Fee Increase for Meat and Poultry Inspection Services

DEPARTMENT OF AGRICULTURE

Food Safety and Inspection Service

9 CFR Part 391

[Docket No. 99-045F]

Fee Increase for Meat and Poultry Inspection Services

AGENCY: Food Safety and Inspection Service, USDA.

ACTION: Final rule.

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

the fees that FSIS charges meat and poultry establishments, importers,

and exporters for providing voluntary inspection services, overtime and

holiday inspection services, identification services, certification

services, and laboratory services. These fee increases reflect the

increased cost of inspection, the national and locality pay raise for

Federal employees (proposed 4.8 percent effective January 2000), the

increased laboratory costs, and the applicable travel and operating

costs. The fee increases will be effective January 1, 2000. At this

time, FSIS is not amending the fee for the Accredited Laboratory

Program.

EFFECTIVE DATE: January 1, 2000.

FOR FURTHER INFORMATION CONTACT: For information concerning policy

issues, contact Daniel L. Engeljohn, Ph.D., Director, Regulations

Development and Analysis Division, Office of Policy, Program

Development, and Evaluation, FSIS, U.S. Department of Agriculture, Room

112, Cotton Annex, 300 12th Street, SW., Washington, DC 20250, (202)

720-5627, fax number (202) 690-0486.

For information concerning fee development, contact Michael B.

Zimmerer, Director, Financial Management Division, Office of

Management, FSIS, U.S. Department of Agriculture, Room 2130-S, 1400

Independence Avenue, SW., Washington, DC 20250, (202) 720-3552.

SUPPLEMENTARY INFORMATION:

Background

On November 10, 1999, FSIS published a proposed rule (64 FR 61223)

to increase the fees that FSIS charges meat and poultry establishments,

importers, and exporters for providing voluntary inspection services,

overtime and holiday inspection services, identification services,

certification services and laboratory services. FSIS provided 30 days

for public comment, ending the comment period on December 10, 1999.

FSIS received one comment from a Canadian firm in response to the

proposal. The concerns raised by the commenter addressed inspections

performed by the Animal and Plant Health Inspection Service, and

therefore, do no fall within the scope of this rulemaking.

The Federal Meat Inspection Act (FMIA) and the Poultry Products

Inspection Act (PPIA) provide for mandatory inspection by Federal

inspectors of meat and poultry slaughtered or processed at official

establishments. Such inspection is required to ensure the safety,

wholesomeness, and proper labeling of meat and poultry. The cost of

mandatory inspection (excluding such services performed on holidays or

on an overtime basis) is borne by FSIS.

In addition to mandatory inspection, FSIS provides a range of

voluntary inspection, certification, and identification services for

meat and poultry. Under the Agricultural Marketing Act of 1946, as

amended (7 U.S.C. 1621 et seq.), FSIS provides these services to assist

in the orderly marketing of various animal products and byproducts not

subject to the FMIA

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or the PPIA. These services include the certification of technical

animal fats and the inspection of exotic animal products. FSIS is

required to recover the costs of voluntary inspection, certification,

and identification services.

FSIS also provides certain voluntary laboratory services that

establishments or others may request FSIS to perform. The cost of these

services, which are provided under the Agricultural Marketing Act of

1946, must be recovered by FSIS. Laboratory services are provided for

four types of analytic testing. These are: Microbiological testing,

residue chemistry tests, food composition tests, and pathology testing.

FSIS is making final the proposed regulations by amending 9 CFR

391.2 to increase the base time fee for providing meat and poultry

voluntary inspection, identification, and certification services from

$37.00 per hour per program employee to $37.88 per hour per program

employee (an increase of 2.38%). FSIS is also amending Sec. 391.3 to

increase the rate for providing meat and poultry overtime and holiday

inspection services from $36.84 per hour per program employee to $39.76

per hour per program employee (an increase of 7.93%). Additionally,

FSIS is amending Sec. 391.4 to increase the rate for meat and poultry

laboratory services from $50.88 per hour per program employee to $58.52

per hour per program employee (an increase of 15.02%).

