and 2008 Farm Bills amended the Act to require retailers
to notify their customers of the country of origin of beef (including
veal), lamb, pork, chicken, goat, wild and farm-raised fish and
shellfish, perishable agricultural commodities, peanuts, pecans,
ginseng, and macadamia nuts. The implementation of mandatory COOL for
all covered commodities except wild and farm-raised fish and shellfish
was delayed until September 30, 2008. The law defines the terms
``retailer'' and ``perishable agricultural commodity'' as having the
meanings given those terms in section 1(b) of the Perishable
Agricultural Commodities Act of 1930 (PACA) (7 U.S.C. 499 et seq.).
Under PACA, a retailer is any person engaged in the business of selling
any perishable agricultural commodity at retail. Retailers are required
to be licensed when the invoice cost of all purchases of perishable
agricultural commodities exceeds $230,000 during a calendar year. The
term perishable agricultural commodity means fresh and frozen fruits
and vegetables.
Food service establishments are specifically exempted as are
covered commodities that are ingredients in a processed food item. In
addition, the law specifically outlines the criteria a covered
commodity must meet to bear a ``United States country of origin''
designation.
How do I find out if my product is considered a covered commodity or if
it is labeled accurately under the COOL law?
This regulation contains the requirements for labeling covered
commodities and for determining whether a product is subject to this
rule. However, additional questions regarding
[[Page 45107]]
whether a product is considered a covered commodity or is labeled
accurately under this regulation may be e-mailed to [email protected].
Given that the law exempts covered commodities from mandatory COOL if
they are an ingredient in a processed food item, what is the definition
of a processed food item and what types of products are considered
processed food items?
A processed food item is a retail item derived from a covered
commodity that has undergone specific processing resulting in a change
in the character of the covered commodity, or that has been combined
with at least one other covered commodity or other substantive food
component (e.g., chocolate, breading, tomato sauce), except that the
addition of a component (such as water, salt, or sugar) that enhances
or represents a further step in the preparation of the product for
consumption, would not in itself result in a processed food item.
Specific processing that results in a change in the character of the
covered commodity includes cooking (e.g., frying, broiling, grilling,
boiling, steaming, baking, roasting), curing (e.g., salt curing, sugar
curing, drying), smoking (hot or cold), and restructuring (e.g.,
emulsifying and extruding). Examples of items excluded include:
Meatloaf, meatballs, fabricated steak, breaded veal cutlets, corned
beef, sausage, breaded chicken tenders, and teriyaki flavored pork
loin; a salad mix that contains lettuce and a dressing packet, a salad
mix that contains lettuce and carrots, a fruit cup that contains
melons, bananas, and strawberries; a bag of mixed vegetables that
contains peas and carrots; and roasted peanuts.
What requirements must be met for a retailer to label a covered
commodity as being of United States origin?
The law prescribes specific criteria that must be met for a covered
commodity to bear a ``United States country of origin'' declaration.
The specific requirements for covered commodities are as follows:
Perishable agricultural commodities, pecans, ginseng, peanuts, and
macadamia nuts--covered commodities must be produced in the United
States; beef, lamb, pork, chicken, and goat--covered commodities must
be derived exclusively from animals (1) born, raised, and slaughtered
in the United States (including animals born and raised in Alaska and
Hawaii and transported for a period of time not more than 60 days
through Canada to the United States and slaughtered in the United
States); or (2) present in the United States on or before July 15,
2008, and once present in the United States, remained continuously in
the United States.
How should I label a retail product that contains a single type of
covered commodity (such as a bag of frozen strawberries) prepared from
raw material sources having different origins?
In this interim final rule, a single type of covered commodity
(e.g., frozen peas), presented for retail sale in a consumer package,
that has been prepared from raw material sources having different
origins is referred to as a commingled covered commodity. Further, a
commingled covered commodity does not include ground meat products. If
the retail product contains two different types of covered commodities
(e.g., peas and carrots), it is considered a processed food item and is
not subject to mandatory COOL.
In the case of perishable agricultural commodities, peanuts,
pecans, ginseng, and macadamia nuts, for imported covered commodities
that have not subsequently been substantially transformed in the United
States that are commingled with imported and/or United States origin
commodities, the declaration shall indicate the countries of origin for
all covered commodities in accordance with Customs and Border
Protection (CBP) marking regulations (19 CFR part 134).
What are the requirements for labeling ground meat products, which
often contain raw material sources from multiple countries?
The 2008 Farm Bill specifies that the notice of country of origin
for ground beef, ground lamb, ground pork, ground goat, and ground
chicken shall include a list of all of the countries of origin
contained therein or reasonably contained therein. This interim final
provides that when a raw material from a specific origin is not in a
processor's inventory for more than 60 days, the country shall no
longer be included as a possible country of origin.
Why can't the Department of Agriculture (USDA) track only imported
products and consider all other products to be of ``United States
Origin?''
The COOL provision of the Farm Bill applies to all covered
commodities. Moreover, the law specifically identifies the criteria
that products of United States origin must meet. The law further states
that ``Any person engaged in the business of supplying a covered
commodity to a retailer shall provide information to the retailer
indicating the country of origin of the covered commodity.'' And, the
law does not provide authority to control the movement of product. In
fact, the use of a mandatory identification system that would be
required to track controlled product through the entire chain of
commerce is specifically prohibited.
When will the requirements of this regulation take effect?
The effective date of this regulation is September 30, 2008,
because the statute provides for a September 30, 2008, implementation
date. However, because some of the affected industries (goat, chicken,
pecans, ginseng, and macadamia nuts) did not have prior opportunities
to comment on this rulemaking and because the 2008 Farm Bill made
changes to several of the labeling provisions for meat covered
commodities, it is reasonable to allow time for covered commodities
that are already in the chain of commerce and for which no origin
information is known or been provided to clear the system. Therefore,
the requirements of this rule do not apply to covered commodities
produced or packaged before September 30, 2008. In addition, during the
six month period following the effective date of the regulation, AMS
will conduct an industry education and outreach program concerning the
provisions and requirements of this rule. AMS has determined that this
allocation of enforcement resources will ensure that the rule is
effectively and rationally implemented. This AMS plan of outreach and
education should significantly aid the industry in achieving compliance
with the requirements of this rule.
How will the requirements of this regulation be enforced?
USDA has entered into agreements with States having existing
enforcement infrastructure to assist in compliance reviews for fish and
shellfish covered commodities. These agreements will be expanded to
encompass all covered commodities. USDA determines the number of
reviews to be conducted and has developed comprehensive procedures for
the compliance reviews. Only USDA is able to initiate enforcement
actions against a person found to be in violation of the law. The COOL
statute does not provide for a private right of action. USDA may also
conduct investigations of complaints made by any person alleging
violations of these regulations when the Secretary determines that
reasonable grounds for such investigation exist.
[[Page 45108]]
What are the recordkeeping requirements of this regulation?
Any person engaged in the business of supplying a covered commodity
to a retailer, whether directly or indirectly, must maintain records to
establish and identify the immediate previous source (if applicable)
and immediate subsequent recipient of a covered commodity for a period
of 1 year from the date of the transaction. In addition, the supplier
of a covered commodity that is responsible for initiating a
country(ies) of origin claim, which in the case of beef, lamb, chicken,
goat, and pork is the slaughter facility, must possess or have legal
access to records that are necessary to substantiate that claim. In the
case of beef, lamb, chicken, goat, and pork, a producer affidavit shall
be considered acceptable evidence on which the slaughter facility may
rely to initiate the origin claim, provided it is made by someone
having first-hand knowledge of the origin of the animal(s) and
identifies the animal(s) unique to the transaction.
USDA continues to look for ways to minimize the burden associated
with this rule. Therefore, under this interim final rule, slaughter
facilities that slaughter animals that are part of a National Animal
Identification System (NAIS) compliant system or other recognized
official identification system (e.g., Canadian official system, Mexico
official system) may also rely on the presence of an official ear tag
and/or the presence of any accompanying animal markings (i.e., ``Can'',
``M''), as applicable, on which to base their origin claims. This
provision also applies to such animals officially identified as a group
lot.
For retailers, records and other documentary evidence relied upon
at the point of sale by the retailer to establish a covered commodity's
country(ies) of origin must be maintained for one year from the date
the origin declaration is made at retail and, upon request, provided to
any duly authorized representatives of USDA within 5 business days of
the request.
For pre-labeled products, the label itself is sufficient evidence
on which the retailer may rely to establish a product's origin. Pre-
labeled products are those covered commodities that are labeled for
country of origin by the firm or entity responsible for making the
initial claim or by a further processor or repacker (i.e., firms that
receive bulk products and package the products as covered commodities
in a form suitable for the retailer). The country of origin information
of pre-labeled covered commodities must be legibly printed on the
shipping container, immediate container, or consumer ready package. In
addition to indicating country of origin information, pre-labeled
products must contain sufficient supplier information to allow USDA to
trace-back the product to the supplier initiating the claim. Records
that identify the covered commodity, the supplier, and for products
that are not pre-labeled, the country of origin information must be
maintained for a period of 1 year from the date the origin declaration
is made at retail. Retailer and supplier records may be maintained in
any location.
How does this regulation impact existing State country of origin
labeling programs?
To the extent that State country of origin labeling programs
encompass commodities that are not governed by this regulation, the
States may continue to operate them. For those State country of origin
labeling programs that encompass commodities that are governed by this
regulation, these programs are preempted. However, this preemption does
not apply to State marketing programs for commodities such as
Washington apples, Idaho potatoes, etc.
While the COOL statute does not contain an express preemption
provision, it is clear from the language in the statute that Congress
intended preemption of State law. The law assigns enforcement
responsibilities to the Secretary and encourages the Secretary to enter
into partnerships with States with enforcement infrastructure to assist
in the administration of the program. The law provides for a 30-day
period in which retailers and suppliers may take the necessary
corrective action after receiving notice of a nonconformance. The
Secretary can impose a civil penalty only if the retailer or supplier
has not made a good faith effort to comply, and only after the
Secretary provides notice and an opportunity for a hearing. Allowing
private rights of actions would frustrate the purpose of this
comprehensive enforcement system in which Congress struck a delicate
balance of imposing a requirement, but ensuring that the agency had
wide latitude in enforcement discretion. Thus, it is clear that State
laws and other actions were intended to be preempted.
Prior Documents in This Proceeding
This interim final rule is issued pursuant to the 2002 Farm Bill,
the 2002 Appropriations, and the 2008 Farm Bill, which amended the Act
to require retailers to notify their customers of the origin of covered
commodities. In addition, the FY 2004 Consolidated Appropriations Act
(Pub. L. 108-199) delayed the implementation of mandatory country of
origin labeling (COOL) for all covered commodities except wild and
farm-raised fish and shellfish until September 30, 2006. The
Agriculture, Rural Development, Food and Drug Administration, and
Related Agencies Appropriations Act of 2006 (Pub. L. 109-97) delayed
the applicability of mandatory COOL for all covered commodities except
wild and farm-raised fish and shellfish until September 30, 2008.
On October 11, 2002, AMS published Guidelines for the Interim
Voluntary Country of Origin Labeling of Beef, Lamb, Pork, Fish,
Perishable Agricultural Commodities, and Peanuts (67 FR 63367)
providing interested parties with 180 days to comment on the utility of
the voluntary guidelines.
On November 21, 2002, AMS published a notice requesting emergency
approval of a new information collection (67 FR 70205) providing
interested parties with a 60-day period to comment on AMS' burden
estimates associated with the recordkeeping requirements as required by
the Paperwork Reduction Act of 1995 (PRA). On January 22, 2003, AMS
published a notice extending this comment period (68 FR 3006) an
additional 30 days.
On October 30, 2003, AMS published the proposed rule for the
mandatory COOL program (68 FR 61944) with a 60-day comment period. On
December 22, 2003, AMS published a notice extending the comment period
(68 FR 71039) an additional 60 days. On June 20, 2007, AMS reopened the
comment period for the proposed rule for all covered commodities (72 FR
33917).
On October 5, 2004, AMS published the interim final rule for fish
and shellfish (69 FR 59708) with a 90-day comment period. On December
28, 2004, AMS published a notice extending the comment period (69 FR
77609) an additional 60 days. On November 27, 2006, the comment period
was reopened on the costs and benefits aspects of the interim final
rule (71 FR 68431). On June 20, 2007, the comment period was reopened
for all aspects of the interim final rule (72 FR 33851).
Overview of the Law
Section 10816 of Public Law 107-171 (7 U.S.C. 1638-1638d) and
Section 11002 of Public Law 110-234 amended the Act (7 U.S.C. 1621 et
seq.) to require retailers to inform consumers of the
[[Page 45109]]
country of origin of covered commodities.
The intent of this law is to provide consumers with additional
information on which to base their purchasing decisions. COOL is a
retail labeling program and as such does not provide a basis for
addressing food safety. Food products, both imported and domestic, must
meet the food safety standards of the Food and Drug Administration
(FDA) and the Food Safety and Inspection Service (FSIS).
Under the 2002 Farm Bill, the term ``covered commodity'' was
defined as muscle cuts of beef (including veal), lamb, pork; ground
beef, ground lamb, ground pork; farm-raised fish and shellfish; wild
fish and shellfish; perishable agricultural commodities; and peanuts.
The 2008 Farm Bill added muscle cuts and ground chicken and goat;
pecans; ginseng; and macadamia nuts as covered commodities. The law
excludes items from needing to bear a country of origin declaration
when a covered commodity is an ``ingredient in a processed food item.''
The law defines the terms ``retailer'' and ``perishable agricultural
commodity'' as having the meanings given those terms in PACA.
The law specifically outlines the criteria a covered commodity must
meet in order to bear a ``United States country of origin''
declaration. In the case of perishable agricultural commodities,
peanuts, pecans, ginseng, and macadamia nuts, the covered commodity
must be exclusively produced in the United States. In addition, under
the 2008 Farm Bill, for perishable agricultural commodities, peanuts,
pecans, macadamia nuts, and ginseng produced in the United States,
designation of the State, region, or locality of the United States
where such commodity was produced shall be sufficient to identify the
country of origin.
In the case of beef, lamb, pork, chicken, and goat, covered
commodities, the law states that they may bear a U.S. origin
declaration only if they are derived exclusively from animals born,
raised, and slaughtered in the United States (including animals born
and raised in Alaska and Hawaii and transported for a period of time
not more than 60 days through Canada to the United States and
slaughtered in the United States). In addition, under the 2008 Farm
Bill, animals present in the United States on or before July 15, 2008,
and once present in the United States, remained continuously in the
United States, are also eligible to bear a United States origin
declaration.
The 2008 Farm Bill provided further direction on country of origin
labeling for meat covered commodities. These changes include additional
provisions concerning labeling meat covered commodities that have
multiple countries of origin and specify that a retailer of a covered
commodity derived from an animal that is imported into the United
States for immediate slaughter shall designate the origin of such
covered commodity as the country from which the animal was imported and
the United States. In addition, the 2008 Farm Bill specifies that meat
covered commodities derived from an animal that was not born, raised,
or slaughtered in the United States shall designate a country other
than the United States as the country of origin.
The 2008 Farm Bill also specifies how ground meat products shall be
labeled. The notice of country of origin for ground beef, ground pork,
ground lamb, ground chicken, or ground goat shall include a list of all
countries of origin contained therein or a list of all reasonably
possible countries of origin contained therein.
To convey the country of origin information, the law states that
retailers may use a label, stamp, mark, placard, or other clear and
visible sign on the covered commodity or on the package, display,
holding unit, or bin containing the commodity at the final point of
sale to consumers. Food service establishments, such as restaurants,
cafeterias, food stands, and other similar facilities are exempt from
these labeling requirements.
The law makes reference to the definition of ``retailer'' in
section 1(b) of PACA as the meaning of ``retailer'' for the application
of the labeling requirements under the COOL law. Under PACA and thus
this interim final rule, a retailer is any person engaged in the
business of selling any perishable agricultural commodity at retail.
Retailers are required to be licensed when the invoice cost of all
purchases of perishable agricultural commodities exceeds $230,000
during a calendar year. Therefore, retail establishments, such as
butcher shops, which do not generally sell fruits and vegetables, do
not meet the PACA definition of a retailer and therefore are not
subject to this rule.
The law requires any person engaged in the business of supplying a
covered commodity to a retailer to provide the retailer with the
product's country of origin information. In addition, the law states
the Secretary of Agriculture may conduct an audit of any person that
prepares, stores, handles, or distributes a covered commodity for
retail sale to verify compliance with the law and this regulation. Any
person subject to such an audit shall provide the Secretary with
verification of the country of origin of covered commodities. The 2008
Farm Bill states that records maintained in the course of the normal
conduct of the business of such person, including animal health papers,
import or customs documents, or producer affidavits, may serve as such
verification. The law prohibits the Secretary from using a mandatory
identification system to verify the country of origin of a covered
commodity. Under the 2008 Farm Bill, the Secretary is prohibited from
requiring the maintenance of additional records other than those
maintained in the normal conduct of business. The law provides examples
of existing certification programs that may be used to certify the
country of origin of a covered commodity.
The 2008 Farm Bill also modified the enforcement provisions for
both retailers and suppliers. Under the 2002 Farm Bill, civil penalties
up to $10,000 per violation were specified for retailers and suppliers.
Under the 2008 Farm Bill, civil penalties have been reduced to up to
$1,000 for each violation. In addition, the 2008 Farm Bill specifies
that the Secretary must provide retailers and suppliers with a 30-day
period during which the retailer or supplier can take the necessary
steps to comply with the law after receiving notice from the Secretary.
Under the 2002 Farm Bill, only retailers were provided with this 30-day
period. In addition, the 2008 Farm Bill states that the Secretary may
fine a retailer or supplier, after providing notice and an opportunity
for a hearing, only if the retailer or supplier has not made a good
faith effort to comply with the law and continues to willfully violate
the law. The law also encourages the Secretary to enter into
partnerships with States with enforcement infrastructure to the extent
possible to assist in the program's administration.
II. Summary of Changes From the Proposed Rule
As previously mentioned, the 2008 Farm Bill made a number of
changes to the COOL provisions contained in the Act. These changes have
been incorporated into this interim final rule as appropriate. In
addition, the Agency has made other modifications for clarity and to
reduce the burden on regulated parties where practicable as the added
costs of implementing this rule will likely be passed on to consumers.
Many of these changes were incorporated in the interim final rule for
fish and shellfish that was published in the October 5, 2004, Federal
Register (69 FR 89708). Thus, readers may find it
[[Page 45110]]
helpful to review the interim final rule for fish and shellfish for
further discussions of some of the changes that were made from the
proposed rule such as those changes made to the definition of a
processed food item and to the recordkeeping provisions.
Further, enforcement of the interim final rule for fish and
shellfish will be consistent with the statute as amended by the 2008
Farm Bill. Comments are specifically requested concerning the revisions
to recordkeeping provisions made herein. Any comments received pursuant
to this rulemaking, to the extent relevant, will be reviewed in
connection with the continuing regulatory action on the mandatory COOL
program for fish and shellfish. A summary of the changes made in this
interim final rule is discussed below.
Definitions
The 2008 Farm Bill added muscle cuts and ground chicken and goat;
pecans; macadamia nuts; and ginseng as covered commodities. Therefore,
a definition for born in reference to chicken as well as definitions
for chicken, ginseng, goat, ground chicken, and ground goat have been
added for clarity. In addition, the definition of ``covered commodity''
has also been modified accordingly to include muscle cuts of beef
(including veal), lamb, chicken, goat, and pork; ground beef, ground
lamb, ground chicken, ground goat, and ground pork; perishable
agricultural commodities; macadamia nuts; pecans; ginseng; and peanuts.
The definitions of ``canned'' and ``produced in any other country
other than the United States'' have been deleted as they have been
determined to be unnecessary.
A definition for ``commingled covered commodities'' and ``imported
for immediate slaughter'' have been added for clarity.
The following definitions have been deleted as the requirements for
labeling wild and farm-raised fish and shellfish covered commodities
were promulgated in a separate action: ``farm-raised fish'',
``hatched'', ``processed (for fish and shellfish'', ``U.S. flagged
vessel'', ``vessel flag'', ``waters of the United States'', and ``wild
fish and shellfish''. In addition, other definitions such as ``covered
commodity'', ``production step'', ``raised'', and ``United States
country of origin'' have been modified to remove references to fish and
shellfish.
The definition of ``ground beef'' has been modified to provide
clarity and to expand the scope of ground beef items covered by this
rule. Under this interim final rule, the term ``ground beef'' has the
meaning given that term in 9 CFR 319.15(a), i.e., chopped fresh and/or
frozen beef with or without seasoning and without the addition of beef
fat as such, and containing no more than 30 percent fat, and containing
no added water, phosphates, binders, or extenders, and also includes
products defined by the terms ``hamburger'' in 9 CFR 319.15(b) and
``beef patties'' in 9 CFR 319.15(c). A full explanation of this change
is discussed in the Comments and Responses section.
The definition of ``processed food item'' has been modified to
provide additional clarity as to the types of retail items that are
considered processed food items and are therefore exempt from labeling
under this interim final rule. Based on the comments received on the
proposed rule in which numerous commenters suggested that the scope of
what is considered a covered commodity should be narrowed and because
the Department was concerned about the burden of this rule on affected
entities as the added costs of implementing this rule will likely be
passed on to consumers, AMS is adopting the definition of a processed
food item in this interim final rule that was promulgated in the
interim final rule for fish and shellfish. Thus, under this interim
final rule, items that are cooked, cured, smoked, and restructured
would all be considered processed food items. Under the proposed rule,
items that were cooked would have been required to be labeled. A full
explanation of this change is discussed in the Comments and Responses
section.
The definition of ``raised'' has also been modified to provide
clarity. The term ``raised'' is defined in this interim final rule for
the purpose of providing clarity with respect to the specific
production steps specified in the law, born, raised, and slaughtered,
and how the origin of covered commodities shall be labeled. This
definition does not impact any other labeling claims subject to
approval by FSIS.
Pursuant to the 2008 Farm Bill, the definition of ``United States
country of origin'' has also been modified. Under this interim final
rule, beef, pork, lamb, chicken, and goat derived from animals present
in the United States on or before July 15, 2008, and once present in
the United States, remained continuously in the United States, shall be
considered of United States origin. The 2002 Farm Bill and thus the
October 30, 2003, proposed rule, did not contain such a provision. This
provision will help address the issue of the lack of origin information
on some animals currently residing in the United States.
Country of Origin Notification for Muscle Cuts and Ground Meat
The October 30, 2003, proposed rule contained provisions for
labeling covered commodities when the product entered the United States
during the production process. In general, animals that were born and/
or raised in country X and slaughtered in the United States were to be
labeled as being imported from country X and identifying the production
steps that occurred in the United States. The 2008 Farm Bill contains
provisions on labeling covered commodities of multiple countries of
origin. Under this interim final rule, if an animal was born, raised,
and/or slaughtered in the United States and was not imported for
immediate slaughter as defined in Sec. 65.180, the origin of the
resulting meat products derived from that animal may be designated as
Product of the United States, Country X, and/or (as applicable) Country
Y, where Country X and Country Y represent the actual or possible
countries of foreign origin.
If an animal was imported into the United States for immediate
slaughter as defined in Sec. 65.180, the origin of the resulting meat
products derived from that animal shall be designated as Product of
Country X and the United States.
In both cases above, the origin declaration may include more
specific information related to production steps provided records to
substantiate the claims are maintained and the claim is consistent with
other applicable Federal legal requirements.
Labeling Ground Meat Covered Commodities
The proposed rule contained provisions for labeling commingled
products--including ground beef. However, the 2008 Farm Bill specifies
how ground meat items shall be labeled.
Under this interim final rule, the declaration for ground beef,
ground pork, ground lamb, ground goat, and ground chicken covered
commodities shall list all countries of origin contained therein or
that may be reasonably contained therein. Further, this interim final
rule provides that when a raw material from a specific origin is not in
a processor's inventory for more than 60 days, the country shall no
longer be included as a possible country of origin. Under the proposed
rule, the label for these products was required to include an
alphabetical listing of the countries of origin for all raw materials
contained therein.
[[Page 45111]]
Labeling Comingled Covered Commodities
For covered commodities other than meat items, this interim final
rule, to a great extent, includes the labeling provisions for
commingled covered commodities that were developed in the interim final
rule for fish and shellfish based on comments received on the proposed
rule. Most of the commenters requested greater flexibility in labeling
these types of products. Other commenters expressed concern as to
whether listing the countries in alphabetical order is acceptable under
FDA and CBP regulations. For a more complete discussion of the
rationale for this change, readers are invited to review the interim
final rule for fish and shellfish (69 FR 59708), which is posted on the
AMS Web site at http://www.ams.usda.gov/AMSv1.0/. Further, changes are
made in this regulation to make clear that in those instances in which
CBP marking regulations apply pursuant to 19 CFR part 134, this
regulation does not impose any additional marking requirements.
Accordingly, under this interim final rule, for imported covered
commodities that are commingled with covered commodities (of the same
type) sourced from a different origin the declaration shall indicate
the countries of origin in accordance with existing CBP marking
regulations (19 CFR part 134).
Markings
With regard to markings, in addition to the change made by the 2008
Farm Bill with respect to State, region, and locality labels, which is
further discussed below, the Agency has made several changes to provide
for increased flexibility in labeling. In general, these changes mirror
the changes that were made to the marking provisions contained in the
interim final rule for fish and shellfish as a result of comments
received on the proposed rule. Many commenters requested the use of
check boxes to convey origin information. Other commenters requested
that bulk commodities should be allowed to be commingled in bins as
long as the signage indicates the countries of origin of the contents
of the bin. Numerous other commenters recommended that State and
regional designations should be accepted in lieu of country of origin.
For a more complete discussion of the relevant comments, readers are
invited to review the interim final rule for fish and shellfish.
Accordingly, under this interim final rule, the declaration of the
country of origin of a product may be in the form of a check box
provided it is in conformance with other Federal labeling laws. Also,
under this final rule, a bulk container (e.g., display case, shipper,
bin, carton, and barrel), used at the retail level to present product
to consumers, may contain a covered commodity from more than one
country of origin provided all possible origins are listed. Under the
proposed rule, the use of check boxes was not expressly allowed and
covered commodities from more than one origin that were offered for
sale in a bulk container were required to be individually labeled.
Under the proposed rule, State or regional label designations were
not permitted in lieu of country of origin. However, the 2008 Farm
Bill, and thus this interim final rule, expressly authorize the use of
State, regional, or locality label designations in lieu of country of
origin for perishable agricultural commodities, peanuts, pecans,
ginseng, and macadamia nuts.
Recordkeeping
The 2008 Farm Bill made changes to the recordkeeping provisions of
the Act. Specifically, the 2008 Farm Bill states that records
maintained in the course of the normal conduct of the business of such
person, including animal health papers, import or customs documents, or
producer affidavits, may serve as such verification. Under the 2008
Farm Bill, the Secretary is prohibited from requiring the maintenance
of additional records other than those maintained in the normal conduct
of business. In addition to the changes made as a result of the 2008
Farm Bill, other changes have been made to reduce the recordkeeping
burden. In general, these changes, to a great extent, include the
changes that were made to the recordkeeping provisions contained in the
interim final rule for fish and shellfish as a result of comments
received on the proposed rule. The majority of the commenters
recommended shorter retention times for both retailer and supplier
records. Other commenters expressed concern that the preamble for the
proposed rule provided no explanation of the records that would be
necessary to establish the chain of custody of a product. For a more
complete discussion of the relevant comments, readers are invited to
review the interim final rule for fish and shellfish. These changes
include the removal of the store-level recordkeeping requirement, a
reduction in the length of time that records must be maintained, the
removal of the requirement for a unique identifier, and revisions to
the recordkeeping requirements for pre-labeled products.
With respect to establishing the chain of custody of a product, in
response to comments received, the Agency has deleted this language
from the rule. Any person engaged in the business of supplying a
covered commodity to a retailer, whether directly or indirectly, must
maintain records to establish and identify the immediate previous
source and immediate subsequent recipient of a covered commodity for a
period of 1 year from the date of the transaction. Under the proposed
rule, records would have been required to be kept for 2 years.
For retailers, this rule requires records and other documentary
evidence relied upon at the point of sale by the retailer to establish
a covered commodity's country(ies) of origin must be maintained for one
year from the date the origin declaration is made at retail and, upon
request, provided to any duly authorized representatives of USDA within
5 business days of the request. Under the proposed rule, retailers were
required to have maintained these records at the retail store for 7
days following the sale of the product. For pre-labeled products, the
rule provides that the label itself is sufficient evidence on which the
retailer may rely to establish a product's origin. The proposed rule
would not have provided for this method of substantiation. The rule now
requires that records identify the covered commodity, the supplier, and
for products that are not pre-labeled, the country of origin
information. This information must be maintained for a period of 1 year
from the date the origin designations are made at retail. Under the
proposed rule, these records would have been required to be maintained
for 2 years.
Accordingly, under this interim final rule, upon request by USDA
representatives, suppliers and retailers subject to this subpart shall
make available to USDA representatives, records maintained in the
normal course of business that verify an origin claim. Such records
shall be provided within 5 business days of the request and may be kept
in any location.
USDA continues to look for ways to minimize the burden associated
with this rule. Therefore, under this interim final rule, in addition
to relying on producer affidavits to initiate an origin claim,
slaughter facilities that slaughter animals that are part of a National
Animal Identification System (NAIS) compliant system or other
recognized official identification system (e.g., Canadian official
system, Mexico official system) may also rely on the presence of an
official ear tag and/or the presence of any accompanying animal
[[Page 45112]]
markings (i.e., ``Can'', ``M''), as applicable, on which to base their
origin claims. This provision also applies to such animals officially
identified as a group lot.
Responsibilities of Retailers and Suppliers
With regard to the ``safe harbor'' language contained in the
proposed rule, which allows retailers and suppliers to rely on the
information provided unless they could have been reasonably expected to
have knowledge otherwise, based on comments received, this ``safe
harbor'' language has been removed from this interim final rule. The
commenters contend that because the statute states that retailers are
not subject to fines unless the Secretary determines they have
willfully violated the statute, the standard of willfulness is a higher
bar to liability than the standard of negligence that is encompassed in
the reasonable reliance standard utilized in the ``liability shield.''
