GAME OF TAG

It's a date circled in red on every retailer's calendar: Sept. 30, 2004.Yet with a year to go, retailers and their industry partners remain divided over how best to devote their energies. Vigorous efforts to get the pending country-of-origin labeling rules rescinded or simplified are working against the industry's natural tendency to anticipate change, prepare to the nth degree and allow no room for

It's a date circled in red on every retailer's calendar: Sept. 30, 2004.

Yet with a year to go, retailers and their industry partners remain divided over how best to devote their energies. Vigorous efforts to get the pending country-of-origin labeling rules rescinded or simplified are working against the industry's natural tendency to anticipate change, prepare to the nth degree and allow no room for misinterpretation.

As it stands, retailers, with the aid of their suppliers, will be required to inform consumers as to the origin of a variety of food products ranging from fruits, vegetables and peanuts to various types of meat, fish and other seafood. Country-of-origin information will have to be relayed via package labels or display fixture signage, and retailers will be required to maintain detailed records relating to product source, product segregation programs, supplier contracts and verifiable audit trails.

Operators argue COOL adds up to a massive, costly undertaking that will yield few benefits and lead to higher food prices for consumers. That's the message they're desperately trying to get out as the countdown to implementation of the 2002 Farm Bill provision continues. The next milepost in the process will be the U.S. Department of Agriculture's expected release of final regulations within the next few months.

"We're doing everything we can to inform everyone that this law will cause all sorts of problems throughout the supply chain," said Mike O'Brien, vice president of produce for Schnuck Markets, St. Louis. "We've been working closely with [Food Marketing Institute] on their lobbying efforts, have attended USDA listening sessions, written to USDA with suggestions for relaxing the guidelines, gone to a hearing on the issue with our U.S. senator at the state capitol, and started meeting with our suppliers to inform them about the law and their responsibilities under it. A lot of them are in the dark about it, and they're not sure how it impacts them at this point."

Tony Draeger, owner of the three-store, Palo Alto, Calif.-based Draeger's Supermarkets group, said any type of program looks potentially unwieldy. He's already challenged by trying to conform to a county-instituted labeling program for some bulk foods.

"Recordkeeping under this federal law looks like it would be incredibly difficult," he said. "It will be just one more level of bureaucracy and administrative duty that we'll have to add to our business. Plus, I don't hear a lot of requests from my customers about wanting origin labels. So far, though, I haven't started talking to any of my suppliers about how they're going to comply."

Schnuck's is being blunt and proactive with suppliers about how the law may impact them. The aim is two-fold: hauling suppliers on board with tales of woe in fighting a new, common enemy; and failing that, preparing everyone for the law's eventual requirements. FMI's stated goal is full repeal of the mandatory provisions, rather than a rewriting.

In an August letter to suppliers, Schnuck's spelled out what vendors of covered commodities will have to do to ensure both they and the retailer comply. The upshot of the requirements: Be prepared to offer full origin information for products supplied; develop and maintain strict handling procedures that guarantee compliance; and be able to prove all origin claims. Schnuck's also emphasized the urgency of the matter.

"So that we have some assurance you will be able to comply with the law in a timely fashion, we expect all covered commodity suppliers to provide us with a country-of-origin labeling action plan and letter of intent by Sept. 30, 2003," the letter stated.

At this point, O'Brien said, it's unclear whether all of the hundred or so suppliers the chain met with recently to discuss the issue will be able to comply. "If that's the case, we're going to have to re-think how we're going to supply our stores and whether we'll be able to keep all of 700 or 800 [stockkeeping units] we now have in produce," he told SN.

Schnuck's action guidelines for suppliers follow FMI recommendations for retailers that were released last December [see sidebar, page 38]. FMI president Tim Hammonds said retailers and their partners need to prepare now for the day the regulations take effect. By being forthright and proactive about what the new law means, he said, retailers are clearly waking some suppliers up. And that's not such a bad thing, he added.

"Our strategy is simply to explain to retailers what will be required under the law and to say to our members, 'Go to your individual suppliers of meat, produce and other covered commodities, and tell what you have to have from them in order to comply,"' Hammonds said. "As that is happening, more suppliers and producer groups who represent them say they now better understand the problem, and are asking how they can help change this. A consensus is emerging that this law is bad for producers and retailers."

