There are two reasons the food industry will compress efforts to shape new federal legislation into the first half of 2008: First, trade group leaders believe that credit and debit card interchange fees, food safety, organized retail crime, pharmacy payments, and energy and immigration reform are issues vital to the health of retailers, suppliers and consumers — often in ways that aren't obvious and so require more education of politicians.
Second, in this presidential election year, politicians will focus early on the Democratic and Republican national conventions of late August and early September, and the campaigns of leading candidates. Therefore, association executives feel that the earlier these legislative discussions occur, the greater the chance for positive action and the less fraught with political consequences these decisions will be, they told SN in interviews before the 110th Congress reconvened this winter.
The full court press is on, according to Tim Hammonds, president and chief executive officer, Food Marketing Institute. “Elections do have consequences, some positive, some negative,” he said. “We have the support of prominent Democrat and Republican lawmakers. Nothing gets passed in a close Congress without support from both sides of the aisle.”
With that, he said the current Democrat-majority Congress is “more inclined to regulate business,” and that makes him “very optimistic about prospects for a legislative proposal to remedy the competitive imbalance in interchange credit card fees,” especially following the European Commission's December 2007 ruling that MasterCard's method for setting interchange fees on cross-border purchases violated EC treaty rules on restrictive business practices. “This issue hasn't been politically tainted here yet. We need to accomplish this legislation even faster,” Hammonds added.
The EC ruling gives the card issuer six months to comply with the order to withdraw interchange fees, or incur daily penalties as high as 3.5% of sales. MasterCard Europe plans to appeal that decision.
By contrast, immigration reform “is one of the best examples of a difficult issue in an election year,” felt Lorna Christie, senior vice president, industry products and services, Produce Marketing Association. “It's a media issue, and in some cases that gets lawmakers to move. We've worked unbelievably hard this year on agricultural jobs legislation, and we'll continue to move forward on that.”
Tom Wenning, senior vice president and general counsel, National Grocers Association, identified the prime time frame for industry efforts in an abbreviated Capitol Hill schedule as those months between the early primaries that will largely determine whom the presidential candidates will be, and the upcoming conventions. “Country-of-origin labeling, which faces a Sept. 30 implementation date, along with credit card interchange and Medicare/Medicaid pharmacy reimbursements, are bottom-line issues important to this time frame. By contrast, food safety is more likely to continue to be debated in a bipartisan way into 2009,” he said.
Downplaying the role of partisanship on food industry issues, Scott Faber, vice president of federal affairs, Grocery Manufacturers Association, observed that “members of both parties have supported our efforts to reform foreign policy, improve [Food and Drug Administration] spending and address the impact of the renewable fuels mandate.”
Political spin aside, there's no shortage of hot topics that span the supply pipeline, from farm and factory to the retail sales floor to the consumer table. With this breadth of issues come a couple of matters holding an unusual amount of foreign influence: In food safety, there's the anxiety backdrop caused by Chinese-based contaminations, and fiscally, there's the recent ruling by the European Commission to curtail credit and debit card interchange fees.
Though we may live in a small world after all, there's little that seems Disneyesque about the intense approach of association leaders currently pursuing goals in the seat of national power.
The food industry's attempt to beat back credit and debit card interchange fees has a full head of steam with the precedent-setting ruling in Europe, and a Democratic majority in Congress sensitive to consumers' economic pressures stemming from the housing slump, tight credit, high gas prices and the new jobs slowdown.
The rapid rise and mounting frequency of fees have cost U.S. retailers and consumers many billions in recent years — $36.3 billion in 2006 alone, and growing on pace to surpass $42 billion in 2007 and $50 billion in 2008.
Interchange fees in the U.S. average 2.14% of every transaction, roughly twice the rate of the retail food industry's net profit, and well above the 0.4% to 1.2% range that existed in Europe, as indicated by statistics provided by FMI. “All consumers pay the fees, even those who use cash or checks, because card company rules force retailers to build the fees into all transactions,” read a prepared statement by FMI.
