Smart Processing

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Smart Processing A Presentation and Discussion
on Further Processing of USDA Donated
Foods Cliff Meyers, C.P.M CVS Services, Inc. 11
North Washington Street Suite 510 Rockville, MD
20850 301-251-5515 cmeyers_at_cvs-services.com
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Presentation Topics Smart Processing
History of USDA Program Code of Federal
Regulations - 7CFR250 - Processing
Agreements Processing Concepts - Menu
Writing - Yield - Value Pass Through Methods
- Refund, Fee For Service, Indirect Sales
Summary What do I do now?
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The Great Depression
History of Donated Food Program Supply Outpaced
Demand for Products
Foraging for food in a city dump in Dubuque, Iowa
where produce houses dumped apples, grapefruit,
and other produce. April 1940
Destitute peapickers in California a 32 year old
mother of seven children. February 1936
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History of Donated Food Program Legislation
Introduced

• Public Law 72-320, Section 32
• 1935 Federal response to the Great Depression in
  production agriculture
• 30 of import customs duty collections are
  diverted to the Department of Agriculture October
  1 of each fiscal year
• Purpose is to support domestic origin
  agricultural commodities
• Estimated value between 5 billion and 6 billion
  unappropriated funds.

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Support for School Lunch Programs before 1946
History of Donated Food Program What Do You
Notice About the Picture?
Five cent hot lunches are served at the Woodville
Public School in Greene County, GA. 1941
WPA propaganda poster supporting school lunch
programs. 1944
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History of Donated Food Program First Formal
Appropriations for School Lunch
1946 National School Lunch Act

• Signed by President Truman on June 4, 1946
• Response to the number of men enlisting for
  service during World War II that had
  nutrition-related problems which kept them from
  serving in the military

• An entitlement program that could serve 54
  million eligible 5 to 18-year-olds
• 03 - 04 School Year USDA reimbursed at 27
  million meals per day
• USDA also made available 1-2 billion in a
  variety of domestic commodity foods
• President Bush recently signed the
  re-authorization of the 1946 Act for five years.

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Donated Foods Must be of American Origin

• USDA currently purchasing 145 items with total
  skus around 550.
• Purchases are made according to requests from
  Recipient Agencies and current market conditions.
• Food and Nutrition Service makes foods available
  according to fair share basis to all States.
• Most States make donated foods available to
  eligible Recipient Agencies on a fair share
  basis.
• States monitor Average Daily Participation to
  determine fair share. (ADPX.1725XOpen Days
  Entitlement).
• Ex 1000 ADPX.1725X180 Days 31,050 Commodity
  Entitlement

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Original Option Requires lots of labor and
substantial inventory management
Uncertain Delivery Schedules are Challenging
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Traditional Processing Option 2

• Truck in truck out
• High storage costs
• Unknown delivery dates
• Menu uncertainty
• Increased commercial purchases

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Code of Federal Regulations Govern Processing and
Carry Weight of Law

• TITLE 7--Sec. 250.30 State processing of
  donated foods.
• (a) General. This section sets forth the terms
  and conditions under which distributing agencies,
  subdistributing agencies, or recipient agencies
  may enter into contracts for the processing of
  donated foods and prescribes the minimum
  requirements to be included in such contracts.
• Also can be viewed on www.FNS.USDA.GOV/FDD.
  Select State Processing.

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Processing Concepts Is Processing Growing or
Declining in Popularity?
Ten Year Trend
Analysis Percentage of USDA Purchases Further
Processed
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Processing Concepts Is Processing Growing or
Declining in Popularity?
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Processing Concepts Processing is Growing!

• Processing popularity has increased in part due
  to
• Improvements in the functionality of the program
  made by
• Federal and State administrators
• Continued tightening of Labor market.
  Convenient products
• are a necessity.
• Food safety concerns are reduced when produced
  under
• manufacturer controlled conditions.
• Sophistication of the customer. The customer
  wants what
• is available in quick serve restaurants.
  Manufacturers will
• comply using commodity ingredients.
• - Greater awareness of the total cost of
  ownership!

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Processing Concepts Processing is Growing!

• Total cost of ownership includes but is not
  limited to
• Cost of preparation time, benefits.
• Cost impact of not following recipes.
• Need for skilled or semi skilled labor.
• Impact of lack of consistency on customer
  acceptance.
• - Storage Cost

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Processing Concepts Smart Processing Involves
Three Important Aspects

• Menu Development
• - Write a highly acceptable menu
• - Commodities should support the menu
• - Commodities should be viewed as financial
• assets, not physical food
• - Ask yourself, would I have purchased this
• processed product if I had to pay full price
  for it?
• - Processing only represents a savings if
  students
• accept the product.
• - Make commodities work for you!

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Processing Concepts Smart Processing Involves
Three Important Aspects

• 2. Yield Analysis
• Yield refers to the amount of returned
  finished product derived from the original USDA
  raw material purchase.
• There are primarily three Categories of yields
• Standard Yield USDA works with industry to
  establish a higher yield than traditional
  manufacturing practices achieve.
• - This requires manufacturers to supplement
  production with minimal amounts of commercial
  inventory to achieve yield.
• - Standard Yield is used where it is common to
  lose large
• quantities of raw material during further
  processing. Also used
• where USDA is buying close to point of
  raw material origin as
• possible.

