00-5166. Fee Increase for Egg Products Inspection-Year 2000

AGENCY:

Food Safety and Inspection Service, USDA.

ACTION:

Proposed rule.

SUMMARY:

The Food Safety and Inspection Service (FSIS) is proposing to increase the fees FSIS charges egg products plants for providing overtime and holiday inspection services. These proposed fee increases reflect the total cost of inspection, including the national and locality pay raise for Federal employees, applicable overhead costs, and other inspection costs. FSIS is proposing to make the fee increases effective thirty days after the final rule is published. The Agency is also proposing to delete the reference to regulations governing the voluntary grading of eggs.

DATES:

Comments must be received by May 2, 2000.

ADDRESSES:

Submit one original and two copies of written comments to FSIS Docket Clerk, Docket #99-012P, U.S. Department of Agriculture, Food Safety and Inspection Service, Room 102, Cotton Annex, 300 12th Street, SW., Washington, DC 20250-3700. All comments submitted in response to this proposal 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:

For information concerning policy issues, contact Daniel 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, [phone], fax number [phone].

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, [phone].

SUPPLEMENTARY INFORMATION:

Background

The Egg Products Inspection Act (EPIA) (21 U.S.C. 1031 et seq.), provides for the inspection of egg products by Federal inspectors at official plants. Federal inspection protects the health and welfare of consumers by assuring that egg products are wholesome, not adulterated, and properly labeled and packaged.

The Agricultural Marketing Service (AMS) was responsible for administering the EPIA from its enactment in 1970 until 1995. At that time, the Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354; 7 U.S.C. 6981) delegated food safety responsibilities to the Under Secretary of Agriculture for Food Safety. The Department subsequently revised its regulations to transfer egg product inspection functions under the EPIA to FSIS. AMS retained those functions related to the shell egg surveillance program. The regulations governing the inspection of eggs and egg products (9 CFR part 590) were transferred to Part 9 of the Code of Federal Regulations on December 31, 1998 (63 FR 72352).

The cost of mandatory inspection (excluding such services performed on holidays or on an overtime basis) is borne by FSIS. However, plants pay for inspection services performed on holidays or on an overtime basis. There has not been a change in overtime and holiday fees for egg products inspection services since the transfer of program functions from AMS to FSIS in May 1995. AMS established and implemented the current fees in November 1994. These fees reflect only the direct costs of inspection at that time and are insufficient to recover FSIS's current costs for delivery of inspection service.

In order to recover the full cost of inspection, FSIS is proposing overtime and holiday fees for egg products inspection services that are the same as overtime and holiday fees for meat and poultry inspection.

In its analysis of projected costs for January 1, 2000 to September 30, 2000, FSIS has identified increases in the costs that it will incur in providing overtime and holiday inspection services. Based on its analysis, FSIS is proposing to amend § 590.126 of 9 CFR to increase the fee for providing overtime inspection services from $26.16 per hour per program employee to $39.76 per hour per program employee. For holiday services, FSIS proposes to amend § 590.128(a) to increase the fee from $17.44 per hour per program employee to $39.76 per hour per program employee. Although these proposed fee increases are large, they reflect the total cost of inspection, including national and locality pay raises for Federal employees, applicable overhead costs, and other inspection costs. The current fees and the proposed increases are reported in Table 1.

Table 1.—Current and Proposed Fees for Overtime and Holiday Inspection Services

Service ($/hr.)	Current	Proposed
Overtime Inspection Services	26.16	39.76
Holiday Inspection Services	17.44	39.76

The proposed fees are based on the full Agency cost for meat, poultry and egg products inspection services (Table 2). These costs are then divided by the total hours of inspection to obtain the hourly rate. FSIS intends to charge egg products establishments requesting overtime and holiday inspection services the same rate charged meat and poultry establishments for these services. Table 2 shows salary, overhead, and other inspections costs for FY 98 and the added inflation and Federal pay increase used to obtain the total amount from which the proposed rates are derived. Overhead costs are the indirect costs for administration and management associated with providing inspection services. Other inspection costs include direct costs for travel and laboratory support costs associated with inspection services.

Table 2.—Components of Proposed Fee—Agency Inspection Costs

Component	$Thousand	Percent
Direct Salaries	57,242	56.86
Inflation and Pay Increase	7,951	7.91
Overhead	22,197	22.05
Other Inspection Costs (Travel and Laboratory Support	13,282	13.17
Total	100,671	100

Beginning with the Federal fiscal year 2001, which starts October 1, 2000, FSIS intends to review annually its fees for overtime and holiday egg products inspection services to allow for necessary adjustments on a fiscal year basis. The fiscal year approach is an accepted accounting principle and will facilitate more consistent and timely proposals to adjust fees and assist the Agency and affected industry to plan for these fee adjustments.