A complete discussion is contained in the Comments and Responses
section of this interim final rule.
Highlights of This Interim Final Rule
Covered Commodities
The term ``covered commodity'' includes: Muscle cuts of beef, lamb,
pork, chicken, and goat; ground beef, ground lamb, ground pork, ground
chicken, and ground goat; perishable agricultural commodities (fresh
and frozen fruits and vegetables); peanuts; pecans; ginseng; and
macadamia nuts.
Exemption for Food Service Establishments
Under this interim final rule, food service establishments are
exempt from COOL labeling requirements. Food service establishments are
restaurants, cafeterias, lunch rooms, food stands, saloons, taverns,
bars, lounges, or other similar facilities operated as an enterprise
engaged in the business of selling food to the public. Similar food
service facilities include salad bars, delicatessens, meal preparation
stations in which the retailer sets out ingredients for different meals
and consumers assemble the ingredients into meals to take home, and
other food enterprises located within retail establishments that
provide ready-to-eat foods that are consumed either on or outside of
the retailer's premises.
Exclusion for Ingredient in a Processed Food Item
Items are excluded from labeling under this regulation when a
covered commodity is an ingredient in a processed food item. Under this
interim final rule, a ``processed food item'' is defined as: A retail
item derived from a covered commodity that has undergone specific
processing resulting in a change in the character of the covered
commodity, or that has been combined with at least one other covered
commodity or other substantive food component (e.g., chocolate,
breading, tomato sauce), except that the addition of a component (such
as water, salt, or sugar) that enhances or represents a further step in
the preparation of the product for consumption, would not in itself
result in a processed food item. Specific processing that results in a
change in the character of the covered commodity includes cooking
(e.g., frying, broiling, grilling, boiling, steaming, baking,
roasting), curing (e.g., salt curing, sugar curing, drying), smoking
(cold or hot), and restructuring (e.g., emulsifying and extruding).
Examples of items excluded from country of origin labeling include
teriyaki flavored pork loin, meatloaf, roasted peanuts, breaded chicken
tenders, fruit medley, mixed vegetables, and a salad mix that contains
lettuce and carrots and/or salad dressing.
Labeling Covered Commodities of United States Origin
The law prescribes specific criteria that must be met for a covered
commodity to bear a ``United States country of origin'' declaration.
Therefore, covered commodities may be labeled as having a United States
origin if the following specific requirements are met:
(a) Beef, pork, lamb, chicken, and goat--covered commodities must
be derived from animals exclusively born, raised, and slaughtered in
the United States; from animals born and raised in Alaska or Hawaii and
transported for a period of time not more than 60 days through Canada
to the United States and slaughtered in the United States; or from
animals present in the United States on or before July 15, 2008, and
once present in the United States, remained continuously in the United
States.
(b) Perishable agricultural commodities, peanuts, pecans, ginseng,
and macadamia nuts--covered commodities must be from products
exclusively produced in the United States.
Labeling Muscle Cut Covered Commodities of Multiple Countries of Origin
(That Includes the United States)
Under this interim final rule, if an animal was born, raised, and/
or slaughtered in the United States and was not imported for immediate
slaughter as defined in Sec. 65.180, the origin of the resulting meat
products derived from that animal may be designated as Product of the
United States, Country X, and/or (as applicable) Country Y, where
Country X and Country Y represent the actual or possible countries of
foreign origin.
If an animal was imported into the United States for immediate
slaughter as defined in Sec. 65.180, the origin of the resulting meat
products derived from that animal shall be designated as Product of
Country X and the United States.
In both cases above, the origin declaration may include more
specific information related to production steps provided records to
substantiate the claims are maintained and the claim is consistent with
other applicable Federal legal requirements.
Labeling Imported Covered Commodities
Under this interim final rule, an imported covered commodity for
which origin has already been established as defined by this law (e.g.,
born, raised, slaughtered or grown) and for which no production steps
have occurred in the United States shall retain its origin as declared
to U.S. Customs and Border Protection (CBP) at the time the product
enters the United States, through retail sale.
Covered commodities imported in consumer-ready packages are
currently required to bear a country of origin declaration on each
individual package under the Tariff Act of 1930 (Tariff Act). This
interim final rule does not change these requirements.
Labeling Commingled Covered Commodities
In this interim final rule, a commingled covered commodity is
defined as a single type of covered commodity (e.g., frozen peas),
presented for retail sale in a consumer package, that has been prepared
from raw material sources having different origins. Further, a
commingled covered commodity does not include ground meat products. If
the retail product contains two different types of covered commodities
(e.g., peas and carrots), it is considered a processed food item and is
not subject to mandatory COOL.
In the case of perishable agricultural commodities, peanuts,
pecans, ginseng, and macadamia nuts, for imported covered commodities
that have not subsequently been substantially transformed in the United
States that are commingled with imported and/or United States origin
commodities, the declaration shall indicate the countries
[[Page 45113]]
of origin for all covered commodities in accordance with CBP marking
regulations (19 CFR part 134). For example, a bag of frozen peas that
were sourced from France and India is currently required under CBP
regulations to be marked with that origin information on the package.
Defining Country of Origin for Ground Meat Products
The law states that the origin declaration for ground beef, ground
pork, ground lamb, ground goat, and ground chicken covered commodities
shall list the countries of origin contained therein or shall list the
reasonably possible countries of origin. Therefore, under this interim
final rule, when a raw material from a specific origin is not in a
processor's inventory for more than 60 days, the country shall no
longer be included as a possible country of origin. This does not mean
that labels must change every 60 days. Labels containing the applicable
countries (e.g., Country X, Y, Z) may extend beyond a given 60-day
period depending on how long raw materials from those countries are
actually in inventory. In the event of a supplier audit by USDA,
records kept in the normal course of business should provide the
information necessary to verify the origin claim.
Remotely Purchased Products
For sales of a covered commodity in which the customer purchases a
covered commodity prior to having an opportunity to observe the final
package (e.g., Internet sales, home delivery sales, etc.) the retailer
may provide the country of origin notification either on the sales
vehicle or at the time the product is delivered to the consumer.
Markings
Under this interim final rule, the country of origin declaration
may be provided to consumers by means of a label, placard, sign, stamp,
band, twist tie, pin tag, or other clear and visible sign on the
covered commodity or on the package, display, holding unit, or bin
containing the commodity at the final point of sale to consumers. In
general, abbreviations are not acceptable. Only those abbreviations
approved for use under CBP rules, regulations, and policies, such as
``U.K.'' for ``The United Kingdom of Great Britain and Northern
Ireland'', ``Luxemb'' for Luxembourg, and ``U.S.'' for the ``United
States'' are acceptable. The declaration of the country of origin of a
product may be in the form of a statement such as ``Product of USA,''
``Produce of the USA'', or ``Grown in Mexico''; may only contain the
name of the country such as ``USA'' or ``Mexico''; or may be in the
form of a check box provided it is in conformance with CBP marking
regulations and other Federal labeling laws (i.e., FDA, FSIS). For
example, CBP marking regulations (19 CFR part 134) specifically require
the use of the words ``product of'' in certain circumstances. The
adjectival form of the name of a country may be used as proper
notification of the country of origin of imported commodities provided
the adjectival form of the name does not appear with other words so as
to refer to a kind or species of product. Symbols or flags alone may
not be used to denote country of origin. The labeling requirements
under this rule do not supersede any existing Federal legal
requirements, unless otherwise specified, and any country of origin
designation must not obscure or intervene with other labeling
information required by existing regulatory requirements.
For domestic and imported perishable agricultural commodities,
macadamia nuts, peanuts, pecans, and ginseng, State, regional, or
locality label designations are acceptable in lieu of country of origin
labeling.
In order to provide the industry with as much flexibility as
possible, this rule does not contain specific requirements as to the
exact placement or size of the country of origin declaration. However,
such declarations must be legible and conspicuous, and allow consumers
to find the country(ies) of origin easily and read it without strain
when making their purchases, and provided that existing Federal
labeling requirements must be followed. For example, the country of
origin declaration may be located on the information panel of a package
of frozen produce as consumers are familiar with such location for
displaying nutritional and other required information. Likewise, in the
case of store overwrap and other similar type products, which is the
type of packaging used for fresh meat and poultry products, the
information panel would also be an acceptable location for the origin
declaration as this is a location that is currently utilized for
providing other Federally-mandated labeling information (i.e., safe
handling instructions, nutrition facts, and ingredients statement).
However, to the extent practicable, the Agency encourages retailers and
suppliers to place this information on the front of these types of
packages, also known as the principal display panel, so it will be
readily apparent to consumers.
Recordkeeping Requirements and Responsibilities
The law states that the Secretary may conduct an audit of any
person that prepares, stores, handles, or distributes a covered
commodity for retail sale to verify compliance. As such, records
maintained in the normal course of business that verify origin
declarations are necessary in order to provide retailers with credible
information on which to base origin declarations.
Under this interim final rule, any person engaged in the business
of supplying a covered commodity to a retailer, whether directly or
indirectly (i.e., growers, distributors, handlers, packers, and
processors, etc.), must make available information to the subsequent
purchaser about the country(ies) of origin of the covered commodity.
This information may be provided either on the product itself, on the
master shipping container, or in a document that accompanies the
product through retail sale provided it identifies the product and its
country(ies) of origin.
Any person engaged in the business of supplying a covered commodity
to a retailer, whether directly or indirectly, must maintain records to
establish and identify the immediate previous source (if applicable)
and immediate subsequent recipient of a covered commodity for a period
of 1 year from the date of the transaction.
In addition, the supplier of a covered commodity that is
responsible for initiating a country of origin declaration, which in
the case of beef, lamb, pork, chicken, and goat is the slaughter
facility, must possess or have legal access to records that are
necessary to substantiate that claim. In the case of beef, lamb,
chicken, goat, and pork, a producer affidavit shall be considered
acceptable evidence on which the slaughter facility may rely to
initiate the origin claim, provided it is made by someone having first-
hand knowledge of the origin of the animal(s) and identifies the
animal(s) unique to the transaction.
USDA continues to look for ways to minimize the burden associated
with this rulemaking. Therefore, slaughter facilities that slaughter
animals that are part of a National Animal Identification System (NAIS)
compliant system or other recognized official identification system
(e.g., Canadian official system, Mexico official system) may also rely
on the presence of an official ear tag and/or the presence of any
accompanying animal markings (i.e., ``Can'', ``M''), as applicable, on
which to base their origin claims. This would also include such
[[Page 45114]]
animals officially identified as a group lot.
For an imported covered commodity, the importer of record as
determined by CBP, must ensure that records: Provide clear product
tracking from the United States port of entry to the immediate
subsequent recipient and accurately reflect the country(ies) of origin
of the item as identified in relevant CBP entry documents and
information systems; and maintain such records for a period of 1 year
from the date of the transaction.
Under this interim final rule, retailers also have recordkeeping
responsibilities. Records and other documentary evidence relied upon at
the point of sale by the retailer to establish a covered commodity's
country(ies) of origin must be maintained for one year from the date
the origin declaration is made at retail. Upon request, these records
must be provided to any duly authorized representatives of USDA within
5 business days of the request and may be maintained in any location.
For pre-labeled products (i.e., labeled by the manufacturer/first
handler) the label itself is sufficient evidence on which the retailer
may rely to establish the product's origin. Pre-labeled products are
those covered commodities that are labeled for country of origin by the
firm or entity responsible for making the initial claim or by a further
processor or repacker (i.e., firms that receive bulk products and
package the products as covered commodities in a form suitable for the
retailer). The country of origin information of pre-labeled covered
commodities must be legibly printed on the shipping container,
immediate container, or consumer ready package. In addition to
indicating country of origin information, pre-labeled products must
contain sufficient supplier information to allow USDA to trace-back the
product to the supplier initiating the claim. Records that identify the
covered commodity, the supplier, and for products that are not pre-
labeled, the country of origin information must be maintained for a
period of 1 year from the date the origin declaration is made at
retail.
Enforcement
The law encourages the Secretary to enter into partnerships with
States to the extent practicable to assist in the administration of
this program. As such, USDA has entered into partnerships with States
that have enforcement infrastructure to conduct retail compliance
reviews.
Routine compliance reviews may be conducted at retail
establishments and associated administrative offices, and at supplier
establishments subject to these regulations. USDA will coordinate the
scheduling and determine the procedures for compliance reviews. Only
USDA will be able to initiate enforcement actions against a person
found to be in violation of the law. USDA may also conduct
investigations of complaints made by any person alleging violations of
these regulations when the Secretary determines that reasonable grounds
for such investigation exist.
Retailers and suppliers, upon being notified of the commencement of
a compliance review, must make all records or other documentary
evidence material to this review available to USDA representatives
within 5 business days of receiving a request and provide any necessary
facilities for such inspections.
The law contains enforcement provisions for both retailers and
suppliers that include civil penalties of up to $1,000 for each
violation. For retailers and persons engaged in the business of
supplying a covered commodity to a retailer (suppliers), the law states
that if the Secretary determines that a retailer or supplier is in
violation of the Act, the Secretary must notify the retailer or
supplier of the determination and provide the retailer or supplier with
a 30-day period during which the retailer or supplier may take
necessary steps to comply. If upon completion of the 30-day period the
Secretary determines the retailer or supplier has (1) not made a good
faith effort to comply and (2) continues to willfully violate the Act,
after providing notice and an opportunity for a hearing, the retailer
or supplier may be fined not more than $1,000 for each violation.
In addition to the enforcement provisions contained in the Act,
statements regarding a product's origin must also comply with other
existing Federal statutes. For example, the Federal Food, Drug, and
Cosmetic Act prohibits labeling that is false or misleading. In
addition, for perishable agricultural commodities, mislabeling country
of origin is also in violation of PACA misbranding provisions. Thus,
inaccurate country of origin labeling of covered commodities may lead
to additional penalties under these statutes as well.
With regard to the voluntary use of NAIS compliant tags on which to
base origin claims, 9 CFR 71.22 prohibits the removal of official
identification devices except at the time of slaughter.
Comments and Responses
On October 30, 2003, AMS published the proposed rule for the
mandatory COOL program (68 FR 61944) with a 60-day comment period. On
December 22, 2003, AMS published a notice extending the comment period
(68 FR 71039) an additional 60 days. AMS received over 5,600 timely
comments from consumers, retailers, foreign governments, producers,
wholesalers, manufacturers, distributors, members of Congress, trade
associations and other interested parties. The majority of the comments
received were from consumers expressing support for the requirement to
label the method of production of fish and shellfish as either wild
and/or farm-raised. Numerous other comments related to the definition
of a processed food item, the recordkeeping requirements for both
retailers and suppliers, and the enforcement of the program. In
addition, over 100 late comments were received that generally reflected
the substance of the timely comments received. To the extent that these
comments applied to fish and shellfish covered commodities, these
comments have already been addressed in the interim final rule for fish
and shellfish (69 FR 59708).
On June 20, 2007, AMS reopened the comment period for the proposed
rule for all covered commodities (72 FR 33917). AMS received over 721
comments from consumers, retailers, foreign governments, producers,
wholesalers, manufacturers, distributors, members of Congress, trade
associations and other interested parties. The majority of the comments
received were from consumers expressing support for mandatory COOL for
the remaining covered commodities. Numerous comments were received that
provided insights and suggestions relating to the definitions for
``processed food item,'' ``blended products,'' ``retailer,'' and
``ground beef.'' Several foreign governments expressed concern that the
law itself may not be consistent with the World Trade Organization or
North American Free Trade Agreement obligations of the United States.
Other commenters pointed out that COOL provides no food safety benefit
to consumers. Some commenters expressed concerns that poultry and food
service establishments are exempt from COOL regulations. Several
commenters discussed the challenges and possible solutions for labeling
country of origin when products have entered the United States during
the production process. Many commenters requested an implementation
period to allow clearing from channels of
[[Page 45115]]
commerce those preexisting animals and commodities for which accurate
labeling would be difficult.
Any comments received on the October 30, 2003, proposed rule that
were not addressed previously in the interim final rule for fish and
shellfish, as well as any new comments received in response to the June
20, 2007, comment reopening, will be addressed in this rule.
On October 5, 2004, AMS published the interim final rule for fish
and shellfish (69 FR 59708) with a 90-day comment period. On December
28, 2004, AMS published a notice extending the comment period (69 FR
77609) an additional 60 days. On November 27, 2006, the comment period
was reopened on the cost and benefit aspects of the interim final rule
(71 FR 68431). AMS received over 192 comments from consumers,
retailers, foreign governments, producers, wholesalers, manufacturers,
distributors, members of Congress, trade associations and other
interested parties. The majority of the comments received were from
consumers expressing support for the requirement to label fish and
shellfish with the country of origin and method of production as either
wild and/or farm-raised, and to extend mandatory COOL to the remaining
covered commodities. Most of the comments did not address the specific
question of the rule's costs and benefits. A limited number of the
comments did relate to the costs and benefits of the documentation and
recordkeeping requirements of the law. Some commenters noted no
increased sales or demand for seafood as a result of COOL. Several
commenters provided evidence regarding the costs of compliance with the
interim final rule covering fish and shellfish. Other commenters cited
academic and Government Accountability Office studies to argue that
USDA overestimated the costs to implement systems to meet COOL
requirements, and that the true costs to industry will be much lower
than those projected by the economic impact analysis contained in the
interim final rule for fish and shellfish. To the extent that these
comments apply to the overall costs and benefits of mandatory COOL for
the remaining covered commodities, they will be addressed herein.
When the proposed rule was published on October 30, 2003, the
regulatory provisions were all proposed to be contained in a new part
60 of Title 7 of the Code of Federal Regulations. Under this interim
final rule, the regulatory provisions for the covered commodities other
than fish and shellfish will appear at 7 CFR part 65. For the ease of
the reader, the discussion of the comments will refer to the initial
regulatory numbering scheme. The numbering scheme for the regulatory
provisions in this interim final rule is different and therefore may
not align with the proposed rule.
Definitions
Born
Summary of Comments: One commenter recommended that a new
definition be added that would define the term ``born'' in the case of:
(a) Beef, pork, and lamb: The country in which cattle, hogs, and
sheep were birthed on or after September 30, 2004.
(b) Cattle, hogs, and sheep: All cattle, hogs, and sheep birthed
prior to September 30, 2004, and residing within the United States on
September 30, 2004, shall be deemed to be born in the United States,
except those identified as foreign (through various means).
Agency Response: The implementation date for covered commodities
other than fish and shellfish was delayed until September 30, 2008. The
2008 Farm Bill amended section 282(a)(2) of the Act such that beef,
lamb, pork, chicken, and goat can be designated as having a United
States origin if derived from an animal that was present in the United
States on or before July 15, 2008, and once present in the United
States, remained continuously in the United States. Accordingly, the
issue raised in the comment has been addressed by the 2008 Farm Bill
amendment, and this rule reflects that statutory change.
Covered Commodity
Summary of Comments: Numerous commenters suggested that the
definition of covered commodity should be amended to include poultry.
Agency Response: The 2008 Farm Bill amended section 281(2)(A) of
the Act to include chicken as a covered commodity as well as goat,
pecans, ginseng, and macadamia nuts. Therefore, the term ``covered
commodity'' has been defined in this interim final rule as ``muscle
cuts of beef, lamb, chicken, goat, and pork; ground beef, ground lamb,
ground chicken, ground goat, and ground pork; perishable agricultural
commodities; peanuts; pecans; ginseng; and macadamia nuts.''
Accordingly, the commenters' concerns regarding adding poultry as a
covered commodity have been addressed by the 2008 Farm Bill.
Food Service Establishment
Summary of Comments: Several commenters stated their opposition to
the labeling exemption for food service establishments and pointed out
that this provision will result in a substantial amount of product
being unlabeled for country of origin. One commenter encouraged USDA to
retain the food service establishment definition and to add meal
preparation services as another example.
Agency Response: Section 282(b) of the Act provides for an
exemption for food service establishments. Therefore, this interim
final rule retains the provision for an exemption for food service
establishments. In addition, language describing meal preparation
stations as another example of a food service establishment has been
added to the preamble. Accordingly, these recommendations have been
adopted in part.
Ground Beef
Summary of Comments: Several commenters suggested that the
definition of ground beef be modified so that all beef products that
are ground would be covered regardless of the amount of beef fat, and
regardless of whether it contains added water, phosphates, binders, or
extenders.
Agency Response: In the October 30, 2003, proposed rule, the Agency
defined the term ``ground beef'' as having the meaning given the term
in 9 CFR 319.15(a), i.e., chopped fresh and/or frozen beef with or
without seasoning and without the addition of beef fat as such, and
containing no more than 30 percent fat, and containing no added water,
phosphates, binders, or extenders. The Agency has considered the
comments received and agrees that the definition of ground beef
contained within the proposed rule was too narrow as it would have
excluded products such as hamburger and potentially beef patties.
Consumers likely would have been confused as to why certain ground beef
products were labeled with country of origin while others were not.
Accordingly, AMS has revised the definition of ground beef such that
``ground beef'' has the meaning given that term in 9 CFR 319.15(a),
i.e., chopped fresh and/or frozen beef with or without seasoning and
without the addition of beef fat as such, and containing no more than
30 percent fat, and containing no added water, phosphates, binders, or
extenders, and also includes products defined by the terms
``hamburger'' in 9 CFR 319.15(b) and ``beef patties'' in 9 CFR
319.15(c). This revised definition will result in the inclusion of
hamburger and beef patties by allowing for the addition of beef fat and
water. However, ground beef, hamburger, and beef
[[Page 45116]]
patties that contain seasonings and/or other ingredients such as
binders or extenders would meet the definition of a processed food item
and would therefore not be covered under this rule.
Processed Food Item
Summary of Comments: AMS received numerous comments on the
definition of a processed food item. Several commenters expressed the
opinion that the number of exemptions allowed under the processed food
item definition should be substantially limited so as to allow for
labeling of the maximum number of commodities as possible. Some
commenters offered specific recommendations as to what should not be
included as a processing step such as marinating, breading, canning,
smoking, curing, cooking, dividing into portions, etc. Some commenters
offered specific recommendations as to what should be included as a
processing step such as freezing, removing inedible portions (such as
peeling, coring, and chopping a fresh pineapple), restructuring,
cooking, curing, and smoking. With respect to recognizing freezing as a
processing step, one commenter provided examples of other regulations
administered by AMS that recognize freezing as a processing step. The
commenter contends that these regulations have established an
administrative precedent and a departure from such precedent would not
be legally supported. The commenter also contends that imported frozen
products are already required to be labeled with the country of origin
under the Tariff Act and that requiring the labeling of these products
under COOL would be duplicative. Finally, the commenter contends that
there was no legislative intent for frozen foods to fall under the COOL
labeling requirements.
Several commenters requested that USDA clarify the types of
products that would be considered processed food items under the second
part of the definition. Some commenters stated that products such as
hamburger, beef patties, meatballs, meat loaves, and fabricated steak
should be defined as processed food items. Another commenter suggested
that ground beef, ground lamb, and ground pork should be defined as
processed food items. Several commenters suggested that roasted, dry
roasted, and honey roasted peanuts should be defined as processed food
items. Several commenters concurred with the agency's definition as
published in the interim final rule for fish and shellfish.
One commenter encouraged USDA to retain the definition as published
in the fish and shellfish rule, but recognize that processing for
perishable agricultural commodities is different than for the other
covered commodities. The commenter pointed out that much value added
processing occurs with respect to produce and stated that peeling,
coring, chopping, and packaging a fresh pineapple for consumers changes
the character of the covered commodity from a bristly fruit to a ready-
to-eat product. The commenter recommended that USDA should recognize
that perishable agricultural commodities that retailers prepare and
package for consumers immediate consumption should be considered
processed food items.
Other commenters expressed general concern about the proposed
definition, but did not offer any alternatives. Other commenters
expressed concern that the concept of substantial transformation, which
is the basis for determining origin under CBP regulations, the World
Trade Organization's Rules of Origin, and the Codex General Standard
for the Labeling of Prepackaged Food, is being overwritten. Another
commenter expressed their opinion that the addition of salt or sugar
represents a change in nutritional properties and therefore should
represent a processing step thereby creating a processed food item.
Agency Response: In the October 30, 2003, proposed rule, the term
``processed food item'' was defined as a retail item derived from a
covered commodity that has undergone a physical or chemical change, and
has a character that is different from that of the covered commodity;
or a retail item derived from a covered commodity that has been
combined with other covered commodities or other substantive food
components. The Agency also contemplated a number of alternative
definitions. In promulgating the definition of a processed food item in
the interim final rule for fish and shellfish, the Agency reviewed and
responded to all of the comments received on the October 30, 2003,
proposed rule. The majority of the comments received argued for a
broader definition of a processed food item such that more products
would be excluded from labeling. Accordingly, under the interim final
rule for fish and shellfish, the definition of a processed food item
was modified such that cooked products, breaded products, and items
that have been imparted with a particular flavor are all considered
processed food items. For a more complete discussion of these comments
and the Agency's responses, readers are invited to review the interim
final rule for fish and shellfish.
The Agency believes the definition of a processed food item
contained in the interim final rule for fish and shellfish has
established a bright line standard in terms of what products are
covered by the regulation. Therefore, under this interim final rule,
the definition of a processed food item is the same as that which was
published in the interim final rule for fish and shellfish (69 FR
89708). Further, to provide additional guidance to the industry, the
Agency has added additional examples of the types of products that
would be excluded in the Questions and Answers section of this rule.
With respect to the issue of substantial transformation, the law
specifically defines the criteria for a covered commodity to be labeled
as having a United States country of origin. Imported covered
commodities do not generally meet this criteria and, therefore, may not
bear a declaration that identifies the United States as the sole
country of origin.
With regard to excluding ground meat products, the Act defines the
term ``covered commodity'' to specifically include ground beef, ground
pork, ground lamb, ground goat as well as ground chicken. Thus, these
commodities must be labeled under this regulation. However, items such
as meatballs, meat loaf, and similar items that contain seasonings and/
or binders, would not meet the definition of ``ground beef'' as defined
in this regulation. With regard to fabricated steak, this product is
restructured and therefore would be considered a processed food item
under this interim final rule.
With respect to considering freezing as a processing step, freezing
is clearly a method of preservation and does not change the character
of the product. In addition, in defining the term perishable
agricultural commodity, Congress referenced the definition for this
term under the Perishable Agricultural Commodities Act of 1930 (PACA).
Under PACA, the term perishable agricultural commodity means ``any of
the following, whether or not frozen or packed in ice * * *''
Therefore, it is clear that frozen fruits and vegetables are
specifically included as covered commodities under the statute. As the
commenter points out, many imported products (in consumer-ready
packages) are already required to be labeled under the Tariff Act. This
interim final rule does not change these requirements.
With respect to the recommendation to recognize that perishable
agricultural
[[Page 45117]]
commodities that retailers prepare and package for consumers' immediate
consumption should be considered processed food items, many of these
preparations must be done prior to a product being ready for
consumption. For example, a consumer would not eat a pineapple that
wasn't peeled, cored, and sliced and/or chopped. Such processing thus
does not change the character of the product but rather prepares it for
consumption. This is similar to the process of peeling shrimp. A
consumer would not eat shrimp prior to it being peeled and accordingly,
peeling shrimp is not considered a processing step under the interim
final rule for fish and shellfish.
With respect to roasted, dry roasted, and honey roasted peanuts,
because these items are all cooked, under the definition of a processed
food item in this interim final rule, these products are excluded from
labeling. With regard to excluding items that contain added salt or
sugar, the Agency believes the addition of these ingredients merely
represent a further step in the preparation of the product for
consumption and do not result in a change of character of the covered
commodity. Therefore, this recommendation is not adopted.
Retailer
Summary of comments: Several commenters were concerned that the
definition of a retailer in the proposed rule does not conform to what
the average consumer thinks of as a retailer because it excludes stores
that do not sell fruits and vegetables such as fish markets, meat
markets, small green grocers, and convenience stores. These commenters
urged USDA to resolve any ambiguities surrounding the definition in a
way that maximizes the number of food items and establishments subject
to mandatory COOL. Another commenter noted that Congress intended to
impose the new labeling requirements on sales conducted by a certain
class of business entities (i.e., PACA retailers) but not on all retail
sales of covered commodities. They further stated that any person that
primarily sells food in wholesale or in bulk to independent businesses
(e.g., restaurants and other food service establishments) should be
exempt from COOL.
Agency Response: The law specifically defines the term retailer as
having the meaning given that term in section 1(b) of PACA.
Accordingly, fish markets or any other retail entities that either
invoice fruits and vegetables at a level below the $230,000 threshold
or do not sell any fruits and vegetables at all are not included.
Likewise, the Agency believes this definition clearly indicates that
covered commodities sold by wholesalers to restaurants and other food
service establishments are not covered by COOL. Accordingly, no
modification to the definition of a retailer has been made.
Slaughter
Summary of Comments: In the proposed rule, the Agency specifically
invited comments on the use of alternative terms for the term
``slaughtered.'' Numerous commenters suggested alternatives including
abattoired, processed, harvested, prepared, and initial processing.
Agency Response: The Agency believes that the alternative term
``harvested'' as suggested by several of the commenters is an
acceptable alternative for the term ``slaughtered'' that will be
readily understood by consumers. Accordingly, this rule has been
modified to allow the use of this term in lieu of the term
``slaughtered''.
Country of Origin Notification
Exemption for Food Service Establishments
Summary of Comments: Several commenters were not in favor of the
exemption for food service establishments as it would limit the
information available to consumers.
Agency Response: The Act expressly states the exemption of food
service establishments. Therefore, this exemption is retained in this
regulation.
Labeling Covered Commodities of United States Origin
Summary of Comments: One commenter supported labeling only those
products derived from animals specifically born, raised, and processed
in the United States as eligible for the ``product of the United
States'' designation. This commenter opposed an all-inclusive label
such as ``product of the United States, Canada, or Mexico'' when the
commodity meets the specific qualifications for the ``product of the
United States'' label. Another commenter advocated that the ``United
States origin'' designation should only be available for peanut
products in which the peanuts have been grown and harvested in the
United States and have not been substantially transformed outside the
United States. Other commenters supported a presumption of United
States origin in which the absence of foreign import markings should be
used to identify livestock exclusively born, raised, and processed in
the United States. One commenter suggested that in the case of the
covered commodities beef, pork, lamb, ground beef, ground pork, and
ground lamb, the retail product should be labeled as ``product of the
United States'' if in fact that product was produced in the United
States.
