Meat and Poultry Inspection: Impact of USDA's Food Safety Proposal on
State Agencies and Small Plants (Letter Report, 06/30/95,
GAO/RCED-95-228).

Pursuant to a congressional request, GAO reviewed state meat and poultry
inspection programs, focusing on the possible effects of new food safety
regulations on: (1) current state inspection programs; and (2) small
meat processing plants.

GAO found that: (1) FSIS has cooperative agreements with 27 states for
state meat and poultry inspection programs; (2) the FSIS proposal to
extend its Hazard Analysis and Critical Control Points System to the
states will increase costs to states because their programs must be
equal to the federal program; (3) costs to the states will be minimal
because FSIS will provide training and fund half the cost of new
equipment; (4) small processing plants will be disproportionately
affected by the costs of the new regulation; and (5) the processing
functions that small plants perform will determine the extent of costs
incurred by individual plants.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-95-228
     TITLE:  Meat and Poultry Inspection: Impact of USDA's Food Safety 
             Proposal on State Agencies and Small Plants
      DATE:  06/30/95
   SUBJECT:  Meat inspection
             Poultry inspection
             Food and drug law
             Interstate commerce
             Quality control
             Safety standards
             Safety regulation
             Infectious diseases
             Federal/state relations
             State-administered programs
IDENTIFIER:  FSIS Hazard Analysis and Critical Control Point System
             FSIS Performance-Based Inspection System
             FSIS Talmadge-Aiken Program
             E. coli Bacteria
             FSIS State-Federal Program
             
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Cover
================================================================ COVER


Report to Congressional Requesters

June 1995

MEAT AND POULTRY INSPECTION -
IMPACT OF USDA'S FOOD SAFETY
PROPOSAL ON STATE AGENCIES AND
SMALL PLANTS

GAO/RCED-95-228

USDA's Proposal for Meat and Poultry Inspection


Abbreviations
=============================================================== ABBREV

  FSIS - Food Safety and Inspection Service
  HACCP - Hazard Analysis and Critical Control Points
  NASDA - National Association of State Departments of
  Agriculture
  PBIS - Performance Based Inspection System
  USDA - U.S.  Department of Agriculture

Letter
=============================================================== LETTER


B-261674

June 30, 1995

The Honorable Pat Roberts
Chairman
The Honorable E (Kika) de la Garza
Ranking Minority Member
Committee on Agriculture
House of Representatives

The Honorable Steve Gunderson
Chairman, Subcommittee on Livestock,
 Dairy, and Poultry
Committee on Agriculture
House of Representatives

In 1993, hamburger contaminated with the E.  coli 0157:H7 bacteria on
the West Coast killed four children and caused hundreds of illnesses. 
Subsequently, the U.S.  Department of Agriculture announced that it
would move to a "farm to table" system of ensuring the safety of meat
and poultry products.  As part of this effort, in February 1995, the
Department's Food Safety and Inspection Service (FSIS) proposed that
each meat and poultry slaughter and processing plant adopt a system
of preventive control for food safety, known as the Hazard Analysis
and Critical Control Points (HACCP) system, under FSIS monitoring.\1
The HACCP proposal, now the subject of public comments in the
rulemaking process, would require all meat and poultry plants,
including plants where states are responsible for inspection, to
adopt systems for controlling food-safety hazards and producing safe
foods.  Federal and state meat and poultry inspection agencies would
be required to take on some additional monitoring activities under
the HACCP proposal. 

In January 1995, you requested that we (1) describe state meat and
poultry inspection programs, (2) provide information on the expected
effects of the Department's proposed HACCP rule on state inspection
programs, and (3) discuss the likely effects of the HACCP rule on
small plants. 


