[Federal Register Volume 68, Number 128 (Thursday, July 3, 2003)]
[Rules and Regulations]
[Pages 39805-39807]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16828]



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  Federal Register / Vol. 68, No. 128 / Thursday, July 3, 2003 / Rules 
and Regulations  

[[Page 39805]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 54

[Docket Number LS-02-06]
RIN 0581-AC13


Changes in Fees for Federal Meat Grading and Certification 
Services

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Agricultural Marketing Service (AMS) is revising the 
hourly fees charged for voluntary Federal meat grading and 
certification services performed by the Meat Grading and Certification 
(MGC) Branch. The hourly fees will be adjusted by this action to 
reflect the increased cost of providing service, and to ensure that the 
Federal meat grading and certification program operates on a 
financially self-supporting basis.

EFFECTIVE DATE: July 13, 2003.

FOR FURTHER INFORMATION CONTACT: Larry R. Meadows, Chief, MGC Branch, 
telephone number (202) 720-1246 or e-mail [email protected].

SUPPLEMENTARY INFORMATION: 

Background

    The Secretary of Agriculture is authorized by the Agricultural 
Marketing Act of 1946 (AMA), as amended (7 U.S.C. 1621, et seq.), to 
provide voluntary Federal meat grading and certification services to 
facilitate the orderly marketing of meat and meat products and to 
enable consumers to obtain the quality of meat they desire. The AMA 
also provides for the collection of fees from users of the Federal meat 
grading and certification program that are approximately equal to the 
cost of providing service. The hourly fees are established by equitably 
distributing the program's projected operating costs over the estimated 
hours of service--revenue hours--provided to users of the service on a 
yearly basis. Nearly 80 percent of operating costs are derived from 
employee salaries and benefits. The remaining operating costs include 
travel, training, and administrative expenses. Revenue hours include 
commitment and noncommitment base hours, premium hours, and holiday 
hours. Periodically, the fees must be adjusted to ensure that the 
program remains financially self-supporting.
    Despite cost reduction efforts and hourly fee increases in 1998 and 
2000, the MGC Branch incurred a $667,000 operating loss in fiscal year 
(FY) 2001. Furthermore, AMS projects that the MGC Branch will lose an 
additional $8.6 million through FY 2004 and totally deplete program 
reserves to the point of deficit operations (i.e., FY 2002, $1.6 
million; FY 2003; $2.9 million; and FY 2004, $4.1 million).
    In view of these considerations, AMS will increase hourly fees 
charged to users of the service. The base hourly fee for commitment 
applicants will increase from $45 to $55. A commitment applicant is a 
user of meat grading and certification services who agrees to pay for 
five continuous 8 hour days, Monday through Friday between the hours of 
6 a.m. and 6 p.m., excluding Federal legal holidays. The base hourly 
fee for noncommitment applicants will increase from $52 to $64. A 
noncommitment applicant is a user of meat grading and certification 
services, who agrees to pay an hourly fee without committing to a 
certain number of service hours. The premium hourly fee will increase 
from $57 to $70. The premium hourly fee is charged to applicants when 
meat grading and certification services: (1) Exceed 8 hours per day; 
(2) are performed before 6 a.m. and after 6 p.m. Monday through Friday; 
or (3) are performed any time on Saturday or Sunday, except on Federal 
legal holidays. The holiday fee will increase from $90 to $110 and is 
charged to applicants for meat grading and certification services 
provided on Federal legal holidays.

Executive Order 12866

    This action has been determined to be not significant for purposes 
of Executive Order 12866, and has not been reviewed by the Office of 
Management and Budget.