Agency Response: The law expressly states the criteria for products
to be considered of United States origin, which are included in the
definition of this term as stated in Sec. 65.260 of this interim final
rule. The specific requirements for covered commodities are as follows:
Perishable agricultural commodities, pecans, ginseng, peanuts, and
macadamia nuts--covered commodities must be produced in the United
States; beef, lamb, pork, chicken, and goat--covered commodities must
be derived exclusively from animals (1) born, raised, and slaughtered
in the United States (including animals born and raised in Alaska and
Hawaii and transported for a period of time not more than 60 days
through Canada to the United States and slaughtered in the United
States); or (2) present in the United States on or before July 15,
2008, and once present in the United States, remained continuously in
the United States. The regulation also states that covered commodities
further processed or handled in a foreign country after meeting the
requirements to be labeled as United States origin (as defined in Sec.
65.260) may bear the declaration that identifies the United States as
the sole country of origin at retail provided the identity of the
product is maintained along with records to substantiate the origin
claims and the claim is consistent with other applicable Federal legal
requirements. Thus, peanuts grown in the United States and processed in
another country such that a substantial transformation does not occur
are still eligible to bear a United States origin declaration.
In the case of all inclusive labels such as ``Product of the United
States, Canada, or Mexico'', the 2008 Farm Bill provided further
direction on country of origin labeling for meat covered commodities.
These changes include additional provisions concerning labeling meat
covered commodities that have multiple countries of origin. Under this
interim final rule, if an animal was born, raised, and/or slaughtered
in the United States and was not imported for immediate slaughter as
defined in Sec. 65.180, the origin of the resulting meat products
derived from that animal may be designated as Product of the United
States, Country X, and/or (as applicable) Country Y, where Country X
and Country Y represent the actual or possible countries of foreign
origin. In addition, the origin declaration may include more specific
information
[[Page 45118]]
related to production steps provided records to substantiate the claims
are maintained and the claim is consistent with other applicable
Federal legal requirements.
With regard to allowing for presumption of United States origin,
the law also states that ``Any person engaged in the business of
supplying a covered commodity to a retailer shall provide information
to the retailer indicating the country of origin of the covered
commodity.'' Accordingly, presumption of United States origin is not
authorized under the statute.
Labeling Imported Covered Commodities That Have Been Substantially
Transformed in the United States
Summary of Comments: Two commenters supported the provisions
contained in the interim final rule for fish and shellfish for labeling
products that have been imported from country x and substantially
transformed in the United States to be labeled as ``from country x,
processed in the United States'' and recommended this provision also be
used for other covered commodities. One commenter opposed requiring
further itemization of exact production steps that occurred in the
United States or in the foreign country. One commenter supported a
label that expresses each country's specific role in the production of
a product.
Agency Response: The 2008 Farm Bill contains labeling provisions
for the following categories: United States country of origin, multiple
countries of origin, imported for immediate slaughter, foreign country
of origin, as well as for labeling ground products. Accordingly, this
interim final rule contains labeling provisions for these categories in
accordance with the law. A complete discussion on how covered
commodities should be labeled is contained in this regulation in the
section entitled ``Highlights of this Regulation''.
Blended Products
Summary of Comments: Several commenters stated that the provision
for labeling blended products under the proposed rule, which required
an alphabetical listing of countries contained therein and required
facilities to document the origin of a product was separately tracked,
was excessively costly. Commenters supported language in the interim
final rule for fish and shellfish, which stated ``the declaration shall
indicate the countries of origin contained therein or that may be
contained therein.'' Several commenters supported labeling that
indicates several countries may be represented in the finished product.
As an example, the commenters suggested an all-inclusive label stating
``product of the United States, Canada, or Mexico.'' The commenters
contend that such a label will provide consumers with a reasonable
indication of likely origin while reducing implementation costs.
One commenter requested that USDA clarify what constitutes the
``same covered commodity''. The commenter stated that the example in
the proposed rule referred to green and red leaf lettuce as if they are
a single commodity and that the produce industry would consider those
two different items. The commenter noted this would render a bag
containing red and green leaf lettuce as a processed food item. The
commenter recommended that if a commodity has a unique identifier such
as a unique price look up code (PLU) related to anything but size or
region, it should be considered a unique item.
Other commenters appeared to be confused as to labeling ``blended''
covered commodities and instead provided comments on labeling
commodities of mixed origin. The relevant comments have been addressed
in the appropriate sections.
Agency Response: In an effort to clarify the labeling requirements
for this type of product, the Agency has removed references to the term
``blended'' covered commodities and has added a definition of
``commingled'' covered commodities. Under this interim final rule,
commingled covered commodities are defined as a single type of covered
commodity (e.g., frozen peas), presented for retail sale in a consumer
package, that has been prepared from raw material sources having
different origins. If the retail product contains two different types
of covered commodities (e.g., peas and carrots), it is considered a
processed food item and is not subject to mandatory COOL. Further, a
commingled covered commodity does not include ground meat products.
However, because labeling of ground meat products was included in the
blended (commingled) provisions of the proposed rule, for purposes of
discussing the comments, they are included under this subheading.
USDA is concerned about the burden imposed by the rule on
facilities that produce a commingled retail product as the added costs
of implementing this rule will likely be passed on to consumers. The
proposed rule would have required such facilities to document that the
origin of a product was separately tracked, while in their control,
during production and packaging. The proposed rule also would have
required that the labeling of all blended products specify precisely
the countries of origin represented within each individually-packaged
retail product.
The Department believes that the statutory language makes clear
that the purpose of the COOL law is to provide for a retail labeling
program for covered commodities--not to impose economic inefficiencies
and disrupt the orderly production, processing, and retailing of
covered commodities. Therefore, in this interim final rule, the
provision to separately track the product has been removed, and the
labeling requirements have been made consistent with other Federal
labeling requirements (i.e., CBP marking regulations). This interim
final rule does not impose any additional burden with respect to the
labeling of commingled products for which labeling is also required
under CBP regulations.
In the case of perishable agricultural commodities, peanuts,
pecans, ginseng, and macadamia nuts, for imported covered commodities
that have not subsequently been substantially transformed in the United
States that are commingled with imported and/or United States origin
commodities, the declaration shall indicate the countries of origin for
all covered commodities in accordance with CBP marking regulations (19
CFR part 134).
The 2008 Farm Bill states that the origin declaration for ground
beef, ground pork, ground lamb, ground goat, and ground chicken covered
commodities shall list the countries of origin contained therein or
shall list the reasonably possible countries of origin. This interim
final provides that when a raw material from a specific origin is not
in a processor's inventory for more than 60 days, the country shall no
longer be included as a possible country of origin.
In reference to the comment about clarifying the language ``the
same covered commodity'', the Agency has added additional language
describing the types of products this labeling provision covers in the
preamble. In response to the commenter's recommendation regarding red
and green leaf lettuce, the Agency disagrees with the commenter's
recommendation to use price lookup codes as the standard for whether or
not a covered commodity is considered ``the same''. While green leaf
and red leaf lettuce are different varieties of lettuce, they are both
still leaf lettuce and thus would not meet the definition of a
processed food item. This is also the case with different varieties of
apples or onions as each variety--red delicious, fuji, or
[[Page 45119]]
granny smith in the case of apples and red, yellow, and white in the
case of onions--has its own PLU code. Thus, the provision for labeling
commingled covered commodities apples to products such as a bag that
contains frozen strawberries originating from the United States and
Mexico, a bag that contains bananas originating from Ecuador and Costa
Rica, and a bag of lettuce that contains romaine and iceberg lettuce
originating from the United States and Mexico.
Remotely Purchased Products
Summary of comments: One commenter recommended that suppliers
should list the country of origin on the sales vehicle. Another
commenter recommended that the country of origin notification should be
allowed to be made either on the sales vehicle or at the time the
product is delivered to the consumer.
Agency Response: The Agency agrees that companies should be allowed
flexibility in providing the notice of country of origin. As such,
under this interim final rule, companies can provide the required
notification either on the sales vehicle or at the time the product is
delivered to the consumer.
Markings
Section 60.300(a)
Summary of Comments: Several commenters stated that flexibility is
critically important to help minimize costs in complying with the law.
These commenters urged AMS to permit the use of the numerous
declaration options as listed in the interim final rule for fish and
shellfish. Commenters also supported the use of a check box to declare
country of origin information on covered commodities. Several
commenters recommended that the country of origin declaration be
allowed to be made in the form of a statement such as ``product of the
U.S.'' or as simply the country name such as ``USA''. The commenters
pointed out that this provision was contained within the proposed rule,
but was deleted from the interim final rule for fish and shellfish.
Agency Response: The Agency believes that the law provides
flexibility in providing the country of origin notification and this
interim final rule has been drafted accordingly. As such, Sec.
65.400(a) allows for the same flexibility in providing the origin
information as allowed in the interim final rule for fish and
shellfish, including allowing for the use of a check box. In addition,
the use of the name of the country only is permitted under this interim
final rule, provided it is in accordance with other Federal labeling
laws. For example, in certain circumstances CBP regulations require the
words ``product of'' or ``made in'' to precede the name of the country.
Section 60.300(b)
Summary of Comments: Several commenters recommended that the
conspicuous location requirement should include any place on the
package or product. Several commenters supported the current
application of this requirement under the interim final rule for fish
and shellfish and recommended that USDA further explain the conspicuous
standard to ensure a common understanding across all regulated
communities as well as among compliance and enforcement personnel.
Agency Response: At the request of the commenters, the Agency has
included an additional discussion of this requirement in the preamble
of this rule. Declarations must be legible and placed in a conspicuous
location as to allow consumers to find the country(ies) of origin
easily and read it without strain when making their purchases, and
provided that existing Federal labeling requirements must be followed.
For example, the country of origin information may be located on the
information panel of a package of frozen produce as consumers are
familiar with such location for displaying nutritional and other
required information.
Likewise, in the case of store overwrap and other similar type
products, which is the type of packaging used for fresh meat and
poultry products, the information panel of the package is also
considered an acceptable location for the origin declaration as this is
a location that is currently utilized for providing other Federally-
mandated labeling information (i.e., safe handling instructions,
nutrition facts, and ingredients statement). However, to the extent
practicable, the Agency encourages retailers and suppliers to place
this information on the front, also known as the principal display
panel, of these types of packages so it will be readily apparent to
consumers.
Section 60.300(d)
Summary of Comments: Several commenters expressed support for the
provision in both the proposed rule and the interim final rule for fish
and shellfish that allows for commingling like items in the same bulk
bin even if they are from different origins. Several commenters
asserted that it is impossible to label every single item in a bulk
bin, that stickering efficacy is not 100%, and that it is likely that
some stickers will fall off during transport and display. These
commenters contend that the country of origin notification requirement
should be met if the majority of perishable agricultural commodities in
a bulk bin have labels as consumers will be able to determine the
country of origin.
Agency Response: The Agency agrees that flexibility should be
provided to retailers to commingle like items from different origins in
bulk bins. Thus, under this interim final rule, a bulk container (e.g.,
display case, shipper, bin, carton, and barrel), used at the retail
level to present product to consumers, may contain a covered commodity
from more than one country of origin provided all possible origins are
listed. The Agency also understands that stickering efficacy is not
100%. The Agency agrees that consumers would likely be able to discern
the country of origin if the majority of items were labeled; however,
the Agency encourages retailers to use placards and other signage as a
way to more clearly indicate information to consumers as to the origin
of the covered commodity. Accordingly, the Agency does not believe it
is necessary to change the language for this provision. The Agency will
address the issue of preponderance of stickering in its compliance and
enforcement procedures, as applicable, to ensure uniform guidance is
provided to compliance and enforcement personnel.
Section 60.300(e)
Summary of Comments: Several commenters recommended that the Agency
allow for the use of abbreviations for country names as long as the
abbreviation clearly indicates the origin of a covered commodity. The
commenters made reference to the Agency's policy to follow CBP's
interpretation of the Tariff Act with regard to abbreviations and
stated their belief that the Agency is not bound by CBP's
interpretation. Some commenters recommended that the Agency utilize the
country abbreviations established by the International Organization for
Standardization. One commenter pointed out the USDA accepts
abbreviations from intermediary suppliers and others on records.
Agency Response: The Agency believes that the limited application
of abbreviations that unmistakably indicate the country of origin is
appropriate. The CBP has a long history of administering the Tariff Act
and has issued numerous policy rulings with regard to this subject. The
Agency concurs with CBP's interpretation that most abbreviations may
not be readily
[[Page 45120]]
understood by the majority of consumers. The Agency does permit the use
of abbreviations in supplier records as long as a key or other similar
document explaining what the abbreviations represent is provided.
However, the Agency does not believe that providing a key in the store
for consumers to have to locate and decipher is appropriate or
reasonable. Accordingly, these recommendations are not adopted.
However, the Agency has added clarifying language to Sec. 65.400(e).
Section 60.300(f)
Summary of Comments: Numerous commenters recommended that the
Agency accept State and regional label designations in lieu of country
of origin labeling for commodities produced in the United States. Two
commenters recommended that retailers be permitted to substitute more
visually appealing and consumer-targeted labels, such as ones with
American flags, in lieu of a standard or commodity label.
Agency Response: The 2008 Farm Bill modified the Act to allow for
the use of State, region, or locality label designations to meet the
country of origin notification requirements of the statute for
perishable agricultural commodities, peanuts, pecans, macadamia nuts,
and ginseng that are produced in the United States. The Department
believes it is appropriate to expand this provision to also allow
State, regional, or locality labels for imported products. Therefore,
under this interim final rule, for perishable agricultural commodities,
peanuts, pecans, macadamia nuts, and ginseng covered commodities, State
or regional label designations are acceptable in lieu of country of
origin for both domestic and imported products. Accordingly, this
recommendation is adopted in part.
With regard to substituting more visually appealing labels, as long
as country of origin information is provided in accordance with this
regulation, additional labels can be applied to the package that are
more eye appealing. In addition, there is no standardized format for
labels under this regulation, so suppliers and retailers have
flexibility in designing the appearance of the label provided the
origin declaration is legible and placed in a conspicuous location.
Recordkeeping
General
Summary of Comments: Numerous commenters supported the acceptance
of existing records used in the normal course of business. These
commenters stated that the rule does not need to establish new document
or recordkeeping burdens to verify country of origin claims and that
existing records should be sufficient. Several commenters recommended
that the Agency provide a list of example documents that would
illustrate acceptable normal business records. Some of these commenters
offered the following examples of documents: Animal health papers,
import or Customs documents, producer affidavits, and records
maintained in compliance with assessments and remittances for Federally
legislated promotion and research programs. Several commenters
supported the use of producer affidavits.
Agency Response: The Agency agrees that records kept in the normal
course of business likely contain sufficient information to verify
origin claims. The Act, as amended by the 2008 Farm Bill, states that
records maintained in the course of the normal conduct of business,
including animal health papers, import or customs documents, or
producer affidavits may serve for verification purposes. The Act, as
amended, further states that the Secretary may not require a person
that prepares, stores, handles, or distributes a covered commodity to
maintain a record of the country of origin of the covered commodity
other than those maintained in the course of the normal conduct of the
business of such person.
Therefore, under this interim final rule, upon request by USDA
representatives, suppliers and retailers subject to this subpart shall
make available to USDA representatives, records maintained in the
normal course of business that verify an origin claim. Such records
shall be provided within 5 business days of the request and may be
maintained in any location. In the case of beef, lamb, chicken, goat,
and pork, a producer affidavit shall be considered acceptable evidence
on which the slaughter facility may rely to initiate the origin claim,
provided it is made by someone having first-hand knowledge of the
origin of the animal(s) and identifies the animal(s) unique to the
transaction. In addition, to further reduce the burden associated with
labeling meat covered commodities with origin information, under this
interim final rule, slaughter facilities that slaughter animals that
are part of a National Animal Identification System (NAIS) compliant
system or other recognized official identification system (e.g.,
Canadian official system, Mexico official system) may choose to rely on
the presence of an official ear tag and/or the presence of any
accompanying animal markings (i.e., ``Can'', ``M''), as applicable, on
which to base their origin claims. This provision also applies to such
animals officially identified as a group lot.
With regard to providing examples of normal business records that
may be useful in verifying origin claims, the Agency has included some
examples of records in the regulation and additional examples have been
posted on the AMS Web site.
Location of Records
Summary of Comments: Several commenters requested flexibility in
the regulation for establishing the manner and location in which
regulated firms maintain records. Commenters noted that firms with
multiple locations or a corporate headquarters might choose to
centralize supplier records. Commenters requested that the rule permit
firms to maintain records centrally, provided the information is
readily available and that the firm has the capability to transfer it
to the specific retail outlet if requested by USDA. The commenters
stated that retailers and suppliers could make records available to
USDA either electronically by transferring computer files or by
facsimiles of paper documents. Some commenters requested that retailers
and suppliers be given a reasonable period of time to produce records
requested by the Agency.
Agency Response: The regulation provides flexibility by allowing
electronic or hard copy formats, by not requiring specific records, and
by providing flexibility in where the records can be kept. The Agency
agrees that retailers and suppliers could make records available to
USDA representatives either electronically by transferring computer
files or by providing facsimiles of paper documents. The Agency also
agrees that retailers and suppliers should be allowed a reasonable
amount of time to provide records to USDA representatives upon request.
Under this interim final rule, the requirement to maintain records at
the retail facility has been removed. Accordingly, the recommendation
to allow retailers to provide records to the USDA representative within
some reasonable period of time is adopted.
Recordkeeping Retention
Summary of Comments: The Agency received numerous comments
regarding the recordkeeping retention requirements. One commenter was
in favor of the retention period contained in the proposed rule.
Several commenters recommended the one-year
[[Page 45121]]
retention period contained in the interim final rule for fish and
shellfish. Several commenters recommended that the COOL rule harmonize
the record retention requirements with the FDA regulations on
Bioterrorism. Several commenters recommended a retention period as
short as possible and pointed out that many of the covered commodities
are purchased by consumers within a matter of weeks, and in the case of
fresh meat products, within 40 to 60 days of production. Another
commenter added that even for the minimal amount of frozen meat covered
commodities that are sold at retail, the time from production through
retail sale would be less than 6 months. Another commenter recommended
a retention period of 180 days. Another commenter recommended that the
Agency consider a similar recordkeeping retention period as that
required by FSIS with respect to HACCP documents for fresh products.
Agency Response: Based on the comments received, the Agency agrees
that it is appropriate to reduce the record retention requirements
contained in the proposed rule. Many of these comments are similar to
those that the Agency considered in promulgating the interim final rule
for fish and shellfish. Thus, the Agency believes that the
recordkeeping provisions in the interim final rule for fish and
shellfish, which require a 1-year record retention requirement for
suppliers and centrally located retail records, as opposed to the 2-
year requirement contained in the proposed rule, is appropriate. In
addition, as discussed in more detail in the preamble of this
regulation and the preceding responses to comments, the requirement to
maintain records at the retail store has been removed. Under this
interim final rule, these records may now be kept in any location and
must be provided to USDA upon request within 5 business days of the
request.
With regard to the recordkeeping retention time implemented by FDA
under the Bioterrorism Act, the recordkeeping retention requirements
under the final rule (69 FR 71561) issued by FDA vary based on the type
of product from six months to two years. Thus, the recordkeeping
requirements contained in this interim final rule are similar to those
in the FDA regulation and in some cases, are less burdensome. For a
more complete discussion of the comments the Agency considered in
promulgating the interim final rule for fish and shellfish, readers are
invited to review that document.
As to the recommendation for allowing for a shorter record
retention period for supplier and centrally-located retail records, the
Agency believes a 1-year period is necessary to provide the Agency with
sufficient time to conduct supplier compliance reviews. These reviews
often do not commence until several months after the product in
question was displayed for retail sale. Accordingly, this
recommendation is not adopted.
With regard to the comment that the Agency should adopt the
recordkeeping provisions required by FSIS with respect to HACCP
documents, the record retention requirements contained in this interim
final rule are shorter than those required by FSIS with relation to
HACCP. Accordingly, this recommendation is not adopted.
Responsibilities of Suppliers and Retailers
Summary of Comments: Several commenters pointed out that in the
case of beef, lamb, and pork, most of the records necessary to verify
the origin of the livestock used to produce the covered commodity will
not be generated by the supplier of the covered commodity. The
commenters contend that it is therefore important that the regulation
allow the supplier to either have the records or have access to the
records as the records to verify the birth country of the livestock
will reside with the livestock producer that sold the livestock months
or years earlier, and the animal may have changed hands several times
before harvest. Several commenters expressed concern with placing undue
recordkeeping and liability burdens on livestock producers. Other
commenters noted that only livestock producers have first-hand
knowledge of the origin of their animals. One commenter recommended
that USDA distinguish between suppliers with first-hand knowledge and
intermediary suppliers. The commenter suggested that intermediary
suppliers should not be required to keep records beyond those necessary
to identify their immediate suppliers and subsequent corporate
recipients. Another commenter recommended that importers be required to
maintain adequate records to reconcile purchase, inventories, and sales
of imported and domestic commodities.
One commenter suggested that the ``liability shield'' that entitles
retailers and others handling covered commodities to rely on the
information provided to them should be amended to reflect the statutory
standard for liability that applies to retailers under the statute. The
commenter contends that because the statute states that retailers are
not subject to fines unless the Secretary determines they have
willfully violated the statute, the standard of willfulness is a higher
bar to liability than the standard of negligence that is encompassed in
the reasonable reliance standard utilized in the ``liability shield.''
Agency Response: The Agency agrees that the provision allowing a
supplier of a covered commodity that is responsible for initiating a
country(ies) of origin claim to possess or have legal access to records
that are necessary to substantiate that claim is necessary.
Accordingly, this provision is included in section 65.500(b)(1) of this
interim final rule.
With regard to the recommendation that intermediary suppliers be
required to keep only those records that identify their immediate
suppliers and subsequent recipients, this is the case with products
that are pre-labeled with origin information. However, for products
that are not pre-labeled, the intermediary supplier must provide the
origin information (and identify the product unique to the transaction)
in a document that accompanies the product through retail sale.
Therefore, the Agency believes it is necessary for intermediary
suppliers to also possess records that identify the origin information
for compliance verification purposes for products that are not pre-
labeled.
With respect to the recommendation to require importers to maintain
adequate records to reconcile purchases, inventories, and sales of
imported and domestic commodities, the law does not provide the Agency
with the authority to require such detailed information nor is such
information necessary to substantiate origin claims.
With respect to the safe harbor provision, the 2008 Farm Bill
modified the enforcement provisions of the Act such that retailers and
suppliers can only be fined if after 30-days of receiving a notice from
the Secretary that they are in violation of the Act, the retailer or
supplier has not made a good faith effort to comply and continues to
willfully violate the Act. Thus, the Agency agrees with the commenter's
suggestion that the ``liability shield'' provides less protection for
retailers and suppliers than the statute itself. Accordingly, the
``liability shield'' language has been deleted from this interim final
rule.
Enforcement
Summary of Comments: The Agency received numerous comments on the
issue of enforcement. Numerous commenters recommended that the Agency
incorporate a transition period prior to the rule taking effect to
allow
[[Page 45122]]
industries producing, processing, and retailing covered commodities
time to clear the channels of commerce before enforcing the rule. Two
commenters recommended that AMS implement COOL for all covered
commodities no later than January 1, 2009. Several commenters did not
offer a specific implementation timeframe other than to request that
the Agency establish a ``reasonable'' period to carry out education and
outreach activities. Several commenters referenced the language
contained in the House version of the 2008 Farm Bill that states that
all animals present in the United States on or before January 1, 2008,
shall be considered of United States origin. Other commenters
recommended that AMS should presume any meat product or animals in the
channels of commerce prior to the rule's implementation date to be of
United States origin.
Several commenters urged AMS to establish commodity specific
timeframes for the rule's implementation due to unique commercial life-
cycle attributes. One commenter suggested an 18-month implementation
timeframe for peanuts. One commenter suggested a six to twelve month
implementation period and another commenter suggested a one-year
timeframe. One commenter suggested timeframes based on the average age
of animals at time of harvest. Specifically, the commenter suggested:
For imported beef, pork, lamb, ground beef, ground pork and ground
lamb, a delayed effective date by at least six months; for beef, pork,
lamb, ground beef, ground pork, and ground lamb produced from animals
imported for direct harvest, a delayed effective date by at least six
months; for beef produced from animals harvested from the United States
herd, a delayed effective date by at least 30 months; for ground beef,
which is traditionally produced from cull dairy and breeding stock, a
delayed effective date of at least 8 years; for pork produced from
animals harvested from the United States herd, a delayed effective date
by six months; for ground pork, which is traditionally produced from
cull breeding stock, a delayed effective date by at least 2 years; and
for lamb and ground lamb produced from animals harvested from the
United States herd, a delayed effective date by at least 12 months. The
commenter further suggested that during the time allowed to clear the
channels of commerce, the Agency could encourage retailers to
voluntarily label products when the necessary information is available.
Another commenter encouraged the Agency to utilize a similar
approach for implementation as that used in the interim final rule for
fish and shellfish. The commenter pointed out that frozen perishable
agricultural commodities have a long shelf life and that many such
products will have been harvested and frozen well before the rule is
issued. The commenter recommended that the Agency allow these products
to enter the chain of commerce and only require country of origin
information on frozen produce that was harvested and processed after
the final rule takes effect. The commenter pointed out that the timing
for covered meat commodities is also complicated because of the
lifecycle of animals. The commenter recommended that the Agency employ
a uniform compliance date policy that is used by both FDA and FSIS for
frozen perishable agricultural commodities and meat products, if not
for all covered commodities.
One commenter requested that the Agency recognize that a willful
violation does not occur where a party is exercising good faith efforts
to comply with the statute. The commenter further stated their belief
that good faith efforts would include a clear program for providing
comprehensive labeling of all covered commodities at the store level,
recognizing that for various reasons, some small percentage (perhaps 10
or 15%) of covered commodities might not bear labeling on any given
day.
Agency Response: The effective date of this regulation is September
30, 2008, because the statute provides for a September 30, 2008,
implementation date. However, because some of the affected industries
(goat, chicken, pecans, ginseng, and macadamia nuts) did not have prior
opportunities to comment on this rulemaking, and the 2008 Farm Bill
made changes to several of the labeling provisions for meat covered
commodities, it is reasonable to allow time for covered commodities
that are already in the chain of commerce and for which no origin
information is known or been provided to clear the system. Therefore,
the requirements of this rule do not apply to covered commodities
produced or packaged before September 30, 2008. In addition, during the
six month period following the effective date of the regulation, AMS
will conduct an industry education and outreach program concerning the
provisions and requirements of this rule. AMS has determined that this
allocation of enforcement resources will ensure that the rule is
effectively and rationally implemented. This AMS plan of outreach and
education should significantly aid the industry in achieving compliance
with the requirements of this rule.
Existing State Programs
Summary of Comments: The Agency invited comment on the proposed
rule as it relates to existing State programs. One commenter
recommended that USDA clarify the preemption language contained in both
the proposed rule and the interim final rule for fish and shellfish.
Specifically, the commenter stated that USDA should recognize that the
Federal law ``occupies the field'' and hence, preempts State country of
origin labeling laws for all products that are in the ambit of covered
commodities. The commenter stated that States should not be able to
impose country of origin labeling requirements on covered commodities
that are ingredients in processed food items or on those prepared in
food service establishments. The commenter believes that Congress has
clearly spoken and concluded that labeling shall not apply to these
items.
Agency Response: In accordance with Executive Order 13132, the
Agency does not believe there is basis to allow for preemption of State
laws that would encompass commodities that are not regulated under this
regulation either because they meet the definition of a processed food
item or because they were prepared in food service establishments. No
comments from States were received. Accordingly, this recommendation is
not adopted.
Miscellaneous
Summary of Comments: Many commenters discussed the use of import
markings to differentiate cattle of foreign origin from cattle born and
raised in the United States. These commenters noted that current APHIS
regulations require live cattle imported from Canada to be branded with
the letters ``CAN'' and live cattle imported from Mexico to be branded
with the letter ``M.'' Commenters argued that processors could rely on
these brands and other import markings to segregate animals and ensure
accurate country of origin notification. Many of these commenters
argued that the absence of import markings should indicate a
``presumption of United States origin.'' AMS also received numerous
comments expressing concern about the potential for COOL to create
obstacles to international trade and possible conflicts with regard to
United States trade agreements under the World Trade Organization, the
North American Free Trade Agreement, and General Agreements on Tariffs
and Trade. Several other commenters expressed their opinions regarding
the justification
[[Page 45123]]
for COOL as a food safety or animal health measure. Several other
commenters asserted that COOL will not ensure food safety or animal
health.
Agency Response: With respect to using import markings to segregate
animals, the Agency believes the labeling provisions contained in Sec.
65.300 of this interim final rule provide flexibility such that the
need to segregate animals will be limited to those suppliers that want
to provide more specific origin information. However, in an effort to
further reduce the burden associated with labeling meat covered
commodities with origin information, under this interim final rule,
slaughter facilities that slaughter animals that are part of a National
Animal Identification System (NAIS) compliant system or other
recognized official identification system (e.g., Canadian official
system, Mexico official system) may also rely on the presence of an
official ear tag and/or the presence of any accompanying animal
markings (i.e., ``Can'', ``M''), as applicable, on which to base their
origin claims. This provision also includes such animals officially
identified as a group lot.
With regard to presumption of United States origin, the 2008 Farm
Bill amended the Act such that animals present in the United States on
or before July 15, 2008, and once present in the United States,
remained continuously in the United States will be considered of United
States origin.
With respect to the commenters' concern regarding international
trade obligations, the Agency has considered these obligations
throughout the rulemaking process and concludes that this regulation is
consistent with U.S. international trade obligations.
