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

E:

P:



 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more