[Federal Register: October 23, 2002 (Volume 67, Number 205)]
[Rules and Regulations]
[Page 65011-65016]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23oc02-1]
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[[Page 65011]]
DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Part 250
RIN 0584-AD08
Codification of Poultry Substitution and Modification of
Commodity Inventory Controls for Recipient Agencies
AGENCY: Food and Nutrition Service, USDA.
ACTION: Final rule.
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SUMMARY: This rule amends USDA's Food Distribution Program regulations.
The rule has two distinct parts. The first part of the rule allows
limited poultry substitution and full substitution of all other
commodities except for beef and pork. The second part of the rule
reduces current commodity recordkeeping and reporting requirements for
some local level recipient agencies, such as schools.
The Department has operated a demonstration project program since
Feb. 1, 1996, which has allowed commercial poultry to be substituted
for commodity poultry in processing. Substitution of most donated foods
with commercial foods has always been permitted under current
regulations. Current regulations provide a list of 16 commodities that
may be substituted without the prior approval of the Food and Nutrition
Service (FNS). Any other commodity, except for meat and poultry, may be
substituted with the prior written approval of FNS under 7 CFR Sec.
250.30(f)(4) of the current regulations. Required Certified Public
Accountant (CPA) audits have not shown any significant problems with
these substitution options. No substitution of inferior or non-domestic
product has been identified. Therefore, this rule amends the
regulations to allow limited poultry substitution, with a substitution
plan approved by both FNS and Agriculture Marketing Service (AMS)
grading; and full substitution for all other commodities except for
beef and pork, on a permanent basis, without prior written approval
form FNS.
Secondly, because of changes in the commercial market and the food
donation programs, USDA has tested the effects of allowing vendors to
use commercial labels on some commodity products purchased for schools.
Commercial labeling had already been introduced in other USDA food
donation programs with good results. However, commercial labels
complicate the current inventory procedures that require commodity
inventories to be kept separate from purchased inventories. Therefore,
FNS is amending the current inventory requirements for USDA's Child
Nutrition Programs in order to accommodate the use of commercial labels
on some commodity products.
EFFECTIVE DATE: This rule is effective November 22, 2002.
FOR FURTHER INFORMATION CONTACT: Suzanne Rigby, Chief, Schools and
Institutions Branch, Food Distribution Division, Food and Nutrition
Service, U.S. Department of Agriculture, 3101 Park Center Drive,
Alexandria, Virginia 22302-1594, or telephone (703) 305-2644.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule has been determined to be not significant for
purposes of Executive Order 12866 and, therefore, has not been reviewed
by the Office of Management and Budget.
Regulatory Flexibility Act
This rule has been reviewed with regard to the requirements of the
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). The
Administrator of the Food and Nutrition Service has certified that this
action will not have a significant impact on a substantial number of
small entities. State agencies, school food authorities and schools
choosing to utilize this new method of inventory control will be
affected. However, the majority of entities participating in the Food
Distribution Programs will not be affected.
Public Law 104-4
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.
L. 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA, the
Food and Nutrition Service generally must prepare a written statement,
including a cost-benefit analysis, for proposed and final rules with
``Federal mandates'' that may result in expenditures to State, local,
or tribal governments, in the aggregate, or to the private sector, of
$100 million or more in any one year. When such a statement is needed
for a rule, section 205 of the UMRA generally requires the Food and
Nutrition Service to identify and consider a reasonable number of
regulatory alternatives and adopt the least costly, more cost-effective
or least burdensome alternative that achieves the objectives of the
rule.
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, and tribal
governments or the private sector of $100 million or more in any one
year. Thus, this rule is not subject to the requirements of sections
202 and 205 of the UMRA.
Executive Order 12372
The program addressed in this action is listed in the Catalog of
Federal Domestic Assistance under No. 10.550, and is subject to the
provisions of Executive Order 12372, which requires intergovernmental
consultation with State and local officials (7 CFR part 3015, subpart
V, and final rule-related notices published at 48 FR 29114, June 24,
1983, and 49 FR 22676, May 31, 1984).
