Joao E. Mutondo, Shida Rastegari Henneberry, and B. Wade Brorsen

Transcription

1 Sept 28 Impacts of Country of Origin Labeling on Producers and Marketers of U.S. Meats Joao E. Mutondo, Shida Rastegari Henneberry, and B. Wade Brorsen Selected paper. NEC-63 and AAEA Food Safety Section Conference on Economics of Improved Food Safety Practices, September 28, 2010, Monterey, CA. Joao E. Mutondo is an assistant professor in the Department of Crop Production and Protection, Eduardo Mondlane University, Maputo, Mozambique. Shida Rastegari Henneberry is a professor in Department of Agricultural Economics, Oklahoma State University. B. Wade Brorsen is regents professor and Jean & Pasty Neusdadt Chair in the Department of Agricultural Economics, Oklahoma State University. Senior authorship is shared by the first two authors. This study was partially funded by Hatch Project No of the Oklahoma State University Agricultural Experiment Station. Contact Author: Shida Henneberry Department of Agricultural Economics Oklahoma State University 308 Ag. Hall, Stillwater, OK Tel: , Fax: srh@okstate.edu

2 Impacts of Country of Origin Labeling on Producers and Marketers of U.S. Meats Abstract This article estimates the welfare impacts of country of origin labeling (COOL). An equilibrium displacement model is developed that extends past studies by including U.S. meat imports and exports, with meats differentiated by source of origin as well as considering imperfect competition. The negative impacts of COOL are lower in a model with international trade than in a model without trade. Key words: country of origin, equilibrium displacement model, international trade, labeling, meat 1

3 Impacts of Country of Origin Labeling on Producers and Marketers of U.S. Meats Effects of various supply and demand shocks on U.S. meat prices, quantities, and industry welfare have been widely studied (Wohlgenant, 1993; Brorsen et al. 2002; Brester, Marsh, and Atwood, 2004; Lusk and Anderson, 2004). However, past studies assumed meats were not differentiated by source of origin. Although non-source differentiation might have been a realistic assumption in the past, this assumption no longer applies to the highly segregated world meat market. Source differentiating meats according to the supply source when estimating the impact of various supply and demand shocks on the U.S. and other countries meat industries could be especially important in studying country of origin labeling (COOL). Past studies assume perfectly competitive markets. Over time, the food industry in the U.S. has become more concentrated and imperfectly competitive. More specifically, the fourfirm concentration ratio in the U.S. beef packing industry increased from 0.30 in 1978 to 0.86 in 1994, and statistically significant monopoly/monopsony price distortions in slaughter cattle and wholesale beef markets have been reported (Sexton, 2000; Schroeter, 1988). Hence, the model used here expands upon previous models to estimate welfare effects in the presence of imperfect competition. The objectives of this study are to provide a modeling framework, with source differentiated and imperfect competition and to analyze the economic impacts of country of origin labeling (COOL) on producers and marketers of U.S. meats. The meats studied here are beef, pork, and poultry. Previous work on COOL welfare effects is extended by the inclusion of international markets and more specifically the differentiation of meats by their supply sources, and the incorporation of an imperfectly competitive market structure in the modeling framework. 2

4 The Model An equilibrium displacement model (EDM) is used to estimate the welfare impacts of COOL. As shown by Muth (1964), the equilibrium displacement model is a structural model of supply and demand relationships of meats (beef, pork, and poultry). The model used here includes U.S. domestically produced meats and U.S. meat imports from major countries [Australia, Canada, New Zealand, and the rest-of-the world (ROW)], plus U.S. meat exports to major countries (Canada, Japan, Mexico, and South Korea). Furthermore, the meat model includes source differentiated meat demand equations and meat supply equations linked with their respective quantity and price equations. In addition, on the meat marketers demand side, the model considers substitute and complementary relationships between U.S. produced meats and meats from other supply sources in the U.S. domestic and export markets. 1 The assumptions of the model are as follows: (a) linear supply and demand curves; (b) shifts in supply and demand curves are parallel; 2 (c) the elasticity of substitution between marketing inputs and farm products is zero (fixed proportion technology); and (d) meat products are substitutes and complements on the demand side but not on the supply side. This lack of substitutability in supply is supported by the findings of MacDonald et al. (1996) that meat production is highly specialized. The EDM is derived by totally differentiating the structural demand and supply equations. The source differentiated meat demand equation with shifters in its EDM form is d* d* (1) Q η P k k ik, d* where Q is percentage change in quantity of meat type i from country j demanded by country k. Subscript i denotes meat type, i 1,, I (I=4 in this study representing fed beef, nonfed beef, pork, and poultry). Subscript j denotes the country of origin of meat type i. The k consuming 3

