[Federal Register Volume 64, Number 128 (Tuesday, July 6, 1999)]
[Proposed Rules]
[Pages 36516-36539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17121]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Parts 16, 101, and 115

[Docket No. 99N-1307]
RIN 0910-AB30


Preliminary Regulatory Impact Analysis and Initial Regulatory 
Flexibility Analysis of the Proposed Rule to Require Refrigeration of 
Shell Eggs at Retail and Safe Handling Labels

Agency: Food and Drug Administration, HHS.

Action: Preliminary regulatory impact analysis and initial regulatory 
flexibility analysis.

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Summary: The Food and Drug Administration (FDA) is publishing both the 
preliminary regulatory impact analysis prepared under Executive Order 
12866 and the initial regulatory flexibility analysis prepared under 
the Regulatory Flexibility Act on the proposed rule (published 
elsewhere in this issue of the Federal Register) to require shell eggs 
to contain safe handling statements and to be stored and displayed 
under refrigeration at 7.2  deg.C when held by retail establishments. 
FDA is issuing the proposed rule because of the large number of 
illnesses and deaths caused by Salmonella enteritidis (SE) associated 
with shell eggs that have not been treated to destroy the pathogen. The 
proposed rule is intended to ensure that consumers will have the 
information necessary to protect themselves from eggs contaminated with 
SE and to ensure that eggs will be held at retail at temperatures that 
discourage pathogen growth.

Dates: Submit written comments on the analysis of the proposed rule by 
September 20, 1999.

Addresses: Submit written comments to the Dockets Management Branch 
(HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, 
Rockville, MD 20852. Comments should be identified with the docket 
numbers found in brackets in the heading of this document.

For Further Information Contact: Clark Nardinelli, Center for Food 
Safety and Applied Nutrition (HFS-726), Food and Drug Administration, 
200 C St. SW., Washington, DC 20204, 202-205-8702.

Supplementary Information:

Table of Contents:

I. Preliminary Regulatory Impact Analysis
    A. Introduction
    B. Failure of the Existing Regime
    C. Regulatory Options
      1. No New Regulatory Action
      2. Labeling Provision Only
      3. Refrigeration Provision Only
      4. Refrigerate at 5  deg.C (41  deg.F)
      5. Implement a HACCP-Style System for Shell Eggs
      6. In-Shell Pasteurization
      7. Longer Compliance Periods
      8. Limit the ``Sell By'' Period
    D. Coverage
      1. Establishments
      2. Products
    E. Benefits
      1. The Shell Eggs and Egg Products Risk Assessment Model
      2. Cases of Salmonellosis Prevented
      3. Health Benefits from Preventing Salmonellosis
      4. Total Health Benefits
      5. Additional Benefits
        a. Reduced Risk From Other Pathogens
        b. Fewer Recalls
      6. Uncertainty of Estimated Benefits
    F. Costs
      1. Types of Establishments Covered
        a. Labeling Provision Coverage
        b. Refrigeration Provision Coverage
      2. Cost Estimates by Requirement and Type
        a. Egg Container Labels
          i. Administrative Costs
          ii. Inventory Disposal Costs
          iii. Label Redesign Costs
          iv. Summary of Costs to Incorporate Safe Handling Labeling
        b. Refrigeration Costs
          i. Equipment Costs to Refrigerate at 7.2  deg.C (45 
deg.F)
          ii. Energy Costs
          iii. Shares of Refrigeration Equipment Costs by Type of 
Establishment
          iv. Comparison with Other Studies of Estimated 
Refrigeration Costs
        c. Changes in Consumer Practices
    G. Summary of Benefits and Costs
II. Initial Regulatory Flexibility Analysis
    A. Introduction
    B. Economic Effects on Small Entities
      1. Number of Small Entities Affected
      2. Costs to Small Entities
    C. Regulatory Options
      1. Exemption for Small Entities
      2. Longer Compliance Periods
    D. Description of Recordkeeping and Reporting Requirements
    E. Worst Case to Small Entities
    F. Summary
III. References
IV. Request for Comments

I. Preliminary Regulatory Impact Analysis

A. Introduction

    FDA has examined the economic implications of the proposed rule as 
required by Executive Order 12866. Executive Order 12866 directs 
agencies to assess all costs and benefits of available regulatory 
alternatives and, when regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety, and other advantages; 
distributive effects; and equity). Executive Order 12866 classifies a 
rule as significant if it meets any one of a number of specified 
conditions, including: (1) Having an annual effect on the economy of 
$100 million, (2) adversely affecting a sector of the economy in a 
material way, (3) adversely affecting competition, or (4) adversely 
affecting jobs. A regulation is also considered a significant 
regulatory action under Executive Order 12866 if it raises novel legal 
or policy issues.
    The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), requiring 
cost-benefit and other analyses, in section 1531(a) defines a 
significant rule as ``a Federal mandate that may result in the 
expenditure by State, local, and tribal governments in the aggregate, 
or by the private sector, of $100 million (adjusted annually for 
inflation) in any 1 year.'' The Small Business Regulatory Enforcement 
Fairness Act of 1996 (Pub. L. 104-121) defines a major rule for the 
purpose of congressional review as having caused or being likely to 
cause one or more of the following: (1) An annual effect on the economy 
of $100 million; (2) a major increase in costs or prices; (3) 
significant effects on competition, employment, productivity, or 
innovation; or (4) significant effects on the ability of U.S.-based 
enterprises to compete with foreign-based enterprises in domestic or 
export markets.
    In the Federal Register of May 19, 1998 (63 FR 27502), USDA and FDA 
published an advance notice of proposed rulemaking (ANPRM) entitled 
``Salmonella Enteritidis in Eggs.'' Among other things, this ANPRM 
solicited public comment on what regulations might be required to 
reduce the public health risk of SE in shell eggs. USDA received 
approximately 73 responses to this ANPRM, each containing one or more 
comments. Responses were received from egg farmers, egg packers, 
associations for the egg industry, other trade associations, consumers, 
consumer interest groups, animal interest groups, academia, State

[[Page 36517]]

government agencies, and foreign government agencies. Included in these 
responses were several comments concerning the economic implications 
raised by the approaches discussed in the ANPRM. One comment suggested 
that FDA consider mandatory sell-by dates, prohibition of re-packaging, 
and mandatory pasteurization of shell eggs intended for at-risk 
consumers (such as residents of nursing homes). Several comments stated 
that in-shell pasteurization was costly; according to one comment, 
pasteurization equipment would cost $1.5 million. Several comments 
stressed the cost and difficulty of placing the safe handling statement 
on egg cartons, which are already crowded with printing. In one 
comment, a carton manufacturer estimated that designing and producing 
new plates for all of its egg cartons would cost about $2 million. One 
comment suggested allowing existing safe handling labels. Several 
comments advocated some form of HACCP for shell eggs. Comments 
regarding the regulatory impact of the proposed rule are addressed 
below.

B. Failure of the Existing Regime

    The proposed rule addresses the handling and preparation of shell 
eggs by retail establishments and consumers, and should reduce the 
illnesses and deaths that can occur from consumption of eggs 
contaminated with SE.
    Private markets operate within the framework of legal institutions. 
The tort system of the common law evolved, in part, to provide remedies 
to injuries suffered in transactions in private markets. Under this 
system, if a defective product injures someone, then the injured person 
may recover damages from the producer of the defective product. The 
recovery of damages requires the injured person to prove that his/her 
injuries were caused by the producer's product. However, regardless of 
the legal theory chosen (negligence, warranty, or strict liability), to 
recover damages the injured person must be able to link his/her injury 
to the specific product of a specific producer.
    In most instances, consumers experiencing illness from food 
consumption do not recognize the illness as foodborne or are unable to 
link the illness to consumption of a particular food. This inability to 
connect illness and food exists because many symptoms do not occur 
immediately after consumption of the product. The proposed rule 
addresses the inability of the tort system to address adequately the 
mishandling of eggs by retailers and the failure to provide consumers 
with information needed to reduce SE-related illnesses.
    The proposed refrigeration provision addresses the possible market 
failure (because illnesses are not easily traced to processors) that 
occurs when eggs are not held at appropriate temperatures at retail and 
consumers are put at greater risk from SE-contaminated eggs. The 
increased risk resulting from SE-contaminated eggs that are not held at 
appropriate temperatures in retail establishments can lead to 
involuntary health effects for consumers who do not know about the 
temperature abuse or do not know about the associated increased risk 
from SE. Indeed, retailers may be as poorly informed as consumers about 
the SE-related health effects from temperature abused eggs. Because 
both retailers and consumers may be ignorant or uncertain about the 
risk, the implicit contract between consumers and retailers does not 
incorporate the potential harm to consumers caused by the hidden health 
risk associated with shell eggs. Furthermore, the uncertainty and 
ignorance may persist about the risk--despite the occurrence of 
illnesses--because of the long time lapse between the purchase of the 
SE-contaminated eggs and the onset of SE-related illnesses.
    By requiring safe handling statements, the proposed rule will 
provide information about the potential adverse health effects of SE-
contaminated eggs. The information will persuade some consumers to 
change potentially risky handling practices and thereby reduce the 
number of illnesses associated with SE in shell eggs. The proposed 
labeling provision helps correct the failure of the existing regime 
that occurs when consumers lack relevant information about the safe 
handling (refrigeration and thorough cooking) of eggs. Because this 
information is associated with a negative characteristic of the 
product, and this negative characteristic is not easily differentiated 
among egg products, processors have little incentive to make this 
information available to consumers. Without the relevant information, 
some consumers may not properly refrigerate or may not adequately cook 
eggs, and some may consume foods containing raw eggs. Information about 
shell eggs is not complete if people do not know the potential health 
risks associated with SE-contaminated eggs. The lack of information 
places consumers, especially the young, the elderly, and persons with 
immune deficiencies, at a greater health risk.

C. Regulatory Options

1. No New Regulatory Action
    Under this option, FDA would rely on current regulations, 
publicizing risks, voluntary changes in behavior, and current or 
enhanced State and local enforcement activity to bring about a 
reduction in illnesses caused by SE in shell eggs. State and local 
governments that adopt and enforce the 1999 Food Code as issued by FDA 
will meet the goals of the proposed refrigeration rule. Adopting the 
Food Code as issued by FDA will also reduce undercooking of eggs in 
restaurants, which will accomplish part of the goals of the proposed 
labeling provision. The 1999 Food Code requires raw shell eggs to be 
cooked 15 seconds at 63  deg.C (145  deg.F) if prepared for immediate 
service in response to a consumer's order. Other raw eggs are required 
to be cooked 15 seconds at 68  deg.C (155  deg.F). Because the 1999 
Food Code has not been adopted everywhere and because billions of shell 
eggs are prepared in the home, the coverage of this option would be 
less than with the proposed rule.
    The threat of litigation might also help bring about the goals of 
the proposed rule. If victims could sue sellers of SE-contaminated eggs 
for damages, the incentives to retailers to eliminate SE from shell 
eggs would increase. Creating incentives for individual retailers to 
refrigerate eggs, however, may not create incentives for all retailers. 
Furthermore, the effectiveness of litigation is questionable because 
the link between the consumption of SE-contaminated eggs and illnesses 
may be difficult to establish for outbreaks and is nearly impossible to 
establish for sporadic cases. Moreover, if the link could be 
established it is not clear whether retailers would be held liable, 
although new techniques such as deoxyribonucleic acid (DNA) finger 
printing may someday make it possible to link cases to individual 
retailers.
2. Labeling Provision Only
    The agency could require that egg cartons contain the instructions 
to food handlers to ``keep refrigerated'', ``cook until yolks are 
firm'', and ``cook foods containing eggs thoroughly'' described in the 
context of the microbial hazard and the persons at risk. Requiring the 
safe handling label alone would place the burden of reducing risk from 
SE-contaminated eggs solely on food handlers, which includes consumers, 
restaurants, and institutions. If food handlers follow good sanitation 
practices and eggs are cooked thoroughly, the risk of salmonellosis

[[Page 36518]]