Paperwork Reduction Act
Information collection requirements associated with the commodity
processing program are approved under 0584-0293. This rule deletes the
requirement for schools to maintain a dual inventory control system.
Although the current inventory control requirements represent a burden
on schools, estimated at 1.8 million hours annually for recipient
agencies, this burden was not identified to or approved by the Office
of Management and Budget. Therefore, deleting the
[[Page 65012]]
burden requires no change to 0584-0293.
Allowing the limited substitution of donated poultry with
commercial poultry significantly streamlines the manufacturing process
for processors and allows recipients to receive end products on a
timely basis. However, this rule does not relieve the processor from
any of the current reporting or record keeping requirements contained
in the regulations. Therefore, no changes are required to the current
burden hours shown in 0584-0293.
Executive Order 12988
This final rule has been reviewed under Executive Order 12988,
Civil Justice Reform. The rule is intended to have preemptive effect
with respect to any State or local laws, regulations or policies which
conflict with its provisions or which would otherwise impede its full
implementation. This rule is not intended to have retroactive effect.
There are no administrative procedures that must be exhausted prior to
any judicial challenge to the provisions of this rule or the
applications of its provisions.
Background
The Food Distribution Program regulations (hereinafter all
references to regulations in this rulemaking are to regulations in
Title 7 of the Code of Federal Regulations unless indicated otherwise),
beginning at Sec. 250.3 and continuing through Sec. 250.30, set forth
the terms and conditions under which distributing agencies,
subdistributing agencies, and recipient agencies may enter into
contracts with commercial firms for the further processing of donated
foods.
On February 21, 2002, the Department published a proposed rule in
the Federal Register (67 FR 7977) that would (1) Amend the Food
Distribution regulations to allow limited substitution of poultry
products consistent with the demonstration project in effect since
1996; (2) make fruits, vegetables, and eggs eligible to be substituted
under the 100 percent yield concept without prior approval from FNS;
and (3) eliminate the requirement for recipient agencies to maintain
inventory records for USDA purchased commodities separate from other
food inventory. The proposed rule provided a 60-day comment period.
This final rule implements these provisions while incorporating some of
the changes suggested in the public comments on the proposed rule.
Analysis of Comments
The Department received written comment from 82 different entities
consisting of distributing agencies, recipient agencies, processors,
consultants, and various interest groups. Forty-three commenters
generally supported the proposed changes to the regulations. Thirty-
three commenters generally opposed the proposed changes to the
regulations. Six commenters only offered suggestions to improve the
final rule.
a. Poultry Substitution
Fifteen commenters on poultry substitution, all participants in the
demonstration project in either processing or distributing, cited their
ability to have end products delivered ``just in time'' for use in the
meal service as a positive reason to support the proposed regulations.
Thirteen commenters saw savings in the costs associated with storing
commodities. Five commenters believe poultry substitution made
inventory procedures at commercial distributors more manageable. Four
commenters believe that competition increased among poultry processors.
Two recipient agency commenters cited increased participation in the
school lunch program because they could now show consistency between
commodity and commercial end products.
Of the 33 commenters opposed to the proposed changes to the
regulation, 19 opposed specific proposed changes regarding poultry
substitution. However, not one commenter opposed the general concept of
poultry substitution. Ten commenters believe that the proposed changes
were too vague. They also believe that the Department did not furnish
sufficient poultry substitution guidelines in the proposed rule. Four
commenters on this provision believe that the proposed regulations lack
clarity. The Department has considered the suggestions made by these
commenters and has provided further detail for poultry substitution in
both the preamble and regulatory text of this final rule.
Seven commenters regarding poultry substitution believe that the
Department had dropped the requirement that any commercial food item
substituted for commodity product be of U.S. origin. Three commenters
stated that the ``Buy American'' provisions of Sec. 250.23 are
addressed in the Child Nutrition Program (CNP) regulations at Sec.
210.21(d) and do not need to be a part of the part 250 regulations. The
Department became aware of the purported omission of a U.S. origin
requirement in the proposed rule during the comment period and publicly
indicated on the Food Distribution website that this requirement still
applies. The applicability of this requirement for substitution is
reemphasized in this final regulation. Although ``Buy American'' is
discussed in the CNP regulations, those regulations specifically
address only school food authorities. Numerous other types of recipient
agencies rely on the part 250 regulations for their guidance.
