The meat industry, which is already hampered by federal budget
cuts, is seeing more changes in the form of a proposal of the
U.S. Department of Agriculture (USDA). According to media
reports, the regulatory watchdog will now require processed meat
packs to provide more detailed labeling about the geographical
origin of the meat.
The ruling is an extension of the already existing custom of
labeling the Country-of-Origin of the meat that is sold at retail
outlets. The meat packets containing muscle cuts, such as steaks
and pork chops, which were until now labeled simply as a product
of one or more countries, would have to spell this out more
clearly. It will now have to add where the animal was born,
raised and slaughtered.
Moreover, the ruling also requires that all the meat in a packet
should come from one source. However, mingling of meat from
different sources will be allowed for ground meat.
The new ruling is in response to a ruling of the World Trade
Organization ('WTO') passed in 2012, per which the U.S.
government will have to modify the labeling rule by May 23, 2013.
The Country-of-Origin Labels were made mandatory by the U.S.
government in 2009 but vehemently opposed by Mexico and Canada,
who argued that the rule favored U.S. domestic meat over imported
The WTO took up the cause of the Mexican and Canadian governments
and said that the rule has to be made less strict to allow
However, the new rule is expected to increase the complexity and
cost of labeling and packing, and the initial cost is estimated
to be within the range of $17 million and $48 million according
to the American Meat Institute.
The stricter country-of-origin label will provide U.S. products
with a competitive advantage over foreign products. U.S.
consumers, if offered a clear choice, prefer fresh foods of
domestic origin, thereby strengthening demand and prices for
them. The stricter labels will increase meat consumption as they
will be free from concerns about the safety of foreign beef which
may have the danger of causing Mad Cow Disease or Bovine
Spongiform Encephalopathy, which made its first appearance in
Canadian dairy herds in 2003.
Exports of beef from the U.S have fallen after the first case of
BSE was found in Dec 2003. According to the International Trade
Commission, beef companies like
Tyson Foods Inc.
) and Cargill Inc. suffered losses of $2.5 billion to $3.1
billion from 2004 to the end of 2007 on this account.
The stricter labels come at a time when the meat industry faces a
huge loss. Inspectors have been furloughed by the USDA, following
the spending cut and tax increases to cover the deficit by the
U.S. government. The sequester scheduled in March 2013 will
result in furloughing of up to one-third of the workers appointed
by the U.S. Agriculture Department. The personnel could be laid
off as a cost-cutting measure by the U.S. government.
If that happens, it will lead to a two-week shutdown of plants
owned by meat processing giants like Tyson Foods Inc. and
Sanderson Farms Inc.
) as by law, meat processors cannot sell beef, pork, lamb and
poultry meat without the USDA inspection seal.
According to Agriculture Secretary Tom Vilsack, the impact of the
furlough of inspection personnel may amount to 15 days of lost
production costing over $10 billion.
Sanderson Farms apprehends a huge loss during the 15-day furlough
of inspection personnel and consequent shutdown of plants. The
company also said that it would lead to higher mortality of live
chicken. This is because chicken gain weight when a company puts
off and postpones chicken processing, which would in turn affect
supply to grocery chains like
Currently, Tyson Foods carries a Zacks Rank #2 (Buy) and
Sanderson Farms carries a Zacks Rank #3 (Hold).
KROGER CO (KR): Free Stock Analysis Report
SANDERSON FARMS (SAFM): Free Stock Analysis
SUPERVALU INC (SVU): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
To read this article on Zacks.com click here.