[Federal Register Volume 65, Number 140 (Thursday, July 20, 2000)]
[Rules and Regulations]
[Pages 44948-44950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-18254]


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DEPARTMENT OF AGRICULTURE

Food Safety and Inspection Service

9 CFR Part 590

[Docket No. 99-012F]
RIN 0583-AC71


Fee Increase for Egg Products Inspection--Year 2000

AGENCY: Food Safety and Inspection Service, USDA.

ACTION: Final rule.

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SUMMARY: The Food Safety and Inspection Service (FSIS) is increasing 
the fees that it charges egg product plants for providing overtime and 
holiday inspection services. These fee increases reflect the total cost 
of inspection, including the national and locality pay raise for 
Federal employees, inflation, applicable overhead costs, and other 
inspection costs.

EFFECTIVE DATE: July 30, 2000.

FOR FURTHER INFORMATION CONTACT: For information concerning policy 
issues, contact Daniel Engeljohn, Ph.D., Director, Regulations 
Development and Analysis Division, Office of Policy, Program 
Development, and Evaluation, FSIS, U.S. Department of Agriculture, Room 
112, Cotton Annex, 300 12th Street, SW., Washington, DC 20250, (202) 
720-5627, fax number (202) 690-0486.
    For information concerning fee development, contact Michael B. 
Zimmerer, Director, Financial Management Division, Office of 
Management, FSIS, U.S. Department of Agriculture, Room 2130-S, 1400 
Independence Avenue, SW., Washington, DC 20250, (202) 720-3552.

SUPPLEMENTARY INFORMATION:   

Background

    The Egg Products Inspection Act (EPIA) (21 U.S.C. 1031, et seq.) 
provides for the inspection of egg products by Federal inspectors at 
official plants. Federal inspection protects the health and welfare of 
consumers by ensuring that egg products are wholesome, not adulterated, 
and properly labeled and packaged.
    The Agricultural Marketing Service (AMS) was responsible for 
administering the EPIA from its enactment in 1970 until 1995. At that 
time, the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354; 7 U.S.C. 6981) delegated 
food safety responsibilities to the Under Secretary of Agriculture for 
Food Safety. The Department subsequently revised its regulations to 
transfer egg product inspection functions under the EPIA to FSIS. AMS 
retained only those functions related to their shell egg surveillance 
program. The regulations governing the inspection of eggs and egg 
products (9 CFR Part 590) were transferred to Part 9 of the Code of 
Federal Regulations on December 31, 1998 (63 FR 72352).
    FSIS bears the cost of mandatory inspection. However, the EPIA 
specifies that plants pay for overtime and holiday inspection services 
(21 U.S.C. 1053). There has not been a change in overtime and holiday 
fees for egg products inspection services since the transfer of program 
functions from AMS to FSIS in May 1995. AMS established and implemented 
the current fees in November 1994. These fees reflect only the direct 
costs of inspection at that time and are insufficient to recover FSIS's 
current costs for delivery of inspection service.
    In order to recover the full cost of inspection, FSIS is increasing 
its rates to charge overtime and holiday fees for egg products 
inspection services that are the same as overtime and holiday fees for 
meat and poultry inspection. The Agency is making the fees for meat, 
poultry, and egg inspection services the same because these services 
are indistinguishable from a cost standpoint. Although these fee 
increases are large, they reflect the total cost of inspection, 
including national and locality pay raises for Federal employees, 
inflation, applicable overhead costs, and other inspection costs. The 
current and new FSIS overtime and holiday inspection services fees for 
egg products plants are reported in Table 1.

   Table 1.--Current and New Fees for Overtime and Holiday Inspection
                    Services for Egg Products Plants
------------------------------------------------------------------------
                   Service ($/hr.)                     Current     New
------------------------------------------------------------------------
Overtime Inspection Services........................     26.16     39.76
Holiday Inspection Services.........................     17.44     39.76
------------------------------------------------------------------------

    Table 2 shows salary, overhead, and other inspection costs for 
Fiscal Year (FY) 1998, and the projected added inflation and Federal 
pay increases for FY 1999 and FY 2000 used to obtain the total amount 
from which the new rates are derived. These costs are the total costs 
for meat, poultry, and egg products inspection services. Overhead costs 
are the indirect costs for administration and management associated 
with providing inspection services. Other inspection costs include 
direct costs for travel and laboratory support costs associated with 
inspection services.

