How dire?

I have an email into DC to talk about the planned restructuring at AMS Fresh Products Branch, but no word yet. The following numbers are from a federal market financial status report, mailed anonymously to me some time back. For fiscal year 2007, the AMS said that only Philadelphia (+$242,000), St. Louis (+$40,000), Portland (+$34,000) and Hartford, Ct, (+$4,718) - of 36 federal markets - finished "in the black," or had revenues that exceeded obligations.

The federal market offices with the most red ink, according to the fiscal year 2007 financial stats report, were the Bronx (-$396,000), Pittsburgh (-$313,000) Chicago (-$260,000), Dallas (-$218,000) and San Francisco (-$180,000) and Los Angeles (-$174,000).

In her April 4 memo, Skelton did not directly refer to closing offices, but did say there would be reductions in force, early retirement, reduced overtime, reduced travel and decreased refresher training and furloughs. Skelton said 78% of the FPB's operating expenses are salaries and benefits, so that's where most of the cuts are. The cuts will be both at headquarters and in the field offices, she said.

This has got to be a morale-buster at the FPB, particularly with uncertainty still out there about which offices and inspectors could be directly affected. Wasn't the USDA's Fruit and Vegetable Advisory Committee told the 15% annual fee increases for inspections were going to be the way the federal offices would stabilize their budgets and stem the flow of red ink?

Apparently, the word has come down from on high to cut and cut now. Consider that total revenue for fiscal year 2007 for the federal market program was about $15.7 million and obligations were $19.6 million. Cutting $5 million won't be easy.

Skelton: restructuring ahead

A internal memo from Leanne Skelton to Fresh Products Branch staff on April 4 informed inspectors and others of what she called "ongoing, branch-wide restructuring efforts." According to the memo, Skelton said that the branch needs to "permanently reduce operating expenses by at least $5 million" within the year. While the plans ave not been finalized and approved, the wheels are in motion for cutbacks on a large scale. I'll have more coverage of this story as I have a chance to review some of the elements of the memo with AMS and the FPB.

Inspection trends

I had recently requested - and received - some data about USDA Fresh Products Branch inspections from Jimmie Turner, a spokesman at the agency. I will have the chance to take a closer look at that document - and others - that may help provide perspective on the financial standing of the Fresh Products Branch and what that means to the industry. Bottom line, the FPB faces some fiscal challenges in the years ahead, and current financial reserves are estimated at the end of fiscal year 2007 at $10.6 million, or about 6.3 months of operating revenue. Net losses for the FPB federal market program in fiscal year 2007 were estimated at $4.2 million, up from $3.6 million in red ink reported in fiscal year 2006. Hopefully I will get a chance to visit with Bob Keeney, Leanne Skelton and others about their strategic vision for FPB going forward.
This may be addressed at the next USDA Fruit and Vegetable Industry Advisory Committee meeting, which is slated for Jan. 14-15, according to Turner.

A Big hit or many little

TK: The Office of Management and Budget once asked the USDA to consider a one-time hike in destination inspection fees that would have more quickly bridged the gap between revenues and costs. The industry would have screamed foul, but it may have been easier than trying to chain together back-to-back-to-back incremental increases.
From The Packer archives,here is the backstory from a July 2005 industry advisory committee meeting:

ALEXANDRIA, Va. -- Industry fees for federal destination inspections likely will go up faster than anticipated.
The Office of Management and Budget has vetoed a proposal endorsed in 2002 by the Fruit and Vegetable Industry Advisory Committee that recommended a 15% increase on destination inspection fees every other year beginning in 2004, said Leanne Skelton, chief of the Fresh Products Branch for fruit and vegetable programs of the U.S. Department of Agriculture's Agricultural Marketing Service.
Instead, the OMB -- a part of the executive branch of government that evaluates spending -- at first suggested an immediate 47% fee increase was required.
After discussions with AMS officials, OMB has agreed annual fee increases of 15% will be required for fiscal 2006, 2007 and 2008, followed by two more annual increases of 10% before moderating back to 5% increases for fiscal 2011 and 2012.
The current cost of a basic terminal market inspection is $99, Skelton said, but she provided no projected costs in future years.
The fee increase for beyond 2012 is projected at 3% a year, Skelton said.
Fee background: In September 2002, the industry advisory committee recommended that the USDA raise fees for the terminal market inspection service by 15% by 2004, followed by planned increases every other year after that.
That proposal was the least dramatic cost increase of four options presented to the committee at the time by Skelton. Skelton said the USDA conducted rule making on the 2004 fee increase, and the 15% increase was put in place Jan. 15, 2004. The AMS then immediately started on the 2006 increase, because rule making for each fee increase can last about 18 months.
Before 2004, the federal terminal market inspection program received its last fee increase in 1998.
A planned fee increase of 18% was dropped after the 1999 Hunts Point bribery scandal, and Congress appropriated $29 million in 2001 to cover the cost of the program through 2005. That infusion of cash prevented fee increases for several years, because federal rules don't allow fee increases for programs with large surpluses.
Because the USDA rule making involves fees, Skelton said the OMB is required to review the regulations.
The latest review on the 2006 proposed increase raised red flags at the office. According to figures released by Skelton, the income for the fresh products terminal market program was estimated at $15.1 million in fiscal 2005, while its obligations were $20.7 million. The estimated loss for 2005 is $5.6 million, leaving a reserve balance of $16.7 million estimated by the end of the fiscal year.
OMB wanted AMS to close the gap sooner rather than later, Skelton said, and suggested an immediate 47% fee increase.
OMB officials insisted that AMS needed to cover the costs of the program quicker in order to maintain a four month reserve for the terminal market program. OMB suggested the inspection service should consider shutting its doors.
In the end, OMB authorized AMS to go forward with a 15% fee increase for 2006, accompanied by other cost-cutting measures and annual fee increases in subsequent years.
Skelton said the 15% annual increases will get the program back to healthy fiscal levels quicker than the previous plan of 15% increases every other year.