With regard to the comments on COOL serving as a food safety or
animal health measure, as stated in the preamble, the purpose of COOL
is to provide additional information to consumers on which to base
their purchasing decisions. COOL is a retail labeling program and as
such does not provide a basis for addressing food safety. Food
products, both imported and domestic, must meet the food safety
standards of FDA and FSIS.
Preliminary Paperwork Reduction Act
Summary of Comments: USDA received conflicting comments regarding
liability burdens and the maintenance of records throughout supply
channels between retailers, suppliers and producers. Generally, cattle,
pork and lamb producers and their trade associations provided comments
supporting protections for livestock producers from undue recordkeeping
and liability burdens placed on them by retailers and packers. On the
other hand, meat packers and retailers expressed that the rule should
grant them the ability to pass liability for noncompliance with
labeling or verification of country of origin back down the supply
chain to product sources. Two commenters noted that the interim final
rule for fish and shellfish deletes the requirement for chain of
custody documentation. One commenter concluded that the rule should not
require intermediary suppliers to maintain records beyond those
necessary to identify their immediate suppliers and subsequent business
customers.
Four commenters advocated that USDA should require importers of
designated commodities to maintain adequate records to reconcile
purchases, inventories and sales of imported and domestic commodities
in order to reduce the need for expensive and burdensome affidavits or
audits on United States livestock producers. One commenter noted that
the beef industry is more segmented than any other industry affected by
COOL and that this segmentation complicates the transfer of origin
information for United States beef producers.
Another commenter warned that the requirement to document the
country of birth, raising and slaughter of livestock will create a
tremendous recordkeeping burden on both packers and producers; and in
some cases, it may not even be possible to achieve. This commenter
contended that those packers harvesting older animals might find it
nearly impossible to find adequate supplies of livestock for which
records exist regarding the location of the animal's birth. The
commenter added that the recordkeeping burden placed on domestic
processors might create a disadvantage relative to imported products,
which will have no such requirements to document the animal's origin
back to birth.
Two commenters further illuminated this point. One of these noted
that it would be more efficient in the lamb industry to focus on
tracking the one to three percent of United States slaughter
representing Canadian lambs imported by a handful of individuals or
firms. The commenter also pointed out that due to recordkeeping
requirements for assessments and remittances for the Lamb Promotion
Research and Information (check-off) order, a current audit trail
exists for country of origin of domestic sheep. The other commenter
contended that imported meat, by its nature, is likely to have passed
through more handling stages than domestic product by the time it
reaches the point of final United States retail sale. The commenter
stated that because imported beef, lamb and pork passes through at
least two countries, and through handling by ranchers, exporters,
importers, processors, and distributors, imported products will require
a longer audit trail that demands more, and potentially more detailed,
recordkeeping.
Agency Response: The Agency has already addressed many of these
comments earlier in this Comment and Response section. In general, the
Agency has reduced the recordkeeping burden to the extent possible
while still maintaining a verifiable audit trail.
Compared to the proposed rule, this interim final rule reduces the
length of time that records must be kept, revises the recordkeeping
requirements for pre-labeled products, and removes the requirement to
maintain records at the retail store. Any person engaged in the
business of supplying a covered commodity to a retailer, whether
directly or indirectly, must maintain records to establish and identify
the immediate previous source and immediate subsequent recipient of a
covered commodity for a period of 1 year from the date of the
transaction. Under the proposed rule, records would have been required
to be kept for 2 years.
For retailers, records and other documentary evidence relied upon
at the point of sale by the retailer to establish a covered commodity's
country(ies) of origin must be maintained for one year from the date
the origin declaration is made at retail and, upon request, provided to
any duly authorized representatives of USDA within 5 business days of
the request. Under the proposed rule, retailers were required to
maintain these records at the retail store for 7 days following the
sale of the product.
For pre-labeled products, the interim final rule provides that the
label itself is sufficient evidence on which the retailer may rely to
establish a product's origin. The proposed rule did not provide for
this method of substantiation. Under the interim final rule, records
that identify the covered commodity, the supplier, and for products
that are not pre-labeled, the country of origin information must be
maintained for a period of 1 year from the date the origin designations
are made at retail. Under the proposed rule, these records would have
been required to be maintained for 2 years.
In addition to these burden reducing changes made by the Agency,
the 2008
[[Page 45124]]
Farm Bill also made several burden reducing changes. Accordingly, some
of the concerns expressed by the commenters have been addressed by the
2008 Farm Bill and by this interim final rule. For example, the statute
expressly allows for the use of producer affidavits, so packers will be
able to rely on affidavits to base the origin claims for covered
commodities. This will alleviate many of the concerns expressed by
producers. Likewise, under the 2008 Farm Bill, the Secretary is
prohibiting from requiring the creation of records not already
maintained in the normal course of business, which will also reduce the
recordkeeping burden. In addition, the 2008 Farm Bill contains a
provision such that all animals present in the United States on or
before July 15, 2008, will be considered of United States origin, which
addresses the concerns of commenters regarding adequate supplies of
livestock for which origin is documented back to birth. A complete
discussion of the changes made as a result of the 2008 Farm Bill can be
found earlier in this document.
Preliminary Regulator Impact Analysis
Summary of Comments: Numerous comments were submitted stating that
USDA underestimated the implementation and maintenance costs of the
COOL program. One commenter stated that the implementation costs plus
two years of maintenance costs totaled $49 million. Another commenter
provided an estimated total implementation cost of $236,000 for
planning, software, training, and capital. It provided an estimated
annual maintenance cost of $279,300 for maintenance of hardware/
software, operation costs, and packaging. Their reported net economic
impact was -$516,200. A third commenter stated that retailers
experienced actual first year implementation costs of $9,000 to $16,500
per store for seafood labeling, and intermediary suppliers experienced
costs between $200,000 and $250,000 per firm. They reported that one
retailer saw a $0.07 per pound (less than 2 percent) increase in cost
of goods from its suppliers directly attributable to the requirements
necessary to comply with country of origin labeling. A fourth commenter
discussed the capital expenditures necessary to meet the product
segregation requirements for beef and pork slaughter plants. This
commenter estimated that cost to exceed $2 billion. The commenter
stated their belief that even with those plants that can be identified
as ``All-American'' and exempt from the segregation requirement, the
cost still could exceed $1 billion.
Agency Response: While the Agency believes its analysis conducted
in the PRIA in 2003 was accurate for that time, the Agency has
conducted a new economic impact analysis because economic conditions
have changed, updated data are available, and additional commodities
have been added. The commodities to be regulated by this regulation are
muscle cuts of beef, lamb, goat, pork, and chicken; ground beef, ground
lamb, ground chicken, ground goat, and ground pork; perishable
agricultural commodities; ginseng; peanuts; macadamia nuts; and pecans.
The results of this updated analysis show estimated first-year
incremental cost for growers, producers, processors, wholesalers, and
retailers at $2.5 billion. The estimated cost to the United States
economy in higher food prices and reduced food production in the tenth
year after implementation of the rule is $211.9 million. The Agency
also re-estimated the paperwork costs and estimated those to be $126
million in initial and startup costs during the first year and $499
million per year to store and maintain the records thereafter.
With regard to the commenters' statements regarding segregation,
this interim final rule provides flexibility in how products of
multiple origin can be labeled. Thus, the costs associated with
labeling products of multiple origin will likely be less than the upper
range estimate in the PRIA as the proposed rule did not contain this
flexibility. A complete discussion on labeling products of multiple
origin is contained in the Highlights of this Interim Final Rule
section earlier in this document.
Summary of Comments: One commenter stated their belief that statute
is intended to disadvantage imported meat.
Agency Response: Both importers and domestic suppliers are required
to meet the requirements of the rule. The Agency believes that firms
will find efficient ways to comply with the requirements of the rule.
Summary of Comments: One commenter stated that the authorizing
legislation was not a ``Pro-Consumer'' safety measure.
Agency Response: As discussed in more detail in the preamble and in
other responses to comments earlier in this section, COOL is not a food
safety measure. COOL provides more information to consumers on which to
base their purchasing decisions.
Summary of Comments: Several commenters believe that COOL will have
an adverse impact on beef demand. Another commenter believes COOL will
hurt consumers because it will discourage the use of imported beef,
which will result in less ground beef being produced and driving up the
price. Other commenters stated their belief that consumers think
domestic products are superior and are willing to pay more for it. One
commenter included a paper written by an economics professor entitled,
``An Overview of the Impact of COOL on Production Costs for the U.S.
Cattle Producer and Results of the TFOG Experiment'' who concluded, in
part, that the impact of COOL on the demand for beef in the United
States is uncertain. The paper referenced different opinions expressed
by economists and others and stated that there is really no consensus
about the impact of COOL on the demand for beef in the United States.
Agency Response: The Agency interprets all of these comments as
discussing COOL's impact on the demand for covered commodities. The
Agency maintains its position concerning the impact of COOL on the
demand for all the covered products as presented in the Regulatory
Impact Analysis.
Summary of Comments: One commenter stated that COOL implementation
and maintenance costs can be minimized by streamlining regulatory
requirements.
Agency Response: As previously discussed, the Agency has made
changes that streamline both the regulatory and paperwork burden
aspects of COOL. For example, the definition of a processed food item
has been changed such that a greater number of products are now exempt
from COOL requirements. The fewer the number of products that must be
labeled, the lower implementation and maintenance costs will be for
many affected entities. Another example is that the overall
recordkeeping retention period for retailers and suppliers is reduced
from 2 years to 1 year for centrally located records and the
requirement to maintain records at the retail store has been removed.
These records can now be maintained in any location.
In addition to the changes made by the Agency in an effort to
reduce the burden of complying with this rule, changes have also been
made as a result of the 2008 Farm Bill. For example, the 2008 Farm Bill
and this interim final rule provide for flexibility in labeling
products of multiple origin. In addition, the 2008 Farm Bill allows for
the use of producer affidavits and prohibits the Secretary from
requiring the creation of
[[Page 45125]]
records that are not already maintained as part of the normal course of
business. A complete discussion of the changes made by the Agency,
including the changes made as a result of the 2008 Farm Bill, can be
found earlier in this document. The Agency believes these changes as a
whole have greatly reduced the burden on affected industries and the
cost estimates for the implementation of this rule have been lowered
significantly as discussed in the RIA.
Summary of Comments: Several commenters pointed out that many
products are already labeled as to country of origin pursuant to
existing laws. One commenter illustrated that retailers provide origin
labeling on more than 60 percent of the top 20 fruits and top 20
vegetables (by consumption). This commenter added that the industry is
now providing such labeling and will continue to do so. These same
commenters also contended that additional country of origin labeling
requirements are unnecessary and would impose enormous additional costs
on all segments of the food chain. They argued that the cost of
mandatory country of origin labeling is significant and will not
provide consumer benefit.
Agency Response: If 60 percent of the top 20 fruits and the top 20
vegetables are already labeled with origin information as stated by the
commenter, the Agency would expect that the cost of implementing COOL
for the remaining fruit and vegetable products may be less than what
the Agency is estimating. However, it is difficult to quantify the
associated cost savings. As for the cost of implementing and
maintaining COOL, these commenters did not offer any quantitative data
to support their claim.
Summary of Comments: One commenter reported that they implemented
COOL without burden or noticeable expense. This commenter is a retailer
who believed its customers are demanding to know the origin of the
foods they see for sale. They have completed labeling the country of
origin on all of its beef, pork, lamb, peanuts and fresh produce (in
addition to seafood) without any burden or noticeable expense. They
believe this improved traceability reduced their risk.
Agency Response: The Agency views this comment as supporting the
Agency's contention that firms will adapt their existing infrastructure
as needed to comply with COOL and that firms will find the most cost
effective way of doing so.
Summary of Comments: In support of the benefits of the mandatory
COOL program, one commenter noted that USDA Economic Research Service
(ERS) data revealed that United States origin lamb enjoyed a $.40 per
pound price advantage compared to imported lamb products. The commenter
further stated that using ERS retail data released in January 2003, the
two-year combined volume-weighted average price of domestic lamb was
$4.30 per pound. For imported lamb, it was $3.90 per pound.
Agency Response: The Agency has determined that the relationship
between domestic and imported lamb prices change over time. In some
years domestic prices will be higher and in other years imported prices
will be higher. The commenter was examining 2001 and 2002 data. An
examination of monthly retail scanner prices provided by ERS from
January 2004 through December 2005 indicates that imported lamb prices
per pound sold as a premium as compared to domestic lamb for this time
period. Thus, it cannot be assumed that origin information consistently
provides a net benefit in the form of higher prices for domestic lamb.
Summary of Comments: One commenter cited three studies (surveys)
that found consumers overwhelmingly desire COOL and believe they have a
right to know such information. One study, conducted in early June
2007, found that 92 percent thought that imported food should be
labeled as to its country of origin. Another study (survey), conducted
in March 2007, found that 82 percent of the people polled supported
mandatory COOL. Finally, a study (survey) conducted in mid-July 1997
found that 88 percent of those polled said all retail food should have
COOL. This study also showed that 94 percent believe that consumers
have a right to know the country of origin of the foods they purchase.
Agency Response: The Agency does not believe that these types of
studies provide a sufficient basis to estimate the quantitative
benefits, if any, of COOL. As discussed in the Regulatory Impact
Analysis, there are several limitations with the willingness-to-pay
studies that call into question the appropriateness of using this
approach to make determinations about the benefits of this rule. First,
consumers in such studies often overstate their willingness to pay for
a product. Second, in most of these willingness-to-pay studies,
consumers are not faced with the actual choices they would face at
retail outlets. Third, consumers' willingness-to-pay as elicited from a
survey is a function of the questions asked. Different questionnaires
will yield different results. Finally, the results reported from these
studies do not take into account changes in consumers' preferences for
a particular product or product attribute over time.
Summary of Comments: One commenter noted that COOL could serve as a
risk management measure. Some countries, which may not have as
stringent food safety regulations and/or have not implemented/enforced
those regulations as rigorously as the U.S., may export hazardous food
products. COOL could allow consumers to avoid such food items as the
need arose.
Agency Response: As previously discussed in the preamble of this
rule and in other responses to comments, COOL provides consumers with
more information on which to base their purchases. Food products, both
imported and domestic, must meet the food safety standards of FDA and
FSIS. COOL will permit consumers to choose the origin of the foods they
purchase.
Summary of Comments: Two commenters asserted their belief that the
utility of COOL is unsubstantiated and that it imposes onerous costs on
covered commodities with no quantifiable benefits. The commenters
believe that mandatory COOL should thus be repealed and replaced with a
voluntary program.
Agency Response: While it may be difficult to quantify the benefits
associated with mandatory COOL, the COOL program must be implemented on
September 30, 2008, in accordance with the statute.
Preliminary Regulatory Flexibility Analysis
Summary of Comments: Several commenters urged the Agency to ensure
that small businesses were not burdened with unnecessary recordkeeping
requirements. One commenter noted that paperwork and recordkeeping
burdens continue to be top concerns for small businesses.
Agency Response: In the initial regulatory flexibility analysis,
the Agency noted that costs of implementation may be proportionately
higher for smaller versus larger firms given the potential scale of
economies associated with the operation of systems to comply with the
requirements of mandatory country of origin labeling. In particular,
larger firms would have the ability to spread fixed costs of
implementation over a greater number of units of production, thereby
incurring lower average costs per unit.
However, the Agency has drafted this rule to provide as much
regulatory relief for small entities as possible within the limits of
the discretionary authority provided by the law. For example, the
[[Page 45126]]
Agency has reduced the recordkeeping retention period and has provided
flexibility in labeling commingled covered commodities and commodities
of multiple origin. In addition, the rule allows market participants to
decide how best to implement COOL in their operations. And, market
participants other than those retailers defined by the statute can
decide to sell products through marketing channels not subject to the
rule. The Agency further assumes that in the longer run, higher costs
will be passed on to consumers in the form of higher prices for the
covered commodities.
Summary of Comments: Several commenters said that recordkeeping and
other costs of compliance will fall disproportionately on smaller,
independent farmers. One of these commenters noted that the position of
small, independent farmers may be weakened due to this additional
burden.
Agency Response: As noted in the Agency's previous response, the
initial regulatory flexibility analysis showed that costs of
implementation may be proportionately higher for smaller versus larger
firms. However, the Agency believes smaller farmers may have some
implementation cost advantages over larger farms. Smaller farms likely
have simpler recordkeeping systems, and thus would incur lower
development costs relative to larger farms. The rule does not prescribe
a particular recordkeeping system; so for example, a small fruit and
vegetables operation likely would be able to maintain records in
hardcopy form rather than developing a complicated electronic
recordkeeping system.
Summary of Comments: Several commenters asserted their belief that
COOL would provide benefits to small producers and consumers at
reasonable implementation costs. One commenter explained that for truly
small producers (less than 50 animals), mandatory COOL will create a
niche market.
Agency Response: The Agency believes that the firms within each of
the industries will competitively adjust to the provisions of COOL.
Some may create niche markets while others may provide covered
commodities to retailers, the food service industry, and the away from
home food markets which are not covered by COOL.
Executive Order 12866--Regulatory Impact Analysis
USDA has examined the economic impact of this interim final rule as
required by Executive Order 12866. USDA has determined that this
regulatory action is economically significant, as it is likely to
result in a rule that would have an effect on the economy of $100
million or more in any one year. This rule has been reviewed by the
Office of Management and Budget (OMB). Executive Order 12866 requires
that a regulatory impact analysis be performed on all economically
significant regulatory actions.
This interim final rule defines covered commodities as muscle cuts
of beef, lamb, goat, pork, and chicken; ground beef, ground lamb,
ground pork, ground goat, and ground chicken; perishable agricultural
commodities; ginseng; peanuts; macadamia nuts; and pecans. This interim
final rule together with the interim final rule for fish and shellfish
that was published in the October 5, 2004, Federal Register (69 FR
89708) define the full scope of covered commodities as defined by law.
This regulatory impact assessment reflects revisions to the
Preliminary Regulatory Impact Assessment (PRIA)(68 FR 61944). Revisions
to the PRIA were made as a result of changes to the rule relative to
the October 30, 2003, proposed rule, and comments received on the
proposed rule for all covered commodities.
The Comments and Responses section lists the comments received and
provides the Agency's responses to the comments. Where substantially
unchanged, results of the PRIA are summarized herein, and revisions are
described in detail. Interested readers are referred to the text of the
PRIA for a more comprehensive discussion of the assumptions, data,
methods, and results.
Summary of the Economic Analysis
The estimated benefits associated with this interim final rule are
likely to be small. The estimated first-year incremental costs for
growers, producers, processors, wholesalers, and retailers are $2.5
billion. The estimated cost to the United States economy in higher food
prices and reduced food production in the tenth year after
implementation of the rule is $211.9 million.
Note that this analysis does not quantify certain costs of the rule
such as the cost of the rule after the first year, or the cost of any
supply disruptions or any other ``lead-time'' issues. Except for the
recordkeeping requirements, there is insufficient information to
distinguish between first-year startup and maintenance costs versus
ongoing maintenance costs for this interim final rule. Maintenance
costs beyond the first year are expected to be lower than the combined
startup and maintenance costs required in the first year.
USDA finds little evidence that consumers are willing to pay a
price premium for country of origin labeling (COOL). USDA also finds
little evidence that consumers are likely to increase their purchase of
food items bearing the United States origin label as a result of this
rulemaking. Current evidence does not suggest that United States
producers will receive sufficiently higher prices for United States-
labeled products to cover the labeling, recordkeeping, and other
related costs. The lack of widespread participation in voluntary
programs for labeling products of United States origin provides
evidence that consumers do not have strong enough preferences for
products of United States origin to support price premiums sufficient
to recoup the costs of labeling.
Statement of Need
Justification for this interim final rule remains unchanged from
the PRIA. This rule is the direct result of statutory obligations to
implement the COOL provisions of the 2002 and 2008 Farm Bills. There
are no alternatives to Federal regulatory intervention for implementing
this statutory directive.
The COOL provisions of the Act change current Federal labeling
requirements for muscle cuts of beef, pork, lamb, goat, and chicken;
ground beef, ground pork, ground lamb, ground goat, and ground chicken;
perishable agricultural commodities; ginseng; peanuts; macadamia nuts;
and pecans (hereafter, covered commodities). Under current Federal laws
and regulations, COOL is only universally required for wild and farm-
raised fish and shellfish covered commodities. In particular, labeling
of United States origin is not currently mandatory for the other
commodities and labeling of imported products at the consumer level is
required only in certain circumstances.
As described in the PRIA, the conclusion remains that there does
not appear to be a compelling market failure argument regarding the
provision of country of origin information. Comments received on the
PRIA and subsequent requests for comments elicited no evidence of
significant barriers to the provision of this information other than
private costs to firms in the supply chain and low expected returns.
Thus, from the point of view of society, market mechanisms would ensure
that the optimal level of country of origin information would be
provided.
Alternative Approaches
The PRIA noted that many aspects of the mandatory COOL provisions
[[Page 45127]]
contained in the Act are prescriptive and provide little regulatory
discretion for this rulemaking. Some commenters suggested that USDA
explore more opportunities for less costly regulatory alternatives.
Specific suggestions focused on methods for identifying country of
origin, recordkeeping requirements, and the scope of products required
to be labeled.
A number of comments on the PRIA suggested that USDA adopt a
``presumption of United States origin'' standard for identifying
commodities of United States origin. Under this standard, only imported
livestock and covered commodities would be required to be identified
and tracked according to their respective countries of origin. Any
livestock or covered commodity not so identified would then be
considered by presumption to be of United States origin. A presumption
of origin standard would require mandatory identification of products
not of United States origin. The law, however, specifically prohibits
USDA from using a mandatory identification system to verify the country
of origin of a covered commodity. In addition, as discussed in the
proposed rule, the Agency does not believe that a presumption of United
States origin standard provides a means of providing country of origin
information that is credible and can be verified. Comments on the
proposed rule did not identify how to overcome these obstacles. Thus, a
presumption of United States origin standard is not a viable
alternative.
With regard to alternatives for recordkeeping, a number of
commenters suggested that USDA reduce the recordkeeping burden for the
rule. In this interim final rule, the requirement to maintain records
at the retail store has been removed. In addition, the overall
recordkeeping retention period for retailers and suppliers is reduced
from 2 years to 1 year.
The interim final rule also ``streamlines'' the required
recordkeeping for items that are pre-labeled (i.e., labeled by the
manufacturer/first handler) with the required country of origin
information. Records that demonstrate the chain of custody (immediate
previous source and subsequent recipient) for all covered items must be
maintained, but the underlying records (e.g., invoices, bills of
lading, production and sales records, etc.) do not need to identify the
country of origin of these pre-labeled products. For example, if a
processor labels the country of origin on a bag of apples, and the
apples ultimately are sold in that package at retail, then that label
may serve as sufficient evidence on which the retailer may rely to
establish the product's origin. Thus, the retailer's records would not
need to show country of origin information for that bag of apples, but
the retailer's records would need to include information to allow the
source of those apples to be tracked back through the system to allow
the country of origin claim to be verified at the point in the system
at which the claim was initiated. Under the proposed rule, the retailer
would have also been required to identify the country of origin of the
bag of apples within its recordkeeping system; the information provided
on the bag itself would not have been sufficient. This change in
recordkeeping requirements should lessen the number of changes that
entities in the distribution chain need to make to their recordkeeping
systems and should lessen the amount of data entry that is required.
This interim final rule changes the definition of a processed food
item such that a greater number of products are now exempt from COOL
requirements. The fewer the number of products that must be labeled,
the lower implementation and maintenance costs for many affected
entities.
The 2008 Farm Bill contains a number of provisions that amended the
COOL provisions in the Act. In general, these changes provide for
greater flexibility in labeling by retailers and suppliers and reduces
the burden on livestock producers. For example, the 2008 Farm Bill
provides for flexibility in labeling ground products by allowing the
notice of country of origin to include a list of countries contained
therein or that may reasonably be contained therein. In addition, the
law provides flexibility in labeling meat covered commodities derived
from animals of multiple countries of origin. For example, under this
interim final rule, if an animal was born, raised, and/or slaughtered
in the United States and was not imported for immediate slaughter as
defined in Sec. 65.180, the origin of the resulting meat products
derived from that animal may be designated as Product of the United
States, Country X, and/or (as applicable) Country Y where Country X and
Country Y represent the actual or possible countries of foreign origin.
The law also provides that meat from animals present in the United
States on or before July 15, 2008, and once present in the United
States, remained continuously in the United States, may be labeled as
having a United States origin. Additionally, the law states that
producer affidavits shall be considered sufficient records documenting
animals' origin.
The law also states that for perishable agricultural commodities,
peanuts, pecans, macadamia nuts, and ginseng produced in the United
States, designation of the State, region, or locality of the United
States where such commodity was produced shall be sufficient to
identify the country of origin.
As noted in the PRIA, the law stated that COOL applies to the
retail sale of a covered commodity beginning September 30, 2004.
Subsequent to the publication of the proposed rule, the law was amended
to change the implementation date to September 30, 2008, for all
covered commodities except farm-raised and wild fish and shellfish. The
implementation date for fish and shellfish covered commodities was
September 30, 2004. The delay of the effective date of the labeling
requirements under the law provides affected entities with additional
time to adjust their systems to comply with the requirements of the law
and this rule.
Analysis of Benefits and Costs
As in the PRIA, the baseline for this analysis is the present state
of the affected industries absent mandatory COOL. USDA recognizes that
some affected firms have already begun to implement changes in their
operations to accommodate the law and the expected requirements of this
interim final rule.
Because the Act contains an implementation date of September 30,
2004, for wild and farm-raised fish and September 30, 2008, for all
other covered commodities, the economic impacts of the rule will be
staggered by four years. The analysis herein of economy wide costs of
the rule abstracts away from the staggered dates of implementation and
treats all commodities as having the same effective date of
implementation. As discussed more fully below, a two-pronged approach
was used to estimate the costs of this rule. While direct fish costs
are not specifically included and discussed in this analysis, they have
been updated using more recent data and used to estimate the overall
impacts of this rule on the United States economy even though labeling
of fish was implemented in 2004 and no new regulations for fish are
forthcoming from this rule. This was done to take into account all the
cross-commodity effects of this rule. The results of the analysis are
not significantly affected by this simplifying assumption.
Benefits: The expected benefits from implementation of this rule
are difficult to quantify. The Agency's conclusion remains unchanged,
which is that the
[[Page 45128]]
benefits will be small and will accrue mainly to those consumers who
desire country of origin information. Several analysts conclude that
the main benefit is the welfare effect resulting from removing
informational distortions associated with not knowing the origin of
products (Ref. 1). Numerous comments received on previous COOL
rulemaking actions indicate that there clearly is interest by some
consumers in the country of origin of food. The mandatory COOL program
may provide additional benefits to these consumers. However, commenters
provided no additional substantive evidence to alter the Agency's
conclusion that the measurable economic benefits of mandatory COOL will
be small. Additional information and studies cited by commenters were
of the same type identified in the PRIA--namely, consumer surveys and
willingness-to-pay studies, including the most recent studies reviewed
for this analysis (Ref. 2; Ref. 3). The Agency does not believe that
these types of studies provide a sufficient basis to estimate the
quantitative benefits, if any, of COOL.
There are several limitations with the willingness-to-pay studies
that call into question the appropriateness of using this approach to
make determinations about the benefits of this rule. First, consumers
in such studies often overstate their willingness to pay for a product.
This typically happens because survey participants are not constrained
by their normal household budgets when they are deciding which product
or product feature they most value. Second, in most of these
willingness-to-pay studies, consumers are not faced with the actual
choices they would face at retail outlets. Third, consumers'
willingness-to-pay as elicited from a survey is a function of the
questions asked. Different questionnaires will yield different results.
Finally, the results reported from these studies do not take into
account changes in consumers' preferences for a particular product or
product attribute over time.
As was the case in the interim final rule for fish and shellfish, a
number of commenters pointed to additional food safety incidents that
occurred in 2007, suggesting that mandatory COOL would provide food
safety benefits to consumers. As discussed in the PRIA, however,
mandatory COOL does not address food safety issues. Appropriate
preventative measures and effective mechanisms to recall products in
the event of contamination incidents are the means used to protect the
health of the entire consuming public regardless of the form in which a
product is consumed or where it is purchased. In addition, foods
imported into the United States must meet food safety standards
equivalent to those required of products produced domestically.
Costs: To estimate the costs of this rule, a two-pronged approach
was employed. First, implementation costs for firms in the industries
directly affected by the rule were estimated. The implementation costs
on directly affected firms represent increases in capital, labor, and
other input costs that firms will incur to comply with the requirements
of the rule. These costs are expenses that these particular firms must
incur, and thus represent the opportunity costs of the rulemaking.
These costs, however, are not necessarily dead weight losses to the
United States economy, as measured by the value of goods and services
that are produced. This is simply because increases in capital, labor,
and other inputs necessary to comply with the rule will benefit the
providers of such inputs. In order to estimate the net decrease in
economic activity as a result of this rulemaking, the implementation
cost estimates were applied to a general equilibrium model to estimate
overall impacts on the United States economy after a 10-year period of
economic adjustment. The general equilibrium model provides a means to
estimate the change in overall consumer purchasing power after the
economy has adjusted to the requirements of the rule. In addition,
since the Department has not identified a market failure associated
with this rulemaking and therefore does not believe the rule would have
measurable benefits, we believe this net decrease in economic activity
can be considered the overall net costs (benefits minus costs) of this
rulemaking.
Details of the data, sources, and methods underlying the cost
estimates are provided in the PRIA. This section provides the revised
cost estimates and describes revisions made to the PRIA.
In the PRIA, a range of estimated implementation costs were
developed to reflect the likely range of first-year costs for directly
affected firms to comply with the proposed rule. The lower range of
incremental cost estimates reflected the costs to modify and maintain
current recordkeeping systems, while the upper range of estimates
reflected other capital and operational costs to comply with the
proposed rule. We concluded in the PRIA that costs likely would fall in
the middle to upper end of the range of estimated costs. Taking into
account comments received on the proposed rule and the PRIA, as was the
case in the regulatory impact analysis in the interim final rule for
fish and shellfish, this revised regulatory impact assessment presents
only a single set of anticipated costs. Comments representing affected
entities clearly described that compliance with the rule would require
changes beyond recordkeeping alone. The revised incremental cost
estimates reflect not only the revised definition of a processed
product but the changes made as a result of the 2008 Farm Bill, the
additional recordkeeping costs and additional payments by the directly
affected firms for capital, labor, and other expenses that will be
incurred as a result of operational changes to comply with the rule.