from SE-contaminated shell eggs can be virtually eliminated. FDA 
believes that the safe handling label will improve cooking practices 
but will not eliminate SE. The additional safeguard of proper 
refrigeration is therefore needed to slow the growth of SE and thereby 
reduce the risk of illness from mishandling. The median estimated 
annual benefits from labeling only are $261 million for the U.S. 
Department of Agriculture (USDA) SE risk assessment baseline and $124 
million for the Centers for Disease Control and Prevention (CDC) 
surveillance baseline; the costs from labeling only are $28 million in 
the first year, with a recurring annual cost of $10 million.\1\
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    \1\ The two baselines are explained in section I.E.1 of this 
document.
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3. Refrigeration Provision Only
    The agency could require that retailers refrigerate shell eggs to 
7.2  deg.C (45  deg.F), without also requiring safe handling labeling. 
Refrigeration at less than 10  deg.C (50  deg.F) slows the growth of 
SE. Because the level of Salmonella that initially contaminates eggs is 
usually low, refrigeration following laying should keep the numbers of 
pathogens low until the egg reaches the consumer. Retail refrigeration 
is particularly important because it occurs later in the flow of eggs 
from farm to table and, therefore, it can play an important role in 
postponing yolk membrane breakdown and the consequent rapid growth of 
SE. Even if SE can be attenuated by refrigeration, some illnesses may 
still occur because small numbers of SE can cause illness. Moreover, 
improper storage by consumers after proper retail refrigeration could 
result in rapid growth of SE. The median estimated benefits from 
refrigeration alone are $387 million for the USDA SE risk assessment 
baseline and $211 million for the CDC surveillance baseline; 
refrigeration alone would impose a one-time cost of $31 million.
4. Refrigerate at 5  deg.C (41  deg.F)
    Instead of requiring an ambient temperature of 7.2  deg.C (45 
deg.F) for egg-containing refrigerators at retail, FDA could require an 
ambient temperature of 5  deg.C (41  deg.F), the internal temperature 
for potentially hazardous foods in the 1999 Food Code. Although current 
studies show Salmonella growth at ambient temperatures under 50  deg.F 
is significantly slowed, the advantage of a lower standard is that eggs 
will cool down slightly faster. FDA could require those establishments 
to reduce ambient temperatures to 5  deg.C (41  deg.F), with a 5-year 
compliance period. FDA estimated the present value of the total cost of 
reaching 5  deg.C (41  deg.F) in 5 years to be $65 million.\2\ Because 
eggs cool down only slightly faster at 5  deg.C (41  deg.F)than at 7.2 
deg.C (45  deg.F), the lower temperature would not generate additional 
benefits.
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    \2\ FDA estimated that 236,500 retail establishments hold eggs 
at ambient temperatures greater than 5  deg.C (41  deg.F). FDA 
assumed that the mean and median additional cost per establishment 
of moving to 5  deg.C to be $3,500 in current dollars. FDA also 
assumed that establishments would have 5 years beyond the 7.2  deg.C 
compliance period to reach 5  deg.C, that refrigerators last 20 
years, and that additional costs would be zero for those 
establishments already planning to replace refrigerators within 5 
years. The $65 million therefore represents the discounted (at 7 
percent) additional costs of refrigeration from 5 to 20 years after 
the labeling and the 7.2  deg.C provisions would take effect.
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5. Implement a HACCP-Style System for Shell Eggs
    The agency could require that a Hazard Analysis and Critical 
Control Point (HACCP) system be implemented at any or all levels of the 
shell egg production and distribution chain. In order to match the 
coverage of the proposed rule, the HACCP-style rule would have to be 
limited to the same set of establishments covered by the safe handling 
label. The advantage of a full farm-to-table HACCP is that it could 
eliminate, reduce, or control SE and other hazards at the source and 
keep them out throughout the egg processing chain. The disadvantage is 
that the technological knowledge needed to identify the critical 
control points and remedial steps to eliminate SE from shell eggs is 
incomplete. FDA believes that a HACCP-like program, possibly including 
in-shell pasteurization, is currently not feasible. However, FDA is 
evaluating whether a HACCP-like program in the future may be necessary 
to further ensure the safety of eggs.
6. In-Shell Pasteurization
    The agency could require that all eggs be pasteurized. 
Pasteurization of shell eggs should practically eliminate SE. The time 
and temperatures required to pasteurize shell eggs, however, are close 
to the combination that will cook the eggs. Successful in-shell 
pasteurization on a large scale is therefore likely to be quite costly. 
Currently, pasteurized shell eggs sell for approximately $0.30 more per 
dozen than regular shell eggs (Ref. 1). Assuming that average cost 
remained constant with the increased output, to pasteurize all 47 
billion shell eggs sold each year (around 4 billion dozen) would cost 
approximately $1.2 billion per year. In addition to the annual costs, 
the changeover to pasteurization would require large capital costs. 
Another potential disadvantage is that pasteurization might lead some 
consumers to erroneously believe that other safety measures, such as 
refrigeration and avoiding cross-contamination, might no longer be 
necessary. Because pasteurization eliminates competing microorganisms, 
recontamination after pasteurization might lead to rapid growth of SE. 
Finally, FDA believes that other interventions between farm and table 
could reduce the risk at lower cost.
7. Longer Compliance Periods
    FDA is giving firms 180 days to meet the labeling and refrigeration 
provisions of this proposed rule. Lengthening the compliance period for 
labeling to 18 months would reduce labeling costs by allowing some of 
the changes to be incorporated into planned label changes. Total 
labeling costs, as shown in Table 14 of this document, fall from $18 
million to $7 million if the compliance period is extended to 18 
months. Total refrigeration costs fall by about $2 million, which is 
the difference (at a 7 percent discount rate) in the capital costs of 
refrigeration in 6 months and refrigeration in 18 months. The total 
cost savings from extending the compliance period to 18 months, then, 
are approximately $13 million. One disadvantage would be that a longer 
compliance period would delay the realization of the public health 
benefits of the proposed rule. Those benefits substantially exceed $13 
million per year. As shown in Table 9 of this document, estimated 
median annual benefits are $300 million for the CDC surveillance 
baseline and $700 million for the SE risk assessment baseline.
8. Limit the ``Sell By'' Period
    The agency could introduce a ``sell by'' date. Limiting the ``sell 
by'' period, which is the time within which retailers must sell shell 
eggs, would limit the SE growth period, thereby reducing the potential 
dose of SE when it is already in the egg. The disadvantage of this 
option is that it could not take the place of the proposed 
refrigeration or labeling provisions. Introducing a ``sell by'' 
provision without the proposed refrigeration provision would not 
necessarily prevent the growth of SE in the egg. Moreover, introducing 
the shortened ``sell by'' provision without the labeling provision 
would not inform consumers that they should still refrigerate and cook 
eggs thoroughly. Proper refrigeration is important because it will 
prevent the rapid growth of SE beyond the ``sell by'' date. The benefit 
of a ``sell by'' provision is it

[[Page 36519]]

would reduce the likelihood of membrane breakdown and shorten the time 
for growth should breakdown occur. FDA estimated the benefits from a 
limited ``sell by'' period by calculating the reduction in average 
retail storage time if all eggs were sold within 30 days (the USDA 
period used for pull dating). The benefits of a limited retail storage 
time are $1.3 million for the USDA SE risk assessment baseline and 
$600,000 for the CDC surveillance baseline.
    The limited shelf life would impose the additional cost of reducing 
the egg supply, which raises the price of eggs to consumers. If 
limiting the shelf life were to reduce the egg supply by 5 percent, the 
additional cost would be approximately $150 million. If limiting the 
shelf life were to reduce the egg supply by 15 percent, the additional 
cost would be approximately $450 million.
    Other options could reduce the storage time of eggs. A ``use by'' 
date on the label might lead more people to consume eggs before 
membrane breakdown occurs. If the storage time in retail 
establishments, institutions, and homes is reduced by 1 percent, the 
USDA SE risk assessment model generates about a 0.5 percent decrease in 
the number of illnesses.

D. Coverage

1. Establishments
    Table 1 of this document lists the establishments covered by the 
proposed rule. FDA expects that the initial costs of labeling will fall 
on egg processors, until ultimately the costs are passed on to 
consumers. Refrigeration will affect the entire retail sector, 
including noncommercial establishments.

                   Table 1.--Coverage by Establishment
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                                                        Affected by
     Establishment           Affected by Safe     Refrigeration at 7.2 C
                            Handling Labeling             (45 F )
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Grocery stores           No                       Yes
Restaurants              No                       Yes
Health food stores       No                       Yes
Roadside stands          Yes                      Yes
Convenience stores       No                       Yes
Prisons                  No                       Yes
Nursing homes            No                       Yes
Schools                  No                       Yes
Hospitals                No                       Yes
Military                 No                       Yes
Shell egg packers        Yes                      No
Transportation           No                       No
Farm                     No                       No
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2. Products
    Table 2 of this document lists the products covered by the two 
provisions of the proposed rule.

                      Table 2.--Coverage by Product
------------------------------------------------------------------------
                                                        Affected by
        Product              Affected by Safe     Refrigeration at 7.2 C
                            Handling Labeling             (45 F )
------------------------------------------------------------------------
Shell eggs in cartons    Yes                      Yes
Bulk shell eggs in       Yes                      Yes
 cases
Egg products\1\          No                       No1
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\1\ Egg products include pasteurized egg products and other eggs treated
  to remove pathogens. The USDA regulates these products.

E. Benefits

    The benefits of the proposal come from reducing the incidence of 
SE-related illness. FDA will estimate health benefits with the 
following model of marginal benefits (MB):
    MB = R x M x V
    where:
    R = the baseline risk. In this case, the baseline risk is the 
estimate of the annual incidence of SE-related illnesses associated 
with shell egg consumption, proportionally broken down by severity 
of health effects.
    M = the expected marginal reduction in the number of SE-related 
illnesses attributable to the two provisions of the proposed rule.
    V = the cost per type of SE-related illness, including personal 
utility losses (pain and suffering, productivity) and direct medical 
expenditures.
    The refrigeration and labeling provisions will reduce but not 
eliminate the consumption of contaminated shell eggs. Requiring 
refrigeration at all retail outlets and requiring labeling that states 
that the product should be kept refrigerated, however, should decrease 
the number of eggs that suffer temperature abuse in retail 
establishments and in homes. The labeling rule will also generate 
health benefits by reducing the consumption of raw or undercooked eggs.
    In order to estimate the reduction in cases of SE-related illnesses 
likely to be brought about by the proposed rule, FDA relied mainly on 
the USDA's Salmonella Enteritidis Risk Assessment (Ref. 2). Indeed, FDA 
could not have carried out the following assessment of benefits without 
the USDA SE risk assessment. FDA slightly modified the risk assessment 
in light of data that have become available since the completion of the 
final version of the model, but the analysis closely followed that of 
the USDA SE risk assessment team. FDA estimated the benefits of its 
proposed rule by combining the USDA SE risk assessment's estimated 
reductions in illnesses with FDA's estimates of the health cost per 
illness.
1. The Shell Eggs and Egg Products Risk Assessment Model
    The USDA's Salmonella Enteritidis Risk Assessment uses a farm-to-
table model of the production and consumption of eggs. The model 
consists of five parts: (1) Egg

[[Page 36520]]

production, (2) shell egg processing and distribution, (3) egg products 
processing and distribution, (4) food preparation and consumption, and 
(5) public health outcomes.
    Because the proposed rule will not affect the number of shell eggs 
contaminated with SE, FDA did not directly use the first three parts of 
the model. FDA estimated the effects of the proposed rule by 
introducing the provisions of the proposed rule into the preparation 
and consumption part of the model and then calculating the changes in 
public health outcomes.
    The presence of SE in the raw egg is not sufficient to ensure that 
people will become ill from eating contaminated eggs. If the eggs are 
continuously refrigerated from the time they leave the processor up 
until the time they are cooked, and if they are thoroughly cooked, then 
the risk assessment model predicts that the SE will not multiply before 
cooking and cooking will eliminate the surviving pathogens. The large 
number of outbreaks and sporadic cases identified--and the larger 
number thought to occur--suggest that the conditions for pathogen kill-
off are not being met. In 1996, the CDC's surveillance found 9,566 
confirmed SE isolates, or 25 percent of the 39,000 confirmed cases of 
salmonellosis (Ref. 3). In 1997, the CDC's surveillance found 7,924 
confirmed SE isolates, or 23 percent of the 34,608 confirmed cases of 
salmonellosis (Ref. 3). From 1988 through 1992, SE accounted for more 
than 40 percent of all bacterial foodborne outbreaks with known 
etiology and about 33 percent of all outbreaks with known etiology 
(Ref. 4).
    The two requirements of this proposed rule form part of a farm-to-
table approach to shell egg safety. These requirements address the 
table end of the hazard. Although they will lead to lower pathogen 
counts, reduced pathogen strength, and reduced pathogen consumption, 
they will not eliminate SE in shell eggs.
    The baseline for the cases of salmonellosis prevented is the number 
of illnesses attributable to shell eggs before the proposed rule. The 
USDA SE risk assessment estimated the number of illnesses with a full 
farm-to-table model. The first stage of the model estimated the number 
of infected eggs laid with a simulation that incorporated the estimates 
of the number of infected flocks and the likelihood of frequency of 
infected eggs in an infected flock. The next stage of the model took 
the estimated number of infected raw shell eggs and estimated the 
number of infected eggs likely to be consumed. The model followed the 
eggs through possible paths from the farm to the table. Depending on 
how processors, transporters, and cooks treated the infected eggs, the 
SE could be killed, remain stagnant, multiply, or (if pooled) spread to 
other eggs. The last stages of the model used a dose-response function 
to estimate the number and severity of illnesses caused by SE in shell 
eggs. All stages of the model used computer simulations to generate 
ranges and distributions rather than point estimates. FDA generated a 
modified USDA SE risk assessment baseline by substituting more recent 
data on the proportion of establishments not refrigerating shell eggs 
at 7.2  deg.C (45  deg.F).
    The CDC surveillance baseline estimated the distribution of 
illnesses based on the number of confirmed cases as indicated by SE 
isolates reported to CDC. The CDC surveillance baseline estimated the 
number of illnesses as actual reported cases plus estimated unreported 
cases.
    Table 3 of this document shows the results of three Monte Carlo 
simulations for the baseline estimates of SE-related illnesses caused 
by shell eggs. All simulations used the Microsoft Excel version of the 
Palisade@Risk quantitative risk assessment software. The 
first simulation, shown in part a of Table 3 of this document, is the 
baseline result of the SE risk assessment team model. The second 
simulation is the baseline model with 95 percent rather than 90 percent 
probability that shell eggs are refrigerated at 7.2  deg.C (45  deg.F) 
in retail establishments and institutions. FDA modified the original 
model because the agency had more recent information (see the next 
paragraphs) on the number of establishments not refrigerating shell 
eggs at 7.2  deg.C (45  deg.F). Part b of Table 3 of this document 
presents the results of the simulation based on the more recent 
information.
    Part c of Table 3 of this document presents the third baseline 
estimation, which is the result of estimating the number of cases 
directly from CDC Salmonella surveillance data. FDA used the same 
procedure as the USDA SE risk assessment team to estimate the number of 
SE cases from surveillance data. The data collected by the CDC 
Salmonella surveillance project show that from 1988 through 1997 the 
number of SE isolates ranged from a low of 6,578 in 1992 to a high of 
10,201 in 1995, with about 8,400 per year on average. The USDA SE risk 
assessment estimated the probability that an isolate would be reported 
to be 0.01431. With 8,400 isolates reported and a probability of 
reporting equal to 0.01434, FDA simulated a distribution for all SE 
illnesses, including those caused by foods other than shell eggs (not 
shown in Table 3 of this document).\3\ The USDA SE risk assessment 
assumed that shell eggs accounted for 20 to 100 percent of all 
illnesses from SE. FDA assumed that shell eggs accounted for 
approximately 10 to 60 percent of all illnesses from SE.\4\ The 
assumption that 10 to 60 percent of all SE illnesses came from the 
consumption of shell eggs, combined with the estimated number of 
illnesses, generated the estimates shown in part c of Table 3 of this 
document.
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    \3\ FDA simulated the number of SE illnesses not reported with a 
negative binomial distribution. The simulation calculated the total 
number of illnesses (reported and not reported) as: Number reported 
+ Negative binomial (number reported + 1, frequency of reporting) = 
8,400 + NEGATIVE BINOMIAL (8,401, 0.01434).
    \4\ According to the results of outbreak analyses for the years 
1988 through 1992, eggs were the food vehicle in 64 percent of the 
SE outbreaks for which the food vehicle could be identified (Ref. 
4). Therefore, FDA assumed that 60 percent represented the maximum 
fraction of cases attributable to eggs. More than half of the SE 
outbreaks, however, did not have a known food vehicle. If outbreaks 
with unknown vehicles are added to the total, then eggs accounted 
for only 29 percent of all SE outbreaks (including outbreaks with 
known and unknown vehicle) from 1988 through 1992. Furthermore, the 
causes of outbreaks may not be the same as the causes of sporadic 
cases. FDA believes that shell eggs may be less important cause of 
sporadic SE cases than of SE outbreaks. Many outbreaks have been 
linked to the pooling of large numbers of eggs in nursing homes and 
other institutional settings. Because pooling eggs would have little 
effect on the probability of a sporadic case occurring, eggs are not 
likely to account for as large a proportion of sporadic cases as of 
outbreaks. FDA believes it plausible that eggs account for only one-
third as high a fraction of all SE cases as of outbreaks. For a 
lower bound on the fraction of cases caused by eggs, FDA multiplied 
the fraction of all outbreaks caused by eggs (29 percent) by the 
relationship between the egg fraction of all cases and the egg 
fraction of outbreaks (one-third). Therefore, FDA estimated that 10 
percent represented the minimum fraction of SE cases attributable to 
eggs.
---------------------------------------------------------------------------

    All three baselines in Table 3 of this document are estimates of 
the current incidence of SE from shell eggs. FDA estimated the health 
benefits of the proposed rule based on the baselines in parts b and c 
of Table 3 of this document. The baselines, however, could change 
before the proposed rule takes effect. Other Federal or State 
regulations, consumer education, and voluntary SE eradication by farms 
or processors could reduce the baseline number of SE illnesses. If such 
a reduction were to occur before or at the same time as the proposed 
rule took effect, then FDA would be using a baseline that was too high 
and, therefore, would over-estimate health benefits from the proposed 
rule. FDA recognizes the potential bias, but believes that changes in 
the baseline number of illnesses are likely to be small or negligible 
before the proposed rule takes effect.

