Nutrition Services Division Management Bulletin
|Purpose: Policy, Beneficial Information|
To: U.S. Department of Agriculture Foods Processors, Private Cooperatives, Food Service Directors
Attention: U.S. Department of Agriculture Foods Manager/Specialist
Date: May 2012
Subject: Management of U.S. Department of Agriculture Foods Inventories at Processors
Reference: U.S. Department of Agriculture Food Distribution Policy Memo FD-064 (Revised)
This Management Bulletin (MB) clarifies the responsibilities of the California Department of Education’s Food Distribution Program (FDP), recipient agencies (RAs), and processors in managing U.S. Department of Agriculture (USDA) Foods inventories at processors. This MB also provides guidance for reducing excess inventories.
USDA Foods inventories at processors must be at acceptable levels to ensure efficient distribution and use of USDA Foods. When RAs divert USDA Foods to processors and do not use the processed USDA Foods end products, RAs do not benefit from the entitlement dollars they spent. In addition, processors may incur increased storage costs, and may need to charge higher prices for end products.
The six-month inventory limit established by Title 7, Code of Federal Regulations (7 CFR) Section 250.30(n) is applicable to statewide inventories of USDA Foods at processors and also to individual RA USDA Foods inventories at processors.
Responsibilities of the RAs
An RA should divert USDA Foods to processors in amounts needed to produce the quantity of end products the RA can use during the school year.
RAs should use monthly reports to monitor their USDA Foods inventories at processors. RAs should be aware of their inventories that are not being drawn down, and work with processors, brokers, distributors, and/or the FDP to resolve excess inventory issues.
Responsibilities of the FDP
In accordance with 7 CFR Section 250.30(n), the FDP must ensure that the quantity of USDA Foods for which a processor is accountable is at the lowest cost-efficient level, but not more than a six-month supply, based on the processor’s average monthly usage.
The FDP will work with RAs and processors to ensure efficient ordering and processing of USDA Foods, and timely sale of end products.
Responsibilities of Processors
Processors are responsible for providing data necessary for the FDP to monitor and address USDA Foods inventory issues.
In addition, in accordance with 7 CFR Section 250.30(n), processors shall provide written justification to the FDP for maintaining larger than a six-month inventory. The FDP requires processors to have an approved Carryover Request in order to carry over inventories in excess of a six-month supply into the next school year.
Processors submit Carryover Requests with their June monthly performance report, including the following for each USDA Food in excess of a six-month supply:
- The number of pounds carried over from the end of June
- The date by which this USDA Food will be down to a six-month supply
- How the processor will accomplish the reduction by the given date
Reducing Excess Inventories
Order Cancellation and Reallocation
In accordance with 7 CFR Section 250.58(c), an RA may receive less than a school year’s “commodity offer value” of USDA Foods if the FDP determines, in consultation with the RA, that the RA cannot efficiently use such value. If the FDP determines that the RA’s excess inventory at a processor is an indication that the RA cannot efficiently use the USDA Foods, the FDP may reject any of the RA’s further orders of those USDA Foods for delivery to processors. The FDP may also reallocate the RA’s current USDA Foods inventory at a processor to other RAs that may use the USDA Foods or to an Excess State Account at the processor for later reallocation.
Transfers to Another State
A state distributing agency (SDA), such as the FDP, may transfer USDA Foods to another SDA using the same processor. The receiving SDA must ensure timely use of the USDA Foods. If such a transfer occurs in the same school year that the USDA Foods were delivered to the processor, entitlement credit may be transferred from the receiving SDA to the donating SDA. Such entitlement credit must be acceptable to both SDAs and must be approved and implemented by the USDA Food and Nutrition Service (FNS).
Transfers to Another Processor
The FDP may reduce excess USDA Foods inventories at a processor by transferring USDA Foods to another approved processor. The FDP must ensure that the receiving processor can efficiently use the USDA Foods. The transfer may be a paper transfer if this is acceptable to all parties. Once such a transfer is made, the FDP may not approve a second transfer of the USDA Foods to a different processor.
Since USDA Foods bulk beef and pork have unique purchase specifications, transfers of these USDA Foods must be physical transfers (i.e., without substitutions). With physical transfers, the receiving processor is responsible for transportation expenses. Paper transfers may only occur if the receiving processor ensures that commercial replacement of beef or pork is acquired from a USDA approved vendor and meets every aspect of USDA’s purchase specifications. Since boneless beef combos are fresh product that must be processed within five days of initial production, transfers of this type of USDA Food are prohibited.
Value of USDA Foods Used in Transfers
For paper transfers, the commodity file value (i.e., material list value) of the USDA Food at the time of the transfer must be used. However, if the commercial market price is significantly higher than the commodity file value, the FNS may permit the receiving processor to credit an RA for fewer pounds of USDA Food than transferred, although the processor must still use the commodity file value effective at the time of the transfer. The processor must provide the FDP with documentation of actual costs of purchasing the food in the commercial market for processing into end products, and receive written permission from the FDP to credit the RA for fewer pounds than transferred.
Payment for the Value of Excess Inventories
Although payment by the processor to the FDP to reduce USDA Foods inventories to required levels is an option, it should be used only if other options are not feasible, such as in the following instances:
- The processor ceases participation in processing USDA Foods, or ceases such participation in California
- The inventory remaining for an RA is so small that it would be more costly to transfer the inventory to another processor or SDA
- The processing agreement is terminated for noncompliance with its provisions
In accordance with 7 CFR Section 250.13(a)(1)(ii), the FDP must contact the FNS Processing Initiatives Team before approving payment for the value of excess inventories.
Reallocations of USDA Foods to other RAs, or transfers to other SDAs using the same processor, are preferable to transfers to another processor, since they do not involve a physical transfer or payment from one processor to another. Physical transfers can present technical and safety issues. Payment by the processor to the FDP for the value of excess USDA Foods inventories should only be used if other inventory reduction options are not feasible.
If the FNS detects that California has excess USDA Foods inventories at a processor, the FNS will contact the FDP to ensure the problem is corrected. If the FDP fails to correct excess inventory problems using the options presented in this MB, the FNS may cancel FDP orders of USDA Foods to the processor.
If you have any questions regarding this subject, please contact Jessica Gray, Processing Consultant, by phone at 916-324-6150 or by e-mail at email@example.com, or Jennifer Stultz, Processing Consultant, by phone at 916-324-1583 or by e-mail at firstname.lastname@example.org.