MODELING THE EFFECTS OF COUNTRY OF ORIGIN LABELING ON MEAT PRODUCERS AND CONSUMERS

Abstract

Although several studies have estimated the costs of implementing and maintaining country of origin labeling (COOL), no previous study has documented how increased costs imposed by COOL will be distributed throughout the livestock sector and how producer and consumer welfare will ultimately be affected. This paper develops an equilibrium displacement model of the farm, wholesale, and retail markets for beef, pork, and poultry that is able to document how producers and consumers will be affected by added costs of COOL. In addition the model is able to determine the level of increased consumer demand needed to make producers welfare neutral to the policy. Empirical results indicate that as COOL costs are shifted from the producer to the processor and retailer, producers are made increasingly better off while consumers are made increasingly worse off. Empirical model results also indicate that an increase in aggregate consumer demand (willingness-to-pay) on the magnitude of 2% to 3% is likely sufficient to offset lost producer welfare due to increased costs imposed by COOL.