--------------------
\1 FSIS' proposal was published in the Federal Register on February
3, 1995. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The Food Safety and Inspection Service has two major programs with
the states for cooperative meat and poultry inspection:  the
Talmadge-Aiken Program, which authorizes state inspectors to provide
federal inspection services in plants that sell their products in
interstate commerce; and the State-Federal Program, in which state
inspectors perform all inspection activities in plants that can only
trade within the state.  In fiscal year 1994, the Food Safety and
Inspection Service reimbursed the states about $40 million--half of
the states' total costs--for their inspection programs' activities. 

In general, while supporting the concept of using hazard analysis and
critical control points, state inspection agency officials are
concerned that the proposed rule will increase the cost of state meat
and poultry inspections.  In particular, they expect that
incorporating the proposed rule into their current inspection system
will result in additional costs for equipment, staff, and training. 
Food Safety and Inspection Service officials, however, believe that
the costs to the states will be minimal because the Inspection
Service plans to provide training and to pay for at least half of the
costs of adopting the new rule. 

State inspection officials and industry representatives are also
concerned that the new rule, if enacted as proposed, will drive many
small meat and poultry processors out of business, mainly because of
the cost of performing microbial sampling and testing.  The Food
Safety and Inspection Service acknowledges in its proposed rule that
small plants will be disproportionately affected by rule-related
costs and asks for specific comments on dealing with this issue. 


   BACKGROUND
------------------------------------------------------------ Letter :2

By law, FSIS has overall responsibility for ensuring the safety of
all meat and poultry products sold in the United States.  FSIS
directly oversees plants that slaughter and process meat and poultry
traded in interstate commerce.  Generally, FSIS assigns federal
inspectors to interstate trading plants; however, under the
Talmadge-Aiken Program, state inspectors perform inspections in
certain interstate trading plants.  Since the late-1960s, FSIS has
also been responsible for plants that only trade in intrastate
commerce.  These plants account for less than 1 percent of the annual
U.S.  meat and poultry production.  Under the State-Federal Program,
FSIS delegates inspection of plants that trade only in intrastate
commerce to those states that maintain inspection programs.  FSIS
monitors these programs, which must be "equal to" the federal
program.  In general, states with intrastate inspection programs
began those programs prior to FSIS' assuming jurisdiction.\2 FSIS
shares half the cost of the state programs with the states. 

FSIS' current inspection activities differ somewhat for slaughtered
and processed products.  At slaughter plants, FSIS is required by law
to perform antemortem and postmortem inspections of each animal
slaughtered, and federal inspectors are stationed in plants to
inspect each animal and carcass by sight, touch, and smell for
disease, abnormalities, and contamination (organoleptic inspection). 
Inspectors also sample carcasses for certain types of microbial and
chemical contamination.  For processed meat and poultry products,
FSIS inspects all processing plants at least daily.  FSIS inspectors
target inspection activities in processing plants according to the
product's riskiness and the plant's compliance history.  Inspectors
use an automated system--Performance Based Inspection System
(PBIS)--designed specifically for FSIS to determine which products to
inspect or other inspection tasks to perform. 

FSIS is proposing to change how it ensures meat and poultry safety by
requiring plants to implement HACCP systems designed to identify and
prevent microbial and other hazards in food production.  The HACCP
concept includes systematic steps to prevent problems from occurring
and to correct deviations as soon as they are detected.  A HACCP
system consists of seven principles that plants must incorporate into
their operations:  hazard analysis, critical control point
identification, establishment of critical limits, monitoring
procedures, corrective actions, recordkeeping, and verification
procedures. 

FSIS is proposing to phase in HACCP requirements throughout the
regulated industry over 3 years, with small plants implementing HACCP
systems during the final phase.  For the purposes of the HACCP
proposal, FSIS has defined a small plant as an establishment with
annual sales of less than $2.5 million.  About 17 percent of all
slaughter and 42 percent of all processing plants in the United
States would be classified as small; also, FSIS considers all
state-regulated establishments to be small plants.  Industry would
bear most of the cost to develop and implement HACCP systems. 

