Thanks, Dennis.
COOL has been portrayed by its proponents as a consumer marketing initiative, and has sometimes even been misrepresented as a food safety measure. We believe it's purely a trade protectionist measure. The main target really isn't Canadian beef; it is actually the live cattle trade and live cattle imports into the U.S. particularly.
The new rules that came into effect last year were so complex that many U.S. cattle buyers either restricted their purchases of Canadian cattle or just stopped buying them altogether due to the cost and difficulty of handling Canadian cattle and of segregating those products from what we believe are otherwise superior animals.
This measure really has nothing to do with food safety. Indeed, under the Bush administration, it was not portrayed as a food safety initiative; it was portrayed as a consumer marketing initiative. Unfortunately, USDA now, under the Obama administration, doesn't seem to have quite made up its mind as to what it thinks COOL is. It's not quite sure whether it's a marketing initiative or a food safety initiative.
The law came into effect at the end of September 2008, on an interim basis. It immediately caused a number of U.S. cattle slaughter facilities to stop purchasing Canadian-fed cattle for immediate slaughter. That's the so-called C category. The C category is cattle that we ship directly to the U.S. for immediate slaughter. The few U.S. facilities that continued to purchase C cattle started to limit production days. And they reduced the price they were willing to pay so they could recoup their increased logistics expenses.
I've passed around a map. It has map 1 on one side and map 2 on the other. Map 1 illustrates what occurred under the interim final rule. That was the period from the end of September 2008 to March.
Take a company like Tyson Foods, for example. They operate eight slaughter facilities across the U.S. Four of those eight Tyson plants used to purchase cattle directly from Canada for immediate slaughter. As soon as the COOL interim rule came into effect, they made three of those eight unavailable to Canadian cattle. The only Tyson facility that, under the interim final rule, was accepting Canadian cattle was up in Pasco, Washington. That's one of those little cattle-crossing symbols on map 1.
JBS Swift adopted a similar policy and restricted a number of its facilities from buying Canadian cattle. JBS is only taking them at Hyrum, Utah.
The end result is that in the middle of the United States, you see a whole lot of “do not enter” signs where we used to ship the C cattle. They're not taking them anymore. That is just the first part of the impact.
The second part is that even though those facilities in Washington or Utah or Pennsylvania continue to take cattle, they have limited them to a number of days per week. For example, Tyson at Pasco is only taking them two days per week so they can further segregate them.
The final blow was that they reduced the price, because they still had the additional cost of segregating those animals. On average, the price discount was about $3 U.S. per hundred pounds of animal.
If you take those impacts together, considering the longer distances travelled, more shrinkage of the cattle on those longer journeys, more competition for trucks, and more border congestion on those limited days on which they accept those cattle, we estimate that the additional transportation logistics expenses are about $40 to $50 per head. The price discounts worked out to about another $40 to $50 per animal. So we're estimating that the total combined impact, on average, is about $90 per animal.
In addition, U.S. cattle feeders who purchased and fed Canadian feeder cattle, which became category B, the younger animals we ship to the U.S.--they finish them off in the U.S. and then sell them--started experiencing similar price discounts and discrimination by late November and December of 2008.
With respect to cattle imported after the initial grandfathering period, if they'd been in the U.S. up until July 15, they were considered as U.S. when they went to slaughter. But the cattle that came in after the grandfathering period started to come to market and see those discriminations.
In response to this situation that had been occurring in the fall, the Government of Canada requested formal WTO consultations in December. The result of these consultations was a change that has now been implemented in the final rule as of March 16. So now, under the final rule, beef from B cattle and C cattle can be sold under a single label. This final rule affects Canadian-fed cattle shipped for immediate slaughter. It should provide some relief on the shipping costs and increase the delivery opportunities, but the delivery days are continuing to be limited. The price discounts have become less formal, but they are continuing according to what the market will bear. While this final rule is an improvement, it remains far from a resolution. That's what we've been experiencing.
Now I want to talk a bit about the strategy and where we think this needs to go. The first element of our strategy is that we believe the government should pursue all available means to address the situation, including a resumption of the formal WTO process. To enable this process, we're working with our friends in the hog industry and with government officials to determine and document the market reaction to this final rule. We're not yet sure how much of the $90 per head we're getting back under this revised scenario.
As Jurgen explained, a recent twist on this issue was a new element of uncertainty introduced by Secretary Vilsack the day after President Obama's visit to Ottawa. The day after the president was here saying he does not want to constrain trade, Secretary Vilsack was telling the U.S. industry that he wants every meat label to identify the country of birth, growth, and slaughter. He further wants this information to appear on processed meat products that were supposed to be excluded from COOL.
Although we're not aware of any U.S. companies that are volunteering to comply with Secretary Vilsack's suggestions, he has advised USDA that he will audit U.S. companies to determine the uptake of those suggestions. And the implication is that if companies don't comply voluntarily, USDA will force compliance.
CCA is working with our U.S. allies to create an assessment of what it would cost the U.S. to implement Secretary Vilsack's suggestions. Once completed, this analysis is going to form part of the second element of our strategy, which is our ongoing effort to let Americans know why an onerous COOL law is not in their long-term interest. We would also, as Jurgen did, encourage all Canadian government officials, federal and provincial, to ensure that any and all U.S.-Canada political or diplomatic meetings include a discussion of COOL.
The third element of our strategy involves marketing the Canadian beef advantage in the United States. The Beef Information Centre, which is the market development arm of the CCA, works with our U.S. trade clients to grow Canadian beef opportunities in the U.S. market and mitigate the impact of COOL legislation. BIC's approach has been to align with Canada's packers and U.S. distributor partners to build awareness of the Canadian beef advantage. The Canadian beef advantage includes key points of differentiation between ourselves and our competitors in animal health and safety, genetics, animal ID, product quality, yield and profitability, service, technical support, and potential age verification and traceability. BIC provides educational resources and market development support that promote our comparative advantages to U.S. meat buyers.
I brought copies of some of the materials they use. Our French versions are still in production. They will be available to the committee once they're all prepared.
The BIC is working to promote Canadian beef in the U.S. by securing premium positioning in U.S. retail and food service locations as well as by building Canadian brand identity among certain U.S. demographic groups, such as the rapidly growing U.S. Hispanic and Asian populations. BIC's communications activities include trade advertisements, education seminars, trade missions, partnerships with U.S. distributors and retailers, distribution of technical materials, and the creation of www.MeatCool.info.
Much of this activity is funded in part through the Canadian cattlemen market development fund, sometimes known as the “legacy fund”.
The legacy fund was created in 2005 with investments from the Government of Canada, plus the Government of Alberta, and a check-off collected on cattle sales. We have submitted to the clerk a document providing additional detail on how BIC utilizes the legacy fund to promote Canadian beef in the U.S.
The last element of our strategy to mitigate the impact of COOL involves increasing export opportunities around the world. For that I'm pleased that Ted Haney from the Canada Beef Export Federation is with us to elaborate on those marketing activities around the rest of the world.
Thank you.