Headline roundup July 5

Pledge of Allegiance Tribute : Red Skelton In honor of July 4, a classic commentary.

U.K. bagged salad recall
From the story passed on by K-State food safety network:

Professor Mike Doyle, director of the University of Georgia’s centre for Food Safety, was quoted as saying, "One of the biggest concerns I have is with fresh cut produce that you buy in a bag and is ready to eat. You open it up and you feel safe eating it, but we have had severe outbreaks associated with these foods. The manufacturers say they have washed it and that you can eat it straight from the bag – to me that means that it should be safe to eat. But what we have learned from all these outbreaks is that it apparently isn’t."It is thought that fresh vegetables, fruit and salads become contaminated with bacteria because they are grown in contaminated soils.In an attempt to cut costs, it is common for some manufacturers to process their produce in the field, further exposing the food to bacteria.And there are concerns that the practice of washing fresh produce in chlorine, to sanitise it, is not effective to kill off the harmful bacteria.


Meet David Acheson - Your stomach's best friend From The Washington Post:

"Spinach picked on Monday is at the processor by Wednesday. It's in the consumer's hands by the following Monday and making them sick three days later. And it's in 40 states," he said. "That's quite daunting in terms of how do you get a handle on that. You don't know what's going on. You don't know if it's a deliberate attack, whether it's coming out of one small field in California or through a processor."
The steep rise in imports, driven in part by U.S. consumers' year-round demand for all kinds of food, complicates matters enormously and may drive the FDA to ask Congress for limited extra authority, Acheson said. But, given the huge array of foods that the FDA regulates, "it would take forever to inspect everything," he said. "You would burn so much money for nothing. It wouldn't buy you any fewer outbreaks or any less illness. It would just buy you a bunch of headaches."
Rather, he said, the FDA needs to focus on the foods and countries that pose the biggest risks, including the newest global players.

Amendments to China's food safety standards completed From China Daily China has made changes to 1,817 national standards for edible agricultural products and processed foods, and abolished 208 standards. Meanwhile, 2,588 standards set by the food industry, 6,949 standards established by local governments, as well as over 140,000 enterprise standards have been amended, according to Liu pingjun, head of the SAC.

Catching up

There is nothing better than feeling like you are caught up with everything. I haven't felt that way in a while, especially since I started this blog. There is always one more call, one more email to process, one more interview to transcribe, one more story to write or one more message to post. Not to mention one life to lead in the meantime.....

What's happening to California's asparagus industry? Growers are understandably bitter that Mexico and Peru are gaining market share while Stockton Delta producers are losing acres, with the full participation of retailers and consumers. While California growers pay their workers $10 per hour, Mexico growers may pay $10 per day. One industry source told me a large grower in the Delta region is taking out 600 acres of asparagus this year. This hasn't happened overnight, so retailers shouldn't be surprised at the reality of escalating import dependence.

Not long ago I chatted with Leanne Skelton and Eric Forman about the reasons why the number of terminal market inspections are declining over a five year period. That is one of the interviews I need to transcribe. Another source I talked to today wondered if the USDA inspection training courses for the industry may be one contributing factor. What do you all think? Are the inspection classes creating more self-reliance in the industry relating to inspections?

Inspection reflections

In a previous post, I mentioned the declining numbers of USDA terminal market inspections and the need for further analysis. I hope to talk to Leanne Skelton about some of those issues later in the week.

Some time ago I was anonymously mailed the FY 2006 year end financial summary of the USDA's Federal-State Inspection Programs for the period Oct. 1, 2005 through Sept. 30 of 2006.


According to that document, the net loss for the federal market program in fiscal year 2006 was $3,675,492, an improvement of sorts from fiscal year 2005, when the federal market program lost $4,683,428.

The budget notes said, "Through the efforts of dedicated staff, continued efficiencies gained through automation, increased efforts in marketing services, and a fee increase, the Federal Market Program is positioned to return to break even financial operating status over the next couple of years."


Net gain (loss) of federal markets in fiscal year 2006
1. Philadelphia $116,913
2. Oklahoma $49,778
3. St. Louis $31,305

TK: and the last three markets:
35. Bronx ($324,549)
36. Chicago ($339,261)
37. Los Angeles ($612,741)


TK: It's tough to play from behind. How can the USDA translate apparently declining numbers of inspections to a break even point, even with gradual fee increases?