    Table 2.--Components of Fee Increase--Agency Total Inspection Costs
------------------------------------------------------------------------
                  Component                     $Thousand      Percent
------------------------------------------------------------------------
Direct Salaries..............................       57,242         56.86
Inflation and Pay Increase...................        7,951          7.90
Overhead.....................................       22,197         22.05
Other Inspection Costs (Travel and Laboratory       13,282         13.19
 Support)....................................
                                              --------------
------------------------------------------------------------------------

    Beginning with the Federal fiscal year 2001, FSIS intends to 
annually review its fees for overtime and holiday egg products 
inspection services, as well as fees for meat and poultry inspection 
services, to allow for necessary adjustments on a fiscal year basis. 
The fiscal year approach is an accepted accounting principle that will 
facilitate more consistent and timely proposals to adjust both fees and 
assist the Agency and affected industry in planning for these fee 
adjustments. The Agency intends to explore the possibility of 
publishing a three to five year plan of fee rate adjustments based on 
estimates of cost escalation.
    FSIS loses from $80,000 to $100,000 in revenue for every two-week 
period that the final rule is delayed in being published. To recover 
the increased costs in an expeditious manner, the Administrator has 
determined that these amendments should be effective less than 30 days 
after publication in the Federal Register. Therefore, the increases in 
fees will be effective July 30, 2000.

Proposed Rule and Comments

    On March 3, 2000, FSIS published a proposed rule (65 FR 11486) to 
increase the fees that it charges egg products plants for providing 
overtime and holiday inspection services. FSIS initially provided 60 
days for public comment, ending on May 2, 2000. In response to a 
request for more time to

[[Page 44949]]

comment to allow for the development of supporting data related to the 
impact of the proposed rule, FSIS extended the comment period for 30 
days, until June 1, 2000. The Agency received no additional comments 
during the extended comment period.
    The Agency received two comments from industry organizations 
opposing the increase in fees. The Agency addresses their specific 
objections.
    Comment: Commenters opposed the increase in fees because it is a 
significant increase.
    Response: The Agency agrees that the increase in overtime and 
holiday inspection fees for egg products inspection services is 
significant. However, as the Agency stated in the proposed rule, the 
Agency has not increased these fees for several years despite the 
escalation of the cost of performing inspection. FSIS is required to 
recover the full costs of overtime and holiday inspection services.
    Comment: A commenter stated that the increase in fees would 
seriously damage the profitability of most egg processing firms 
operating on a contractual basis of sales with its customers for FY 
2000.
    Response: The commenter included no data to characterize the extent 
of the perceived impact. The increase in fees provided for by this 
final rule will not be effective until late in FY 2000. Therefore, any 
impact on the profitability of egg processing firms operating on a 
contractual basis of sales with its customers for FY 2000 should be 
minimized. Regardless, as was mentioned earlier, FSIS is required to 
recover the full costs of overtime and holiday inspection services.
    Comment: One commenter asserted that nearly half of the fee is 
administrative expense, which, the commenter stated, is an unacceptable 
Federal administrative inefficiency.
    Response: ``Overhead'' accounts for 22.05% of the cost of the fees 
and the ``Other Inspection Costs'' category makes up 13.19% of the cost 
of the fees. ``Other Inspection Costs'' include expenditures for travel 
and laboratory support, both of which are a necessary expense for 
inspection services.
    Comment: A commenter disagreed with the Agency's assessment that 
the fee increases will amount to a $0.0003 increase in cost per pound 
of product. The commenter calculated that costs per pound will be 33% 
greater than the Agency estimated.
    Response: Since the commenter did not submit any data to verify or 
support its claim, the Agency has no reason to change its original 
estimate.
    Comment: One commenter recommended phasing in the fee increases 
over a period of a minimum of three to five years.
    Response: FSIS cannot phase-in the cost increase because it is 
obliged by law to recover the full cost of providing overtime and 
holiday inspection services. The Agency currently charges meat and 
poultry establishments the same fees for overtime and holiday 
inspection services that are being required for egg products plants by 
this rule. The Agency derived its new fee by considering costs for 
meat, poultry, and egg products inspection services.
    Comment: A commenter stated that the yearly increase of costs of 
$13,700 per firm, ``would be devastating to many small, family-owned 
poultry operations.''
    Response: FSIS had estimated in the proposed rule that the proposed 
overtime and holiday inspection services fee increases would result in 
an increase in costs per firm of $13,700 for FY 2000. The $13,700 
figure is an average cost estimate. As mentioned later in the preamble, 
small plants in the egg products industry will not be affected 
adversely by the fee increases because these increases represent only a 
small increase in the costs currently borne by those plants that elect 
to use overtime and holiday services. Some firms may not avail 
themselves of overtime or holiday inspection services or use them only 
a very limited basis. Therefore, their additional expenses would be 
negligible.