The increase in base time and overtime and holiday time rates is

proportional to the salary increase and the inflation index rate

recommended by the Office of Management and Budget for overhead costs

(applicable travel and operating costs). The increase in laboratory

services relative to the other two fees is due to (1) an increase in

the direct costs of laboratory services and (2) a decrease in the hours

of activity. The lower the usage, the higher the fee, because there are

less hours over which to distribute the overhead costs.

To recover the increased costs in an expeditious manner, the

Administrator has determined that these amendments should be effective

less than 30 days after publication in the Federal Register. Therefore,

the fee increases will be effective January 1, 2000.

Executive Order 12866 and Regulatory Flexibility Act

Because this final rule has been determined to be not significant,

it was not reviewed by the Office of Management and Budget (OMB) under

Executive Order 12866.

The Administrator, FSIS, has determined that this action will not

have a significant economic impact on a substantial number of small

entities as defined by the Regulatory Flexibility Act (5 U.S.C. 601).

The fee increases provided for in this document reflect a small

increase in the costs currently borne by those entities which elect to

utilize certain inspection services voluntarily. These voluntary

services are generally sought by larger establishments because of

larger production volume or because of greater complexity and diversity

in the products they produce; the small establishments do not seek

these services perhaps because they cannot afford them. Therefore, the

small establishments are not likely to be affected adversely by the

increases.

The extent of incremental adverse impact is estimated from the

percentage increases in base time and overtime and holiday rates. The

increase in base time rate from $37.00/hour to $37.88/hour amounts to

2.38 percent. The overtime and holiday services rate from $36.84 to

$39.76 amounts to 7.93 percent or about 8 percent. These increases are

consistent with similar increases in wages and overtime rates in the

private sector. For example, according to the Bureau of Labor

Statistics web site, the average wage, including overtime, in the

poultry slaughtering and processing industry (SIC 2015) increased by

about 5 percent (from $344.73 per week in July 1998 to $361.70 in July

1999). The average hourly wage, excluding the overtime rate, increased

by 4 percent during the same period. The increase in laboratory fees of

15.02 percent (from $50.88/hour to $58.52/hour) reflects an increase in

the direct cost of these services to FSIS, coupled with lower usage by

industry.

The economic impact of the increase in the fees on small businesses

in the meat and poultry industries would depend on the structure of

these industries. Data from the U.S. Bureau of the Census, Survey of

Industries, 1994, indicate that the meat industry is dominated by small

firms and establishments relative to the poultry industry. For example,

based on the U.S. Small Business Administration's (SBA) definition of

small business by the number of employees (fewer than 500), 96 percent

of 1,226 firms comprising the meat industry (SIC 2011) are small.

Similarly, 90 percent of individual meat establishments or plants in

this industry are small. In 1994, these small businesses accounted for

19 percent of total employment in this industry. Their share of payroll

was 18 percent of the total payroll of $2.777 billion and their

revenues were 16 percent of the total revenues of $55.814 billion. In

contrast, the poultry industry is comprised of relatively larger firms

and establishments. For example, 51 percent of 567 establishments in

this industry are large, according to the SBA definition. This industry

has 332 firms with 207,875 workers and a payroll of $3.5 billion. The

estimated revenue of this industry amounted to $27.111 billion in 1994.

FSIS believes that the small establishments in the meat and poultry

industry will not be affected adversely by the increases in the fees

for four reasons. First, the fee increases are voluntary so that the

establishments do not have to seek the services of FSIS inspector

program personnel. Second, establishments that seek FSIS services are

likely to have calculated that the incremental costs of voluntary

inspection services would be less than the incremental expected

benefits of additional revenues they would realize from additional

production. Third, the industry is likely to pass through the costs to

consumers without significantly losing its market because price

elasticity of demand for meat and poultry is inelastic. For example,

Huang (1993) analyzed demand for meats and other products containing

meat and poultry. Huang concluded that the price elasticity was -0.36,

i.e., an increase in price of meat or poultry products by one percent

would be associated with a decrease in its demand by only 0.36 percent.