Many groups representing suppliers of covered commodities are endorsing FMI's view that the labeling requirement is a looming disaster, an example of "the law of unintended consequences run amok," in Hammonds' words. FMI said the labeling plan will cost tens of millions of dollars to implement, that it fails to address any pressing need, and that it unfairly singles out retailers and certain commodity groups.

The United Fresh Fruit and Vegetable Association, representing fresh produce suppliers, has taken a stand against the law as it's now written, along with the Produce Marketing Association. While some producers may favor a labeling law, Tom Stenzel, United's president, said the association is opposed to the law in its present form. Stenzel testified at a Congressional hearing in June that a mandatory law appeared unworkable and unwise.

"Our basic approach is that this labeling system is too inefficient and will add new costs to the industry and disrupt basic business practices," he said. "We're telling Congress that mandates may not be the way to go on this. We're not against the concept of labeling, but we don't believe government should be jamming it down the throat of retailers and suppliers."

Lobbying efforts appear to have paid off, at least temporarily, for one of the covered commodity groups. A House subcommittee in July voted to prohibit USDA from spending money to implement a country-of-origin labeling program for beef. Packers successfully argued that a labeling program for beef would be too unwieldy due to the complexities of how animals and the products they yield make their way to market. Key Senate opposition to that move has emerged, however, making it possible red meat will eventually return to the COOL program.

Beef labeling may be in limbo, but retailers are continuing to advise beef suppliers of the need to ready compliance procedures, said Dan Murphy, vice president of public affairs for the American Meat Institute.

"Our members are getting communiques from retailers, and some of them are pretty bare knuckles about the requirements," Murphy said. "We don't blame the retailers, and we've already been working to outline to our members what would be required in the event meat is not exempted. But our members, in turn, have started notifying their suppliers, livestock production facilities and feedlots that they'll have to provide the same type of information to us and to retailers."

AMI, though, is expressing confidence that the beef exemption will stick. Murphy said while "prospects for repealing a law that's been debated and passed by Congress are remote," the complexities of including red meat in the program should be apparent. "It's vastly different for meat products when it comes to origin labeling because there can be up to six or seven different points in the production chain," he said.

Schnuck's O'Brien said complying with the law's recordkeeping requirements appears especially onerous in produce as well. He estimated that more than 31 million records relating to an average of 600 SKUs for each of 100 of the company's stores may have to be established and retained for up to two years. "That would put a lot of costs into our system, plus the law would change our warehousing system to be able to segregate products and our invoicing system would have to change as well," he said.

O'Brien added the law may also force the chain to eliminate many smaller suppliers. The cost of recordkeeping and auditing functions that suppliers will need in order to comply will fall more heavily on smaller producers. "We'll likely have to work with larger, more vertically integrated suppliers, and the small guy will fall out of the mix," he said.

Those and other, more far-reaching changes are likely in store as retailers and their suppliers prepare for the September 2004 implementation date. FMI's Hammonds, though, remains focused on seeing that it never comes to pass.

"We've made substantial headway in uniting the producer community and the retail community, but whether it's enough to lead to repeal of the law, we don't know at this point," he said. "But we're making progress."

TO-DO LIST

Here's what FMI suggested retailers should be covering now themselves, and with their suppliers:

Ask suppliers to sticker all products with country-of-origin information. For products that suppliers don't currently label prior to shipment, ask suppliers to provide them so they can be applied at retail.

Modify supplier contracts to reflect upcoming labeling requirements. Contracts should be revised to: clearly spell out supplier obligations relating to maintaining a verifiable audit trail relating to product origin; establish a verifiable product segregation plan; and hold suppliers liable for fines retailers may incur for relaying inaccurate origin information to customers.

Ask suppliers to prepare and pay for third-party audits through USDA or other agencies that will substantiate compliance with program standards. "Using suppliers that have been audited will reduce your potential liability," FMI said.

Review their own recordkeeping practices to ensure they're sufficient to document origin information to the level dictated in the guidelines. Retailers will likely need to adopt more extensive and detailed recordkeeping so they can demonstrate that origin information provided by suppliers is accurate. In addition, retailers will have to establish a way to maintain origin records at each store, including copies of signed supplier contracts that spell out supplier contractual obligations.