5 countries are the United States, Canada, Japan, Mexico, and South Korea. These destinations account for over 90% of U.S. produced meat sales. d* P k is a vector of percentage changes in demand prices for source differentiated meats in country k, the asterisk (*) denotes percentage d changes, so that * d d Q dq / Q d ln( Q d ), η k is a vector of own-price and cross-price demand elasticities for meats demanded in country k, and ik represents demand shifters of meat i in country k. The j suppliers are the United States, Canada, Japan, Mexico, South Korea, Brazil, Australia, New Zealand, Denmark, China, Thailand, and ROW. The included supply sources have at least 10% of the total volume of imports of the selected meats in each of the k destination countries. Note that for each type of meat, the j suppliers vary across the k destinations. Additionally, in our model, certain suppliers are assumed to be both meat buyers (consume domestically produced meats as well as imported meats) and exporters. These suppliers are the U.S. and Canada. The other suppliers are assumed to be only meat buyers or only meat exporters. Suppliers that are only meat buyers are Mexico, Japan, and South Korea and those that are only meat exporters are Brazil, Australia, New Zealand, Denmark, China, Thailand, and the ROW. The meat supply equation with shifters in its percentage changes is s* s* (2) Q P, where s* Q is the percentage change in the total quantity of meat of type i, supplied by country j for suppliers that are both meat buyers and exporters and for those that are only meat buyers; while it is the percentage change in total export quantity for suppliers that are only meat exporters. s* P is the percentage change in farm-level-supply price of meat i from country j, for suppliers that are considered as both meat buyers and exporters as well as for those that are only 4

6 considered as meat buyers; while it is the percentage change in export price of meat i from country j, for suppliers that are only considered as meat exporters. is the own-price farm supply elasticity of meat i from country j, for the suppliers that are considered as both meat buyers and exporters and for those that are only considered as meat buyers; while it is simplified to be the excess supply elasticity of meat i from country j, for suppliers that are only meat exporters. The supply shifters of meat i from country j are represented by. The market-clearing conditions require both quantity and price equilibrium conditions. The quantity equilibrium condition for meats from different suppliers is s* d* d* (3) Q jqj Q, where d* Q j is the percentage change in the demand quantity of meat i, and produced and consumed in country j; K k j d* Q is percentage change in quantity of meat i from country j consumed d s in country k (exported by country j to country k); Q / Q and is the percentage of country j j j s production of meat i that is consumed domestically; Q / Q d s, and is the percentage of country j s production of meat i that is consumed in country k. The first term on the right hand side of (3) is zero for suppliers that are only meat exporters and the second term in equation (3) is zero for suppliers that are only meat buyers. The demand and supply equations are linked by imposing market equilibrium. Following Sexton (2000), and Sexton and Zhang (2001), when imperfect competition is considered, the market equilibrium equations that link demand and supply prices are d* s* (4) P (1 ) P (1 ), 5

