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IB10063: Animal Agriculture: Current Issues Jerry Heykoop and Alejandro E.
Segarra April 16, 2001 CONTENTS
A variety of animal agriculture issues, including low livestock prices, the impact of consolidation in the meat packing industry, trade, and the environmental impacts of large feedlots, generated interest in the 106th Congress and continue to generate interest in the 107th Congress. Hog prices recovered from their historic lows in December 1998, but questions persist about the causes. This has revived questions about the impact of consolidation in the livestock industry and brought about legislative proposals to ban packer ownership of livestock, mandate price reporting, impose a moratorium on large agribusiness mergers, and create a permanent position within the Antitrust Division of the Department of Justice to deal with agriculture. On October 28, 2000, President Clinton signed the FY2001 USDA appropriations bill (H.R. 4461; P.L. 106-387). It earmarks $490 million in payments for livestock losses, and requires large meat packers to report prices they pay for cattle and hogs, among other provisions. An earlier law, P.L. 106-113 (signed November 29, 1999) provided $10 million in livestock assistance. Crop insurance reform legislation (H.R. 2559; P.L. 106-224), signed by President Clinton on June 22, 2000, also included a pilot project for livestock. Other legislation offered in the 106th Congress affecting livestock producers would have mandated that meat products be labeled with their country of origin, allowed state inspected meat to be sold interstate, and addressed food safety issues. On the trade front, President Clinton in July 1999, announced new, higher tariffs on lamb imports from New Zealand and Australia based on findings by the International Trade Commission that increased lamb meat imports "are a substantial cause of the threat of serious injury" to U.S. producers. Relatedly, the USDA announced on January 13, 2000, a 3-year, $100 million aid package for U.S. sheep producers. Disputes continue with the European Union (EU) over its barriers to U.S. meat and poultry imports despite a WTO ruling that the EU could not ban beef produced with hormones without scientific justification. Chronic difficulties getting products into countries in the increasingly important Asian market also are at issue. Congress will consider the success of existing trade agreements, whether to enter into new ones, and if "fast track" legislation should be enacted to speed up consideration of such agreements. Under a recent trade agreement with the United States, China has agreed to reduce its tariffs and begin importing U.S. meats. Industry producers see great potential for U.S. goods in the Chinese market. They supported legislation establishing permanent normal trade relations (PNTR) with China, which passed last year. In the environmental arena, the Clinton Administration issued on March 9, 1999, a new "Unified National Strategy" for animal feeding operations (AFOs) aimed at improving compliance and strengthening existing regulations for controlling waste discharged from such operations. In August 1999, the Environmental Protection Agency followed up by unveiling a proposed guidance manual for AFOs, inviting public comments. In accordance with a law passed by the 106th Congress, the U.S. Department of Agriculture (USDA) published a final rule in the Federal Register on December 1, 2000, to require the reporting of market information by certain meatpackers and importers. The Pork Check-Off referendum ended September 21, 2000, with a majority in favor of ending the assessments. In an agreement reached on February 28, 2001, the check-off will continue for at least 2 years, with certain changes in its administration. In 2000, U.S. farmers received $100.3 billion from the sale of animal products, about 52% of the value of all agricultural products marketed. That compares to $95.5 billion and 51% in 1999. In virtually every state, one or more of the top five farm commodities (based on sales) was an animal product, such as milk, cattle/calves, hogs, poultry, or eggs. Animal products contribute about three-quarters of the protein and one-third of the food energy to the average American's diet. Of the $561 billion U.S. consumers spent on all U.S. farm-produced foods in 1997 (the most recent year available), roughly half was for meat, poultry, eggs, and dairy products. Recent Economic and Price Trends Cattle. Beef production increased less than 2% to 26.8 billion pounds in 2000, from 26.4 billion pounds in 1999, according to USDA. Prices paid for "fed" (slaughter ready) steers in Nebraska averaged over $69/cwt (per 100 pounds) in 2000, while "feeder" (animals entering feedlots) steers in Oklahoma averaged over $86/cwt. For 1999, prices paid for "fed" steers in Nebraska averaged over $65/cwt, while "feeder" steers in Oklahoma averaged $76/cwt. For 2001, beef production is projected to drop to 25.6 billion pounds. Fed steers are projected to average$73-78, and feeder steers are projected to average $87-91. Retail prices for Choice beef averaged $2.88 a pound in 1999. In 2000, prices were up 6.5% over 1999, and averaged a record $3.06/lb. Per capita beef consumption increased from 69.1 pounds in 1999, to 69.4 pounds in 2000. According to USDA, retail prices are expected to decrease in 2001, due to continuing record large meat production, lackluster growth in exports, and a slowing domestic economy. Per capita beef consumption is projected to fall to 66.4 pounds. Hogs. Pork production declined 2% to 18.9 billion pounds in 2000, from almost 19.3 billion pounds in 1999. The industry is recovering from historically low farm wholesale prices in 1999, which averaged $34/cwt. In 2000, prices averaged almost $45/cwt. For 2001, pork production is projected to increase back up to 19.3 billion pounds, with hog prices expected to