As part of the proposed HACCP rule, FSIS plans to require that plants
adopt near-term initiatives to help them make the transition to HACCP
systems.  The near-term initiatives--standard operating procedures
for sanitation, antimicrobial washes for carcasses, prompt and
continuous chilling of products, and microbial testing--must be in
place 90 days after the rule's adoption.  Slaughter plants and
ground-meat and ground-poultry processors must adopt all of the
near-term intiatives.  Other types of plants, such as those producing
fully cooked products, will only be required to implement the
sanitation procedures.  The near-term initiatives will be, for the
most part, incorporated into the plants' HACCP systems. 

Details of how FSIS inspectors' activities will change under the
HACCP rule have not been made final.  Because of the legal
requirement for a carcass-by-carcass inspection, FSIS inspectors will
continue antemortem and postmortem inspections of each animal
slaughtered.  Inspectors would have some new duties for monitoring
plants' implementation of HACCP systems, such as overseeing plants'
critical control point monitoring and microbial testing.  State
inspection activities would change similarly. 


--------------------
\2 In 1967, the Federal Meat Inspection Act was amended to give FSIS
authority over plants producing meat for intrastate trade.  In 1968,
the Poultry Products Inspection Act was amended similarly. 
Previously, plants selling meat or poultry intrastate were under
state jurisdiction. 


   STATES' AND FSIS' COOPERATION
   FOR INSPECTIONS
------------------------------------------------------------ Letter :3

Under cooperative agreements with 27 states, FSIS uses state
inspection programs to help ensure that meat and poultry from these
states meet federal standards.  State inspection programs must be at
least "equal to" the federal programs.  FSIS determines whether state
programs qualify through an extensive process that includes
performance plans, feedback from FSIS supervisors, and documentation
in annual reports.  The cooperative agreements cover the two major
meat and poultry inspection programs:  the Talmadge-Aiken and the
State-Federal programs.  They cost FSIS about $40 million for fiscal
year 1994.  (See app.  I for information about individual state meat
and poultry inspection programs.)

Currently, 10 states participate in the Talmadge-Aiken Program. 
Under this program, state inspectors carry out federal inspection
duties in 258 plants that meet all federal requirements and thereby
qualify to sell their meat and poultry products in interstate
commerce.  Talmadge-Aiken plants are generally small and in remote
locations, where it is not economical for FSIS to maintain full-time
federal inspection services.  FSIS reimburses the states for half of
the cost of the activities they perform for the federal government. 

Under the State-Federal Program, 27 states operate their own meat and
poultry inspection programs.  By law, plants inspected by the states
are not eligible to trade in interstate commerce, since they comply
with state, rather than federal, requirements.  Through the
State-Federal Program, FSIS oversees state regulation of the
production activities of the 2,890 plants that are authorized to
trade only within state.  FSIS provides assistance--such as training
and/or laboratory services--to the state agencies and monitors the
states' inspection activities.  The states are reimbursed for up to
half of their costs to maintain inspection programs in these plants,
which, like the Talmadge-Aiken plants, are generally small and in
remote locations.  In fiscal year 1994, FSIS reimbursed the states
$39.7 million for the State-Federal and Talmadge-Aiken inspection
activities combined.\3

In addition to the Talmadge-Aiken and State-Federal inspection
activities, state inspectors are sometimes temporarily assigned to
federal inspection duties, and federal inspectors to state duties,
when it makes economic sense to do so.  Each level of government is
fully reimbursed for the cost of the cross-utilization. 


--------------------
\3 It is not possible to separate accurately the costs of the
Talmadge-Aiken and State-Federal programs because the states and FSIS
track cooperative program funds in total. 


   EFFECT OF HACCP ON STATE
   INSPECTION PROGRAMS
------------------------------------------------------------ Letter :4

Because state meat and poultry inspection programs must be "equal to"
the federal program, FSIS' HACCP proposal would require state
inspection agencies to adopt inspection and monitoring activities
comparable to those used by FSIS.  States would have to make two
principal changes to their programs:  (1) adopt an automated
performance- and risk-based system, such as PBIS, as a tool that
would enable them to schedule and monitor inspections and plants'
compliance with the HACCP rule and (2) have inspectors implement
HACCP monitoring procedures, including overseeing plants' critical
control point monitoring and microbial testing. 