[[Page 36521]]



                                                Table 3.--Three Baseline Estimates of SE From Shell Eggs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    5th percentile                 Median                      Mean                 95th percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
a. USDA SE Risk Assessment
Illnesses                                            126,374                    504,082                    661,633                  1,742,592
Arthritis                                              3,631                     14,864                     19,994                     55,915
Deaths                                                    68                        301                        391                      1,050
  b. USDA SE Risk Assessment as Modified by
                     FDA
Illnesses                                            115,645                    416,156                    569,231                  1,508,814
Arthritis                                              3,372                     12,548                     17,175                     48,594
Deaths                                                    66                        250                        354                        985
          c. CDC Surveillance Model
Illnesses                                             63,884                    189,599                    191,511                    319,275
Arthritis                                              1,330                      5,533                      5,727                     12,202
Deaths                                                    37                        122                        115                        197
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Cases of Salmonellosis Prevented
    FDA cannot precisely estimate the number of cases likely to be 
prevented by the proposed rule; therefore, the agency used a range of 
cases prevented to estimate the benefits of the proposed rules. For the 
refrigeration provision, FDA used the USDA SE risk assessment model (as 
modified by FDA) to determine the effects of eliminating virtually all 
temperature abuse in retail and institutional establishments. In the 
simulation of the model, the number of illnesses fell as the proportion 
of establishments assumed to be holding eggs at 7.2  deg.C (45  deg.F) 
or less increased from 95 percent to virtually 100 percent.
    FDA used a study of changes in consumer behavior as a result of the 
USDA safe handling label for meat to estimate the effects of the safe 
handling label for shell eggs. The Food Marketing Institute (Ref. 5) 
found that 59 percent of shoppers were aware of the USDA safe handling 
labels for meat. Of those aware of the labels, 43 percent changed their 
behavior as a result of the labels. Of those who changed their 
behavior, the changes ranged from 1 percent (use of antibacteria soap 
to wash hands) to 41 percent (washing or disinfecting counters, cooking 
areas, and utensils after contact with meat). The behavioral changes 
most similar to what the proposed rules aim to bring about for shell 
eggs were the 19 percent increase in proper cooking of meats and the 7 
percent increase in proper refrigeration. If the meat cooking and 
refrigeration results indicate the likely effects of the proposed label 
for eggs, then the likelihood that shell eggs will be undercooked or 
consumed raw will decline by approximately 5 percent (= 59 percent x 43 
percent x 19 percent) and the likelihood that consumers will fail to 
properly refrigerate eggs will decline by approximately 2 percent (= 59 
percent x 43 percent x 7 percent).\5\
---------------------------------------------------------------------------

    \5\ The sample size was 1,007. The reduction in undercooked eggs 
likely to be brought about by safe handling instructions rested on 
several assumptions. The most important assumptions were that: (1) 
The 5 percent reduction in unsafe cooking practices and the 2 
percent reduction in unsafe refrigeration practices implied by the 
survey results for the USDA meat handling labels accurately 
reflected people's practices in their home, (2) the results for home 
food handlers would hold for restaurant food handlers, (3) the 
results for the meat label would hold for egg labels, (4) the change 
in behavior would extend to raw eggs as well as undercooked eggs, 
and (5) the sample of 1,007 consumers was reasonably representative 
(Ref. 5). The greatest uncertainty in extrapolating from the meat 
handling results is in assuming that the effects will hold for those 
products that contain raw eggs. Cookie dough, cake and brownie 
batter, egg nog, and other homemade products are major sources of 
the consumption of raw eggs, but the desire to consume them also 
appears to be deeply ingrained among consumers.
---------------------------------------------------------------------------

    The USDA SE risk assessment model treats proper cooking as a kill 
step for SE. Whatever the baseline, if undercooking falls by 5 percent, 
so will the number of illnesses, all else the same. The effects of 
retail refrigeration come early in the life of the egg. The effects of 
the safe-handling label come later in the life of the egg than 
refrigeration, so the effects of proper cooking in reducing illnesses 
will be net of the effects of refrigeration. Safe cooking will reduce 
the number of illnesses remaining--after the effect of refrigeration--
by 5 percent.
    In separate simulations, FDA used the USDA SE risk assessment model 
to estimate the effects of the labeling provision, the refrigeration 
provision, and the proposed rule combining the provisions. In another 
simulation, FDA estimated the effects of including a ``sell by'' date 
on the label or some equivalent policy to reduce retail storage time. 
If the ``sell by'' date were 30 days after receiving the eggs, the 
average retail storage time would be reduced by 6 percent (Ref. 2).\6\ 
FDA used 6 percent as the potential shortening of average retail 
storage time. FDA did not include shortened storage time in the 
simulations that estimated the effects of the proposed rule.
---------------------------------------------------------------------------

    \6\ In the risk assessment, retail storage time for eggs is a 
truncated exponential distribution, with the unconstrained (that is, 
nontruncated) expected storage time equal to 7 days, minimum storage 
equal to 0, and maximum equal to 60. If the maximum is changed to 
30, mean storage time falls by 6 percent.
---------------------------------------------------------------------------

    FDA estimated policy effects for both the modified SE risk 
assessment and the surveillance baselines. FDA first simulated the 
possible regulatory approaches in the modified USDA SE risk assessment 
model. The simulations generated distributions of the number of 
illnesses prevented by those approaches. The results are shown in part 
a of Table 9 and part a of Table 10 of this document. The CDC 
surveillance baseline began with the final result--a distribution of 
the number and severity of illnesses. No farm-to-table steps entered 
the model. The CDC surveillance model could not estimate how the 
illnesses occurred; the model only produced an estimate of the number 
of illnesses. Because the CDC surveillance baseline was not an outcome 
of a model, FDA could not directly estimate effects with the 
surveillance baseline. Instead, FDA assumed that the policy effects 
would be proportionally the same for both the CDC surveillance and the 
USDA SE risk assessment baselines. The estimated effects of the 
proposed rule on the surveillance baseline, then, equaled the 
percentage effects from the SE risk assessment applied to the CDC 
baseline.\7\ The results are shown in part

[[Page 36522]]

b of Table 9 and part b of Table 10 of this document.
---------------------------------------------------------------------------

    \7\ Comparing the illnesses prevented in Tables 9 and 10 of this 
document with the appropriate baseline in Table 3 of this document 
can approximate the percentage effects. FDA also independently 
estimated the proportional effects of the proposed rule. In that 
simulation, the mean fraction of baseline illnesses prevented was 19 
percent, the median was 15 percent, the 5th percentile was 6 
percent, and the 95th percentile was 49 percent.
---------------------------------------------------------------------------

3. Health Benefits From Preventing Salmonellosis
    The health benefits associated with preventing salmonellosis are: 
(1) Lessening the loss of productivity, (2) the reduction in pain and 
suffering, and (3) the reduced expenditures on medical treatment. In 
order to quantify the losses suffered by victims of salmonellosis, it 
is first necessary to develop an index to measure the losses associated 
with pain, suffering, mobility, and other problems associated with 
becoming ill. FDA estimated the utility losses caused by pain and 
suffering with a symptom-problem health utility index. Lost 
productivity was indirectly estimated by measures of body movement, 
physical location, and functional state. FDA estimated medical costs 
directly. The symptoms of salmonellosis vary by serotype and the immune 
status of the victim. Diarrhea, nausea, vomiting, fever, and headache 
lasting from 1 day to 1 week or more characterize a typical case of 
salmonellosis. Mild cases last 1 to 3 days, moderate cases last 2 to 12 
days, and severe cases last 11 to 21 days (Ref. 6). Some acute cases 
are followed by post-Salmonella reactive arthritis, with symptoms that 
include pain and possible functional disability (Ref. 7, 31, and 32). 
Moreover, some acute cases lead to death, especially among elderly 
victims.
    Tables 4 through 7 of this document contain descriptions of the 
health effects associated with salmonellosis. Table 4 of this document 
lists the codes associated with salmonellosis of varying levels of 
severity. Tables 5 and 6 of this document explain the codes.

   Table 4.--Health Effects and Symptoms of Illnesses Associated With
                              Salmonellosis
------------------------------------------------------------------------
                                                      Symptom-Problem
        Severity            Functional Status          Complex Code
------------------------------------------------------------------------
Mild                     MOB(4) + PAC(3) +        9
                          SAC(3)
Moderate                 MOB(4) + PAC(3) +        9
                          SAC(3)
Severe--acute            MOB(2) + PAC(1) +        9
                          SAC(1)
Reactive arthritis,      MOB(5) + PAC(3) + SAC(3  7
 resolved in 4 months     and 4)
Reactive arthritis--     MOB(5) + PAC(3) + SAC(3  7
 chronic, intermittent,   and 4)
 waxing and waning, or
 unremitting
------------------------------------------------------------------------


    Table 5.--Description of Functional Status Codes (used to measure
                           productivity loss)
------------------------------------------------------------------------
  Function Status Code            Scale           Weight or Utility Loss
------------------------------------------------------------------------
Mobility (MOB)
5                        No limitations           0.000
4                        Did not drive car;       0.062
                          other limitations
2                        In hospital              0.090
Physical Activity (PAC)
4                        No limitations           0.000
3                        Walked with physical     0.060
                          limitations
1                        In bed or wheelchair     0.077
Social Activity (SAC)
5                        No limitations           0.000
4                        Limited in other         0.061
                          activities
3                        Limited in primary       0.061
                          activity
2                        Performed self-care      0.061
1                        Help with self-care      0.106
------------------------------------------------------------------------


 Table 6.--Description of Symptom-Problem Complex Codes (used to measure
                      loss from pain and suffering)
------------------------------------------------------------------------
  Symptom-
   Problem                       Description                     Utility
   Complex                                                        Weight
------------------------------------------------------------------------
     9        Sick or upset stomach, vomiting, or diarrhea        0.290
               (watery bowel movements)
     7        Pain, stiffness, numbness, or discomfort of neck,   0.299
               hands, feet, arms, legs, ankles, or several
               joints together
------------------------------------------------------------------------

    FDA estimated the health loss per day for the different levels of 
illness severity by summing the lost productivity (as measured by 
functional status) and the loss from pain and suffering (as measured by 
the symptom-problem index). These losses per day can be interpreted as 
the difference between 1 day of perfect health and 1 day of suffering 
the productivity loss and pain and suffering associated with one of the 
health conditions. The numerical scale is based on the notion of a 
quality-adjusted life day. The quality-adjusted life day for a day of 
perfect health equals 1; the quality-adjusted life day for death equals 
0. For illnesses, the quality-adjusted life day falls between 0 and 1. 
A day spent suffering a mild case of salmonellosis has a quality-
adjusted life day equal to 0.527 (= 1 - 0.473).
    The loss of utility per illness equals the daily loss multiplied by 
the duration of the illness. For example, mild salmonellosis lasts 1 to 
3 days. The total utility losses for a mild case lasting 2 days equal 2 
x 0.473 = 0.946, or about 1 quality-adjusted life day. The resolved 
cases of post-Salmonella reactive arthritis may last 1 day to 4 months 
(Ref. 7). FDA assumed that chronic cases of reactive arthritis last for 
the rest of the victim's life. FDA used a distribution for the age of 
onset for salmonellosis, based on FoodNet results for 1996 and 1997 
(Ref. 8). FDA also used a distribution for the age of onset for 
reactive arthritis. FDA combined the two distributions to generate a 
single distribution for the

[[Page 36523]]

length of time that post-Salmonella reactive arthritis would be 
expected to last.