Regulatory Flexibility Act

    Pursuant to the requirements set forth in the Regulatory 
Flexibility Act (5 U.S.C. 601, et seq.), the Administrator of AMS 
considered the economic impact of this action on small entities and 
determined that it will not have a significant economic effect on a 
substantial number of small entities.
    AMS, through its MGC Branch, provides voluntary Federal meat 
grading and certification services to 450 businesses, including 152 
livestock slaughterers, 79 facilities that process federally donated 
products, 74 meat processors, 46 livestock producers and feeders, 28 
brokers, 26 organic certifying companies, 25 trade associations, 17 
State and Federal entities, and 3 distributors.
    Seventy-two percent (i.e., 324) of these businesses are small 
entities which generate approximately 17 percent of the MGC Branch's 
revenues. A small entity is defined for the meat packing and processing 
industry as a company that employs less than 500 employees. No entity, 
small or large, is obligated to use voluntary Federal meat grading and 
certification services provided under the authority of the AMA.
    Voluntary Federal meat grading and certification services 
facilitate the orderly marketing of meat and meat products and enable 
consumers to obtain the quality of meat they desire. Grading services 
consist of the evaluation of beef, lamb, pork, veal, and calf carcasses 
for compliance with the grades of the appropriate official U.S. 
Standard. The MGC Branch grades approximately 22.1 billion pounds of 
meat each year. Certification services consist of the evaluation of 
meat and meat products for compliance with specification and 
contractual requirements. Certification services are regularly used by 
meat purchasers to ensure that the quality and yields of the products 
they purchase comply with their stated requirements. The MGC Branch 
certifies approximately 18.1 billion pounds of meat and meat products 
each year.
    AMS regularly reviews its user-fee-financed programs to determine 
if the fees are adequate. The most recent review determined that the 
existing fee schedule for the MGC Branch would not

[[Page 39806]]

generate sufficient revenues to recover operating costs for current and 
near-term periods while maintaining an adequate reserve balance. In FY 
2001, the MGC Branch incurred a $657,000 operating loss; in FY 2002 
operating losses were $1.6 million and, without a fee increase, FY 2003 
operating losses are projected to reach $2.9 million. These combined 
losses will deplete MGC Branch's operating reserve and place the MGC 
Branch in an unstable financial position that will adversely affect its 
ability to provide the currently available meat grading and 
certification services.
    Since 1993, the MGC Branch has controlled operating costs by 
closing three field offices, reducing mid-level supervisory staff by 
over 50 percent, and reducing the number of support staff by 38 
percent. At the same time, the MGC Branch has utilized automated 
information management systems for data collection, retrieval, and 
dissemination, applicant billing, and disbursement of employee 
entitlements. The reduction in field offices, supervisory staff and 
support personnel and the increased use of automated systems has 
enabled the MGC Branch to absorb a substantial portion of the operating 
costs and minimize hourly fee increases over the past 9 years. However, 
the MGC Branch has continued to lose revenue due to the implementation 
of more cost-efficient audit-based and pilot certification programs. 
These programs, while providing an equal or higher level of assurance, 
require fewer personnel and generate fewer revenue hours when compared 
to traditional certification services. Accordingly, the overall cost of 
service to the industry is reduced. Consolidation within the livestock 
and meat industry has also contributed to a decline in MGC Branch 
revenue because there are fewer applicants and they are able to perform 
work more efficiently. Moreover, the MGC Branch operating costs 
increased due to expenses associated with: (1) Ongoing information 
system technology upgrades to remain compatible with customer and 
Agency systems; (2) congressionally mandated salary increases for all 
Federal Government employees in 2001, 2002, and 2003; (3) inflation of 
nonsalary operating expenses; and (4) accumulated increases in 
continental United States (CONUS) per diem rates, mileage rates, and 
office maintenance expenses.
    This fee increase will raise the hourly fees charged to users of 
Federal meat grading and certification services. After implementation, 
AMS estimates that this action will provide the MGC Branch an 
additional $401,000 per month in FY 2003. Of this $401,000, small 
businesses would pay an average of $68,170 or an additional $210 per 
month ($2,520 per year) per applicant. This fee increase coupled with a 
projected increase in revenue hours will increase revenues by $4.8 
million per year and offset FY 2002 operating losses of $1.6 million 
and projected FY 2003 losses of $2.9 million. Even with this action, 
the unit cost for MGC Branch service (revneue/total pounds graded and 
certified) will remain unchanged at approximately $0.0006 per pound.
    AMS projects that, without an hourly fee increase, the MGC Branch 
will lose an additional $8.6 million through FY 2004 and totally 
deplete program reserves to the point of deficit operations. Any 
further reduction in MGC Branch services has the potential to 
substantially harm small and limited resource firms that rely on 
grading and certification services to help distinguish and market their 
products in the global marketplace.

Civil Justice Reform

    This action has been reviewed under Executive Order 12988, Civil 
Justice Reform. This action is not intended to have retroactive effect 
and will not pre-empt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict. There are no 
administrative procedures which must be exhausted prior to any judicial 
challenge to provision of this rule.

