Business Notes

HOT TOPIC -- ‘COOL’ is a lingering HOT MESS

BY STEVE KAY
[email protected]

Waiting for a court decision can be nerve-wracking. Getting a decision against you can be devastating. So it proved for opponents of the US Dept. of Agriculture’s new country-of-origin-labeling (COOL) rule. Nine North American meat and livestock groups asked a US federal judge on Aug. 27 to issue a preliminary injunction to block the enforcement of the rule.

But the judge turned down their request in a Sept. 11 decision.

This almost guarantees that the mess around COOL will continue. The plaintiffs say they will appeal the decision on the grounds that the judge applied the wrong legal requirements regarding the First Amendment issue and that of irreparable harm. But their appeal is unlikely to succeed, based on US District Judge Ketanji Brown Jackson’s ruling. She categorically rejected all of the groups’ legal arguments and the claims of irreparable harm.

Not surprisingly, Jackson told the plaintiffs that their issues with the rule must be solved in Congress rather than the courts. This suggested the judge will not rule against COOL when the plaintiff’s lawsuit comes to trial.

Yet, Congress has shown, to date, no inkling of being interested in amending the COOL law. It will not act in any way until after Canada and Mexico’s complaint against COOL to the World Trade Organization reaches its conclusion. This is not expected until late next year at the earliest.

Even then, the COOL saga will drag on. Should the WTO rule in favor of Canada and Mexico, the US will appeal, or vice versa. If the former prevail, they will ask the WTO for permission to apply punitive tariffs on a multitude of US goods. Only then might Congress feel compelled to act, and this might not be until well into 2015. Only then might the legislative fix of the COOL law come that Canada and Mexico also believe is the only “ultimate” solution to the issues around COOL.

More immediately, denial of the injunction means retailers will have to rush to re-label their fresh-meat products to bring their labels into compliance by Nov. 23. That’s when USDA will start enforcing its rule, which was implemented May 23.

Retailers up until now have continued to use origin labels based on USDA’s previous COOL rule. They had obviously hoped that an injunction would halt the enforcement of the new rule.

However, as noted earlier, there still remains the possibility that the WTO will eventually rule against the COOL rule. This would mean that retailers and their suppliers will have spent hundreds of millions of dollars for nothing. USDA’s Agricultural Marketing Service (AMS) last May said the new rule would have a midpoint cost of $123 million per year.

Retail issues

Of particular concern is whether retailers decide to simplify their labeling requirements by using only the label that reads “Born, Raised and Slaughtered in the United States.” Retailers have already expressed their alarm about the word “slaughtered” being on the label. The word must appear on all labels.

For example, meat from Canadian animals imported for slaughter must be labeled as “Born and Raised in Canada, Slaughtered in the United States.” Beef from a Mexican-born animal finished in the US must be labeled as “Born in Mexico, Raised and Slaughtered in the US.” No commingling of muscle cuts of mixed origins is allowed, which is likely to have the most impact on the US beef supply.

All this raises questions about the effect on the price of beef and pork sold in the US. AMS back in May estimated that the loss of commingling would add $7.16 per head for cattle and $1.79 per head for hogs at the packer/processor level.

Estimated costs at the retail level were $0.05 per lb. for beef and $0.045 per lb. for pork. But AMS did not evaluate the consequences of retailers moving to only a 100 percent US-origin label. Should this occur, the price of US-only muscle cuts would increase even more.

The price of ground beef might not be affected as the loss of commingling applies only to muscle cuts. This might force retailers to sell even more ground beef and fewer muscle cuts.

Another consequence might be to force more beef and pork derived from foreign-born animals to be diverted from retail to foodservice accounts and to exports.

No wonder many in the industry say that COOL is a “mess” that just won’t go away.

Steve Kay is editor and publisher of Petaluma, Calif.-based Cattle Buyers Weekly (www.cattlebuyersweekly.com).

 

Commentary

Mega-acquisitions keep stunning industry

BY BRYAN SALVAGE
[email protected]

When it comes to unexpected major acquisitions, the US meat and poultry industry continues to be full of surprises. Most recently, Hong Kong-based Shuanghui International Holdings Ltd., a majority shareholder of China’s largest meat-processing enterprise, announced it had entered an agreement to acquire Smithfield Foods Inc. for approximately $7.1 billion.

When I first entered food-trade publishing in the 1980s, the first mega food-company acquisition I covered was when food-giant General Foods was acquired by Philip Morris Companies – now named Altria Group Inc. – in November 1985 for $5.6 billion. At that time, this was the largest non-oil acquisition ever made in the US. Several years later in December 1988, Philip Morris acquired Kraft Inc., parent company of Oscar Mayer. In 1990, GF and Kraft were combined as Kraft General Foods (KGF). In 1995, General Foods was dropped from the corporate name.

When I began exclusively covering the meat and poultry industry in the early 1990s, the major acquisition surprises continued. Here are some that were made during the past decade-plus. (And here’s a special thanks to The Food Institute for supplying info on some of these.)

IBP Inc. (Iowa Beef Processors Inc.), was the largest beef packer and number-two pork processor in the US when it was acquired by Tyson Foods in 2001 for $3.2 billion in cash and stock. Today, the former IBP business is now known as Tyson Fresh Meats and is based in Dakota Dunes, SD. Many industry jaws hit the ground when news of this acquisition broke.

In 2006, the Butterball turkey business was acquired by Butterball LLC (formerly Carolina Turkeys), a joint venture that was between Smithfield Foods and Maxwell Farms Inc. – an affiliate of the Goldsboro Milling Co. – for $325 million. Smithfield acquired the other branded packaged meats assets from ConAgra Foods for $246 million. Brands included in the deal were Armour, Butterball, Eckrich, Margherita, Longmont and LunchMakers brands. Seaboard Corp. then bought Smithfield’s stake in Butterball in 2010.

In 2007, Brazilian meat giant JBS SA acquired Swift & Co., which was the third-largest US beef and pork processor at the time, for roughly $1.5 billion and the acquired business was renamed JBS USA. On Sept. 16, 2009, JBS announced it had acquired 64 percent of Pilgrim’s Pride for $800 million, making JBS an instant powerhouse in the US chicken industry. It now owns 75.3 percent of Pilgrim’s Pride.

In recent decades, there has been a growing recognition from major marketers that the US meat and poultry industry is just one piece of a vibrant global pie. It’s remarkable how much the landscape of the US meat and poultry industry has changed in just over a decade. Although the Smithfield acquisition has taken time for industry to fully digest, the question already in many folks’ minds is...who’s next?