Therefore, this rule amends the proposed language of Sec. 250.23 to
make clear the Department's intent to have all recipient agencies ``Buy
American'' whenever possible.
Five commenters suggested that the Department clarify the
definitions of ``full substitution'' and ``limited substitution.'' The
Department agrees with these commenters and has included definitions of
these terms in Sec. 250.3, Definitions, as subparagraphs under the
definition of ``substitution.''
Three commenters believe that the Department should include
detailed penalties for processors who fail to comply with the
regulation. The Department believes that sufficient penalties are
already described in the regulations.
Five commenters regarding poultry substitution believe the
Department should publish data to support its assertion that the
poultry demonstration projects merit a regulatory amendment to make
this practice permanent. The public has been on notice for the last six
years regarding the demonstration project to explore poultry
substitution. During that period, prior to the publishing of the
proposed rule to make the poultry substitution option permanent, the
Department did not receive any written comment either for or against
poultry substitution as defined in the demonstration project. However,
during numerous public meetings over the same six years, the Department
was continually encouraged by recipient agencies, processors, and State
distributing agencies to make the poultry substitution option
permanent. The Department does acknowledge that some of its pilot
projects in more recent years have caused some reporting problems for
both the processor and the recipients. These issues will be addressed
as processors file the final substitution plans required under this
rule change with FNS and AMS. The pilot programs were designed to test
different ways of doing business in the commodity program and are a
separate issue from poultry substitution.
b. Inventory Recordkeeping Changes
The Department received thirty-seven comments specifically
addressing the changes to the proposed commodity inventory and
recordkeeping
[[Page 65013]]
requirements. Seventeen of the commenters indicated that the proposed
changes would reduce paperwork for recipient agencies so that they
could keep only one inventory record rather than one record for
commodity foods and one record for purchased or commercial foods.
Twenty commenters opposed the proposed changes to the inventory
recordkeeping regulations. However, the Department believes that the
discussion of a commercial labels demonstration project in the preamble
of the proposed rule may have confused those commenters. It appears
that all 20 of the negative commenters were expressing opposition to
the use of commercial labels rather than the proposed regulation
change. Of the 20, 11 represent recipient agencies that were opposed to
the commercial labels because of the visual difficulty in separating
them from purchased items. It is assumed that this opposition would not
exist once the commenters understood that the proposed regulation would
eliminate the need for recipients to keep separate inventory records.
Three comments expressed concerns that distributors might substitute
commodity products with commercially labeled products of lesser
quality. However, the Department believes that the disincentives for
substituting inferior product far outweigh any possible perceived
financial gain from such a substitution. Three commenters expressed
concerns about identifying commodity foods to be used in Presidentially
declared disasters when the commodities are not recorded separate from
purchased foods. Three commenters expressed concerns about tracking
commodities with commercial labels in a recall situation or when
registering a product complaint. FNS has already issued guidance for
both supplying foods to disaster situations and for handling
commodities in a recall or complaint situation.
Some commenters suggested that the Department provide guidance to
recipient agencies for implementing any new procedures resulting from
the change in inventory requirements. The Department intends to provide
additional guidance and technical assistance as needed.