7 where d* P is the percentage change in the demand price of meat i from country j, demanded in country k; is the own-price demand elasticity of meat i from country j, demanded in country k; s* P is as previously defined; is as previously defined; is the marketers supply shifter of meat i from country j demanded in country k; and are market conduct parameters (conjectural elasticities), which measure the extent of meat marketers market power. measures the departure from competition in selling the finished product, with 0 denoting perfect competition (meat marketers do not have market power in selling the finished product), 1 denoting pure monopoly, and 0,1 denoting various degrees of meat marketers oligopoly market power, where high values denote greater departure from competition, measures meat marketers departures from competition in buying the farm product, with 0 denoting perfect competition (meat marketers do not have market power in buying the source differentiated product), 1 denoting pure monopsony, and 0,1 denoting various degrees of meat marketers oligopsony market power, where high values denote greater s d departure from competition; and P / P is the ratio between the supply/export price of meat i from country j and the demand price of meat i from country j, demanded in country k. Model Parameters In order to simulate the model, parameter values need to be assigned. The model parameters include the own-price and cross-price demand elasticities ( ), own-price and excess supply elasticities ( ), quantity and price ratios (,, and ), and the market conduct parameters (conjectural elasticities and ). The own-price and cross-price demand elasticities ( ) are estimated by Mutondo and Henneberry (2006, 2007) using a restricted source differentiated almost ideal demand system (RSDAIDS). Their estimated demand elasticities reflect conditional 6

8 elasticities since the RSDAIDS model is a complete demand system, which assumes weak separability between meats and other goods. The conditional demand elasticities estimated using RSDAIDS are converted to unconditional demand elasticities following Edgerton (1997, equation 27, p. 67). The own price elasticities for the meat groups are from USDA-ERS (2006). The expenditure elasticities for the meat groups were obtained by regressing meat group expenditures against income. For meat supply elasticities ( ), we use estimates of own-price supply elasticities reported in the literature (Sullivan et al. 1989; Tvedt et al. 1991; Brester and Wohlgenant 1997; Lusk and Anderson, 2004; Wohlgenant, 1993). The key unconditional demand elasticities (ownprice demand elasticities) and own-price supply elasticities used in this study are presented in tables 1 and 2. 3 The quantity and price ratios (,, and ) were calculated using 2002 quantities and prices. Following Sexton (2000), 0.03 is used as the meat marketers oligopsony market power parameter ( ). Simulation Methods and Welfare Measures The endogenous variables in the system are the variables that were specified with asterisks. These variables are specified as percentage changes. Equations (1)-(4) are linear and can be written in matrix notation as: (5) A Y B, where A is a matrix of supply and demand elasticities (it has ones on the diagonal and many zeroes) from equations (1)-(4); Y is a vector of percentage changes in endogenous variables; and B is a vector of exogenous shifters. Equation (5) is composed of 57 demand equations (see table 1 for the included source differentiated meat products demanded in each country considered as meat buyer), 25 supply equations (see table 2 for the included meat products 7

9 supplied by each country), 57 price linkage equations, and 25 quantity linkage equations, which results in A being The percentage changes in endogenous variables Ycaused by percentage changes in exogenous supply and demand shifters are calculated by solving (5) for Y: 1 (6) Y A B. Equation (6) is much like the usual reduced form model calculated with simultaneous equations. But, since all endogenous variables are percentage changes there is no intercept and all of the exogenous shifters are aggregated into a single value for each equation. The model is solved with Excel. An equivalent model written with SAS software verified the accuracy of the Excel solution. Changes in producer surplus at farm and marketing levels are calculated as follows (adapted from Wohlgenant 1993, p. 645, equation 10): s s s* s* (7) PS P Q ( P )(1 0.5Q ) (producer surplus at farm level) d d d* d* (8) PS P Q ( P )(1 0.5Q ) (producer surplus at marketing level) where PS is the change in farmers producer surplus of meat i from country j; PS is the change in marketers producer surplus of meat i from country j, demanded in country k; and the other variables are as previously defined. Methods of Simulating the Welfare Impacts of COOL With COOL, demand could shift due to U.S. consumers using the new information to shift their demand in favor of domestically produced meat. Ehmke, Tyner, and Lusk (2008) find that consumers prefer food produced in their own country. The preference for domestically produced meat is similar to the preference for local foods (Darby et al. 2008; Brown and Miller 2008). COOL lets consumers act upon these preferences. 8