The domestic battle has been building for years. Weis Markets made public in 2006 that over the previous decade its interchange fees had soared by 700% while consumers' use of cards rose by 560%. U.S. merchants have launched more than 50 lawsuits against credit card companies and banks, charging that interchange fees are fixed in violation of the antitrust laws. Both FMI and National Grocers Association, which represents largely family-run retailers that incur higher fees on a percentage basis than larger chains, have teamed with nearly 30 trade associations to form the Merchants Payments Coalition to fight for a more transparent credit and debit card fee system in which card companies would have to compete for business. MPC represents 2.7 million retail sites.
The EC ruling brings retailers fresh optimism after energetic lobbying efforts over the past two years aimed at various Congressional committees. After 2006 hearings by the House Subcommittee on Commerce, Trade and Consumer Protection and the full Senate Judiciary Committee, some movement surfaced at the Sept. 24, 2007, House Judiciary Committee Antitrust Task Force hearing. The U.S. Justice Department revealed at that time that it is investigating interchange-fee antitrust issues. “We are very focused on this issue — not only through the hearing, but through conducting our own monitoring activities and investigations. We have significant resources devoted to evaluating [it] right now,” said Thomas Barnett, assistant attorney general of the agency's Antitrust Division.
When the EC issued its ruling, Competition Commissioner Neelie Kroes explained the body's view: “Consumers foot the bill, as they risk paying twice for payment cards — once through annual fees to their bank, and a second time through inflated retail prices paid not only by card users, but also by customers paying cash.”
An multilateral interchange fee (MIF) in an open payment card scheme, such as MasterCard's, is only compatible with EU competition rules if it contributes to technical and economic progress and benefits consumers, according to a prepared EC statement.
FMI's Hammonds lauded the recent EC ruling: “The European Commission moved aggressively to correct a long-standing abuse of European consumers. By questioning whether interchange fees are justified at all, the door is finally open for bringing these outrageous fees into line with the actual costs of providing payment services.
“Virtually every developed economy in the world has ruled that these credit card company practices violate their antitrust laws or have these practices under active investigation. We ask simply: Shouldn't America's consumers receive the same protection against predatory practices as their European counterparts?”
Concurring, Tom Zaucha, president and CEO, NGA, called the EC decision “a win for consumers. [It] clearly reinforces action taken by other countries such as Australia and Great Britain that have reduced credit and debit card interchange fees. I applaud the Commission as they have moved aggressively. The message that is being heard around the world should be heard in the United States: The anticompetitive interchange fee system by MasterCard and Visa is in need of serious reform. It is clear that this decision by the EU reinforces the need for Congress to act now in reforming the broken interchange system in the U.S.”
“This is one of our major issues for 2008,” added Wenning of NGA. “Consumers know little about this. It doesn't show up on their receipts, because Visa and MasterCard operating rules forbid merchants from disclosing them on receipts. Operating rules have a competitive effect on our members. For instance, there's no minimum purchase size on accepting credit cards, and if you take one you must take all. It doesn't give a retailer an opportunity to control an uncontrollable cost.”
NGA is working on two fronts: First, litigation discovery with the National Association of Convenience Stores and the National Restaurant Association will continue through the year; and second, the association is talking with legislators.
“We believe we'll see interchange legislation introduced in the early part of 2008,” said Hammonds. He noted the attention Congress is paying to other credit card company practices, such as universal default, which hikes a consumer's interest rate on one card upon late payment to any creditor and which was addressed in a Dec. 4 hearing by the House Government Affairs Permanent Subcommittee.
Food Safety a Priority
Building consumer confidence in the supply pipeline's integrity is a key goal, and the attention of key associations and their members is riveted on the topic of food safety. At the top of their wish list: The ability for both the FDA and the U.S. Department of Agriculture to mandate a recall when a company refuses to issue — or delays the announcement of — a voluntarily recall of a product that the FDA or USDA have determined poses an imminent and substantial risk of serious adverse health consequences or death to humans or animals.