average $40-43. In August 2000, retail pork prices averaged $2.66 per pound, the highest on record, and up from $2.53 in August 1999. Overall, retail prices increased 7% in 2000, reflecting the rise in hog prices and an increase in the farm-to-retail spread, according to USDA. Per capita consumption declined to 52.5 pounds in 2000, from 53.9 pounds in 1999. For 2001, retail prices are expected to average about the same as 2000, while per capita consumption is expected to increase to 52.9 pounds. Sheep. Lamb and mutton production continued to decline in 2000. Production was down 6% to 234 million pounds, from 248 million pounds in 1999. Farm prices for slaughter lambs averaged $80/cwt in 2000, up from $76 in 1999. For 2001, production is projected to decline 7% to 217 million pounds, with prices for slaughter lambs projected at $80. Poultry. Broiler production increased 2.5% to 30.5 billion pounds in 2000, from 29.7 billion pounds in 1999. Broiler prices dropped almost two cents to 56¢/lb in 2000, from 58¢/lb in 1999. Per capita broiler consumption remained steady around 77 pounds in 2000. For 2001, broiler production is projected to increase to 31 billion pounds, with prices at 56-60¢/lb. Per capita consumption is expected to increase slightly to 77.2 pounds. Turkey production increased 2% to 5.4 billion pounds in 2000, from almost 5.3 billion pounds in 1999. Turkey wholesale prices increased to almost 71¢/lb in 2000, from 69¢/lb in 1999. Per capita consumption of turkey decreased slightly to 17.7 pounds in 2000, from 18.0 pounds in 1999. For 2001, production is projected to increase to 5.6 billion pounds, and prices are expected to average 66-70¢/lb. Per capita consumption is expected to increase to 18.1 pounds. Industry Concentration and Structure, and Industry Issues Recent price problems for some segments of animal agriculture have revived interest in the changing structure and business methods of the livestock industry, including consolidation of production and processing into fewer and larger operations, more vertical integration (i.e., ownership or increased control of more than one phase of production and marketing by a single firm), and the gradual shift from mainly open cash markets to private contracts or other marketing agreements between buyers and sellers. At issue are the impacts --positive and negative-- on traditional producers, rural economies, consumer choices and prices, and the environment and the role, if any, government should play. Hog farming especially has consolidated rapidly in recent years. At the packer level, the four largest firms' share of hog slaughter reached 56% in 1999, compared with 40% in 1990. In 1997, 64% of all hogs were marketed through some form of forward sales arrangement between producers and packers. Less than 10% of all hogs involved entire or partial packer ownership in 1997. The poultry industry has been almost entirely vertically integrated for many years, and the pork industry is becoming more so. In the cattle sector, the four largest beef packers accounted for 70% of all cattle slaughtered in 1999, compared with 59% in 1990. However, structural change in the beef industry has not been as dramatic recently as it has been for the hog industry. Many producers believe increasing concentration and other changes have resulted in a less open market environment and contributed to the lower prices they have been receiving. USDA and other analysts generally believe that other factors, notably imbalances in supply and demand, are much more consequential. Economists explain that structural changes are occurring as firms become larger in order to capture lower per-unit costs when operating at or near full capacity. They note that vertical coordination and the use of advance marketing arrangements are simply a reflection of today's agricultural markets, which are shifting from the production of a few homogenous commodities without a particular market in mind to the creation of a wider variety of specific, consistently high-quality consumer products. Government and Congressional Response Government-sponsored studies have been inconclusive on the relationship between agribusiness consolidation and farm prices. One, Concentration in Agriculture: A Report of the USDA Advisory Committee (June 1996), confirmed widespread producer distrust of pricing and procurement, especially by packers. Among its recommendations were improved market data collection (to reflect modern marketing practices), better access to the data by all segments of the industry, and more vigorous enforcement of existing antitrust laws. USDA has since undertaken a number of actions intended to address concentration and to promote competition: (1) enhanced reporting of livestock prices and other marketing data, (2) expanded investigations of procurement and pricing practices in the fed cattle, hog, and lamb sectors, and of poultry companies' contracts with growers, and (3) an overhaul of the Grain Inspection, Packers and Stockyards Administration (GIPSA), to strengthen its ability to investigate and prosecute anti-competitive practices under the Packers and Stockyards Act (PSA). USDA also has asked Congress for legislation to: (1) give GIPSA authority over live poultry dealers regarding violations of the PSA, (2) amend the Agricultural Fair Practices Act so producers have more bargaining power vis a vis meat and poultry companies, and (3) provide the Secretary with the power to require livestock price reporting (see below). On March 31, 1999, a White House (National Economic Council) task force issued a preliminary report on hog industry structure and practices. It concluded that although pork packer concentration has increased, it is still "considerably lower" than in cattle slaughter and "lower than levels that antitrust enforcement agencies ordinarily regard as indicative of a highly concentrated industry." Nonetheless, the report did state that