10 Supply will shift due to the increased cost of compliance. Regarding farm supply shifters, the assumption here is that COOL costs are borne by U.S. beef and pork producers and foreign producers bear none of the costs associated with COOL. Implementation of COOL is estimated to decrease farm supply of U.S. beef from 0.5% to 6.5% and the farm supply of U.S. pork within a range from 0.25% to 3% (Lusk and Anderson, 2004). We use the medium values of 3% and 1% reported by Lusk and Anderson (2004) as farm supply shifters of U.S. beef and pork, respectively. Using the 2002 average farm revenues for beef and pork, 3% and 1%, decreases in farm supply for beef and pork correspond to total COOL costs of $17,436.9 million for beef and $68.8 million for pork. These costs fall within the range of COOL costs estimated by VanSickle et al. (2003) and Sparks Companies, Inc (2003). The supply shifters at the marketing level are computed by dividing the COOL costs reported above by the respective marketing revenues. Using this method, marketing supply shifters for beef and pork are 1.73% and 0.36%, respectively. Each meat product marketed in the U.S. bears a cost proportional to its aggregate share of the market. Table 3 presents the supply shifters of each meat product under the different COOL cost shares between meat producers and marketers as described below. Four alternatives are examined for incidence of costs: (a) all costs are borne by U.S. meat producers; (b) the costs are equally divided between U.S. meat producers and marketers; (c) one-fourth and three-fourths of the costs are borne by U.S. meat producers and marketers, respectively; and (d) all costs are borne by U.S. meat marketers. The farmers and marketers supply shifters are entered as negative numbers in the farm supply equation (2) and the demand-supply price equation (5), respectively to represent added costs to the system. Past studies did not differentiate the source of meats when modeling the impacts of implementing COOL (Lusk and Anderson, 2004; Brester, Marsh, and Atwood, 2004). Different 9

11 from previous studies, this study examines three scenarios of increases in demands for both U.S. beef and pork in the U.S. domestic market. The examined scenarios are: (a) no-demand increase; (b) two-percent increases in demands for beef and pork; and (c) five-percent increases in demands for beef and pork. The demand shifters are entered as positive numbers in the marketing demand equation (1) to represent consumer willingness to pay for the initial quantity of meat due to the new labeling policy. The model is simulated by simultaneously shifting the supply and demand curves for beef and pork, using 2002 average prices and quantities, and assuming perfect competition in the meat industry as well as meat marketers oligopsony market power by setting the value of as Results The welfare impacts of COOL are calculated using the EDM model. Meat is differentiated not only by type, but also by supply source. The EDM model takes into account the U.S. participation in global meat markets (U.S. imports and exports). The estimated impacts of COOL on U.S. meat producers assuming no-demand change are presented in table 4. Results presented in table 4, scenario I; indicate that implementing COOL, without a simultaneous demand increase decreases the welfare (as measured by producer surplus) of U.S. beef and pork producers and increases the welfare of U.S. poultry producers, regardless of who pays for the costs of COOL. These results are similar to results reported by Lusk and Anderson (2004) and Brester, Marsh, and Atwood (2004). U.S. beef and pork producers lose from COOL implementation when they pay all the costs of COOL, because beef and pork demands must increase to make the change in producer surplus neutral (Lusk and Anderson, 2004). In addition, U.S. beef and pork producers lose from COOL when all COOL costs are borne by marketers. This result is because the absolute value of 10

12 the own-price demand elasticities for beef and pork are greater than the elasticity of substitution between farm product and market input (fixed proportion technology) (Lusk and Anderson, 2004). Poultry producers gain from COOL because COOL does not add additional costs to producing poultry and consequently consumers substitute away from relatively more expensive beef and pork to less expensive poultry. Similar to Lusk and Anderson (2004), the results presented in table 4, scenario I, show that the U.S. beef and pork producers loss from implementing COOL decreases as the proportion of COOL costs which are borne by marketers increase. However, the fact that poultry producers welfare decreases as the proportion of COOL costs which are borne by marketers increases is an unexpected result. These results might be sensitive to the assigned cross-price elasticities between U.S. poultry and other meat products (beef and pork). Another scenario (II) (table 4, notes) is considered in order to investigate whether the results are sensitive to crossprice elasticities (see table 4, notes). The results (table 4, scenario II); indicate that similar to beef and pork, poultry producers are also better off as the proportion of COOL costs borne by marketers increases. Furthermore, under imperfect competition (marketers oligopsony market power), the losses to beef and pork producers from implementing COOL are greater than under perfect competition (table 4, scenario I). Nevertheless, the fact that gains to poultry producers are higher under imperfect competition than under perfect competition is intriguing and deserves further investigation (table 4, scenario I). Therefore; in order to examine the change in producer surplus when there is marketers oligopsony market power, a one-sector model is considered. 4 The results show that the impact of market power depends on the absolute values of supply and demand elasticities. Hence, in scenario III, the model is simulated with greater (in absolute 11