Paperwork Reduction Act

    This action will not impose any additional reporting or 
recordkeeping requirements on users of Federal meat grading and 
certification services.

Comments and Responses

    On November 1, 2002, AMS published a proposed rule in the Federal 
Register to increase the fees for Federal meat grading and 
certification services and requested comments by January 1, 2003. The 
Agency received three comments.
    The first respondent understood that normal inflation and rising 
operating costs affect operating expenses. However, the respondent 
opposed the magnitude of the proposed fee increase and called the 
increase twice as large as needed; indicated that the new MGC Branch 
staffing guidelines coupled with the proposed fee increase would 
negatively impact virtually all sectors of the livestock and meat 
industry; and said the formula used to estimate the per pound cost of 
providing services was outdated. This respondent also urged the MGC 
Branch to further streamline services by consolidating branch offices 
and reducing staff; explore alternative revenue sources; and focus on 
new technology that would decrease user costs to and improve the 
accuracy of the grading service.

(Note: In August 2002, the MGC Branch implemented recommended in-
plant staffing guidelines for high volume, high speed beef grading 
operations. The recommended staffing guidelines were implemented to 
safeguard Federal meat graders form repetitive motion injuries.

    The second respondent favored a standardized meat grading system 
with less staff and an automated grading system. the respondent felt 
that an automated grading system would result in higher grading 
accuracy and would provide more valuable information to cattle 
producers who make genetic selections based on yield and grade results.
    The third respondent recognized the benefits of the recently 
implemented staffing guidelines, but failed to see how the proposed fee 
increase was justified and asked the MGC Branch to look for more ways 
to reduce costs rather then passing them on to customers.
    The comments from all respondents can be summarized as follows: (1) 
Justify the necessity and magnitude of the fee increase; (2) consider 
the impact of total MGC Branch costs on the livestock and meat 
industry; (3) reevaluate the accuracy of the formula used to estimate 
the per pound cost of providing services; (4) streamline services 
through MGC Branch office consolidation and staff reduction; and (5) 
explore alternative revenue sources and new technology to decrease user 
costs and improve the accuracy and efficiency of meat grading and 
certification services. The Agency response to each comment is as 
follows:
    (1) Justify the necessity and magnitude of the fee increase: The 
AMA provides for the collection of fees from users of the Federal meat 
grading and certification services that are approximately equal to the 
cost of providing service. The hourly fees are established by equitably 
distributing the program's projected operating costs over the estimated 
hours of service--revenue hours--provided to users of the service on a 
yearly basis. In FY 2001, the MGC Branch incurred a $657,000 operating 
loss. Without an hourly fee increase, the MGC Branch is projected to 
lose an additional $8.6 million through FY 2004 and totally deplete 
program reserves. By law, the program must recover the cost of 
providing grading and certification services. Since the Agency has 
implemented every reasonable measure to reduce expenses, a fee increase 
is the

[[Page 39807]]