With the first change, it would be necessary for state inspection
agencies to implement PBIS or a similar automated system designed to
(1) allocate and schedule state inspection resources according to
risk; (2) document statewide inspection results to determine
industry's performance overall; (3) document the performance and
corrective actions taken by individual plants; and (4) initiate
actions to address repeated deficiencies in a plant, such as
withdrawing inspection privileges.  The new system would require
computer equipment and software and staff trained to operate it. 

Under the second change, the state inspection agencies would need to
monitor the microbial testing and other HACCP procedures performed by
the plants.  The HACCP monitoring would require that state inspectors
be trained in the appropriate procedures; also, some additional
laboratory costs would probably be incurred to monitor the plants'
microbial testing. 

According to FSIS' Director of Federal-State Relations, 15 of the 27
states have received the PBIS software and related training.\4
Currently, one of these states is using PBIS fully, and the rest are
beginning to use it.  Most of the remaining 12 states use a PBIS
forerunner, which may or may not be automated.  The earlier system
considers plants' past performance but not product's riskiness in
scheduling inspections and is less effective in recording inspection
results.  FSIS plans to furnish PBIS software and training to these
states as soon as they have the equipment and staff to use it. 

FSIS officials estimate that at least eight states will need PBIS
inspector training.  Inspectors in some states are already familiar
with PBIS field techniques, having used PBIS to perform federal
inspection duties under the Talmadge-Aiken Program and through
cross-utilization activities.  FSIS has queried the states about
their inspector training needs and will plan PBIS training when the
states have responded.  Furthermore, FSIS plans to offer relevant
training for state inspectors after the HACCP rule is adopted. 

In February 1995, the National Association of State Departments of
Agriculture's (NASDA) Director of Legislative and Regulatory Affairs
asked the 27 state inspection agency directors about the expected
effects of complying with FSIS' HACCP proposal.  The state directors
generally supported the HACCP concept; however, of the 22 state
directors who responded, 19 expected additional costs for training,
computer hardware and software, or laboratory analysis.  Start-up
cost estimates ranged from minimal to $54,000 per state and the
longer-term cost estimates ranged from a savings to an additional
$1.3 million per year per state.  According to the President of the
National Association of State Meat and Food Inspection Directors,\5
the larger state programs with automated inspection programs can
generally expect to make the fewest changes and to absorb the
additional costs most easily.  In responding to NASDA's questions,
several of the state directors expressed concern about how to pay for
any cost increase in light of their already strained state budgets,
and some were concerned that the states will be forced to turn their
inspection programs over to FSIS. 

FSIS officials do not believe that the switch to HACCP systems will
be costly for the state inspection agencies.  They acknowledge that
assistance in adopting PBIS is needed, and, to help provide this,
FSIS is providing each state with the software and training.  Also,
FSIS officials expect that PBIS will help the states reallocate their
inspection resources more effectively.  Furthermore, FSIS plans to
pay for at least half of the cost of retraining the inspectors for
the new HACCP monitoring duties, which is the usual training
reimbursement under the cooperative agreements. 


--------------------
\4 As part of the requirement for states to have inspection systems
equal to FSIS', FSIS is requiring that each state adopt an automated
system such as PBIS by September 1996.  The states must meet this
requirement whether or not the HACCP rule is implemented. 

\5 All state meat and poultry inspection agency directors are members
of the National Association of State Meat and Food Inspection
Directors, which is a subgroup of and is represented by NASDA. 


   EFFECT OF HACCP ON SMALL PLANTS
------------------------------------------------------------ Letter :5

FSIS chose to define small plants broadly--as those with less than
$2.5 million in annual sales--to allow as many of the plants as
possible the full 3 years to implement HACCP systems.  Both FSIS and
the President of the National Association of Meat and Food Inspection
Directors believe that virtually all of the 2,890 plants that trade
only within their state would qualify as small plants.  In addition,
2,234 federally inspected plants would be considered small.  In
total, they account for about 57 percent of the plants in the
industry, yielding less than 1 percent of the annual slaughter and
processed meat and poultry production. 