small producers have been disadvantaged by recent market developments and that steps should be taken to help them survive and compete. In Congress, the Senate Agriculture Committee held hearings in the 106th Congress on concentration in agriculture, including the livestock industry, on January 26 and July 27, 1999, and again on February 1, 2000. The House Agriculture Committee held a similar hearing on February 11, 1999. On March 23, 1999, eleven Senators from farm states met with then Attorney General Janet Reno to discuss the issue, and she responded by pledging to take a closer look at agricultural concentration. A high-level Justice Department official traveled in mid-April and again in early September 1999 to the Midwest to gather information on the issue, accompanied by USDA officials and several Senators. A September 2000 report by the General Accounting Office (GAO) has determined that GIPSA lacks the staff, the budget, or the expertise to investigate anti-competitive behavior in the livestock industry (GAO Report RCED-00-242, Packers and Stockyards Programs: Actions Needed to Improve Investigations of Competitive Practices). Among GAO's recommendations are calls for an earlier integration of attorneys in the planning and review of investigations and for closer consultation between USDA and GIPSA with the Federal Trade Commission and the Department of Justice during investigations. In a September 25, 2000, hearing before the Senate Judiciary Subcommittee on Administrative Oversight, USDA's Under Secretary for Marketing and Regulatory Programs accepted the GAO report conclusions, recognizing room for improvement and stressing USDA's commitment to the task of ensuring fair competition in the marketplace. Senator Grassley and three cosponsors introduced a bill (S. 3901) requiring USDA to implement within one year GAO's recommendations on improving the administration of the Packers and Stockyards Act. Such a proposal was included in the "Grain Standards and Warehouse Improvement Act of 2000," which was signed into law on November 9, 2000 (P.L. 106-472). A variety of other bills on agricultural concentration were introduced in the 106th Congress, including bills that (1) ban packer ownership of animals intended for slaughter (S. 1738, H.R. 3324), (2) establish a permanent position within the Department of Justice to deal with agriculture (S. 1984, S. 2252, H.R. 4321, H.R. 4339), (3) require proposed agribusiness mergers to notify the Secretary of Agriculture (H.R. 4339, S. 2411), and (4) establish a livestock dealer trust to ensure payment (S. 2744). Many of these types of bills may be introduced in the 107th Congress. Economic Assistance. Traditionally, the livestock sector of production agriculture has received a minimal amount of price and income support from the federal government. However, there is increasing interest in some type of subsidized revenue insurance product for livestock producers in conjunction with the federal crop insurance program. Current law gives USDA the discretion to determine whether a farm commodity is insurable. However, the statute specifically excludes livestock as an insurable commodity under the federal crop insurance program. The conference agreement (H.Rept. 106-639, which was approved by both the House and the Senate on May 25, 2000) to the crop insurance bill (H.R. 2559; P.L. 106-224) passed by the 106th Congress, requires USDA to conduct two or more pilot programs to evaluate the effectiveness of risk management tools for livestock farmers. The purpose of the pilot programs is to determine if such programs may provide livestock producers with protection from the financial risks of price and income fluctuation, or from production losses. (See CRS Issue Brief IB10033, Federal Crop Insurance: Issues in the 106th Congress.) The FY2001 agricultural appropriations bill (H.R. 4461; P.L. 106-387, October 28, 2000) includes assistance to livestock producers who experienced significant losses caused by a natural disaster in 2000, and provides $490 million in livestock assistance. Funds were disbursed primarily through the Livestock Assistance Program, which financially assists livestock farmers who need to replace on-farm feed that was destroyed by a natural disaster, and the Livestock Indemnity Program, which helps producers replenish their livestock inventory when animals are killed by a disaster. This funding was preceded by $10 million in livestock assistance in the Consolidated Appropriations Act for FY2000 (P.L. 106-113). This $10 million was earmarked for any producer who raised livestock owned by other persons and was adversely affected by a 1999 natural disaster, and was expected to primarily assist contract hog and poultry farmers in North Carolina who were affected by Hurricane Floyd. (See CRS Report RS20416, Emergency Farm Assistance in FY2000 Appropriations Acts and CRS Report RL30501, Appropriations for FY2001: U.S. Department of Agriculture and Related Agencies.) Packers and processors have not been required to report the prices they pay for animals that they buy from producers, although USDA does collect and report this information under an extensive voluntary system. However, some agricultural producers contend structural change has led to more animals being sold under private marketing arrangements, where prices are not publicly disclosed, making it more difficult to get accurate market information. These producers called for mandatory price reporting legislation covering packers and perhaps others who process and market meat. Opponents of this proposal, who have included some meat packers, farmers, and ranchers, argued that mandatory reporting would be costly for government and industry, raise privacy concerns, and not cure low livestock prices. Mandatory price reporting for large packers was incorporated by conferees into the FY00 USDA appropriations law (P.L. 106-78) after a long period of intensive