[Federal Register Volume 78, Number 124 (Thursday, June 27, 2013)]
[Rules and Regulations]
[Pages 38541-38544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-15331]



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  Federal Register / Vol. 78, No. 124 / Thursday, June 27, 2013 / Rules 
and Regulations  

[[Page 38541]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 58

RIN 0581-AD25
[Doc. No. AMS-DA-10-0002]


Increase in Fees for Voluntary Federal Dairy Grading and 
Inspection Services

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

SUMMARY: This final rule increases the fees for voluntary Federal dairy 
grading and inspection services. The fees will increase 10 percent 
effective August 2013 and an additional 10 percent effective February 
2014. The fees applicable to European Union Health Certification 
Program derogation requests are unchanged. Dairy grading and inspection 
services are voluntary and are financed in their entirety through user 
fees assessed to participants using the program. Despite the adoption 
of technologies that have improved services, additional changes in 
operations that enhanced efficiencies, and reduced employee numbers, 
increases in salaries, technology investments, and general inflation 
have more than offset savings resulting in the need to increase fees. 
AMS estimates the fee increase will result in an overall cost increase 
to the industry of less than $0.0004 per pound of dairy product graded.

DATES: Effective: August 1, 2013.

FOR FURTHER INFORMATION CONTACT: Diane Lewis, Director, Grading and 
Standards Division, Dairy Programs, Agricultural Marketing Service, 
U.S. Department of Agriculture, Stop 0225, Room 2968--South, 1400 
Independence Avenue SW., Washington, DC 20250-0225, or call (202) 720-
4392.

SUPPLEMENTARY INFORMATION: 

Executive Orders 12866 and 12988

    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 (OMB).
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This action is not retroactive. There are no 
administrative procedures which must be exhausted prior to any judicial 
challenge to the provisions of this rule.

Regulatory Flexibility Act and Paperwork Reduction Act

    Pursuant to the requirement set forth in the Regulatory Flexibility 
Act (5 U.S.C. 601-612), AMS has considered the economic impact of this 
action on small entities. It has been determined that its provisions 
would not have a significant economic effect on a substantial number of 
small entities. For the purpose of the Regulatory Flexibility Act, a 
dairy products manufacturer is a ``small business'' if it has fewer 
than 500 employees. If a plant is part of a larger company operating 
multiple plants that collectively exceed the 500 employee limit, the 
plant will be considered a large business even if the local plant has 
fewer than 500 employees.
    Under the Agricultural Marketing Act of 1946, as amended, (AMA) (7 
U.S.C. 1621-1627), the Dairy Grading and Inspection Branch, AMS, 
provides voluntary Federal inspection and dairy product grading 
services to about 360 plants. An estimated 345 of these users are small 
businesses under the criteria established by the Small Business 
Administration (13 CFR 121.201).
    This rule will raise the fees charged to businesses for voluntary 
plant inspections, grading services for dairy, and related products. 
This rule will not raise fees applicable to the European Union Health 
Certification Program derogation process. These actions will equally 
affect all businesses that use these services. Dairy processing plants 
participating in the voluntary plant inspection program have their 
facility inspected against established USDA ``General Specifications 
for Dairy Plants Approved for USDA Inspection and Grading Service'' 
construction and sanitation requirements. Businesses are under no 
obligation to use these voluntary user-fee based services and any 
decision on their part to discontinue the use of the services would not 
prevent them from marketing their products. It is estimated that the 
fee increases will result in an increase to plants of $0.0004 per pound 
of graded product. Therefore, AMS has determined that this rule will 
not have a significant economic impact on small businesses.
    A review of reporting requirements was completed under the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). The review 
determined that this rule would have no impact on reporting, 
recordkeeping, or other compliance requirements for entities currently 
using voluntary Federal dairy inspection and grading services because 
they would remain identical to the current requirements.
    This action does not request additional information collection that 
requires clearance by OMB. The primary sources of data used to complete 
the forms are routinely used in most business transactions. Forms 
require only a minimal amount of information which can be supplied 
without data processing equipment or a trained statistical staff. Thus, 
the information collection and reporting burden is small. Requiring the 
same information from all participating dairy plants does not 
significantly disadvantage any plant that is smaller than the industry 
average.

Description of Program

    Plants participating in the voluntary AMS Dairy Grading and 
Inspection Program process milk into dairy foods that enter commerce as 
retail products, ingredients for further processing, purchases for 
Federal food assistance programs, or exports to other countries. 
Services provided by the program enhance the marketability and add 
value to dairy and dairy-containing foods. Dairy products manufactured 
in facilities complying with the USDA inspection requirements are 
eligible to be graded against official quality standards and 
specifications established by AMS and certain contract provisions 
between buyer and seller. Dairy products tested and graded by AMS have 
certificates issued describing the product's quality and condition.
    AMS continually reviews cost structures to assure it is operating 
efficiently while maintaining the resources necessary to meet the dairy 
industry's demand for services.

