1. Value Pass Through Methods
Jonathan Ford
JTM Food Group

2. Summary The Concept Regulations & Guidance
Underlying principle for Value Pass Through Systems (VPT) is to ensure that recipient agencies receive the full value of USDA Foods in products they receive from processors.
Regulations & Guidance
7 CFR part 250
General requirements in distribution and control of donated foods
Allocation, delivery, storage, inventory management, distribution and processing
Policy Memos
FD-007 Sales of End Products through Commercial Distributors
FD-025 State Processing
FD-064 Inventory Levels at Further Processors
FD-119 Processing

3. What We’ll Cover Today Starting Point
Determining the Pass Through Value (PTV)
Average Price File determines Pass Through Value
End Product Data Schedule (EPDS) and Summary End Product Data Schedule (SEPDS)
Approved Value Pass Through Systems
Focus VPT Systems
NOI
FFS
FFS Through a Distributor
Questions and answers

4. Starting Point – Average Price File
USDA Assigned Value for entire school year
Published Mid-November
Stated as a $/lb.
Value used for all processing transactions
School Year 2019
July 1, 2018 through June 30, 2019
Average Price File determined November 2017
Average of 2017 calendar year USDA purchase prices
Cheese is a two year average – 2016 & 2017
Not reflective of USDA’s actual purchase prices for 2017

5. EPDS & SEPDS
Provides a list of products available for purchase from processor
Provides the USDA Commodity Code to produce end product
Provides USDA established value per pound
Provides the total number of USDA raw pounds to produce end product
Provides the total VALUE of USDA food for that end product
Pounds needed to produce x USDA Value = Pass Through Value (PTV)

6. Approve Value Pass Through Systems
Rebates
Net Off Invoice (NOI)
Fee For Service (FFS)
Fee For Service Through a Distributor (MOD)
Combination of Above

7. Approve Value Pass Through Systems
All VPT Systems uniquely determine
Who does billing and when does it occur
When value is received by recipient agency
When commodity drawdown occurs
Additional costs incurred by recipient agency

8. Traditional Fee For Service
Price reflects a processor’s cost of ingredients (other than USDA raw material), labor, packaging, overhead, transportation, and other costs incurred in the conversion of donated food into an end product.
Destination determined by Recipient Agency
Option A* – Processor invoices the Recipient Agency for the FFS cost. If the destination is a distributor, then the Distributor invoices the Recipient Agency for the cost of the distributor’s handling/storage/transportation fees on a separate invoice.
Option B - Processor arranges delivery through a Distributor on behalf of a Recipient Agency. Processor’s invoice includes separate, identifiable charges for both the FFS and distributor fees.
Processor invoices recipient agency for the cost of the non-commodity ingredients and the processing fee.
Value of the commodity has in not included in price.
Value is realized upon receipt of product.
Drawdown occurs upon invoicing by Processor

9. Traditional Fee For Service – Pros and Cons
Most economical processing method
Product drawdown occurs with shipment and invoice
Easy to track
Cons
Inventory management
Minimum orders
Storage

10. Fee For Service Through a Distributor
Price reflects a processor’s cost of ingredients (other than USDA raw material), labor, packaging, overhead, transportation, and other costs incurred in the conversion of donated food into an end product.
Recipient Agency(ies) selects distributor. Distributor orders end products from processor in anticipation of needs and orders (forecast).
Processor invoices the Distributor at the FFS cost.
Recipient Agency receives a single invoice from the Distributor for the FFS cost and distributors handling/storage/transportation fees.
“Pooled” inventory of end products at distributor.
*Processor maintains financial liability for commodity products until sale is made.
Value of the commodity is not included in price.
Drawdown occurs when distributor reports sales.
FNS Policy Memo FD-025

11. FFS Through Distributor – Pros and Cons
RA selects distributor
JIT ordering
Single Invoicing
Distributor can sell to any eligible recipient agency.
Cons
Processor liability
Requires processor audit against end sales by distributor
Inventory availability

12. Net Off Invoice
Processor sells to a commercial distributor at a gross price of end product. The Distributor invoices recipient agency at the gross price, plus distribution/storage/transportation fees LESS value of the commodity food contained in the end product.
*Processed end products can only be sold at a discount to eligible recipient agencies
Identical commercial and further processed end products
The Distributor requests refund directly from the Processor based on sales velocity reports or other automated reports
Value of commodity is included in gross price of end product*
Value of commodity is realized upon receipt of product from Distributor
Drawdown occurs upon receipt and processing of these reports from Distributor
FNS Policy Memo FD-007

13. Net Off Invoice – Pros and Cons
JIT Ordering
Single Invoicing
Seamless transition to commercial
Cons
More Expensive?
Discount on commercial product price
Distributor tracking is inconsistent
Inventory availability

14. Defining & Identifying Costs
USDA Pass Through Value may or may not reflect current/future market conditions for any specific raw material. Processors have different pricing methodologies.
Price calculations vary PTV - $ FFS - $ Distributor Fee - $4.00*
FFS + PTV = Commercial Price
$ $10.00 = $32.00
Commercial Price – PTV = Commodity Price
$ $10.00 = $25.00
Commercial Price + Distributor Fee – PTV = Net NOI Price
$ $4.00 – $10.00 = $29.00
Bid Price – PTV + Distributor Fee = Net NOI Price
$32.00 ($ $3.00 allowance) - $ $4.00 = $26.00
*Distributor Fees should always be reflected as per case vs. % mark-up

15. Questions and Answers