negotiations with meat packing companies and livestock producers to design a comprehensive price reporting law acceptable to both segments of the industry. The USDA Agricultural Marketing Service (AMS) published a final rule (effective January 30, 2001) in the Federal Register on December 1, 2000. It requires the reporting of market information by meatpackers who slaughter an average of 125,000 cattle, 100,000 hogs, or 75,000 lambs per year. Importers with annual average imports of 5,000 tons of lamb are included in the regulation. USDA in turn must publish frequent, detailed reports on these transactions. Mandatory reporting will provide information on 80-95% of the volume of all cattle, boxed beef, slaughter hogs, sheep, lamb meat, and imported lamb meat, according to USDA. Packers and importers are required to report to USDA the details of all transactions involving purchases of livestock and imported boxed lamb cuts, and the details of all transactions involving domestic and export sales of boxed beef cuts, sales of domestic and imported boxed lamb cuts, and sales of lamb carcasses. Market news reports that will be new under mandatory reporting include reports covering the prior day swine market; forward contract and formula marketing arrangement cattle purchases; packer-owned cattle and sheep information; sales and purchases of imported boxed lamb cuts; and live lamb premiums and discounts. On January 26, 2001, the effective date was changed to April 2, 2001, in order to give AMS more time to test the new electronic information system being implemented by the program. To assist producers and other market participants to understand how the new program will affect them, AMS provided education and outreach sessions around the country. The informational sessions were to ensure that interested parties fully understand the different types of new information that will be made available as well as what the change will mean to users of the current voluntary market news reports now published by AMS. (See AMS Mandatory Price Reporting website at http://www.ams.usda.gov/lsg/price.htm.) (Please see CRS Report RS20079, Livestock Price Reporting Issues.) In addition, GIPSA has published a proposed rule in the Federal Register on September 5, 2000, on new regulations to establish a library for hog marketing contracts; a final rule is expected by the second quarter of 2001. USDA Secretary Glickman announced in late February 2000, that he was authorizing a vote on continuation of the pork checkoff program. The pork checkoff program is funded by assessments collected from producers when hogs are sold. The funds are used for pork promotion, research, and consumer information. Program funds could not be used to affect the outcome of the referendum vote. Producers who owned and sold one or more pigs or hogs at any time from August 18, 1999, through August 17, 2000, were eligible to vote in the referendum, as were those who imported pigs, hogs, pork, or pork products during that time period. The final referendum rules provided for voting during the period August 18 through September 21, 2000. The results of the referendum were 14,396 (45%) for, and 15,951 (50%) against continuing the checkoff program, with 5% of the ballots invalidated. On January 11, 2001, Secretary Glickman issued a statement: "This outcome demonstrates that the Pork Checkoff Program does not have the support of the producers it serves and therefore cannot fulfill its stated purpose. Accordingly, I am directing USDA's Agricultural Marketing Service to prepare and issue a final rule to terminate the order and the program conducted under it." On January 12, 2001, the National Pork Producers Council (NPPC) --an industry organization funded by the checkoff program-- filed suit seeking a temporary order restraining termination of the program. The injunction contended USDA acted unlawfully when it held a binding referendum and that the Secretary had no authority to call for the vote. The U.S. District Court for Western Michigan granted the NPPC and other plaintiffs a Temporary Restraining Order prohibiting the USDA from publishing a rule to end the pork checkoff program based on the referendum. In accordance with the court order, the check-off remained in effect and pork producers and importers must continue to pay assessments. A hearing on the fate of the checkoff program had been scheduled tentatively for March 16. In the interim, the program would operate "status quo" and failure to pay the assessment would be subject to a fine of up to $1,100 per violation. On February 28, 2001, USDA announced a settlement that would continue the Pork Checkoff Program. Under the settlement, certain program restructuring was required. The changes, effective immediately, were to ensure the separation of the National Pork Board and the NPPC and make the program more responsive to concerns of pork producers. The restructuring requires the National Pork Board to:
Under the agreement, state pork producer associations will continue to operate independently and be accountable for checkoff funds, but may cooperate on projects and communications with state affiliate organizations of NPPC. The Pork Board will have approximately 2 years to demonstrate to producers and importers the value of the checkoff program to the industry. USDA will conduct a survey by June 2003, to determine whether 15% of producers and importers are in favor of conducting a referendum to decide continuation of the checkoff program. If the required number of producers and importers request a referendum, the referendum would then be held within one year. Additional information about the settlement and related issues is available at: http://www.ams.usda.gov/lsg/mpb/pork.htm. Six meat and poultry processors (IBP, Cargill, Smithfield, Tyson, Gold Kist, Farmland) announced on April 11, 2000, their intent to create an on-line, business-to-business marketplace for