The Agricultural Marketing Act of 1946, as amended, provides the authority for collection of fees approximately equal to the cost of voluntary egg grading programs. Therefore, AMS retains the responsibility of changing the fees set out in the regulations governing the grading of eggs (7 CFR Part 55). FSIS is proposing to amend 9 CFR 590.130 to delete the reference to regulations governing the collection of fees associated with the voluntary grading of eggs.

Executive Order 12866 and Regulatory Flexibility Act

Because this proposed rule has been determined to be not significant, the Office of Management and Budget (OMB) did not review it under Executive Order 12866.

The Administrator, FSIS, has determined that this action will not have a significant economic impact, as defined by the Regulatory Flexibility Act (5 U.S.C. 601), on a substantial number of small entities. There are 73 egg products firms, and all but 5 would be classified as small on the basis of the Small Business Administration size definitions (having under 100 employees in a stand-alone establishment or under 500 employees in an in-line establishment).

FSIS believes that the small plants in the egg products industry would not be affected adversely by the fee increases provided for because they reflect only a small increase in the costs currently borne by those entities that elect to use overtime and holiday inspection services. These holiday and overtime inspection services are generally sought by plants with larger production volume, greater complexity and diversity in the products they produce, and the need for on time delivery of large volumes of product by their clients—generally large commercial or institutional establishments. Plants with smaller production are unlikely to use a significant amount of overtime and holiday inspection services. FSIS expects that plants seeking FSIS services are likely to have calculated that the incremental costs of overtime and holiday inspection services would be less than the incremental expected benefits of additional revenues they would realize from additional production.

Economic Effects

Under the proposed fees, the Agency expects to collect nearly $2.5 million in revenues for FY 2000, compared to the $1.5 million under current fees. The total volume of U.S. egg product production in 1998 was 3.2 billion pounds. The increase in cost per pound of product associated with the overtime and holiday fee increase is $0.0003. Even in a competitive industry like egg products, this amount of increase in annual production costs, if firms choose to use the service, would have an insignificant impact on profits and prices. The increase in costs per firm would be about $13,700. On average, this would not be a significant increase in annual production costs given the volume of production. Egg product firms produce an average of 44.3 million pounds of product annually.

Table 3.—Revenues for Inspection Services

Current	Proposed
$Thousand
1,482	2,460

The industry is also likely to pass through a significant portion of the fee increase to consumers because of the inelastic nature of the demand curve facing these firms. Research has shown that consumers are unlikely to significantly reduce demand for meat and poultry products, including egg products, when prices increase. Huang estimates that demand would fall by .36 percent for a one percent increase in price (Huang, Kao S., A Complete System of U.S. Demand for Food. USDA/ERS Technical Bulletin No. 1821, 1993, p.24). Because of this inelastic nature of demand and the competitive nature of the industry, individual firms are not likely to experience any change in market share due to an increase in inspection fees.

Executive Order 12988

This proposed rule has been reviewed 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 590.320 through 590.370 must be exhausted prior to any judicial challenge of the application of the provisions of this proposed rule, if the challenge involves any decision of an FSIS employee relating to inspection services provided under the EPIA.

Additional Public Notification

Public awareness of all segments of rulemaking and policy development is important. FSIS provides a weekly FSIS Constituent Update 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 than would be otherwise possible. For more information or to be added to the constituent fax list, fax your request to the Congressional and Public Affairs Office, at [phone].

List of Subjects in 9 CFR Part 590

• Eggs and egg products
• Exports
• Food labeling
• Imports

Accordingly, FSIS proposes to amend 9 CFR Part 590 as follows:

PART 590—INSPECTION OF EGGS AND EGG PRODUCTS (EGG PRODUCTS INSPECTION ACT)

1. The authority citation for part 590 continues to read as follows:

Authority: 21 U.S.C. 1031-1056.

2. Section 590.126 is revised to read as follows:

§ 590.126

Overtime inspection service.

When operations in an official plant require the services of inspection personnel beyond their regularly assigned tour of duty on any day or on a day outside the established schedule, such services are considered as overtime work. The official plant must give reasonable advance notice to the inspector of any overtime service necessary and must pay the Agency for such overtime at an hourly rate of $39.76.

3. Section 590.128(a) is revised to read as follows:

§ 590.128

Holiday inspection service.

(a) When an official plant requires inspection service on a holiday or a day designated in lieu of a holiday, such service is considered holiday work. The official plant must, in advance of such holiday work, request the inspector in charge to furnish inspection service during such period and must pay the Agency for such holiday work at an hourly rate of $39.76.

* * * * *

§ 590.130

[Amended]

4. Section 590.130 is amended by removing the last sentence.

Done in Washington, DC on: February 28, 2000.

Thomas J. Billy,

Administrator.