One commenter suggested that the Department identify specific types
of recipient agencies for which the change is intended. The provisions
contained in this rule relative to inventory and recordkeeping
requirements are applicable to local-level recipient agencies
participating in the National School Lunch Program, Child and Adult
Care Food Program, the Nutrition Services Incentive Program, the Summer
Food Service Program for Children, and other recipient agencies, such
as charitable institutions and summer camps, that receive commodities
outside of specifically authorized programs. They are not applicable to
recipient agencies participating in the Emergency Food Assistance
Program (TEFAP) under part 251, Food Distribution Program on Indian
Reservations (FDPIR) under parts 253 and 254, or the Commodity
Supplemental Food Program (CSFP) under part 247. Local level
organizations involved in the administration of these programs are, by
definition, subdistributing agencies and, therefore, remain subject to
the inventory and recordkeeping requirements contained in part 250,
except where the provisions in part 250 are inconsistent with the
provisions contained in regulations specific to these programs. For
example, recordkeeping requirements have been relaxed for food pantries
and soup kitchens under part 251, the Emergency Food Assistance Program
(TEFAP) regulations. However, since food packages containing specific
types of commodities must be distributed monthly to eligible households
participating in CSFP and FDPIR, and the amount of financial resources
available to purchase such commodities are limited, inventory and
recordkeeping requirements have not been relaxed for these programs. In
addition, inventory and recordkeeping requirements have not been
relaxed for TEFAP recipient agencies that distribute commodities to
other local-level recipient agencies. At this time, FNS is of the
opinion that maintaining current inventory and recordkeeping
requirements at this level is a necessary means of maintaining program
integrity given the manner in which such requirements have been relaxed
at the food pantry and soup kitchen level. The definition of
``subdistributing agency'' in Sec. 250.3 has been revised to clarify
that TEFAP, CSFP, and FDPIR recipient agencies are subdistributing
agencies.
While the provisions contained in this rule are not intended to
affect the administration of TEFAP, CSFP, or FDPIR recipient agencies,
FNS will continue to examine current inventory and recordkeeping
requirements imposed on these agencies, and where appropriate, revise
them.
Changes in the Substitution Regulations
Substitution of donated foods with commercial foods has always been
permitted under current regulations. However, current regulations at
Sec. 250.30(f)(1)(i) provide a list of 16 commodities that could be
substituted without the prior approval of FNS. Any other commodity,
except for meat and poultry, could be substituted with the prior
written approval of FNS under Sec. 250.30(f)(4) of the current
regulations. The Department is amending the regulations at Sec.
250.30(f) to allow full substitution in the further processing of all
commodities except for beef, pork, and poultry without prior written
approval from FNS. Any substitution of fully substitutable commodities
is subject to a 100-percent yield requirement. As requested by
commenters on the proposed rule, a description of ``full substitution''
has been added to Sec. 250.3, as a subparagraph under the definition
of ``substitution''. Under the 100-percent yield concept, the processor
is responsible for all manufacturing losses. The processor must return
to the contracting agency the same number of pounds of the commodity in
finished end product that were delivered to the processor for further
processing. Any commercial product substituted for donated commodity
must be of U.S. origin and of equal or better quality than the donated
commodity. Substitution remains an option available to processors.
The Department is also amending the regulations at Sec. 250.30(f)
to allow the limited substitution of commercial bulk pack poultry and
poultry parts for USDA donated bulk pack poultry and poultry parts on a
permanent basis. Limited substitution means that a processor can
substitute commercial product for donated commodity product with some
restrictions. Restrictions include, but are not limited to, the
prohibition against substituting for backhauled commodity product. FNS
may also prohibit substitution of certain types of the same generic
commodity. (For example, FNS may decide to permit substitution for bulk
chicken but not for canned chicken.) As requested by commenters on the
proposed rule, a description of ``limited substitution'' has been added
to Sec. 250.3, as a subparagraph under the definition of
``substitution''. Substitution is an option available to the processor,
not a mandatory practice. Any substitution of commercial poultry or
poultry parts for commodity poultry or poultry parts must be performed
using poultry of U.S origin that is equal or superior in every
particular to the USDA specification for commodity poultry.
Processors will need to submit a poultry substitution plan to FNS
and AMS for approval. Once approved, the plan will be permanent. Any
proposed
[[Page 65014]]
changes to the procedures that are addressed in the plan would require
submission of a revised plan and approval by USDA before
implementation.
The following general conditions apply to all poultry substitution
plans: Only bulk pack chicken, chicken parts, and bulk pack turkey
delivered by USDA vendors to the processor will be eligible for
substitution. No backhauled product will be eligible. (Backhauled
product is typically cut-up frozen poultry parts delivered to schools
that may be turned over to processors for further processing at a later
time.) Substitution of commercial poultry for donated poultry may occur
in advance of the actual receipt of the donated poultry by the
processor. Should a processor choose to use the substitution option
prior to the commodity being purchased by the USDA, the processor
assumes all risks. Any variation between the amount of commercial
poultry substituted and the amount of donated poultry received by the
processor will be adjusted according to guidelines furnished by USDA.