meat and poultry products, service, and information. The Web-based exchange will provide a place for buyers and sellers of meat and poultry products to connect with each other. Proponents say the exchange will promote efficiencies in the market by facilitating faster and more direct product comparison and price negotiation, by reducing paperwork and other duplication. On April 12, Senator Wellstone requested the Department of Justice "initiate a complete and thorough examination of this alliance and its possible implications for our nation's family farmers and consumers." His concern stemmed from "the market implications of our nation's largest meat agribusinesses sharing marketing information and resources." The United States is the leading beef consumer, producer, and importer -accounting for 26% of the world's consumption, 25% of production, and 29% of imports- and the second leading exporter -accounting for 20% of world exports- during 2000. The United States is the third leading pork consumer, producer, and exporter -accounting for 10% of world consumption, 10% of production, and 19% of exports- and the second leading importer -accounting for 17% of the world's pork imports. The United States is the leading consumer and producer of poultry meat -accounting for 24% of the world's consumption and 28% of production- and dominates the export market with 43% of total world exports, while accounting for well below 1% of total imports. Acting on a Section 201 (1) petition filed by the American Sheep Industry Association (ASI) and others, the International Trade Commission (ITC) on February 9, 1999, found that increased lamb meat imports "are a substantial cause of the threat of serious injury to the U.S. lamb meat industry." Subsequently, on July 7, 1999, President Clinton announced an import relief package for the U.S. industry. Three years of tariff-rate quotas on lamb meat imports began on July 22, 1999, applying primarily to New Zealand and Australia, the primary sources. (Mexico, Canada, Israel, and other minor exporters to the United States are specifically exempt from the quota.) During the first year, the total quota is set at 31,851 metric tons, which is equal to 1998 lamb meat imports. Tariffs of 40% ad valorem will be imposed on all imports above the quota. During the second and third years, the total quota increases by 857 metric tons per year. The above-quota tariff declines to 32% ad valorem in the second year and to 24% in the third year. Moreover, duties are being increased for imports within the quotas, to 9%, 6%, and 3% ad valorem, in the first, second, and third years, respectively. New Zealand filed a complaint with the World Trade Organization (WTO) on July 16, 1999, and Australia followed on July 23,1999. On December 6, 2000, the WTO dispute panel ruled the United States had violated the WTO's safeguard provision in its decision to place import restrictions on lamb imports because it improperly attributed injury to imports that were caused by other factors. Evidently, the panel did not question U.S. legislation providing for safeguards, but only the methodology employed by the ITC to determine injury or the threat of injury. On February 1, 2001, the United States announced it was appealing the WTO panel ruling. In another part of the relief package, on January 13, 2000, USDA announced details of a $100 million, 3-year assistance initiative for the domestic lamb industry to help growers improve productivity and expand sales. The plan provides $50 million during the first year and $50 million in the second and third years, including $60 million for production improvements, $20 million for promotion efforts, and $20 million to improve animal health including the eradication of the sheep disease scrapie. Last summer, the Swiss government detected diethylstilbestrol (DES) in two samples of supposedly hormone-free U.S. beef. DES was a widely used growth stimulant until the early 1970s, when it was found to be carcinogenic. Its use was banned by the FDA in 1979, and the Food Safety and Inspection Service (FSIS) stopped testing meat for DES in 1991, after failing to detect any cases of contamination for several years. Now, however, FSIS intends to resume testing veal and beef. In a separate arena, the EU bans the import of U.S. beef produced with hormones, a decision that affects 90% of U.S. beef. The WTO ruled in favor of the United States that the EU can not ban beef produced with hormones without scientific justification. The WTO authorized U.S. retaliation of $117 million and the EU offered to compensate the United states by enlarging the 20,000 tonne quota for non-hormone treated (NHT) beef in lieu of lifting the ban. The United States, however, has maintained that compensation, unless contingent on removing the ban, is unacceptable. So far, however, discussions about enlarging the quota for beef from NHT animals have not resolved the issue. Meanwhile, recent outbreaks of bovine spongiform encephalopathy (BSE), or mad cow disease, which has nothing at all to do with hormones, in several EU countries have complicated discussions and created a climate highly unfavorable to a resolution of the hormone dispute by increasing the NHT quota. On May 24, 2000, the Commission of the European Union recommended that use of one of the hormones in question, 17-beta oestradiol, be permanently banned because it is carcinogenic , while use of five others would be provisionally prohibited pending completion of scientific studies. The Commission said that its recommendation (which requires approval by the EU Parliament and Council of Ministers and would not come into force before mid-2001) was an effort to comply with WTO rules requiring risk assessment of sanitary and phytosanitary regulations. The immediate U.S. response was that much of the evidence used by the EU already had been considered and rejected by the WTO. In a separate incident last spring, the EU found 12% of U.S. beef imported as hormone-free contained unacceptable drug residues. The EU threatened to delist U.S. companies, essentially stopping all sales, unless the United States took steps to tighten inspections. U.S. authorities agreed to stiffen testing measures used to detect residues, moving some of the tests to European laboratories until U.S. laboratories could update their procedures. In response, the EU lifted its threatened ban on March 31, 2000. (See CRS Report RS20142, The European Union's Ban on Hormone-Treated Meat.) Under a U.S.