13 value) own-price demand elasticity for U.S. poultry than the respective own-price supply elasticity (see table 4, notes). The results (table 4, scenario III) indicate that, as expected, under imperfect competition, the gains to U.S. poultry producers are lower than under perfect competition. More specifically, the results indicate that when imperfect competition is assumed, U.S. beef and pork producers incur additional losses of 4.1% compared to perfect competition (from -$88.84 million with perfect competition to -$92.48 million with marketers oligopsony market power) and 4.8% (from -$38.42 million to -$40.28 million), respectively. Poultry producers incur a welfare loss of 1.2% (from $ million to $ million) (table 4, scenario III). Table 5 shows welfare impacts when COOL is assumed to increase demand for U.S. meat. If the demands for beef and pork increase by at least two-percent, poultry producers do not benefit from COOL (table 5). Consumers increasing their demand for beef and pork products and consequently reduces the demand for poultry. Interestingly, a two-percent increase in the demands for beef and pork is not enough to increase the welfare of U.S. beef producers (table 5). Pork producers benefit and beef producers lose when a two-percent increase in beef and pork demands occurs, because the COOL costs for pork are assumed to be relatively lower than the COOL costs for beef. However, assuming a five-percent increase in beef and pork demands results in welfare gains to both beef and pork producers (table 5). Although there are similarities in the results of this study and those of previous studies, several major differences exist that may be due to expanding the model to include source differentiation and U.S. meat trade. Different from previous studies, results of this study show that under the assumptions of no demand increases and all the COOL costs being paid by the producers (table 4, scenario I, first column), the negative impacts of COOL on U.S. beef and 12

14 pork producers are largely lower compared to the results reported by Lusk and Anderson (2004). Lusk and Anderson (2004) also found a lower negative impact of COOL on beef and pork producers under a model with U.S. meat imports compared to a model without trade. Therefore, these results suggest that models that do not incorporate international trade might overestimate the negative impacts of COOL on U.S. beef and pork producers. Furthermore, different from past studies, this study finds that meat producers as a whole lose from the implementation of COOL, even under two- and five-percent increases in demands for beef and pork (table 5). The estimated welfare measures might be sensitive to the assigned values of own-price supply and demand elasticities. Following previous studies, the model here is simulated using relatively lower own-price supply elasticities for beef and pork compared to the respective own-price demand elasticities in absolute values (see table 6, notes). Similar to previous studies, the results show that under the assumptions of two- and five-percent increase in demand for beef and pork, respectively, the U.S. beef and pork producers as well as the whole U.S. meat industry will benefit from COOL implementation (table 6). Summary and Conclusions This research is motivated by the lack of comprehensive partial equilibrium models, which can explain the impacts of demand and supply shocks on U.S. meat prices, quantities, and industry welfare. Previous models did not include U.S. meat trade (imports and exports) with meats differentiated by supply source. Different from past studies, the equilibrium displacement model developed here includes U.S. produced meats, U.S. meat imports from major trading partners, and U.S. meat exports to major trading partners; with meats differentiated by source of origin. Moreover; the model has the flexibility to simulate welfare impacts of supply and demand shocks assuming both perfect competition and marketers oligopsony market power. 13

15 The impacts of COOL vary according to the type of model used. The negative impacts of COOL are lower under a model that includes international trade for source differentiated products compared to a model without trade. Moreover, under imperfect competition, losses to producers from implementing COOL are greater than under perfect competition. Finally, the results of this study support the results obtained in previous studies that COOL will benefit the U.S. beef and pork industries if it is accompanied with at least a four-percent increase in U.S. beef and pork demands. 14