The effect of the HACCP rule varies according to the activities the
plant carries out.  For example, for small plants under the HACCP
rule's near-term initiatives, meat slaughtering would be the single
activity with the highest cost increases because it requires all of
the near-term interventions.\6 Conversely, the extra costs for
near-term processing activities would be the cheapest, because they
require only sanitation procedures.  When HACCP is fully implemented,
the changes to certain processing activities that FSIS classifies as
difficult will be the most expensive because these activities
generally have more critical control points and related costs, such
as those for recordkeeping.  The changes to meat slaughtering will be
the cheapest because it has few critical control points and related
costs. 

An individual plant may perform any number of the activities on a
given day.  According to the President of the National Association of
State Meat and Food Inspection Directors, small plants probably
perform two to three activities on 2 to 3 days of each week.  For
example, FSIS estimates that a small plant engaged in one processing
activity, such as grinding meat or poultry, would spend about $50,000
more during the first 4 years of the rule's implementation (3 years
for near-term initiatives and 1 year for HACCP start-up costs). 
Additional annual costs thereafter would be about $12,000.  A plant
that slaughters only cattle would spend about $52,000 more during the
first 4 years and an addtional $12,000 annually thereafter.  Plants
performing more than one activity, for example, slaughtering and
grinding beef, will have higher increased costs because of the
additional activities. 

Most state inspection agency directors expressed concern that many
small meat and poultry plants in their state will not be able to
afford to comply with the HACCP requirements, especially the cost of
microbial testing.  Because the plants produce small volumes of
products, for example, 100 pounds of ground beef per day, the fixed
daily cost of microbial testing will increase small plants' prices
per pound of product much more than the prices of larger-volume
plants, making it difficult for the small plants to price their
products competitively.  Also, many of the small plants are "mom and
pop" operations with a limited number of employees and manual
recordkeeping systems.  These plants may not be able to afford the
training, additional staff, and equipment needed to monitor and
document the critical control points called for in the HACCP rule. 

A number of owners of small plants expressed concerns about the cost
of complying with the HACCP rule during a recent public meeting
scheduled by FSIS.\7 In general, they are worried about going out of
business because of the increased cost of implementing the HACCP
rule.  Also, some expressed concern that, as plants in rural areas
close, more slaughtering activities will be performed illegally or
privately on farms under uncontrolled sanitary conditions. 
Furthermore, they believe that they currently have adequate controls
over their products' safety--because they know their customers, often
by first names, they would know if the products caused illness.  One
owner of a small plant summarized the comments of several by saying
that he would not produce bad products for his friends and family. 

A Texas A&M University study issued in April 1995 recognizes that
small plants will be disproportionately affected by the
implementation of the HACCP rule.\8 FSIS is also concerned about the
effect of the rule on small plants.  As part of the public comment
process for the proposal, FSIS has asked for suggestions on how to
ease the burden that the cost of HACCP systems would place on small
plants and offered additional informational sessions.  In this
regard, FSIS plans to provide technical assistance, such as generic
HACCP plans, that small plants can use. 


--------------------
\6 Plants performing multiple meat-slaughtering activities (e.g., for
cattle, hogs, sheep, etc.) will incur the highest near-term costs. 

\7 FSIS scheduled the meeting in Kansas City, Kansas, as an
opportunity to present details about the costs of the rule for small
plants and to allow the owners of small plants a chance to ask
questions and air their concerns. 

