Regulatory Impact Assessment of the Proposed RTE Rule

Dr. Felix Spinelli

Economist

Regulations and Directives Development Staff

USDA - Food Safety and Inspection Service

Today’s Presentation• Brief over-view of Regulatory Impact Assessment

Framework

• Preliminary Estimate of Industry Costs

– Impact of Higher Performance Standards

– Impact of Mandatory Testing for L. spp.

• Cost Impact on Small Entities

• Preliminary Estimate of Social Benefits

• Comparison of Industry Costs and Possible Social

Benefits

The Purpose of Regulatory Impact Assessments

• Estimate potential social benefits and costs of proposed actions.

• Identify and assess regulatory alternatives.

• Provide framework for public comment and further improvement.

The “Nuts and Bolts”• Establish a Baseline.

• Forecast regulatory-induced changes in industry practices.

• Create a scenario which incorporates the impact of the above changes.

• Compare the regulatory-induced scenario to baseline.

Impact of Performance Standards

• Direct Costs– One-time, initial costs

• Validation costs• Equipment costs

– Recurring costs• Additional processing, i.e. longer

times/higher temperatures, other processes.

Estimates of Direct Costs • First-year, one-time costs

– 545 products need validation at $5000/each.

– No data on needed equipment, etc, so subsumed into recurring cost estimate.

• First-year and recurring costs– 75 firms producing 441 million

pounds/year incur an additional 1 cent/pound cost.

Indirect Impacts of Performance Standards

– Short and long-term rejection rates– Line speeds– Recalls– Product Quality– Product Shrinkage– No estimate on indirect impacts on

costs at this time.

Summary of Direct Cost Impact of Performance

Standards

• First-year, one-time costs…. $2.72 million

• Annually recurring costs …. + $4.41 million

• Total first year impact ……. $7.13 million

Impact of Mandatory Environmental Testing for

Listeria species• Direct Costs

– One-time, initial costs• Incorporation of Critical Control Point

addressing LM contamination into HACCP plan

OR

• First-year and recurring costs• Actual testing of product-contact surfaces for

Sanitation SOP verification

Direct Cost Calculations

HACCP Modification (Addition of CCP)– Large: 50 % 100 %– Small: 33 % 50 %– Very Small: 10 % 20 %

• 257 establishments* $5000/Plan = $1.29 million

*Size based on employment figures.

Direct Cost Calculations (cont’d)

Actual testing of product-contact surfaces for

Sanitation SOP verification

• Large: $10,080/establishment• Small: $ 3,360/establishment• Very Small: $ 840/establishment

825 establishments for a total of $1.75 million.

Impact of Testing (cont’d) - Indirect Impacts

• Similar Indirect Impacts as described for performance standards are possible.

• Rejection rates, Recalls, Product Quality

• May not affect line speeds, shrinkage, but: • Test and Hold Occurrences• Disposal of Product• Storage Capacity

• Needed Production Adjustments to remedy Listeria spp. contamination

Impact of Testing (cont’d) -Indirect Impacts

• Production Adjustments– Most establishments will not incur any additional

cost (find they do not have a serious LM problem)

– Other establishments likely will need to adjust production

• 7% incur “$2000 per line” cost• 7% incur “1/10 of 1% of gross sales” cost• 1% elect to drop RTE production

Total Direct and Indirect Costs of Testing (in million $)

• One-time cost, HACCP mod .….…. 1.29• One-time production adj. costs ….. + 2.49• Sub-total of one-time costs ………. 3.78

• Recurring testing costs …..…...…... +1.75

• Total first-year impact ...…….……. 5.53

Total Impact of Performance Standards and Testing Provisions

• One-time costs (million $)– Validate Performance Standards.. 2.72– Modify HACCP (Testing)……… + 1.29– Adjustment (Testing) …………... + 2.49

• Sub-total, one-time .....………..… 6.50

• Performance Std (42%) and Testing (58%)

Total Impact of Performance Standards and Testing Provisions

(cont’d)• Recurring costs (million $)

– Increased processing (Performance Std) ...... 4.41– Testing costs (Testing) ……...…………...… + 1.75– Sub-total ….…………………………… 6.16

• Performance Std (72%) and Testing (28%)

• Total Cost Impact, First-Year……….... 12.66– Performance Std (56%) and Testing (44%)

Summary of Cost Impacts

Costs (million $)Testing Perf.

Stds.Total

1st year – All 5.53 7.13 12.66Recurring 1.75 4.41 6.16

Over 10 yrs.Nominal 21.3 46.8 68.1Present value 15.8 33.5 49.3

Impact Across the RTE Industry

FSIS PlantClassification

% of allplants

% of totalimpact

Very Small 32 15

Small 59 54

Large 9 31

Estimate of Social Benefits

• All benefits derived from improved food safety spurred on by verification testing.

• Benefits from higher performance standards not quantified at this time.

• Increased testing decreased probability of contaminated product.

• Less contaminated product Fewer sicknesses and deaths.

Ready-to-eat Meat and Poultry Products and Listeriosis

• 2540 Listeriosis Cases and 508 Deaths from all sources in the US per year.

• Important Questions: – What is attributable to meat and poultry products?– What is attributable to establishments?– Impact of other measures?– Effectiveness of measures?– Rate of beneficial impacts?– How to monetarize benefits?

Two Estimates Linking Meat and Poultry Products and Listeriosis:

• FDA-FSIS Risk Assessment– DRAFT Recently Published

– Ranked Relative Risk across Many Foods

• Mead-Olsen Studies– A Combination of Two Independent CDC Studies

– Requires making some tenuous assumptions

– Probably gives lower bound of cases and deaths attributable to meat and poultry products

DRAFT FDA-FSIS Risk Assessment

– Suggests that over 65 percent of cases and deaths are attributable to ready-to-eat meat and poultry products.

– Almost 90 percent of those are attributable to deli-meats.

– Remainder attributable to deli salads, hot dogs, pate, and dry fermented sausages.

– Estimated 1660 cases and 331 deaths per year attributable to meat and poultry products.

Mead-Olsen Studies

• Olsen estimates 8% of total food borne diseases attributable to meat and poultry products.

• Mead provides annual case and deaths estimates (above).

• The combination of these studies indicates that 167 cases and 35 deaths per year are attributable to meat and poultry products.

Average annual case and death reductions over 10 years

• Un-adjusted Mead-Olsen and Draft FDA-FSIS Study– Possible Case Reductions: 87 to 863– Possible Deaths Reductions: 18 to 173

• Adjusted for what can be controlled by Plant– Possible Case Reductions: 50 to 496– Possible Deaths Reductions: 10 to 99

• Adjusted for Program Effectiveness– Possible Case Reductions: 25 to 248– Possible Deaths Reductions: 5 to 50

Summary of Major Costs/Benefits • Nominal Costs (million $)

– First-year costs ………….…… $12.66 million– Recurring costs ..……...….….. $ 6.16 million– Costs over 10 years .………… $68.10 million

• Benefits in Lives Saved (5 to 50/year)– Highly Dependent on Assumptions of:

• Percentage attributable to meat and poultry products

• Percentage attributable to plants• Other regulatory actions • Effectiveness of measures

Summary of Major Costs/Benefits

• Preliminary data suggest that Benefits exceed Costs

• FSIS seeks additional data and comments on costs and benefits to inform any final action

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