Notice of Policy Change; Elimination of Prior Approval for Proprietary Substances and Nonfood Compounds

DEPARTMENT OF AGRICULTURE

Food Safety and Inspection Service

9 CFR Parts 308, 318, and 381

[Docket No. 97-007N]

Notice of Policy Change; Elimination of Prior Approval for

Proprietary Substances and Nonfood Compounds

AGENCY: Food Safety and Inspection Service, USDA.

ACTION: Notice of policy change; request for comments.

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SUMMARY: The Food Safety and Inspection Service (FSIS) is revising its

policy regarding Agency approval of nonfood compounds and proprietary

substances prior to use in official meat and poultry establishments.

The compounds and substances currently subject to prior approval

include maintenance and operating chemicals (sanitizers, cleaning

compounds, water treatments, lubricants, and pesticides) and

proprietary food processing chemicals (branding inks, scalding agents,

rendering agents, and denaturants). FSIS recently proposed to eliminate

the sanitation regulations requiring prior approval of some of these

compounds and substances (contained in 9 CFR Parts 308 and 381, Subpart

H). FSIS now is announcing that it is eliminating the prior approval

system for all-nonfood compounds and proprietary substances and

specifically requests comment on alternatives to the current prior

approval system.

DATES: Comments must be received on or before April 14, 1998.

ADDRESSES: Submit one original and two copies of written comments to

FSIS Docket Clerk, Docket #97-007N, U.S. Department of Agriculture,

Food Safety and Inspection Service, Room 102, Cotton Annex, 300 12 St.,

SW, Washington, DC 20250-3700. All comments submitted in response to

this notice will be available for public inspection in the Docket

Clerk's Office between 8:30 a.m. and 4:30 p.m., Monday through Friday.

FOR FURTHER INFORMATION CONTACT: Patricia F. Stolfa, Assistant Deputy

Administrator, Regulations and Inspection Methods, Food Safety and

Inspection Service, U.S. Department of Agriculture (202) 205-0699.

SUPPLEMENTARY INFORMATION:

Background

FSIS is planning to discontinue approving nonfood compounds and

proprietary substances prior to use in official meat and poultry

products establishments. Nonfood compounds are compounds used in

official establishments, but which are not expected to become

components of their products. Nonfood compounds subject to prior

approval by FSIS include cleaning compounds, compounds for laundry use,

paint removers, sanitizers, hand washing compounds, pesticides, boiler

and water treatments, lubricants, solvents, and sewer and drain

cleaners. Proprietary substances are used in the preparation of

products. They are considered proprietary because all of their

ingredients are not identified, either on the containers by common or

chemical name or by some other means. Proprietary substances subject to

prior approval by FSIS include: marking agents, such as branding and

tattoo inks; food processing substances, such as poultry and hog scald

agents and tripe denuding agents; denaturants; substances to control

foaming in soups, stews, rendered fats, and curing pickle; and

substances for cleaning or treating feet or other edible parts.

FSIS receives annually between 16,000 and 20,000 applications for

approval of nonfood compounds and proprietary substances. It is

important to note that many of these applications are requests for

approval of formulation changes in or new use patterns for compounds

and substances already approved for use in meat and poultry

establishments. FSIS approves approximately 9,000 applications per year

and rejects approximately 1,000. FSIS returns around 40 percent of the

applications to applicants each year, for a variety of reasons: the

application paperwork may not be complete; FSIS may request additional

information, changes in chemical formulation, or revisions to the

requested use patterns. FSIS annually publishes a list of the approved

substances and compounds in FSIS Miscellaneous Publication No. 1419,

``List of Proprietary Substances and Nonfood Compounds'' ( hereafter

referred to as the List). This publication currently lists

approximately 115,000 compound and substances produced by about 8,000

manufacturers.

FSIS does not test the products submitted for approval but

evaluates them based on information submitted by manufacturers and

other information in the Agency's files, including chemical

formulations and information on proposed uses and labeling. FSIS also

consults with the Food and Drug Administration (FDA), the Environmental

Protection Agency (EPA), and the Occupational Safety and Health

Administration (OSHA) in regard to those Agencies' determinations

concerning the safety and suitability of the compound for the requested

use. Generally, FSIS consults with FDA regarding the status of the

substance or compound as an FDA-approved direct or indirect food

additive. Also, FSIS sometimes consults with FDA regarding nonfood

compounds that have been reviewed as drugs, such as hand washing

agents. FSIS generally consults with EPA concerning that Agency's

review and registration of pesticides with labeling claims. FSIS may

consult with OSHA if the intended use of the substance or compound

raises worker health and safety concerns.