[[Page 38542]]

Periodically, fees must be adjusted to ensure that the program remains 
financially self-supporting. The AMS Dairy Grading and Inspection 
Program has made great efforts to reduce the costs associated with 
providing grading and inspection services since the last fee increase 
in 2006 (71 FR 60805). Cost-saving initiatives to date have resulted in 
substantial gains in the efficiency of service delivery. In 2006, total 
costs for the program were $5.2 million to grade and certify 1.5 
billion pounds of dairy products--a per pound cost of $0.0035. In 2011, 
the program's total costs were $5.3 million to grade and certify 2.0 
billion pounds of dairy products--a per pound cost of product certified 
of $0.0026, a 25 percent improvement in efficiency. Further 
enhancements will continue to improve the efficiency, quality, and 
timeliness of providing inspection and grading services.
    In an effort to minimize the costs associated with managing its 
workforce, the Dairy Grading and Inspection Program has restructured. 
The number of administrative personnel has been reduced from 14 full 
time employees to 5 resulting in annual savings of over $400,000. The 
National Field Office, located in the suburbs of Chicago, co-located 
with other USDA offices in Lisle, Illinois, saving about $32,000 
annually. One supervisor and one training position were eliminated 
allowing about $170,000 to be redirected to cover cost increases for 
additional grading staff needed to provide requested services. In 
addition, system automation has resulted in improved customer service 
with less staff involvement, especially in the delivery of export 
certificates. Advances in electronic submissions and deliveries allowed 
nearly 20,000 export certificates to be issued with only 2 staff 
positions during FY 2011.
    Although significant effort has been directed at reducing expenses, 
savings from these efforts have not offset increasing operating 
expenses incurred over the past 6 years. Consequently, existing fee 
rates are no longer adequate to cover current obligations. The program 
is depleting reserve funds at a rate that jeopardizes its ability to 
ensure effective delivery of services to meet industry needs. Fees must 
be adjusted to cover current and projected operating costs.
    The Secretary of Agriculture is authorized by the AMA to provide 
voluntary Federal dairy inspection and grading services to facilitate 
the orderly marketing of dairy products and to enable consumers to 
obtain the quality of dairy products they desire. The AMA also provides 
for the collection of reasonable fees from users of the Federal dairy 
inspection and grading services to cover the cost of providing these 
services. AMS establishes hourly fees by distributing the program's 
projected operating costs over the estimated service-revenue hours 
provided to users. AMS continually reviews its cost structure to assure 
it is operating efficiently while maintaining the resources necessary 
to meet the dairy industry's demand for services. Periodically, fees 
must be adjusted to ensure that the program remains financially self-
supporting.
    As part of its financially self-supporting status, agency 
requirements necessitate that the program maintain a reserve trust fund 
with a minimum of 4 months of operating funds to account for program 
closure or an unexpected decrease in revenues. Since revenues have not 
covered program costs for several years, the trust fund has gradually 
been depleted. The fund first dipped below its mandated 4-month reserve 
level in FY 2010. Without a fee increase, the AMS Dairy Grading and 
Inspection Branch will be put in an unstable financial position that 
will adversely affect the ability to provide dairy inspection and 
grading services.
    In an effort to reduce costs and delay depletion of reserve funds, 
AMS has continued to automate its business practices, consolidate 
facilities, limit personnel, and implement other efficiencies. As 
detailed earlier, progress to date for the AMS Dairy Grading and 
Inspection Program has been significant and has resulted in decreasing 
costs per pound of graded product from $0.0035 to $0.0026. This is 
equivalent to a savings of approximately $816,000 on every one billion 
pounds of product graded. Further enhancements in automated business 
practices will continue to improve the efficiency and timeliness of 
providing inspection and grading services as well as information to 
users of these services.