High-profile recalls over the past 18 months have contributed to a decline in consumer confidence, stressed FMI's Hammonds. The share of consumers who feel “completely” or “somewhat confident” in the safety of supermarket food has fallen from 82% in 2006 to 66% in 2007, the lowest level since 1989 — and consumer confidence in restaurant food is even lower, at 43% — according to FMI's latest “U.S. Grocery Shopper Trends” report.
“The number of incidents has actually been stable each year since 2001. There's just been more media attention,” GMA's Faber said. “Yet it's clear that Congress will act in the first half of 2008 to modernize our food safety laws. Legislators have publicly and privately said the time is right [because] sources of our food and consumer choices have changed dramatically in the last 10 years. We currently import 15% of our total U.S. food products, including 60% of fruits and vegetables and 80% of seafood. Rising imports present new challenges that Congress will address.”
Threats come from within U.S. borders and beyond. In a series of 20 recalls since spring of 2007, for example, domestic meat suppliers have recalled more than 30 million pounds of ground beef contaminated with E. coli. The most notable of these was the Topps Meat recall of 21.7 million pounds of tainted beef in September. More dramatic: The presence of melamine in pet foods, diethylene glycol (a component of antifreeze) in toothpaste and lead paint in toys exported by China led to recalls and that country's execution of Zheng Xiaoyu, the former head of its state food and drug administration, for dereliction of duty and accepting bribes.
Meanwhile, leafy green good agricultural practices (GAPs), also known as Commodity Specific Food Safety Guidelines for the Production and Harvest of Lettuce and Leafy Greens, are a series of best practices for growers developed by the Western Growers Association, along with the FDA and the California Department of Health Services. Their creation followed the California baby spinach E. coli outbreak of late 2006. “These represent new standards for the produce industry, and we're looking for opportunities to expand in that role,” said PMA's Christie. “Food safety will be our biggest issue in 2008. We advocate science-based solutions, and whatever it takes.”
In GMA's fall 2007 proposal, “Commitment to Consumers: The Four Pillars of Food Safety,” the trade group urged that:
All importers of record must adopt a foreign-supplier quality assurance program and verify that imported ingredients and products meet U.S. FDA food safety and quality requirements.
The FDA focus more resources on products and countries deemed of higher risk, through a program that allows food makers and importers to qualify their items as lower risk by sharing test results, data and supply chain information with the FDA in a confidential manner.
Foreign governments expand the capacity to ensure the safety and quality of their exported products.
The FDA budget be doubled over the next five years to enable the agency to fulfill its food safety mission.
By November, the FDA had recommended that it be given mandatory recall authority, and Cal Dooley, president and CEO of GMA, said at the time this would “expedite the agency's ability to more rapidly respond whenever there is a significant risk of an adverse outcome.”
Meanwhile, FMI's Hammonds was outspoken in his push for cohesive efforts: “This is a huge industry. Farm-to-table must be addressed, and government can't do it alone. There will never be enough agencies.
“Industry itself will have to play a more prominent and aggressive role than in the past. That argues for any of the elevated standards of food safety to be built into higher specifications when our retailers and wholesalers deal with their suppliers,” he told SN. “Industry needs to work hand in hand with government, and not rely on government for the total solution.”
Some examples of these efforts include:
Supervalu has just named its first-ever vice president of food safety, responsible for food safety and quality assurance programs across merchandising, distribution and retail operations to ensure regulatory compliance, including product recalls, and for enhancing the company's quality image. “The integrity of our food supply chain has always been of the utmost importance. The creation of this position will help Supervalu put a fine point on it,” said Jeff Noddle, chairman and CEO.
Trader Joe's has discontinued single-ingredient products from mainland China, such as edamame and fresh green soybeans, though it will still carry items that include an ingredient from that nation, according to a report in the Arizona Daily Star.
