United States Animal Welfare Report This document provides an overview of Costco’s policies on animal welfare. In it, you’ll find our Mission Statement, a look at policy milestones relating to beef, dairy, veal, pork and poultry, information about our Animal Welfare Audit Program, and an explanation of our Animal Welfare Task Force. Mission Statement on Animal Welfare Costco Wholesale is committed to the welfare and proper handling of all animals that are used in the production of food products sold at Costco. This is a long‐standing commitment, and we pledge our diligence in working with industry and academia in the pursuit of new and improved technologies and methods to further enhance animal well‐being. This is not only the right thing to do it is an important moral and ethical obligation we owe to our members, suppliers, and most of all to the animals we depend on for products that are sold at Costco. At Costco, we subscribe to and support the Five Freedoms of Animal Well Being. Originally articulated by a committee of the British government in the 1960s (the Brambell Committee), it has been more recently espoused by Dr. Temple Grandin, a recognized expert in the United States on animal welfare. The five freedoms are: 
Freedom from fear and distress 
Freedom from discomfort 
Freedom from thirst and hunger 
Freedom to exhibit normal behavior 
Freedom from pain, injury and disease Costco’s Animal Welfare Audit Program Animal welfare is part of Costco’s culture and responsibility, which call on us to serve as stewards of the animals, land, and environment entrusted to us. As part of our commitment, Costco has established an animal welfare audit program. We utilize recognized audit standards and programs conducted by trained auditors and look at animal welfare both on the farm and at slaughter. The purpose of an audit is to gather current and accurate information concerning the overall welfare of animals used for food. This information is shared with members of the Costco food safety and technology group and buying staff. They use audit results to determine what areas, if any, need improvement to meet our animal welfare criteria, for both existing and potential vendors. The buying staff also uses this information as an aid in making sound purchases for our members. Audits apply to these two scenarios: On‐farm audits. These inspect the welfare of live animals on the farm in their living environment. Currently these are conducted for the following species: chicken (egg‐laying hens); dairy cows; pork; poultry (chicken and turkey); and veal. Slaughter audits. These take place at the plant where animals are slaughtered and processed for these species: beef, pork, poultry (chicken and turkey), and veal. Audits can be conducted by Costco auditors, suppliers, and/or third parties. Audit type, frequency and intensity can vary across suppliers and species. Also, organic certification in certain respects includes animal welfare components. Costco sells large quantities of organic items derived from animal products, and these items are all required to be certified organic in accordance with law. How Costco’s program has evolved Costco has been committed to animal welfare for many years. Following are some of the milestones in our animal welfare program: Beef
2005 ‐ Costco requires animal welfare audits at slaughter in accordance with the American Meat Institute Recommended Animal Handling Guidelines. 2012 ‐ Costco requires all animal welfare auditors auditing its suppliers to be PACCO (Professional Animal Auditor Certification Organization) certified. This requirement applies to all species, all audits. Dairy
2007 ‐ Costco implements first dairy animal welfare audits and works with the Dairy Quality Center to implement. The mission of the center is to establish a third‐party veterinarian, outcome‐based program which recognizes sustainable practices in place and guides change on the dairy through training, sound protocols and a valid veterinarian/client relationship. 2010 ‐ Costco implements standards regarding dehorning and asked that suppliers cease tail‐
docking by 2012. 2012 ‐ Costco begins working with larger cooperative suppliers who utilize the FARM Program to increase the frequency of third‐party verification. The National Dairy FARM Program (Farmers Assuring Responsible Management) seeks to provide consistency and uniformity to best practices in animal care and quality assurance in the dairy industry.
