Engler Takes Issue With COOL,
Talks Of Own Foreign Program

AMARILLO — Paul Engler, CEO of Cactus Feeders and immediate past chairman of the Texas Cattle Feeders Association, has strong feelings concerning the country of origin labeling issue.

The U.S. Department of Agriculture recently published proposed rules for a voluntary country of origin labeling program as mandated by the new farm bill. A mandatory program is mandated by Sept. 30, 2004.

Opponents of country of origin labeling say the program is so complex it will take at least two years to set it up, and even then they don't expect it to work.

To Engler, it is a matter of government intervention in the cattle business.

"I have a great sensibility about that," Engler says. "If that moves from a voluntary country of origin labeling program to mandatory like it's scheduled to be in 2004, it would probably be one of the more disastrous things that could happen to our industry. God help us if that happens."

Engler says the U.S. cattle industry doesn't have the infrastructure to handle such a program domestically.

While cattle feeders like Engler generally oppose country of origin labeling, they are probably in a better situation to adapt to it than cow-calf operators, he believes.

Essentially, under USDA rules, each calf when it hits the ground will have to have a birth certificate. Individual animals will have to have "passports" as they move through the production chain from the ranch to sale barn to pasture to feedyard to packer to retail store. Under the proposed rules, records on these animals will have to be kept for two years.

Imported cattle will have to maintain a paper trail from point of entry through the retail sales outlet.

"Theoretically, at least, we have to know of every animal that comes in the feedyard where it was born," Engler says. "In order to do this, it will require a mandatory electronic ID."

That is expected to cost cow-calf producers a minimum of five dollars per head, not including labor and recordkeeping.

Similar costs are expected to be generated at each step on the trail to the supermarket. Overall, country of origin labeling is estimated to cost the beef industry some $2 billion a year, something Engler says would hurt beef's competitiveness in the supermarket.

He points out that country of origin labeling covers cattle, sheep, goats and various fruits and vegetables, but not poultry, one of the primary competitors of beef in the meat case.

"Who asked for it?" Engler says of country of origin labeling. "We didn't."

While he says the Texas Cattle Feeders Association opposed such a program, other cattle groups supported it. Engler cautions cattlemen to be careful about asking the federal government for help.

"Look what you end up with," he says. "The history of our business is such that every time we have seen government involvement in it, bad things have happened. The price freeze under President Nixon's regime, that was a terrible thing. We had the dairy herd buyout, which almost mortally wounded all of us. Mandatory price reporting, we asked for that and there was big support among cattle people that they wanted a more transparent market so it had to be mandatory. We wound up there with something that's worse than what we originally had."

(Editor’s note: It is widely accepted — along with the inevitability of death and taxes — that the mandatory price reporting program was sabotaged by its opponents; the devil is indeed in the details. So it appears to be with COOL as well. Mandatory ID? Placenta-to-plate "passports"? Folks who can close a gate without convening a committee would submit that the only logical and legitimate way to implement a country of origin labeling program is to place the onus on imported cattle or beef — only. The sole reason for including domestic livestock in such a scheme is to make it — deliberately — unworkable. We take a back seat to no one in casting a jaded eye toward government involvement, but every camp has its sacred cows. Do we hear an "Amen" here from the Beef Board?)

There are fears that country of origin labeling could set off international trade wars and hurt export markets.

"The repercussion of that thing from our neighbors," Engler says, "there's no way that would not create a trade war. It's a violation of NAFTA, for one thing."

Engler says he's unhappy that various cattlemen's organizations have not opposed country of origin labeling more vigorously.

"It's just almost ridiculous that we've gone this far with it," Engler says.

With proposed rules having been published, Engler says he hopes supporters of country of origin labeling will rethink their positions. If they do, the program may be killed or modified before it becomes mandatory.

"It's conjecture on my part," Engler says, "but some of that conjecture is based on conversations that I've had with some Washington people. I suspect it will come under review after we get past this election. Nobody wants to touch an issue like that before an election, but I'm hoping that it will be reviewed after the election."

Engler says he understands some of the thinking behind country of origin labeling and commends the patriotic concept, but the devil is in the details, particularly with the mandatory rules the government can impose.