                                   Table 7.--Utility Losses From Salmonellosis
----------------------------------------------------------------------------------------------------------------
                         Symptom-
            Functional    Problem                               Duration     Utility
 Severity     Utility     Utility     Total Utility Loss per    (days per  Losses per    Medical Costs per Case
              per Day   Weight per             Day                year)     Case per            per Year
                            Day                                               Year
----------------------------------------------------------------------------------------------------------------
Mild        0.183       0.290                    0.473         1 to 3      0.473 to                 0
                                                                            1.419
Moderate    0.183       0.290                    0.473         2 to 12     0.946 to              $800
                                                                            5.676
Severe--ac  0.273       0.290                    0.563         11 to 21    6.193 to            $9,100
 ute                                                                        11.823
Reactive    0.121       0.299               0 to 0.42          1 to 121    0 to 50.4             $100
 arthritis
 -resolved
Reactive    0.121       0.299               0 to 0.42          365         0 to 153.3            $400
 arthritis
 -chronic
----------------------------------------------------------------------------------------------------------------

    FDA assumed that the most likely value of a quality-adjusted life 
day was $630, a value derived from the statistical estimate of the 
benefit for a small reduction in the probability of death, commonly 
called the value of a statistical life. If the value of a statistical 
life is $5 million, and the average discounted number of life years (in 
the studies that generated this estimate) lost is 21.8, then the value 
of a single quality-adjusted life day is ($5 million  21.8) 
 365 = $630.\8\ The value of utility losses for nonfatal cases 
of acute salmonellosis would therefore equal the losses of quality-
adjusted life days multiplied by $630.
---------------------------------------------------------------------------

    \8\ FDA calculated the discounted life expectancy based on 36 
years lost, which was approximately the loss in the injury studies 
used to estimate the value of a statistical life. The workers were 
around 40 years old. The rate of time preference used to discount 
the years if life lost was 3 percent, often identified as the pure 
rate of time preference. If 36 years are continuously discounted at 
3 percent per year, the result is 21.8 years.
---------------------------------------------------------------------------

    The value of a quality-adjusted life day is highly uncertain. 
Therefore, FDA used a distribution, not a point estimate, to value the 
utility losses from salmonellosis. FDA based the distribution on a most 
likely value, a minimum, and a maximum. The most likely value, as shown 
previously, was $630. FDA based the minimum value of a quality-adjusted 
life day on the average daily gross domestic product per person, which 
was approximately $80 per day in 1997 (($8 trillion  268 
million)  365) (Ref. 9). FDA believes that the gross domestic 
product per person understates willingness to pay, because most studies 
of the value of a statistical life indicate that people are willing to 
pay more than their average earnings to avoid all of the costs 
associated with illnesses. FDA used gross domestic product per person 
as a strict lower bound, because it is not plausible that people on 
average would be willing to pay less than the value of output per 
person. FDA based the maximum value of a quality-adjusted life day on 
the literature on the value of a statistical life. In a survey of the 
literature on the value of a statistical life, the most plausible 
upper-bound estimate was approximately $8.4 million in 1997 prices 
(Ref. 10). The upper-bound value of a quality-adjusted life day would, 
therefore, be about $1,000 (($8.4 million  21.8)  365).
    In addition to utility losses (lost productivity, pain, and 
suffering), salmonellosis leads to direct medical expenditures. The 
medical costs of acute salmonellosis vary from nothing for a mild case 
to more than $9,000 for severe cases (Ref. 11). The medical costs for 
chronic cases vary from $100 for resolved cases to $400 per year for 
long-lasting cases (Ref. 12).
    The total health costs per case are the sum of utility losses 
(which include productivity and pain and suffering) and medical 
expenditures. The total costs of SE illnesses would be the costs per 
case of each severity multiplied by the number of illnesses of each 
severity. For chronic illnesses that are not resolved, the utility 
losses and medical costs stretch indefinitely into the future. FDA 
calculated the present value of chronic medical expenditures and 
utility losses with a discount rate of 7 percent. For example, medical 
costs for reactive arthritis of $400 per year take a present value of 
$5,400 for cases that last 44 years. The annual costs of reactive 
arthritis are the net present value of the costs of new cases.
    FDA based the distribution of cases by severity on the FoodNet 
results for diarrheal illness, which indicate that 92 percent of 
victims do not seek medical attention (Ref. 8). The FoodNet population 
survey could not determine the causes of diarrhea for people who did 
not seek treatment. Salmonella accounts for a large portion of isolates 
of the people who do seek medical treatment for diarrhea and is 
therefore assumed to account for a large portion of all diarrheal 
illness. FoodNet used the fraction of all victims who seek medical 
attention Consistent with the FoodNet approach, FDA assumed that 92 
percent of victims of salmonellosis do not seek medical treatement. FDA 
assumed that these cases were mild. Also, the agency assumed that 15 
percent of those who sought medical attention for SE would be 
hospitalized (Ref. 8).\9\ Of those who were hospitalized, about 5 
percent would die. The case-fatality rate simulated by the model 
equaled the probability of hospitalization multiplied by the 
conditional probability of death given hospitalization. In most 
simulations it was around 0.05 to 0.06 percent.\10\ The proportion of 
acute cases that lead to post-salmonellosis reactive arthritis has been 
estimated at 2 to 3 percent (Ref. 13) and 6.4 percent (Ref. 7). The 
USDA SE risk assessment used a 2 to 4 percent range, with the mean 
equal to 3 percent. FDA used the same mean, but with a 0 to 6 percent 
range, reflecting the continued wide uncertainty associated with 
reactive arthritis after acute

[[Page 36524]]

salmonellosis. FDA estimated the distribution of cases by severity for 
reactive arthritis based on an outbreak study (Ref. 7). The lost 
quality-adjusted life days for post Salmonella reactive arthritis are 
also uncertain. With only one study of severity, FDA did not have 
sufficient information to justify a point estimate; therefore, the 
agency used a range of 0 to 0.42 for the daily loss of quality-adjusted 
life days.
---------------------------------------------------------------------------

    \9\ FDA revised the USDA SE risk assessment's distribution of 
illnesses by severity in light of FoodNet results (Ref. 8). The 
FoodNet results were not available at the time the risk assessment 
was carried out. The revisions to the USDA SE risk assessment, 
however, were small. FDA used 92 percent as the fraction of 
illnesses that are mild, compared with 94 percent in the USDA SE 
risk assessment. The USDA SE risk assessment assumed that 10 percent 
were hospitalized. FoodNet found that 15 percent of all persons with 
foodborne pathogens (and sought medical care) were hospitalized. 
Because the FoodNet data were more recent, FDA assumed that 15 
percent of those who consulted physicians for SE illness were 
subsequently hospitalized.
    \10\ Many sources (Ref. 13) state that about 0.1 percent of 
cases of salmonellosis lead to death. The SE risk assessment, 
however, generated lower case-fatality rates for SE. Because the 
result was specific to SE, FDA used the lower estimate generated by 
the SE risk assessment. FoodNet has not generated enough cases to 
compute a meaningful case-fatality rate for SE illnesses.
---------------------------------------------------------------------------

    Most of the deaths attributed to SE are elderly persons. Of the 27 
deaths linked to foodborne SE disease outbreaks from 1988 through 1992, 
23 fatalities (85 percent) occurred in nursing homes (Ref. 4). To 
estimate benefits from preventing deaths, FDA assumed that the 
probability that the victim was age 75 or older was 80 percent. The 
loss of quality-adjusted life years is much less for victims age 75 and 
older than for victims from rest of the population. The use of the same 
value for the benefits of preventing fatalities among the general 
population and preventing fatalities among those age 75 and older 
(especially the nursing home population) would therefore not be 
appropriate. FDA assumed that the average loss of discounted quality-
adjusted life years would be about 6 for victims age 75 and older and 
about 26 for other victims.\11\
---------------------------------------------------------------------------

    \11\ FDA divided victims into 2 age groups, those age 75 and 
over and all others. FDA then assumed that within the 2 categories 
of those age 75 and over and all other, the age of vitims of fatal 
SE illnesses was the same as the age of victims of all cases of 
salmonellosis in the 1996 through 1997 FoodNet data base. The 
average age of salmonellosis victims under age 75 was about 24, for 
an estimated average years of life lost of 53. If 53 years of life 
lost are discounted at 3 percent per year, the result is 26 
discounted years lost. The average age of salmonellosis victims age 
75 and over was about 82, for an estimated average years of life 
lost of 7. The discounted years of life lost (at 3 percent per year) 
is 6.
---------------------------------------------------------------------------

4. Total Health Benefits
    FDA estimated the effects of the proposed rule by combining the 
distribution of effects on the number of illnesses with the 
distribution of monetary values associated with the illnesses 
prevented. The calculations involved two steps. In the first step FDA 
used the USDA SE risk assessment model to estimate the number of 
illnesses prevented. In the second step, FDA estimated the health 
benefits associated with preventing those illnesses. The uncertainties 
associated with several important parts of the formula led FDA to use 
Monte Carlo computer simulations to estimate the total health benefits 
of the proposed rule.\12\
---------------------------------------------------------------------------

    \12\ The simulations all used Latin Hypercube sampling, which 
first sorts the samples in stratified groups and then samples 
equally from each group. The one-stage simulations contained 1,000 
iterations. The two-stage simulations used 50 uncertainty 
iterations, then 50 simulations of 500 iterations each.
---------------------------------------------------------------------------

    In the Monte Carlo simulation, the computer repeatedly calculated 
health benefits based on the following formula:
    total health benefits = (number of mild cases prevented x $ per 
case) + (number of moderate cases prevented x $ per case) + (number 
of severe-acute cases prevented x $ per case) + (number of resolved 
cases of arthritis prevented x $ per case) + (number of chronic 
cases of arthritis prevented x $ per case) + (number of deaths 
prevented x $ per death)
    Instead of calculating the total health benefits once, based on 
single estimates for each value in the formula, the simulation 
calculated the health benefits over and over again. Each calculation 
(or iteration) used different values, with the values drawn from 
probability distributions. The probability distributions used in the 
simulation are shown in Table 8 of this document.\13\
---------------------------------------------------------------------------

    \13\ The agency selected distributions based on the underlying 
data or common assumptions about the variables being modeled. The 
main innovations were the use of Beta and Beta-Pert distributions. 
The Beta distribution is part of the Bernoulli family of 
distributions and is closely related to the Binomial. The Binomial 
gives the distribution of the number of successes (s) in n trials if 
the probability of success in each trial is p. The Beta shows the 
distribution of the value of p when s successes occur in n trials. 
The Beta-Pert distribution is a Beta distribution that has been 
rescaled to run between values other than 0 and 1. The Beta-Pert 
uses a minimum, maximum, and most likely value to generate a 
distribution running from the minimum to the maximum, with a mean 
equal to (minimum + (4 x most likely) + maximum)  6. In 
contrast to the Triangular, which has a mean of (minimum + most 
likely + maximum)  3, the Beta-Pert is less sensitive to 
extreme values and generates more outcomes close to the mean. For 
those reason, the agency used the Beta-Pert rather than the 
triangular when only the minimum, most likely, and maximum values 
were given. For discussions of the nature and use of these 
distributions in Monte Carlo simulation see Ref. 14.

 Table 8.--Distributions Used to Estimate the Monetary Value of Cases of
                         Salmonellosis Prevented
------------------------------------------------------------------------
        Variable                Distribution               Source
------------------------------------------------------------------------
Number of illnesses       Cumulative                Ref. 2
 prevented
Number of mild illnesses  Binomial (number of       Ref. 8
                           illnesses, 0.92)
Number of moderate        Binomial (number at       Ref. 8
 illnesses                 least moderate, 0.85)
Number of severe, acute   Binomial (number at       Ref. 2
 illnesses                 least severe, 0.95)
Number of deaths          Residual                  Ref. 2
Value of a quality-       Beta-Pert (80, 630,       See text
 adjusted life day ($)     1,000)
Fraction of illnesses     Beta-Pert (0, 0.03,       See text
 resulting in reactive     0.06)
 arthritis
Fraction of reactive      Beta (10, 19)             Ref. 7
 arthritis cases
 resolved
Quality-adjusted life     Uniform (0, 0.42)         Ref. 15
 day lost per day of
 reactive arthritis
Duration of mild          Uniform (1,3)             Ref. 6
 illnesses
Duration of moderate      Uniform (2, 12)           Ref. 6
 illnesses
Duration of severe        Uniform (11, 21)          Ref. 6
 illnesses
Duration of resolved      General (1, 121; uniform  Ref. 7
 reactive arthritis        (2,7), uniform (8,28),
                           uniform (29,120);
                           0.2222, 0.6666, 0.1111)
Duration of chronic       Normal (35, 3.5)          Refs. 8 and 16
 reactive arthritis
Distribution of deaths    Binomial (number of       Ref. 4
 between elderly and       deaths, 0.8)
 general population of
 deaths that are old
 people
Discounted years of life  6.2                       See text
 lost per death of
 elderly victims
Discounted years of life  26.4                      See text
 lost per death of other
 victims
------------------------------------------------------------------------

    Each simulation calculated health benefits 1,000 times. FDA 
simulated the

[[Page 36525]]

effects of the proposed rule, the separate effects of the refrigeration 
and labeling components of the proposed rule, and the effects of a 
decline in retail storage time. Tables 9 and 10 of this document 
present the 5th percentile, mean, median, and 95th percentile simulated 
health benefits.

  Table 9.--Total Annual Health Benefits From the Reduction in Salmonellosis Attributable to the Proposed Shell Egg Rules: USDA Salmonella Enteritidis
                                                 Risk Assessment Baseline and CDC Surveillance Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
                  Variable                          5th Percentile                 Median                      Mean                 95th Percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
a. Modified USDA SE Risk Assessment Baseline
Illnesses prevented                                   12,369                     65,801                    115,848                    407,064
Mild                                                  11,391                     60,479                    106,580                    374,192
Moderate                                                 831                      4,484                      7,878                     27,900
Severe                                                   142                        747                      1,321                      4,685
Arthritis--resolved                                      147                        588                      1,171                      4,453
Arthritis--chronic                                       468                      1,146                      2,313                      8,317
Death                                                      6                         39                         69                        246
Health benefits                                          $86.7 million     $703 million             $1,700 million              $6,610 million
b. CDC Surveillance Baseline
Illnesses prevented                                    7,032                     25,132                     36,937                    107,230
Mild                                                   6,476                     23,092                     33,982                     98,607
Moderate                                                 475                      1,691                      2,511                      7,286
Severe                                                    80                        284                        421                      1,235
Arthritis--resolved                                       47                        240                        382                      1,182
Arthritis--chronic                                        95                        488                        714                      2,073
Death                                                      3                         16                         22                         66
Health benefits                                          $49.2 million     $303 million               $501 million              $1,679 million
--------------------------------------------------------------------------------------------------------------------------------------------------------


     Table 10.--Total Annual Health Benefits From the Reduction in Salmonellosis Attributable to the Various Regulatory Approaches: USDA Salmonella
                                           Enteritidis Risk Assessment Baseline and CDC Surveillance Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      Variable                             5th Percentile               Median                    Mean               95th Percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Reduced Retail Storage Time
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
 a. Modified USDA SE Risk Assessment Baseline
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented                                                0                      162                    3,000                   13,908
Health benefits (millions)                                         0                       $1.3                    $29.8                   $169
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
 b. CDC Surveillance Baseline
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented                                                0                       88                      997                    4,998
Health benefits (millions)                                         0                       $0.6                     $2.1                    $71.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                            Refrigeration to 7.2 C (45 F) Only
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
a. Modified SE Risk Assessment Baseline
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented                                              997                   34,791                   86,512                  340,387
Health benefits (millions)                                        $9.6                   $387                   $1,260                   $5,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
 b. CDC Surveillance Baseline
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented                                              548                   15,812                   27,447                   94,317
Health benefits (millions)                                        $3.2                   $163                     $372                   $1,476
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                      Labeling only
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
 a. Modified SE Risk Assessment Baseline
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented                                            6,500                   23,097                   32,191                   84,147
Health benefits (millions)                                       $43.8                   $261                     $444                   $1,460
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
b. CDC Surveillance Baseline
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented                                            3,339                   10,008                   10,531                   17,672

[[Page 36526]]

 
Health benefits (millions)                                       $20.2                   $103                     $150                     $421
--------------------------------------------------------------------------------------------------------------------------------------------------------

