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.

Despite Some Push in Senate, Odds are not in Favor of Legislative Changes for Ethanol and RFS

Sen. Ted Cruz’s, R-Texas, victory in the Iowa Republican caucus has spurred critics of federal biofuel mandates during a time the Senate is poised to consider an amendment that would gut the program, but one which will not likely see a final Senate vote nor get in any final legislation and be signed into law, sources signal.

Some opponents of the Renewable Fuel Standard (RFS) say the Senate could vote on proposals to reform the program’s ethanol mandate or sunset the entire renewable fuel standard in 2022 as part of a broad energy bill now being debated in the chamber. Sen. Pat Toomey, R-Pa., has proposed an amendment that would do away with RFS mandates for traditional renewable fuels while preserving existing requirements for advanced, next-generation alternatives. But the Toomey amendment is not seen having the votes for approval, and definitely not the 60 likely necessary under a Senate agreement.

“The verdict from the cornfields of Iowa [Monday night] was that the RFS is no longer a third rail that GOP leadership should be afraid to touch,” said Stephen Brown, vice president of federal government affairs for refiner Tesoro Corp., in an e-mail. “They can man-up and do something constructive here to confront this fatally flawed program. They key is finding the right approach to help set that stage.”

Cruz, while noting his support for growing the biofuels market, called for an end to subsidies for all forms of energy and said he wanted to see the renewable fuel standard phased out.

“A clear message coming out of Iowa is that whatever political influence ethanol used to have in the state, those days are now over,” George David Banks, executive vice President of the American Council for Capital Formation said in a statement.

Bob Shrum, a Democratic campaign adviser, said the Cruz win proves that declaring fealty to ethanol is “no longer necessary politics in Iowa... Ted Cruz, who I don’t agree with on much of anything, proved that this is no longer the third rail of Iowa politics,” Shrum said on a conference call organized by groups opposed to the RFS.

However, ethanol proponents immediately responded, disagreeing with the idea that the Iowa caucus results were a setback. “The narrative coming out after last night’s Iowa caucus that the domestic ethanol industry is somehow on the ropes is false,” said Bob Dinneen, president of the Renewable Fuels Association (RFA) trade group.

Ethanol defenders said that Cruz’s win was far from a landslide and that RFS supporters Donald Trump and Marco Rubio captured a greater combined share of the caucus vote.

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Senate Energy Bill Moving Forward

Cloture was filed on a broad-based Senate energy bill after several amendments to the bill involving tax incentives, regulations and permitting processes were rejected.

If cloture passes, that would set the stage for a vote on final passage, likely on Feb. 4. Senate Majority Leader Mitch McConnell, R-Ky., filed the motion following votes on several amendments to the bill that were rejected.

Amendments to phase out tax incentives, as well as expedite natural gas permitting on federal lands were both rejected after failing to reach the 60 vote threshold for adoption.

Democrats offered several amendments which were rejected, including one by Sen. Al Franken, D-Minn., to require electric utilities to reduce energy demand by a set amount. Another amendment offered by Sen. Sheldon Whitehouse, D-RI, to require disclosure of campaign donations by the fossil fuel industry, also failed to clear the 60 vote threshold.

Republicans offered their own amendments, including one by Sen. Mike Lee, R-Utah, to declare that any proclamation of a national monument on federal land expires after three years unless specifically approved by federal and state law, but it was rejected. An amendment to require federal agencies to repeal one rule before issuing a new one, offered by Sen. Dan Sullivan, R-Alaska, was also rejected.

Previously, the Senate passed amendments which would reauthorize the Environmental Protection Agency's (EPA) Brownfields program through 2018, as well as another which would instruct USDA to create conservation incentives landowner education program.

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Washington Insider: Chipotle Under the Microscope

Press reports continue to swirl about Chipotle Mexican Grill this week as the hunt for culprits in its huge outbreak of food-borne illness is wrapped up without finding a specific source. The New York Times reported on Wednesday that federal prosecutors are expanding their inquiry, further threatening sales that had already declined steeply by the end of last year.

