August 2004 Top Story
The COOL conundrum
Time is running out for seafood suppliers, distributors and retailers to comply with country-of-origin labeling regulations. But no one knows precisely what the rules are.
By Sept. 30, seafood products sold at retail must be labeled as to their origin and whether they are wild or farm raised, as mandated in the 2002 Farm Bill.
However, at press time in late July, the Agricultural Marketing Service (part of the U.S. Department of Agriculture) still had not announced the final COOL requirements, leaving both retailers and vendors little time to comply with the regulations.
To add insult to injury, all of the other commodities listed in the original rules — beef, lamb, produce and peanuts — in January were granted a two-year delay as part of the 2004 Omnibus Appropriations Bill. Industry officials contend seafood retailers and vendors lacked the lobbying clout of other commodity groups, which have until Sept. 30, 2006 to comply with COOL. Meanwhile, Senators Tom Daschle (D-S.D.) and Tim Johnson (D-S.D.) introduced a bill in early May to reinstate September 2004 as the deadline for the commodities to comply with COOL.
Food wholesalers and retail organizations vehemently oppose mandatory labeling, citing its burdensome cost and logistical complications. Industry analysts estimate it will cost the seafood industry upwards of $400 million annually to ensure that retail seafood products are correctly labeled to meet COOL requirements. Ten domestic food groups, representing fruits, vegetables, beef, pork and seafood, instead are supporting the Food Promotion Act of 2004.
This legislation, proposed on June 15 by Reps. Bob Goodlatte (R-Va.) and Charles Stenholm (D-Texas) and passed by the House Agriculture Committee on July 22, would do away with mandatory labeling and replace it with a voluntary, market-based labeling program.
However, with Congress scheduled to recess on July 23 through Labor Day on Sept. 6, there is less than a month for the voluntary-labeling legislation to be approved.
Seafood vendors, distributors and even cold-storage warehouses have already spent hundreds of thousands, if not millions, of dollars deciphering the preliminary regulations and changing their packaging and inventory systems to meet the present Sept. 30 deadline.
The COOL wheels have been set in motion, even though the final regulations could be dramatically different from the preliminary rules — or thrown out altogether, if COOL becomes voluntary.
Suppliers bear the onus of COOL complianceSeafood vendors have worked feverishly for the past several months to decipher the COOL regulations and meet the Sept. 30 deadline for compliance. Suppliers have changed their product labels. Distributors and cold-storage facilities have revamped their tracking systems to accommodate information required in the record-keeping part of the legislation. Distributors may even have to change the way they ship seafood to retailers.
On top of these challenges, vendors have to meet the additional demands of their retail customers, some of whom have different interpretations of what is required by COOL, even though the final requirements have not yet been announced.
“The real challenge is that the retail community is calling for compliance now, and the supply chain is asking, ‘Comply with what?’,” says Justin LeBlanc, VP of government affairs for the National Fisheries Institute.
“As frustrating as the [retailers’] request is, it’s not irrational. It’s a catch-22.”
LeBlanc expects the final regulations for COOL to be “considerably different” than the proposed rules.
If the final version of COOL is different from the proposal, it will be difficult for companies to comply in time, says Richard Ducharme, VP of operations for Aqua Star in Seattle. The supplier spent six months and “many thousands of dollars” changing both the packaging for the 400 SKUs on its product list and its inventory-tracking system to comply with the regulations.
“If [AMS] comes out with anything new at this point, chances of us being able to comply are slim,” says Ducharme.
However, Kathryn Mattingly, an AMS spokesperson, says the final COOL regulations will not be dramatically different than those proposed already. Mattingly declined to say when the final regulations would be announced, only that they would be finalized by September.
In the past few months, the AMS has fielded many queries concerning COOL, including what font size to use for displaying COOL information on product labels.
The AMS will not address such specific questions, says Mattingly.
There is so much confusion about the regulations in the industry that NFI held a COOL workshop on July 20 to address questions from its members.
As part of the workshop, representatives from the USDA, Food and Drug Administration and U.S. Customs and Border Protection were scheduled to discuss their role in the labeling process.
NFI is also still working with retailers, fishermen and suppliers to secure a two-year delay for seafood COOL, the same delay the other commodity groups were granted in January.
A delay is “possible, but not probable,” says LeBlanc.
Preparing for the inevitable
Most supermarkets declined to comment on what steps they are taking to meet the COOL requirements, except to say that they will meet the Sept. 30 deadline. But a representative at Ahold, which operates 1,600 supermarkets in the United States under six banners (Stop & Shop, Giant-Landover, Giant-Carlisle, Tops, BI-LO, Peapod and Bruno’s) says the chain has done nothing to comply with COOL.
“We’ve kept the seafood buyers very informed,” says Barry Scher, VP of public affairs for Ahold and chairman of the Food Marketing Institute’s government-relations committee. FMI has taken a leading role in developing the proposed Food Promotion Act.
“We’re hopeful that the government will delay seafood COOL as they have for meat and produce. To this date, the rules have not been published. It will be extremely difficult to comply when we haven’t even seen the regulations,” says Scher.
FMI, NFI, the National Cattlemen’s Beef Association and seven other domestic food groups say the Food Promotion Act would provide a workable voluntary labeling program that:
In the meantime, many seafood manufacturers and distributors have already met COOL deadlines set by their retail customers. Retailers and suppliers face a $10,000 fine per violation per day for selling mislabeled product or record-keeping mistakes.
