Law For Food: The law affects what you eat. What you buy to eat affects the law.

Some thoughts on mandatory COOL

I’m having some trouble with the various arguments in favor of mandatory country-of-origin labeling as proposed by the 2002 Farm Bill. The groundwork is as follows:

Critics of COOL (specifically, the USDA, which will have to enforce the requirement; meat and produce processors, and grocers, who will have to institute tracking systems to ensure the accuracy of labeling information) argue that mandatory COOL imposes substantial costs on the industries. (Cost estimates to follow in subsequent post.) Some of these costs will be passed on to consumers, which means, as I understand it, that there will be some marginal reduction in demand at new consumer prices (this depends on the cross-elasticity of covered products relative to uncovered substitutes). Other of these costs will be absorbed by the channel (i.e., the processor or retailer) and will therefore come out of profits, slowing growth. To the degree that growth is slowed while demand is reduced, we should expect some firms to exit these markets. Insofar as initial compliance costs are substantial, and do not scale, small firms may be put at a disadvantage relative to larger firms, and it may be the smaller processors and grocers which are forced to exit the market.

Supporters of mandatory COOL (i.e., U.S. producers and foreign producers of goods which can command a premium due to origin labeling [e.g., New Zealand lamb]; consumers) argue variously that the compliance costs are overstated, that consumer demand for origin information is sufficient to encourage mandatory COOL, and that there exists a consumer “right to know” the origins of products one buys, and that this right is enforced on most retail products in the U.S. Additionally, some argue that COOL may correct for certain externalities such as the social costs of widespread food-borne illness (the thinking being, I suspect, that consumers can correct for news of an illness when they have origin information.)

I am supportive of COOL, and could be persuaded that it should be mandatory, but these arguments do not as yet persuade me. I will treat as a piece the arguments that a) implemenetation costs are overstated and b) consumers desire origin information, primarily because I have found that these arguments often accompany one another. To my mind, this argument fails. If the costs of providing origin labeling are low, and consumer demand for that information is high, then any firm which does not voluntarily provide such information is at a competitive disadvantage relative to firms that do. Indeed, the more strongly one argues that costs are overstated, or the demand is understated, or both, the more we should expect the market already to provide this information. Given that the market does not provide it, we require some argument c) that another, greater countervailing interest weighs against firms providing this information. Such an interest should not be primarily of a economic or indeed quantifiable nature lest it be incorporated back into argument a) costs.

Without considering the following arguments, it seems to me that spending money on providing mandatory COOL could be wasteful if consumer demand for that information is low. Consumers still need to be educated about why the origin of their food matters, and that education will, if successful, raise demand for COOL: it may be the case that education will cause the market to provide that information voluntarily. Mandatory COOL may [I stress may] be spending money that it doesn’t need to spend.

My next project is to examine the contours and nuances of what consumers in the U.S. have a “right to know” but my understanding from my one sales class is that such a right is fairly restricted. More on this shortly.

The third argument seems most persuasive: specifically, that there are social costs to the absence of providing COOL information, and that those costs are borne by neither the buyer nor the seller of unlabeled foods. Economists call these costs externalities, and mandatory labeling is one of the ways that a government can correct this sort of market failure.

The greatest cost, according to the SPARKS estimate, will be bourne by the beef industry, which will likely have to implement individual animal tracking. However, there are a number of benefits to individual animal tracking which go beyond satisfying a consumer’s right to know. The best argument for individual animal tracking, I suspect, (although my research up to now has been on the direct costs and benefits of mandatory COOL) is a food-safety argument. If the FDA were to require individual animal tracking as a means of responding to food-borne illness outbreaks, mandatory COOL could become a lot less costly.


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[…] for USA Today story to see how hard it is to buy foods produced only in the USA, while over at the Law For Food blog, a law student examines the arguments for and against mandatory […]

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