FSIS's prior approval program obviously is somewhat redundant with

those of the aforementioned agencies. However, the approval of these

compounds prior to their intended use provides some assurance to meat

and poultry processors that use of the compounds and substances will

not result in the adulteration or contamination of food products,

providing they are used properly. Prior approval has also ensured that

certain compounds, such as sanitizers, meet minimum standards of

effectiveness when used as directed. Consequently, as an additional

unintended benefit of the prior approval program, the FSIS List has

served as a marketing tool for chemical manufacturers and distributors;

inclusion in the List immediately renders a nonfood compound or

proprietary substance more marketable to meat and poultry processors.

[[Page 7320]]

However, this prior approval program is inconsistent with the new

food safety strategy and approach set forth in FSIS Docket No. 93-016F,

``Pathogen Reduction; Hazard Analysis and Critical Control Point

(HACCP) Systems'' (61 FR 38806). Under these new regulations, every

official meat and poultry establishment will be required to develop and

implement HACCP, a science-based process control system designed to

improve the safety of meat and poultry products. Establishments will be

responsible for developing and implementing HACCP plans incorporating

the controls necessary and appropriate to produce safe meat and poultry

products. Consequently, establishments, not FSIS, will be responsible

for determining whether the nonfood compounds and proprietary

substances they use are safe and effective.

By terminating the prior approval program for nonfood compounds and

proprietary substances and discontinuing publication of the List, FSIS

will be able to redirect resources to better implement inspection under

the HACCP regulations. FSIS will maintain, however, a small staff with

expertise in nonfood compounds and proprietary substances. That staff

will keep abreast of developments in this sector of chemical

manufacturing, maintain liaison with outside organizations that have an

interest in the area, and issue technical guidance, particularly to

small meat and poultry plants, from time to time, as circumstances

dictate.

FSIS will, of course, continue to require that meat and poultry

products be neither adulterated nor misbranded through the misuse of

proprietary additives and nonfood compounds. Enforcement activities in

this regard will include, but are not limited to: organoleptic

inspection of establishment premises and product; sampling for chemical

residues as necessary; review of establishment records, including

sanitation standard operating procedures, HACCP plans, and the use

directions, pest control certifications, and other materials furnished

to establishments by chemical manufacturers and suppliers; and requests

for formulation information from chemical manufacturers themselves. In

light of this, FSIS anticipates that establishments considering

purchasing and using nonfood compounds and proprietary substances will

demand formulation and other information from chemical manufacturers as

part of their decision-making in the private marketplace. Manufacturers

failing to provide such information could expect to lose their market

share.

FSIS already has proposed to eliminate regulatory requirements for

prior approval of certain nonfood compounds and proprietary substances

in FSIS Docket No. 96-037P, ``Sanitation Requirements for Official Meat

and Poultry Establishments'' (62 FR 45045; August 25, 1997). In that

document, the Agency has proposed to clarify and consolidate the

sanitation requirements for meat and poultry establishments, eliminate

unnecessary differences between those regulations, make the existing

sanitation regulations more compatible with the HACCP and sanitation

Standard Operating Procedures (SOP) requirements, and convert command-

and-control requirements to performance standards. As part of this

comprehensive revision, FSIS proposed to eliminate the sanitation

regulations that require certain equipment, processes, and nonfood

compounds be approved by FSIS prior to use in meat or poultry

establishments (contained in 9 CFR parts 308 and 381, subpart H).

Compounds and substances currently requiring prior approval under the

sanitation regulations include pesticides used in meat establishments

(Sec. 308.3 (h)); disinfectants for implements used in dressing

diseased meat carcasses (Sec. 308.8 (b)); and germicides, insecticides,

rodenticides, detergents, and wetting agents used in poultry

establishments (Sec. 381.60).

Compliance with Executive Order 12866

This action has been reviewed for compliance with Executive Order

12866. As this action is determined to be significant for purposes of

Executive Order 12866, the Office of Management and Budget has reviewed

it. FSIS has estimated that the adoption of this action is likely to

generate net social benefits.