5. Additional Benefits
    a. Reduced risk from other pathogens. Refrigeration and thorough 
cooking may reduce the risk from pathogens other than SE in eggs. These 
other product-pathogen combinations include other serotypes of 
Salmonella in eggs and pathogenic organisms in other foods. Because 
other foods are often stored in the same refrigerator cases as shell 
eggs, refrigerating shell eggs at 7.2  deg.C (45  deg.F) will reduce 
the ambient temperature for all foods stored in the same case. If some 
of these other foods are ready-to-eat potentially hazardous foods, the 
requirement to refrigerate at 7.2  deg.C (45  deg.F) may generate 
additional health benefits by reducing the illnesses associated with 
those products.
    b. Fewer recalls. The rule could lead to fewer recalls. Although 
FDA had no recalls of shell eggs in the most recent year, recalls that 
might have occurred in the future could be prevented by the proposed 
rule.
6. Uncertainty of Estimated Benefits
    As Table 9 of this document shows, the range of potential benefits 
from the proposed rule is wide. With the USDA SE risk assessment 
baseline, the 95th percentile benefits are 75 times the 5th percentile 
benefits. With the CDC surveillance baseline, the 95th percentile 
benefits are 35 times the 5th percentile benefits. However they are 
calculated, the estimated benefits from the proposed rule are 
uncertain.
    The uncertainty comes from many sources. Some uncertainty comes 
from the ordinary variation of known factors. For example, the duration 
and severity of the illnesses associated with acute salmonellosis vary. 
The age of victims also varies. Many of the estimated factors affecting 
the size of health costs, such as the division of deaths between the 
elderly and younger people, the severity of reactive arthritis, and the 
number of illnesses that progress from mild salmonellosis to more 
serious illnesses can vary from year to year. Because of this ordinary 
variability, it is impossible to generate a single number representing 
the effects of the proposed rule. As the variable factors change, the 
effects of the proposed rule change.
    The wide range of outcomes shown in Table 9 of this document, 
however, is not generated solely by the variability of known factors 
such as ages of victims and severity of illness. Much of the range in 
Table 9 of this document comes from uncertainty about the values of 
several elements of estimated health benefits. Fundamental uncertainty 
exists in that the agency does not know and may never know some of 
those values. The principal fundamental uncertainties associated with 
the benefit assessment are:
     Uncertainty about the baseline number of illnesses 
associated with SE in shell eggs,
     Uncertainty about the proportion of cases of salmonellosis 
that lead to reactive arthritis,
     Uncertainty about the number of illnesses likely to be 
prevented by the proposed rule, and
     Uncertainty about the monetary value of illnesses caused 
by SE in shell eggs.
    The effects of these uncertainties can be characterized with a 
series of figures.\14\ In Figure 1 of this document, the agency shows 
how the distribution of estimated health benefits changes when the 
baseline distribution of estimated SE illnesses associated with shell 
eggs changes. As the figure shows, there is much overlap, but the USDA 
SE risk assessment baseline leads to higher estimated benefits than 
does the CDC surveillance baseline. The figure also shows that even if 
the agency knew which distribution the USDA SE risk assessment or the 
CDC surveillance was the appropriate baseline, large uncertainty would 
remain. The ranges of outcomes for each baseline distribution cover 
several billion dollars.
---------------------------------------------------------------------------

    \14\ The next several paragraphs and the figures are based on 
Ref. 14.
---------------------------------------------------------------------------

    As FDA acquires more information, the uncertainties caused by the 
agency's lack of knowledge of the incidence of reactive arthritis 
caused by salmonellosis, the effectiveness of the proposed rule, and 
the monetary value of the illnesses caused by SE may be reduced but 
will not be eliminated. Better estimates of the incidence of arthritis 
are likely to become available in the future, but some uncertainty will 
remain. The agency will never precisely know the effectiveness of the 
rule or the average monetary value of preventing a case of 
salmonellosis. The uncertainty about the effects of policy stem from 
the many other factors that affect the number of illnesses, including 
other policies, changes in consumer behavior (perhaps because of 
education), changes in the pathogen itself, and possible technological 
changes in processing and other sectors of the industry. All of these 
changes will affect the baseline distribution of estimated illnesses 
and, therefore, change the distribution of estimated effects of the 
proposed rule. The other remaining uncertainty, the monetary value of 
preventing a case, is based on estimates of the average person's 
willingness to pay to avoid a small increase in the probability of 
illness, injury, or death. FDA believes that although it is possible to 
identify a range of plausible values for the willingness to pay, the 
true average willingness to pay is probably unknowable.
    FDA illustrates the effects of the principal uncertainties in 
Figures 2 and 3 of this document. In Figure 2 of this document, the 
uncertainties are assumed away. In other words, Figure 2 of this 
document is constructed on the assumption that FDA knows the correct 
baseline, knows the incidence of post-Salmonella reactive arthritis, 
knows the effectiveness of the proposed rule, and knows the value of a 
statistical life year. If FDA knew those values, one possible 
distribution of health benefits would be that shown in Figure 2 of this 
document. In this figure, the values of the main uncertain variables 
are fixed.\15\
---------------------------------------------------------------------------

    \15\ The values for the baseline illnesses, incidence of 
reactive arthritis, effectiveness of the proposed rule, and the 
monetary value of preventing illnesses were randomly selected and 
then fixed for the simulation illustrated in Figure 2 of this 
document.
---------------------------------------------------------------------------

    The problem with Figure 2 of this document is that FDA does not 
know if the selected values of the uncertain variables (which were 
chosen randomly from the distributions of possible values) are correct. 
Different values for the principal uncertainties would generate 
different distributions. Ten values for the uncertain variables would 
generate 10 different distributions, not one as in Figure 2 of this 
document. Figure 3 of this document contains the distribution 
illustrated in Figure 2 of

[[Page 36527]]

this document, as well as nine others--four more from the CDC 
surveillance baseline and five from the USDA SE risk assessment 
baseline. The agency does not know which of the 10 distributions 
pictured in Figure 3 of this document is correct. Indeed, the correct 
distribution could be another one entirely. In Figure 4 of this 
document, 100 different values of the uncertain variables generate 100 
different simulated distributions of health benefits. The best estimate 
of health benefits is somewhere in the thick mass of Figure 4 of this 
document, but it is impossible to tell where.
    The uncertainty does not mean that nothing can be concluded about 
the benefits of the proposed rule. The distributions shown in Figures 3 
and 4 of this document tend to be of two types: (1) Narrow 
distributions concentrated in the low end of the benefits scale, and 
(2) wide distributions encompassing everything from small benefits to 
enormous benefits. The narrow distributions bunched at the low end of 
the scale represent large health benefits. For example, the 5th 
percentile benefits from the CDC surveillance baseline are, as shown in 
Table 9 of this document, approximately $50 million per year--a large 
health benefit. The distributions shown in Figures 1 through 4 of this 
document suggest that although there is some small probability of small 
benefits, most of the values generated by the simulations represent 
large public health benefits.
BILLING CODE 4160-01-F

[[Page 36528]]

[GRAPHIC] [TIFF OMITTED] TP06JY99.014



BILLING CODE 4160-01-C

[[Page 36529]]

F. Costs

    The costs of the proposed rule include the redesign of egg cartons, 
the other costs necessary to add the safe handling label to egg 
cartons, the additional equipment and energy costs to achieve the 
specified refrigeration temperatures for shell eggs, and the costs of 
changes in consumer practices resulting from the safe handling label.
1. Types of Establishments Covered
    The labeling provision and the refrigeration provision will affect 
different parts of the food industry.
    a.  Labeling provision coverage. The labeling provision covers 
shell eggs sold in labeled cartons or in cases for bulk sale. The 
labeling provision would affect all egg packers, processors, and 
distributors (hereinafter collectively referred to as ``packers''). 
There are 669 packers registered with USDA (Ref. 17).
    b. Refrigeration provision coverage. The refrigeration provision 
covers all retail establishments that sell or otherwise provide eggs as 
products to consumers (such as grocery stores selling cartons of eggs) 
or that use shell eggs in the production of other products sold or 
provided to consumers (such as hospitals providing prepared eggs to 
patients). These retail establishments include grocery stores, 
restaurants, health food stores, convenience stores, other retail 
establishments, as well as such institutions as prisons, nursing homes, 
schools, hospitals, and the military establishments.
2. Cost Estimates by Requirement and Type
    a. Egg container labels. The proposed labeling provision requires 
shell egg containers to have a safe handling statement. The cost of the 
proposed provision may be estimated by measuring the additional costs 
either where they first occur--at the carton manufacturers--or at the 
segments of the industry that bear the costs of relabeling. Because the 
egg industry, which includes egg producers, carton manufacturers, egg 
distributors, and retailers is competitive, the carton manufacturers 
will likely pass some or all of the costs of relabeling on to 
packers.\16\ The cost of relabeling if measured correctly will be the 
same no matter where in the carton market they are measured; therefore, 
the agency used the most readily accessible cost information for its 
estimates, which came from the carton manufacturers. It is irrelevant 
for purposes of cost estimation that packers are covered by the rule 
and carton manufacturers are not, because the costs are the same 
wherever measured.
---------------------------------------------------------------------------

    \16\ If both segments of the egg industry are competitive, the 
measured costs of carton manufactures could equal the costs borne by 
packers. Competition is a reasonable assumption for the packers 
because there are at least 669 firms in the industry. Competition 
may also be assumed for the carton manufacturers because their 
segment of the industry is contestable, meaning that it is a market 
with the potential for firm entry and exit. The economic theory of 
contestable markets suggests that when there is relatively free 
entry and exit into the market, prices will be set just high enough 
to cover the additional costs of production caused by the rule. The 
carton manufacturing industry four-firm concentration ratio is 85 
percent, which is high. Despite a high concentration ratio, carton-
manufacturing firms will still set carton prices at competitive 
levels or risk entry from new competitors. Anecdotal evidence exists 
that a new carton manufacturing firm did attempt to enter the market 
a few years ago (Ref. 18). It failed to be profitable and left the 
market shortly after entering, implying that the existing industry 
structure is competitive. The agency does not expect existing firms 
in the industry to exit as a consequence of the rule, because the 
increased costs from the rule are one-time costs. The remaining 
question is how those one-time costs will be split between carton 
manufacturers and packers. Although the question is important from 
the standpoint of the distribution of the burden of labeling costs, 
it does not affect the size of those costs.
---------------------------------------------------------------------------

    The agency assumed that the carton manufacturer's additional costs 
or relabeling would be for administration, inventory disposal, and 
label redesign. The one-time costs include the costs of replacing 
existing printing plates (if the planned useful life of plates expires 
after the start of the compliance period), the loss of existing carton 
inventory (if the inventory does not meet label requirements at the 
start of the compliance period), and an additional administrative 
expense to interpret and execute the firm's compliance with the rule. 
The agency does not expect any firms in the industry to shut down as a 
consequence of the rule, because the increased costs from the rule are 
one-time costs that are not expected to be large enough to make 
shutting down the best option.
    FDA calculated labeling costs with the following formula:
    labeling costs = ($ administrative costs per firm x number of 
affected firms) + ($ value of cartons manufactured x disposal 
percentage of carton inventory) + ($ redesign cost per label x 
number of affected labels)
    FDA calculated, separately, each of the three costs: 
Administrative, inventory disposal, and label redesign.
     i. Administrative costs. To estimate the administrative costs, the 
agency used the following formula:
    AC = A x F
    where:
    AC = administrative costs.
    A = administrative costs per firm.
    F = number of firms in the industry.
    Administrative costs include the firm's additional management and 
other overhead expenses needed to implement the proposed rule. Total 
administrative cost for the industry will be the administrative cost 
per firm multiplied by the number of firms that manufacture egg 
cartons. The Food Serving and Packaging Institute supplied information 
on the number of carton manufacturers (Ref. 19). Table 11 of this 
document shows FDA's estimates of the administrative cost per firm for 
different compliance periods. Administrative costs tend to decrease 
with the length of the compliance period, because longer compliance 
periods allow carton producers more time to incorporate the mandated 
label changes into regularly planned design, equipment, and personnel 
changes. In addition, fewer overtime hours would be required and 
possibly a lower level of management would be involved. Industry 
sources provided the agency with estimates of the cost per firm for a 
12 month-compliance period (Refs. 19 through 24). FDA inferred the 
amounts shown for the 6-month and 18-month compliance periods from the 
estimate for the 12-month compliance period. The agency assumed that a 
firm would require more hours with a shorter compliance period, and 
fewer hours with a longer compliance period.

                      Table 11.--Administrative Costs (estimated for carton manufacturers)
----------------------------------------------------------------------------------------------------------------
       Compliance Period                  6 Months                  12 Months                  18 Months
----------------------------------------------------------------------------------------------------------------
Number of firms                               8                          8                          8
Cost per firm                           $35,000                    $25,000                    $15,000
Total                                  $280,000                   $200,000                   $120,000
----------------------------------------------------------------------------------------------------------------


[[Page 36530]]

    ii. Inventory disposal costs. To estimate the inventory disposal 
costs, the agency used the following formula:
    ID = IV x I
    where:
    ID = inventory disposal costs.
    IV = total value of egg cartons manufactured annually.
    I = lost carton stock as a percent of industry volume.
    Inventory disposal costs are the costs of discarding otherwise 
useable carton inventory that does not comply with the new rule. The 
agency estimated inventory disposal costs by multiplying the total 
dollar value of the cartons produced annually by an estimate of the 
percentage of stock left over after the proposed rule would take 
effect.
    Many egg packers have carton turnover rates of once or twice a 
week, while other firms turn over their carton stock once or twice a 
year. Egg packers, whatever their rate of turnover, never hold a large 
number of cartons in inventory. Inventory disposal costs tend to 
decrease with longer compliance periods, because longer compliance 
periods allow packers to use up their carton inventory. Based on 
information provided by industry sources, the agency estimated the 
likely percentage of stock remaining for three compliance periods: 6 
months, 12 months, and 18 months (Refs. 19 through 24). Table 12 of 
this document shows FDA's estimate of the inventory disposal costs.

