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Federal Food Market

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The Government spends about $4.6 billion annually in the food market. As noted earlier, the Government also regulates the industry through measures designed to prevent disease, improve sanitation, establish quality standards, and raise quality levels.

Federal regulatory provisions have evolved over more than 60 years. State and local laws have been enacted to accomplish similar objectives. Until recently the growth of these programs was not coordinated, but in the last decade increasing attention has been given to cooperative Federal-State efforts. These efforts recognize the State's ability to handle regulatory and inspection functions when State laws establish standards equal to, or stricter than, those established at the Federal level. Using Federal funding to supplement the State funds, the State's inspection activities can be improved, with the potential for eliminating duplicate effort.

As there is no standard procedure for Federal agencies to report purchases by commodity, the exact amount the Government spends on food is indeterminable. The figures in table 1 of food procurement by Federal agencies are program managers' estimates and contain some duplication where interagency support is used for procurement or distribution. TABLE 1. FEDERAL ACQUISITION OF FOOD,

FISCAL 1971

(Millions of dollars) Department of Defense

2,468 Department of Agriculture

1,998 Veterans Administration General Services Administration Department of Justice Department of Health, Education, and Welfare Department of Commerce Department of Labor Department of Transportation (Coast Guard) Department of the Interior Office of Economic Opportunity Total

4,624 Source: Study Group 13A computation from agency responses.

In the Department of Defense (DOD), the $2.5 billion includes $734 million for troop issue and $1.7 billion for commissary resale. Federal food purchases for agency consumption and donation to non-Federal organizations totaled $2.9 billion (as noted in fig. 2, supra).

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Figure 2

hearings, and writings by industry, agencies, and GAO preceded our review. Therefore, the Commission decided to limit its effort to an analysis of data readily available, to make field visits to become familiar with the industry, and to perform cost studies to compare operational concepts. Results of the cost studies are in Chapter 6.

A review of basic legislation is essential to an understanding of the interrelationships among Federal agencies relating to specifications, standards, quality assurance, distribution policies, and procurement techniques. Food legislation is the result of efforts by many congressional committees to resolve specific problems as they arose, and there is no coordinated legislative policy for uniform application by executive agencies.

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continue toward this goal between the two largest Federal food purchasing agencies.

The Department of Agriculture (USDA) buys food for several purposes:

• Market stabilization • Nutritional improvement programs for schools, institutions, and the needy • Surplus removal • Foreign aid • Forest Service fire camps and similar activities.

Distribution Systems

Marketing Coordination

Because DOD and USDA are the two major food purchasers, they can adversely affect each other's programs. Timing of the purchases of similar items can affect the market price of all Government procurements. Commodities procured by one agency can result in a shortage for another.

Attempts have been made by the two agencies to coordinate the accomplishment of their respective missions. To date, coordination consists of informal liaison between commodity specialists of the two agencies; this arrangement was recognized in writing in 1966.20 DOD specialists receive notice of USDA market actions three to four weeks in advance of formal announcements. The Defense Personnel Support Center (DPSC) is pleased with this notification and regards it as a definite asset to its operations.

DSA headquarters 21 cited continuing efforts to achieve further coordination. It recognizes the potential role of DOD in stabilizing prices in the domestic food market, and on the advice of USDA buys items in plentiful supply and does not buy items in short supply. However, lack of acquisition system flexibility and responsiveness reduces the effectiveness of this coordination. DOD stock purchases of food are based on a 120-day leadtime from requisitions developed to satisfy menu requirements. Except for purchases through the commercial distribution system, this long leadtime reduces opportunities to use large DOD purchases for market stabilization purposes. Efforts should

The food industry probably operates the largest and most widespread commodity distribution system. The size, scope, and commodity commonality of the commercial system have made it one of the most competitive. As a result, the options available to provide food at the point of need are almost unlimited. In this environment, every Federal activity that buys food for its own use or for use outside the Government should evaluate commercial distribution alternatives in order to optimize procurement economy and efficiency. The distribution systems currently used by the various agencies do not adequately consider total economic cost.

DOD is the largest user of Federally procured foods and uses a combination of systems to fill requirements that range from troop feeding to commissary resale. Most DOD food procurement is for resale items bought by commercial description. With the exception of some local call contracts for perishables, troop issue acquisition systems historically have considered volume purchases as the primary principle, with quality controlled by detailed specifications. This concept requires elaborate research laboratories, specification libraries, and Government distribution systems. Since the troop issue portion of the total food market is very small, competition in this special market is reduced to those processors willing to comply with DOD procedures and conditions.

Apart from the problems with specifications and contract terms discussed elsewhere in this report, some problems arise because of specific statutory requirements. Federal contracts over $10,000 require adherence to the Walsh-Healey Public Contracts Act,22 which imposes wage and labor standards on contractors. Food that is not produced using these labor standards cannot be sold to the Government, although less expensive but equally wholesome food produced under other Federal statutory standards is sold commercially. Statutory exemptions of the act permit:

20 Memorandum from the U.S. Department of Agriculture, Office of the Secretary, to the Defense Personnel Support Center, Feb. 11, 1968.

