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 Preventive Controls Rule will result in significant costs to facilities, including on-farm facilities. The costs of coming into compliance and remaining in compliance with the regulations will impact whether facilities, including on-farm facilities, 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 facilities will be able to pass some of the costs of compliance onto consumers and retail buyers.
FDA estimates that, despite costs to facilities, there will be a net benefit to the public from the proposed Preventive Controls Rule, arguing that compliance with the regulations will prevent certain outbreaks and foodborne illnesses.
FDA presents different estimates for the costs of compliance based off of whether a facility must comply with full or modified requirements or is exempt from the Hazard Analysis and Risk-based Preventive Controls (HARPC) requirements of the Preventive Controls Rule.
FDA estimates that for facilities that are subject to the full requirements of the Preventive Controls Rule, the annual costs of compliance will be approximately $13,000 per facility. For qualified facilities subject to modified requirements, the costs of compliance range from $300 to $2,000. For facilities that are exempt from the HARPC requirements, the average annual cost to comply is approximately $1,000. In the re-proposed rule, FDA does not provide updated figures, but estimates that nearly all of the adjustments to the rule that will happen before it is finalized will increase the overall cost of the regulation.
The addition of the supplier verification, environmental monitoring, and product testing provisions will significantly increase costs, particularly for smaller businesses.
FDA acknowledges that the proposed rule will have a significant economic impact on many small businesses because 99.5 percent of all food manufacturers, warehouses, and wholesalers covered by the proposed rule are small businesses (those with fewer than 500 employees). However, because facilities with more than $500,000 in annual sales account for about 99 percent of total industry sales, FDA estimates that less than one percent of food sold will be from facilities that are eligible for modified requirements to the HARPC requirements.
In its estimates of the number of facilities impacted by the Preventive Controls Rule, FDA estimates that there are 1,673 farms that fit the definition of facility and are subject to the Preventive Controls Rule. Given that the agency has done a very limited and incomplete analysis of the on-farm processing sector, this estimate is at best a guess. The number of farms impacted by the Preventive Controls Rule may be much higher. If those farms are also subject to the proposed Produce Rule, then they will have two sets of compliance costs to absorb and FDA has not done a thorough analysis of how those “farm mixed-type facilities” will be impact be the new regulations.
Moreover, in the re-proposed rule, FDA acknowledges that farms supplying raw ingredients to manufacturing facilities will be impacted by the costs of the supplier verification program, but fails to provide estimates of those costs to farms. The onsite audit requirement of the supplier program is alone anticipated to cost $3,250 annually for facilities with fewer than 20 employees and $4,375 for facilities with 20 – 99 employees. And that is only estimating costs to facilities, not costs to farms.
The new environmental monitoring provision is estimated to cost $2,891 annually for facilities with less than 20 employees and over $5,000 for facilities with 20-99 employees. The product testing provision would impose significant added burden on facilities, particularly for those producing multiple kinds of products. The Preventive Controls rule estimate product testing to cost over $12,000 annually for facilities with fewer than 20 employees.
FDA acknowledges that the facilities with the least revenue are most at risk. Those very small businesses may not be able to pass all of their compliance costs, or even enough of their compliance costs, onto consumers to remain in business. FDA does not quantify how the structure of the food processing industry may change due to the new regulations.
In terms of potential increased costs to consumers, FDA finds that there is likely to be a minimal cost increase because the total compliance cost for facilities is estimated at one one-hundredth of one percent of the amount that U.S. consumers spend on processed food each year. Beyond that assumption, FDA did not examine how or whether facilities would pass their costs onto consumers or whether that would impact consumer purchasing behavior.
If you will be subject to the facility regulations, FDA needs to hear from you about how the proposed rules might impact your facility, including on-farm facility, especially in terms of costs of compliance. FDA is requesting comment on the proposed requirements and their associated costs.
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