Washington Insider-- Thursday

Chipotle Under the Microscope

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

FSA Finalizes ‘Actively Engaged’ Rule for Farm Programs

USDA has finalized a rule on the definition of actively engaged in farming, a rule which ensures that farm safety-net payments are issued only to active managers of farms that operate as joint ventures or general partnerships, with the final rule exempting family farm operations, the Farm Service Agency (FSA) announced.

The final rule “closes a loophole where individuals who were not actively part of farm management still received payments,” USDA said in a release.

USDA earlier this year proposed an update to the definition of “actively engaged” relative to receiving farm program benefits, a definition that had not been addressed since 1987. USDA undertook the effort via a provision in the 2014 Farm Bill requiring them to update the definition. Under the 1987 definition, USDA noted that resulted in some general partnerships and joint ventures adding managers to the farming operation, qualifying for more payments that did not substantially contribute to management.

The rule “only applies to farming operations structured as general partnerships or joint ventures that seek to qualify more than one farm manager.” The rule also requires measureable, documented hours and key management activities each year, USDA said. “Some operations of certain sizes and complexity may be allowed up to three qualifying managers under limited conditions,” USDA said. Specifically, USDA said, “To qualify a total of three farm managers, the operation is required to meet the requirements specified in this rule for both size and complexity. In other words, a very large farm operation that is not complex (for example, one growing a single crop) may only qualify for two farm managers, not three. Under no circumstances is a farming operation allowed to qualify more than a total of three persons as farm managers.”

The new definition for a significant contribution of active personal management requires an annual contribution of 500 hours of management, or at least 25% of the total management required for that operation. “This final rule also adds a new, more specific definition for “active personal management” that includes a list of critical management activities that qualify as a significant contribution if such activities are annually performed to either of the minimum levels established (500 hours or 25 percent of the total management hours required for the operation on an annual basis),” the rule states.

The changes apply to payments for 2016 and subsequent crop years for Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) Programs, Loan Deficiency Payments (LDP) and Marketing Loan Gains (MLG) realized via the Marketing Assistance Loan program. However, USDA also noted in a release on the finalized rule that the “changes go into effect for the 2016 crop year for most farms. Farms that have already planted fall crops for 2016 have until the 2017 crop year to comply.”

The default standard for what constitutes a large farming operation is an operation with crops on more than 2,500 acres (planted or prevented planted) or honey or wool with more than 10,000 hives or 3,500 ewes, respectively, USDA said in the notice to be filed in the Federal Register.

As required by Congress, the new rule does not apply to family farms, or change regulations related to contributions of land, capital, equipment, or labor, USDA noted. A family member is “a person to whom another member in the farming operation is related as a lineal ancestor, lineal descendant, sibling, spouse, or otherwise by marriage.” USDA handbooks further define family member as including “Great grandparent, grandparent, parent, child, including legally adopted children and stepchildren, grandchild, great grandchild, or a spouse or sibling of family members.”


Soy Growers Voice Support for Cotton as Oilseed in Farm Program

Backing for a cottonseed farm program change came from a major commodity group — with key stipulations.

The American Soybean Association (ASA) announced that it supports USDA establishing a cottonseed program under the 2014 Farm Bill, in a letter sent to USDA Secretary Tom Vilsack.

ASA conditioned its support of the move on the determination that the estimated cost of the program can be offset as needed, without negatively impacting funding for other farm bill programs or reducing funding for crop insurance, and that it will not violate U.S. commitments under the WTO. The ASA advocates on behalf of 21,000 US soybean producers.

“We do not believe a cottonseed program would have a negative impact on the production of soybeans or other oilseeds, or on vegetable oil prices. The Price Loss Coverage (PLC) and Agriculture Loss Coverage-County (ARC-CO) programs are decoupled, so payments are not tied to current-year planting of any crop and producers can respond to market signals. This market-oriented approach is similar to programs in effect under the 2008 Farm Bill, when production of cotton and cottonseed was much higher, but did not negatively affect production or prices of soybeans or other oilseeds,” ASA President Richard Wilkins said in the letter.


Washington Insider: Chipotle Under the Microscope

Food Safety News (FSN) is reporting this week that “…after being responsible within a six-month window for five outbreaks sickening at least 355 people with various pathogens and viruses, and closing at least 62 of its restaurants, there’s plenty of interest in Chipotle Mexican Grill’s next move.”

The company is talking publicly about its plans and is working hard to win back the confidence of the market, regulators, and a once-loyal cadre of customers. Within the food safety community, however, Chipotle management has already gone public with its plans, which are both extensive and technical in nature, FSN says.

It has brought in a highly regarded lab firm, IEH Laboratories and Consulting Group that brings “its own significant credibility to Chipotle’s table,” FSN says. Known to many within the food safety community, the firm promises “a more robust food safety program to ensure the highest level of safety and the best quality of all meals served at Chipotle.”

Then, there is a lot of talk about placing ingredients under “a farm-to-fork assessment” using high-resolution DNA-based testing to make sure all ingredients are safe before they are shipped out to restaurants.

Still, the main question is, “what went wrong?” FSN says there is “little doubt about Chipotle being responsible for any of the outbreaks with which it has recently been associated.” The E. coli o26 outbreak is likely linked to some variety of produce, but finding what and where after most, or all, of it has been consumed is a nearly impossible task.

Chipotle make the same point on its website, arguing, “We serve more than 1 million customers a day in our restaurants, and use thousands of pounds of fresh produce and meat in our restaurants every day. Because of the volume of business our restaurants do, it is likely that the source of the E. coli was already out of our supply chain by the time anyone showed signs of illness.” Well, yes, but how will the next outbreak be prevented?

So far, it seems that no smoking gun has been found. Chipotle claims to have performed more than 2,500 tests of food, restaurant surfaces, and equipment without finding any sign of E. coli. It has tested employees, fresh produce, raw meat and dairy items. And, it is implementing additional safety procedures and audits, in all of its 2,000 restaurants. It says it is working closely with federal, state, and local government agencies to ensure that robust standards are in place.

In addition, Chipotle founder and co-chief executive Steve Ells was on The TODAY Show Dec. 10 to apologize to the outbreak victims and has published full page letters of apology in several major papers. “I have to say I’m sorry for the people that got sick,” he said. “They’re having a tough time. I feel terrible about that, and we’re doing a lot to rectify this and make sure it doesn’t happen again.”

All well and good, but it might be more comforting if Ells would say, “this is how the outbreak happened, and this, specifically, is what will stop any future outbreak.”

For food industry observers, the Chipotle outbreak is quite discouraging because it comes amid the company’s frequent and heavy duty claims of safety from antibiotics and other chemicals and attention to social concerns about animal welfare.

So far, there have been no signs that any official inspection agency has found the company at fault and plans any legal action.

The bad news for the company, though, is that the market is punishing it in its own way. As recently as mid-Sept, Chipotle was a high flying stock that closed at $732 per share on Sept 15, 2015. By early Nov, it was down to $623 per share and by Dec 15, down again to $554 per share, pretty bitter medicine.

Food Safety News says the good news is that it has avoided a “free-fall level where analysts say it cannot go without risking the company’s future.” Still, critics are suggesting that without more definite assurance that the company really knows what happened and how to fix that, Chipotle may not yet be out of the financial woods.

There’s more. The question of how a food safety disaster could emerge in so many locations in a modern food service company is very important to the many dozens of competing firms. Until that question is firmly and clearly answered, it would seem that Mr. Ells will have an uphill climb to build back his customer confidence and sales base, let alone the dramatic growth pattern the company previously enjoyed, Washington Insider believes.

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