                                       Table 12.--Inventory Disposal Costs
----------------------------------------------------------------------------------------------------------------
      Compliance Period                6 Months                  12 Months                    18 Months
----------------------------------------------------------------------------------------------------------------
Total industry volume           $150,000,000               $150,000,000             $150,000,000
Lost stock as percent of           2 percent                  1 percent             0.5 percent
 industry
Total inventory disposal          $3,000,000                 $1,500,000             $750,000
 cost
----------------------------------------------------------------------------------------------------------------

    iii. Label redesign costs. To calculate the label redesign costs 
the agency used the following formula:
    LRC = $ per SKU x SKU's
    where:
    LRC = label redesign cost.
    $ per SKU = cost per stock keeping unit.
    SKU's = number of stock keeping units.
    Label redesign costs are associated with the redesign of the 
carton's printed label that would be needed to incorporate the proposed 
safe handling statement. FDA estimated the costs by multiplying the 
number of affected separable labels on cartons or containers, referred 
to as stock keeping units (SKU's), by the estimated cost per SKU. The 
total number of SKU's for the industry is about 20,000 (Refs. 19 
through 24). Although the labels affected would only be those without 
safe handling statements consistent with the proposed rule, the agency 
assumed that because the proposed rule requires specific language, no 
existing statements would be acceptable. Therefore, the agency 
estimated the costs based on the assumption that all labels would be 
changed.
    Label redesign costs decrease with a longer compliance period, 
partly because the carton's design, printing plates, and other capital 
investments must be changed periodically regardless of regulatory 
initiatives. If the compliance period were as long as the useful life 
of the existing carton design, the label redesign costs of the proposed 
rule would be greatly reduced.
    Redesign costs are lower, the more surface area on the carton, and 
are higher, the less surface area on the carton. Surface area is a 
major problem for labeling egg cartons, because of the relative absence 
of large, flat surfaces suitable for labels. When the surface area is 
not large enough to accommodate the proposed safe handling statement, 
the costs of redesign may also include redesigning the carton itself. 
Surface area is a significant issue for pulp paper carton 
manufacturers, because virtually all pulp paper cartons are ``view 
style'' cartons. View style cartons have a significantly reduced 
printable area. The additional cost of carton redesign to the pulp 
paper sector of the industry would put it at a competitive 
disadvantage. The alternative to pulp paper as carton material is foam. 
Foam cartons can more easily accommodate the proposed safe handling 
statement than can pulp paper cartons and, therefore, the cost of 
redesign would be less for foam cartons. The agency estimated the costs 
to redesign the labels per SKU, for both the pulp paper and foam carton 
segments of the industry, from information provided by industry sources 
(Refs. 19 through 24). Table 13 of this document shows a summary of the 
estimated costs for the foam carton segment of the industry for three 
compliance periods. Table 13a of this document shows the estimated 
costs for the pulp paper segment for three compliance periods. Table 
13b of this document shows the total cost for both segments of the 
industry for the three compliance periods.

                                   Table 13.--Foam Carton Label Redesign Costs
----------------------------------------------------------------------------------------------------------------
       Compliance Period                  6 Months                  12 Months                  18 Months
----------------------------------------------------------------------------------------------------------------
Cost per SKU                               $500                       $250                       $100
SKU's                                    10,000                     10,000                     10,000
Subtotal foam carton                 $5,000,000                 $2,500,000                 $1,000,000
----------------------------------------------------------------------------------------------------------------


                               Table 13a.--Pulp Paper Carton Label Redesign Costs
----------------------------------------------------------------------------------------------------------------
       Compliance Period                  6 Months                  12 Months                  18 Months
----------------------------------------------------------------------------------------------------------------
Cost per SKU                             $1,000                       $750                       $500
SKU's                                    10,000                     10,000                     10,000
Subtotal pulp paper carton          $10,000,000                 $7,500,000                 $5,000,000
 label redesign
----------------------------------------------------------------------------------------------------------------


[[Page 36531]]


                                 Table 13b.--Total Industry Label Redesign Costs
----------------------------------------------------------------------------------------------------------------
       Compliance Period                  6 Months                  12 Months                  18 Months
----------------------------------------------------------------------------------------------------------------
Subtotal foam carton label           $5,000,000                 $2,500,000                 $1,000,000
 redesign
Subtotal pulp paper carton          $10,000,000                 $7,500,000                 $5,000,000
 label redesign
Total label redesign cost           $15,000,000                $10,000,000                 $6,000,000
----------------------------------------------------------------------------------------------------------------

    iv. Summary of costs to incorporate safe handling labeling. Table 
14 of this document summarizes the estimated costs to incorporate safe 
handling statements on egg cartons.

                Table 14.--Estimated Total Industry Costs to Incorporate Safe Handling Statements
----------------------------------------------------------------------------------------------------------------
       Compliance Period                  6 Months                  12 Months                  18 Months
----------------------------------------------------------------------------------------------------------------
Total administrative costs             $280,000                   $200,000                   $120,000
Total inventory disposal costs       $3,000,000                 $1,500,000                   $750,000
Total label redesign costs          $15,000,000                $10,000,000                 $6,000,000
Total labeling costs                $18,000,000                $12,000,000                 $7,000,000
----------------------------------------------------------------------------------------------------------------

    b. Refrigeration costs. The refrigeration provision of the proposed 
rule requires retailers to refrigerate shell eggs at 7.2  deg.C (45 
deg.F) or less within 6 months from the date of publication of the 
final rule. The refrigeration provision potentially generates two 
additional costs to retailers: (1) An additional one-time capital cost 
to replace existing refrigeration equipment if the existing equipment 
is unable to cool to the proposed temperature, and (2) the cost of the 
additional energy needed to achieve and maintain the lower cooling 
temperature.
     i. Equipment costs to refrigerate at 7.2  deg.C (45  deg.F). FDA 
used the following formula to estimate the additional equipment costs 
to refrigerate eggs at 7.2  deg.C (45  deg.F):
    C = R x $ per R
    where:
    C = cost to refrigerate at 7.2  deg.C (45  deg.F).
    R = number of retailers that would incur an additional cost.
    $ per R = cost per retailer.
    The baseline number of establishments affected was the number of 
retailers that were not already required to refrigerate at 7.2  deg.C 
(45  deg.F) by State or local requirements, and who did not have 
refrigerators cooling at 7.2  deg.C (45  deg.F).
    The number of establishments and the additional refrigeration cost 
per establishment were both uncertain. The agency did not know: (1) How 
many and which retail establishments sell eggs, (2) the temperature at 
which the eggs are refrigerated in the establishments that sell eggs, 
(3) the age and temperature capability of the refrigerators, or (4) the 
price of refrigerators and components. FDA used ranges for the 
uncertain values and then estimated costs with Monte Carlo computer 
simulations similar to those described in section I.E of this document.
    To estimate the total number of retail establishments likely to be 
affected by the refrigeration provision, the agency first determined 
the number of establishments in each State with data from Dun's Market 
Identifiers (Ref. 25).\17\ If a State had already adopted the 1997 Food 
Code as issued by FDA or a similar code that required refrigeration to 
the proposed temperature, FDA assumed that there would be no additional 
equipment costs attributable to the proposed rule. The agency assumed 
that retailers in States with a refrigeration rule that met or exceeded 
the Federal requirement would incur no additional equipment costs.
---------------------------------------------------------------------------

    \17\ See Table 15 of this document.
---------------------------------------------------------------------------

    Table 15 of this document illustrates how the agency estimated the 
number of establishments likely to be affected by the requirement to 
refrigerate eggs at 7.2  deg.C (45  deg.F). Column A of Table 15 of 
this document lists each State. Column B shows the maximum allowable 
refrigeration temperature for each State, where there is a State 
requirement.\18\ Column C shows the total number of grocery or similar 
stores per State. Using Standard Industrial Classification (SIC) 
categories, the retail establishments included in this column are 
grocery stores (SIC 5411), poultry stands (SIC 5144), fruit and 
vegetable markets (SIC 5431), and dairy products stores (SIC 5451). 
Column D shows the number of grocery or similar stores that would be 
required to lower their refrigeration temperatures because of the 
proposed Federal provision. The agency assumed that between 0 and 100 
percent of all establishments without a 7.2  deg.C or lower 
refregeration requirement, with 33 percent the most likely value, would 
be required to reduce their refrigeration temperatures.\19\ FDA 
combined the estimated number of establishments refrigerating at 7.2 
deg.C in States without a requirement with the number of establishments 
in the 37 States (and the District of Columbia) with such a 
requirement, the result was that 95 percent of all establishments were 
estimated to refrigerate shell eggs at 7.2  deg.C or less. The agency 
based the assumption on the belief that most establishments in States 
that did not have a refrigeration rule would nevertheless refrigerate 
eggs at 7.2  deg.C (45  deg.F) or less. FDA assumed that these 
establishments would either be required to refrigerate by a local rule 
or would choose to refrigerate at 7.2  deg.C (45  deg.F) in order to 
satisfy consumer demand. The agency seeks comments on this assumption. 
Column E shows the total number of restaurants (eating places) (SIC 
5812) per State. Column F shows the number of restaurants that would be 
required to lower their refrigeration temperatures because of the 
proposed rule. The agency assumed that the most likely fraction of 
restaurants that would be required to lower their temperature would 
also be 33 percent of the total restaurants in those States without a 
State requirement. Column G shows the total number of institutions that 
serve eggs to consumers in each State. Institutions include prisons, 
military establishments, hospitals, nursing homes, public and private 
schools grades kindergarten through 12, colleges, and universities. 
Column H

[[Page 36532]]

shows the number of institutions that would be required to lower 
refrigeration temperatures because of the proposed rule. Column I shows 
the total number of retailers, including grocery stores, restaurants, 
and institutions in each State. Column J shows the total number of 
retailers that would be required to lower their refrigeration 
temperatures because of the proposed rule.
---------------------------------------------------------------------------

    \18\ If a State has no temperature requirement, FDA used 100 as 
the default value.
    \19\ In the calculations shown in Table 15 of this document, FDA 
used a Beta-pert distribution (0,33,1). For an explanation (see Ref. 
14).

                        Table 15.--Estimated Effects of Refrigeration Provision by State
----------------------------------------------------------------------------------------------------------------
   A          B           C         D          E            F             G             H          I        J
----------------------------------------------------------------------------------------------------------------
                        Total   Affected                                                                  Total
 State   State Temp.   Grocery   Grocery     Total       Affected       Total       Affected     Total  Affected
         Requirement   Stores    Stores   Restaurants  Restaurants  Institutions  Institutions  Retail   Retail
----------------------------------------------------------------------------------------------------------------
AL      45            4,142     0         5,957        0            2,443         0             12,542  0
AK      100           327       126       971          375          664           257           1,962   759
AZ      60            1,990     769       6,970        2,695        1,760         681           10,720  4,145
AR      45            2,341     0         3,702        0            1,883         0             7,926   0
CA      41            16,230    0         57,209       0            14,880        0             88,319  0
CO      45            1,733     0         7,260        0            2,369         0             11,362  0
CT      45            2,192     0         6,317        0            1,870         0             10,379  0
DE      41            467       0         1,340        0            375           0             2,182   0
DC      45            516       0         1,651        0            390           0             2,557   0
FL      41            10,223    0         27,256       0            5,629         0             43,108  0
GA      41            6,287     0         12,229       0            3,454         0             21,970  0
HI      45            596       0         2,187        0            450           0             3,233   0
ID      45            790       0         2,017        0            917           0             3,724   0
IL      41            5,916     0         19,158       0            7,358         0             32,432  0
IN      45            3,023     0         8,692        0            3,740         0             15,455  0
IA      45            2,214     0         4,783        0            2,755         0             9,752   0
KS      60            1,595     617       4,183        1,617        2,637         1,020         8,415   3,254
KY      45            3,550     0         5,806        0            2,449         0             11,805  0
LA      45            4,317     0         6,630        0            2,737         0             13,684  0
ME      100           1,396     540       2,328        900          1,143         442           4,867   1,882
MD      45            2,982     0         8,162        0            2,442         0             13,586  0
MA      45            3,467     0         11,819       0            3,609         0             18,895  0
MI      40            5,716     0         14,321       0            5,632         0             25,669  0
MN      45            2,795     0         6,561        0            3,022         0             12,378  0
MS      41            3,332     0         3,806        0            11,726        0             18,864  0
MO      60            3,440     1,330     7,876        3,045        3,998         1,546         15,314  5,921
MT      41            642       0         1,589        0            1,318         0             3,549   0
NE      45            1,186     0         2,515        0            2,239         0             5,940   0
NV      100           704       272       2,431        940          652           252           3,787   1,464
NH      100           866       335       2,407        931          846           327           4,119   1,593
NJ      60            5,619     2,173     15,234       5,890        4,133         1,598         24,986  9,661
NM      100           1,419     549       2,801        1,083        1,187         459           5,407   2,091
NY      45            14,757    0         35,667       0            8,207         0             58,631  0
NC      45            6,635     0         11,316       0            3,559         0             21,510  0
ND      41            883       0         984          0            894           0             2,761   0
OH      45            5,988     0         17,434       0            6,886         0             30,308  0
OK      60            2,741     1,060     4,877        1,886        3,071         1,187         10,689  4,133
OR      45            2,204     0         6,088        0            1,951         0             10,243  0
PA      45            7,868     0         19,864       0            7,006         0             34,738  0
RI      41            642       0         2,033        0            614           0             3,289   0
SC      45            3,827     0         6,315        0            1,888         0             12,030  0
SD      41            570       0         1,236        0            1,043         0             2,849   0
TN      100           5,264     2,035     8,634        3,338        2,954         1,142         16,852  6,516
TX      41            15,307    0         31,907       0            10,488        0             57,702  0
UT      41            956       0         2,911        0            1,060         0             4,927   0
VT      100           719       278       1,064        411          564           218           2,347   908
VA      45            4,872     0         10,483       0            3,229         0             18,584  0
WA      45            3,467     0         10,438       0            3,085         0             16,990  0
WV      100           1,703     658       2,349        908          1,414         547           5,466   2,114
WI      40            2,635     0         7,688        0            3,931         0             14,254  0
WY      45            309       0         926          0            586           0             1,821   0
Total                 183,360   10,743    448,382      24,022       163,137       9,676         794,87  44,440
                                                                                                 9
----------------------------------------------------------------------------------------------------------------

    The agency assumed that each retailer not already in compliance 
with a State or local refrigeration rule would incur additional 
equipment costs in order to comply with the proposed rule. The agency 
also assumed that each retail establishment would have only one 
refrigerator that would be affected by the proposed rule. The equipment 
cost would be either the cost to replace old refrigerator components 
before the end of the component's useful life or the cost to purchase a 
new refrigerator after deducting the remaining useful value of the old 
refrigerator. Not all current refrigerators or refrigerator components 
such as compressors and coils are capable of cooling to the proposed 
lower temperatures. Older cooling equipment may not be able to achieve 
lower cooling temperatures, or if able to do so