-China bilateral agreement negotiated in August 1999, China agreed to open its markets to U.S. beef, pork, and poultry by agreeing to accept USDA certification for safety of exported meat. Implementation of this sanitary accord on U.S. meat and poultry was held up after U.S.-China WTO negotiations broke down in May 1999. Following agreement in November 1999 between the United States and China on the terms of the latter's accession to the WTO, China began to implement the bilateral sanitary accord. In addition, in its WTO market access commitments, China has agreed upon accession to substantial reductions in tariffs for meat and poultry. The full tariff reductions would be in effect by 2004, the end of the phase-in period for all other WTO members to implement their Uruguay Round tariff cuts. China's current and proposed tariff rates are:
In addition to changes in China's veterinary measures and significant tariff reductions, U.S. exporters would have access to China's retail and food service markets. Meat producers are enthusiastic about the WTO agreement. The greatest potential seems to be for U.S. exports of variety meats such as beef stomach and pork tongue, ears, hearts, stomach, kidneys, liver, intestines, feet and tails. Because such meats are not in high demand by U.S. consumers, trade with China could increase the value of hogs by $5 per head without raising retail pork prices for U.S. consumers. China's policy of self-sufficiency in beef production has tended to favor importation of coarse grains and feeds like soybean meal over beef imports, but veterinary changes, significant tariff reductions, and access to China's distribution system could alter demand patterns. China is a net importer of poultry meat, with imports growing. China exports live birds mainly to Hong Kong and de-boned chicken pieces to Japan. Imports consist primarily of frozen parts such as feet, wings, wing tips, legs, and gizzards. The rapid rise of the fast-food industry in China, both domestic and foreign-owned chains, bodes well for continued strong demand for imported poultry meat. (See CRS Report RS20169, Agriculture and China's Accession to the World Trade Organization.) Mexican beef producers claimed the U.S. cattle industry dumped beef in the Mexican market from June to December 1997. After an 18-month investigation, the Mexican trade ministry imposed a preliminary ad valorem duty structure on August 2, 1999, and issued a final decision on April 28, 2000. The new duty structure, which went into effect April 29, 2000, assigns specific duties that target U.S. beef not certified USDA Prime, Choice, or Select, and beef more than 30 days old. U.S. Certified Angus beef is exempt from the duties as well as veal and kosher beef for certain companies. Currently, a NAFTA panel is reviewing Mexico's antidumping duty determination and a final ruling is expected on April 5, 2001. The impact on trade ranges from minor to quite significant depending on the interpretations made about the final antidumping ruling. The 30-day requirement is of immediate concern. USDA is working to clarify how this requirement might be satisfied with the least possible burden on U.S. exporters. Trade liberalization under NAFTA and economic recovery in Mexico since the 1994 peso devaluation have led to a strong expansion of U.S. beef exports to Mexico in recent years. Mexico is the United States' second most important market for beef and beef variety meats. Despite the imposition of preliminary antidumping duties on U.S. beef in August 1999, beef exports to Mexico grew 11% for the year. The growth in exports has been continuing so far in 2000, rising 29% in the first two months over year earlier. Federal law requires most imports, including many food items, to bear labels informing the "ultimate purchaser" of the country of origin. The U.S. Customs Service, which administers and enforces this requirement, generally defines the "ultimate purchaser" as the last U.S. person who will receive the article in the form in which it was imported. So, if articles arrive at the U.S. border in retail-ready packages -including food products, e.g., a can of Danish ham, a slab of Dutch cheese, or a box of English candy- each must carry such a mark. However, if the article is destined for a U.S. processor or manufacturer where it will undergo "substantial transformation" (as determined by Customs), then that processor or manufacturer is considered the ultimate purchaser. Expanded labeling requirements continue to attract attention for a number of reasons. One is that they are viewed (by some advocates) as a way to help U.S. producers dealing with low farm prices. Also, some perceive that food products from certain countries might pose greater risks than foods from the United States. Proponents contend additional country labeling requirements will enable consumers to know the source of retail food offerings and include that knowledge in selecting their purchases. Opponents counter that country-of-origin labeling bears no relation to food safety and would not raise U.S. commodity prices. They argue it will impose excessive and costly regulatory burdens on retailers, increase consumer prices, be difficult to enforce, and -by imposing new non-tariff trade barriers- undermine ongoing efforts to reduce other countries' trade barriers and expand international markets for