"I think there's a lot of people that are sensitive about foreign imported food products," Engler says, "and they'd really like to know, whether they're eating grapes or whatever it might be, if it's produced here in the United States. They're patriotic enough that they want to know. I think that's fine.

"I think if a packer is sure that it was produced in the United States, he ought to be entitled to put a label on it that it was born, grown and produced in the States. That sort of thing would appeal to those consumers that would want to make sure they're not eating foreign meat. I think that's fine, and I think that's the way an issue like that should be handled."

To make such labeling mandatory, however, is an entirely different issue.

"With every animal that comes into our feedyard," Engler says, "we have to have some guarantee of where it was born, whether it was Mexico, Canada or the United States. How are you going to know that?"

The only way that would be possible, Engler says, is through an electronic identification system that would enable each animal to be traced back to where it was born.

Engler says country of origin labeling will cause a great many difficulties for packers. As carcasses move through the slaughter house, it will be difficult to distinguish a cut from a U.S. animal from a cut from a foreign born or raised animal.

"It would be almost impossible for them to be separated," Engler says. "IBP is grinding about 200,000 pounds of ground beef out here every day for Wendy's. For them to be able to guarantee U.S. born and bred would be impossible. It might not be impossible, but it would be so costly that it would prevent it from happening."

Another anti-labeling argument contends that there is a danger in some markets where foreign beef draws a premium that labeling U.S. beef could come back to haunt the industry.

"There's always that problem," Engler says. "Look at Danish hams, for instance. The connotation there is that they're superior to our hams. Some people may think Argentina beef is superior to the U.S., which it isn't, incidentally."

When it comes to Argentina, Engler knows of which he speaks. He has feeding operations there.

"That county is in a terrible mess," Engler says, "economically and politically. They're broke. They have a 25 percent unemployment rate. But surprisingly, our business in the feedyard is better than it has been."

The reason is simple, he says. The currency has been devalued. Where it was on par with the U.S. dollar, one-to-one, it's now about 3.6 pesos per dollar.

Consequently, the last thing anybody wants is cash in Argentina because it keeps deteriorating.

"A rancher out there, the longer he can keep a hard asset like his cattle, the better off he thinks he is," Engler says. "He's extending his ownership by going into the feedyard."

But Engler admits that it is a terrible environment in which to do business.

"The typical payment terms in the past might have beeen 30 days or 60 days," Engler says. "Now, it's cash on the barrelhead. People don't want to wait that long to get their money with the currency devalued."

Financing is impossible. Interest rates are around 70 percent.

"It's been tough," Engler says. "It's been difficult. We wanted to keep our investment as low as we could, so we said we'd just be a custom operation and no cattle ownership. We finally had to give in on that to keep the numbers up. The company's feeding some cattle there now."

Engler has had a feedyard in Argentina for about two and a half years now.

"Theoretical capacity is 25,000," Engler says, "but I don't think we've ever had over about 18,000 in it. We've been so hungry for cattle that if you've got a 100-head pen and some guy brings in 20 head of cattle, well, you put them in the pen. It's been impossible to run it at capacity."

While most of the beef sold domestically in Argentina is grass-fed, Engler says that's changing.

"The thing that's happened, which is good for us," Engler says, "is that with the advent of supermarkets there, which is very recent, they want a consistent supply of quality beef. Well, with a grass-fed industry, you don't have that."

Their cattle come off in the fall of the year, spring in the U.S.

"That's when they're in the best shape," Engler says. "A lot of those cattle would be low Select here."

During the winter months, they don't have consistent quantity, let alone quality, Engler says.

"The chain stores have caught on," Engler says. "They really want a fed animal."

Most of the major chain supermarkets are European. There are some Chilean supermarkets.

"Their supermarkets are as good as we have," Engler says. "The Chilean supermarkets are fine stores, but the meat counter usually looks pretty sad."

Engler doesn't think there will be a problem selling grain-fed beef in Argentina.

"It's catching on," he said, "but they want a real light animal. It looks a lot like it did when we first started cattle feeding here in Texas."

The preponderance of cattle in the feedyards then was light.