Executive Order 12866 requires identification and, if possible,

quantification and monetization of incremental benefits and costs of

this action. FSIS has identified two types of incremental benefits in

the form of avoidance of costs that are currently being incurred by

chemical manufacturers/distributors and by FSIS. These benefits are

discussed below.

First, the action would eliminate the requirement that the chemical

manufacturers file applications and obtain approval for nonfood

compounds and proprietary substances prior to use. As stated above,

FSIS receives between 16,000 and 20,000 applications per year. The

economic burden of requesting FSIS approval of nonfood compounds and

proprietary substances includes the administrative, mailing, and labor

costs associated with preparing the required Agency forms. FSIS

estimates that it takes about 25 minutes to prepare each submission.

Assuming an hourly earnings rate of $20-$25 for each person preparing

requests for prior approval, the annual economic burden is between

$150,000 and $187,000. The elimination of this burden associated with

the adoption of the proposed action would, therefore, translate into an

incremental benefit of $150,000 and $187,000.

Second, FSIS incurs considerable costs in processing and approval

or disapproval of the products. FSIS could re-allocate these resources

to better implement the new HACCP requirements. One measure of this

allocative efficiency is the amount of savings in administrative costs

if FSIS were to eliminate the approval/disapproval program without

redirecting resources to administration of the performance-based

standards. The value of this allocative efficiency could not, however,

be quantified because of uncertainty and unavailability of the required

data. The required budgetary data overlap with the data for other

regulatory functions of FSIS.

To sum up, the value of incremental benefits of the proposed action

could be monetized only partially and amounts to $150,000 to $187,000

per year.

Social Costs

The incremental benefits of the proposed action need be compared

with the incremental social costs to obtain the net social benefit (if

the benefits exceed the costs) or the net social cost (if the costs

exceed the benefits). FSIS has identified two types of social costs.

The first type of social cost is the additional marketing expense that

would be incurred by the industry. Currently, the industry is not

required to incur much of this expense, because, as noted earlier,

inclusion of the industry's products in FSIS's List serves as a

marketing tool. After FSIS discontinues publication of the List, the

chemical industry might have to develop additional methods to advertise

and publicize its products for marketing. These marketing expenditures

would represent incremental costs to society. Ideally, these costs

should be quantified and juxtaposed against the value of incremental

benefits referred to above. Unfortunately, FSIS could not quantify

these costs because currently the industry does not incur these costs

so that the required data are not available.

[[Page 7321]]

The second type of cost item is the expenditure on research

required to develop and test nonfood compounds and proprietary

substances that are demonstrably safe and effective. FSIS anticipates,

however, that the elimination of the FSIS prior approval would not

significantly change these costs. Chemical manufacturers will continue

to be required to demonstrate the safety and efficacy of their products

to FDA, EPA, and/or OSHA, as required. Because FDA, EPA, and OSHA will

review the safety and efficacy of these compounds and substances in

food processing environments, FSIS assumes that chemical manufacturers

will continue to conduct the same sort of research to determine whether

or not their products are safe and effective.

Furthermore, FSIS expects that meat and poultry establishments will

request, as a condition of purchase, that chemical manufacturers

somehow certify the safety and efficacy of their products.

Establishments will keep on file any information provided by chemical

manufacturers (written approvals from other agencies, letters of

guaranty, etc.) as part of sanitation SOP, HACCP, or other records.

FSIS inspectors may ask to review such information if they have

questions about the composition or use of nonfood compounds and

proprietary substances. FSIS anticipates, therefore, that manufacturers

will continue to conduct research on nonfood compounds and proprietary

substances in order to demonstrate their safety and efficacy to meat

and poultry establishments, as well as to Federal Agencies.

It is acknowledged that the chemical manufacturing and distributing

industry's costs of marketing would increase, but such an increase

would bring about greater economic efficiency as it would internalize

their costs by elimination of the external subsidy that was provided by

FSIS. The industry's cost of research and development to demonstrate

safety and efficacy of nonfood compounds and proprietary substances

would not decrease because the industry would be required to continue

this practice to comply with similar requirements by EPA, FDA or OSHA.