Veal
2010 ‐ Costco implements veal policy (below) to promote calf welfare. All Costco veal is completely traceable to the farm level and all farms are 100% inspected for compliance to the requirements. Costco Veal Policy • Inhumane treatment of calves is unacceptable and will not be tolerated at any stage of the animal’s life. • Calves must never be tethered while in a stall. • There must be a minimum of two calve per stall after 8‐10 weeks of age. (This is dependent upon calf behavior and health issues that would require a calf be separated.) • All stalls must be large enough to allow calves to freely turn around, lie down, and maintain normal postures. • Calves must be inspected at least twice daily by the farmer or caregiver to ensure cleanliness of the animals as well as the stall. • The farmer or caregiver will also ensure proper fresh air and ventilation at all times. • Calf diets must consist of nutritious feed and fresh water. • Veal barns are to receive, at a minimum, one annual third party humane handling audit per year. These audits are to be made available to Costco Wholesale. • Veal barns are to be visited by a veterinarian at a minimum, once every grow‐out cycle. • Electric prods are never to be used. • Non‐ambulatory animals are never to be used in production. Pork
2008 ‐ Costco begins a process to implement Pork Quality Assurance Plus program. This is a producer‐driven program that farmers can use to ensure that pork products are of the highest quality and safe and animals are cared for in a way ensuring their well‐being. 2012 ‐ Costco asks suppliers to phase out gestation crates for pregnant sows in favor of group housing. The goal is a complete transition by 2022. Many suppliers have already completed this process, and many more will finish ahead of this target date. Costco Gestation Crate Statement to Suppliers Dear Suppliers: As you well know, Costco Members show their interest and concerns about animal welfare by contacting us on a regular basis. All of us at Costco take animal welfare seriously and consider humane animal handling a business imperative. Lately, there has been concern about how farmers treat their pregnant sows. When it comes to the housing of sows, the American Veterinary Medical Association and the American Association of Swine Veterinarians have shown us that both group housing and maternity pens have advantages and disadvantages. While group housing offers more space for the sows, when certain breeds of pigs share a space, they can become aggressive, with dominant sows physically attacking others, biting them and stealing their food. Maternity pens were designed to protect sows from this bullying when they are most vulnerable, during their pregnancies. We understand that there may be certain times during a sow's gestation period during which it would be best for her to be separated from the rest of the group; we find that separation acceptable, as long as it meets the intended needs and provides the appropriate protection and safety for the sow. Furthermore we believe that animals placed in maternity pens should have adequate room to turn around. Dr. Temple Grandin PhD, Professor of Animal Science at Colorado State University, reminds us that "the issue here is the lack of free movement for the sows over time". Costco and Dr. Grandin are "Encouraging you to be innovative in the design and implementation of group housing for pregnant sows." We are asking you to continue to seek solutions, including genetic selection for less aggression in the sows. Dr. Grandin and other experts agree that genetics, along with improved group housing will greatly improve sow well‐being. Here at Costco we are encouraging you to make this transition: we want all of the hogs throughout our pork supply chain to be housed in groups with access to safety zones and expect that this transition should be accomplished no later than 2022. We recognize that through the years you and your suppliers have embraced new ways to improve the welfare of the animals in your care. Costco is expecting you to continue seeking improvements that promote good animal health and well‐being. We also want to ensure that changes to current farming and processing methods represent real improvements for the hogs and are backed by solid scientific research. Sincerely, Doug Schutt Costco Wholesale Executive Vice President, Merchandising Poultry 2005 ‐ Costco begins requiring animal welfare audits at slaughter in accordance with the National Chicken Council (NCC) Recommended Animal Handling Guidelines. Costco also audits hatchery and grow‐out facilities. 2007 ‐ Costco implements animal welfare audits for laying hens. Audits can include American Humane, Certified Humane, and UEP Audits. 2015 ‐ Audits now extend in varying degrees to conventional cage, cage‐free, and organic housing systems. Costco is committed to going cage‐free for its egg procurement. Since 2006, we have already substantially increased our percentage of cage‐free eggs: in fiscal 2006 cage‐free eggs represented 2% of eggs we sold and today they represent 26%. In calendar 2016 we expect to sell over one billion cage free eggs. We are working with our suppliers toward a complete and sustainable transition to a cage‐free supply chain. This transition, however, will take time because currently over 90% of the supply of eggs is from caged hens and because other retailers and restaurants are also moving to cage free requirements, placing greater demands on the limited supply. Costco’s Animal Welfare Task Force For over ten years, Costco has met with experts from industry and academia to review, consult, and help implement our programs. We participate in the Center for Food Integrity’s Coalition for Sustainable Agriculture as well as activities with organizations such as American Humane Association, the National Pork Board, the American Dairy Science Association, and the National Chicken Council. As a continuation of its work in this area, Costco will in the near future convene an Animal Welfare Task Force comprised of Costco buying, food safety and sustainability staff with select industry experts from outside the company. The goal will be to enhance and improve implementation of Costco’s current animal welfare policies while working with suppliers to enhance the policies based on new technologies and methods. In addition to focusing on animal welfare because it is the right thing to do, we do so because failure to do so would create risks for our business and our shareholders. Below is a