Discussion of Comments

    On January 17, 2013, the USDA published a Proposed Rule (78 FR 
3851) to increase the user fees for voluntary Federal plant inspections 
and dairy product grading services. The Proposed Rule included a 15 
percent increase in user-fees for dairy grading beginning in February 
2013, and an additional 5 percent increase beginning in October 2013. 
Comments were due on or before February 19, 2013.
    Six comments were received: One from a federation of dairy 
cooperative associations, two from dairy manufacturer associations, one 
from a non-profit trade organization and two from individuals.
    One of the comments received from an individual expressed 
opposition to the proposed fee increase. The comment explained how 
adoption of the proposed fee increase would increase prices to 
consumers, increase employee workload, and exempt larger plants from 
the grading program.
    The Dairy Grading and Inspection Program is voluntary. Plants who 
utilize the program do so in order to prove to their customers and to 
consumers that their product has been certified by the USDA to meet 
certain standards. The program is utilized by both small and large 
businesses. USDA estimates that the increased costs to dairy 
manufacturing plants resulting from the proposed fee increase for 
grading and inspection services to be negligible $0.0004 per pound of 
product graded.
    Two of the comments supported the fee increase as proposed by USDA. 
Both comments stated that a fee increase is justified since the program 
has not increased fees since 2006. They also expressed how a decline in 
grading services from insufficient revenue would be harmful to the 
dairy industry, and ultimately to consumers.
    Three comments supported a fee increase for the Dairy Grading and 
Inspection Program, but proposed a more gradual phase in. The comments 
stated that it is reasonable that the fee-for-service program 
occasionally increase its fees to cover costs in order to avoid service 
reductions. They also acknowledged the increased efficiencies that the 
Dairy Grading and Inspection Program has already achieved.
    Two of these comments described how the proposed increase to 
grading and inspection fees would be a significant burden on dairy 
product manufacturers since it would increase grading fees by 20 
percent in less than one year. The comments explained that grading and 
inspection fees are usually negotiated into sales contracts, and that 
these contracts are typically negotiated months in advance, thus 
manufacturers would have to renegotiate contracts to reflect the higher 
grading fee. The comments argued that this would place an undue 
financial burden on dairy product manufacturers who utilize the grading 
program. Alternatively, the comments proposed a three-part fee increase 
of 8 percent starting October 2013, an additional 6 percent in October 
2014, and an additional 6 percent in October 2015.
    The additional comment proposed that the fee increase not be 
implemented until October 2014, and at a lower level of 5 percent in 
the first year. The

[[Page 38543]]

comment described how a longer phase-in of smaller increments would be 
less disruptive to the industry and consumers. The comment explained 
that Federal grading and inspection of dairy products can be required 
as part of sales agreements with customers. The comment also stated 
that many dairy manufacturers have no mechanism for recouping the 
increased grading fee from customers.
    The suggested revisions to the fee increase schedule and 
implementation date provided by commenters led the USDA to further 
review the fee structure, taking into consideration the commenters 
concerns, as well as the budgetary realities faced by the Dairy Grading 
and Inspection Program. As a result of the analysis, this final rule 
adopts provisions that are modified from those in the proposed rule. 
The proposed rule provided for a 15 percent fee increase beginning in 
February 2013, and an additional 5 percent fee increase beginning in 
October 2013. This would have applied to all grading services, 
including EU health certification program derogation requests. This 
final rule, however, includes a two-part incremental fee increase 
consisting of a 10 percent increase beginning in August 2013, which is 
seven months later than initially proposed, with an additional 10 
percent increase beginning in February 2014.
    Two of the comments also stated that the fee increase should not 
apply to the standard two-hours of non-resident service per European 
Union (EU) Health Certification Program derogation for somatic cell 
count and standard plate count. They explained how users of the EU 
Health Certification Program have invested significant resources to 
streamline the application process by creating electronic transfer 
programs to apply for derogations as a group. The comments explained 
how these systems should have already reduced USDA's processing time to 
less than two-hours per derogation, and requested that USDA examine its 
current cost structure for derogations to see if the rate could be 
reduced.
    Beginning January 1, 2012, the U.S. dairy industry began 
transitioning to a farm level milk sampling program to verify somatic 
cell count and standard plate count compliance with EU regulations for 
products exported to the EU. Currently, the EU maximum SCC level is 
400,000 and the U.S. SCC standard is 750,000. In an effort to 
facilitate trade, AMS implemented a derogation program to provide a 
level of flexibility for farms that exceed EU SCC requirements. Milk 
from farms granted a derogation can still be manufactured into products 
that are exported to the EU.
    The commenters stated the USDA processing time for derogations has 
been reduced as a result of the industry developing an electronic 
transfer program to simultaneously submit a group of derogation 
applications. While this development may reduce time for the submitter, 
USDA must unbundle the group submission and individually review each 
application, resulting in no reduced staff time. Furthermore, now that 
the derogation program is in its second year applications must be 
compared with previously submitted applications to ensure that farms 
are working towards compliance with the EU standard. Upon further 
review, USDA determined that the current fee is appropriate and as a 
result, the fee applicable to derogations is unchanged.
    Currently, the fees are $63.00 per hour for continuous resident 
services and $68.00 per hour for non-resident services. The increases 
outlined in this final rule result in fees of $69.00 per hour for 
continuous resident services effective August 2013 and $76.00 per hour 
effective February 2014. The fee for non-resident services between the 
hours of 6 a.m. and 6 p.m. is $75.00 per hour beginning August 2013 and 
$82.00 per hour as of February 2014. The fee for non-resident services 
between the hours of 6 p.m. and 6 a.m. is $82.40 per hour effective 
August 2013 and $90.20 as of February 2014. For services performed in 
excess of 8 hours per day and for services performed on Saturday, 
Sunday, and legal holidays, 1\1/2\ times the base fees will apply and 
result in increases to $104.00 per hour for resident grading beginning 
August 2013 and $114.00 per hour effective February 2014. Similarly, a 
fee of $112.40 per hour for non-resident grading services effective 
August 2013 and $123.00 as of February 2014 also apply. Lastly, a fee 
of $68.00 per hour at the standard two-hour per derogation application 
will still apply. The following table summarizes the fee changes:

----------------------------------------------------------------------------------------------------------------
             Service (all rates in dollars per hour)                  Current       August 2013    February 2014
----------------------------------------------------------------------------------------------------------------
Continuous resident services....................................          $63.00          $69.00          $76.00
Non-resident services...........................................           68.00           75.00           82.00
Non-resident services 6pm-6am (10 percent night differential)...           74.80           82.40           90.20
Continuous resident services--in excess of 8 hours (1\1/2\ x               94.50          104.00          114.00
 base)..........................................................
Non-resident--in excess of 8 hours (1\1/2\ x base)..............          102.00          112.40          123.00
Derogation Applications.........................................           68.00           68.00           68.00
----------------------------------------------------------------------------------------------------------------

    AMS estimates that dairy grading and inspection fees, including the 
adopted increases, will generate the following revenue (in thousands of 
dollars): FY 2013 ($6,869); FY 2014 ($7,430); FY 2015 ($7,546); and FY 
2016 ($7,342). Program costs are estimated as follows (in thousands of 
dollars): FY 2013 ($6,051); FY 2014 ($6,459); FY 2015 ($6,536); FY 2016 
($6,615). The additional cost to the industry will still represent less 
than $0.0004 per pound of product certified as described in the 
proposed rule. At this increased rate, program analysis estimates that 
required minimum trust fund reserves will be reached by FY 2015. Based 
on the above assumption, trust fund reserves are estimated as follows 
(in thousands of dollars): FY 2013 ($1,385); FY 2014 ($2,356); FY 2015 
($3,366); FY 2016 ($4,093).

List of Subjects in 7 CFR Part 58

    Dairy products, Food grades and standards, Food labeling, Reporting 
and recordkeeping requirements.
    For the reason set forth in the preamble, 7 CFR part 58 is amended 
as follows:

PART 58--GRADING AND INSPECTION, GENERAL SPECIFICATIONS FOR 
APPROVED PLANTS AND STANDARDS FOR GRADES OF DAIRY PRODUCTS

0
1. The authority citation for 7 CFR part 58 continues to read as 
follows:

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

Subpart A [Amended]

0
2. Revise Sec.  58.43 to read as follows:

[[Page 38544]]

Sec.  58.43  Fees for inspection, grading, sampling, and certification.

    Except as otherwise provided in Sec. Sec.  58.38 through 58.46 and 
through the last day of January 2014 inclusive, charges shall be made 
for inspection, grading, and sampling service at the hourly rate of 
$75.00 for services performed between 6 a.m. and 6 p.m. and at $82.40 
for services performed between 6 p.m. and 6 a.m. for service preformed 
for the time required to perform the service calculated to the nearest 
15-minute period, including the time required for preparation of 
certificates and reports and the travel time of the inspector or grader 
in connection with the performance of the service. Starting the first 
day of February 2014, the hourly rate will be equal to $82.00 for 
service performed between 6 a.m. and 6 p.m. and $90.20 for services 
performed between 6 p.m. and 6 a.m. calculated in the same manner. A 
minimum charge of one-half hour shall be made for service pursuant to 
each request or certificate issued. Charges for service performed in 
excess of the assigned tour of duty shall be made at a rate of 1\1/2\ 
times the rate stated in this section. The hourly rate for work 
regarding compliance with European Union Health Certification Program 
derogation applications and/or review shall be assessed at $68.00.

0
3. Revise Sec.  58.45 to read as follows:


Sec.  58.45  Fees for continuous resident services.

    Irrespective of the fees and charges provided in Sec. Sec.  58.39 
and 58.43, charges for the inspector(s) and grader(s) assigned to a 
continuous resident program shall be made at the rate of $69.00 per 
hour for services performed during the assigned tour of duty until the 
last day of January 2013. Starting the first day of February 2014, the 
hourly rate shall be assessed at $76.00 for services calculated in the 
same manner. Charges for service performed in excess of the assigned 
tour of duty shall be made at a rate of 1\1/2\ times the rate stated in 
this section.

    Dated: June 21, 2013
Rex A. Barnes,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2013-15331 Filed 6-26-13; 8:45 am]
BILLING CODE 3410-02-P