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Modernization of Poultry Slaughter Inspection
Proposed Rule
Score: 41 / 60
RULE SUMMARY
FSIS is proposing to modernize poultry slaughter inspection as a result of its 2011 regulatory review efforts conducted under E.O. 13563. The Agency is taking this action to improve food safety and the effectiveness of poultry slaughter inspection systems, remove unnecessary regulatory obstacles to innovation, and make better use of the Agency’s resources. FSIS is proposing a new inspection system for young chicken and turkey slaughter establishments. The new inspection system would replace the current Streamlined Inspection System(SIS), the New Line Speed Inspection System (NELS), and the New Turkey Inspection System (NTIS).
COMMENTARY
This regulation sounds like it has the potential to be a win-win, reducing costs while simultaneously reducing infections. The Food Safety and Inspection Service (FSIS) chose a regulation with slightly lower monetized net benefits than two alternatives, but one of those alternatives would have imposed relatively large costs on small businesses, and the other offered no ancillary unquantified health benefits. Thus, the rationale for choosing this regulation is clear. One cause for concern, however, is that the assumed 6 percent increase in speed of the production line seems plucked from thin air; it would be helpful to see better justification for this or any figure of this type. There is no real proof that processors would increase line speeds by this or any other amount. It is also puzzling why the cost reduction benefits were not calculated as a range and why the division of benefits between producers and consumers is expressed only as cents per bird and not as total figures.
MONETIZED COSTS & BENEFITS (AS REPORTED BY AGENCY)
| Dollar Year | Not Reported by Agency | |
| Time Horizon (Years) | Costs discounted at 7% and annualized over 10 years. Benefits is simply an annual figure. | |
| Discount Rates | 3% | 7% |
| Expected Costs (Annualized) | NA | $20.3 million |
| Expected Benefits (Annualized) | NA | $377.7 million |
| Expected Costs (Total) | NA | NA |
| Expected Benefits (Total) | NA | NA |
| Net Benefits (Annualized) | NA | $357.4 million |
| Net Benefits (Total) | NA | NA |
METHODOLOGY
There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.
| Criterion | Score |
|---|---|
Openness | |
| 1. How easily were the RIA , the proposed rule, and any supplementary materials found online? A keyword search on regulations.gov readily turns up the NPRM. The RIA is in the NPRM, and supporting studies (such as the risk assessment) are clearly linked. A RIN search produces a link labeled "proposed rule" that is actually the Unified Regulatory Agenda, not the proposed rule. A careful search through links related to laws and regulations turns up the NPRM in a list of proposed rules on the USDA web site. A keyword search on the web site also turns up a link to the proposed rule. | 4/5 |
| 2. How verifiable are the data used in the analysis? Data on affected entities are sourced to FSIS systems or sources indicated only by acronyms. Price and labor cost data are sourced to Economic Research Service reports. Some data are simply sourced to the industry, to participants in a pilot program, or to FSIS estimates, without further explanation. Data used in risk assessment are linked. | 2/5 |
| 3. How verifiable are the models and assumptions used in the analysis? Much work relied on other FSIS research but also on some peer-reviewed works. Demand elasticity estimates sourced to an Economic Research Service study that is linked. Six percent increase in throughput is lower than the maximum allowable but seems plucked from thin air; there is no real proof that processors would increase their speeds by this or any other amount. Figures for benefit of reduced illness are sourced to an FDA document in the Federal Register and to a research study. Reduced illnesses are sourced to a risk assessment. The NPRM includes a link to an FSIS study of a pilot program for the new inspection procedures, which concluded they are more effective. | 3/5 |
| 4. Was the analysis comprehensible to an informed layperson? The description of benefits, costs, and alternatives is relatively easy to read and digest. The analysis itself is reasonably clear. Many acronyms used throughout, but all were initially defined. Where needed, technical jargon was explained well, and writing was mostly understandable. This is a good example of how an agency can produce a meaty RIA without writing hundreds of pages. On the other hand, the RIA's description of the rule is impenetrable to outsiders. A summary table comparing the new and old requirements could have been helpful, but it has so much jargon and acronyms that it is hard to understand. | 4/5 |
Analysis | |
| 5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them? | 5/5 |
| Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life? Reduced human illnesses due to shift to offline verification activities. Lower consumer costs and increased industry profits due to more rapid processing of birds. These are clearly outcomes of interest to consumers and industry. | 5/5 |