16 Footnotes: 1. The theory is silent on whether the estimated elasticities using the restricted source differentiated almost ideal demand system model represent final demand (retailers) or input demand (Davis and Jensen, 1994). Hence, this study uses the term marketers meat demand on the demand side of the EDM. 2. Although supply and demand shifts can be parallel, pivotal, or convergent, Wohlgenant (1999) argues strongly in favor of the parallel shift assumed here. Furthermore, parallel shifts lead to accurate estimates of both price and quantity changes and economic surplus as long as the shifts are small (Zhao, Mullen, and Griffith, 1997). 3. In any EDM, the results can depend heavily on the accuracy of the elasticities used and as a result we consider the sensitivity of some results to changes in elasticities. Davis and Espinoza (1998) suggested a formal sensitivity analysis using Monte Carlo methods, which provides confidence intervals on the welfare measures. Such an approach is impractical here because the model is large and uses a massive number of demand and supply elasticities. Plus, our use of sensitivity analysis allows us to explain unexpected results. 4. The one-sector model, which ignores substitutability/complementary relationships on the demand side, is considered here for simplicity. With the one-sector model analytical solutions are readily obtained (Lusk and Anderson, 2004). 15

17 References Brester, G.W., J.M. Marsh, and J.A. Atwood. (2004). Distributional Impacts of Country-of- Origin Labeling in the U.S. Meat Industry. Journal of Agricultural and Resource Economics 29: Brester, G.W., and M.K. Wohlegenant. (1997). Impacts of the GATT/Uruguay Round Trade Negotiations on U.S. Beef and Cattle Prices. Journal of Agricultural and Resource Economics 22: Brorsen, B.W., T.L. Lehenbauer, D. Ji, and J. Connor. (2002). Economic Impacts of Banning Subtherapeutic Use of Antibiotics in Swine Production. Journal of Agricultural and Applied Economics 34: Brown, C., and S. Miller. (2008). The Impacts of Local Markets: A Review of Research on Farmers Markets and Community Supported Agriculture (CSA). American Journal of Agricultural Economics 90: Darby, K., M.T. Batte, S. Ernst, and B.E. Roe. (2008). Decomposing Local: A Conjoint Analysis of Locally Produced Foods. American Journal of Agricultural Economics 90: Davis, G.C., and M.C. Espinoza. (1998). A Unified Approach to Sensitivity Analysis in Equilibrium Displacement Models. American Journal of Agricultural Economics 80: Davis, G.C., and K.L. Jensen. (1994). Two-Stage Utility Maximization and Import Demand Systems Revisited: Limitations and an Alternative. Journal of Agricultural and Resource Economics 19: Edgerton, D.L. (1997). Weak Separability and the Estimation of Elasticities in Multistage 16

18 Demand Systems. American Journal of Agricultural Economics 79: Ehmke, M.D., J.L. Lusk, and W. Tyner. (2008). Measuring the Relative Importance of Preferences for Country of Origin in China, France, Niger, and the United States. Agricultural Economics 38: Lusk, J.L., and J.D. Anderson. Effects of Country-of-Origin Labeling on Meat Producers and Consumers. Journal of Agricultural and Resource Economics 29: MacDonald, J.M., M.E. Ollinger, K.E. Nelson, and C.H. Handy. (1996) Structural Change in Meat Industries: Implications for Food Regulation. Washington DC: U.S. Department of Agriculture, ERS. Muth, R.F. (1964). The Derived Demand Curve for a Productive Factor and the Industry Supply Curve. Oxford Economic Papers 16: Mutondo, J., and S.R. Henneberry. (2006). A Source Differentiated Analysis of U.S. Meat Demand. Journal of Agricultural and Resource Economics 32: Mutondo, J., and S.R. Henneberry. (2007). Competitiveness of U.S. Meats in Japan and South Korea: A Source Differentiated Market Study. Selected Paper, American Agricultural Economics Association annual meeting, Portland, OR. Sexton, R.J. (2000). Industrialization and Consolidation in the U.S. Food Sector: Implication for Competition and Welfare. American Journal of Agricultural Economics 82: Sexton, R.J., and M. Zhang. (2001). An Assessment of the Impact of Food Industry Market Power on U.S. Consumers. Agribusiness 83: Schroeter, J.R. (1988). Estimating the Degree of Market Power in the Beef Packing Industry. The Review of Economics and Statistics 70:

