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Friday, September 25, 2009

Labeling regulations for direct marketing

by Andy Rieber - WLJ Correspondent

Understanding labeling regulations

important for direct marketing of beef

An increasing number of ranchers are experimenting with direct marketing their cattle to consumers. Many ranchers practice direct marketing on a small scale, finishing out a few head to sell to family and friends. But some have taken this practice to another level, realizing substantial profits by developing their own brand and selling directly to individuals over the internet, over the telephone, and at farmers’ markets. Successful direct marketers benefit from cutting out the middle men in beef production, thereby saving retail premiums for the producer. However, no one should embark on a large-scale direct marketing venture without a clear understanding of the significant responsibilities inherent in selling their own beef.

One obligation prospective direct marketers may not foresee is that the labeling they put on their beef must be in accordance with USDA labeling regulations. Typically, ranchers do not have to worry about what label is stuck on their beef and what claims that label makes; that is the packer’s territory. However, when the rancher is the owner of the brand and is himself selling his branded beef retail, or to retail outlets, it is the rancher’s responsibility to ensure that all claims made on the label are in accord with USDA regulation and have been verified if necessary. For example, a label cannot indicate that beef has been "raised without growth-promotants" unless that claim has been approved by USDA. Labeling beef with unsubstantiated claims can lead to serious penalties, both for the producer and for any retail outlets carrying that producer’s beef.

Labeling is managed by two separate USDA branches, Food Safety Inspection Service (FSIS) and Agricultural Marketing Services (AMS). FSIS is a regulatory body that oversees label regulation compliance. FSIS is required to review all meat-product labeling for truthful information and to ensure that labeling on meat is not misleading to the consumer. By contrast, AMS is a strictly optional, fee-for-service program that provides third-party USDA verification for labeling claims.

A producer interested in developing his own label to market his own brand of beef needs to have the label approved by FSIS, which is accomplished by submitting an FSIS labeling application. FSIS will determine whether claims made on the label have been adequately substantiated. Examples of possible labeling claims include: production claims ("no antibiotics," "no growth promotants," "grass-fed"), nutritional claims ("high in Omega-3," "lean"), geographical claims ("Montana Beef"), breed claims ("Angus beef"), and health claims, among others.

One way of having some types of claims approved by FSIS would be to first work through the USDA AMS branch. AMS will direct producers to approved third-party certifying bodies who will, for a fee, perform an audit of a producer’s operation in order to certify that a particular labeling claim is legitimate. Once AMS approval has been granted, a producer is entitled to print the "USDA Process-Verified" shield on his label, indicating that the labeling claim has been verified by USDA. For example, a producer raising grass-fed beef could opt to pay a USDA-approved third-party verifying agency to perform an on-site inspection of his operation. Upon approval, he would be entitled to label his product "USDA Process-Verified Grass-Fed Beef."

According to Marty O’Connor, chief of AMS Standards Analysis and Technology branch, AMS deals primarily in verifying production claims but is happy to work with producers to develop standards for other types of claims that may not yet have an established auditing procedure. For example, a producer who wished to label his beef "Genuine South Dakota Angus Beef" could likely be accommodated with a customized audit. O’Connor also indicated that the cost of auditing can potentially be reduced when several independent producers join together as a loose alliance to be audited simultaneously.

Although bearing the "USDA Process-Verified" shield may command added value in the marketplace, many labeling claims (with the obvious exception of "organic," which requires USDA certification) can be used on labeling without the expense of USDA process-verified certification by using the FSIS affidavit-based protocol. A producer who does not want to pay for USDA third-party verification of their labeling claims can apply directly for approval of their labeling claims on their FSIS labeling application. In the application, they will need to supply information testifying to the truth of the claims. For example, a producer who wishes to label his product "grass-fed" would indicate in his labeling application what processes he uses for feeding and finishing his cattle. Upon approval of the application by FSIS, the producer would then be entitled to use the claim "grass-fed" on his label, but without the USDA process-verified shield.

It should be emphasized that ALL labeling claims, whether AMS verified or not, must ultimately be submitted to FSIS for approval on a labeling application. Because AMS-verified claims are USDA certified, they are all but certain to meet with FSIS approval and have the added advantage of carrying the USDA Process-Verified shield. These benefits, however, are not without a price. Producers must pay for USDA-approved third-party verification. By contrast, FSIS is NOT a fee-for-service program and there is no charge for having labeling claims approved through the FSIS affidavit-based system.

Clearly, labeling claims can be powerful marketing tools, especially to the producer selling a value-added product. As a general rule, ranchers who are direct marketing their beef should give careful consideration to communicating clearly with their customers on their labeling. Labeling claims submitted for FSIS approval should be explicit and non-ambiguous so that consumers know exactly what they are paying for. Successful direct marketers know that retaining customers is essential in building a profitable business, and keeping customers requires that producers market their product honestly and fairly. A buyer who feels that he has been misled about the product will likely not be a customer again.

Typically, the FSIS approval process will ensure that labeling is clear and easily understood by the consumer. However, the labeling claim "natural," which is currently under review by FSIS, should be considered an exception. On Sept. 11, 2009, FSIS issued an Advance Notice of Proposed Rulemaking and is seeking public comment to help clarify the use of this term on labeling. During the reassessment process, however, the current FSIS standards will continue to apply.

It has often been pointed out that packers, or producers who are direct marketing their beef, may use the claim "natural" on their labeling provided that the beef is minimally processed and contains no artificial ingredients because such use is in compliance with the USDA definition. While this is true, FSIS has come to recognize that this practice arguably is confusing to consumers who have come to expect that "natural" designates a value-added product. This is due to the fact that the niche-marketing use of "natural" to designate beef that has not been treated with antibiotics, growth promotants, or animal byproducts has become firmly established in the marketplace. Although USDA currently requires only that beef marked as "natural" be minimally processed and contain no artificial ingredients, there is a disconnect between what USDA requires and what consumers expect when they buy beef marked "natural" that direct marketers should be aware of.

It is FSIS’ aim to rectify this disparity by revising the criteria for the voluntary "natural" claim following a period of public comment which closes on Nov. 13, 2009. Producers who label their own beef, and the cattle industry in general, will want to keep a close eye on how the new FSIS "natural" standards develop.

For information on FSIS’ rulemaking initiative for the "natural" claim, and to submit a comment, go to: www.fsis.usda.gov/regulations_&_policies/2009_Notices_Index/index.asp.

For information on labeling regulations and the FSIS affidavit-based protocol, call the FSIS Labeling Division, 301/504-0878, or go to www.fsis.usda.gov.

For information on optional USDA AMS third-party verification of labeling claims, call 202/720-4486 or visit www.ams.usda.gov. — Andy Rieber, WLJ Correspondent

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