NOTE: This text has been updated to reflect changes in the proposed FSMA rules as of October 2014.
The Food and Drug Administration (FDA) estimates its proposed Produce Rule will result in significant costs to farmers. The costs of coming into compliance and remaining in compliance with the regulations will impact whether farmers are able to stay in business and grow their operations. FDA’s economic impact analysis does not examine whether there will be increased costs to consumers, or whether farmers will be able to pass some of the costs of compliance onto consumers and retail buyers.
FDA estimates that, despite the cost to producers, there will be a net benefit to the public from the proposed Produce Rule, arguing that compliance with the regulations will prevent certain outbreaks and foodborne illnesses.
Broadly, FDA estimated that original proposed Produce Rule would prevent 1.75 million acute illnesses, valued at $1 billion annually, and would cost the domestic produce sector $460 million per year and the foreign produce sector $171 million per year.
With the changes to how FDA is calculating the thresholds for small and very small businesses and the de minimis exemption, FDA has revised those estimates. Under the re-proposed Produce Rule, 1.57 million acute illnesses would be prevented, valued at $930 million annually. This would costs the domestic produce sector $386.23 million per year and the foreign produce sector $529.62 million per year.
In coming up with its estimates, the agency has had to make a number of assumptions and rely on incomplete or insufficient data sets. Through the comment process, the agency is hoping to receive more data from farmers to more accurately calculate costs. As an example of a problematic assumption, FDA assumes that very small and small farms operate only three months per year, and that large farms operate only six months per year. For most regions of the country and for most types of farming operations, these estimates are too low.
According to FDA, the costs of compliance with the proposed Produce Rule will likely be high for farmers. These figures have been revised, and very slightly reduced, given the changes to the definitions of small and very small business proposed in the supplemental proposed rule. FDA now calculates that the average cost burden of implementing the regulations will be:
These aggregate costs include estimates for complying with all of the standards in the Produce regulations. These estimates do not include costs to “farm mixed-type facilities” of having to comply with the Preventive Controls Rule. For a snapshot of those costs, visit NSAC’s “Costs to Farmers and Consumers – Preventive Controls Rule” page.
Based on FDA’s estimates of average gross sales for those three farm size categories, the agency estimates that compliance costs will be:
These estimates are alarming, particularly for smaller farms. FDA acknowledges that some small entities will be at a competitive disadvantage due to the regulatory burden, and that their new expected costs may exceed their revenues. Data from the U.S. Department of Agriculture (USDA) suggests that the margins will indeed be tight; USDA estimated that the average net farm income for farmers nationally was ten percent of sales in 2011. For a farm with less than $250,000 in annual sales, complying with the Produce Rule may consume over half of those profits.
Although FDA does not quantify how the structure of the produce industry may change due to the new regulations, the agency does anticipate that the rate of entry of very small and small businesses will decrease due to the regulatory costs. FDA also expects that some farm operators will seek off-farm jobs to offset the regulatory costs. Though they do not come right out and say so directly, the obvious implication is that FDA believes its new rules will concentrate farming into fewer and fewer hands.
For farmers who are eligible for modified requirements to the produce standards, the costs of compliance will be lower than for farms that must comply with the full set standards. For those farms, FDA estimates that the costs of compliance will be minimal.
FDA does not make outright estimates of increased costs to consumers of buying produce if the proposed Produce Rule goes into effect. FDA’s estimated range of a consumer’s willingness to pay to avoid foodborne illness is $1,507 to $6,189. According to the annual consumer surveys performed by the Bureau of Labor Statistics, the average U.S. household purchases about $715 of produce per year. It is unclear how and whether costs of compliance will be passed onto the consumer through increased costs of fruits and vegetables, and whether increased costs will impact consumer purchasing behavior. FDA did not examine these questions, nor did it examine whether the rule might reduce fruit and vegetable consumption and, if so, what the increased health costs to society might be.
If you will be subject to the produce regulations, FDA needs to hear from you about how the proposed rules might impact your farm operation, especially in terms of costs of compliance. FDA is requesting comment on the proposed standards and their associated costs.
Thanks to NSAC member Carolina Farm Stewardship Association for their assistance in developing this analysis!
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