only avenue available to ensure revenues equal expenses on a sustaining 
basis.
    (2) Consider the impact total MGC Branch costs on the livestock and 
meat industry: The MGC Branch issued recommended staffing guidelines 
for applicants of beef carcass grading and/or live animal/carcass 
schedule certification services on August 22, 2002. The recommended 
staffing guidelines, while increasing the number of Federal meat 
graders in 4 percent of firms requesting services, were designed to 
reduce the number of cumulative trauma disorders (CTD) associated with 
repetitive motions, which is the leading cause of injuries to MGC 
Branch employees.
    Voluntary Federal meat grading and certification services are 
provided to 450 businesses, including 152 livestock slaughterers, 79 
facilities that process federal donated products, 74 meat processors, 
46 livestock producers and feeders, 28 brokers, 26 organic certifying 
companies, 25 trade associations, 17 State and Federal entities, and 3 
distributors. Seventy-two percent (i.e., 324) of these businesses are 
small entities which generate approximately 17 percent of the MGC 
Branch's revenues. A small entity is defined for the meat packing and 
processing industry as a company that employs less than 500 employees. 
AMS estimates that the fee increase will cost small businesses an 
average of $68,170 or an additional $210 per month ($2,520 per year) 
per applicant. AMS is very cognitive of the impact that fees charged 
for meat grading and certification services have over all firms.
    (3) Reevaluate the accuracy of the formula used to estimate the per 
pound cost of providing services: In accordance with the AMA, meat 
grading and certification services are provided on a cost recovery 
basis. The cost per pound is derived by dividing the total revenue by 
the total pounds graded and certified within the same time frame. The 
formula provides an accurate and consistent comparison between the cost 
of providing service and the tonnage of graded and certified carcasses 
over time. Since 1993, the amount of product graded and certified per 
year has increased by 13 billion pounds. Over the same timeframe, the 
MGC Branch has doubled its revenue hour efficiency and maintained the 
overall cost per pound of service at $0.0006. We believe this method of 
calculating the cost per pound for providing grading and certification 
services is accurate and provides a meaningful way to evaluate 
efficiency over time.
    (4) Streamline services through MGC Branch office consolidation and 
staff reduction: In the past 10 years, the MGC Branch has closed three 
area offices, reduced mid-level supervisory staff by over 50 percent, 
and reduced the number of support staff by 38 percent. As part of the 
current MGC Branch reorganization, the Branch will close the remaining 
four area offices, eliminate two levels of supervision, and transfer 
area office functions to the Office of Field Operations (OFO) in 
Denver, Colorado, by the end of FY 2003. The MGC Branch reorganization 
also includes plans to restructure the internal operations to more 
effectively and efficiently service specific program areas. The MGC 
Branch will maintain two offices: the OFO in Denver, Colorado, and the 
Headquarter office in Washington, DC. The Agency has determined that, 
upon completion of the current reorganization, MGC Branch's operations 
will be streamlined to the maximum extent possible.
    (5) Explore alternative revenue sources and new technology to 
decrease user costs and improve the accuracy and efficiency of grading 
and certification services: By law, the Agency is required to charge 
fees that equal the cost of providing services. Accordingly, any 
``alternative revenue source,'' if required as suggested by the 
respondent, would be conducted on a full cost recovery basis. AMS has 
actively participated with the National Cattlemen's Beef Association 
(NCBA), the beef packing industry, instrument manufacturers, and 
academia to develop performance standards that can potentially improve 
grading accuracy and repeatability thought the use of an electronic 
instrument augmentation system that measures the ribeyes of beef 
carcasses. This same concept is also being researched for lamb grading 
augmentations. AMS is also involved with ongoing studies to develop 
technology that utilizes special equipment to apply environmentally 
safe yet durable carcass quality and yield grade labels. Additionally, 
the Agency is working with additional companies to incorporate voice 
recognition software into this new grade application as well as for 
general data collection and transmission.
    Process Verified Programs such as the Non Hormone Treated Cattle 
Program and the Pork for the European Union Program provide complete 
traceability from farm to plate. Additional audit based programs such 
as the National School Lunch Programs' Canned Meats and Ham Programs 
are being implemented to improve the overall selection, quality, and 
cost of the services provided to the industry. In addition, the MGC 
Branch has worked with members of the Federal purchase and further 
processing industry to develop several pilot programs that incorporate 
audit based principles. These programs, while providing the same or a 
higher level of assurance, require graders to monitor and verify an 
applicants' entire production process rather than performing an 
examination on the end product. These audit and audit based programs 
also allow greater scheduling flexibility, improve operational 
efficiencies, reduce costs, and provide value-adding services to 
applicants. The Agency believes that, to the maximum extent possible 
technology is being utilized to improve the accuracy and cost-
effectiveness of meat grading and certification services.

List of Subjects in 7 CFR Part 54

    Food grades and standards, Food labeling, Meat and meat products.

0
For the reasons set forth in the preamble, 7 CFR part 54 is amended as 
follows:

PART 54--MEATS, PREPARED MEATS, AND MEAT PRODUCTS (GRADING, 
CERTIFICATION, AND STANDARDS)

0
1. The authority citation for 7 CFR part 54 continues to read as 
follows:

    Authority: 7 U.S.C. 1621-1627.


0
2. Section 54.27 is amended as follows:
0
a. In paragraph (a), remove ``$52'' and add ``$64'' in its place, 
remove ``$57'' and add ``$70'' in its place, remove ``$90'' and add 
``$110'' in its place.
0
b. In paragraph (b), remove ``$45'' and add ``$55'' in its place, 
remove ``$57'' and add ``$70'' in its place, remove ``$90'' and add 
``$110'' in its place.

    Dated: June 27, 2003.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 03-16828 Filed 7-2-03; 8:45 am]
BILLING CODE 3410-02-M