“We don’t have any choice. If you want to do business at retail, you make the changes,” says Troy Turkin, VP of sales and marketing for Newport International, an importer and distributor in Tierra Verde, Fla.
C&S Wholesale Grocers in Brattleboro, Vt., after Aug. 1 wouldn’t receive seafood products from its vendors that aren’t compliant with COOL, says Jim Wallace, VP of seafood and meat procurement.
“We’re going to enforce rejections, and [non-compliant product] won’t be received into the system,” he says.
Packaging changes are not difficult; as soon as packaging materials run out, a new design is used. Turkin says the big challenge now is meeting retailers’ demands that go above and beyond the requirements spelled out in the preliminary COOL regulations, says Turkin.
For example, one of Newport’s retail customers is demanding the company keep four years of records instead of the two years specified in the preliminary COOL regulations.
Jim Walstrom, president of Morey’s Seafood International in Golden Valley, Minn., says the record-keeping aspect of COOL is “staggering.”
“The record-keeping [for COOL] is over the top. Product is consumed fast in a fresh business; 60 percent of our product is eaten by the consumer in seven to eight days,” says Walstrom.
The amount of record-keeping required by COOL regulations will limit some companies’ ability to maintain a supply line, he adds. For example, retailers sell swordfish on a PLU, or product look-up number, and if the fish is sourced from four different origins, they have to maintain four different PLUs just for that species.
That also means four different country-of-origin signs for the display case.
“We all want to promote U.S. product. But we’ve gotten into something that is a burden and a cost for the industry. In my estimation, by tipping the scales to the record-keeping, we’ll limit variety at the retail level. The net result will cost jobs in our industry in the United States,” predicts Walstrom.
Liability remains an issue
One issue for seafood vendors that will not be resolved when the final COOL regulations are announced is indemnification. Retailers don’t want to be held responsible if products are not COOL compliant. NFI’s LeBlanc says the COOL statute does not require the supply chain to indemnify retailers.
“It’s not required at all,” says LeBlanc.
But very few suppliers want to turn away a large retail client over indemnification. All of Newport’s retail customers have transferred the liability back to the company, says Turkin.
“[Retailers] are interested in limiting their exposure. The onus is shifted to the supply companies,” says Walstrom.
Some of the COOL burden will fall on cold-storage warehouses, which also are eagerly awaiting the final COOL regulations to see what compliance will mean for them.
Dan DiDonato, VP of sales of Preferred Freezer Services in Jersey City, N.J., hopes the final COOL rules will spell out where the warehouse’s responsibility lies on enforcing the labeling and what information it is required to put on bills of lading.
“We have the proposed regulations, but we’re seeing mixed things from our customers,” says DiDonato.
“Are our customers going to come to us to verify each unit was actually labeled for country of origin and whether it’s farmed or wild? Do we need to look inside the boxes?
“Country of origin may be on a box, but if it’s not on a bag inside the box, do we get in trouble?” asks DiDonato.
Companies all along the supply chain have incurred costs to comply with the yet-to-be-finalized COOL regulations. Preferred had to reprogram its computer system to incorporate country-of-origin information on its warehouse documents.
Walstrom says inventory will need to be segregated, which will probably alter the way Morey’s packages goods.
Morey’s sends several species in a box, but Walstrom foresees the company having to ship a single species in a box in the future, which means increased packaging and shipping costs.
“If a vendor incurs more costs, they’ll have to increase prices, and retailers will pass the costs onto the consumer,” says Walstrom.
One large seafood manufacturer in the Northeast has added a 15- to 25-cent-per-pound surcharge on all its products to cover its added costs in complying with COOL.
Wishful thinking
While many suppliers, distributors and retailers have already made changes to comply with COOL, many, like Ahold, have not.
“A lot of [vendors] are hoping and praying COOL will go away, and they’re not getting ready. I do think far too much of the industry is running away from this problem,” says Walstrom.
“Many seafood companies are thinking it won’t be a big deal, or maybe they’re thinking it will be postponed,” adds Newport International’s Turkin.
Ketchum Manufacturing, which makes POS and product tags in Ottawa, Ontario, Canada, reports that it has seen increased orders in recent months for labels and tags related to COOL.
Claude Lalonde, Ketchum’s president, anticipates a big push for country-of-origin labels and tags at the end of this month when suppliers and retailers realize the deadline is a month away.
Whether the COOL deadline occurs next month or is pushed to 2006, actual enforcement of the regulations will not happen anytime soon. The USDA has made it clear that the final COOL regulations will contain a provision for companies that have existing inventory that is not compliant, says NFI’s LeBlanc.
“Everyone needs to know the USDA doesn’t like COOL. The agency has no money to enforce it, and they have announced they will use enforcement discretion. The USDA will not crack down on anyone this year. But state health agencies may do a lot, especially in areas where imported seafood is hot, like Louisiana. But they can only notify the USDA of non-compliance,” says LeBlanc.
Some seafood suppliers and retailers may scurry down to the wire to become COOL compliant next month. But without the final regulations, and with no real teeth behind the regulations when — and if — they go into effect, many are comfortable with a “wait and see” approach for now.