One of the world's largest producers of meat says it will stop buying Canadian cattle because of the high cost of having to follow U.S. meat labelling rules.

The decision from Tyson Foods Inc. is expected to lead to a drop in prices for Canadian producers.

Martin Unrau, president of the Canadian Cattlemen's Association, says the decision is a huge blow to the industry.

“The cattle we raise here are the exact same type of cattle that they raise in the U.S. under the same conditions. We are using the same products. So absolutely it's a trade barrier,” Unrau told CBC News.

Tyson is the third-biggest buyer of Canadian cattle and bought about 150,000 head last year.

"Other American buyers certainly could follow suit, and that's a real concern for us," said Agriculture Minister Gerry Ritz, adding that the Tyson decision shows Canada has to diversify and find new markets. "We have a 70 per cent reliance on the Americans for processing and for purchasing livestock. We need to move away from that, and, of course, by moving product now into the European theatre, just as soon as we get [the Canada-European Union free trade deal] ratified, certainly is the right way to go."

Canada is challenging the U.S. country-of-origin meat labelling policy with the World Trade Organization and in the U.S. courts.

The regulations track beef and pork through the meat processing and distribution systems and require labels that state where animals are born, where they are slaughtered and where they are packed.

Labels would include such information as "born, raised and slaughtered in the United States" for American meat. Cuts of meat from other countries could carry labels such as "born in Canada, raised and slaughtered in the United States."

Tyson said it is disappointed with the U.S. rules that require labels on meat products to contain detailed information about where the products come from. It also means that meat coming from different countries has to be segregated in a warehouse and labelled differently, increasing costs for the meat packers.

"Unfortunately, we don't have enough warehousing capacity to accommodate the proliferation of products requiring different types of labels due to this regulation," Tyson spokesman Worth Sparkman wrote in an email.

"As a result, we have discontinued buying cattle shipped to our U.S. beef plants directly from Canada effective mid-October."

Sparkman said Tyson would continue buying Canadian calves for U.S. feedlots.

Cattle shipments to the U.S. were cut in half in the first year after the U.S. proposed country-of-origin labelling in 2008. There was a 58 per cent drop in slaughter hog exports.

In November, the rules become even more stringent. The Tyson decision worries Canadian feedlot operators.

“I wouldn't' say it's a death knell but it's a further strain on our industry at a time when we were looking for some relief,” said Ben Thorlakson, who owns a feed yard near Airdrie, Alta.

“We have one fewer buyer and we only had five to start with … so it's just reduced the overall demand for our cattle … and therefore the prices are lower, but that's an overall effect of this country-of-origin labelling initiative.”

The Canadian Cattlemen's Association is part of a coalition that is in the process of appealing a U.S. court ruling last month. That ruling rejected a request for an injunction against the latest version of the U.S. label policy, which is to go into effect in November.

The coalition argues the policy would be costly and offer no food safety or public health benefit.