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Processing Concepts Smart Processing Involves
Three Important Aspects

• - Manufacturers have greater returns to
  customers at
• minimal added internal cost.
• - Schools benefit by reducing the amount of
  commercial,
• full price product purchased to fulfill
  menu needs.
• - USDA passes on larger benefit to recipient
  agencies.
• - Participation in a standard yield program is
  voluntary, but
• available to all processors.
• Examples include
• Chicken due to bones
• Fries - due to water loss

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Processing Concepts Smart Processing Involves
Three Important Aspects

• Guaranteed Minimum Return manufacturers
  work through State processing agreements to
  guarantee a minimum amount of finished returned
  product.
• - The finished case yield becomes variable with
  each
• production run. In this scenario, the
  manufacturer must
• assign overruns and make up shortfalls.
  Shortfalls can be made up
• with a check, although you cannot serve a
  check.
• - Competitive pressures between processors
  improves returns.
• - GMR is commonly found in meat and poultry
  processing
• where manufacturing practices create
  varied yields.

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Processing Concepts Smart Processing Involves
Three Important Aspects

• 100 Return Yield Some raw materials
  purchased by USDA
• are in a form that lend themselves to be
  further processed with
• minimal production loss. When you divert
  100 lbs, you receive 100 pounds back.
• Summary on Yield Yield should be calculated
  on total portions
• returned. Then calculate your full years
  need for that product.
• You may find that your overall costs are
  lower per category, even
• though you might pay slightly higher
  processing costs.
• DO NOT DECIDE ON PRICE ALONE!

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Processing Concepts Smart Processing
3. Pass Through Value Current Federal
Regulations provide for a number of different
methods for USDA commodity Value to Pass
Through processed Commodities to eligible
Recipient Agencies. Not all methods are approved
in all States. Four Primary methods are Fee
For Service The RA is invoiced directly by the
manufacturer for the product minus the value of
the raw ingredient contained within the finished
goods. Pros Ability to receive product not
traditionally commercially distributed. Cons
Manufacturer expense of invoices, cash flow is
poor, possible storage costs.
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Processing Concepts Smart Processing
Refund The RA purchases eligible product from
commercial distribution and applies to the
processor for a refund equal to the amount of raw
ingredient contained within the product. Pros
ability to purchase from commercial distributors
in quantities of the schools choosing. Cons
Districts must remember to file for the refunds.
Manufacturer has the expense and burden of
writing vast numbers of refunds, adds cost to the
product.
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Processing Concepts Smart Processing
Net Off Invoice The RA purchases eligible
product from commercial distribution and receives
a discount off invoice equal to the amount of raw
ingredient contained within the product. Pros
Use of commercial distribution, delivery on
demand, less invoices, no storage costs, RA
receives value up front. Cons Not available in
all States, distributors. Program is new.
Note Sales Verification is required for NOI.
RAs must take responsibility for managing their
accounts.
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Processing Concepts Smart Processing
Direct Discount The RA purchases eligible
product directly from the processor. Pros No
storage costs, RA receives value up front. Cons
Schools must be of sufficient size to take
advantage of direct delivery
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Pass-Though Value Options Fee For Service
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Pass-Though Value Options Electronic Rebate
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Pass-Though Value Options Indirect Sales
Discount/Net Off Invoice
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Pass-Though Value Options Indirect Sales
Discount/Net Off Invoice
USDA and States Recognize Need For Change These
states initiated the Net-Off Invoice option
school year 2004-2005 with commercial distributors
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What Do I Do Now? First, take a deep breath!
Participate Get Involved- - Learn the
options for processing in your State - Ask
questions - Does the State offer a web site
where you can learn more about the
program? - Is there a commodity food show?
When? - What distribution methods are
approved? - What Pass Through Methods are
approved? Develop a winning menu! -
Ask yourself How can commodities support my
menu?

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What Do I Do Now? First, take a deep breath!

• Process Commodities
• - Focus on center of the plate and high
  volume
• items for the largest benefits.
• - Understand your entitlement, allocation
  and
• balance and manage these throughout the
  school
• year.
• - Understand State deadlines and procedures
  for
• submitting processing requests.

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What Do I Do Now? First, take a deep breath!

• Challenge yourself to view commodities as
  dollars, not physical products.
• Understand your full years category needs when
  considering processing. Ask yourself
• EX How many portions of chicken nuggets do I
• need this school year?
• What is the best way to use commodity processing
• to minimize the amount of full price commercial
• supplemental product I need to purchase?

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What Do I Do Now? First, take a deep breath!

• - Your goal is to maximize the Return On
• Investment of your entitlement dollars.
• - Set goals. Be realistic!
• - You will not achieve maximization of
  entitlement
• dollars in one year!
• - Getting started is the hardest part!
• - Good Luck!

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Questions?