[[Page 36533]]

cannot maintain a uniform temperature. Many older compressors lack 
sufficient horsepower (compressor power) and many older refrigeration 
coils lack the surface area for sufficient heat exchange. Attempting to 
meet the temperature requirements of the proposed rule with under-
capacity refrigerators in a multishelf display case can cause both 
under-cooling and over-cooling of the products (Ref. 26). Excessively 
cold temperatures for products located at the top of display shelves 
can occur when the bottom shelves are targeted to meet the temperature 
requirement; excessively warm temperatures can occur at the bottom if 
the top shelves are targeted to meet the temperature requirement. 
Furthermore, products must be cooled to an even lower temperature than 
the proposed rule to ensure that at the end of the defrost cycle, when 
there is no cooling, the refrigerator does not exceed the allowable 
temperature. Maintaining a uniformly cool temperature in display cases, 
then, is not feasible when refrigerator components lack sufficient 
capacity. Because attempting to maintain the temperature with 
insufficient cooling capacity can adversely affect the safety, quality, 
and shelf life of the food products, some establishments would be 
forced to purchase new refrigerators or components.
     All commercial refrigerators eventually wear out and have to be 
replaced. The cost of replacement resulting from the proposed rule only 
occurs if replacement becomes necessary before the planned end of the 
useful life of the existing equipment. Commercial refrigeration 
industry sources say that the useful life of a commercial refrigerator 
can be as long as 20 years, although on average commercial 
refrigerators last about 10 years (Ref. 27). The life of the 
refrigerator matters, because the longer the useful life of existing 
refrigerators, the greater will be the foregone capital cost borne by 
firms compelled to replace them. It follows that the longer the 
compliance period, the smaller will be the useful life left at the time 
of replacement and the smaller will be the cost borne by firms.
    Retailers whose equipment could not reach the proposed safe cooling 
temperature and who were not planning to purchase a refrigerator or 
components during the compliance period would be forced to make a one-
time purchase of refrigerators or components. The difference between 
the planned capital replacement cost without the proposed rule and the 
capital cost with the proposed rule would be the equipment cost of the 
refrigeration provision (the new equipment cost minus the salvage value 
of the old equipment). It would be a one-time cost, because all future 
purchases would occur at the end of the useful life of the refrigerator 
and not in response to the proposed rule.
    The agency assumed that only one refrigerator per retailer would be 
potentially affected by the provision, because even the largest retail 
outlets (such as supermarkets) rarely have more than one refrigerator 
or display case exclusively devoted to selling eggs. Some large grocery 
stores might have more than one refrigerator containing eggs such as 
when eggs are displayed in island refrigerators for marketing purposes 
or in display cases in the dairy section. The agency assumed that for 
every retailer with more than one refrigerator devoted to eggs, there 
would be one, probably a smaller retailer, who did not sell eggs.
    The agency assumed that additional equipment costs per affected 
establishment varied from close to 0 to approximately $6,000. This 
range of estimated equipment costs combined two separate ranges, one 
for small equipment costs and one for large equipment costs. The small 
equipment costs ranged from 0 to $1,000, with $700 the most likely 
value. The large equipment costs ranged from $1,000 to $6,000, with 
$4,000 the most likely value. FDA assumed that equipment expenditures 
would be highly correlated with the size of establishment, so that 
small firms would have small equipment costs and large firms would have 
large equipment costs. With 80 percent of establishments classified as 
small, the assumption that costs and establishment size were correlated 
led to the assumption that 80 percent of refrigeration costs would fall 
in the small range and 20 percent would fall in the large range.\20\ 
FDA recognized, however, that the correlation would likely not be 
perfect; some small firms could have large equipment costs and some 
large firms could have small equipment costs.
---------------------------------------------------------------------------

    \20\ In the simulation used to estimate total equipment costs, 
the distributions of small and large equipment costs were 
characterized as Beta-pert distributions with small costs 
distributed as Beta-Pert (0,700,1000) and large costs distributed as 
Beta-pert (1000,4000,6000). The two distributions were combined with 
a discrete distribution that assumed that the probability that costs 
were small was 0.8 and the probability that costs were large was 
0.2. The full distribution for the simulation was: Discrete ((Beta 
Pert (0,700,1000), Beta-Pert (1000,4000,6000)), (0.8, 0.2)).
---------------------------------------------------------------------------

    FDA estimated total equipment costs with a Monte Carlo simulation 
of 1,000 calculations (or iterations). Each calculation consisted of an 
estimate of the number of affected establishments multiplied by an 
estimate of the equipment cost per establishment. The 5th percentile, 
median, mean, and 95th percentile of simulated total equipment costs 
are shown in Table 16 of this document.

                     Table 16.--Total Annual Equipment Costs to Refrigerate to 7.2 C (45 F)
----------------------------------------------------------------------------------------------------------------
         5th Percentile                    Median                      Mean                 95th Percentile
----------------------------------------------------------------------------------------------------------------
$7,000,000                          $31,000,000                $56,000,000               $228,000,000
----------------------------------------------------------------------------------------------------------------

    ii. Energy costs. The additional energy costs likely to be caused 
by the proposed rule appear to be negligible, because new commercial 
refrigerators are significantly more energy efficient than older 
refrigerators. As retailers replace their existing equipment to comply 
with the rule, the agency expects retailers to adopt energy-efficient 
technologies, which will reduce their energy consumption by 
approximately the amount of additional energy used to lower their 
existing refrigeration temperature to 7.2  deg.C (45  deg.F). FDA 
therefore assumed that the proposed rule would lead to no additional 
energy costs.
    iii. Shares of estimated refrigeration costs by type of 
establishment. The shares of total refrigeration costs by type of 
establishment are shown in Table 17 of this document. FDA assumed that 
equipment costs accounted for all refrigeration costs of the proposed 
rule.

[[Page 36534]]



      Table 17.--Refrigeration Cost Shares by Type of Establishment
------------------------------------------------------------------------
                                       Share of Total Refrigeration Cost
        Type of Establishment                    (in percent)
------------------------------------------------------------------------
Grocery stores                                             25
Restaurants                                                54
Institutions                                               21
------------------------------------------------------------------------

     iv. Comparison with other studies of estimated refrigeration 
costs. The agency found only two studies, by Dunn and Madison (Ref. 28) 
and by Madison (Ref. 29), that have estimated the costs of a similar 
proposed refrigeration rule. Dunn and Madison estimated the statewide 
impact from lowering the refrigeration requirement from 55  deg.F to 45 
 deg.F. They assumed that the statewide average refrigeration 
temperature before the proposed rule was 55  deg.F. They estimated the 
most likely cost to egg packers to reduce refrigerator temperatures 
from 55  deg.F to 45  deg.F to be $0.05 per dozen eggs, but that the 
cost could be as low as $0.02 per dozen. The smaller cost held when the 
eggs were produced from larger flocks and were cooled in refrigerators 
with larger capacity. The estimates were based on the cost to modify 
the existing cooling systems to increase cooling capacity. Although egg 
packers and not retailers incurred the additional costs, the agency 
believes that the costs to one segment of the industry would be passed 
on to a downstream segment and would be nearly equal on a per carton 
basis.\21\
---------------------------------------------------------------------------

    \21\ The costs could be passed on if all segments of the 
industry were competitive.
---------------------------------------------------------------------------

    The Dunn and Madison estimates can be compared to the agency's 
estimate of the cost to refrigerate eggs at 7.2  deg.C (45  deg.F). The 
higher estimate of refrigeration costs (Refs. 28 and 29) of $0.05 per 
dozen eggs equals $0.08 per dozen eggs in current (1998) dollars. The 
lower estimate of refrigeration costs (Refs. 28 and 29) of $0.02 per 
dozen eggs equals $0.032 per dozen eggs in current (1998) dollars. The 
agency multiplied both the lower and the higher estimates of cost per 
dozen eggs by the agency's estimate of the total number of eggs sold at 
retail in States without a current refrigeration rule.
    For the comparison with the Dunn and Madison estimates, FDA assumed 
that there were no regional or State differences in consumption per 
person of shell eggs across the country. The agency got the number of 
shell eggs produced and consumed nationwide from the USDA Economics 
Research Service (Ref. 30). The agency assumed that the national 
consumption of eggs equaled to the national production of eggs after 
subtracting for net exports, breakers, and diverted eggs. FDA further 
assumed that a State's share of the national consumption of eggs 
equaled the State's share of national population. Table 18 of this 
document shows the resulting estimate of the number of affected eggs 
sold in States that do not currently meet the proposed refrigeration 
provision.

                                                            Table 18.--State Egg Consumption
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Number of Eggs Consumed
                             State                                              State Temperature Requirement                          (Millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama                                                         45
Alaska                                                          None                                                                      106
Arizona                                                         60                                                                        691
Arkansas                                                        45
California                                                      41
Colorado                                                        45
Connecticut                                                     45
Delaware                                                        41
District of Columbia                                            45
Florida                                                         41
Georgia                                                         41
Hawaii                                                          45
Idaho                                                           45
Illinois                                                        41
Indiana                                                         45
Iowa                                                            45
Kansas                                                          60                                                                        455
Kentucky                                                        45
Louisiana                                                       45
Maine                                                           None                                                                      223
Maryland                                                        45
Massachusetts                                                   45
Michigan                                                        40
Minnesota                                                       45
Mississippi                                                     41
Missouri                                                        60                                                                        936
Montana                                                         41
Nebraska                                                        45
Nevada                                                          None                                                                      239
New Hampshire                                                   None                                                                      200
New Jersey                                                      60                                                                      1,405

[[Page 36535]]

 
New Mexico                                                      None                                                                      285
New York                                                        45
North Carolina                                                  45
North Dakota                                                    41
Ohio                                                            45
Oklahoma                                                        60                                                                        579
Oregon                                                          45
Pennsylvania                                                    45
Rhode Island                                                    41
South Carolina                                                  45
South Dakota                                                    41
Tennessee                                                       None                                                                      906
Texas                                                           41
Utah                                                            41
Vermont                                                         None                                                                      103
Virginia                                                        45
Washington                                                      45
West Virginia                                                   None                                                                      327
Wisconsin                                                       40
Wyoming                                                         45
Total\1\                                                                                                                                6,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Rounded

    The agency used the following formula to calculate the cost to 
refrigerate at 7.2  deg.C (45  deg.F) using Dunn and Madison's 
estimated average cost per dozen eggs:
    RC = DE x $ per D
    where:
    RC = cost to refrigerate to 7.2  deg.C (45  deg.F).
    DE = total number of eggs (in dozens) in States where eggs not 
currently refrigerated to 7.2  deg.C (45  deg.F).
    $ per D = cost per dozen eggs to refrigerate to 7.2  deg.C (45 
deg.F).
    The agency estimated that 6.5 billion eggs were not refrigerated at 
7.2  deg.C (45  deg.F) (see Table 18 of this document). The number of 
dozens not refrigerated at 7.2  deg.C (45  deg.F) would therefore be 
540 million (= 6.5 billion  12). The high estimated cost of 
refrigeration would be about $43 million (= 540 million dozen eggs x 
$0.08 per dozen). The low estimated cost of refrigeration would be 
about $17 million (= 540 million dozen eggs x $0.032 per dozen).
    Table 19 of this document compares FDA's estimate of the costs of 
refrigeration with estimates based on Dunn and Madison's high and low 
average refrigeration cost per dozen eggs. As the table shows, FDA's 
median estimate of total refrigeration costs fall between Dunn and 
Madison's high and low estimates.

               Table 19.--Comparative Summary of Costs From the Refrigeration Provision (millions)
----------------------------------------------------------------------------------------------------------------
             Method                     FDA (Median)         Dunn and Madison (High)     Dunn and Madison (Low)
----------------------------------------------------------------------------------------------------------------
7.2 C (45 F)                                $31                        $43                        $17
----------------------------------------------------------------------------------------------------------------

     c. Changes in consumer practices. A safe handling label will not 
by itself lead to safer eggs. The changes people make in response to 
the label lead to safer eggs. In the calculation of benefits from the 
safe handling label, FDA assumed that some people would respond to the 
proposed safe handling label by cooking eggs more thoroughly or by 
switching away from foods that require raw or undercooked eggs. FDA 
recognizes that if people for reasons of safety reduce their 
consumption of foods they would have otherwise preferred, they bear the 
costs of changing their preparation and consumption practices. If it 
were possible to do so, many people would be willing to pay more to 
continue to be able to eat the unsafe food, supposing it could be made 
safe. The extra willingness to pay is the measure of the cost of 
changing consumer practices when consumers are unable to purchase or 
prepare a safe version of the preferred food.
    The agency calculated the cost of changing consumer practices with 
the following formula:
    CS = E x UP x UP x $ per U

     where:
    CS = annual cost of changing consumer practices.
    E = total eggs consumed per year.
    UP = baseline percentage of total eggs that were not cooked 
thoroughly before the rule.
    UP = percentage reduction in eggs that are not cooked 
thoroughly because of the rule.
    $ per U = value of undercooking one egg.
    The estimated number of eggs consumed was 46.8 billion. Based on 
results of the Food Consumption and Preparation Survey, the USDA SE 
risk assessment used a distribution with a most likely value of 33 
percent to estimate the baseline percentage of eggs that were not 
cooked thoroughly before the proposed rule.\22\ FDA estimated the 
percentage reduction of consumption of undercooked eggs as a 
distribution, with a most likely value of about 5 percent.\23\ The 
agency assumed that $0.025 (= $0.30  12), the cost per egg for 
in-shell pasteurization, would be the upper bound that consumers would 
be willing to pay for safe handling. The agency assumed that the lower 
bound cost would be 1/25th of the upper bound

[[Page 36536]]

cost, or $0.001. The agency further assumed that the value to consumers 
of one undercooked egg would vary uniformly between the lower bound 
($0.001) and the upper bound ($0.025)\24\
---------------------------------------------------------------------------

    \22\ The minimum was 27 percent and the maximum was 46 percent. 
The distribution used in the simulation was Beta-Pert (0.27, 0.33, 
0.46).
    \23\ FDA used a Beta distribution to characterize the reduction 
in undercooking. The Beta distribution (50,959) was based on survey 
results for the USDA safe handling label for meat (Ref. 5). FDA used 
the same survey to estimate the benefits of the proposed safe 
handling label.
    \24\ In the simulation, the value of an undercooked egg was 
characterized as a uniform distribution: Uniform ($0.001, $0.025).
---------------------------------------------------------------------------

    Because of the uncertainty associated with the calculation, the 
agency estimated the costs of changing consumer practices with a Monte 
Carlo simulation. Table 20 of this document shows the results of the 
1,000 calculations of the annual cost of changes in consumer practices 
brought about by the proposed rule.

                   Table 20.--Estimated Annual Cost of Changes in Consumer Practices Attributable to the Proposed Safe Handling Label
--------------------------------------------------------------------------------------------------------------------------------------------------------
                  Variable                          5th Percentile                 Median                      Mean                 95th Percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual cost to consumers                          $2,000,000                $10,000,000                $10,000,000                $20,000,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

G. Summary of Benefits and Costs

    The agency estimated the median annual benefits of this proposed 
rule to be about $300 million for the CDC surveillance baseline model 
and about $700 million for the USDA SE risk assessment baseline model. 
The estimated median costs to refrigerate shell eggs at 7.2  deg.C (45 
deg.F) were $31 million in the first year. The agency estimated the 
cost to incorporate safe handling statements as $18 million for a 6-
month compliance period. The median estimated cost of changing consumer 
practices was $10 million per year. Therefore, the agency estimated the 
total cost of the proposed rule in the first year to be about $60 
million. After the first year, the only continuing cost would be 
reduced consumer satisfaction, which recurs year after year as long as 
consumers have a preference for undercooked eggs. FDA concludes that 
the effects of the proposed rule would be economically significant 
under Executive Order 12866. The proposed rule, based on the median 
estimate of cost contained in the economic analysis, would not be 
significant under the Unfunded Mandates Reform Act.