"We killed a lot of 600-pound heifers," Engler says of the 1960s in the Texas Panhandle. "Even some 550s. Right now, down in Argentina, anything under 800 pounds live will draw a premium over a heavier cow."

Many things he sees in Argentina remind him of when he first started his cattle feeding operations in the Texas Panhandle 40 years ago.

"You see a lot of things happening down there that we saw happening here 35 years ago, 40 years ago," Engler says. "There's very little feeding down there now."

Engler says there's no export market for Argentine beef in the U.S. because of hoof and mouth disease.

"Europe has opened up," Engler says. "That's their main export market. That's a very good market for them."

Argentina sells beef to Europe under a complex quota system, but it brings three times more money than in the domestic market.

The quota right now is just for grass-fed beef.

"Obviously," Engler says, "that's an issue we're working on."

He says his Argentine feeding operation had a deal with Outback Restaurants to furnish grain-fed beef to their stores in Europe. Since the European Union allowed no importation of cattle that had received any hormones, he didn't implant those cattle for the EU market.

"That was a good operation until the hoof and mouth outbreak came along and shut it down," Engler says. "Our fed cattle down there only bring the equivalent of about 30 cents a pound. Feeder cattle are 24 cents. Our cost of gain only runs about 25 cents a pound."

There are a lot of pluses and minuses in Argentina, he says.

"You look at that country and you can't help thinking it's a Garden of Eden as far as agriculture's concerned," Engler says. "We spent a lot of time, probably more time than we ever have in the past on any project, doing a feasibility study. Sadly, we missed one thing. That's the country risk."

Argentina had three presidents in a six-week period, he says. They made a move from a dictatorship to a democracy too quickly. At one time, 60 percent of the workforce worked for the government. Overnight, a lot of people found themselves out of a job and there have been problems because of unemployment.

"It's an interesting deal," Engler says.

The unemployment has led to civil unrest. He recently had to put armed guards in the feedyard.

"People are getting hungry," he says.

Still, it may lead to opening a way to export beef to the European market.

"I don't think Europe's going to give up on the hormone ban," Engler says. "At least not anytime soon."

He considers it a non-tariff trade barrier.

"We continue to have trade issues with them anyway," he says. "They're just not very friendly to American products."

They are much more friendly to Argentine beef.

On the other side of the world, Engler also has dealings with the Australian feeder market and Japanese beef market.

He says there has been a lot of misinformation about his bringing Australian feeder cattle into the U.S., but economically, it would be a good deal for cattle feeders.

"Their cattle prices have gone down," Engler says. "It would work economically with their prices."

The feeding industry in Australia, Engler says, isn't doing particularly well.

"It's kind of tapped out in terms of feed grain supplies," Engler says. "Right now, it's illegal for them to import any grain, which is another crazy thing."

Engler doesn't look for the cattle feeding business to grow much in Australia despite the presence of some well-financed feeding operations.

"I don't think you'll see much growth in cattle there," he says. "They've got some good feedyards. The Japanese are heavily involved in ownership of those feedyards. They also have some packing plants there."

Though the Japanese are involved in the Australian beef business, Engler says the U.S. shouldn't have a problem being competitive.

"One big advantage we have over the Australians going into the Japanese market," Engler says, "we've got higher priced cattle, but our packing industry is much more efficient. Our costs are much lower than the Australians. That probably gives us a good even go with them, price-wise, in the Japanese market."

As far as the future of cattle feeding, Engler expects the U.S. to be the major player.

As the Texas Cattle Feeders Association celebrates their 35th anniversary this year, Engler says he thinks the area around Amarillo, the Texas Panhandle, Eastern New Mexico and the Oklahoma Panhandle will continue as the largest cattle feeding region in the world.

"When we started 35 years ago and founded the Texas Cattle Feeders Association, we didn't have a whole lot of cattle on feed," Engler says.

Texas then was about eighth in the nation as far as producing grain-fed cattle. For the past 12 to 13 years, the Lone Star State has consistently been the number one cattle feeding state in the U.S.

"We've seen a lot of changes, and we'll continue to see change," Engler says. "I think as long as we're in the commodity business, we're going to see these cycles, these typical movements, boom and bust kind of deals."