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« April 2008 Table of Contents

The fine print

Retailers adjust to country-of-origin labeling, while restaurants fear they're next

Three years ago this month, U.S. retailers were required by law to label all seafood products with their country of origin and method of production (whether wild or farmed). Country-of-origin labeling legislation, known simply as COOL since its inception as part of the controversial 2002 Farm Bill, was the federal government's answer 
to mounting consumer and political appeals for greater transparency in the food supply.

Unfortunately, the onerous duties of recordkeeping, infrastructure upgrades and employee training, which were split between retailers and their seafood suppliers, became more costlier endeavors than 
the U.S. Department of Agriculture initially predicted. And if the results of the agency's first two COOL audits are any indication, complying with the program is proving more difficult than envisioned.

According to the USDA's Agricultural Marketing Service, 36 percent of the nearly 3,000 retailer reviews it conducted in 2006 and 2007 discovered violations - an average of nearly two violations per review - ranging from inaccurate labeling to failure to keep adequate records. The growing pains associated with seafood COOL are evident in the numbers (see chart, p. 28), yet retailers may continue to struggle because, as of Sept. 30, all center-of-plate proteins, peanuts and produce must become COOL compliant.

Early criticism of the labeling law centered on high compliance costs for large retailers and whether or not the program would improve food safety. Political pressure kept the spotlight on seafood, as Sen. Ted Stevens (R-Alaska), the influential chairman of the Senate Appropriations Committee, pushed for seafood to be the first commodity under COOL to protect Alaska's wild seafood industry. Now, there's a growing movement to expand COOL parameters to include foodservice, largely because the majority of seafood consumed in the United States is at restaurants.

The concept has gained the most traction in the South, where catfish farmers and shrimp fishermen continue to toil in competition against less expensive imports. Economic fraud at the region's restaurants has flourished in the form of species substitution (See SFB June 2007 Top Story, "Tricks of the Trade").

In Alabama last year, a bill was introduced that would require foodservice operators to provide origin labeling upon customer request; proposed legislation in other Southern states would require mandatory participation.

Attention to seafood origins increased dramatically in the wake of last year's food-safety crisis in China, when the U.S. Food and Drug Administration placed Chinese producers of five farmed-seafood species - including shrimp, basa and catfish - on import alert for repeated use of banned veterinary drugs.

Experts expect the push for more information about seafood - regarding food safety, sustainability, carbon footprints or food miles - to only increase.

"With all the issues that have faced the [seafood] industry over the last year, I think consumers welcome the opportunity to know the country of origin. The consumer, in the end, is the beneficiary," says Tom DeMott, COO of Encore Associates, a retail-consulting firm in San Ramon, Calif. "I think the world is adjusting to COOL. It's not going away - right, wrong or indifferent."

American consumers clearly want country-of-origin labeling. In a June 2007 Consumer Reports survey, 92 percent of respondents said imported foods should be labeled with country of origin. The poll sampled 1,004 people on issues concerning food safety and labeling. Subsequently, Consumers Union, the magazine's non-profit publisher, called for COOL to be put into effect immediately for all imported food. Several other surveys have drawn similar conclusions.

With mounting media interest and political pressure, COOL on restaurant menus appears inevitable.

"The way our food is being scrutinized right now, I think [COOL for foodservice] is a very real possibility," adds Joseph Sabbagh, president of Sax Maritime Associates, a retail consulting firm in Los Angeles. "I don't think just retailers should have to bear the brunt of this."

Ken Conrad, chairman of Libby Hill Seafood Restaurants in Greensboro, N.C., and the North Carolina representative of the National Restaurant Association, likens COOL on restaurant menus to a "nightmare" even though his company could easily provide sourcing information. The problem is, it costs $4,000 each time his menus change.

"It's somewhat like nutrition labeling. It should be [available] somewhere on site, but not on the menu on a daily basis," says Conrad. "[Restaurants] have so many concerns running a day-to-day business, so many big and little problems, we just don't need another one right now."

Costs and benefits

To Sabbagh, who consulted with retailers like Whole Foods and Wild Oats for nine years combined, COOL compliance is all about recordkeeping and training.