| Does the analysis identify how these outcomes are to be measured? Benefits of cost reduction are estimated at three cents per bird, for a total increase in producer and consumer surplus of $258.9 million annually. Benefits of reduced illness estimated to be $79 million annually. Additional, unquantified benefits are also mentioned: additional reductions in illness and possibly reduced costs of product recalls due to changes in inspections and documentation procedures. | 4/5 |
| Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes? Cost reductions occur because increased speed allows firms to process more birds per labor hour, and apportionment of savings between consumers and producers depends on elasticities of demand. This is basic price theory. Reduction in illnesses occurs because testing can move to appropriate stage of line. Fewer contaminated birds get to federal inspectors, requiring fewer end of line inspectors and allowing them to be relocated to offline inspection. | 5/5 |
| Does the analysis present credible empirical support for the theory? The RIA does not really "test" the economic theory underlying the claimed cost reductions, but it uses relevant price and elasticity data to calculate the size. Effectiveness of the new inspection model was tested in a pilot program; the NPRM summarizes key findings and includes a link to a study of this program. A risk assessment supports the estimate of reduced illnesses. Based on 20 experimental establishments opting into the program, the number of infected carcasses fell. | 5/5 |
| Does the analysis adequately assess uncertainty about the outcomes? Cost reduction is a point estimate, even though the RIA implies this is just one possible outcome and it would have been possible to construct a range of estimates. Benefits of reduced illness are presented as a range, from $27.3 million (10th percentile) to $144.2 million (90th percentile). Risk assessment explores uncertainties regarding effects on illness in great detail. | 4/5 |
| 6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve? | 4/5 |
| Does the analysis identify a market failure or other systemic problem? NPRM identifies how the current inspection system makes inspectors bottleneck, devotes their time to activities with marginal effects on food safety, and limits line speeds even when producers could produce a safe product at faster rates. Current system was designed with a focus on visible defects and animal diseases, rather than foodborne pathogens. So this regulation may also reflect a shift in FSIS's priorities to focus on the most significant threats to food safety. It also mentions new learning about the most effective ways to deploy inspection resources. | 5/5 |
| Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal? Current inspection procedures and current allocation of inspection resources are identified as the problem. Since these are determined by the current regulation and are system-wide, this is clearly a type of "failure of public institutions" contemplated in EO 12866. | 5/5 |
| Does the analysis present credible empirical support for the theory? Trial period results support claims of reduced health risks and affected carcasses at inspection under the proposed rules. The risk assessment finds that reallocating inspectors to offline inspection activities would do more to reduce pathogens and foodborne illness. This supports the claim that the current allocation of inspection resources is not as effective as it could be. | 5/5 |
| Does the analysis adequately assess uncertainty about the existence or size of the problem? In general, the problem is assumed to exist with certainty. The RIA does acknowledge that the speed issue is probably not a problem for very small processing plants, which do not have the volume to justify investments that would allow higher speeds. But this is more an issue of variability than uncertainty per se. | 1/5 |
| 7. How well does the analysis assess the effectiveness of alternative approaches? | 3/5 |
| Does the analysis enumerate other alternatives to address the problem? Four alternatives considered in addition to the regulation: no action, assignment of more inspectors, mandatory use of the new system for all chicken/turkey slaughtering facilities, and the voluntary portion of the rule only. | 5/5 |
| Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)? First two options are status quo or status quo plus more inspectors. Latter two options are modifications or pieces of the proposed rule. So the possible solutions ranged from increased direct federal involvement, to maintain existing rules, to adopting only the voluntary component (a more market-based step). | 3/5 |
| Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved? Benefits of each option are monetized. Nonmonetary benefits are mentioned for the chosen option but not clearly explained for the other alternatives. | 3/5 |
| Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future? Baseline assumes continuation of current system and no change in outcomes. It does not consider any industry trends that might be making poultry more or less safe. | 2/5 |
| 8. How well does the analysis assess costs and benefits? | 3/5 |
