A Tax Increase We Can Sink Our Teeth Into

On Friday, the FDA published two rules (broad descriptions copied below from the FDA website) with the goal of reducing the risk of food-borne contamination in both processed food and farm food.  The rules are out for public comment for a 120 period.

These two rules (and three others to follow, below as well) are at the core of the Food Safety Modernization Act signed into law by President Obama in 2011.

  • Preventive Controls for Human Food: This rule sets safety requirements for facilities that process, package or store food for people. (There is a separate, upcoming rule for animal food.) The rule will require that food facilities implement “preventive controls,” a science-based set of measures intended to prevent food-borne illness.
  • Produce Safety: The food-safety law requires that science-based standards be set for the production and harvesting of fruits and vegetables, and FDA is proposing such standards for growing, harvesting, packing, and holding produce on farms.

Rules yet to come:

  • Foreign Supplier Verification for Importers: This program will require importers to verify that foreign suppliers are following procedures that provide the same level of health protection as that required of domestic food producers. About 15 percent of the food consumed in the U.S. is imported, including about 49 percent of fresh fruit and 21 percent of vegetables.
  • Accredited Third Party Certification: The accreditation of third-party auditors would help ensure that food producers in other countries comply with U.S. food safety laws.
  • Preventive Controls for Animal Food: This is the implementation of preventive controls at animal food facilities that are similar to those proposed for human food.

As with everything in life, there is a cost, and we have seen estimates ranging from $500 million to just over a billion in terms of annual costs to be borne by farmers and food manufacturers.  I doubt that anyone knows for certain and initial estimates are almost certainly hopeful guesstimates.  Ultimately, as is the case with most regulation of this type, the cost will be passed on to the consumer.  When examining the cost, keep in mind that there has been a substantial expense over the course of the past decade in terms of voluntary recalls, lost sales and even legal expenses in the wake of food-borne illness in with products ranging from cantaloupes to refrigerated dough to spinach to peanut butter.



The Centers for Disease Control and Prevention estimates that approximately 48 million people in the United States each year get sick, 128,000 are hospitalized and 3,000 die from food-borne illness.  The calculus then boils down to this – are Americans willing to spend $4 per year, per person (assuming an annual cost of $1.2 billion) to avoid a 1 in 6 chance of getting what is usually a pretty nasty illness, and a chance, although significantly less, of succumbing to something much, much worse?  It makes sense to us and we appreciate the need to move food safety standards in this country out of the 1930s.

 

Have a good week.

 

Robert  Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

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