19 Sparks Companies, Inc. (2003). COOL Cost Assessment. Memphis, TN. Sullivan, J., V. Roningen, S. Leetmaa, and D. Gray. (1989). A 1989 Global Database for the Static World Policy Simulation (SWOPSIM) Modeling Framework. Washington DC: United States Department of Agriculture, Economic Research Service. Tvedt, D., M. Reed, A. Maligaya, and B. Bobst. (1991). Elasticities in World Meat Markets. Agricultural Economics Research Report Series #55. University of Kentucky. College of Agriculture, Agricultural Experiment Station. United States Department of Agriculture, Economic Research Service (USDA-ERS). (2005). Red Meat Yearbook. Internet site (Accessed in August 2005). United States Department of Agriculture, Economic Research Service (USDA-ERS). (2006). Unconditional Own-Price Elasticity for Food Sub-groups. Available at asticitysubgroup.xls. (Accessed May 2006). United States Department of Environmental Protection Agency (USEPA). (2002). Economic Analysis of Proposed Effluent Limitations Guidelines and Standards for the Meat and Poultry Products industry. EPA-821-B , Washington DC. VanSickle, J., R. McEowen, C.R. Taylor, N. Harl, and J. Conner. (2003). Country of Origin Labeling: A Legal and Economic Analysis. Paper No. PBTC03-5, International Agricultural Trade and Policy Center, University of Florida, Gainesville. 18

20 Wohlgenant, M.K. (1993). Distribution of Gains from Research and Promotion in Multi-stage Production Systems: The Case of the U.S. Beef and Pork Industries. American Journal of Agricultural Economics 75: Wohlgenant, M.K. (1999). Distribution of Gains from Research and Promotion in Multi-stage Production Systems: Reply. American Journal of Agricultural Economics 81: Zhao, X., Mullen, J.D., and G.R. Griffith. (1997). Functional Forms, Exogenous Shifts, and Economic Surplus Changes. American Journal of Agricultural Economics 79:

21 Table 1. Own-Price Unconditional Demand Elasticities for Meat Products Included in the Model Meat Product Elasticity Meat Product Elasticity U.S. meat demand system Japanese meat demand system U.S. fed beef U.S. beef U.S. nonfed beef Australian beef Australian beef Japanese beef Canadian beef ROW beef New Zealand beef U.S. pork ROW beef Danish pork U.S. pork Canadian pork Canadian pork Japanese pork ROW pork ROW pork U.S. poultry U.S. poultry Canadian meat demand system Thai poultry U.S. beef Chinese poultry Australian beef Brazilian poultry Canadian beef Japanese poultry ROW beef ROW poultry U.S. pork South Korean meat demand system Canadian pork U.S. beef ROW pork Australian beef U.S. poultry South Korean beef Canadian poultry ROW beef Mexican meat demand system U.S. pork U.S. beef Danish pork Canadian beef Canadian pork Mexican beef South Korean pork ROW beef ROW pork U.S. pork U.S. poultry Mexican pork Thai poultry ROW pork South Korean poultry U.S. poultry ROW poultry Mexican poultry ROW poultry

22 Table 2. Supply and Excess Supply Elasticities for Meat Products Included in the Model Products Supply elasticities Demand elasticities Meat Quantities (1000 MT) Value Source Value Source Supplied Demanded Exported Elasticity U.S. fed beef 0.60 Brester & Wohlgenant, U.S. nonfed beef 1.41 Brester & Wohlgenant, U.S. pork 0.40 Lusk & Anderson, U.S. poultry 0.65 Lusk & Anderson, Canadian beef 0.50 Tvedt et al Canadian pork 1.50 Tvedt et al Canadian poultry 0.70 Sullivan et al Mexican beef 0.30 Tvedt et al Mexican pork 0.55 Tvedt et al Mexican poultry 0.70 Sullivan et al Japanese beef 0.40 Tvedt et al Japanese pork 0.83 Tvedt et al Japanese poultry 1.27 Sullivan et al S. Korean beef 0.50 Tvedt et al S. Korean pork 0.70 Tvedt et al S. Korean poultry 0.90 Sullivan et al Australian beef 0.70 Tvedt et al Tvedt et al New Zealand 0.45 Tvedt et al Tvedt et al beef Danish pork 0.80 Sullivan et al Sullivan et al Brazilian poultry 0.65 Sullivan et al Tvedt et al Chinese poultry 0.49 Sullivan et al Tvedt et al Thai poultry 0.70 Sullivan et al Sullivan et al ROW beef 0.50 Tvedt et al. 1991/Brazil value Tvedt et al. 1991/Brazil value ROW pork 0.90 Tvedt et al. 1991/EU value Tvedt et al. 1991/EU value ROW poultry 0.80 EC value/sullivan et al Tvedt et al. 1991/EC value

