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USDA Value Pass Through Methods


Nutrition Services Division Management Bulletin

Purpose: Policy, Beneficial Information

To: Food Distribution Program Recipient Agencies, Processors, and Distributors

Attention: Program Operators

Number: FDP-03-2019

Date: September 2019

Supersedes: Management Bulletin USDA-FDP-02-2012 Value Pass Through Systems

Subject: U.S. Department of Agriculture Value Pass Through Methods


This management bulletin (MB) details the four U.S. Department of Agriculture (USDA) Value Pass Through (VPT) methods described in Title 7, Code of Federal Regulations (7 CFR), Section 250.36–End product sales and crediting for the value of donated foods. Each of these methods are approved for use by the California Department of Education Food Distribution Program (FDP).

This MB supersedes MB USDA-FDP-02-2012 Value Pass Through Systems dated March 2012. This MB has been revised to be consistent with updated regulation language published by the USDA on July 2, 2018.

The four VPT methods for end product sales are:

  • Refund or Rebate
  • Direct Discount
  • Indirect Discount (Net Off Invoice)
  • Fee for Service
Refund or Rebate

Under the Refund or Rebate method, the processor sells end products containing USDA Foods directly to the recipient agency (RA), or to the RA’s designated distributor on their behalf, and charges the commercial, or gross, price. The RA must then apply for a refund or rebate from the processor in writing by email or other electronic submission. The processor must provide a refund or rebate for the value of the USDA Foods contained in the end product to the RA within 30 days of receiving the request.

The RA’s USDA Foods inventory balance at the processor is reduced when the refund or rebate is paid.

Direct Discount

When using the Direct Discount method, the processor sells end products containing USDA Foods directly to the RA at an established commercial price less the value of the USDA Foods contained in the end product, called the discounted net price.

Inventory is reduced when the processor invoices the RA.

Indirect Discount (Net Off Invoice)

Indirect Discount, commonly referred to Net Off Invoice, is when the processor sells end products containing USDA Foods to a commercial distributor at the commercial price, then the distributor sells the end products to the RA at the discounted net price.

The distributor notifies the processor of such sales on at least a monthly basis for reimbursement. Inventory is reduced when the refund has been paid by the processor to the distributor.

Fee-for-Service

The Fee-for-Service method allows the processor to charge a price per case, which includes the processor’s cost of ingredients (other than the USDA Foods), labor, packaging, overhead, and other costs incurred in the conversion of raw USDA Foods into an end product. The discount for the USDA Foods is included in the net price. Fee-for-Service is traditionally used for poultry or red meat since the majority of the end product consists of the USDA Foods.

There are three variations of Fee-for-Service:

  • Direct ship: the processor ships to and invoices the RA directly for the case price and the delivery fee as separate line items.
  • Through a distributor: the processor ships designated end products to a distributor for delivery on behalf of the RA. The processor may invoice the RA for the case price and the delivery fee as a separate line item, or the distributor may invoice the RA separately for the delivery fee.
  • Modified Fee-for-Service: the RA has an authorized agent, such as a distributor, order end products from the processor on their behalf. The authorized agent invoices the RA directly for the case price and delivery fee.

Inventory is reduced when the processor has delivered the end product to the RA or the distributor has notified the processor of any sales.

Alternative Methods

Alternative VPT methods may not be used by any processor or distributor unless prior approval is received from both the USDA and the FDP. Should a new VPT method be added by the USDA and approved for use by the FDP, an MB will be sent to announce the change.

Contact Information

If you have any questions regarding this subject, please contact Jeanette Lund, Processing Consultant, by phone at 916-324-6150 or by email at jlund@cde.ca.gov.

Questions:   Nutrition Services Division | 800-952-5609
Last Reviewed: Thursday, June 06, 2024
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