Therefore, the only increase in the cost would be the additional

expenditures on marketing the products. Moreover, this cost increase

would be voluntary on the chemical manufacturers and distributors and

would not be required by the proposed action.

Conceptually, it is possible that the value of subsidy provided by

FSIS by publishing the List is greater than the marketing cost to be

incurred by the chemical manufacturers and distributors. This is

because publication of the List increases the value of information

provided to the public at large. Such a provision tends to encourage

entry of newer firms into the meat and poultry industries to compete

with the existing firms. The non-publication of the List would,

therefore, reduce the value of this information and hence reduce the

social benefit. In practice, we could not quantify or monetize the

value of this information to the society at large because of non-

availability of data.

Net Social Benefits

FSIS believes that the incremental costs of marketing would be less

than the incremental benefits identified and monetized above. These

benefits include the benefits to the industry in the form of savings

from the expenses of avoiding the economic burden of mailing and filing

the Agency forms. Furthermore, the internalization of marketing costs

by the firms in the industry would bring about a more competitive

industry where product prices would more accurately reflect the

marginal costs of production. The current system of publishing the List

is tantamount to subsidization of the industry by FSIS. This subsidy

brings about inefficiencies in the industry. Adoption of the proposed

action would remove this subsidy and bring about a more competitive and

efficient industry. A competitive industry is more likely to bring

about greater product innovations in the chemical industry to ensure

safer meat and poultry products. Also, the transparency in the chemical

industry where prices reflect marginal costs would enable the chemical

industry to make more informed choices.

To sum up, FSIS believes the incremental benefits are likely to

exceed the incremental costs so that there are net social benefits

associated with the proposed action. Also, the distribution burden of

the incremental costs and benefits is not likely to be inequitable

because, while the marketing costs for chemical manufacturers and

distributors would increase, these businesses would also realize the

benefits of reduced costs of filing forms required for approval of

their products by FSIS.

Compliance with Regulatory Flexibility Act

FSIS certifies that the proposed action will not bring about a

significant economic impact on a substantial number of small entities

in the chemical manufacturing and distribution industry. The costs of

developing and testing their products would not increase because, as

noted earlier, these firms already incur similar development and

testing costs to comply with health and safety requirements of FDA,

EPA, and OSHA. Furthermore, production and distribution of proprietary

substances and nonfood compounds is such a small segment of total

production of these firms that it is not listed separately as a 4-digit

industry in the Standard Industrial Classification (SIC) Manual

published by the Office of Management and Budget (1987). For example,

some of the proprietary substances and nonfood compounds are grouped in

SIC 2842 with over a dozen other products.

FSIS also assures that there will not be any adverse economic

impact on small meat and poultry plants as a result of discontinuation

of publication of the List. This assurance is based on two reasons. As

noted earlier, the manufacturers and distributors of proprietary

substances and nonfood compounds will be required to continue their

research and testing of their products to comply with FDA, EPA, and

OSHA requirements. Small meat and poultry plants would also rely on

documentation submitted by the chemical manufacturers and distributors

to these agencies for meeting of their products. Also, in the long run,

competition should ensure that chemical manufacturers and distributors

maintain or improve the safety and efficacy features of their products

so as to preserve or increase their market shares.

There will be no adverse economic impact on small communities,

cities, and municipalities because these entities are not engaged

either in production or distribution of proprietary substances and

nonfood compounds, or in the meat and poultry products.

Alternatives to the Proposed Action

No Action

FSIS considered continuing the current prior approval program

requirements, i.e., taking no action, but has decided against it

because the prior approval requirements are inconsistent with HACCP,

economically inefficient, and somewhat inequitable. The HACCP

requirements clearly define industry's responsibility for the safety of

meat and poultry products, but provide the industry with greater

flexibility to innovate and to customize their processes to the nature

and volume of their production. The current prior approval requirements

are inconsistent with HACCP and economically inefficient because they

are based on a ``command and control'' regulatory

[[Page 7322]]

system that often fails to provide incentives to entrepreneurs to

innovate new products, processes, and technologies which can result in

safer meat and poultry products. Also, as noted earlier, the

incremental costs of continuing the current system are likely to exceed

the incremental benefits. The existing program is inequitable because

it imposes the same amount of administrative burden on small and large

chemical manufacturers and distributors; the relative burden is greater

on small plants because, unlike large size plants, they cannot spread

the costs over a larger quantity of output.

