[Federal Register Volume 71, Number 187 (Wednesday, September 27, 2006)]
[Rules and Regulations]
[Pages 56335-56337]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-15853]



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  Federal Register / Vol. 71, No. 187 / Wednesday, September 27, 2006 / 
Rules and Regulations  

[[Page 56335]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 54

[Docket Number LS-05-06]
RIN 0581-AC49


Changes in Fees for Voluntary 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 
MGC Branch operates on a financially self-supporting basis.

DATES: Effective Date: October 1, 2006.

FOR FURTHER INFORMATION CONTACT: Larry R. Meadows, Chief, MGC Branch, 
telephone number (720) 497-2550 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 services that are approximately equal to the 
cost of providing these services. 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. Program operating costs include employee 
salaries and benefits, which account for 80 percent of the operating 
costs, with travel, training, and administrative costs making up the 
remainder. Periodically, the fees must be adjusted to ensure that the 
program remains financially self-supporting.
    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 generate sufficient 
revenues to recover operating costs for current and near-term periods 
while maintaining an adequate reserve balance. The operating loss for 
fiscal year (FY) 2005 totaled $1.8 million. Without a fee increase, the 
operating loss for FY 2006 is projected to be $1.1 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 meat grading and certification services.
    This rule is necessary to offset decreased revenue hours and 
increased program operating expenses incurred since the last fee 
increase. The MGC Branch has lost revenue due to the implementation of 
more efficient audit-based and pilot certification programs and the 
continued consolidation within the livestock and meat industry. Audit-
based and pilot certification programs, while providing the same or a 
higher level of assurance, employ fewer personnel and, therefore, 
generate fewer revenue hours as compared to traditional certification 
services.
    MGC Branch operating expenses have increased due to: (1) Cyber 
Security upgrades mandated by the Department and system technologies; 
(2) mandated salary increases for all Federal Government employees in 
2004, 2005, and 2006; (3) inflation of nonsalary operating costs; and 
(4) accumulated increases in continental United States (CONUS) per diem 
rates, mileage rates, and office maintenance costs.
    Since the last fee increase in 2003, the MGC Branch has made 
efforts to control operating costs by closing 3 field offices and 
reducing the number of support staff by 33 percent. The MGC Branch has 
also increased the use of computer information systems for data 
collection, retrieval, and dissemination; applicant billing; and 
disbursement of employee entitlements. This reduction in field offices 
and support personnel, and the increased use of automated systems to 
process data has enabled the MGC Branch to absorb a substantial portion 
of the operating costs and minimize the need for hourly fee increases 
in past years. However, these management efforts have not negated the 
need to maintain trust fund balances to assure operating expenses are 
met in the future.
    Despite the cost reduction efforts, the MGC Branch incurred a $1.8 
million operating loss in FY 2005. Furthermore, AMS projects that 
without an hourly fee increase, the MGC Branch will lose approximately 
$6.5 million from FY 2006 through FY 2009, and totally deplete program 
reserves to the point of deficit operations (i.e. FY 2006, $1.1 
million; FY 2007, $1.2 million; FY 2008, $1.8 million; and FY 2009, 
$2.4 million).
    In view of the increased costs and decreased revenues, AMS will 
increase the hourly fees to cover the operating deficits. The base 
hourly fee for commitment applicants will increase from $55 to $61. 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 legal 
holidays. The base hourly fee for noncommitment applicants will 
increase from $64 to $71. 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 $70 to $78. 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, and (3) any time on Saturday or Sunday, 
except on legal holidays. The legal holiday fee will increase from $110 
to $122 and is charged to applicants for meat grading and certification 
services provided on legal holidays.

[[Page 56336]]

