Washington Insider-- Thursday

USDA Cuts Overall 2015 Food Price Inflation

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

USDA’s FSIS Developing ‘Guidance’ for ‘Geographic Claims’ on Beef, Pork

USDA’s Food Safety and Inspection Service (FSIS) appears to be embarking on what would be a voluntary labeling system for pork and beef relative to the now-repealed Country of Origin Labeling (COOL) requirements for muscle cuts of pork and beef and ground pork and beef.

“On Friday, December 18, 2015, the Secretary announced that AMS’s (Agriculture Marketing Service’s) COOL regulations for muscle cuts of beef and pork, and ground beef and pork will no longer be enforced at retail,” FSIS said in a section labeled “Background” in a notice issued to inspection program personnel (IPP) dated Dec. 21, 2015.

“Separately, FSIS is developing guidance for federally inspected establishments related to geographic claims they may wish to make on beef and pork muscle cuts and ground products with the COOL regulations no longer being enforced,” FSIS noted, without providing any further information in the notice (82-15) relative to this “guidance” the agency is developing.

USDA is currently undergoing the process of updating information on their websites relative to COOL, with some sections already seeing the terms “pork” and “beef” removed from the list of products covered by COOL. However, other portions, such as consumer questions and answers, had not yet had pork and beef or ground pork and ground beef removed as of Dec. 23.

Expectations were that some effort would be made by USDA to implement a voluntary system for COOL and the mention of “guidance” being developed for “geographic claims” that federally inspected plants may want to use for beef and pork and ground products sure sounds like USDA is wasting no time in setting the process in motion to develop a voluntary COOL effort.

***

USDA Cuts Overall 2015 Food Price Inflation Forecast

US food price inflation for 2015 is now forecast at 1.5% to 2.5%, a sizable revision from their prior outlook for a 2% to 3% increase, and food at home (grocery store) price inflation was lowered for a second month while USDA upped the forecast for food price inflation on food away from home (restaurants), according to updated forecasts from USDA’s Economic Research Service.

ERS now forecasts that food price inflation for feed at home will be just 0.75% to 1.75%, the second monthly reduction as USDA lowered this forecast in November a level of 1% to 2%. ERS raised the forecast for food away from to an increase of 2.2% to 3.2%, up from the November and previous outlook for a 2% to 3% increase.

Price forecasts for a host of products within the food price outlook were adjusted by ERS, with many revised downward but increases were made in the outlook for both beef and veal and eggs. “Beef and veal prices are expected to continue to experience the effects of the Texas/Oklahoma drought,” ERS said. “Farmers’ decisions on calving and herd sizes will be felt down the line due to the 16- to 18-month production process.”

As for eggs, ERS observed, “prices are expected to rise from 16.75% to 17.75% due to the effect of Highly Pathogenic Avian Influenza (HPAI) on table-egg-laying flocks.”

The decline in pork prices for consumers is now even greater, as ERS forecast the decline at 4.25% to 3.25% compared to a November forecast for a reduction of 4% to 3%. “The effects of Porcine Epidemic Diarrhea virus (PEDv) on the hog industry are subsiding, and the hog industry has started to expand in 2015, resulting in a decrease in farm-level hog prices,” ERS said.

For 2016, ERS predicts food prices to rise 2% to 3% which is in line with the historical average of a 2.6% increase over the past 20 years. ERS noted their standard caveat that the forecasts are based on normal weather and could be affected by severe weather or other events. Interestingly, ERS also noted, “higher key interest rates could further increase the strength of the US dollar, making the sale of domestic food products overseas more difficult. This would increase the supply of foods on the domestic market, potentially placing downward pressure on retail food prices.”

***

Washington Insider: Chipotle’s New Threats and Challenges

As if the Chipotle food safety problem weren’t complicated enough, Food Safety News reported on Dec. 23 that E. coli 026, the pathogen seen to be causing many of the firm’s problems, is rather new and may be worsening, although Dr. Mark Stevens of the Institute for Animal Health in the UK warned a decade ago that 026 was already as dangerous as E. coli O157.

Certainly, the biology behind the current food threat has been at least somewhat below the radar. When 026 began to emerge, the Shiga toxin-producing Escherichia coli O157:H7 was already well-known as a cause of bloody diarrhea, hemolytic uremic syndrome and thrombotic thrombocytopenic purpura. E. coli O157 was identified by USDA as a very dangerous food contaminant in meat after the Jack in the Box outbreak more than 20 years ago.

USDA expanded precautions for O157 just four years ago and the list now includes the six most common strains of non-O157. E. coli strains begin in cattle intestines, and like O157, the 026 variety also spreads to humans through fecal contamination.

Some O26 strains are more virulent than others. Scientists have isolated as many as 272 strains, and some of them are second only to O157 in toxicity, causing illnesses that progress to more serious syndromes, and, sometimes to renal failure. The 026 strain in the current outbreak has sent 20 people to hospitals, but as of Dec. 4, there were no reports that anyone had died.

At the same time Chipotle’s health threats seem increasingly difficult to contain, the business press is increasingly critical of the company. For example, the Wall Street Journal on Wednesday criticized Chipotle’s “approach” to food marketing and says that the executives at Chipotle Mexican Grill have been “dining out for years” on their self-styled reputation for “food with integrity.” It opines that competitors “who by implication lack integrity can be forgiven if they indulge in a little Schadenfreude about the company’s recent trouble with food-borne disease.” I guess that’s a German word, probably common among WSJ readers.

Then the Journal ventures to offers a “possible reason for Chipotle’s problems.” About 10% of Chipotle’s produce, the most common disease culprit, is grown locally, it says. Chipotle calls this local-sourcing part of its commitment to “the very best ingredients,” but working with so many suppliers makes it difficult to catch “the offending tomato,” the Journal says.

The Journal called Chipotle Founder Steve Ells’ apologies a “global groveling tour” and then suggests that the company may rely less on local suppliers in the future since many of them can’t comply with sophisticated testing. The company will also chop, prepare and hermetically seal ingredients such as cilantro and lettuce in a central kitchen before shipping it to local restaurants.

In other words, the Journal says, Ells promises to bring his restaurants into the 20th century, cleverly suggesting that it should have been there long ago. One reason large chains dice foodstuffs in a central kitchen is to avoid contamination, the Journal says. And while Chipotle derides “factory farming” and last year put out a comedy series about the “utterly unsustainable world of industrial agriculture,” such economies of scale exist to deliver safer food at a lower price, the Journal thunders.

So, it seems that Chipotle is dealing with an evolving threat that may be at least partly built into its business plan at the same time it is facing “gloves off” pushback from competitors who deeply resent the company’s use of social themes to build its brand.

Clearly, Chipotle’s first task is to find out what the source of the contamination is and eliminate it. If that changes Chipotle’s image, so be it. Then, its next challenge will be financial and likely will be tough. But, also the foodies’ ideology regarding what is important could face strong challenges in the future, a development producers should watch carefully as it emerges, Washington Insider believes.


Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@dtn.com

(GH/CZ)