U.S. products. In 1999, the National Cattleman's Beef Association and the American Sheep Industry Association requested that USDA end the official grading of imported meat products. Current regulations allow imported carcasses or carcasses from animals imported into the United States to receive a USDA grade, provided these carcasses meet all established inspection requirements. On July 21, 2000 , USDA announced that a proposed rule will be issued later this year to restrict the USDA grading of imported beef, lamb, veal, and calf products. Under this proposal, the USDA grade shield would only appear on meat products from livestock slaughtered and processed in the United States. Recently, Canadian Minister for Agriculture, Clyde Vanclief, expressed his concern about the USDA's intention to stop grading imported meat carcasses warning that it may violate U.S. trade obligations under NAFTA and the WTO rules. Hearings on country labeling bills were held during the 106th Congress by a House Agriculture subcommittee on April 28, 1999 and September 26, 2000, and by the Senate Agriculture Committee on May 26, 1999. Provisions to impose country labeling requirements for meats and produce were included in a wide-ranging Democrat farm relief amendment (S.Amdt. 1514) that was defeated by the Senate on August 4, 1999. Bills (H.R. 222, H.R. 1144, S. 242, S. 251) introduced in the 106th Congress would have imposed expanded country-of-origin labeling requirements on meat products at the retail level. (See CRS Report 97-508, Country-of-Origin Labeling for Foods: Current Law and Proposed Changes.) Animal Health and Food Safety Issues Mad Cow and Foot and Mouth Diseases Outbreaks of foot-and-mouth disease (FMD) in the United Kingdom and other European nations and persistent findings of mad cow disease in Europe have deepened concerns about the United States' ability to prevent these diseases or eradicate them should an outbreak occur. Neither disease occurs in the United States. Mad cow disease or BSE (bovine spongiform encephalopathy) has not been found since federal and state agencies began surveillance in 1989. Similarly, the last outbreak of FMD in the United States occurred in 1929. In contrast to mad cow disease -- which is fatal, slow acting, possibly deadly to humans, and whose causal agent is still a matter of scientific debate -- FMD is a highly contagious, fast spreading viral disease, rarely fatal to adult animals that affects cloven-hoofed animals (such as cattle, swine, sheep, goats, and deer) and is rarely found in humans. Mad cow disease is believed to be transmitted when corrupted proteins from an infected animal are fed to cattle, and transmission between animals has rarely been observed. FMD, in contrast, spreads not only through physical contact between animals, but by people, the wind or by materials (feed, hay). The potential for economic disruption from each of these diseases may be, however, equally devastating to U.S. beef (BSE and FMD), dairy (FMD) and swine (FMD) industries. Loss estimates vary but range in the billions of dollars. If BSE or FMD were to be found in U.S. livestock , direct losses would come from declining sales of meat, meat products, and milk (FMD only), and from the loss of export markets. Indirect effects caused by extensive herd depopulation could impact the demand for feed (further depressing grain prices now at historically low levels); and hurt marketing and distribution segments (e.g., stockyards, packers, distributors, and retailers) as well as agricultural input industries (e.g., animal health and pharmaceuticals). Conversely, alternative sources of animal protein, such as poultry and farm-raised fish, or alligator, could potentially benefit from low feed prices and increased consumer demand. Contingency plans exist at the federal and state levels to deal with outbreaks of BSE or FMD in the United States. In the case of BSE, preventive measures taken by the federal government include: banning the import of ruminants or ruminant products (including feed containing animal remains) from the European Union (EU), and banning the use of ruminant protein in ruminant feed. For FMD, federal actions have included banning importation of livestock from the EU, and increasing surveillance of passengers and cargo at ports of entry. (See CRS Report RS20839, Mad Cow Disease: Agriculture Issues). Legislation. A proposal, the Animal Disease Risk Assessment, Prevention, and Control Act of 2001 (S. 700), that would establish a Federal interagency task force for the coordination of actions to prevent the outbreak of bovine spongiform encephalopathy (commonly known as "mad cow disease") and foot-and-mouth disease in the United States has passed the Senate, with one amendment, by unanimous consent. Regulators, some scientists, and food safety advocates have raised concerns that the current practice of adding antibiotics to animal feed may encourage emergent strains of bacteria in humans that are resistant to antibiotic treatment. In 1997, the World Health Organization recommended that antibiotics used to treat humans should not be used to promote animal growth, although such antibiotics could still be used to treat ill animals. In July 1998, a National Academy of Sciences report concluded that there is a link between the use of antibiotics in food animals, bacterial resistance to these drugs, and human disease. Now, a coalition of consumer advocacy organizations is calling for more stringent rules, including a ban on the use of any human antibiotics for promoting growth in animals. Several antibiotics, particularly penicillin, tetracycline, erythromycin, lincomycin and bacitracin, that either are used in or are related to antibiotics used in humans to treat infectious diseases, are also used in animal feed in sub-therapeutic amounts in order to promote the animals' growth. Conversely, animal and drug industry officials object to additional