Executive Order 12866

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

Regulatory Flexibility Act

    Pursuant to the requirements set forth in the Regulatory 
Flexibility Act (5 U.S.C. 601, et seq.), AMS considered the economic 
impact of this proposed 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 285 businesses, including 100 
livestock slaughterers, 66 facilities that process federally donated 
products, 62 meat processors, 28 livestock producers and feeders, 9 
brokers, 11 trade associations, and 9 State and Federal entities. 
Eighty seven percent of these businesses qualify as small entities; a 
company that employs less than 500 employees. Small entities generate 
approximately 33 percent of the MGC Branch's revenues and are under no 
obligation to use voluntary Federal meat grading and certification 
services provided under the authority of the AMA.
    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 carcass beef, lamb, pork, veal, and calf in accordance 
with the appropriate official U.S. Standard. The MGC Branch grades 
approximately 20.0 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 yield of the products they purchase comply with 
the stated requirements. The MGC Branch certifies approximately 22.4 
billion pounds of meat and meat products each year.
    This action will raise the hourly fees charged to users of Federal 
meat grading and certification services. AMS estimates that this action 
will provide the MGC Branch an additional $210,210 in revenue per month 
in FY 2006. Since 245 small entities account for 33 percent of MGC 
Branch revenues, this action will result in an average increase of $65 
per week per applicant. This action will increase revenues by almost 
$2.5 million per year and offset the projected losses of $1.1 million 
in FY 2006 and $1.2 million in FY 2007. Even with this action, the unit 
cost for MGC Branch service (revenue/total pounds graded and certified) 
will actually decrease from $0.0006 to $0.0005 per pound, due to 
increased projected grading and certification volumes.
    This action is necessary to offset decreased revenue hours and 
increased program operating costs incurred since the last fee increase. 
The MGC Branch has lost revenue due to the implementation of more 
efficient audit-based and pilot certification programs and the 
continued consolidation within the livestock and meat industry. Audit-
based and pilot certification programs employ fewer personnel, and, 
therefore, generate fewer revenue hours as compared to traditional 
certification services. The implementation of audit-based programs has 
decreased overall costs to smaller entities.
    MGC Branch operating expenses have increased due to (1) Cyber 
Security upgrades mandated by the Department and system technologies; 
(2) congressionally mandated salary increases for all Federal 
Government employees in 2004, 2005, and 2006; (3) inflation of 
nonsalary operating costs; and (4) accumulated increases in continental 
United States (CONUS) per diem rates, mileage rates, and office 
maintenance costs.
    Since 2003, the MGC Branch has made efforts to control operating 
costs by closing three field offices and reducing the number of support 
staff by 33 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 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 
delay hourly fee increases.
    Despite these cost reduction efforts and previous hourly fee 
increases, the MGC Branch incurred a $1.8 million operating loss in FY 
2005. Furthermore, AMS projects that without an hourly fee increase; 
the MGC Branch would lose approximately $6.5 million from FY 2006 
through FY 2009 and totally deplete program reserves to the point of 
deficit operations.
    In view of these increased costs, AMS will increase the hourly fees 
for Federal meat grading and certification services. The base hourly 
fee for commitment applicants will increase from $55 to $61. 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 legal 
holidays. The base hourly fee for noncommitment applicants will 
increase from $64 to $71. 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 $70 to $78. 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, and (3) any time on Saturday or Sunday, 
except on legal holidays. The legal holiday fee will increase from $110 
to $122 and is charged to applicants for meat grading and certification 
services provided on legal holidays.

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 would 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 the provisions 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 March 29, 2006, AMS published a proposed rule in the Federal 
Register to increase the fees for Federal meat grading and 
certification services and requested comments by May 30, 2006. The 
Agency received two comments.
    The first respondent understood the value of grading and 
certification services that are provided to meat packers. The 
respondent expanded upon the dire straits of the beef industry since 
the closing of export markets in December 2003. The respondent 
expressed that larger packers, through their size and efficiencies are 
able to absorb costs more easily than small packers and indicated that 
the new MGC Branch fee increase would negatively impact small entities. 
Finally, the respondent requested that AMS postpone their request for a 
fee increase until the beef industry shows a solid recovery and stated 
that this would be beneficial to all parties involved.

[[Page 56337]]

    The Agency response to the comment is as follows:
    (1) Postpone the fee increase: The Agricultural Marketing Act of 
1946 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 2005, the MGC Branch incurred a $1.8 million 
operating loss. Without an hourly fee increase, the MGC Branch is 
projected to lose an additional $6.5 million through FY 2009 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 only avenue available to ensure revenues equal expenses 
on a sustaining basis.
    (2) Consider the impact of MGC Branch costs on small meat packers: 
Voluntary Federal meat grading and certification services are provided 
to 285 businesses, including 100 livestock slaughterers, 66 facilities 
that process federally donated products, 62 meat processors, 28 
livestock producers and feeders, 9 brokers, 11 trade associations, and 
9 State and Federal entities. Eighty seven percent of these businesses 
qualify as small entities; a company that employs less than 500 
employees. Small entities generate approximately 33 percent of the MGC 
Branch's revenues and are under no obligation to use voluntary Federal 
meat grading and certification services provided under the authority of 
the AMA.
    AMS is very aware of the impact that fees charged for meat grading 
and certification services have on all firms. In this regard, AMS 
attempts to provide cost-effective grading and certification services 
to small entities through methods which include, but are not limited 
to, cooperative agreements with States and cross utilization of other 
Federal employees in the local area. AMS will continue to explore these 
and other alternatives for providing cost-effective grading and 
certification services to small entities.
    The second respondent addressed fees charged by the Food Safety and 
Inspection Service (FSIS) for voluntary slaughter inspection services. 
Accordingly, AMS will not address the comment in this final rule. The 
comment was forwarded to FSIS for their consideration.

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, it is proposed that 7 CFR 
part 54 be 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 by:


Sec.  54.27  [Amended]

0
A. Removing in paragraph (a), ``$64'' and adding ``$71'' in its place, 
removing ``$70'' and adding ``$78'' in its place, and removing ``$110'' 
and adding ``$122'' in its place.
0
B. Removing in paragraph (b), ``$55'' and adding ``$61'' in its place, 
removing ``$70'' and adding ``$78'' in its place, and removing ``$110'' 
and adding ``$122'' in its place.

    Dated: September 21, 2006.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
 [FR Doc. E6-15853 Filed 9-26-06; 8:45 am]
BILLING CODE 3410-02-P