Any donated poultry not used in end products because of
substitution can only be used by the processor at one of its facilities
in other commercial processed products. It cannot be sold as an intact
unit. In lieu of processing the donated poultry, however, the processor
may use the product to fulfill other USDA contracts awarded for
delivery to another processor provided all terms of the other contract
are met. The substitution plan must contain (1) A step-by-step
description of how production will be monitored; (2) a complete
description of the records that will be maintained for (a) the
commercial poultry substituted for the donated poultry, and (b) the
disposition of the donated poultry delivered; and (3) how the
substitution will be tracked for the purpose of monthly reporting to
the State distributing agencies. As with the processing of donated
poultry into end products, AMS graders must monitor the processing of
any substituted commercial poultry to ensure that program integrity is
maintained.
Changes in the Inventory Control Regulations
Beginning in 1996, the Department piloted the use of commercial
labels in place of USDA labels on commodities supplied to the Emergency
Temporary Assistance Program. The use of commercial labels was also
permitted on some price-support products that are provided to the
National School Lunch Program. The pilot has demonstrated excellent
benefits for recipient agencies including reduced delivery delays,
increased competition, and reduced program costs. In addition, the
project has helped eliminate a perceived stigma implied by the
``generic'' USDA labels.
However, using commercial labels has made it difficult for
recipients to distinguish between donated commodities and commercially
purchased items in order to comply with the current regulatory
requirement to inventory donated commodities separately. These Federal
requirements for inventory of donated commodities have always been more
stringent than the Federal requirements for foods that have been
purchased using Federal reimbursement dollars from the National School
Lunch Program. It is recognized that schools currently must use
generally accepted inventory and business management practices in order
to safeguard commercially purchased products and maintain the financial
integrity of their child nutrition operations. Therefore, during the
period November 2000 to June 2001, the Department tested a procedure in
two States that allowed schools to inventory commodity foods along with
purchased foods. Anecdotal evidence from these States suggests that
this procedure was well received and beneficial.
For these reasons, the Department has determined that requirements
in part 250 for separate inventory maintenance of donated commodities
by recipient agencies are redundant and more onerous than necessary to
safeguard the value of commodities received by schools. Therefore, the
Department is amending the regulations at Sec. 250.13(a) to require
that recipient agencies use specific guidance to be provided by the
Food and Nutrition Service to value commodities for the purpose of OMB
Circular A-133, and at Sec. 250.14(b), Sec. 250.14(e), and Sec.
250.14(f)(1) and (f)(2) to remove the requirement that ``recipient
agencies'' inventory USDA donated food separately. A technical
amendment has also been made in Sec. 250.14(c) to improve sentence
structure. Section 250.14(e) is revised to reduce physical inventory
requirements for recipient agencies in this section. State warehouses,
State contracted commercial warehouses, and subdistributing agencies
continue to be required to maintain separate inventories of donated
commodities. They also are required to continue to perform annual
physical inventories and reconciliation of donated commodities.
List of Subjects in 7 CFR Part 250
Administrative practice and procedure, Food assistance programs,
Grant programs, Social programs, Indians, Reporting and record keeping
requirements, Surplus agricultural commodities.
Accordingly, 7 CFR part 250 is amended to read as follows:
PART 250--DONATION OF FOODS FOR USE IN THE UNITED STATES, ITS
TERRITORIES AND POSSESSIONS AND AREAS UNDER ITS JURISDICTION
1. The authority citation for part 250 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 612c, 612c note, 1431, 1431b,
1431e, 1431 note, 1446a-1, 1859, 2014, 2025; 15 U.S.C. 713c; 22
U.S.C. 1922; 42 U.S.C. 1751, 1755, 1758, 1760, 1761, 1762a, 1766,
3030a, 5179, 5180.
2. In Sec. 250.3:
a. Revise the definition of Subdistributing agency; and
b. In the definition for Substitution, remove ``; or'' at the end
of paragraph (a) and add in its place a period and add new paragraphs
(c) and (d).