legislation or regulations. They counter that it has not been proven that antibiotics, when properly administered to animals, endanger human health, and that the changes proposed by some organizations will raise significantly the costs of both animal production and new drug development. (See also GAO Report RCED-99-74, Food Safety: The Agricultural Use of Antibiotics and Its Implications for Human Health.) The use of antibiotics in food animals is a legislative issue that likely will be debated during the 107th Congress. One bill, the 1999 Preservation of Essential Antibiotics for Human Diseases Act, introduced by Representative Sherrod Brown at the end of the 106th Congress, would have restricted the use of human antibiotics in food animals unless there would be a "reasonable certainty of no harm to human health due to the development of antimicrobial resistance as a result of such use." This measure will likely be reintroduced into the 107th Congress. This legislative proposal came after several groups petitioned the Food and Drug Administration (FDA) in March 1999 to rescind its approval of the use of certain antibiotics in farm animals which they felt contributed to more antibiotic resistance. To date, FDA has not responded to their petition directly. However, on October 31, 2000, the agency proposed to withdraw its approval of the use of one antibiotic in poultry, saying that new evidence showed that its continued use could pose a human health hazard. In addition, Administration officials testified before Congress that antimicrobial resistance is a "real" threat to public health. If future research provides stronger evidence that antibiotic resistance is a growing public health threat, Congress will likely consider further action. (See CRS Report RL30814 (pdf), Antimicrobial Resistance: An Emerging Public Health Issue.) USDA published a rule in the Federal Register on March 9, 2000, to allow increased use of vegetable proteins (e.g., soy protein) in Child Nutrition Programs. Other changes are to rename "Vegetable Protein Products" as "Alternate Protein Products," eliminate the requirement that alternate protein products be specially fortified, and update the test used to determine protein quality. USDA said the primary reason for adopting the new regulation is to improve the health of school lunch menus, particularly reducing the amount of fat consumed by school children. Previously, schools were limited in using soy as an additive and soy could not amount to more than 30% of the final food product. The National Cattlemen's Beef Association (NCBA) called the rule irresponsible and claimed that "soy is an option, not a replacement for meat products." The rule took effect on April 10, 2000. Animal production practices have come under more scrutiny in recent years as policymakers have considered their impacts on the environment, both on and off the farm. Industry leaders acknowledge their role in protecting the environment, but seek assurances that any policy changes will be based on sound scientific evidence and emphasize flexible, site-specific solutions over (in their view) excessive, costly, or inflexible regulations. In particular, large confined animal feeding operations (CAFOs) --cattle feedlots, swine production operations, and poultry houses-- along with high-volume slaughter plants, are of major concern. These sites generate animal waste which, if not handled properly, can pollute surface and ground waters as well as cause odor and air quality problems. Under the Clean Water Act, the EPA Administration issued a "Unified National Strategy" for CAFOs in March 1999, prepared jointly by EPA and USDA, that lists steps to improve compliance and strengthen existing regulations, obtain better information on water quality related to AFOs, and coordinate federal and state activities. In August 1999, EPA followed up by unveiling a proposed guidance manual and permit examples for CAFOs. It was aimed at providing information on which CAFOs would need to apply for permits (likely 15,000 to 20,000 of the largest operations), how manure should be applied on land, and monitoring and reporting requirements, among other things. Issues that Congress might be asked to address include impacts and costs imposed on agriculture, how the anticipated combination of regulatory and incentive-based measures will help to minimize water pollution from confinement facilities and land applications of manure, whether legislation is needed to define national rules and policies on animal waste, and whether or not the implementing agencies have the necessary resources in funding and personnel. (See CRS Report RL30437, Water Quality Initiatives and Agriculture; CRS Report 98-451, Animal Waste Management and the Environment: Background for Current Issues.) "Consolidation in U.S. Meatpacking." February 2000. James M. MacDonald, Michael E. Olinger, Kenneth E. Nelson, and Charles R. Handy. Food and Rural Economics Division, ERS, USDA. Report No. 785. "Pork Industry: USDA's Reported Prices Have Not Reflected Actual Sales." December 1999. GAO Report RCED-00-26. CRS Report RS20562 (pdf), Merger and Antitrust Issues in Agriculture. CRS Report 98-253 (pdf), U.S. Agricultural Trade: Trends, Composition, Direction, and Policy. "Mandatory Country of Origin Labeling of Imported Fresh Muscle Cuts of Beef and Lamb." January 2000. Food Safety and Inspection Service, United States Department of Agriculture. http://www.fsis.usda.gov/OA/congress/cool.htm CRS Issue Brief IB98009, Food Safety Issues in the 107th Congress. 1. (back)Section 201 - A section of the Trade Act of 1974 permitting the President to grant temporary import relief by raising import duties or imposing nontariff barriers on goods entering the United States that injure or threaten to injure domestic industries producing like goods. Return to CONTENTS section of this Issue Brief. |
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