Food Marketing Regulations and Grading Chapter 22 and 17

Market Regulation Food is most highly regulated of all consumer product industries Food is most highly regulated of all consumer product industries Differences of opinion on the appropriate level of regulation Differences of opinion on the appropriate level of regulation

Regulate Competition US founded on private enterprise US founded on private enterprise Concerns about market power Concerns about market power 1890 Sherman Anti-trust Act 1890 Sherman Anti-trust Act 1914 Clayton and FTC Acts set rules 1914 Clayton and FTC Acts set rules 1936 Robinson-Patman Act 1936 Robinson-Patman Act Price discrimination illegal unless economically justified Price discrimination illegal unless economically justified

Regulations of Monopolies Recognized natural monopolies and dealing with monopolies Recognized natural monopolies and dealing with monopolies Capper-Volsted Act 1922 Capper-Volsted Act 1922 Right of farmers to collectively bargain Right of farmers to collectively bargain Agricultural Marketing Act 1937 Agricultural Marketing Act 1937 Established marketing orders for dairy and fruit and vegetables Established marketing orders for dairy and fruit and vegetables

Facilitate Trade and Service PSA 1921 PSA 1921 Set standards for trade Set standards for trade Assured prompt payment Assured prompt payment Grades, weights, & standards Grades, weights, & standards Promotion and research 1980s Promotion and research 1980s Checkoff activity Checkoff activity

Mandatory Price Reporting Federal initiative Federal initiative Midwest state regulations Midwest state regulations Currently Currently AMS collects, reports, doesn’t keep AMS collects, reports, doesn’t keep GIPSA can demand all records but can report GIPSA can demand all records but can report

Consumer Health and Safety. Food and Drug Act Food and Drug Act 1906, , Delaney Clause 1958 Delaney Clause Food Quality Protection Act Food Quality Protection Act 1996 replaced the Delaney Clause 1996 replaced the Delaney Clause Wheeler-Lea Act 1935 Wheeler-Lea Act 1935 Truth in advertising Truth in advertising Labeling laws, 1973, 1990 Labeling laws, 1973, 1990

Regulations on Food Prices Price control or freezes Price control or freezes Typically war time and/or rapid inflation Typically war time and/or rapid inflation Retail price freeze -> farm price impact Retail price freeze -> farm price impact WWI WWI WWII also rationing WWII also rationing Korean conflict Korean conflict inflation inflation

Economic and Social Progress 1862 Department of Agriculture 1862 Department of Agriculture 1862 Morrill Land Grant Act 1862 Morrill Land Grant Act 1987 Hatch Act, experiment station 1987 Hatch Act, experiment station 1914 Smith-Lever Act, extension 1914 Smith-Lever Act, extension Currently over 10,000 agricultural researchers employed by gov’t Currently over 10,000 agricultural researchers employed by gov’t

Standardization and Grading Reduces marketing costs Reduces marketing costs Improves communication Improves communication Possible to trade on description rather than inspection Possible to trade on description rather than inspection Grading sorts commodities by defined quality standards Grading sorts commodities by defined quality standards Quality grades typically optional Quality grades typically optional

USDA Standards Beef Stew – must contain at least 25% beef Beef Stew – must contain at least 25% beef Frankfurter – May contain only skeletal meat. No more than 30% fat, 10% added water, and 2% corn syrup. No more than 15% poultry meat Frankfurter – May contain only skeletal meat. No more than 30% fat, 10% added water, and 2% corn syrup. No more than 15% poultry meat Sausage Pizza – At least 12% cooked sausage or 10% dry sausage such as pepperoni. Sausage Pizza – At least 12% cooked sausage or 10% dry sausage such as pepperoni.

Public or Private Use differs by industry Use differs by industry Cattle use USDA grades and graders Cattle use USDA grades and graders Moving to private grades Moving to private grades Hogs use private grading Hogs use private grading Grading done by employee of buyer Grading done by employee of buyer Grain use USDA standards but grading by the buyer Grain use USDA standards but grading by the buyer

Examples of Grades Beef Beef Quality GradesYield Grades Prime3-4%111-12% Choice60-65%248-50% Select30-35%333-40% Standard % 5<1%

Examples of Grades Hogs Hogs Barrows and Gilts Barrows and Gilts U.S. 1-2, pounds U.S. 1-2, pounds U.S. 1-3, pounds U.S. 1-3, pounds Sows Sows U.S. 1-2, pounds U.S. 1-2, pounds

Examples of Grades #2 Yellow Corn #1 HRW Wheat ordinary protein #1 HRW Wheat 13% protein #2 SRW Wheat #1 Yellow Soybeans

Mandatory v. Optional Grades Few precedents for compulsory Few precedents for compulsory Cost may increase if mandatory Cost may increase if mandatory Industry may already have grades Industry may already have grades Grades may inhibit innovation Grades may inhibit innovation

Criteria for Grades and Standards Based on characteristics that Based on characteristics that Are important to users Are important to users Are easily recognizable Are easily recognizable Can be measured and interpreted by graders to reduce variation within a grade Can be measured and interpreted by graders to reduce variation within a grade Have common terminology Have common terminology Represent the distribution of production Represent the distribution of production Make it cost effective to operate Make it cost effective to operate

Problems of Grades and Standards Subjective nature of “quality” Subjective nature of “quality” Made for industry not consumers Made for industry not consumers Designing grades and grading methods Designing grades and grading methods Accurate, fast, cheap, meaningful Accurate, fast, cheap, meaningful Number of grades Number of grades Implementing grades Implementing grades

Farmers and Grades Not always used Not always used Trust of grades or grader Trust of grades or grader Risk - reward Risk - reward Beef industry transition Beef industry transition Selling on average Selling on average Strategic alliances Strategic alliances

Marketing Agencies & Grades May add value to commodity May add value to commodity Role of private brands Role of private brands Larger firms may develop own Larger firms may develop own Specification contracts with more detail may replace grades Specification contracts with more detail may replace grades

Consumers and Food Grades Grades often confusing and offer little differentiation Grades often confusing and offer little differentiation Consumers often do not understand grades Consumers often do not understand grades Brand loyalty may replace uniform grades Brand loyalty may replace uniform grades