discussion of risks that we and businesses like ours face relating to animal welfare in the supply chain. As outlined above in this Report, to address these risks, we have adopted measures to mitigate animal abuse problems and believe that we are dealing with them appropriately. Nevertheless, we expect that issues will continue to arise and we are committed to correcting problems of which we may learn. A significant percentage of the sales of Costco Wholesale relate to foods, including in categories of food and sundries, fresh foods, service delis, and our food courts. Key components of these categories are animal proteins, notably beef, chicken and eggs, pork, and lamb. The failure to provide adequately for the welfare of animals throughout Costco’s supply chain could have significant adverse effects on the business and operations of the Company and its investors. These effects could occur whether the abuse was to occur under the auspices of Costco’s supplier of record or other points upstream in the supply chain. These abuses could take a variety of forms, including (without limitation) cruelty or mistreatment by employees, inhumane conditions of confinement, inappropriate use of animal controls or medications or antibiotics, and inadequate feed or water. Prevention of abuse can require extensive, complicated, and expensive controls and procedures. For example, in the context of poultry, standards can require, among other things, extensive animal rights training, regular extensive animal rights audits, alarm systems and generators in the hatcheries, sanitation procedures in the hatchery, temperature monitoring, housing and ventilation standards, chick injury reporting, feed and drinking programs, veterinary care, minimum cage space and proper handling procedures in the plant. Different species have varying requirements to assure animal welfare. Controls and procedures designed to assure or improve animal welfare can lead to increased costs and lower supply or untimely supply of merchandise. It is possible that animal abuse could result in suppliers selling us items derived from those animals that are unsafe or otherwise unsuitable for consumption by our customers or their pets. Although we employ food safety testing systems designed to prevent the sale of such items, we cannot guarantee that those systems will always be effective. Selling unsafe products could result in illness or injury to our members and their pets, harm our reputation, and subject us to litigation. If our food and prepared food products for human and animal consumption do not meet or are perceived not to meet applicable safety standards or our members' expectations regarding safety, we could experience lost sales, increased costs, and be exposed to legal and reputational risks. Our suppliers are generally contractually required to comply with applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety standards. While we are subject to governmental inspection and regulations and work to comply with applicable laws and regulations, we cannot be sure that consumption or use of our products will not cause a health‐related illness or injury or that we will not be subject to claims, lawsuits, or government investigations relating to such matters resulting in costly product recalls and other liabilities that could adversely affect our business and results of operations. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential members and our corporate and brand image, and these effects could be long term. Our suppliers (and those they depend upon for materials and services) are subject to risks should they not assure animal welfare that could limit their ability to timely provide us with acceptable merchandise. For these or other reasons, one or more of our suppliers might not adhere to our quality control, legal or regulatory standards. These deficiencies may delay or preclude delivery of merchandise to us and might not be identified before we sell such merchandise to our members. This failure could lead to litigation and recalls, which could damage our reputation and our brands, increase our costs, and otherwise adversely impact our business. We and some of our suppliers and sub suppliers face pressure from animal rights groups to require conformity with standards developed or advocated by these groups. Failure to make the changes sought by these groups, whether or not we believe the changes to be desirable for animals or our business, creates risk that we will be subject to pressures from these groups, including public campaigns that seek to damage us in the eyes of our customers, investors, and the general public. These campaigns could cause us to incur higher costs to provide appropriate responses and also could divert management resources, to the detriment of our business. These groups may be able to coordinate their actions with other groups, threaten boycotts or enlist the support of well‐known persons or organizations in order to seek to increase pressure to achieve their stated aims. Changing procedures and infrastructure to, in certain cases, conform to these guidelines or seeking to cause or suppliers and/or sub suppliers to change procedures and infrastructures can result in additional costs for our suppliers and the costs of items that we purchase from them. Campaigns and publicity concerning animal abuse, whether in the Company’s supply chain or elsewhere, also could lead to legal and regulatory changes that impose more stringent requirements concerning animal welfare, which could have the effect of reducing available supply and raising prices, increasing costs for the Company. While we may pass some of the increased costs on to our customers, there is no assurance that we can do so and our profitability could suffer accordingly. Individuals or organizations can use social media platforms to publicize inappropriate or inaccurate stories or perceptions about the food production industry or our company. Such practices could cause damage to the reputations of our company or the food production industry in general. Animal welfare abuses in our supply chain could lead to individuals choosing not to become our customers and to current members terminating their membership or purchasing less merchandise, adversely affecting our revenues. All of the factors above arising out of the failure to assure animal welfare in the supply chain, singly or potentially in combination, could adversely affect our business, financial condition and results of operations. December 2015