User Fees

FSIS considered the alternative of setting up a system of user fees

charged to chemical manufacturers and distributors to cover the costs

of approval or disapproval of the products. FSIS did not propose this

alternative for several reasons. One is that the incremental costs of

setting up such a system would probably exceed the incremental

benefits. The incremental costs of this alternative would include the

costs of setting up an administrative system of user charges for over

100,000 proprietary substances and nonfood compounds. The user fees

should recover the total costs of administration of the program. These

costs cannot be identified, let alone quantified, making it virtually

impossible to set up a structure of user fees.

Alternatively, the user fees could be based on the value of

benefits to the firms in the industry or to society at large. This

approach would require quantification of the benefits. As noted above,

only a small part of the benefits to chemical manufacturers and

distributors could be quantified, so that this amount would fail to

cover comprehensive costs of the program.

Finally, FSIS did not propose this alternative because the Agency

does not have legislative authority to levy user charges to recover the

costs of such a program. Although the Agricultural Marketing Service

(AMS) has authority to levy user fees, it is not responsible for

ensuring the safety of meat, poultry, and egg products. The

Agricultural Reorganization Act of 1994 (Public Law 103-354)

consolidated food safety responsibility with respect to these products

under FSIS. Therefore, AMS is unlikely to be suitable to administer a

user fee-funded program with a food safety objective.

Prior Approval by Third Parties

FSIS considered the feasibility of allowing industry recognized,

non-government organizations or laboratories to test and certify

nonfood compounds and proprietary substances for safety and efficacy.

Chemical manufacturers could voluntarily submit samples of their

products to third-party organizations, or qualified independent

laboratories (e.g., Underwriters Laboratories) for testing and

consequent approval or disapproval. The theoretical rationale for this

option is that competing firms in compliance with the standards or

exceeding them would have ample incentive to publicize the fact that

their product(s) are approved by third party organizations and/or

independent laboratories.

However, FSIS sees several disadvantages to this alternative.

First, there is the potential for conflict of interest. For example, a

laboratory testing and approving nonfood compounds and proprietary

substances for a particular chemical manufacturer could be testing

other products for that same manufacturer; hence there could be a

perception that, to maintain its business, it would readily approve the

proprietary substances and nonfood compounds.

Second, the complexity of the task of approving 16,000 to 20,000

products per year would probably require numerous laboratories

specializing in different substances; the economies of scale associated

with a standardized testing and rating system would not be realized.

Finally, the incremental costs of the approval/disapproval process

to the laboratory or organization would likely exceed the incremental

benefits of revenues from the fees earned by the laboratory

organization, unless the fees were set so high that they covered the

total costs plus a reasonable profit. If the fees were set too high,

they could drive many small and marginal manufacturers and distributors

of proprietary substances and nonfood compounds out of the market. Such

an outcome would render this industry less competitive.

Nevertheless, FSIS specifically requests comments on whether an

industry-recognized, non-government organization or laboratory could

provide prior approval or a similar service to chemical manufacturers

and distributors of nonfood compounds and proprietary substances. It is

possible that a centralized, technically expert, third party could play

an effective role in facilitating the marketing and appropriate use of

nonfood compounds and proprietary substances. Economic theory suggests

that, where the primary users and beneficiaries of a Federal service

are a relatively circumscribed group, that group should bear the cost

of the service. Therefore, FSIS requests comments on whether prior

approval should be provided by a non-government agency, what type of

prior approval system that would be appropriate and feasible within a

user fee system, and whether interest in obtaining such a service is

sufficient to support its costs.

Conclusion

In conclusion, FSIS is eliminating its prior approval program for

nonfood compounds and proprietary substances. This prior approval

program is somewhat redundant with the reviews performed by other

Federal agencies and inconsistent with FSIS's HACCP regulations. FSIS

is requesting comment on possible alternatives to its prior approval

program for nonfood compounds and proprietary substances, including the

feasibility of industry-recognized, non-government organizations or

laboratories providing prior approval or similar services to chemical

manufacturers .

Done in Washington, DC, February 4, 1998.

Thomas J. Billy,

Administrator, Food Safety Inspection Service.

[FR Doc. 98-3725 Filed 2-12-98; 8:45 am]

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