First-year incremental costs for directly affected firms are
estimated at $2.5 billion, a reduction of $1.4 billion or 36 percent
from the upper range estimate presented in the proposed rule. Costs per
firm are estimated at $376 for producers, $53,948 for intermediaries
(such as handlers, importers, processors, and wholesalers), and
$235,551 for retailers.
To assess the overall net impacts of the higher costs of production
resulting from the rule, we used a computational general equilibrium
(CGE) model of the United States economy developed by USDA's Economic
Research Service (ERS) (Ref 4). The model was adjusted by imposing the
estimated implementation costs on the directly impacted segments of the
economy. That is, the costs of implementation increase costs of
production for directly impacted firms, and these increased costs of
production were imposed on the CGE model. The model estimates changes
in prices, production, exports, and imports as the directly impacted
industries adjust to higher costs of production over the longer run (10
years). The CGE model covers the whole United States economy, and
estimates how other segments of the economy adjust to changes emanating
from the directly affected segments and the resulting change in overall
productivity of the economy.
Overall net costs to the United States economy in terms of reduced
purchasing power resulting from a loss in productivity after a decade
of adjustment are estimated at $211.9 million in the tenth year.
Domestic production for all of the covered commodities at the producer
and retail levels, except for fruits and vegetables, is estimated to be
lower, and prices are estimated to be higher, compared to the absence
of this rulemaking. Fruit and vegetable production, exports, and
imports are estimated to increase even though costs increase due to
this rulemaking, likely due to substitution
[[Page 45129]]
effects attributable to the differential cost impacts of the rule. In
addition, United States exports are estimated to decrease for all
covered commodities except for fruits and vegetables. Compared to the
baseline of no mandatory COOL, United States imports are estimated to
increase for fruits and vegetables, cattle and sheep, hogs, chicken,
and fish. United States imports of broilers, beef and veal, and pork
are estimated to decrease.
The findings indicate that, consistent with standard economic
theory, directly affected industries recover a portion of the higher
costs imposed by the rule through slightly higher prices for their
products. With higher prices, the quantities of their products demanded
also decline. Consumers pay slightly more for the products and purchase
less of the covered commodities. Overall, the model indicates that the
net loss to society, or the ``deadweight'' burden of the rule, is
considerably smaller than the incremental opportunity costs to directly
affected firms that were imposed on the model. The remainder of this
section describes in greater detail how the estimated direct,
incremental costs and the overall net costs to the United States
economy are developed.
Cost assumptions: This rule directly regulates the activities of
retailers (as defined by the law) and their suppliers. Retailers are
required by the rule to provide country of origin information for the
covered commodities that they sell, and firms that supply covered
commodities to these retailers must provide them with this information.
In addition, virtually all other firms in the supply chain for the
covered commodities are potentially affected by the rule because
country of origin information will need to be maintained along the
entire supply chain.
Number of firms and number of establishments affected: This rule is
estimated to directly or indirectly affect approximately 1,256,000
establishments owned by approximately 1,222,000 firms. Table 1 provides
estimates of the affected firms and establishments.
Table 1--Estimated Number of Affected Entities
------------------------------------------------------------------------
Type Firms Establishments
------------------------------------------------------------------------
Beef, Lamb, Pork, and Goat:
Cattle and Calves............. 971,400 971,400
Sheep and Lamb................ 69,090 69,090
Hogs and Pigs................. 65,540 65,540
Goats......................... 9,146 9,146
Stockyards, Dealers & Market 6,807 6,807
Agencies.....................
Livestock Processing & 2,943 3,207
Slaughtering.................
Meat & Meat Product Wholesale. 2,509 2,706
Chicken:
Chicken Producer and Processor 38 168
Chicken Wholesaler/Distributor 510 564
Perishable Agricultural
Commodities:
Fruits & Vegetables........... 79,800 79,800
Ginseng Farms................. 190 190
Ginseng Dealers............... 46 46
Frozen fruit, juice & 155 247
vegetable mfg................
Fresh fruit & vegetable 4,654 5,016
wholesale....................
Peanuts, Pecans, & Macadamia Nuts:
Peanut Farming................ 650 650
Macadamia Farming............. 53 53
Pecan Farming................. 1,119 1,119
Roasted nuts & peanut butter 8 9
mfg..........................
Peanuts, Pecans, & Macadamia 5 5
Wholesalers..................
General line grocery wholesalers.. 3,037 3,436
Retailers......................... 4,040 36,392
-------------------------------------
Totals:
Producers................. 1,197,026 1,197,156
Handlers, Processors, & 20,674 22,043
Wholesalers..............
Retailers................. 4,040 36,392
-------------------------------------
Grand Total........... 1,221,740 1,255,591
------------------------------------------------------------------------
Information in the PRIA for the numbers of affected producers has
been updated with more recent information. Other changes from the PRIA
are reductions in the numbers of affected entities in the peanut
sector, and consequently, in the totals. In addition, affected entities
in the chicken, goat, ginseng, macadamia nut, and pecan industries have
been added. The rule covers only ginseng root. As previously discussed,
the rule does not cover most product forms of peanuts, macadamia nuts,
and pecans sold at retail, such as roasted and dry-roasted peanuts.
Only green and raw nuts are required by COOL because other product
forms are not covered by this regulation due to the definition of a
processed food item. Market shares for green and raw nuts sold at
affected retailers are not available, but the volume of sales is
certainly very small in comparison to roasted peanuts. For purposes of
estimation, the numbers of affected entities at each level of the
peanut, macadamia nuts, and pecan sectors were reduced to 5 percent of
their totals, consistent with levels reported in the PRIA (as
applicable) due to the large percentage of product forms not covered by
this rule. The number of peanut producers is reduced from 13,000 to
650, the number of macadamia nut producers is estimated at 53, the
number of pecan producers is estimated at 1,119, the number of peanut,
macadamia nut and pecan processing (which includes drying) firms is
estimated at 8, and the number of peanut, macadamia nut, and pecan
wholesaling firms is estimated at 5.
[[Page 45130]]
The chicken industry is somewhat different from the other covered
commodities. One major difference is that chicken firms are highly
vertically integrated and the integrators own the birds from the time
they hatch to the time they sell the birds directly to retailers or to
another processor or distributor. There are 38 chicken companies in the
United States operating 168 slaughtering plants. The integrators
dictate all aspects of the production process to the growers who are
under contractual obligation to grow-out chickens for one of the
integrators. All decisions from when to populate a grower's farm, to
feed formulation, veterinarian services, and harvesting the mature
chickens are made by the integrator. The grower supplies the chicken
houses and the labor.
Of all the chicken sold to retailers, 68.9 percent comes directly
from the integrator, 27.7 percent through a distributor, and the
remaining from brokers and further processors. With 95 percent of the
chickens produced/processed under vertical integration, keeping track
of the product should be less burdensome than for other covered
commodities. For the vertically integrated firms, the main cost will be
stepping-up their on-going tracking system, if they do not have an
adequate system already, more labeling, and more involvement in
ensuring the required information is sent to retailers for each load of
product, if the product is not already pre-labeled for COOL.
It is assumed that all firms and establishments identified in Table
1 will be affected by the rule, although some may not produce or sell
products ultimately within the scope of the rule. While this assumption
may overstate the number of affected firms and establishments, we
nevertheless believe the assumption is reasonable. Detailed data are
not available on the number of entities categorized by the marketing
channels in which they operate and the specific products that they
sell.
Source of cost estimates: To develop estimates of the cost of
implementing this rule, comments on the proposed rule as well as the
interim final rule for fish and shellfish were reviewed and available
economic studies were also examined. No single source of information,
however, provided comprehensive coverage of all economic benefits and
costs associated with mandatory COOL for all of the covered
commodities. Available information and knowledge about the operation of
the supply chains for the covered commodities were used to synthesize
the findings of the available studies about the rule's potential costs.
Cost drivers: This rule is a retail labeling requirement. Retail
stores subject to this rule will be required to inform consumers as to
the country of origin of the covered commodities that they sell. To
accomplish this task, individual package labels or other point-of-sale
materials will be required. If products are not already labeled by
suppliers, the retailer will be responsible for labeling the items or
providing the country of origin information through other point-of-sale
materials. This may require additional retail labor and personnel
training. Modification to existing recordkeeping systems likely will be
required to ensure that products are labeled accurately and to permit
compliance and enforcement reviews. For most retail firms of the size
defined by the statute (i.e., those retailing fresh and frozen fruits
and vegetables with an invoice value of at least $230,000 annually), we
assume that recordkeeping will be accomplished primarily by electronic
means. Modifications to recordkeeping systems will require software
programming and may entail additional computer hardware. Retail stores
are also expected to undertake efforts to ensure that their operations
are in compliance with the rule.
Prior to reaching retailers, most covered commodities move through
distribution centers or warehouses. Direct store deliveries (such as
when a local truck farmer delivers fresh produce directly to a retail
store) are an exception. Distribution centers will be required to
provide retailers with country of origin information. This likely will
require modification of existing recordkeeping processes to ensure that
the information passed from suppliers to retail stores permits accurate
product labeling and permits compliance and enforcement reviews.
Additional labor and training may be required to accommodate new
processes and procedures needed to maintain the flow of country of
origin information through the distribution system. There may be a need
to further separate products within the warehouse, add storage slots,
and alter product stocking, sorting, and picking procedures.
Packers and processors of covered commodities will also need to
inform retailers and wholesalers as to the country of origin of the
products that they sell. To do so, their suppliers will need to provide
documentation regarding the country of origin of the products that they
sell. Maintaining country of origin identity through the packing or
processing phase may be more complex if products are from more than one
country. The efficiency of operations may be affected as products move
through the receiving, storage, processing, and shipping operations.
For packers and processors handling products from multiple origins,
there may also be a need to separate shifts for processing products
from different origins, to split processing within shifts, or to alter
labels to correctly identify the country or countries of origin.
However, in the case of meat covered commodities, there is flexibility
in labeling covered commodities of multiple origins under this interim
final rule. In the case where products of different origins are
segregated, costs are likely to increase. Records will need to be
maintained to ensure that accurate country of origin information is
retained throughout the process and available to permit compliance and
enforcement reviews. In the case of beef, lamb, chicken, goat, and
pork, a producer affidavit shall be considered acceptable evidence on
which the slaughter facility may rely to initiate the country of origin
claim.
Processors handling only domestic origin products or products from
a single country of origin may have lower implementation costs compared
with processors handling products from multiple origins. Procurement
costs also may be unaffected in this case, if the processor is able to
continue sourcing products from the same suppliers. Alternatively, a
processor that currently sources products from multiple countries may
choose to limit its source to fewer countries or a single country. In
this case, such cost avoidance would be partially offset by additional
procurement costs to source supplies from a single or narrower country
of origin. Additional procurement costs may include higher
transportation costs due to longer shipping distances and higher
acquisition costs due to supply and demand conditions for products from
a particular country of origin, whether domestic or foreign.
At the production level, agricultural producers need to maintain
information in existing records to establish country of origin
information for the products they produce and sell. Country of origin
information will need to be transferred to the first handler of their
products, and records sufficient to allow the source of the product to
be traced back will need to be maintained as the products move through
the supply chains. In the case of beef, lamb, chicken, goat, and pork,
a producer affidavit shall be considered acceptable evidence on which
the slaughter facility may rely to initiate the country of origin
[[Page 45131]]
claim. In general, additional producer costs include the cost of
modifying and maintaining a recordkeeping system for country of origin
information, animal or product identification, and labor and training.
Incremental cost impacts on affected entities: To estimate the
direct costs of this rule, the focus is on those units of production
that are affected (Table 2). Relative to the PRIA, estimated quantities
are reduced for peanut producers and for all commodities at the
intermediary and retailer levels.
Table 2--Estimated Annual Units of Production Affected by Mandatory Country of Origin Labeling
----------------------------------------------------------------------------------------------------------------
Peanuts,
Lamb and Fruit, pecans, and
Beef Pork goat Chicken vegetable, macadamia
and ginseng nuts
----------------------------------------------------------------------------------------------------------------
Million Head
Million Pounds
----------------------------------------------------------------------------------------------------------------
Producer.......................... 33.9 104.8 2.9 45,012.9 120,388.5 212.7
----------------------------------------------------------------------------------------------------------------
Million Pounds
----------------------------------------------------------------------------------------------------------------
Intermediary...................... 24,890 6,721 354 27,710 99,449 11
Retailer.......................... 8,193 2,330 133 17,645 47,078 5
----------------------------------------------------------------------------------------------------------------
For livestock, the relevant unit of production is an animal because
there will be costs associated with maintaining country of origin
information on each animal. These costs may include recordkeeping and
ear tagging and other related means of identification on either an
individual animal or lot basis. Annual domestic slaughter numbers are
used to estimate the flow of animals through the live animal production
segment of the supply chain. Estimates have changed from the PRIA due
to the addition of the new commodities (chicken, goats, macadamia nuts,
pecans, and ginseng), the use of more up-to-date information for
previously included commodities, the revised definition of a processed
product and of ground beef, and changes made to the COOL provisions by
the 2008 Farm Bill.
For chicken producers, production is measured by round weight (live
weight) pounds.
For fruits and vegetables, we assume that essentially all
production is predestined for either fresh or processing use. That is,
growers know before the crop is produced whether it will be sold for
fresh consumption or for processing. However, producers do not know
whether their products ultimately will be sold to retailers,
foodservice firms, or exporters. Therefore, it is assumed that all
fresh fruit and vegetable production and production destined for frozen
processors at the producer level will be affected by this rule. Ginseng
production has been included with the fruit and vegetable production.
The total fruit and vegetable production has been updated with 2006
data from the PRIA.
As previously discussed, only green and raw peanuts, macadamia
nuts, and pecans sold at retail are subject to the requirements of this
rule because of the definition of a processed food item. Green and raw
peanuts are specialty items typically sold at roadside stands, through
mail order, and at specialty shops. These items frequently are not
carried by many of the retailers subject to this rule. Statistics on
the size of this niche market are not readily available. We assume that
no more than 5 percent of the sales of peanuts at subject retailers are
sold as green or raw peanuts. Therefore, the initial estimates of the
volume of peanuts affected by this rule are reduced to 5 percent of the
amounts estimated in the PRIA. Macadamia nuts and pecans have been
included with peanuts.
We assume that all sales by intermediaries such as handlers,
packers, processors, wholesalers, and importers will be affected by the
rule. Although some product is destined exclusively for foodservice or
other channels of distribution not subject to the rule, we believe
these intermediaries will seek to keep their marketing options open for
possible sales to subject retailers. Estimated units of production for
most commodities at the intermediary level are reduced from the PRIA
due to the definition of a processed food item.
Beef production at the intermediary level is reduced 10 percent
from the PRIA estimate to account for the change in the definition of a
processed food item. Data are not readily available on the sales of
beef in different product forms. Based on discussions with industry
experts, it is assumed that approximately 10 percent of beef products
are sold in forms exempt from this rule (e.g., cooked products,
seasoned products).
Pork production at the intermediary level is reduced by 12.2
billion pounds. Unlike beef and lamb, much of the pork carcass
typically is processed into products that would not be covered under
the COOL rule. For example, most of the ham and bacon are cured, and
other cuts such as picnic meat are used for sausage and other processed
products. Thus, a factor of 0.375 is applied to pork production at both
the intermediary and retailer levels, which is the estimate of the
proportion of the retail-weight pork carcass that is used for fresh
pork cuts that would require country of origin labeling under the rule.
The cuts assumed to be covered commodities are fresh ham, all of the
loin cuts, spareribs, and the entire Boston butt. We recognize that
some of these cuts will be processed into items not covered by the
rule, while other cuts will be sold in unprocessed forms that would be
covered by the rule. In the PRIA, the 37.5 percent adjustment factor
was applied at the retailer level, but not at the intermediary level.
In this analysis, we have also applied the adjustment at intermediary
levels, because products destined for items exempt from the rule would
not require COOL. In addition to the 37.5 percent adjustment factor, a
further reduction of 10 percent is applied to account for the increase
in the number of items exempt from the labeling requirements due to the
revised definition of a processed food item.
Lamb production at the intermediary level is unchanged from the
PRIA, as there are relatively few of the value-added types of products
that would be excluded from labeling. Goat meat has been included with
lamb.
Fruit and vegetable production at the intermediary level is reduced
by 21.2
[[Page 45132]]
billion pounds to exclude products not covered by this rule under the
definition of a processed food item. The revised estimate includes only
frozen, plain vegetables in the frozen vegetables category because
items such as mixed frozen vegetables and vegetables with sauce are not
covered by this rule. Frozen, plain vegetable sales at retail are
estimated at 5.5 billion pounds (Ref. 5).
Information and data on ginseng is limited. However, the Wisconsin
Department of Agriculture reports the number of growers at 190, the
number of dealers at 46, and grower sales at 282,055 dry root pounds
for 2006 (Ref. 6). While some other regions in the country likely
produce ginseng, information could not be found and it is believed that
Wisconsin is the largest producing state. The information from
Wisconsin likely underestimates the total number of farms, dealers, and
production of ginseng. However, we believe that Wisconsin represents
most of the ginseng production; therefore, this information is used for
this rule. Since the number of entities and production are likely
underestimated and the production is relatively small as compared to
other covered commodities, the production was not adjusted for retail
consumption.
The Census of Agriculture provides an estimate of the number of
macadamia nut farming operations. The total number of macadamia farms
is estimated at 1,059 [Ref. 7]. Businesses that husk and crack
macadamia nuts are unofficially estimated by the Hawaii Field Office of
the National Agricultural Statistical Service (NASS) at 8 firms and
establishments. Businesses that wholesale macadamia nuts are estimated
by the Hawaii Department of Agriculture at 21 firms and establishments.
Similar to peanuts, the rule exempts most product forms of macadamia
nuts sold at retail. While data on macadamia nuts sold at retail that
are covered by this rule are not available, the volume of sales is
certainly very small. For purposes of estimation, the number of
affected entities at each level of the macadamia nut sector has been
reduced to 5 percent of the total estimated. The number of farms has
been reduced from 1059 to 53 and the number of wholesalers has been
reduced from 21 to 1.
The Census of Agriculture provides an estimate of 22,371 pecan
farming operations [Ref. 7]. Similar to peanuts and macadamia nuts, the
rule exempts most product forms of pecans sold at retail. For purposes
of estimation, the number of affected entities at each level of the
pecan sector has been reduced to 5 percent of the total 22,371 farms to
1,119 farms.
As with peanut, macadamia nut, and pecan production at the producer
level, peanut, macadamia nut, and pecan production at the intermediary
level is also reduced by 95 percent. The estimate of peanut, macadamia
nut, and pecan production is intended to include only green and raw
peanuts, macadamia nuts, and pecans.
For retailers, food disappearance figures are adjusted to estimate
consumption through retailers as defined by the statute. For each
covered commodity, disappearance figures are multiplied by 0.470, which
represents the estimated share of production sold through retailers
covered by this rule. To derive this share, the factor of 0.622 is used
to remove the 37.8 percent food service quantity share of total food in
2006 (Ref. 8). This factor is then multiplied by 0.756, which was the
share of sales by supermarkets, warehouse clubs and superstores of food
for home consumption in 2006 (Ref 9). In other words, supermarkets,
warehouse clubs and superstores represent the retailers as defined by
PACA, and these retailers are estimated to account for 75.6 percent of
retail sales of the covered commodities.
Estimated beef and pork volumes at the retailer level are reduced
by 10 percent from the PRIA to account for the larger number of items
exempt from labeling under the revised definition of a processed food
item. Lamb volume is unchanged from the PRIA estimate. Goat meat has
been included with lamb.
Estimated total retailer volume is increased by 18.0 billion pounds
because chicken was not a covered commodity in the PRIA.
Fruit and vegetable retailer volume is reduced by 8.5 billion
pounds from the PRIA estimate because of the exclusion of a large
volume of frozen vegetable products under the revised definition of a
processed food item. Retailer peanut volume is reduced 95 percent from
the PRIA estimate due to the revised definition of a processed food
item.
Table 3 summarizes the direct, incremental costs that firms will
incur during the first year as a result of this rule. These estimates
are derived primarily from the available studies that addressed cost
impacts of mandatory COOL.
Table 3--Estimates of First-Year Implementation Costs per Affected Industry Segment
[Million dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Peanuts,
pecans, &
Beef Pork Lamb & goat Chicken F & V macadamia Total
nuts \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Producer..................................................... 305 105 10 0 30 0 450
Intermediary................................................. 373 101 5 139 497 0 1,115
Retailer..................................................... 574 93 5 44 235 0 952
------------------------------------------------------------------------------------------
Total.................................................... 1,252 299 21 183 763 0 2,517
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Indicates a value greater than zero, but less than 0.5.
Assumptions and procedures underlying the cost estimates are
described fully in the discussion of the ``upper range'' estimates
presented in the PRIA. Changes from the PRIA estimates are highlighted
herein. One of the major changes is that all the data from the PRIA has
been updated by using more recent data.
Considering all producer segments together, we have estimated a $9
per head cost to cattle producers to implement the rule. This estimate
reflects the expectation of relatively small implementation costs at
the cow-calf level of production, but relatively higher costs each time
cattle are resold. Typically, fed steers and heifers change hands two,
three, or more times from birth to slaughter, and each exchange will
require the transfer of country of origin information. Thus, total
costs for beef producers are estimated at $305 million, a 16 percent
reduction from the PRIA upper range estimate due to the lower level of
slaughter in 2006 and the slightly lower per head cost estimate. In
[[Page 45133]]
addition, as provided in the 2008 Farm Bill, in the case of livestock,
a producer affidavit shall be considered acceptable evidence on which a
packer may rely to initiate an origin claim.
We assume that intermediaries will face increased costs associated
with tracking cattle and the covered beef commodities produced from
these animals and providing this information to subsequent purchasers,
which may be other intermediaries or covered retailers. Incremental
costs for beef packers may include additional capital and labor
expenditures to enable cattle from different origins to be tracked for
slaughter, fabrication, and processing. As previously mentioned, under
this interim final rule, if an animal was born, raised, and/or
slaughtered in the United States and was not imported for immediate
slaughter as defined in Sec. 65.180, the origin of the resulting meat
products derived from that animal may be designated as Product of the
United States, Country X, and/or (as applicable) Country Y where
Country X and Country Y represent the actual or possible countries of
foreign origin. In addition, the rule also provides for flexibility in
labeling ground products by allowing the notice of country of origin to
include a list of countries contained therein or that may reasonably be
contained therein. However, we believe that some segregation will still
occur in order to provide the marketplace with product strictly of
United States origin. Considering the costs likely to be faced by
intermediaries in the beef sector, $0.015 per pound is adopted as an
estimate of costs, which is consistent with estimates from the
available studies. Total costs are thus estimated at $373 million, a 31
percent reduction from the PRIA upper range estimate due to the reduced
estimate of the volume of production affected and the slightly lowered
per pound cost estimate. The cost per pound was lowered due to the
increasing use of pre-packaged and pre-labeled beef products, which
lowers costs for retailers as well as intermediaries.
The implementation costs are estimated at $0.07 per pound for beef
retailers, for a total of $574 million. This figure reflects the costs
for individual package labels, meat case segmentation, record keeping
and information technology changes, labor, training, and auditing. In
addition, there likely will be increased costs for in-store butcher
department operations related to cutting, repackaging, and grinding
operations. As with the estimate for intermediaries, the estimate for
retailers is reduced by 10 percent from the PRIA upper range estimate.
Total costs for affected entities in the beef sector are thus
estimated at $1,252 million, a 26 percent reduction from the PRIA
estimate.
Costs for pork producers are estimated at $1.00 per head. With
annual slaughter of 104.8 million head, total costs for producers are
estimated at $105 million, which is a 30 percent reduction from the
PRIA estimate due to a slightly lower per head slaughter estimate.
Costs for all pork sector intermediaries (including handlers,
processors, and wholesalers) should be similar to costs for beef sector
intermediaries. These estimated costs for pork industry intermediaries
are $0.015 per pound, for a total of $101 million, a reduction of $267
million from the PRIA estimate. The reduction is due to the downward
revision of the volume of pork production estimated to be affected at
the intermediary level and a slightly lower per pound cost estimate.
Costs for retailers of pork are estimated to be $0.04 per pound.
The per-pound cost estimate for pork is lower than for beef primarily
to reflect the higher costs incurred by in-store grinding operations to
produce ground beef. Although ground pork may also be produced in-
store, most ground pork is processed into sausage and other products
not covered by the rule. Total estimated costs for pork retailers are
$93 million, a 40 percent decrease from the PRIA estimate. Total costs
for the pork sector are estimated at $299 million, which is $374
million less than the PRIA upper range estimate.
Costs per head for lamb and goat producers are estimated at $3.50
per head. Total costs for lamb and goat producers are estimated at $10
million, which is $5 million less than the PRIA estimate even with the
addition of goat.
Intermediaries in the lamb and goat sector will likely face per-
pound costs similar to costs faced by beef and pork sector
intermediaries, which are estimated at $0.015 per pound. Total costs
for lamb and goat sector intermediaries are thus estimated at $5
million, which is $2 million less than the PRIA upper range estimate.
Costs to retailers for lamb and goat should be similar to costs
borne for pork, which was estimated at $0.04 per pound. Total costs for
retailers of lamb and goat are estimated at $5 million, which is $4
million lower than the PRIA upper range estimate.
Summing the estimates for producers, intermediaries, and retailers
results in estimated costs of $21 million for the lamb and goat
industries. This total is $11 million less than the PRIA upper range
estimate even with the inclusion of goat as a covered commodity.
Costs for chicken producers who grow-out chicken for an integrator
(the firm that will slaughter and possibly further process the
chickens) is $0.00 because these individuals do not own or control the
movement of the chickens they are raising. All chickens produced are
owned, and their movement is controlled, by the integrator, which is
the main intermediary in the chicken supply chain. We do not expect
that producers will need change any current practices and thus will not
incur any additional costs due to this rule.
Costs for the intermediaries in the chicken supply chain are
estimated to be $0.005 per pound. Since the integrators own their
chickens from the time they hatch to time they are sold to a retailer
or distributor, there is no need to ``collect'' country of origin
information. Costs to the integrator are mainly due to system changes
to incorporate COOL information into existing recordkeeping systems and
supplying required information to the retailers and food distributors.
Approximately 69 percent of chicken covered by COOL is supplied
directly to the retailer from the integrator. The vast majority, if not
all, of the chicken supplied by the integrator is pre-labeled. The bulk
of the rest is supplied by the distributors whose costs will be
slightly higher since they are receiving product from integrators and
selling product to retailers. Total costs for intermediaries are
estimated at $139 million.
Costs for retailers are estimated to be $0.0025 per pound. As noted
above, most, if not all, chicken is purchased directly from integrators
and will have been pre-labeled. This will significantly lower the
retailers cost in terms of meeting COOL requirements. Most of the costs
retailers will bear will be from distributors. Total cost for retailers
are $44 million.
Total estimated costs for chicken producers, intermediaries, and
retailers are $183 million. Since chicken costs were not included in
the PRIA, the total estimated costs for chicken is an increase in the
total cost of covered commodities in the PRIA.
Although fruit, vegetable, and ginseng producers maintain the types
of records that will be required to substantiate United States origin
claims, it is believed that this information is not universally
transferred by producers to purchasers of their products. Producers
will have to supply this type of information in a format that allows
handlers and processors to maintain country of origin information so
that it can be accurately transferred to retailers.
[[Page 45134]]
For fruit, vegetable, and ginseng producers, costs are estimated at
$0.00025 per pound to make and substantiate COOL claims, which equates
to $0.01 for a 40 pound container. Because fruits and vegetables only
have a single point of origin, which is where they are grown,
substantiating country of origin claims is substantially simpler for
fruit and vegetable producers than for livestock producers. Total costs
for fruit, vegetable, and ginseng producers are estimated at $30
million, which is $6 million higher than the PRIA upper range estimate
for fruits and vegetables due to higher levels of production in 2006.
Fruit, vegetable, and ginseng intermediaries will shoulder a
sizeable portion of the burden of tracking and substantiating country
of origin information. Intermediaries will need to obtain information
to substantiate COOL claims by producers and suppliers; maintain COOL
identity throughout handling, processing, and distribution; and supply
retailers with COOL information through product labels and records. The
estimated cost for these activities for fruit and vegetable sector
intermediaries is $0.005 per pound, resulting in total estimated costs
of $497 million. This amount is $83 million less than the PRIA upper
range estimate because of the lowered estimate of the volume of
production affected by the rule.
Because intermediaries will bear a large portion of the burden of
COOL tracking and labeling, implementation costs for retailers will be
reduced. It is believed that virtually all frozen fruits and vegetables
will be labeled by suppliers, thus imposing minimal incremental costs
for retailers. In addition, over 60 percent of fresh fruits and
vegetables arrive at retail with labels or stickers that may be used to
provide COOL information. It is believed that fresh fruit and vegetable
suppliers will provide COOL information on these labels and stickers,
again imposing minimal incremental costs for retailers. Costs for
retailers are estimated at $0.005 per pound of fresh and frozen fruits
and vegetables, $0.005 less than the amount assumed for the PRIA upper
range estimates. The lower per-unit cost is supported by the revised
recordkeeping requirements. For pre-labeled products, the label itself
is sufficient evidence on which the retailer may rely to establish a
product's country of origin. For these pre-labeled products, the
product label or sticker carries the required country of origin
information, while the recordkeeping system maintains the information
necessary to track the product back through the supply chain. Total
costs for fruits, vegetables, and ginseng at retail are estimated at
$235 million, a reduction of $485 million from the PRIA. The lowered
cost estimate is attributable to both a lowered estimate of the volume
of affected production and a lowered estimated cost per unit for
retailers.
Costs per pound for each segment of the peanut, macadamia nut, and
pecan industries is estimated at $0.00025 for producers, $0.005 for
intermediaries and $0.015 for retailers. As a result, costs for the
peanut, macadamia nut, and pecan industries are estimated at about
$400,000, with negligible costs for producers and costs of less than
$200,000 at the intermediary and retailer levels. Total upper range
costs for all the peanut sectors were estimated at $8 million in the
PRIA. The reduced estimates are due to the drastically lowered
estimates of the volumes of affected peanut, macadamia nut, and pecan
production.