“Safety is of utmost importance,” spokeswoman Alison Mochizuki told the paper in a statement. “We're diligent in making sure that all products sold in our stores meet if not exceed USDA and FDA guidelines. We feel confident that all of our products from China meet the same high quality standards that we set for all of our products. However, our customers have voiced their concerns about products from this region, and we have listened.”
These efforts arose about the same time Rep. John Dingell, D-Mich., introduced the Food and Drug Safety Act of 2007 (H.R. 3610), which would require foreign facilities that export food to the U.S. to obtain certification from the FDA within five years of enactment. It would also mandate that the FDA issue country-of-origin labeling (COOL) for food ingredients.
A controversial provision of Dingell's legislation would restrict food imports to major port cities that currently house an FDA testing lab.
However, NGA's Wenning expressed concern about the impact of this legislation, since the U.S. has only 13 ports of entry with such labs out of more than 300 ports of entry nationwide. NGA does support more funding for the FDA and USDA, and more technology to conduct inspections. It also wants to “encourage other countries to adopt standards of compliance and manufacturing processes, and to follow them,” he said, “since we can't inspect every shipment that comes in.”
Hammonds took a stronger stance: “Encouraging overseas suppliers doesn't work. You need very specific buyer specifications and certifications, and audits.” He pointed to FMI's Safe Quality Food program as an international working model, in which buyers ask suppliers to become certified and submit to regular audits, which are initially announced but then are periodically unannounced.
PMA has amplified its voice as part of a coalition including the United Fresh Produce Association, other produce groups and FMI to deliver COOL information to consumers in ways that relieve burdens of the initial 2002 legislation. With mandatory COOL for meat and produce due to go into effect Sept. 30, 2008, the coalition, working with the House Agriculture Committee, negotiated hard to be able to suggest these relief points on the COOL provision of the current Farm Bill: significantly reduced penalties for mistakes in labeling at point of purchase; no retailer liability for misinformation provided by suppliers; no new record-keeping; permission to label a U.S. state, region or locality where a product is produced to meet label standards.
Without such relief, “program costs will be pushed back to suppliers and borne ultimately by consumers. [This] will reduce consumption, clearly something we cannot support,” said Kathy Means, vice president of government relations and public affairs, PMA, in a position statement on the organization's website. The USDA finds little evidence that consumers are willing to pay a price premium for COOL, or that consumers will likely increase their purchases of food items bearing the U.S. origin label, and there's no additional consumer benefit, she added, noting that more than 60% of the top 20 fruits and top 20 vegetables (by consumption) are currently labeled as to origin (including state and local designations as well as country of origin) voluntarily. The burden will fall especially heavy on smaller retailers and suppliers, she contended.
Though the House and Senate passed the Farm Bill in mid-December 2007, GMA continues to oppose it. Calling the bill produced by the Senate Agricultural Committee “suited for the Dust Bowl,” GMA's Dooley said, “The Senate missed opportunities to replace Depression-era farm price supports with a modern system of farm revenue insurance, and to place reasonable limits on subsidy recipients and subsidy amounts.” Seeking an eventual veto by President Bush, Dooley urged him “to veto legislation that hurts farmers, raises food prices and undermines our obligations to our trading partners and the poor.”
By contrast, the Organic Trade Association was pleased by the bill's measures to fund organic research, collect price and yield data, transition more land to organic production and eliminate the 5% crop insurance premium for organic producers.
Calling organized retail crime “one of the most serious threats we face today — gangs of thieves steal up to $30 billion worth of merchandise a year,” FMI's Hammonds is spearheading a 31-member coalition to upgrade it to a federal crime. “Gangs move around the country to avoid aggressive local enforcement, which is why it needs to be federal.
“Not only are they dangers to public health if infant formula is adulterated and resold, the FBI has said some funds moved overseas to fund terrorism,” he added.