The revision and additions read as follows:
Sec. 250.3 Definitions.
* * * * *
Subdistributing agency means an agency performing one or more
distribution functions for a distributing agency other than, or in
addition to, functions normally performed by common carriers or
warehousemen. A subdistributing agency may also be a recipient agency.
State and local agencies, and Indian Tribal Organizations administering
the Emergency Food Assistance Program, the Food Distribution Program on
Indian Reservations, or the Commodity Supplemental Food Program, are
subdistributing agencies subject to all provisions relative to
subdistributing agencies contained in this part, unless specifically
exempt under part 251, part 253, part 254, or part 247 of this chapter.
* * * * *
Substitution * * *
(c) A processor can substitute commercial product for donated
commodity, as described in paragraph (a) of this section, without
restrictions under full substitution. The processor must return to the
contracting agency, in finished end products, the same number of pounds
of commodity that the processor originally received for processing
under full substitution. This is the 100-percent yield requirement.
(d) A processor can substitute commercial product for donated
commodity product, as described in paragraph (a) of this section, with
some
[[Page 65015]]
restrictions under limited substitution. Restrictions include, but are
not limited to, the prohibition against substituting for backhauled
poultry commodity product. FNS may also prohibit substitution of
certain types of the same generic commodity. (For example, FNS may
decide to permit substitution for bulk chicken but not for canned
chicken.)
* * * * *
3. In Sec. 250.13 add a new sentence at the end of paragraph
(a)(5) to read as follows:
Sec. 250.13 Distribution and control of donated foods.
(a) * * *
(5) * * * For purposes of complying with OMB Circular A-133, Audits
of States, Local Governments, and Non-Profit Organizations on inventory
valuation, recipient agencies shall comply with guidance provided by
the Food and Nutrition Service. (For availability of OMB Circulars
referenced in this paragraph (a), see 5 CFR 1310.3.)
* * * * *
4. In Sec. 250.14:
a. Remove the word ``Stock'' at the beginning of paragraph (b)(4)
and add in its place the words ``Excepting recipient agencies, stock'';
b. Remove the word ``Conduct'' from the beginning of the third
sentence in paragraph (c) and add in its place the word ``conduct'',
and remove the period at the end of the second sentence;
c. Revise paragraph (e);
d. Remove the words ``or recipient agency's'' in paragraph (f)(1)
introductory text and add in its place the word ``agency's''; and
e. Remove the words ``and recipient agencies'' in the second
sentence of paragraph (f)(2).
The revision reads as follows:
Sec. 250.14 Warehousing, distributing and storage of donated foods.
* * * * *
(e) Physical inventory. During the annual review required by
paragraph (c) of this section, distributing agencies and
subdistributing agencies shall take a physical inventory of their
storage facilities. The physical inventory shall be reconciled with
each storage facility's book inventory. The reconciliation records
shall be maintained by the agency that contracted for or maintained the
storage facility. Food items that have been lost, stolen, or found to
be out of condition, shall be identified and recorded. Potential
excessive inventory, as described in paragraph (f) of this section,
shall be reported by the subdistributing agency to the distributing
agency. Corrective action on each deficiency noted during these
inventories shall be initiated immediately, and a written report of
those corrective actions shall be forwarded to the distributing agency.
Where applicable, the distributing agency shall pursue claims in
accordance with Sec. 250.15(c).
* * * * *
5. In Sec. 250.16, revise paragraph (a)(2) to read as follows:
Sec. 250.16 Maintenance of records.
(a) * * *
(2) Distributing agencies shall require all subdistributing
agencies to maintain accurate and complete records with respect to the
receipt, distribution/disposal, and inventory of donated foods,
including end products processed from donated foods. Subdistributing
agencies and recipient agencies must document any funds that arise from
the operation of the distribution program, including refunds made to
recipient agencies by a processor in accordance with Sec. 250.30(k).
Further, these documents should allow an independent determination of
the specific accounts that benefit from these funds.
* * * * *
6. In Sec. 250.23, revise paragraph (a)(2) to read as follows:
Sec. 250.23 Buy American.