"You really should, in this day and age, be tracking where your food is from," he says. But when it comes to complying with the regulations, being large is not necessarily advantageous. While supermarkets, club stores and large independent retailers are each subject to COOL and face unique challenges, the larger the operation the greater the logistical headache.

The same can be said for 
the expense.

Last March, the Food Marketing Institute of Washington, D.C., reported that COOL compliance cost retailers up to 10 times more than the USDA originally estimated and had not increased sales of domestic seafood as many supporters had hoped. FMI polled more than 1,000 stores and found that seafood COOL compliance cost an average of $9,000 to $16,000 per store in the first year, compared to the USDA's estimate of $1,530. Seafood suppliers, according to FMI, were hit even harder, as their compliance costs averaged $200,000 to $250,000 in the first year, compared to the USDA's estimate of $1,890.

DeMott, of Encore Associates, says the greatest costs - and greatest opportunities for mistakes - are incurred when the source of a particular seafood product changes by either seasonal or other availability factors. Complicating matters is the fact that more than 80 percent of the U.S. seafood supply is imported.

"If you want to buy scallops, for example, you can get them all over the world. As a buyer, you want to have a quality standard, but you also want to know where and who it's from. But say you change your source from [the United States] to China and then to Argentina - each time you have to label that product differently at the store level. It becomes a different item," says DeMott.

"Retailers are loath to make such changes. [COOL] forces their hand to buy from a certain area. It's faster to make a buying decision than to switch the country of origin on all your labels, I can tell you that."

For some retailers, the new law simply validated their long-standing practices of keeping detailed records and providing thorough information for customers.

"Wegmans provided country of origin labeling long before it was required," said Jeanne Colleluori, communications specialist for Wegmans, a 70-unit retail chain based in Rochester, N.Y., via e-mail. "Our employees (and signs) have talked about country of origin as a way to tell the story of the products that make us proud."

DeMott says independent retailers may be more "nimble" than big box chains, to which Paul Johnson, owner of Monterey Fish Market, a Berkeley, Calif., wholesale and retail outlet, can attest. Johnson says COOL fosters honesty and long-term relationships. His retail and wholesale customers appreciate as much information as he can provide, which may even include the name of fishermen who landed that day's catch. He does it all even though, as a small retailer, he's not required to by law (see Editor's Note, p. 6).

"It's important to keep the consumer informed, even taking it one step further and saying exactly where [the fish] is from. Any way you can label seafood is good, like the [National Shellfish Sanitation Program]," says Johnson, who believes the benefits of the federal labeling law transcend the costs.

"We're a small business, so we don't have the problems of a Safeway or another big institution," adds Johnson. "But I just don't believe that it costs that much. What's so expensive? When big companies go from full-service to prepackaged fish counters, think how much more that costs in terms of packaging. Where they save is in labor. So for the company it's a good deal. But for the consumer it's not such a 
good situation.

"There's also a tradition of obfuscation in the market. If you say you've got 'Taiwan tilapia,' [consumers will] be less apt to buy it than if it were from Arizona."

Restaurants remain spared

Instead of waiting for the federal government to mandate COOL for foodservice, some states are taking the matter into their own hands, especially in the South, where origin labeling has become a political football. Those rallying in favor of foodservice COOL stand accused of protectionism; those opposed say the law won't increase food safety or sales of domestic seafood. U.S. Rep. Bob Goodlatte (R-Va.) last year derided COOL as "simply a bad idea" that is strictly a "marketing issue."

The two seafood species at the center of the COOL debate, to little surprise, are catfish and shrimp. With the respective domestic industries struggling to compete against imports, despite protective tariffs resulting from antidumping petitions, politicians in the region are leveraging COOL to attack imports and spark consumer interest in buying local.

Last year, U.S. Rep. Bennie Thompson (D-Miss.) said it's "an outrage that Americans who legitimately order 'catfish' or 'farm-raised catfish' in restaurants are unknowingly eating" imported fish. COOL is a "matter of public safety and consumer choice," he said, alluding to the import alert against China last summer.