23 Table 3. COOL Supply Shifters for Different Meat Products Meat Product Share a Meat Type Shifter Meat Product Shifter All Costs Borne by Producers (Farm level) U.S. fed beef U.S. nonfed beef U.S. Pork All Costs Borne by Marketers (Marketing level) U.S. fed beef U.S. nonfed beef Beef from Australia Beef from Canada Beef from New Zealand Beef from the ROW Pork from the U.S Pork from Canada Pork from the ROW Cost Share by Domestic Producers and Marketers (50/50) Producers (Farm Level) U.S. fed beef U.S. nonfed beef U.S. Pork Marketers (Marketing level) U.S. fed beef U.S. nonfed beef Beef from Australia Beef from Canada Beef from New Zealand Beef from the ROW Pork from the U.S Pork from Canada Pork from the ROW Cost Share by Domestic Producers and Marketers (25/75) Producers (Farm Level) U.S. fed beef U.S. nonfed beef U.S. Pork Marketers (Marketing level) U.S. fed beef U.S. nonfed beef Beef from Australia Beef from Canada Beef from New Zealand Beef from the ROW Pork from the U.S Pork from Canada Pork from the ROW a Refers to the share of each meat product in the U.S. domestic market. 22

24 Table 4. Welfare Impacts of COOL Assuming No Demand Change ($ millions) Description All Costs Borne by Domestic Producers Cost Shared by Domestic Producers and Marketers 50/50 25/75 All Costs Borne by Marketers Scenario I Perfectly competitive market Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Marketers oligopsony Power (θ=0.03) Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Scenario II Perfectly competitive market Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Marketers oligopsony Market Power (θ=0.03) Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Scenario III Perfectly competitive market Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Marketers oligopsony Market Power (θ=0.03) Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Notes: Scenario I uses the baseline elasticities. Under scenario II, the cross-price elasticities between U.S. poultry and U.S. pork (-0.648); U.S. poultry and Canadian pork (-0.887); and U.S. poultry and ROW pork (-0.892) in the U.S. domestic market are set to be 1.648, 1.88, and 1.892, respectively. Under scenario III, in addition to scenario II, the own-price U.S. poultry supply elasticity and the own-price U.S. poultry demand elasticity are changed for their baseline values presented in table 1 and 2 to 0.3 and -0.8., respectively. 23

25 Table 5. Welfare Impacts of COOL with a Demand Increase ($ millions) Description All Costs Borne by Domestic Producers Cost Shared by Domestic Producers and Marketers 50/50 25/75 All Costs Borne by Marketers Two-Percent Demand Increase for Beef and Pork Perfectly competitive market Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Total Marketers oligopsony Power (θ=0.03) Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Total Five-Percent Demand Increase for Beef and Pork Perfectly competitive market Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Total Marketers oligopsony Power (θ=0.03) Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Total

26 Table 6. Welfare Impacts of COOL Assuming a Perfectly Competitive Market ($ millions) Description All Costs Borne by Domestic Producers Cost Shared by Domestic Producers and Marketers All Costs Borne by Marketers 50/50 25/75 No Demand Change Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Total Two-Percent Demand Increase for Beef and Pork Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Total Five-Percent Demand Increase for Beef and Pork Change in U.S. beef producer surplus Change in U.S. pork producer surplus Change in U.S. poultry producer surplus Total Note: The own-price demand elasticities for U.S. fed beef, U.S. nonfed beef, U.S. pork, and U.S. poultry presented in table 1 are changed to be , , , and -0.33, respectively. 25