Total incremental costs are estimated for this rule at $450 million
for producers, $1,115 million for intermediaries and $952 million for
retailers for the first year. Total incremental costs for all supply
chain participants are estimated at $2,517 million for the first year,
a reduction of $1,365 million from the PRIA upper range estimate even
though a number of new commodities have been added for COOL coverage.
The reduced estimates are due to lower volumes of affected products at
the intermediary as well as the retailer level and slightly lower cost
estimates.
There are wide differences in average estimated implementation
costs for individual entities in different segments of the supply chain
(Table 4). With the exception of a small number of chicken producers,
producer operations are single-establishment firms. Thus, average
estimated costs per firm and per establishment are somewhat similar.
Retailers subject to the rule operate an average of just over nine
establishments per firm. As a result, average estimated costs per
retail firm also are just over nine times larger than average costs per
establishment.
Table 4--Estimated Implementation Costs per Firm and Establishment
------------------------------------------------------------------------
Cost estimates per
---------------------------
Firm Establishment
------------------------------------------------------------------------
Producer.................................... $376 $376
Intermediary................................ 53,948 50,598
Retailer.................................... 235,551 26,149
------------------------------------------------------------------------
Average estimated implementation costs per producer are relatively
small at $376. This is $67 per firm lower than the PRIA estimates. The
difference is attributable to the reduction in the number of peanut
producers. Estimated costs for intermediaries are substantially larger,
averaging $53,948 per firm and $50,598 per establishment. The average
cost per firm is $3,862 higher than the PRIA upper range estimated
cost, with the higher cost attributable to the lower number of
estimated firms. Similarly, the average cost per intermediary
establishment is $7,996 higher than PRIA the upper range estimate due
to the lower number of establishments. At an average of $235,551 per
firm, retailers have the highest average estimated costs per firm. This
is $160,538 lower than the PRIA upper range estimate. The lower
estimated cost per retailer is attributable to the reduction in the
number of retailing firms from the PRIA time period and the lower total
estimated costs. Retailers' average estimated costs per establishment
are $26,149. This amount is $21,924 lower than the PRIA upper range
estimate.
The costs per firm and per establishment represent industry
averages for aggregated segments of the supply chain. Large firms and
establishments likely will incur higher costs relative to small
operations due to the volume of commodities that they handle and the
increased complexity of their operations. In addition, different types
of businesses within each segment are likely to face different costs.
Thus, the range of costs incurred by individual businesses within each
segment is expected to be large, with some firms incurring only a
fraction of the average costs and other firms incurring costs many
times larger than the average.
Average costs per producer operation can be calculated according to
the commodities that they produce (Table 5). Average estimated costs
are lowest for lamb and goat producers ($128) and highest for hog
operations ($1,599). Again, chicken ``producers'' do not own or control
the movement of the birds they are growing-out. We do not expect that
the rule will result in any changes in their current production
practices, and thus their average cost is zero. Because average
production volume per hog operation is large relative to other types of
producer operations, estimated costs per hog operation are large
relative to other producer operations.
[[Page 45135]]
Table 5--Estimated First-Year Implementation Costs per Producer
Operation
------------------------------------------------------------------------
Average
Producer cost
------------------------------------------------------------------------
Beef....................................................... $314
Lamb & Goats............................................... 128
Pork....................................................... 1,599
Chicken.................................................... 0
Fruits, Vegetables & Ginseng............................... 376
Peanuts, Pecans, & Macadamia Nuts.......................... 258
------------------------------------------------------------------------
It is believed that the major cost drivers for the rule occur when
livestock or covered commodities are transferred from one firm to
another, when livestock or covered commodities are commingled in the
production or marketing process, and when products are assembled and
then redistributed to retail stores. In part, some requirements of the
rule will be accomplished by firms using essentially the same processes
and practices as are currently used, but with information on country of
origin claims added to the processes. This adaptation generally would
require relatively small marginal costs for recordkeeping and
identification systems. In other cases, however, firms may need to
revamp current operating processes to implement the rule. For example,
a processing or packing plant may need to sort incoming products by
country of origin in addition to weight, grade, color, or other quality
factors. This may require adjustments to plant operations, line
processing, product handling, and storage. Ultimately, it is
anticipated that a mix of solutions will be implemented by industry
participants to effectively meet the requirements of the rule.
Therefore, it is anticipated that direct, incremental costs for the
rule likely will fall within a reasonable range of the estimated total
of $2,517 million.
In the PRIA, one regulatory alternative considered by AMS would be
to narrow the definition of a processed food item, thereby increasing
the scope of commodities covered by the rule. This alternative is not
adopted in this rule. An increase in the number of commodities that
would require COOL would increase implementation costs of the rule with
little expected economic benefit. Additional labeling requirements may
also slow some of the innovation that is occurring with various types
of value-added, further processed products.
A different regulatory alternative would be to broaden the
definition of a processed food item, thereby decreasing the scope of
commodities covered by the rule. Accordingly, such an alternative would
decrease implementation costs for the rule. At the retail level and to
a lesser extent at the intermediary level, cost reductions would be at
least partly proportional to the reduction in the volume of production
requiring retail labeling, although if the broader definition excluded
products for which incremental costs are relatively high, such as beef
products, the impact could be more than proportional. Start-up costs
for retailers and many intermediaries likely would be little changed by
a narrowing of the scope of commodities requiring labeling because
firms would still need to modify their recordkeeping, production,
warehousing, distribution, and sales systems to accommodate the
requirements of the rule for those commodities that would require
labeling. Ongoing maintenance and operational costs, however, likely
would decrease in some proportion to a decrease in the number of items
covered by the rule. On the other hand, implementation costs for the
vast majority of agricultural producers would not be affected by a
change in the definition of a processed food item. This is because it
is assumed that virtually all affected producers would seek to retain
the option of selling their products through supply channels for
retailers subject to the rule. Agricultural producers generally would
have little influence on the ultimate product form in which their
products are sold at retail, and thus would be little affected by
changes in the definition of a processed food item.
The definition of a processed food item developed for this rule has
taken into account comments from affected entities and has resulted in
excluding products that would be more costly and troublesome for
retailers and suppliers to provide country of origin information. Total
incremental costs for this rule are estimated at $1,365 million less
than the upper range costs estimated in the PRIA, with much of the
reduction attributable to the revised definition of a processed food
item.
Net Effects on the economy: The previous section estimated the
direct, incremental costs of the rule to the affected firms in the
supply chains for the covered commodities. While these costs are
important to those directly involved in the production, distribution,
and marketing of covered commodities, they do not represent net costs
to the United States economy or net costs to the affected entities for
that matter.
With respect to assessing the net effect of this rule on the
economy as a whole, it is important to understand that a significant
portion of the costs directly incurred by the affected entities take
the form of expenditures for additional production inputs, such as
payments to others whether for increased hours worked or for products
and services provided. As such, these direct, incremental costs to
affected entities represent opportunity costs of the rule, but they do
not represent net losses to the economy. As a result, the direct costs
incurred by the participants in the supply chains for the covered
commodities do not measure the net impact of this rule on the economy
as a whole. Instead, the relevant measure of net impact is the extent
to which the rule reduces the amount of goods and services that can be
produced throughout the United States economy from the available supply
of inputs and resources.
Even from the perspective of the directly affected entities, the
direct, incremental costs do not present the whole picture. Initially,
the affected entities will have to incur the operational adjustments
and expenses necessary to implement the rule. However, over time as the
economy adjusts to the requirements of the rule, the burden facing
suppliers will be reduced as their production level and the prices they
receive change. What is critical in assessing the net effect of this
rule on the affected entities over the longer run is to determine the
extent to which the entities are able to pass these costs on to others
and consequently how the demand for their commodities is affected.
Conceptually, suppose that all the increases in costs from the rule
were passed on to consumers in the form of higher prices and that
consumers continued to purchase the same quantity of the affected
commodities from the same marketing channels. Under these conditions,
the suppliers of these commodities would not suffer any net loss from
the rule even if the increases in their operating costs were quite
substantial. However, other industries might face losses as consumers
would spend less on other commodities. It is unlikely, however, absent
the rule leading to changes in consumers' preferences for the covered
commodities that consumers will maintain their consumption of the
covered commodities in the face of increased prices. Rather, many or
most consumers will likely reduce their consumption of the covered
commodities. The resulting changes in consumption patterns will in turn
lead to changes in production patterns and the allocation of inputs and
resources
[[Page 45136]]
throughout the economy. The net result, once all these changes have
occurred, is that the total amount of goods and services produced by
the United States economy will be less than before.
To analyze the effect of the changes resulting from the rule on the
total amount of goods and services produced throughout the United
States economy in a global context, a computable general equilibrium
(CGE) model developed by the Economic Research Service (ERS) is
utilized (Ref. 4). The ERS CGE model includes all the covered
commodities and the products from which they are derived, as well as
non-covered commodities that will be indirectly affected by the rule,
such as feed grains. Even though COOL for fish was implemented in 2004,
the costs for fish and shellfish are included here to account for the
cross-commodity effects between covered commodities. Ignoring the costs
for fish and shellfish would result in assuming that COOL did not apply
to fish and the cross-commodity effects may be distorted. Peanuts,
however, are aggregated with oilseeds in the model, and there is no
meaningful way to modify the model to account for the impacts of the
rule on peanut production, processing, and consumption. Given the
revised definition of a processed food item, almost all peanut products
are exempt from this rule. As a consequence, the peanut sector accounts
for only a negligible fraction of the total estimated incremental costs
for all directly affected entities. Thus, omitting the small direct
costs on the peanut sector is expected to have negligible impacts with
respect to estimated net impacts on the overall United States economy.
The ERS CGE model traces the impacts from an economic ``shock,'' in
this case a permanent incremental increase in costs of production,
through the U.S agricultural sector and the U.S economy to the rest of
the world and back through the inter-linking of economic sectors. By
taking into account the linkages among the various sectors of the
United States and world economies, a comprehensive assessment can be
made of the economic impact on the United States economy of the rule
implementing COOL. The model reports economic changes resulting after a
ten-year period of adjustment.
The results of this analysis indicate that the rule implementing
COOL after the economy has had a period of ten years to adjust will
have a smaller net impact on the overall United States economy than the
incremental costs for directly affected entities for the first year.
Under the assumption that COOL will not change consumers' preferences
for the covered commodities, it is estimated that the overall net costs
to the United States economy due to the rule, in terms of a reduction
in consumers' purchasing power, will be $211.9 million. This represents
the net cost to the United States economy after all transfers and
adjustments in consumption and production patterns have occurred.
Overall net costs to the United States economy after a decade of
adjustment are significantly smaller than the implementation costs to
directly affected firms. This result does not imply that the
implementation costs for directly affected firms have been
substantially reduced from the initial estimates. While some of the
increase in their costs will be offset by reduced production and higher
prices over the longer term, the suppliers of the covered commodities
will still bear direct implementation costs.
The estimates of the overall net costs to the United States economy
are based on the estimates of the incremental increases in operating
costs to the affected firms. The model does not permit supply channels
for covered commodities that require country of origin information to
be separated from supply channels for the same commodities that do not
require COOL. Thus, the direct cost impacts must be adjusted to
accurately reflect changes in operating costs for all firms supplying
covered commodities. Table 6 reports these adjusted estimates in terms
of their percentage of total operating costs for each of the directly
affected sectors. The percentages used are based on the estimate of the
percentage change in operating costs for the entire supply channel and
are adjusted between the various segments of each covered commodities'
supply chain (producers, processors, importers, and retailers) based on
the estimate of how the costs of the regulation will be distributed
among them. As a result, the cost changes shown in Table 6 only
approximate the direct cost estimates previously described.
[[Page 45137]]
[GRAPHIC] [TIFF OMITTED] TR01AU08.000
In addition, it is assumed that domestic and foreign suppliers of
the affected commodities located at the same level or segment of the
supply chain face the same percentage increases in their operating
costs. In reality, the incremental costs for some imported covered
commodities may be lower, as a portion of those products already enter
the United States with country of origin labels.
The percentage changes in operating costs reported in Table 6
differ from the percentage changes in operating costs reported for the
High Cost scenario as listed in Table 8 in the PRIA. The differences in
percentage changes reported in the PRIA and those reported here are
attributable to changes in implementation costs of the rule as well as
recalibration of our estimates of total operating costs for the various
segments of the supply channels of the directly affected sectors. Thus,
for example, even though changes in the rule reduced our estimate of
the incremental costs incurred by intermediaries and retailers in the
beef and lamb sectors, the recalibration of our estimate of their
operating costs causes the estimated percentage change in costs applied
to processing and retailing segments of these sectors to increase.
As discussed above, consumption and production patterns will change
as the incremental increases in operating costs outlined above are
passed on, at least partially, to consumers in the form of higher
prices by the affected firms. The increases in the prices of the
covered commodities will in turn cause exports and domestic consumption
and ultimately domestic production to fall. The results of our analysis
indicate that United States production of all the covered commodities
combined will decline 0.02 percent and that the overall price level for
these commodities (a weighted average index of the prices received by
suppliers for their commodities) will increase by 0.02 percent.
The structure of the model does not enable changes in net revenues
to suppliers of the covered commodities to be determined. Likewise, the
model cannot be used to determine the extent to which the reductions in
production arise from some firms going out of business or all firms
cutting back on their production. To provide an indication of what
effect this will have on the suppliers of the covered commodities,
changes in revenues using the model results are estimated. The result
of this calculation shows that revenues to suppliers of the covered
commodities will decrease by $461 million. This decrease in revenue is
due to the decrease in estimated revenues in all the covered
commodities; all affected sectors show a small revenue decrease due to
the increased costs of the rule.
The costs of the rule will not be shared equally by all suppliers
of the covered commodities. The distribution of the costs of the rule
will be determined by several factors in addition to the direct costs
of complying with the rule. These are the availability of substitute
products not covered by the rule and the relative competitiveness of
the affected suppliers with respect to other sectors of the U.S. and
world economies.
Although the increases in operating costs are the initial drivers
behind the changes in consumption and production patterns resulting
from this rule, they do not, as can be seen by examining Table 7,
determine which commodity sector will be most affected. Table 7
contains the percentage changes in prices, production, exports, and
imports for the three main segments of the marketing chain by covered
commodities.
[[Page 45138]]
Table 7--Estimated Impact of Rule on U.S. Production, Prices and Trade of Impacted Sectors
----------------------------------------------------------------------------------------------------------------
Exports Imports
Commodity Price Production (volume) (volume)
----------------------------------------------------------------------------------------------------------------
Percent change from base year
---------------------------------------------------
Fruits and Vegetables....................................... 0.21 -0.20 -0.39 0.04
Cattle and Sheep............................................ 0.52 -0.94 -1.18 0.25
Broilers.................................................... 0.03 -0.56 -0.36 -0.03
Hogs........................................................ 0.26 -0.46 -0.60 0.16
Beef and Veal............................................... 0.99 -1.09 -1.93 -2.32
Chicken..................................................... 0.82 -0.90 -1.54 0.29
Pork........................................................ 0.68 -0.81 -1.37 -0.86
Fish........................................................ 0.50 -0.68 -0.06 0.04
----------------------------------------------------------------------------------------------------------------
As mentioned previously, peanuts, macadamia nuts, and pecans are
included with oilseed products in the ERS CGE model. As a result, they
are not included in this analysis.
The rule increases operating costs for the supply chains of the
covered commodities. As shown in Table 7, the increased costs result in
higher prices for these products. The quantity demanded at these higher
prices falls, with the result that the production of all of the covered
commodities decreases.
Imports of fruits, vegetables, cattle, sheep, chicken, fish, and
hogs increase because United States domestic suppliers respond more to
changes in their operating costs than do foreign suppliers. The
resulting gap between the supply response of United States and foreign
producers provides foreign suppliers with a cost advantage in United
States markets that enables them to increase their exports to the
United States even though they face similar increases in operating
costs.
To put these impacts in more meaningful terms, the percentage
changes reported in Table 7 were converted into changes in current
prices and quantities produced, imported, and exported (Table 8). The
base values in Table 8 vary from those reported in Table 2 above
because they are derived from projected levels reported in the USDA
Agricultural Baseline for 2006 (Ref. 18), while values in Table 2
represent actual reported values for 2006 as compiled by USDA's NASS.
Baseline values were used to accommodate the structure of the model.
Increases in prices for all covered commodities are small, less
than one cent per pound. Production changes are similarly small, less
than 100 million pounds for all covered commodities. The declines in
the production of cattle, broilers, and hogs mirrors the declines in
the production of beef, chicken, and pork.
Table 8--Estimated Changes in U.S. Production Prices, and Trade for
Affected Commodities
------------------------------------------------------------------------
Change from
Indicator Units Base base
------------------------------------------------------------------------
U.S. Production:
Veg. & Fruits............ Mil. Lbs....... 191,523 -383
Cattle................... Thous. Hd...... 32,229 -303
Broilers................. Mil. Hd........ 6,503 -36
Hogs..................... Thous. Hd...... 103,015 -474
Beef..................... Mil. Lbs....... 24,784 -270
Chicken.................. Mil. Lbs....... 35,733 -322
Pork..................... Mil. Lbs....... 20,706 -168
Fish..................... Mil. Lbs....... 7,997 -54
U.S. Price:
Veg. & Fruits............ $/Lb........... 0.25 0.0005
Cattle and sheep......... $/Cwt.......... 89.55 0.4657
Broilers................. $/Lb........... 0.43 0.0001
Hogs..................... $/Cwt.......... 49.62 0.1290
Beef and veal............ $/Lb........... 4.09 0.0405
Chicken.................. $/Lb........... 1.74 0.0143
Pork..................... $/Lb........... 2.83 0.0192
Fish..................... $/Lb........... 0.93 0.0047
U.S. Exports (volume):
Fruits & Vegetables...... Mil. Lbs....... 19,990 -78
Beef..................... Mil. Lbs....... 697 -13
Chicken.................. Mil. Lbs....... 5,203 -80
Pork..................... Mil. Lbs....... 2,498 -34
Fish..................... Mil. Lbs....... 6,384 -4
U.S. Imports (volume):
Fruits & Vegetables...... Mil. Lbs....... 37,573 15
Beef..................... Thous. Hd...... 2,502 -58
Chicken.................. Mil. Hd........ 0 0
Pork..................... Thous. Hd...... 5,741 -49
[[Page 45139]]
Fish..................... Mil. Lbs....... 10,158 4
------------------------------------------------------------------------
Sources: Base values for meat and fruits and vegetables come from USDA
Agricultural Baseline Projections to 2016, Staff Report WAOB-2007-1.
USDA, Office of the Chief Economist, 2007. Changes are derived from
applying percentage changes obtained from the ERS CGE model to the
base values. \a\ Live animal estimates derived from baseline values
for meat product using 2005 average dress weight for cattle, hogs and
broilers. \b\ Base values for fish come from Fisheries of the United
States, 2005. National Marine Fisheries Service, National Oceanic and
Atmospheric Administration, U.S. Department of Commerce, 2006. \c\
Fruit and vegetable price derived by dividing the total value of fruit
and vegetable production by total quantity of fruit and vegetables
produced as reported in USDA baseline for 2005. \d\ Fish price derived
by dividing total value of commercial and aquaculture production,
excluding other, by total commercial and aquaculture production.
The estimated changes in prices and production cause revenues for
the fruit and vegetable industry to increase an estimated $5 million.
The small revenue increase in the fruit and vegetable industry is
attributed to the fact that the price increase just offsets the
production decrease. The estimated changes in production and prices
result in revenues decreasing by $94 million for beef cattle producers
while revenues from production and sale of beef decrease by an
estimated $112 million dollars. Revenues for broiler production decline
by $91 million and revenues for the production and sale of chicken
decrease by $54 million. In addition, revenues for hog production
decrease by $21 million and revenues from production and sale of pork
decrease by $79 million. Finally, revenues to the fish industry fall by
nearly $14 million.
The increase in the prices of all affected commodities causes
exports to decline (Table 8). These declines are small; they are for
the most part smaller than the declines in United States production of
these commodities.
The ERS CGE model assumes that firms behave as though they have no
influence on either their input or output prices. On the other hand, a
model that assumed that processors could influence their input and
output prices could find that prices received by agricultural producers
decreased because processors passed their cost increases down to their
suppliers rather than increase the price they charged their customers.
The estimates of the net economic impact of the rule on the United
States are based on the assumption that country of origin labeling does
not shift consumer demand toward the covered commodities of United
States origin. This assumption is based on the earlier finding that
there was no compelling evidence to support the view that mandatory
COOL will increase the demand for United States products. Despite this
lack of evidence, we examine how much of a shift or increase in demand
for commodities of United States origin would have to occur to offset
the costs imposed on the economy by the rule. Consumer demand for the
covered commodities would have to increase 0.90 percent to offset the
costs to the economy of COOL as outlined in the rule.
The hypothetical 0.90 percent increase in demand for covered
commodities represents the overall increase (shift) in demand from all
outlets. If there were such a demand increase for domestically produced
covered commodities, however, it would presumably occur at those
retailers required to provide country of origin information. As
previously discussed, the percentage share of covered commodities sold
by retailers subject to this rule is estimated at 47.0 percent of total
consumption. This indicates that demand at covered retailers would need
to increase by 1.9 percent for purposes of this hypothetical exercise,
assuming no change in demand at other domestic outlets or in export
demand.
As previously mentioned, the estimates of the overall net economic
effects of the rule are derived from a CGE model developed by ERS. The
results from this model show the changes in production and consumption
patterns after the economy has adjusted to the incremental increase in
costs (medium run results). Such changes occur over time and the
economy does not adjust instantaneously.
The results of this analysis describe and compare the old
production and consumption patterns to the new ones, but do not reflect
any particular adjustment process. The purpose of using the ERS CGE
model is not to forecast what prices and production will be over any
particular time frame, but to explore the net implications of COOL on
the United States economy and capture the direction of the changes.
The ERS CGE model is global in the sense that all regions in the
world are covered. Production and consumption decisions in each region
are determined within the model following behavior that is consistent
with economic theory. Multilateral trade flows and prices are
determined simultaneously by world market clearing conditions. This
permits prices to adjust to ensure that total demand equals total
supply for each commodity in the world.
The general equilibrium feature of the model means that all
economic sectors--agricultural and non-agricultural--are included.
Hence, resources can move among sectors, thereby ensuring that
adjustments in the feed grains and livestock sectors, for example, are
consistent with adjustments in the processed sectors.
The model is static and this implies that gains (or losses) from
stimulating (or inhibiting) investment and productivity growth are not
captured. The model allows the existing resources to move among
sectors, thereby capturing the effects of re-allocation of resources
that are the result of policy changes. However, because the model fixes
total available resources, it likely significantly underestimates the
long-run effects of policies on aggregate output. For example, the 10-
year average real growth of GDP between 1997 and 2007 was approximately
3.1% (Ref 8). If applied to the next 10 years, this implies an economy
approximately 36% larger at the end of this analysis than at the
beginning of this analysis.
The ERS CGE model uses data from the Global Trade Analysis Project
(GTAP database, version 7.2). The database represents the world as of
2004 and includes information on macroeconomic variables, production,
consumption, trade, demand and supply elasticities, and policy
measures. The GTAP database includes 57 commodities and 101 countries/
regions. For this analysis, the regions were represented by the
following country/regions: The United States, Canada, Mexico, the
European Union-25 (EU), Oceania, China, Other East Asian Countries,
India, Other South Asian Countries, South America and Central America,
OPEC Countries, Russia, Africa and the rest of the World. The
agricultural sector is subdivided into the following 7 commodity
aggregations: Rice, wheat, corn, other feed grains (barley, sorghum),
soybeans, sugar (cane
[[Page 45140]]
and beets), vegetables and fresh fruits, other crops (cotton, peanuts),
cattle and sheep, hogs and goats, poultry, and fish. The food
processing sectors are subdivided into the following 6 commodity
aggregations, bovine cattle and sheep meat, pork meat, chicken meat,
vegetable oils and fats, other processed food products, beverages and
tobacco, and fish. The remaining sectors in the database were
represented by 18 aggregated non-agricultural sectors.
Interim Final Regulatory Flexibility Analysis
This rule has been reviewed under the requirements of the
Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.). The purpose of
RFA is to consider the economic impact of a rule on small businesses
and evaluate alternatives that would accomplish the objectives of the
rule without unduly burdening small entities or erecting barriers that
would restrict their ability to compete in the marketplace. The Agency
believes that this rule will have a significant economic impact on a
substantial number of small entities. As such, the Agency has prepared
the following regulatory analysis of the rule's likely economic impact
on small entities pursuant to the RFA. The Comments and Responses
section lists the comments received on the preliminary RFA and provides
the Agency's responses to the comments.
The rule is the direct result of statutory obligations to implement
the COOL provisions of the 2002 and 2008 Farm Bills. The Act requires
USDA to issue regulations to implement a mandatory COOL program for the
remaining covered commodities not later than September 30, 2008. The
intent of this law is to provide consumers with additional information
on which to base their purchasing decisions. Specifically, the law
imposes additional Federal labeling requirements for covered
commodities sold by retailers subject to the law. Covered commodities
include muscle cuts of beef (including veal), lamb, pork, chicken, and
goat; ground beef, ground lamb, ground pork, ground goat, and ground
chicken; perishable agricultural commodities; ginseng; peanuts;
macadamia nuts; and pecans.
Under preexisting Federal laws and regulations, COOL is not
universally required for the commodities covered by this rule. In
particular, labeling of United States origin is not mandatory, and
labeling of imported products at the consumer level is required only in
certain circumstances. Thus, the Agency has not identified any Federal
rules that would duplicate or overlap with this rule.
Many aspects of the mandatory COOL provisions are prescriptive and
provide little regulatory discretion in rulemaking. The law requires a
statutorily defined set of food retailers to label the country of
origin of covered commodities. The law also prohibits USDA from using a
mandatory identification system to verify the country of origin of
covered commodities. However, the rule provides flexibility in allowing
market participants to decide how best to implement mandatory COOL in
their operations. Market participants other than those retailers
defined by the statute may decide to sell products through marketing
channels not subject to the rule. Taking into account comments received
on the proposed rule, the rule decreases the length of time that
records are required to be kept, providing some relief to affected
entities both large and small. A complete discussion of the information
collection and recordkeeping requirements and associated burdens
appears in the Paperwork Reduction Act section. In addition, although
recent amendments have added additional covered commodities, the number
of products required to be labeled is reduced because the definition of
a processed food item has been broadened, thus providing additional
regulatory relief.
The objective of the rule is to regulate the activities of
retailers (as defined by the law) and their suppliers so that retailers
will be able to fulfill their statutory obligations. The rule requires
retailers to provide country of origin information for all of the
covered commodities that they sell. It also requires all firms that
supply covered commodities to these retailers to provide the retailers
with the information needed to correctly label the covered commodities.
In addition, all other firms in the supply chain for the covered
commodities are potentially affected by the rule because country of
origin information will need to be maintained and transferred along the
entire supply chain. In general, the supply chains for the covered
commodities consist of farms, processors, wholesalers, and retailers. A
listing of the number of entities in the supply chains for each of the
covered commodities can be found in Table 1.
Retailers covered by this rule must meet the definition of a
retailer as defined by the Perishable Agricultural Commodities Act of
1930 (PACA). The PACA definition includes only those retailers handling
fresh and frozen fruits and vegetables with an invoice value of at
least $230,000 annually. Therefore, the number of retailers affected by
this rule is considerably smaller than the total number of retailers
nationwide. In addition, there is no requirement that firms in the
supply chain must supply their products to retailers subject to the
rule.
Because country of origin information will have to be passed along
the supply chain and made available to consumers at the retail level,
it is assumed that each participant in the supply chain as identified
in Table 1 will likely encounter recordkeeping costs as well as changes
or modifications to their business practices. Absent more detailed
information about each of the entities within each of the marketing
channels, it is assumed that all such entities will be affected to some
extent even though some producers and suppliers may choose to market
their products through channels not subject to the requirements of this
rule. Therefore, it is estimated that approximately 1,256,000
establishments owned by approximately 1,222,000 firms will be either
directly or indirectly affected by this rule. The only changes from the
Preliminary Regulatory Impact Analysis (PRIA) are reductions in the
numbers of affected firms and establishments in the peanut sector and
the addition of chicken, goat, ginseng, macadamia nuts, and pecans as
covered commodities. These changes and the use of more up-to-date
information resulted in the number of establishments and firms
decreasing from the PRIA.
This rule potentially will have an impact on all participants in
the supply chain, although the nature and extent of the impact will
depend on the participant's function within the marketing chain. The
rule likely will have the greatest impact on retailers and
intermediaries (handlers, processors, wholesalers, and importers),
while the impact on individual producers is likely to be relatively
small.
The direct incremental costs are estimated for the rule at
approximately $2,517 million. The decrease in the direct incremental
cost in the rule as compared to the PRIA is mainly the result of
broadening the definition of a processed food item, which exempts more
products from the labeling requirements of the rule.
There are two measures used by the Small Business Administration
(SBA) to identify businesses as small: Sales receipts or number of
employees. In terms of sales, SBA classifies as small those grocery
stores with less than $25 million in annual sales and specialty food
stores with less than $6.5 million
[[Page 45141]]
in annual sales (13 CFR 121.201). Warehouse clubs and superstores with
less than $25 million in annual sales are also defined as small. SBA
defines as small those agricultural producers with less than $750,000
in annual receipts. Of the other businesses potentially affected by the
rule, SBA classifies as small those manufacturing firms with less than
500 employees and wholesalers with less than 100 employees.
Retailers: While there are many potential retail outlets for the
covered commodities, food stores, warehouse clubs, and superstores are
the primary retail outlets for food consumed at home. In fact, food
stores, warehouse clubs, and superstores account for 75.6 percent of
all food consumed at home (Ref. 9). Therefore, the number of these
stores provides an indicator of the number of entities potentially
affected by this rule. The 2002 Economic Census (Ref. 10) shows there
were 42,318 food store, warehouse club, and superstore firms operated
for the entire year. Most of these firms, however, would not be subject
to the requirements of this rule.
