What the Farm Bill Holds for Food Processors

June 5, 2008
The new bill addresses major issues including commodities and country-of-origin labeling

With provisions to promote energy independence, tighten country-of-origin labeling and establish a department of homeland security within the USDA, the new farm bill has far-reaching consequences for the nation’s food processors. It remains to be seen how easily processors can digest and assimilate these multifarious requirements.

In May, the U.S. Senate voted 81-15 in favor of a five-year, $307 billion farm bill with enough bipartisan support to override an expected veto by President Bush. To varying degrees, rising energy and commodity prices are addressed in the new legislation.

For example, the bill calls for investment in renewable energy programs to promote energy independence. For food processors, a positive impact of the bill’s energy-related programs can be found in the provision that calls for bio-energy crop assistance.

“Food processing companies might applaud the bio-energy crop assistance provision because it will provide funding for farmers to start growing alternative crops, other than corn, to produce cellulosic ethanol,” says Dennis Olson, senior policy analyst in the trade and global governance program at the Institute for Agriculture and Trade Policy, Indianapolis. “This is the next generation of ethanol, and it could take some pressure off the demand for corn. Until now, the alternative-fuels boom has pushed up food manufacturing production costs.”

While the rise in energy prices is indirectly addressed in the bill, the recent surge in commodity prices is addressed directly by key pieces of the legislation that will likely have a significant impact on food processors.

“There are proposed changes in food and nutrition programs and fruit and vegetable programs that could increase spending on commodity purchasing and distribution programs, marketing programs and other related areas,” says Bradley Lubben, assistant professor and extension public policy specialist, Dept. of Agricultural Economics, at the University of Nebraska (Lincoln). “In particular, an added focus on fruit and vegetable purchases for a school snack program will affect those specific markets, as well as processors who handle the commodities or use them as inputs in other products.”

Specific commodities, such as sugar, are addressed by the bill. For instance, the new farm bill renews the sugar program, which means continued support of sugar prices, according to Olson. “However,” Olson warns, “there is a new provision of the sugar program that would allocate some money to use imported sugar to supplement bio-fuel production. That is not good news for food processing companies because they would like to see sugar prices come down.”

COOL rules

Another major component of the bill that demands the attention of food processors, according to both Olson and Lubben, is the full implementation of country-of-origin labeling (COOL) for various commodities, which goes into effect Sept. 30. COOL applies to covered commodities sold by a retailer. Regulations have been in the wings since the 2002 farm bill, but they have been twice delayed until now. “The new farm bill does not delay the rules any further,” says Lubben, “but it does make some compromise changes in terms of labeling rules and record-keeping requirements.”

According to Lubben, the labeling rules simplify the requirements for labeling meat. They also simplify the requirements for labeling products that are already being marketed with a geographical label. If the current geographical label clearly indicates the product was produced within the U.S., then the current label will be sufficient to meet the COOL rules.

While some record-keeping requirements have been simplified, questions remain about the application of the policy. “One of the definitional questions will be what is and what is not still the original covered commodity,” says Lubben. “For those processors that are covered by the rules, the regulatory and management question will be what records they will need to keep and what documentation they will demand of their suppliers up the farm-to-retail chain.”

All suppliers of a covered commodity that moves to the retail counter are subject to an audit by the USDA to verify their records of origin, so the retailer, the wholesaler and the food processor are subject to an audit. For some commodities, that trail will extend back to the farm that supplied the covered commodities.

For other commodities, the audit trail stops at the food processor. For example, a meatpacker produces and supplies meat, but the farmer supplies animals to the meatpacker, not meat, so the audit trail stops at the food processor.

The result is a somewhat confusing and potentially costly chain of labeling requirements, record-keeping headaches, and audit trails.

As is often the case in new legislation, there are unintended consequences of even minor details. The new farm bill is no exception. For instance, according to Olson, under the Miscellaneous section of the farm bill, there is a little-known provision that establishes a department of homeland security within the USDA. Its job is to integrate interstate emergency response plans and work with the Dept. of Homeland Security and other agencies to coordinate planning and response efforts to emergencies.

It creates a bio-security center to prepare for animal disease emergencies, agro-terrorism attacks and other threats to agricultural issues. It also builds bio-security communications and planning preparedness. The possible consequence of this provision, according to Olson, is that food processors may be required to increase security at their plants, and it could force manufacturers to open their plants to security inspections.

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