21 Briefing on “Foods" presented to Study Group 13A by the Defense Supply Agency, May 25, 1971.

22 41 U.S.C. 35-45 (1970).

• Purchases of commercial items usually bought in the open market • Purchases of perishables, including dairy, livestock, and nursery products • Purchases of agricultural or farm products placed for first sale by the original producer • Purchases of agricultural commodities by USDA.

DOD's largest food program is the call-contract program for brand-name merchandise used by all military activities in the commissary resale program. These multiple-award contracts are controlled centrally by the Defense Personnel Support Center of DSA. The contracts, called Supply Bulletins, are made with packers and producers and provide for direct delivery to the installation by means of delivery orders placed by the installation contracting officer. The prices in the bulletins are negotiated, but the negotiations are limited to review and acceptance of proposed price lists, with the determination of reasonableness based on incorporation in the bulletin of a price warranty provision. The price warranty provision commits the supplier to furnishing these brandname items to the destination point at prices that are as favorable as those charged to any other customer under the same delivery conditions. Since there are probably no other customers that procure these commodities under the same conditions, the price warranty clause is of limited value. A review was made of the prices being paid under the Supply Bulletins with those that would be available to installations if they were authorized to procure the same items through various alternatives provided by the commercial distribution system. The results of this survey are outlined in Chapter 6. With few exceptions, a station probably can negotiate a tailored delivery system contract for food products on more favorable terms than those currently available through the Supply Bulletins. One of the advantages of the current centralized call-contract program is that standard prices prevail within an area for all activities regardless of the volume purchased. This may be a marginal advantage from the standpoint of total cost since the contract system is mandatory and there is no

cost information available regarding alternative methods of acquisition.

In addition to the alternatives currently available for acquisition of food for delivery to the point of need, other alternatives also are available that may include total processing costs, including food preparation and serving. DOD currently is testing this concept at an installation in the Washington, D.C. area under a contract that costs $2.93 per man per day.22 Under this arrangement, a food service contractor procures all the food, prepares it, serves it, and washes the dishes. This method is used by the Coast Guard and Merchant Marine Academies and on a limited scale by other Federal agencies. In the case of DOD, it cannot be easily determined if this alternative is cost-effective compared with the traditional method of military distribution and preparation, since there are no current statistics on what it costs DOD to provide a meal at the table. The pricing of the contract food service method is by the meal, provided in accordance with a predetermined menu that includes flexibility for customer preference. Between the extremes of total food distribution servicing by a military activity and a full food service contract, some of the services have chosen to contract for one or more steps such as food preparation, cooking, and kitchen police service. These contractual arrangements probably result more through necessity due to lack of available military personnel to perform the services than from an economic analysis of various alternatives.

The second largest food buyer in the Government is USDA. Except for food procured by the Forest Service, the USDA food acquisition program is for distribution to activities outside the Government. These programs range from commodities provided to schools, needy persons, and nonprofit institutions, to those made available through the Agriculture Trade Development and Assistance Act of 1954 24 for foreign sale or donation. As in the case of DOD, USDA choice of commodity distribution systems disregards total economic cost. The basic reason for ignoring the economics of alternative distribution systems is the traditional principle of acquiring the commodities in large lots as close as possible to the point of production in order to further a socioeconomic program of price stabilization. In our review of distribution systems, we did not analyze the basis for the programs, but examined program effectiveness specifically regarding procurement and distribution.

23 U.S. Department of the Army, Fort Myer, Virginia, Latex Food Service Supply Contract Test Program. Contract Number DABG 13-71-C-00115.

68 Stat. 454: 7 U.S.C. 1704 and 1721 (1970).

In supplying food products to schools and institutions, USDA draws from Government depots and procures for direct delivery. These commodities are distributed to States rather than to the final recipient. Various methods are used by the States in redistribution. Some States have their own distribution system, some use commercial distribution, and some have arrangements with USDA for multilocation delivery to recipients. USDA adapts to State distribution systems. A firm of management consultants recently analyzed the redistribution aspects of the program for USDA.25 Except for data identified in the cited report, the costs of the redistribution program are not available or considered in the method of acquisition. Costs of delivery of products to the first destination are carefully considered in the USDA award process, which has been computerized for least-cost determination. In fact, USDA was the only agency visited that used ADP techniques in evaluating delivery alternatives for award.

The largest civilian agency user, the Veterans Administration (VA), buys more than two-thirds of its food requirements locally. Only 325 items are procured for depot distribution in addition to medical items. These items are procured in carload quantities to take advantage of the low combined freight rates. VA was the only agency visited that considered total economic cost in selecting its methods of procurement and distribution.

Commission, in April 1955, recommended that the Federal agencies adopt uniform specifications for food products.26 Little progress has been achieved in the 17 years that have elapsed since that recommendation was made. GSA, when it was established in 1949, was given the oversight responsibility for establishing uniform food specifications. DOD, by agreement with GSA, retained the right to prepare and to use Military Specifications for food procurements.