| Does the analysis identify and quantify incremental costs of all alternatives considered? Costs for the regulation are presented and explained in detail (listed below). Costs for alternatives are presented and explained somewhat but not in as great detail as the costs of the regulation. It is clear the costs were calculated in the same way, just not explained as much. | 5/5 |
| Does the analysis identify all expenditures likely to arise as a result of the regulation? Estimated costs include increased sorting labor ($16.7 million annually), training ($0.9 million one-time and $0.50 million annually), new facilities ($8.8 million), sampling ($2 million one-time, $12.6 million annually, and recordkeeping ($1.9 million one-time). The RIA also estimated FSIS net budgetary savings. The NPRM solicits comment on some other costs that were not quantified. About $12 million in cost savings from eliminated requirements are counted as negative costs rather than benefits. | 5/5 |
| Does the analysis identify how the regulation would likely affect the prices of goods and services? Based on elasticity of demand, the analysis estimates that the regulation will reduce the price of a chicken by 0.6–1 cent. | 5/5 |
| Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation? RIA acknowledges that the cost savings could lead to increased consumption and increased exports, but it does not calculate the value of these. The analysis did calculate the sum of increased value to consumers and producers. Also notes that very small establishments are not likely to opt in to the regulation because they do not process sufficient volumes to cover the increased fixed costs. | 3/5 |
| If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis? Costs are presented as point estimates. | 0/5 |
| Does the analysis identify the alternative that maximizes net benefits? Net benefits are calculated for the regulation and for alternatives. | 5/5 |
| Does the analysis identify the cost-effectiveness of each alternative considered? Cost-effectiveness is not considered. Cost per illness avoided could be calculated from the information presented. | 2/5 |
| Does the analysis identify all parties who would bear costs and assess the incidence of costs? Estimated costs for very small firms are calculated separately. | 2/5 |
| Does the analysis identify all parties who would receive benefits and assess the incidence of benefits? Based on elasticity of demand, 2–2.4 cents of the cost savings would accrue as industry profits, and consumers would receive 0.6–1 cent of the cost savings. Oddly, the analysis presents these figures but does not apply them to the total figure to estimate the change in profits and consumer costs. | 4/5 |
Use | |
| 9. Does the proposed rule or the RIA present evidence that the agency used the analysis? Decisions about the regulation were clearly based on analysis. The analysis of the pilot program and the risk assessment appear to be major factors motivating the change; these provide information about the regulation's benefits. The increase in line speeds (cost reduction) is less clearly documented but also appears to be a motivation. It is doubtful the agency would have undertaken this regulation in the absence of this evidence; indeed, this evidence may be necessary to uphold the regulation if it is challenged. More specifically, the actual RIA seems to have influenced the choice of which alternative to pursue (see criterion 10 below). | 5/5 |
| 10. Did the agency maximize net benefits or explain why it chose another alternative? Two of the alternatives have very slightly higher monetized net benefits. One would have imposed a relatively large cost on small firms, and it was rejected for this reason. The other was rejected because it offered no additional unquantified public health benefits. So there were clear reasons for not choosing these alternatives. Two other alternatives had much lower net benefits, and one of these had prohibitive costs to the government. | 4/5 |
| 11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future? There is no commitment to goals or measures that would assess the regulation's effects on the predicted outcomes. The RIA provides a good framework for developing goals and measures. The NPRM does mention that FSIS has arranged to study the effects of increased line speeds on workplace safety, which was not a primary outcome but is apparently a concern. | 2/5 |
| 12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so? Inspector testing/verification could presumably generate data that could be used to monitor some of the benefits of the regulation. The study of the pilot program provides a good model for how to do this, especially if not all large processors opt for the new regulation right away. | 2/5 |
| Total | 41 / 60 |
Additional details
- Agency
- Department of Agriculture
- Regulatory Identification Number
- 0583–AD32
- Agency Name
- United States Department of Agriculture, Food Safety and Inspection Service
- Rule Publication Date
- 01/27/2012
- Comment Closing Date
- 04/26/2012
- Dollar Year
- Not Reported by Agency
- Time Horizon (Years)
- Costs discounted at 7% and annualized over 10 years. Benefits is simply an annual figure.