Also last year, Alabama state Rep. Spencer Collier (R-Irvington) introduced a bill that would require restaurateurs to reveal the source of its seafood; it was the fifth time that Collier had filed the bill, which remained tied up as of press time.

If passed, menus in the state would have to print this statement: "Upon request, the customer has the right to know the country of origin of the seafood served in this establishment."

And just last month, Georgia state Sen. Ronnie Chance (R-Fayette) introduced legislation that would require COOL for seafood in his state's restaurants.

Eddie Gordon, executive director of Wild American Shrimp in Charleston, S.C., supports COOL for restaurants as a consumer as well as from a business standpoint. The lettering on labels should be larger and bolder, he says, to hold everyone in the supply chain accountable.

"It's a worldwide movement, yet the seafood industry is dragging its feet once again. What's wrong with saying where your seafood is from?" says Gordon. "Restaurants will have a choice: They can do it voluntarily or they'll be left in the lower echelon. To keep fighting like cats and dogs over this issue doesn't make sense. The rest of the world is leaving us behind."

Conrad, of Libby Hill Seafood Restaurants, says the restaurant industry would fight COOL if legislation advances to a federal level. "We'd use some political bullets," he says.

There are contentious aspects within the federal COOL language itself. The law requires that the proper country of origin of any given seafood product is not necessarily where it was harvested, but where it was last processed. For example, on 6-ounce cans of Bumble Bee Wild Alaska Pink Salmon, the labels read, "Product of Thailand." (Bumble Bee parent company Connors Bros. Income Fund of Markham, Ontario, owns a 10 percent stake in Thai tuna processor Sea Value Co.)

But instead of battling imports, one domestic group is focused on building an origin-based brand in an effort that goes beyond marketing. Pat Shanahan, program director for Genuine Alaska Pollock Producers in Seattle, says origins are mandatory for institutional foodservice, pointing to the "Buy American" provision of the 
National School Lunch Act, which requires school food authorities to "purchase domestically grown and processed foods, to the maximum extent practicable." GAPP is now instructing school buyers to request Alaska pollock and to look for the GAPP logo.

"Schools can't tell if they are complying with the law. We wish it was transparent. It would 
help schools if they could tell [where their products are from]," says Shanahan.

"We're competing against Russian product," she adds, "but Russian pollock is also called Alaska pollock, which is very misleading. Consumers are confused. As a consumer, I'm confused - I want to know where my food is coming from. So GAPP serves as a voice for Alaska pollock, the fish that many people are eating but nobody knows they're eating it."

Audits reveal weaknesses

Despite a three-year head start on other commodities like beef and poultry, retailers and the seafood industry have room for improvement on COOL compliance, says Martin O'Connor, chief of the U.S. Department of Agriculture's Agricultural Marketing Service, the federal agency responsible for enforcing COOL.

"There's always room for improvement. With the outreach that was done within the [retail] industry and its respective associations, many [stores] were well prepared at the outset," 
says O'Connor.

In 2006, the first year that the USDA conducted retail seafood COOL audits, 40.5 percent of the reviews revealed labeling violations; the percentage dropped in 2007 to 32.6 percent. The most common violation was failure to label the method of production (wild or farmed). Willful violations warrant fines of up to $10,000.

"Any improvement in 2007 was due to familiarity with the program," says O'Connor, noting that 68 percent of reviews of 2006 offenders made all the necessary corrections the following year. "Retailers were more knowledgeable of the spirit of the regulation itself. There were indications in certain places where improvements could be made but the general consensus was that the majority of products were 
labeled properly."

Sabbagh, of Sax Maritime Associates, says the complexity and wide variety of seafood products presents so many opportunities for mistakes that proper training is essential.

"Execution at the store level list is not all that good. Take shrimp: If the country of origin changes, and it often does, the manager has to be on top of that and make sure the people filling the case understand it. Full-service counters have a lot of labels, a lot of opportunities to fail," Sabbagh says.

"There's nothing wrong with too much information - there is something wrong with needless and inaccurate info. That's what the food industry suffers from."

Assistant Editor James Wright can be 
e-mailed at jwright@divcom.com