As a result, Chipotle is telling investors it does not see a “fast turnaround” and reminded Wall Street analysts that “it typically took restaurant companies that suffered a food safety scandal as many as six quarters to regain their footing--and that Chipotle suffered six such episodes since last July.

The urban press widely reported several aspects of the story, and the Wall Street Journal focused heavily on the fact that the causes of the illness outbreaks are and may remain a mystery and that the hunt for the source of the safety problems was far from smooth. Chipotle’s team “sometimes was at odds with the CDC,” the Journal said. Chipotle executives publicly complained that the CDC was issuing too many updates. The CDC, in turn, bristled at Chipotle’s going public with statements such as company official’s mid-January suggestion that the agency could soon declare the outbreaks over.”

Behind the scenes, Chipotle also disagreed with health officials about the E. coli’s likely source, the Journal said. Early on, the federal officials leaned toward produce while the company argued that the contamination most likely came from Australian beef and then spread to other ingredients through “improper handling.” The company in 2014 began importing grass-fed beef to meet its demand for “responsibly raised” meat.

Matthew Wise, who heads the CDC’s outbreak-response team, noted that it isn’t uncommon for an outbreak investigation to be inconclusive. “Because many dishes have the same ingredients and everyone ate multiple ingredients in their meals in the Chipotle case,” he said, “it was hard to pull out a common ingredient.”

The Journal also reported criticism from “people familiar with Chipotle” who said executives didn’t always apply the same intensity to food safety as to ingredients’ taste and origin. “By far the ‘food with integrity’ vision was always No. 1,” according to a former Chipotle operations executive. When they discussed suppliers with employees “they’d never talk about food safety. It doesn’t mean it wasn’t checked but the discussion was always about the story behind the supplier and keeping up with our growth.”

The Journal also cites suggestions from food safety experts” that contamination risk have been higher for Chipotle than other chains “because it brings fresh meat into its kitchens, unlike many big chains.” McDonald’s, for example, uses frozen patties that don’t thaw until cooks throw them on the griddle.

In the past, Chipotle restaurants transferred arriving raw meat to bowls where workers hand-rubbed it with spices. Under the new rules, workers no longer directly handle raw meat, which is marinated after restaurants close to avoid possible contamination with food prepared during the day. Each restaurant shift now has designated food-safety leaders and half of restaurant managers’ bonuses are tied to food safety, the Journal said.

The Journal also reported that “Chipotle and health authorities…were often out of sync” during the investigation, and that distribution records “posed a challenge.” However, the company now plans to make those systems more robust, it says. “We have gone to all our suppliers, especially suppliers that have high-risk items like meat and produce, and implemented high-resolution DNA testing” the Company said and it also instituted a paid sick leave policy, unusual in the fast-food business. Next week, it will close all stores for a few hours to review the food safety changes and discuss them with employees.

Perhaps the main question now, in addition to whether the government finds the company responsible for legal violations, is whether its former strategy of in-your-face advertising about “integrity” and marketing critical of other commercial food operations will succeed once again. Company officials are now using their trademark bravado to emphasize safety, vowing the changes will make Chipotle the “safest restaurant to eat at” and bring outbreak risks to “near zero.” On Tuesday, they reiterated that Chipotle is reducing the risk of another foodborne outbreak to “as near zero as possible.”

Some question that approach, especially in the face of continuing probes by federal investigators, and suggest that Chipotle may have a long struggle to regain lost investor confidence. Clearly, the Chipotle record has muddied the water regarding consumer benefits from its “integrity profile.” At the same time, it likely has significantly sharpened consumer interest in plain old food safety, an old standard that can be expected to be applied ever more rigorously and broadly now, both to products and handlers, Washington Insider believes.


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(GH/CZ)