The law defines the term retailer as having the meaning given that
term in section 1(b) of the Perishable Agricultural Commodities Act of
1930 (PACA). Thus, under this interim final rule, a retailer is defined
as any person licensed as a retailer under PACA. The number of such
businesses is estimated from PACA data (Ref. 11). The PACA definition
of a retailer includes only those retailers handling fresh and frozen
fruits and vegetables with an invoice value of at least $230,000
annually. Therefore, the number of retailers affected by this rule is
considerably smaller than the number of food retailers nationwide. USDA
data indicate that there are 4,040 retail firms as defined by PACA that
would thus be subject to the rule. As explained below, most small food
store firms have been excluded from mandatory COOL based on the PACA
definition of a retailer.
The 2002 Economic Census data provide information on the number of
food store firms by sales categories. Of the 42,318 food stores,
warehouse club, and superstore firms, an estimated 41,629 firms had
annual sales meeting the SBA definition of a small firm plus 689 other
firms that would be classified as above the $25 million threshold. USDA
has no information on the identities of these firms, and the PACA
database does not identify firms by North American Industry
Classification System code that would enable matching with Economic
Census data. USDA assumes, however, that all or nearly all of the 689
large firms would meet the definition of a PACA retailer because most
of these larger food retailers likely would handle fresh and frozen
fruits and vegetables with an invoice value of at least $230,000
annually. Thus, an estimated 83 percent (3,351 out of 4,040) of the
retailers subject to the rule are small. However, this is only 8.0
percent of the estimated total number of small food store retailers. In
other words, an estimated 92.0 percent of small food store retailers
would not be subject to the requirements of the rule.
Retailer costs under the rule are estimated at $952 million. Costs
are estimated at $235,551 per retail firm and $26,149 per retail
establishment. These estimated costs are lower than the PRIA upper
range estimates. Retailers will face recordkeeping costs, costs
associated with supplying country of origin information to consumers,
and possibly additional handling costs. These cost increases may result
in changes to retailer business practices. The rule does not specify
the systems that affected retailers must put in place to implement
mandatory COOL. Instead, retailers will be given flexibility to develop
or modify their own systems to comply with the rule. There are many
ways in which the rule's requirements may be met and firms will likely
choose the least cost method in their particular situation to comply
with the rule.
Wholesalers: Any establishment that supplies retailers with one or
more of the covered commodities will be required by retailers to
provide country of origin information so that retailers can accurately
supply that information to consumers. Of wholesalers potentially
affected by the rule, SBA defines those having less than 100 employees
as small. Importers of covered commodities will also be affected by the
rule and are categorized as wholesalers in the data.
The 2004 Statistics of U.S. Businesses (Ref. 12) provides
information on wholesalers by employment size. For meat and meat
products wholesalers there is a total of 2,509 firms. Of these, 2,401
firms have less than 100 employees. This indicates that approximately
96 percent of meat wholesalers are considered as small firms using the
SBA definition.
There are 510 chicken wholesaler/distributor firms operating 564
facilities. Of these, there are 332 firms which have less than 100
employees, resulting in approximately 65 percent of the chicken
wholesalers/distributors being classified as small businesses.
For fresh fruit and vegetable wholesalers there are a total of
4,654 firms. Of these, 4,418 firms have less than 100 employees,
resulting in approximately 95 percent of the fresh fruit and vegetable
wholesalers being classified as small businesses.
While information on ginseng wholesalers is not available, 46
dealers have been identified and they would all be considered as small
businesses.
In addition to specialty wholesalers that primarily handle a single
covered commodity, there are also general-line wholesalers that handle
a wide range of products. It is assumed that these general-line
wholesalers likely handle at least one and possibly all of the covered
commodities. Therefore, the number of general-line wholesale businesses
is included among entities affected by the rule.
The 2004 Statistics of U.S. Businesses provides information on
general-line grocery wholesalers by employment size. There were 3,037
firms in total, and 2,858 firms had less than 100 employees. This
results in approximately 94 percent of the general-line grocery
wholesalers being classified as small businesses.
In general, over 94 percent of the wholesalers are classified as
small businesses. This indicates that most of the wholesalers affected
by mandatory COOL may be considered as small entities as defined by
SBA.
It is estimated that intermediaries (importers and domestic
wholesalers, handlers, and processors) will incur costs under the rule
of approximately $1,115 million. Costs are estimated at $53,948 per
intermediary firm and $50,598 per establishment.
Wholesalers will encounter increased costs in complying with
mandatory COOL. Wholesalers will likely face increased recordkeeping
costs, costs associated with supplying country of origin information to
retailers, and possibly costs associated with segmenting products by
country of origin, and additional handling costs. Some of the comments
received on the proposed rule from wholesalers and retailers have
indicated that retailers may choose to source covered commodities from
a single supplier that procures the covered commodity from only one
country in an attempt to minimize the costs associated with complying
with mandatory COOL. These changes in business practices could lead to
the further consolidation of firms in the wholesaling sector. The rule
does not specify the systems that affected wholesalers must use to
implement mandatory COOL. Instead, wholesalers will be given
flexibility to modify or develop their own systems to comply with the
rule. There are many ways in which the rule's requirements
[[Page 45142]]
may be met. In addition, wholesalers have the option of supplying
covered commodities to retailers or other suppliers that are not
covered by the rule.
Manufacturers: Any manufacturer that supplies retailers or
wholesalers with a covered commodity will be required to provide
country of origin information to retailers so that the information can
be accurately supplied to consumers. Most manufacturers of covered
commodities will likely print country of origin information on retail
packages supplied to retailers. Of the manufacturers potentially
affected by the rule, SBA defines those having less than 500 employees
as small.
The 2004 Statistics of U.S. Businesses (Ref. 12) provides
information on manufacturers by employment size. For livestock
processing and slaughtering there is a total of 2,943 firms. Of these,
2,834 firms have less than 500 employees. This suggests that 96 percent
of livestock processing and slaughtering operations would be considered
as small firms using the SBA definition.
For chicken processing there are a total of 38 firms, only two of
which are classified as small. Thus, only 5 percent of the chicken
processors are small businesses.
For frozen fruit, juice, and vegetable manufacturers there is a
total of 155 firms. There are 132 of these firms that are considered to
be small. This suggests that 85 percent of the frozen fruit, juice, and
vegetable manufacturers would be considered as small using the SBA
definition.
There are a total of 161 roasted nuts and peanut butter
manufacturers, which includes firms that do drying. Because only green
and raw peanuts, macadamia nuts, and pecans will require retail country
of origin labeling under this rule, it is estimated that no more than 5
percent of peanut, macadamia nut, and pecan manufacturing firms will be
affected. Therefore, 8 peanut, macadamia nut, and pecan manufacturers
are estimated to be affected, most if not all of which likely could be
considered as small.
In general, approximately 95 percent of the manufacturers are
classified as small businesses. This indicates that most of the
manufacturers of covered commodities impacted by the rule would be
considered as small entities as defined by SBA.
Manufacturers are included as intermediaries and additional costs
for these firms are discussed in the previous section addressing
wholesalers. Manufacturers of covered commodities will encounter
increased costs in complying with mandatory COOL. Manufacturers like
wholesalers will likely face increased recordkeeping costs, costs
associated with supplying country of origin information to retailers,
and possibly costs associated with segmenting products by country of
origin and additional handling costs. Some of the comments received on
the proposed rule from manufacturers have indicated that they may limit
the number of sources from which they procure raw products. These
changes in business practices could lead to the further consolidation
of firms in the manufacturing sector. The rule does not specify the
systems that affected manufacturers must use to implement mandatory
COOL. Instead, manufacturers will be given flexibility to modify or
develop their own systems to comply with the rule. There are many ways
in which the rule's requirements may be met.
Producers: Producers of perishable agricultural commodities,
peanuts, macadamia nuts, pecans, and ginseng are directly affected by
mandatory COOL. Producers of cattle, hogs, sheep, and goats while not
directly covered by this rule, will nevertheless be affected because
covered meat commodities are produced from livestock. Whether directly
or indirectly affected, these producers will more than likely be
required by handlers and wholesalers to maintain country of origin
information and transfer it to them so that they can readily transfer
this information to retailers. Individuals who grow-out chickens for an
integrator are not expected to be affected by this rule.
SBA defines a small agricultural producer as having annual receipts
less than $750,000. The 2002 U.S. Census of Agriculture (Ref. 13) shows
there are 1,018,359 farms that raise beef cows, and 2,458 are estimated
to have annual receipts greater than $750,000. Thus, at least 99
percent of these beef cattle farms would be classified as small
businesses according to the SBA definition. Similarly, an estimated 82
percent of hog farms would be considered as small and an estimated 99
percent of sheep, lamb, and goat farms would be considered as small.
Based on 2002 U.S. Census of Agriculture information, 92 percent of
vegetable farms, 94 percent of fruit, nut, and berry farms, and 91
percent of peanut, macadamia nut, and pecan farms could be classified
as small.
At the production level, agricultural producers will need to
maintain records to establish country of origin for the products they
sell. This information will need to be conveyed as the products move
through the supply chains. In general, additional producer costs
include the cost of modifying and maintaining a recordkeeping system
for the country of origin information, animal or product
identification, and labor and training. Based on our knowledge of the
affected industries as well as comments received on the proposed rule
and the voluntary guidelines, it is believed that producers already
have much of the information available that could be used to
substantiate country of origin claims. Cattle, hog, lamb, sheep,
chicken, and goat producers may have a slightly larger burden for
recordkeeping than fruit, vegetable, ginseng, peanut, macadamia nut,
and pecan producers because animals can be born in one country and fed
and slaughtered in another country. However, this rule provides
flexibility in labeling meat covered commodities of multiple origins.
The costs for producers are expected to be relatively limited and
should not have a larger impact on small producers than large
producers. Producer costs are estimated at $450 million, or an
estimated $376 per firm.
Economic impact on small entities: Information on sales or
employment is not available for all firms or establishments shown in
Table 1. However, it is reasonable to expect that this rule will have a
substantial impact on a number of small businesses. At the wholesale
and retail levels of the supply chain, the efficiency of these
operations may be affected. For packers and processors handling
products sourced from multiple countries, there may also be a desire to
operate separate shifts for processing products from different origins,
or to split processing within shifts. In either case, costs are likely
to increase. Records will need to be maintained to ensure that accurate
country of origin information is retained throughout the process and to
permit compliance and enforcement reviews.
Even if only domestic origin products or products from a single
country of origin are handled, there may be additional procurement
costs to source supplies from a single country of origin. Additional
procurement costs may include higher transportation costs due to longer
shipping distances and higher acquisition costs due to supply and
demand conditions for products from a particular country of origin,
whether domestic or foreign.
These additional costs may result in consolidations within the
processor, manufacturer, and wholesaler sectors for these covered
commodities. Also, to comply with the rule, retailers may seek to limit
the number of entities from
[[Page 45143]]
which they purchase covered commodities.
Additional alternatives considered: As previously mentioned, the
COOL provisions of the Act leave little regulatory discretion in
defining who is directly covered by this rule. The law explicitly
identifies those retailers required to provide their customers with
country of origin information for covered commodities (namely,
retailers as defined by PACA).
The law also requires that any person supplying a covered commodity
to a retailer provide information to the retailer indicating the
country of origin of the covered commodity. Again, the law provides no
discretion regarding this requirement for suppliers of covered
commodities to provide information to retailers.
The rule has no mandatory requirement, however, for any firm other
than statutorily defined retailers to make country of origin claims. In
other words, no producer, processor, wholesaler, or other supplier is
required to make and substantiate a country of origin claim provided
that the commodity is not ultimately sold in the form of a covered
commodity at the establishment of a retailer subject to the rule. Thus,
for example, a processor and its suppliers may elect not to maintain
country of origin information nor to make country of origin claims, but
instead sell products through marketing channels not subject to the
rule. Such marketing alternatives include foodservice, export, and
retailers not subject to the rule. It is estimated that 47.0 percent of
United States food sales occur through retailers subject to the rule,
with the remaining 53.0 percent sold by retailers not subject to the
rule or sold as food away from home. Additionally, food product sales
into export markets provide marketing opportunities for producers and
intermediaries that are not subject to the provisions of the rule. The
majority of product sales are not subject to the rule, and there are
many current examples of companies specializing in production of
commodities for foodservice, export markets, and other channels of
distribution that would not be directly affected by the rule.
The rule does not dictate systems that firms will need to put in
place to implement the requirements. Thus, different segments of the
affected industries will be able to modify or develop their own least-
cost systems to implement COOL requirements. For example, one firm may
depend primarily on manual identification and paper recordkeeping
systems, while another may use automated identification and electronic
recordkeeping systems.
The rule has no requirements for firms to report to USDA.
Compliance audits will be conducted at firms' places of business. As
stated previously, required records may be kept by firms in the manner
most suitable to their operations and may be hardcopy documents,
electronic records, or a combination of both. In addition, the rule
provides flexibility regarding where records may be kept. If the
product is pre-labeled with the necessary country of origin
information, records documenting once-forward and once-back chain of
custody information are sufficient as long as the source of the claim
can be tracked and verified. Such flexibility should reduce costs for
small entities to comply with the rule.
The rule requires that covered commodities at subject retailers be
labeled with country of origin information, that suppliers of covered
commodities provide such information to retailers, and that retailers
and their suppliers maintain records and information sufficient to
verify all country of origin claims. The rule provides flexibility
regarding the manner in which the required information may be provided
by retailers to consumers. The rule provides flexibility in the manner
in which required country of origin information is provided by
suppliers to retailers, and in the manner in which records and
information are maintained to substantiate country of origin claims.
Thus, the rule provides the maximum flexibility practicable to enable
small entities to minimize the costs of the rule on their operations.
The recordkeeping burden associated with this rule was reduced
based on public comments. USDA seeks comments on whether the regulatory
impact analysis accurately reflects the potential population of
impacted small entities and the extent to which the regulation
economically impacts those entities.
Paperwork Reduction Act
Pursuant to the Paperwork Reduction Act (PRA) (44 U.S.C. 3501-
3520), the information collection provisions associated with this
interim final rule have been submitted to OMB for approval as a new
collection. The Comments and Responses section lists the comments
received on the preliminary PRA analysis contained in the October 30,
2003, proposed rule and provides the Agency's responses to the
comments. A description of these provisions is given below with an
estimate of the annual recordkeeping burden.
Title: Recordkeeping and Records Access Requirements for Producers
and Food Facilities
OMB Number: 0581-new
Type of Request: New collection.
Expiration Date: Three years from the date of approval.
Abstract: The COOL provisions in the 2002 and 2008 Farm Bills
require that specified retailers inform consumers as to the country of
origin of covered commodities. Covered commodities included in this
rulemaking are: Muscle cuts of beef (including veal), lamb, chicken,
goat, and pork; ground beef, ground lamb, ground chicken, ground goat,
and ground pork; perishable agricultural commodities; macadamia nuts;
pecans; ginseng; and peanuts.
The key changes from the preliminary PRA analysis are reductions in
the numbers of affected firms and establishments in the peanut sector
and the addition of chicken, goat, ginseng, macadamia nuts, and pecans
as covered commodities. These changes, and the use of more recent data
for the other covered commodities, results in the number of
establishments and firms decreasing from the preliminary PRA. In
addition, as discussed in more detail below, the recordkeeping
retention period has been reduced for both supplier and retailer
records. Further, the 2008 Farm Bill specifically allows for the use of
producer affidavits and prohibits the Secretary from requiring the
maintenance of additional records not already maintained in the normal
course of business.
While the Agency believes there will be savings to firms as a
result of these changes, such savings are difficult to quantify. In
addition, a number of affected firms commented that the initial
paperwork burden estimates published in the proposed rule were too low.
Therefore, the estimated labor hours per firm and per establishment
remain unchanged in this PRA analysis. Comments are specifically
invited on this issue.
Upon request by USDA representatives, suppliers and retailers
subject to this subpart shall make available to USDA representatives,
records maintained in the normal course of business that verify an
origin claim. Such records shall be provided within 5 business days of
the request and may be maintained in any location. Any person engaged
in the business of supplying a covered commodity to a retailer (i.e.,
including but not limited to producers, distributors, handlers,
packers, and processors), whether directly or indirectly, must make
[[Page 45144]]
country of origin information available to the retailer and must
maintain records to establish and identify the immediate previous
source and immediate subsequent recipient of a covered commodity for a
period of one year from the date of the transaction. In addition, the
supplier of a covered commodity that is responsible for initiating a
country(ies) of origin claim, which in the case of beef, lamb, chicken,
goat, and pork is the slaughter facility, must possess or have legal
access to records that are necessary to substantiate that claim. In the
case of beef, lamb, chicken, pork, and goat, a producer affidavit shall
be considered acceptable evidence on which the slaughter facility may
rely to initiate the origin claim, provided it is made by someone
having first-hand knowledge of the origin of the animal(s) and
identifies the animal(s) unique to the transaction.
For an imported covered commodity, the importer of record must
ensure that records provide clear product tracking from the port of
entry into the United States to the immediate subsequent recipient. In
addition, the records must accurately reflect the country of origin in
relevant CBP entry documents and information systems and must be
maintained for a period of 1 year from the date of the transaction.
As previously mentioned, upon request by USDA representatives,
suppliers and retailers subject to this subpart shall make available to
USDA representatives, records maintained in the normal course of
business that verify an origin claim. Such records shall be provided
within 5 business days of the request and may be maintained in any
location. In addition, records that identify the covered commodity, the
retail supplier, and for products that are not pre-labeled the country
of origin information must be maintained for a period of one year from
the date the origin declaration is made at retail. Such records may be
located at the retailer's point of distribution, or at a warehouse,
central office or other off-site location.
Description of Recordkeepers: Individuals who supply covered
commodities, whether directly to retailers or indirectly through other
participants in the marketing chain, are required to establish and
maintain country of origin information for the covered commodities and
supply this information to retailers. As a result, producers, handlers,
manufacturers, wholesalers, importers, and retailers of covered
commodities will be affected by this rule.
Burden: Approximately 1,255,591 establishments owned by
approximately 1,221,740 firms are estimated to be either directly or
indirectly affected by this rule. As previously discussed in previous
sections of this document, several changes have been made in this
interim final rule compared to the October 30, 2003, proposed rule.
These changes are a result of changes made by the Agency in an effort
to reduce the burden on regulated entities as well as changes made by
the 2008 Farm Bill.
In general, the supply chain for each of the covered commodities
includes agricultural producers, processors, wholesalers, importers,
and retailers. Imported products may be introduced at any level of the
supply chain. Other intermediaries, such as auction markets, may be
involved in transferring products from one stage of production to the
next. The rule's paperwork burden will be incurred by the number and
types of firms and establishments listed in Table 9, which follows.
Table 9--Costs Associated With Paperwork Burden
----------------------------------------------------------------------------------------------------------------
Maintenance
Type Firms Initial costs Establishments costs Total costs
----------------------------------------------------------------------------------------------------------------
Producers:
Cattle & Calves............. 971,400 75,699,259 971,400 145,651,716 221,350,975
Sheep & Lambs............... 69,090 5,384,046 69,090 10,359,355 15,743,400
Hogs & Pigs................. 65,540 5,107,401 65,540 9,827,068 14,934,469
Goats....................... 9,146 715,745 9,146 1,371,381 2,084,126
Chicken Producer and 38 2,961 168 25,190 28,151
Processor..................
Fruits & Vegetables......... 79,800 6,218,654 79,800 3,788,984 10,007,638
Ginseng..................... 190 14,806 190 9,021 23,828
Peanuts..................... 650 50,653 650 30,863 81,516
Pecans...................... 1,119 87,192 1,119 53,130 140,323
Macadamia................... 53 4,130 53 2,516 6,647
Handlers, Processors, &
Wholesalers:
Stockyards, Dealers & Market 6,807 8,910,363 6,807 6,589,040 15,499,403
Agencies...................
Livestock Processing & 2,943 3,852,387 3,207 62,086,237 65,938,624
Slaughtering...............
Meat & Meat Product 2,509 3,284,281 2,706 2,619,354 5,903,635
Wholesale..................
Chicken Processor and 510 667,590 564 545,941 1,213,531
Wholesaler.................
Frozen Fruit, Juice & 155 202,895 247 239,091 441,986
Vegetable Mfg..............
Fresh Fruit & Vegetable 4,654 6,092,086 5,016 4,855,388 10,947,474
Wholesale..................
Ginseng Dealers............. 46 60,214 46 44,527 104,741
Roasted Nuts & Peanut Butter 8 10,472 9 8,712 19,184
Mfg........................
Peanut, Pecans, & Macadamia 5 6,545 5 4,840 11,385
Nut Wholesalers............
General Line Grocery 3,037 3,975,433 3,436 3,325,979 7,301,412
Wholesalers................
Retailers....................... 4,040 5,288,360 36,392 247,264,534 252,552,894
-------------------------------------------------------------------------------
Totals:
Producers............... 1,197,026 93,281,849 1,197,156 171,119,224 264,401,073
Handlers, Processors, & 20,674 27,062,266 22,043 80,319,108 107,381,374
Wholesalers............
Retailers............... 4,040 5,288,360 36,392 247,264,534 252,552,894
-------------------------------------------------------------------------------
Grand Total......... 1,221,740 125,632,475 1,255,591 498,702,866 624,335,341
----------------------------------------------------------------------------------------------------------------
The affected firms and establishments will broadly incur two types
of costs. First, firms will incur initial or start-up costs to comply
with the rule. Initial costs will be borne by each firm, even though a
single firm may operate more than one establishment. Second,
enterprises will incur additional recordkeeping costs associated with
[[Page 45145]]
storing and maintaining records on an ongoing basis. These activities
will take place in each establishment operated by each affected
business.
Compared to the proposed rule, this rule reduces the length of time
that records must be kept and revises the recordkeeping requirements
for pre-labeled products. Any person engaged in the business of
supplying a covered commodity to a retailer, whether directly or
indirectly, must maintain records to establish and identify the
immediate previous source and immediate subsequent recipient of a
covered commodity for a period of 1 year from the date of the
transaction. Under the proposed rule, records would have been required
to be kept for 2 years.
Upon request by USDA representatives, suppliers and retailers
subject to this subpart shall make available to USDA representatives,
records maintained in the normal course of business that verify an
origin claim. Such records shall be provided within 5 business days of
the request and may be maintained in any location. Under the proposed
rule, retailers would have to have maintained these records at the
retail store for 7 days following the sale of the product.
For pre-labeled products, the rule provides that the label itself
is sufficient evidence on which the retailer may rely to establish a
product's origin. The proposed rule did not provided for this method of
substantiation. The rule now requires that records identify the covered
commodity, the supplier and for products that are not pre-labeled, the
country of origin information. This information must be maintained for
a period of 1 year from the date the origin and production designations
are made at retail. Under the proposed rule, these records would have
been required to be maintained for 2 years.
With respect to initial recordkeeping costs, it is believed that
most producers currently maintain normal business that would contain
the information needed to substantiate country of origin claims.
However, producers do not typically pass along country of origin
information to subsequent purchasers. Therefore, producers likely will
incur some additional incremental costs to record, maintain, and
transfer country of origin information to substantiate required claims
made at retail. Because much of the necessary recordkeeping has already
been developed during typical farm and ranch operations, it is
estimated that the incremental costs for producers to supplement
existing records with country of origin information will be relatively
small per firm. Examples of initial or start-up costs would be any
additional recordkeeping burden needed to record the required country
of origin information and transfer this information to handlers,
processors, wholesalers, or retailers via records used in the normal
course of business.
Producers will need an estimated 4 hours to modify an established
system for organizing records to carry out the purposes of this
regulation. This additional time would be required to modify existing
recordkeeping systems to incorporate any added information needed to
substantiate country of origin claims. Although not all farm products
ultimately will be sold at retail establishments covered by this rule,
it is assumed that virtually all producers will wish to keep their
marketing options as flexible as possible. Thus, all producers of
covered commodities or livestock (in the case of the covered meat
commodities) will modify recordkeeping systems sufficient to
substantiate country of origin claims. It is also recognized that some
operations will require substantially more than 4 hours modifying their
recordkeeping systems. In particular, it is believed that livestock
backgrounders, stockers, and feeders will face a greater burden in
modifying recordkeeping systems. These types of operations will need to
track country of origin information for animals brought into the
operation as well as for animals sold from the operation via records
used in the normal course of business, increasing the burden of
substantiating country of origin claims. Conversely, operations such as
fruit and vegetable farms that produce only United States products
likely will require little if any change to their existing
recordkeeping systems in order to substantiate country of origin
claims. Overall, it is believed that 4 hours represents a reasonable
estimate of the average additional time that will be required per year
across all types of producers.
In estimating initial recordkeeping costs, 2001 wage rates and
benefits published by the Bureau of Labor Statistics from the National
Compensation Survey were used. Subsequently, the National Compensation
Survey has been updated and 2006 wage rates and benefits are now
available. These updated wage rates and benefits are used in estimating
the recordkeeping costs and results in an increase in the estimated
costs.
For producers, it is assumed that the added work needed to
initially adapt an existing recordkeeping system for country of origin
information is primarily a bookkeeping task. This task may be performed
by independent bookkeepers, or in the case of operations that perform
their own bookkeeping, an individual with equivalent skills. The Bureau
of Labor Statistics (BLS) publishes wage rates for bookkeepers,
accounting, and auditing clerks (Ref. 15). It is assumed that this wage
rate represents the cost for producers to hire an independent
bookkeeper. In the case of producers who currently perform their own
bookkeeping, it is assumed that this wage rate represents the
opportunity cost of the producers' time for performing these tasks. The
May 2006 wage rate, the most recent data available, is estimated at
$15.28 per hour. For this analysis, an additional 27.5 percent is added
to the wage rate to account for total benefits which includes social
security, unemployment insurance, workers compensation, etc. The
estimate of this additional cost to employers is published by the BLS
(Ref. 15). At 4 hours per firm and a cost of $19.48 per hour, initial
recordkeeping costs to producers are estimated at approximately $93.3
million to modify existing recordkeeping systems in order to
substantiate country of origin claims.
The recordkeeping burden on handlers, processors, wholesalers, and
retailers is expected to be more complex than the burden most producers
face. These operations will need to maintain country of origin
information on the covered commodities purchased and subsequently
furnish that information to the next participant in the supply chain.
This will require adding additional information to a firm's bills of
lading, invoices, or other records associated with movement of covered
commodities from purchase to sale. Similar to producers, however, it is
believed that most of these operations already maintain the types of
necessary records in their existing systems. Thus, it is assumed that
country of origin information will require only modification of
existing recordkeeping systems rather than development of new systems.
The Label Cost Model Developed for FDA by RTI International (Ref.
16; Ref. 17) is used to estimate the cost of including additional
country of origin information to an operation's records. It is assumed
that a limited information, one-color redesign of a paper document will
be sufficient to comply with the rule's recordkeeping requirements. The
number of hours required to complete the redesign is estimated to be 29
with an estimated cost at $1,309 per firm. While the cost will be much
higher for some firms and lower for others, it is believed that $1,309
represents a reasonable estimate of average cost for all firms. Based
on this, it is estimated
[[Page 45146]]
that the initial recordkeeping costs to intermediaries such as
handlers, processors, and wholesalers (importers are included with
wholesalers) will be approximately $27 million, and initial
recordkeeping costs at retail will be approximately $5 million. The
recordkeeping cost to producers increases due to the increase in the
number of firms from the additional covered commodities; goat, chicken,
macadamia nuts, pecans, and ginseng. The recordkeeping cost to
intermediaries and retailers declines slightly from the initial
recordkeeping cost estimate in the proposed rule due to the reduction
in the number intermediaries and retailers from continuing
consolidation in those sectors.
The total initial recordkeeping costs for all firms are thus
estimated at approximately $125 million. This increase in the
recordkeeping cost as compared to the initial recordkeeping costs in
the proposed rule is due to the higher estimated wage rates and
benefits.
In addition to these one-time costs to modify recordkeeping
systems, enterprises will incur additional recordkeeping costs
associated with storing and maintaining records. These costs are
referred to as maintenance costs in Table 9. Again, the marginal cost
for producers to maintain and store any additional information needed
to substantiate country of origin claims is expected to be relatively
small.
For fruit, vegetable, ginseng, peanut, macadamia nut, and pecan
producers, country of origin generally is established at the time that
the product is harvested, and thus there is no need to track country of
origin information throughout the production lifecycle of the product.
Likewise, this is also the case for chicken as the vast majority of
chicken products sold by covered retailers are from chickens that are
produced in a controlled environment in the United States. This group
of producers is estimated to require an additional 4 hours a year, or 1
hour per quarter, to maintain country of origin information.
Compared to chicken, fruit, vegetable, ginseng, peanut, macadamia
nut, and pecan producers, it is expected that livestock producers will
incur higher costs to maintain country of origin information. Chicken,
fruits, vegetables, ginseng, peanuts, and macadamia nuts are generally
harvested once and then shipped by the producer to the first handler.
In contrast, livestock can and often do move through several
geographically dispersed operations prior to sale for processing or
slaughter.
Cattle, for example, typically change ownership between 2 to 3
times before they are slaughtered and processed. Livestock may be
acquired from other countries by United States producers, which may
complicate the task of tracking country of origin information. Because
animals are frequently sorted and regrouped at various stages of
production and may change ownership several times prior to slaughter,
country of origin information will need to be maintained on animals as
they move through their lifecycle. Thus, it is expected that the
recordkeeping burden for livestock producers will be higher than it
will be for producers of other covered commodities. It is estimated
that these producers will require an additional 12 hours a year, or 1
hour per month, to maintain country of origin records. Again, this is
an average for all enterprises.
It is assumed that farm labor will primarily be responsible for
maintaining country of origin information at producers' enterprises.
NASS data (Ref. 18) are used to estimate average farm wage rates--$9.80
per hour for livestock workers and $9.31 per hour for other crops
workers. Applying the rate of 27.5 percent to account for benefits
results in an hourly rate of $12.50 for livestock workers and $11.87
for other crops workers. Assuming 12 hours of labor per year for
livestock operations and 4 hours per year for all other operations, the
estimated total annual maintenance costs to producers is $171 million,
which is higher than the initial maintenance costs in the proposed
rule. The increase in the estimated maintenance cost is due to the
higher estimated wage rates and benefits and the increase in the number
of producers due to the inclusion of chickens, goats, ginseng,
macadamia nuts, and pecans as covered commodities.