(Huang, Kao S., A Complete System of U.S. Demand for Food. USDA/ERS

Technical Bulletin No. 1821, 1993, p.24). In short, consumers are

unlikely to reduce their demand for meat and poultry significantly when

meat or poultry prices are increased by a few pennies a pound. Finally,

the supply of beef and poultry products is likely to be very price

elastic because, as noted above, there are hundreds of firms in these

industries. Any single producer cannot raise the price of its products

without losing its market share significantly.

Executive Order 12988

This final rule has been reviewed by FSIS under Executive Order

12988, Civil Justice Reform. This rule: (1) Preempts State and local

laws and regulations that are inconsistent with this rule; (2) has no

retroactive effect; and (3) does not require administrative proceedings

before parties may file suit in court challenging this rule. However,

the administrative procedures specified in 9 CFR 306.5 and 381.35 of

the FMIA and PPIA regulations, respectively, must be exhausted prior to

any judicial challenge of the application of the provisions of this

final rule, if the challenge involves any decision of an

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FSIS employee relating to inspection services provided under the FMIA

or PPIA.

Additional Public Notification

Public awareness of all segments of rulemaking and policy

development is important. Consequently, in an effort to better ensure

that minorities, women, and persons with disabilities are aware of this

final rule, FSIS will announce it and provide copies of this Federal

Register publication in the FSIS Constituent Update. FSIS provides a

weekly FSIS Constituent Update, which is communicated via fax to over

300 organizations and individuals. In addition, the update is available

on line through the FSIS web page located at http://www.fsis.usda.gov.

The update is used to provide information regarding FSIS policies,

procedures, regulations, Federal Register notices, FSIS public

meetings, recalls, and any other types of information that could affect

or would be of interest to our constituents/stakeholders. The

constituent fax list consists of industry, trade, and farm groups,

consumer interest groups, allied health professionals, scientific

professionals, and other individuals that have requested to be

included. Through these various channels, FSIS is able to provide

information to a much broader, more diverse audience. For more

information and to be added to the constituent fax list, fax your

request to the Congressional and Public Affairs Office, at (202) 720-

5704.

List of Subjects in 9 CFR Part 391

Fees and charges, Government employees, Meat inspection, Poultry

products.

PART 391--FEES AND CHARGES FOR INSPECTION AND LABORATORY SERVICES

1. The authority citation for part 391 continues to read as

follows:

Authority: 7 U.S.C 138f; 7 U.S.C. 394, 1622 and 1624; 21 U.S.C.

451 et seq.; 21 U.S.C. 601-695; 7 CFR 2.18 and 2.53.

2. Sections 391.2, 391.3, and 391.4 are revised to read as follows:

Sec. 391.2 Base time rate.

The base time rate for inspection services provided pursuant to

Secs. 350.7, 351.8, 351.9, 352.5, 354.101, 355.12, and 362.5 shall be

$37.88 per hour per program employee.

Sec. 391.3 Overtime and holiday rate.

The overtime and holiday rate for inspection services provided

pursuant to Secs. 307.5, 350.7, 351.8, 351.9, 352.5, 354.101, 355.12,

362.5 and 381.38 shall be $39.76 per hour per program employee.

Sec. 391.4 Laboratory services rate.

The rate for laboratory services provided pursuant to Secs. 350.7,

351.9, 352.5, 354.101, 355.12 and 362.5 shall be $58.52 per hour per

program employee.

* * * * *

Done in Washington, DC on December 21, 1999.

Thomas J. Billy,

Administrator.

[FR Doc. 99-33667 Filed 12-27-99; 8:45 am]

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