          Table 21.--Median Annual Estimated Benefits and Costs of the Proposed Rule (in millions of $)
----------------------------------------------------------------------------------------------------------------
                                                                                 First year      All other years
----------------------------------------------------------------------------------------------------------------
Median estimated benefits (USDA SE risk assessment baseline)                       $700           $700\1\
Median estimated benefits (CDC surveillance baseline)                              $300           $300\1\
Median estimated costs                                                              $60               $10
----------------------------------------------------------------------------------------------------------------
\1\ The benefits remain high after the first year if no other interventions affect SE in shell eggs. If other
  Federal or State regulations, consumer education, and producer initiatives reduce the baseline incidence of SE
  illness from shell eggs, then the benefits from the proposed rule will decline over time. The decline will be
  roughly proportional to the decline in baseline incidence of SE illness from shell eggs.

II. Initial Regulatory Flexibility Analysis

A. Introduction

    FDA has examined the economic implications of these proposed rules 
as required by the Regulatory Flexibility Act (5 U.S.C. 601-612). If a 
rule has a significant economic impact on a substantial number of small 
entities, the Regulatory Flexibility Act requires agencies to analyze 
regulatory options that would lessen the economic effect of the rule on 
small entities.

B. Economic Effects on Small Entities

1. Number of Small Entities Affected
    The proposed rule would affect many small entities, including egg 
processors, grocery stores, restaurants, and other food service 
establishments. Of the 669 egg processors registered with the USDA, FDA 
has not been able to determine how many are small businesses (Ref. 17). 
Egg processors generally fall into two industrial classifications: 
Poultry slaughtering and processing (SIC code 2015) and whole poultry 
and poultry products (SIC code 5144). The two classifications roughly 
correspond to in-line and off-line processors. In-line processors 
package the eggs at the egg laying facility. Off-line processors ship 
the eggs to packers.
    The Small Business Administration (SBA) defines in-line egg 
processors (SIC code 2015-03) to be small businesses if they employ 500 
or fewer people. According to a search in Dun's Market Identifiers 
(Ref. 25), 25 in-line egg processing firms would be defined as small. 
SBA defines off-line processors (SIC code 5144) to be small if they 
employ 100 or fewer people. Dun's Market Identifiers did not have a 
subcategory for egg processors. For the entire category of poultry and 
poultry products (SIC code 5144), 80 percent of establishments employ 
fewer than 100 workers. If the same proportion holds for the 
subcategory composed of egg processors, then 470 firms would be 
classified as small.\25\ FDA estimated the total number of small egg 
processors to be 495 (= 25 + 470).
---------------------------------------------------------------------------

    \25\ The estimated total number of in-line establishments is 
134, but 52 are branches of firms. If the total number of in-line 
firms is 82(=134--52), and the number of processors is 669, then 587 
firms are off-line processors. If 80 percent are small, then 470 
off-line (=0.8 x 587) processors are small.
---------------------------------------------------------------------------

    The refrigeration provision would affect small establishments that 
are not currently refrigerating at 7.2  deg.C (45  deg.F). The SBA 
defines grocery stores (SIC code 5411) to be small if annual gross 
revenue is less than $20 million. Other food stores (SIC codes 5431, 
5451, and 5499), which include fruit and vegetable markets, dairy 
product stores, and miscellaneous food stores, are small if annual 
sales are less than $5 million. Restaurants are small if annual sales 
are less than $5 million; institutions are small if sales are less than 
$15 million.
    As set out in Table 22 of this document, FDA estimated that the 
number of small establishments affected by the proposed refrigeration 
provision would be 25,400. The number of establishments (small and 
large) currently not keeping eggs at an ambient temperature of 7.2 
deg.C (45  deg.F) is approximately 44,400, which includes 10,700 
grocery and other food stores,

[[Page 36537]]

24,000 restaurants, and 9,700 institutions (see Table 15 of this 
document). FDA assumed that the proportion of small establishments 
affected by the refrigeration provision would be the same as the 
fraction of institutions for the entire industry in that category. 
According to SBA size standards for small entities, 71 percent of 
grocery and other food stores and 54 percent of restaurants are small. 
Institutions are more complicated because they cut across SIC codes. 
FDA assumed that 50 percent of institutions serving eggs are small. The 
agency asks for comments on this assumption. FDA estimated the number 
of small establishments affected by the refrigeration provision by 
multiplying the fraction in each category defined to be small by the 
total number of establishments affected. Table 22 of this document 
shows the number of small entities likely to be affected by the 
refrigeration provision of the proposed rule.

    Table 22.--Number of Small Entities Likely to be Affected by the
              Refrigeration Provision of the Proposed Rule
------------------------------------------------------------------------
                                      Number of Small Establishments
            Category              Currently Storing Eggs Above 7.2 C (45
                                                    F)
------------------------------------------------------------------------
Grocery and other stores                                7,600
Restaurants                                            13,000
Institutions                                            4,800
Total                                                  25,400
------------------------------------------------------------------------

2. Costs to Small Entities
    Redesigning the label accounts for most of the estimated additional 
labeling costs for small processors. For a 6-month compliance period, 
redesign costs would be $1,000 per SKU for pulp cartons and $500 per 
SKU for foam cartons. The cost of the labeling provision borne by small 
processors will vary with the number of SKU. The average number of 
SKU's per processor for the industry is 30; FDA assumes that the output 
of small processors falls in the range of 2 to 20 SKU's. Additional 
redesign costs could therefore be as high as $20,000 per processor (= 
20 x $1,000).
    Refrigeration costs vary across establishments, depending on the 
age of current refrigerators, the planned replacement cycle, and 
whether the small establishments is currently keeping eggs at or below 
7.2  deg.C (45  deg.F). Additional costs of refrigeration for small 
retailers would average $633 per establishment, with $700 the most 
likely cost. FDA assumed that the proportion of additional 
refrigeration costs borne by small entities would be the same as the 
proportion of small entities in each category of establishments. Table 
23 of this document shows the estimated total cost of the refrigeration 
provision to small entities. The agency requests comments on the effect 
of the refrigeration provision on roadside stands.

Table 23.--Costs to Small Entities of the Refrigeration Provision of the
                              Proposed Rule
------------------------------------------------------------------------
                           Total Costs to Small     Mean Cost per Small
       Category                  Entities                  Entity
------------------------------------------------------------------------
Grocery                             $4.8 million   $633
Restaurants                         $8.2 million   $633
Institutions                        $3.1 million   $633
Total                              $16.1 million   $633
------------------------------------------------------------------------

C. Regulatory Options

1. Exemption for Small Entities
    The burden on small entities would be lifted if they were exempt 
from the provisions of the proposed rule. Most of the entities affected 
by this proposed rule, however, are small. Thus, exempting small 
entities from its provisions would effectively negate the rule.
2. Longer Compliance Periods
    Lengthening the labeling compliance period from 6 months to 18 
months and lengthening the refrigeration compliance period from the 
proposed rule's effective date to 12 months after the effective date 
would provide regulatory relief (cost reduction) to small entities. In 
order to estimate the regulatory relief from lengthening the 
refrigeration compliance period, the agency assumed that the cost 
reduction would equal the interest (discounted at 7 percent per year) 
on the cost of refrigeration equipment over the extension of the 
compliance period. If the compliance period were extended by 12 months, 
the interest on the cost of equipment would be over $1 million (= $16.1 
x 0.07). For the most likely equipment cost of $700 per small 
establishment, the interest saving would be about $50 (= 0.07 x $700).
    In order to estimate the regulatory relief to small retail entities 
from a longer labeling compliance period, FDA first estimated the 
decline in total industry costs and then multiplied it by the small 
business share of total costs. Total industry costs would fall by $11 
million if the compliance period for labeling were extended from 6 
months to 18 months (see Table 14 of this document). Most of the relief 
to small businesses would come from the reduced costs of redesigning 
the carton label. For pulp cartons, extending the compliance period to 
18 months would reduce redesign costs from $1,000 (for a 6-month 
compliance period) to $500 per SKU. For foam cartons, extending the 
compliance period to 18 months would reduce redesign costs from $500 
(for a 6-month compliance period) to $100 per SKU.
    Although lengthening the compliance periods would provide some 
regulatory relief to small entities, they make up such a large part of 
the affected industries that longer compliance periods would 
significantly delay the full public health benefits of the proposed 
rule.

D. Description of Recordkeeping and Recording Requirements

    The Regulatory Flexibility Act requires a description of the 
recordkeeping and recording required for compliance with this rule. 
This rule

[[Page 36538]]

does not require the preparation of a report or a record.

E. Worst Case to Small Entities

    The greatest impact to a small retail establishment as a 
consequence of the refrigeration provision would be to cause the entity 
to bear the entire cost for the purchase of a new refrigerator. The 
agency estimates that the cost of a new refrigerator is between $2,500 
and $6,000. In order to estimate the worst possible outcome for a small 
entity, FDA assumed that some small retail establishment would purchase 
a new refrigerator at the maximum estimated cost of $6,000. If the 
latter cost were amortized over a 10-year period (using a discount rate 
of 7 percent) then the approximate annual expense would be $850 per 
year for 10 years. According to Dun and Bradstreet, 85 percent of all 
grocery stores have annual sales of less than $20 million, and 71 
percent of all restaurants have annual sales of less than $5 million 
(Ref. 25). Among the smallest 10 percent of these establishments, the 
average sales volume is $100,000 per year for a grocery store and 
$50,000 per year for a restaurant. Therefore, the additional expense of 
$850 per year would be approximately 1 to 2 percent of average sales 
volume per year. Grocery stores and restaurants typically have profit 
margins on sales of 1 to 5 percent, so a reduction of the profit margin 
by 40 to 100 percent would be the worst-case outcome for the smallest 
entities in retail.
    The worst case to a small entity attributable to the labeling 
provision would occur if a small packer were unable to pass along any 
of the cost to its customers. As shown previously, FDA estimated that 
the redesign cost to a small processor could be as high as $20,000. If 
the one-time cost could be amortized over a 10-year period at an annual 
discount rate of 7 percent, the small packer would incur an additional 
annual expense of approximately $3,000. FDA did not estimate the annual 
sales revenues of the smallest egg packers and, therefore, it was 
unable to compare the estimated amortized cost to annual profits. FDA 
requests comments on this relationship.

F. Summary

    FDA estimated that the labeling provisions could impose costs of up 
to $20,000 on 495 small processing establishments. The refrigeration 
provision would impose estimated average costs of $633 per small entity 
(and up to $6,000) on approximately 25,400 small establishments. FDA 
finds that, under the Regulatory Flexibility Act, this proposed rule 
would have a significant economic impact on a substantial number of 
small entities.

III. References

    The following references have been placed on display in the Dockets 
Management Branch (address above) and may be seen by interested persons 
between 9 a.m. and 4 p.m., Monday through Friday.
    1. Memorandum of telephone conversation between Marilyn Balmer, 
FDA, and Peter Vardon, FDA, September 4, 1998.
    2. Baker Jr., A. R., E. D. Ebel, R. M. McDowell, R. A. Morales, 
W. D. Schlosser, and R. Whiting, Salmonella Enteritidis Risk 
Assessment Team, Salmonella Enteritidis Risk Assessment: Shell Eggs 
and Egg Products, Washington, DC: United States Department of 
Agriculture, Food Safety and Inspection Service, June 12, 1998.
    3. Centers for Disease Control and Prevention (CDC), Salmonella 
Surveillance, Atlanta, GA: Centers for Disease Control and 
Prevention, 1997.
    4. Bean, N. H., J. S. Goulding, M. T. Daniels, and F. J. Angulo, 
``Surveillance for Foodborne Disease Outbreaks--United Sates, 1988-
1992,'' Journal of Food Protection, vol. 60, pp. 1265-1286, 1997.
    5. Food Marketing Institute (conducted by Abt Associates, Inc.), 
``Trends in the United States: Consumer Attitudes & the 
Supermarket,'' Washington, DC: Food Marketing Institute, 1996.
    6. Mauskopf, J. A., M. T. French, A. S. Ross, D. M. Maguire, R. 
W. Leukrith, Jr., and K. D. Fisher, ``Estimating the Value of 
Consumers' Loss from Foods Violating the Federal Food, Drug, and 
Cosmetic Act,'' Research Triangle Report to the Center for Food 
Safety and Applied Nutrition, U.S. Food and Drug Administration, 
September 1988.
    7. Thompson, G. T. D., Debra A. De Rubeis, M. A. Hodge, C. 
Rajanayagam, and R. D. Inman, ``Post-Salmonella Reactive Arthritis: 
Late Clinical Sequelae in a Point Source Cohort,'' The American 
Journal of Medicine, vol. 98, pp. 13-21, January 1995.
    8. CDC/USDA/FDA Foodborne Diseases Active Surveillance Network 
(FoodNet), 1997, Surveillance Results, U.S. Department of Health and 
Human Services, U.S. Public Health Service, Centers for Disease 
Control and Prevention, April 1998.
    9. Economic Report of the President, Washington: United States 
Government Printing Office, February 1998.
    10. Viscusi, W. K., ``The Value of Risks to Life and Health,'' 
Journal of Economic Literature vol. 31, pp. 1912-1946, December 
1993.
    11. Buzby, J. C., T. Roberts, C.-T. Jordan Lin, and J. M. 
MacDonald, Bacterial Foodborne Disease: Medical Costs and 
Productivity Losses, Washington, DC: United States Department of 
Agriculture, Economic Research Service, Agricultural Economic Report 
No. 741, August 1996.
    12. Zorn, D. J., and K. Klontz, Appendix: The Value of Consumer 
Loss to Foodborne Reactive Arthritis, Federal Register 63, May 1, 
1998.
    13. Council for Agricultural Science and Technology (CAST), 
Food-Borne Pathogens: Risks and Consequences. Ames, Iowa: Council 
for Agricultural Science and Technology, Task Force Report No. 122, 
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IV. Request for Comments

    Interested persons may, on or before September 20, 1999, submit to 
the Dockets Management Branch (address above) written comments 
regarding this preliminary regulatory impact analysis and initial 
regulatory flexibility analysis. Two copies of any comments are to be 
submitted, except that individuals may submit one copy. Comments are to 
be identified with the docket numbers found in brackets in the heading 
of this document. Received comments may be seen in the office above 
between 9 a.m. and 4 p.m., Monday through Friday.

    Dated: June 10, 1999.
Jane E. Henney
Commissioner of Food and Drugs.
Donna E. Shalala,
Secretary of Health and Human Services.
[FR Doc. 99-17121 Filed 7-1-99; 11:12 am]
BILLING CODE 4160-01-F