\8 Reforming Meat and Poultry Inspection:  Impacts of Policy Options,
Institute for Food Science and Engineering Center, Center for Food
Safety, Texas A&M University System (College Station, Texas:  Apr. 
1995). 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

We provided a draft of this report to FSIS.  We met with two FSIS
associate administrators and other relevant FSIS officials, who
generally agreed with the contents of the draft.  The officials
suggested that the report include two additional clarifying points. 
First, they said that the report should note that FSIS is requiring
that state inspection agencies adopt PBIS or a similar automated
system, notwithstanding action on the proposed HACCP rule.  The FSIS
officials acknowledged that, while PBIS is not a requirement of the
HACCP rule per se, such a system is a necessary prerequisite to the
rule's implementation.  Second, while agreeing that meat slaughtering
is the single activity that will have the highest increase in cost
under the near-term initiatives for small plants, the officials said
that it was important to recognize that plants performing multiple
meat-slaughtering activities will face the highest increased costs
under the near-term initiatives.  They believe that this is an
important point, since many small plants perform multiple
meat-slaughtering activities.  We have included these clarifying
points in the report. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

In developing information for this report, we spoke with and obtained
documentation from FSIS and Economic Research Service officials,
state inspection agency directors and representatives, industry
association officials, selected owners of small plants, and other
officials in industry and academia who are familiar with the industry
and with issues related to meat and poultry inspection.  Furthermore,
we attended FSIS-sponsored conferences in Philadelphia, Washington,
and Kansas City concerning the proposed HACCP rule.  We also reviewed
selected public comments on the proposal. 

We conducted our work between January and June 1995 in accordance
with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to appropriate congressional
committees; interested Members of Congress; the Secretary of
Agriculture; the Under Secretary for Food Safety; and other
interested parties.  Copies are available on request. 

Please contact me at (202) 512-5138 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
II. 

John W.  Harman
Director, Food and
 Agriculture Issues


STATES WITH COOPERATIVE MEAT AND
POULTRY INSPECTION PROGRAMS, 1994
=========================================================== Appendix I

                State-
                Federa
                     l          Talmadge             Cost to
                Progra  No. of    -Aiken  No. of     FSIS in
State                m  Plants   Program  Plants     FY 1994
--------------  ------  ------  --------  ------  ----------
Alabama            Yes      79       Yes      19  $1,146,281
Alaska             Yes      14        No       0     314,850
Arizona            Yes      66        No       0     471,475
Delaware           Yes       4        No       0     198,803
Florida            Yes     138        No       0   2,095,602
Georgia            Yes      91       Yes      49   2,391,944
Hawaii             Yes      46       Yes      11   1,279,744
Illinois           Yes     358       Yes      31   4,183,294
Indiana            Yes     121     Yes\a       6   1,696,088
Iowa               Yes     149        No       0     921,651
Kansas             Yes     155        No       0   1,333,113
Louisiana          Yes     100        No       0   1,613,279
Mississippi        Yes      55       Yes      16     994,325
Montana            Yes      35        No       0     294,724
New Mexico         Yes      37        No       0     388,400
N. Carolina        Yes     169       Yes      53   2,779,914
Ohio               Yes     271        No       0   4,171,010
Oklahoma           Yes      83       Yes      15   1,469,952
S. Carolina        Yes     110        No       0   1,044,320
S. Dakota          Yes      56        No       0     403,909
Texas              Yes     340       Yes      24   4,791,351
Utah               Yes      30       Yes      10     682,986
Vermont            Yes      14        No       0     241,961
Virginia           Yes      31       Yes      24   1,255,747
W. Virginia        Yes      32        No       0     560,085
Wisconsin          Yes     272        No       0   2,761,304
Wyoming            Yes      34        No       0     252,217
Total               27    2890        11     258  $39,738,32
                                                           9
------------------------------------------------------------
\a Indiana withdrew from the Talmadge-Aiken Program in 1995. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   RESOURCES, COMMUNITY, AND
   ECONOMIC DEVELOPMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:1

Edward M.  Zadjura, Assistant Director
Karla J.  Springer, Project Leader
John M.  Nicholson, Jr., Senior Evaluator
Carol Herrnstadt Shulman, Communications Analyst