(a) * * *
(2) A food product manufactured in the U.S. primarily using food
grown in the U.S.
* * * * *
7. In Sec. 250.30:
a. Revise paragraph (f)(1) introductory text;
b. Remove paragraph (f)(1)(i) and redesignate paragraph (f)(1)(ii)
as paragraph (f)(1)(i); add a new paragraph (f)(1)(ii);
c. Revise newly redesignated paragraph (f)(1)(i);
d. Remove the words ``specifically listed in paragraph (f)(1)(i) of
this section'' in the second sentence of paragraph (f)(2);
e. Remove the words ``by the Agricultural Stabilization and
Conservation Service (ASCS) in the original inspection of donated
foods'' in the fourth sentence of paragraph (f)(2) and add in their
place the words ``in the original USDA procurement specification'';
f. Remove paragraph (f)(4) and redesignate paragraph (f)(5) as
paragraph (f)(4); and
g. Amend the introductory text of paragraph (g) by adding a
sentence after the second sentence.
The revisions and additions read as follows:
Sec. 250.30 State processing of donated foods.
* * * * *
(f) * * * (1) The processing contract may provide for substitution
of donated foods as defined in Sec. 250.3 except that donated beef and
donated pork shall not be substitutable. Any substitution of commercial
product for commodities other than beef, pork, or poultry is subject to
a 100-percent yield requirement. Under the 100-percent yield
requirement, the processor is responsible for any manufacturing losses.
(i) All components of commercial foods substituted for any donated
food must be of U.S. origin and identical or superior in every
particular of the donated food specification. Records must be
maintained to allow independent verification that the substituted food
meets the above condition.
(ii) Poultry shall be eligible for limited substitution. Any
processors that wish to substitute poultry must have a plan approved by
both FNS and AMS. Only bulk pack chicken, chicken parts, and bulk pack
turkey delivered by USDA vendors to the processor are eligible for
substitution. No backhauled poultry product may be substituted.
(Backhauled product is typically cut-up frozen poultry parts delivered
to schools that may be turned over to processors for further processing
at a later time.) Should a processor want to amend its approved plan,
it shall submit any amendments to USDA for approval prior to
implementing such amendments.
(A) Substitution of commercial poultry may occur in advance of the
actual receipt of the donated poultry by the processor. Should a
processor choose to use the substitution option prior to the commodity
being purchased by the USDA, the processor shall assume all risks. Any
donated poultry not used in end products because of substitution shall
only be used by the processor at one of its facilities in other
commercially processed products and cannot be sold as an intact unit.
However, in lieu of processing the donated poultry, the processor may
use the commodity product to fulfill other USDA contracts awarded for
delivery to another processor provided all terms of the other contract
are met. Any variation between the amount of commercial poultry
substituted and the amount of donated poultry received by the processor
shall be adjusted according to guidelines furnished by USDA.
[[Page 65016]]
(B) The substitution plan shall contain a step-by-step description
of how production will be monitored; a complete description of the
records that will be maintained for the commercial poultry substituted
for the donated poultry and the disposition of the donated poultry
delivered; and how the substitution will be tracked for the purpose of
monthly reporting to the State distributing agencies. Poultry
substitution shall not be subject to the 100-percent yield requirement;
however, the AMS Grading Service must verify processing yields. Should
a processor choose to have all production of a specific end product,
identified by name and product code, produced under AMS grading, then
the label ``Contains Commodities Donated by the United States
Department of Agriculture. This Product Shall Only Be Sold to Eligible
Recipient Agencies'' shall not be required. Finished poultry end
products that have not been produced under AMS grading supervision may
not be substituted for finished commodity end products.
* * * * *
(g) * * * As with the processing of donated poultry into end
products, AMS graders must monitor the processing of any substituted
commercial poultry to ensure that program integrity is maintained. * *
*
* * * * *
Dated: October 16, 2002.
Roberto Salazar,
Administrator, Food and Nutrition Service.
[FR Doc. 02-26874 Filed 10-22-02; 8:45 am]
BILLING CODE 3410-30-P
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