It is expected that intermediaries such as handlers, processors,
and wholesalers will face higher costs per enterprise to maintain
country of origin information compared to costs faced by producers.
Much of the added cost is attributed to the larger average size of
these enterprises compared to the average producer enterprise. In
addition, these intermediaries will need to track products both coming
into and going out of their businesses.
With the exception of livestock processing and slaughtering
establishments, the maintenance burden hours for country of origin
recordkeeping is estimated to be 52 hours per year per establishment.
For this part of the supply chain, the recordkeeping activities are on-
going and are estimated to require an additional hour a week. It is
expected, however, that livestock processing and slaughtering
enterprises will experience a more intensive recordkeeping burden.
These enterprises disassemble carcasses into many individual cuts,
which must maintain their country of origin identity. In addition,
businesses that produce ground beef, lamb, goat and pork may commingle
product from multiple origins, which will require some monitoring and
recordkeeping to ensure accurate labeling and to substantiate the
country of origin information provided to retailers. Maintenance of the
recordkeeping system at these establishments is estimated to total
1,040 hours per establishment, or 20 hours per week.
Maintenance activities will include inputting, tracking, and
storing country of origin information for each covered commodity. Since
this is mostly an administrative task, the cost is estimated by using
the May 2006 BLS wage rate from the National Compensation Survey for
Administrative Support Occupations ($14.60 per hour with an additional
27.5 percent added to cover overhead costs for a total of $18.62 per
hour). This occupation category includes stock and inventory clerks and
record clerks. Coupled with the assumed hours per establishment, the
resulting total annual maintenance costs to handlers, processors, and
wholesalers and other intermediaries are estimated at approximately $80
million.
Retailers will need to supply country of origin information for
each covered commodity sold at each store. Therefore, additional
recordkeeping maintenance costs are believed to affect each
establishment. Because tracking of the covered commodities will be done
daily, it is believed that an additional hour of recordkeeping
activities for country of origin information will be incurred daily at
each retail establishment. These additional activities result in an
estimated 365 additional hours per year per establishment. Using the
BLS wage rate for administrative support occupations ($14.60 per hour
with an additional 27.5 percent added to cover overhead costs for a
total of $18.62 per hour) results in total estimated annual maintenance
costs to retailers of $247 million. This estimated cost is higher than
the initial maintenance cost for retailers in the proposed rule due to
the higher wage rate and benefits from the updated BLS information.
The total maintenance recordkeeping costs for all enterprises are
thus estimated at approximately $499 million. The increase in the total
maintenance cost over the initial
[[Page 45147]]
maintenance cost estimate in the proposed rule is due to the higher
wage rates and benefits which were updated with more recent information
and the addition of more covered commodities.
The total first-year recordkeeping burden is calculated by summing
the initial and maintenance costs. The total recordkeeping costs are
estimated for producers at approximately $264 million; for handlers,
processors, and wholesalers at approximately $107 million; and for
retailers at approximately $253 million. The total recordkeeping cost
for all participants in the supply chain for covered commodities is
estimated at $624 million for the first year, with subsequent
maintenance costs of $499 million per year.
Annual Reporting and Recordkeeping Burden for the First Year
(Initial): Public reporting burden for this initial recordkeeping set
up is estimated to average 4.5 hours per year per individual
recordkeeper.
Estimated Number of Firms Recordkeepers: 1,221,740.
Estimated Total Annual Burden: 5,504,811 hours.
Annual Reporting and Recordkeeping Burden (Maintenance): Public
reporting burden for this recordkeeping storage and maintenance is
estimated to average 24.9 hours per year per individual recordkeeper.
Estimated Number of Establishments Recordkeepers: 1,255,591.
Estimated Total Annual Burden: 31,909,210 hours.
AMS is committed to implementation of the Government Paperwork
Elimination Act (GPEA) to provide the public with the option to submit
or transact business electronically to the extent practicable. This new
information collection has no forms and is only for recordkeeping
purposes. Therefore, the provisions of an electronic submission
alternative are not required by GPEA.
AMS is soliciting comments from all interested parties concerning
these recordkeeping requirements. Comments are specifically invited on:
(1) Whether the recordkeeping is necessary for the proper operation of
this program, including whether the information would have practical
utility; (2) the accuracy of USDA's estimate of the burden of the
recordkeeping requirements, including the validity of the methodology
and assumptions used; (3) ways to enhance the quality, utility, and
clarity of the records to be maintained; and (4) ways to minimize the
burden of the recordkeeping on those who are to maintain and/or make
the records available, including the use of appropriate automated,
electronic, mechanical, or other technological recordkeeping techniques
or other forms of information technology. Comments concerning the
recordkeeping requirements contained in this interim final rule should
be submitted through the Internet at http://www.regulations.gov.
Written comments should be sent to Country of Origin Labeling Program,
Room 2607-S; Agricultural Marketing Service (AMS), USDA; STOP 0254;
1400 Independence Avenue, SW.; Washington, DC 20250-0254, or by
facsimile to 202/354-4693.
Comments sent to the above location should also be sent to the Desk
Officer for Agriculture, Office of Information and Regulatory Affairs,
Office of Management and Budget, New Executive Office Building, 725
17th Street, NW., Room 725, Washington, DC 20503. All responses to this
action will be summarized and included in the request for OMB approval.
All comments will become a matter of public record.
References
1. Dinopoulos, Elias, Grigorios Livanis, and Carol West. ``How Cool
is C.O.O.L.?'' Working Paper WPTC 05-11, University of Florida,
International Agricultural Trade and Policy Center, 2005.
2. Plastina, Alejandro and Konstantinos Giannakas. ``Market and
Welfare Effects of Mandatory Country-of-Origin Labeling in the U.S.
Specialty Crops Sector'' Selected Paper, American Agricultural
Economics Association Annual Meeting, Portland, Oregon, July 2007.
3. Mabiso, Athur, James Sterns, Lisa House, and Allen Wysocki.
``Estimating Consumers' Willingness-To-Pay for Country-Of-Origin
Labels in Fresh Apples and Tomatoes: A Double-Hurdle Probit Analysis
of American Data Using Factor Scores.'' American Agricultural
Economics Association Annual Meeting, Providence, Rhode Island, July
2005.
4. Krissoff, Barry, Fred Kuchler, Kenneth Nelson, Janet Perry, and
Agapi Somwaru. ``County of Origin Labeling: Theory and
Observation.'' USDA, ERS, WRS-04-02, January 2004.
5. Information Resources, Inc. InfoScan 2002.
6. NASS, USDA, Wisconsin Department of Agriculture. Wisconsin 2007
Agricultural Statistics. http://www.nass.usda.gov/Statistics_by_State/Wisconsin/.
7. NASS, USDA, Hawaii Department of Agriculture. Hawaii 2007
Agricultural Statistics. http://www.nass.usda.gov/hi/stats/t_of_c.htm.
8. Bureau of Economic Analysis. http://www.bea.gov/national/index.htm#gdp.
9. ERS, USDA. Food CPI, Prices and Expenditures: Sales of Food at
Home by Type of Outlet. http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/table16.htm.
10. U.S. Census Bureau. 2002 Economic Census. Retail Trade Subject
Series. Establishment and Firm Size. EC97R44S-SZ. Issued September
2004.
11. AMS, USDA. Perishable Agricultural Commodities Act database.
12. U.S. Census Bureau. 2004 Statistics of U.S. Businesses.
13. NASS, USDA. 2002 Census of Agriculture.
14. NASS, USDA. 2005 Census of Aquaculture.
15. Bureau of Labor Statistics, Department of Labor, National
Compensation Survey, May 2006, Employer Cost for Employee
Compensation.
16. Food and Drug Administration. ``Establishment and Maintenance of
Records Under the Public Health Security and Bioterrorism
Preparedness and Response Act of 2002,'' proposed rule. May 9, 2003.
17. RTI, International 2000. FDA Labeling Cost Model: Final Report.
Revised April 2002.
18. NASS, USDA. Farm Labor, August 17, 2007.
19. Office of the Chief Economist, USDA. USDA Agricultural Baseline
Projections to 2016, Staff Report WAOB-2007-1. February 2007.
Executive Order 12988
The contents of this rule were reviewed under Executive Order
12988, Civil Justice Reform. This rule is not intended to have a
retroactive effect. States and local jurisdictions are preempted from
creating or operating country of origin labeling programs for the
commodities specified in the Act and these regulations. With regard to
other Federal statutes, all labeling claims made in conjunction with
this regulation must be consistent with other applicable Federal
requirements. There are no administrative procedures that must be
exhausted prior to any judicial challenge to the provisions of this
rule.
Civil Rights Review
AMS considered the potential civil rights implications of this rule
on minorities, women, or persons with disabilities to ensure that no
person or group shall be discriminated against on the basis of race,
color, national origin, gender, religion, age, disability, sexual
orientation, marital or family status, political beliefs, parental
status, or protected genetic information. This review included persons
that are employees of the entities that are subject to these
regulations. This interim final rule does not require affected entities
to relocate or alter their operations in ways that could adversely
affect such persons or groups. Further, this rule will not deny any
persons or groups the benefits of the program or subject any persons or
groups to discrimination.
[[Page 45148]]
Executive Order 13132
This rule has been reviewed under Executive Order 13132,
Federalism. This Order directs agencies to construe, in regulations and
otherwise, a Federal statute to preempt State law only where the
statute contains an express preemption provision or there is some other
clear evidence to conclude that the Congress intended preemption of
State law, or where the exercise of State authority conflicts with the
exercise of Federal authority under the Federal statute. This rule is
required by the 2002 Farm Bill, as amended by the 2008 Farm Bill.
While this statute does not contain an express preemption
provision, it is clear from the language in the statute that Congress
intended preemption of State law. The law assigns enforcement
responsibilities to the Secretary and encourages the Secretary to enter
into partnerships with States with enforcement infrastructure to assist
in the administration of the program. The law provides for a 30-day
period in which retailers and suppliers may take the necessary
corrective action after receiving notice of a nonconformance. The
Secretary can impose a civil penalty only if the retailer or supplier
has not made a good faith effort to comply and only after the Secretary
provides notice and an opportunity for a hearing. Allowing private
rights of actions would frustrate the purpose of this comprehensive
enforcement system in which Congress struck a delicate balance of
imposing a requirement, but ensuring that the agency had wide latitude
in enforcement discretion. Thus, it is clear that State laws and other
actions were intended to be preempted.
Several States have implemented mandatory programs for country of
origin labeling of certain commodities. For example, Alabama, Arkansas,
Mississippi, and Louisiana have origin labeling requirements for
certain seafood products. Other States including Wyoming, Idaho, North
Dakota, South Dakota, Louisiana, Kansas, and Mississippi have origin
labeling requirements for certain meat products. In addition, the State
of Florida and the State of Maine have origin labeling requirements for
fresh produce items.
To the extent that these State country of origin labeling programs
encompass commodities that are not governed by this regulation, the
States may continue to operate them. For those State country of origin
labeling programs that encompass commodities that are governed by this
regulation, these programs are preempted. In most cases, the
requirements contained within this rule are more stringent and
prescriptive than the requirements of the State programs. With regard
to consultation with States, as directed by the law, AMS has consulted
with the States that have country of origin labeling programs. Further,
States were expressly invited to comment on the proposed regulation as
it related to existing State programs. No States submitted any comments
pertaining to this issue.
This interim final rule contains those provisions of the October
30, 2003 (68 FR 61944), proposed rule that pertain to muscle cuts of
beef, lamb and pork; ground beef, ground lamb, ground pork; perishable
agricultural commodities; and peanut covered commodities as well as the
additional commodities that were added by the 2008 Farm Bill: Chicken,
macadamia nuts, pecans, ginseng, and goat meat. Modifications to these
provisions have been made as discussed herein.
This interim final rule is made effective on September 30, 2008.
The requirements of this rule do not apply to covered commodities
produced or packaged before September 30, 2008. This will allow
existing product to clear through the channels of commerce and permit
AMS to conduct an industry education and outreach program concerning
the provisions contained within this rulemaking.
Further, pursuant to 5 U.S.C. 553, it is found and determined upon
good cause that it is impractical, unnecessary, and contrary to the
public interest to give preliminary notice prior to putting this rule
into effect. This action is authorized under the Agricultural Marketing
Act of 1946, as amended. This interim final rule reflects changes made
as a result of comments received in response to the 2003 proposed rule
and the 2004 interim final rule on fish and shellfish, as well as the
changes made by the 2008 Farm Bill. After issuance of this interim
final rule, the Department will provide all affected persons, including
the newly affected industries--goat, chicken, macadamia nuts, pecans,
and ginseng--the opportunity to provide additional comments prior to
issuing a final rule. In addition, this action is needed to meet the
statutory implementation date. Further, this rule provides for a 60-day
comment period.
List of Subjects in 7 CFR Part 65
Agricultural commodities, Food labeling, Meat and meat products,
Macadamia nuts, Peanuts, Pecans, Reporting and recordkeeping
requirements.
0
For the reasons set forth in the preamble, 7 CFR chapter I is amended
by adding part 65 to read as follows:
PART 65--COUNTRY OF ORIGIN LABELING OF BEEF, PORK, LAMB, CHICKEN,
GOAT MEAT, PERISHABLE AGRICULTURAL COMMODITIES, MACADAMIA NUTS, and
PEANUTS
Subpart A--General Provisions
Definitions
Sec.
65.100 Act.
65.105 AMS.
65.110 Beef.
65.115 Born.
65.120 Chicken.
65.125 Commingled covered commodities.
65.130 Consumer package.
65.135 Covered commodity.
65.140 Food service establishment.
65.145 Ginseng.
65.150 Goat.
65.155 Ground beef.
65.160 Ground chicken.
65.165 Ground goat.
65.170 Ground lamb.
65.175 Ground pork.
65.180 Imported for immediate slaughter.
65.185 Ingredient.
65.190 Lamb.
65.195 Legible.
65.200 NAIS-compliant system.
65.205 Perishable agricultural commodity.
65.210 Person.
65.215 Pork.
65.220 Processed food item.
65.225 Produced.
65.230 Production step.
65.235 Raised.
65.240 Retailer.
65.245 Secretary.
65.250 Slaughter.
65.255 United States.
65.260 United States country of origin.
65.265 USDA.
Country of Origin Notification
65.300 Country of origin notification.
65.400 Markings.
Recordkeeping
65.500 Recordkeeping requirements.
Subpart B--[Reserved]
Authority: 7 U.S.C. 1621 et seq.
Subpart A--General Provisions
Definitions
Sec. 65.100 Act.
Act means the Agricultural Marketing Act of 1946 (7 U.S.C. 1621 et
seq.).
Sec. 65.105 AMS.
AMS means the Agricultural Marketing Service, United States
Department of Agriculture.
Sec. 65.110 Beef.
Beef means meat produced from cattle, including veal.
[[Page 45149]]
Sec. 65.115 Born.
Born in the case of chicken means hatched from the egg.
Sec. 65.120 Chicken.
Chicken has the meaning given the term in 9 CFR 381.170(a)(1).
Sec. 65.125 Commingled covered commodities.
Commingled covered commodities means covered commodities (of the
same type) presented for retail sale in a consumer package that have
been prepared from raw material sources having different origins (e.g.,
bag of frozen strawberries).
Sec. 65.130 Consumer package.
Consumer package means any container or wrapping in which a covered
commodity is enclosed for the delivery and/or display of such commodity
to retail purchasers.
Sec. 65.135 Covered commodity.
(a) Covered commodity means:
(1) Muscle cuts of beef, lamb, chicken, goat, and pork;
(2) Ground beef, ground lamb, ground chicken, ground goat, and
ground pork;
(3) Perishable agricultural commodities;
(4) Peanuts;
(5) Macadamia nuts;
(6) Pecans; and
(7) Ginseng.
(b) Covered commodities are excluded from this part if the
commodity is an ingredient in a processed food item as defined in Sec.
65.220.
Sec. 65.140 Food service establishment.
Food service establishment means a restaurant, cafeteria, lunch
room, food stand, saloon, tavern, bar, lounge, or other similar
facility operated as an enterprise engaged in the business of selling
food to the public. Similar food service facilities include salad bars,
delicatessens, and other food enterprises located within retail
establishments that provide ready-to-eat foods that are consumed either
on or outside of the retailer's premises.
Sec. 65.145 Ginseng.
Ginseng means ginseng root of the genus Panax.
Sec. 65.150 Goat.
Goat means meat produced from goats.
Sec. 65.155 Ground beef.
Ground beef has the meaning given that term in 9 CFR 319.15(a),
i.e., chopped fresh and/or frozen beef with or without seasoning and
without the addition of beef fat as such, and containing no more than
30 percent fat, and containing no added water, phosphates, binders, or
extenders, and also includes products defined by the terms
``hamburger'' in 9 CFR 319.15(b) and ``beef patties'' in 9 CFR
319.15(c).
Sec. 65.160 Ground chicken.
Ground chicken means comminuted chicken of skeletal origin that is
produced in conformance with all applicable Food Safety and Inspection
Service labeling guidelines.
Sec. 65.165 Ground goat.
Ground goat means comminuted goat of skeletal origin that is
produced in conformance with all applicable Food Safety and Inspection
Service labeling guidelines.
Sec. 65.170 Ground lamb.
Ground lamb means comminuted lamb of skeletal origin that is
produced in conformance with all applicable Food Safety and Inspection
Service labeling guidelines.
Sec. 65.175 Ground pork.
Ground pork means comminuted pork of skeletal origin that is
produced in conformance with all applicable Food Safety and Inspection
Service labeling guidelines.
Sec. 65.180 Imported for immediate slaughter.
Imported for immediate slaughter means imported into the United
States for ``immediate slaughter'' as that term is defined in 9 CFR
93.400, i.e., consignment directly from the port of entry to a
recognized slaughtering establishment and slaughtered within 2 weeks
from the date of entry.
Sec. 65.185 Ingredient.
Ingredient means a component either in part or in full, of a
finished retail food product.
Sec. 65.190 Lamb.
Lamb means meat, other than mutton (or yearling mutton), produced
from sheep.
Sec. 65.195 Legible.
Legible means text that can be easily read.
Sec. 65.200 NAIS-compliant system.
NAIS-compliant system means Animal and Plant Health Inspection
Service (APHIS)/Veterinary Services (VS) official animal identification
numbers, tags, devices, or protocols, and location identifiers that are
consistent with any APHIS/VS official disease program or activity, and
animal tracking databases that have been reviewed and approved by
APHIS/VS Chief Information Officer for utilizing NAIS standards
regarding animal movement information.
Sec. 65.205 Perishable agricultural commodity.
Perishable agricultural commodity means fresh and frozen fruits and
vegetables of every kind and character that have not been manufactured
into articles of a different kind or character and includes cherries in
brine as defined by the Secretary in accordance with trade usages.
Sec. 65.210 Person.
Person means any individual, partnership, corporation, association,
or other legal entity.
Sec. 65.215 Pork.
Pork means meat produced from hogs.
Sec. 65.220 Processed food item.
Processed food item means a retail item derived from a covered
commodity that has undergone specific processing resulting in a change
in the character of the covered commodity, or that has been combined
with at least one other covered commodity or other substantive food
component (e.g., chocolate, breading, tomato sauce), except that the
addition of a component (such as water, salt, or sugar) that enhances
or represents a further step in the preparation of the product for
consumption, would not in itself result in a processed food item.
Specific processing that results in a change in the character of the
covered commodity includes cooking (e.g., frying, broiling, grilling,
boiling, steaming, baking, roasting), curing (e.g., salt curing, sugar
curing, drying), smoking (hot or cold), and restructuring (e.g.,
emulsifying and extruding). Examples of items excluded include teriyaki
flavored pork loin, roasted peanuts, breaded chicken tenders, and fruit
medley.
Sec. 65.225 Produced.
Produced in the case of a perishable agricultural commodity,
peanuts, ginseng, pecans, and macadamia nuts means grown.
Sec. 65.230 Production step.
Production step means, in the case of beef, pork, goat, chicken,
and lamb, born, raised, or slaughtered.
Sec. 65.235 Raised.
Raised means, in the case of beef, pork, chicken, goat, and lamb,
the period of time from birth until slaughter or in the case of animals
imported for immediate slaughter as defined in Sec. 65.180, the period
of time from birth
[[Page 45150]]
until date of entry into the United States.
Sec. 65.240 Retailer.
Retailer means any person licensed as a retailer under the
Perishable Agricultural Commodities Act of 1930 (7 U.S.C. 499a(b)).
Sec. 65.245 Secretary.
Secretary means the Secretary of Agriculture of the United States
or any person to whom the Secretary's authority has been delegated.
Sec. 65.250 Slaughter.
Slaughter means the point in which a livestock animal (including
chicken) is prepared into meat products (covered commodities) for human
consumption. For purposes of labeling under this part, the word
harvested may be used in lieu of slaughtered.
Sec. 65.255 United States.
United States means the 50 States, the District of Columbia, the
Commonwealth of Puerto Rico, the U.S. Virgin Islands, American Samoa,
Guam, the Northern Mariana Islands, and any other Commonwealth,
territory, or possession of the United States.
Sec. 65.260 United States country of origin.
United States country of origin means in the case of:
(a) Beef, pork, lamb, chicken, and goat:
(1) From animals exclusively born, raised, and slaughtered in the
United States;
(2) From animals born and raised in Alaska or Hawaii and
transported for a period of not more than 60 days through Canada to the
United States and slaughtered in the United States; or
(3) From animals present in the United States on or before July 15,
2008, and once present in the United States, remained continuously in
the United States.
(b) Perishable agricultural commodities, peanuts, ginseng, pecans,
and macadamia nuts: From products produced in the United States.
Sec. 65.265 USDA.
USDA means the United States Department of Agriculture.
Country of Origin Notification
Sec. 65.300 Country of origin notification.
In providing notice of the country of origin as required by the
Act, the following requirements shall be followed by retailers:
(a) General. Labeling of covered commodities offered for sale
whether individually, in a bulk bin, carton, crate, barrel, cluster, or
consumer package must contain country of origin as set forth in this
regulation.
(b) Exemptions. Food service establishments as defined in Sec.
65.135 are exempt from labeling under this subpart.
(c) Exclusions. A covered commodity is excluded from this subpart
if it is an ingredient in a processed food item as defined in Sec.
65.220.
(d) Labeling covered commodities of United States origin.
(1) A covered commodity may bear a declaration that identifies the
United States as the sole country of origin at retail only if it meets
the definition of United States country of origin as defined in Sec.
65.260.
(2) Covered commodities further processed or handled in a foreign
country after meeting the requirements to be labeled as United States
origin as defined in Sec. 65.260 (e.g., born, raised, and slaughtered
or produced) may bear a declaration that identifies the United States
as the sole country of origin at retail provided the identity of the
product is maintained along with records to substantiate the origin
claims and the claim is consistent with other applicable Federal legal
requirements.
(e) Labeling muscle cut covered commodities of multiple countries
of origin that include the United States.
(1)(i) If an animal was born, raised, and/or slaughtered in the
United States and was not imported for immediate slaughter as defined
in Sec. 65.180, the origin of the resulting meat products derived from
that animal may be designated as Product of the United States, Country
X, and/or (as applicable) Country Y where Country X and Country Y
represent the actual or possible countries of foreign origin.
(ii) If an animal was imported into the United States for immediate
slaughter as defined in Sec. 65.180, the origin of the resulting meat
products derived from that animal shall be designated as Product of
Country X and the United States.
(2) In both cases of paragraph (e)(1)(i) and (e)(1)(ii) of this
section, the origin declaration may include more specific information
related to production steps provided records to substantiate the claims
are maintained and the claim is consistent with other applicable
Federal legal requirements.
(f) Labeling imported covered commodities. Imported covered
commodities for which origin has already been established as defined by
this law (e.g., born, raised, slaughtered or grown) and for which no
production steps have occurred in the United States, shall retain their
origin, as declared to U.S. Customs and Border Protection (CBP) at the
time the product entered the United States, through retail sale.
(g) Labeling commingled covered commodities. In the case of
perishable agricultural commodities; peanuts; pecans; ginseng; and
macadamia nuts: For imported covered commodities that have not
subsequently been substantially transformed in the United States that
are commingled with covered commodities sourced from a different origin
that have not been substantially transformed (as established by CBP) in
the United States, and/or covered commodities of United States origin,
the declaration shall indicate the countries of origin in accordance
with existing Federal legal requirements.
(h) Labeling ground beef, ground pork, ground lamb, ground goat,
and ground chicken. The declaration for ground beef, ground pork,
ground lamb, ground goat, and ground chicken covered commodities shall
list all countries of origin contained therein or that may be
reasonably contained therein. In determining what is considered
reasonable, when a raw material from a specific origin is not in a
processor's inventory for more than 60 days, that country shall no
longer be included as a possible country of origin.
(i) Remotely purchased products. For sales of a covered commodity
in which the customer purchases a covered commodity prior to having an
opportunity to observe the final package (e.g., Internet sales, home
delivery sales, etc.), the retailer may provide the country of origin
notification either on the sales vehicle or at the time the product is
delivered to the consumer.
Sec. 65.400 Markings.
(a) Country of origin declarations can either be in the form of a
placard, sign, label, sticker, band, twist tie, pin tag, or other
format that allows consumers to identify the country of origin. The
declaration of the country of origin of a product may be in the form of
a statement such as ``Product of USA,'' ``Produce of the USA,'' or
``Grown in Mexico,'' may only contain the name of the country such as
``USA'' or ``Mexico,'' or may be in the form of a check box provided it
is in conformance with other Federal labeling laws.
(b) The declaration of the country of origin (e.g., placard, sign,
label, sticker, band, twist tie, pin tag, or other display) must be
legible and placed in a conspicuous location, so as to render it likely
to be read and understood by a customer under normal conditions of
purchase.
[[Page 45151]]
(c) The declaration of country of origin may be typed, printed, or
handwritten provided it is in conformance with other Federal labeling
laws and does not obscure other labeling information required by other
Federal regulations.
(d) A bulk container (e.g., display case, shipper, bin, carton, and
barrel), used at the retail level to present product to consumers, may
contain a covered commodity from more than one country of origin
provided all possible origins are listed.
(e) In general, abbreviations are not acceptable. Only those
abbreviations approved for use under CBP rules, regulations, and
policies, such as ``U.K.'' for ``The United Kingdom of Great Britain
and Northern Ireland'', ``Luxemb'' for Luxembourg, and ``U.S.'' for the
``United States'' are acceptable. The adjectival form of the name of a
country may be used as proper notification of the country of origin of
imported commodities provided the adjectival form of the name does not
appear with other words so as to refer to a kind or species of product.
Symbols or flags alone may not be used to denote country of origin.
(f) With the exception of perishable agricultural commodities,
peanuts, pecans, and ginseng, State or regional label designations are
not acceptable in lieu of country of origin labeling.
Recordkeeping
Sec. 65.500 Recordkeeping requirements.
(a) General.
(1) All records must be legible and may be maintained in either
electronic or hard copy formats. Due to the variation in inventory and
accounting documentary systems, various forms of documentation and
records will be acceptable.
(2) Upon request by USDA representatives, suppliers and retailers
subject to this subpart shall make available to USDA representatives,
records maintained in the normal course of business that verify an
origin claim. Such records shall be provided within 5 business days of
the request and may be maintained in any location.
(b) Responsibilities of Suppliers.
(1) Any person engaged in the business of supplying a covered
commodity to a retailer, whether directly or indirectly, must make
available information to the buyer about the country(ies) of origin of
the covered commodity. This information may be provided either on the
product itself, on the master shipping container, or in a document that
accompanies the product through retail sale. In addition, the supplier
of a covered commodity that is responsible for initiating a
country(ies) of origin claim, which in the case of beef, lamb, chicken,
goat, and pork is the slaughter facility, must possess or have legal
access to records that are necessary to substantiate that claim. For
that purpose, in the case of beef, lamb, chicken, goat, and pork, a
producer affidavit shall be considered acceptable evidence on which the
slaughter facility may rely to initiate the origin claim, provided it
is made by someone having first-hand knowledge of the origin of the
animal(s) and identifies the animal(s) unique to the transaction.
Packers that slaughter animals that are part of a NAIS compliant system
or other recognized official identification system (e.g., Canadian
official system, Mexico official system) may also rely on the presence
of an official ear tag and/or the presence of any accompanying animal
markings (i.e., ``Can'', ``M''), as applicable, on which to base their
origin claims. This provision also applies to such animals officially
identified as a group lot.
(2) Any person engaged in the business of supplying a covered
commodity to a retailer, whether directly or indirectly (i.e.,
including but not limited to growers, distributors, handlers, packers,
and processors), must maintain records to establish and identify the
immediate previous source (if applicable) and immediate subsequent
recipient of a covered commodity for a period of 1 year from the date
of the transaction.
(3) For an imported covered commodity (as defined in Sec.
65.300(f)), the importer of record as determined by CBP, must ensure
that records: Provide clear product tracking from the port of entry
into the United States to the immediate subsequent recipient and
accurately reflect the country of origin of the item as identified in
relevant CBP entry documents and information systems; and must maintain
such records for a period of 1 year from the date of the transaction.
(c) Responsibilities of Retailers.
(1) Records and other documentary evidence relied upon at the point
of sale to establish a covered commodity's country(ies) of origin must
be provided to any duly authorized representative of USDA in accordance
with Sec. 65.500(a)(2), and maintained for a period of 1 year from the
date the origin declaration is made at retail. For pre-labeled
products, the label itself is sufficient evidence on which the retailer
may rely to establish the product's origin.
(2) Records that identify the covered commodity, the retail
supplier, and for products that are not pre-labeled, the country of
origin information, must be maintained for a period of 1 year from the
date the origin declaration is made at retail.
Subpart B--[Reserved]
Dated: July 28, 2008.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
[FR Doc. E8-17562 Filed 7-28-08; 4:30 pm]
BILLING CODE 3410-02-P