Summary of the Final Rule

    FSIS is amending Sec. 590.126 of 9 CFR to increase the fee for 
providing overtime inspection services from $26.16 per hour per program 
employee to $39.76 per hour per program employee. For holiday services, 
FSIS is amending Sec. 590.128(a) to increase the fee from $17.44 per 
hour per program employee to $39.76 per hour per program employee.
    The Agricultural Marketing Act of 1946, as amended, provides the 
authority for collection of fees approximately equal to the cost of 
voluntary egg grading programs. AMS retains the responsibility of 
changing the fees set out in the regulations governing the grading of 
eggs (7 CFR part 55). FSIS is amending 9 CFR 590.130 to delete the 
reference to regulations governing the collection of fees associated 
with the voluntary grading of eggs.

Executive Order 12866 and Regulatory Flexibility Act

    Because this final rule has been determined to be not significant, 
the Office of Management and Budget (OMB) did not review it under 
Executive Order 12866.
    The Administrator, FSIS, has determined that this action will not 
have a significant economic impact, as defined by the Regulatory 
Flexibility Act (5 U.S.C. 601), on a substantial number of small 
entities. There are 73 egg products firms, and all but 5 would be 
classified as small on the basis of the Small Business Administration 
size definitions (having under 100 employees in a stand-alone 
establishment or under 500 employees in an in-line establishment).
    Small plants in the egg products industry will not be affected 
adversely by the fee increases provided for because these increases 
reflect only a small increase in the costs currently borne by those 
entities that elect to use overtime and holiday inspection services. 
These holiday and overtime inspection services are generally sought by 
plants with larger production volume, greater complexity and diversity 
in the products they produce, and the need for on time delivery of 
large volumes of product by their clients--generally large commercial 
or institutional establishments. Plants with smaller production are 
unlikely to use a significant amount of overtime and holiday inspection 
services. Plants seeking FSIS services are likely to have calculated 
that the incremental costs of overtime and holiday inspection services 
would be less than the incremental expected benefits of additional 
revenues they would realize from additional production.

Economic Effects

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

[[Page 44950]]

firms produce an average of 44.3 million pounds of product annually.

               Table 3.--Revenues for Inspection Services
                             [In thousands]
------------------------------------------------------------------------
                           Current                              Proposed
------------------------------------------------------------------------
$1,482.......................................................     $2,460
------------------------------------------------------------------------

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

Executive Order 12988

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule: (1) Preempts State and local laws and 
regulations that are inconsistent with this rule; (2) has no 
retroactive effect; and (3) does not require administrative proceedings 
before parties may file suit in court challenging this rule. However, 
the administrative procedures specified in 9 CFR 590.320 through 
590.370 must be exhausted prior to any judicial challenge of the 
application of the provisions of this proposed rule, if the challenge 
involves any decision of an FSIS employee relating to inspection 
services provided under the EPIA.

Additional Public Notification

    Public awareness of all segments of rulemaking and policy 
development is important. Consequently, in an effort to better ensure 
that minorities, women, and persons with disabilities are aware of this 
proposed rule, FSIS will announce and provide copies of this Federal 
Register publication in the FSIS Constituent Update. FSIS provides a 
weekly FSIS Constituent Update via fax to over 300 organizations and 
individuals. In addition, the update is available on line through the 
FSIS web page located at http://www.fsis.usda.gov. The update is used 
to provide information regarding FSIS policies, procedures, 
regulations, Federal Register notices, FSIS public meetings, recalls, 
and any other types of information that could affect or would be of 
interest to our constituents/stakeholders. The constituent fax list 
consists of industry, trade, and farm groups, consumer interest groups, 
allied health professionals, scientific professionals, and other 
individuals that have requested to be included. Through these various 
channels, FSIS is able to provide information to a much broader, more 
diverse audience than would be otherwise possible. For more information 
or to be added to the constituent fax list, fax your request to the 
Congressional and Public Affairs Office, at (202) 720-5704.

List of Subjects in 9 CFR Part 590

    Eggs and egg products, Exports, Food labeling, Imports.

    For the reasons stated in the preamble, 9 CFR part 590 is amended 
as follows:

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

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

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

    2. Sections 590.126 and 590.128(a) are revised to read as follows:


Sec. 590.126  Overtime inspection service.

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


Sec. 590.128  Holiday inspection service.

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


Sec. 590.130  [Amended]

    3. Section 590.130 is amended by removing the last sentence of the 
section.

    Done in Washington, DC, on: July 13, 2000.
Thomas J. Billy,
Administrator.
[FR Doc. 00-18254 Filed 7-19-00; 8:45 am]
BILLING CODE 3410-DM-P