GSA delegated to USDA the responsibility for the preparation of Federal food specifications. As a matter of policy, GSA circulates the USDA-proposed Federal Specification to all other affected procuring agencies (about 15) and to the agencies having statutory responsibilities for food inspection, such as the Food and Drug Administration, Public Health Service, and the National Oceanic and Atmospheric Administration. DOD coordinates on these Federal Specifications and supplements them with Military Specifications. We were advised by the Army Natick Laboratories that from 20 to 25 percent of the food industry contributes to the development of Military Specifications in the areas of product characteristics, production practices, and the relationship of specification requirements to product functions and performance.

Because a food specification must satisfy such a diverse number of interests, of necessity it becomes a wide umbrella encompassing the whole spectrum of characteristics that identify the product. For example, a specification usually includes the gamut of grades, style of pack, class, variety, point of origin, size, and kind of containers and packaging materials. Hence, the purpose of definitively describing a single product in a single specification is defeated.

Many times a specification is promulgated that results in excessive cost to the taxpayer because to conform with it a production line must be changed. This occurs when a Government specification is substantially different from that used in regular commerce. Usually such a specification is designed to conform with some particular requirement established by a using agency that has little understand

Specifications

Food specifications are the most unusual and confusing of all the Federal specifications in the procurement system. The Second Hoover

25 A. T. Kearney and Company, Inc., A Study of the Distribution of Donated Food Commodities, conducted for the U.S. Department of Agriculture, Food and Nutrition Service, June 3, 1971.

28 U.S. Commission on Organization of the Executive Branch of Government, Final Report, June 1955.

ing or experience with how the commodity is produced. The requirement could very well be valid, as in the case of menu planning and portion control, but to conform with it may require the supplier to use different production or packaging techniques.

Many times overly rigid Government specifications are applied to food products without regard to the end use. These specifications tend to (1) limit competition, (2) increase cost unnecessarily, (3) reduce the quality of the end product, and (4) increase the labor required to prepare the product.

ernment are engaged in the inspection of subsistence (food) for their own procurement, for regulatory purposes, or as a service to industry. The Department of Agriculture inspects for wholesomeness all meat and poultry entering interstate commerce. It also inspects and grades agricultural commodities for quality as a voluntary service to industry and consumers, or in connection with Government procurement or price support operations. The Department of Interior operates a similar program for fishery products. The Department of Defense inspects food acquired for troop feeding, commissaries, and military assistance programs. The Public Health Service collaborates with State and local health agencies in programs for the inspection of fresh milk products and shellfish.29

Federal Food Inspection

Food Imports

The inspection of food products is performed in accordance with Federal laws, regulations, voluntary programs, and contract provisions. The responsibility for administering the inspection requirements has been placed in several agencies and is a significant and demanding factor in the food acquisition programs of these agencies.

The legislation - that put the Government in the food inspection business was enacted as a result of Upton Sinclair's book, The Jungle, published in 1906. This book focused the attention of the American people on the unwholesomeness of the meat then being produced. In 1906, Congress also enacted legislation concerning the adulteration and misbranding of food products.?“ Both laws required inspection but only for food products involved in interstate commerce. These laws placed inspection mandates on USDA for wholesomeness of meat and on FDA for adulteration and misbranding of all foods, including meat. It took from 1906 through 1967, a period of 61 years, before Government inspection of meat processing plants used in intrastate commerce became mandatory.

Federal agency food inspection activity is summarized in the introduction to a document prepared for the Industrial College of the Armed Forces:

A number of agencies of the Federal Gov

About $15 billion is spent each year by consumers on food imports.:Many of these food items are acquired by the Federal agencies for troop issue or resale in commissaries or they enter the country as "brand-name” products of U.S. companies. Jurisdiction over the inspection of imported food is split between FDA and USDA. USDA inspects food manufacturing and processing plants in foreign countries for meat and poultry products only. This is a quality assurance program inspection and is not a continual day-to-day inspection as is the inspection of U.S. meat products. However, FDA has no authority to inspect food product manufacturing or processing plants in foreign countries. FDA's jurisdiction begins at the point of entry to the United States.

29 Blum, Subsistence Inspection Programs of the U.S. Department of Defense and the U.S. Department of Agriculture, a thesis pre sented to the U.S. Industrial College of the Armed Forces, Mar. 31, 1966.

80 U.S. Congress, House, Committee on Interstate and Foreign Commerce, Oversight Hearing on Food Inspection Activities of the Food and Drug Administration, Hearings before the Subcommittee on Public Health and Environment, 92d Cong., 1st sess., statements of Dr. Charles C. Edwards, U.S. Food and Drug Administration, Aug. 3, 1971, p. 37.

37 34 Stat. 1261, 21 U.S.C. 606 (1970).

28 Act of June 30, 1906, ch. 3915, 34 Stat. 768; for current provision, see 21 U.S.C. 331 (1970).

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