Skip to main content
California Department of Education Logo

USDA Foods Inventory Protection Requirements

Nutrition Services Division Management Bulletin

Purpose: Policy, Action Required, Beneficial Information

To: U.S. Department of Agriculture Foods Processors

Attention: U.S. Department of Agriculture Foods Processors

Number: FDP-02-2014

Date: June 2014

Reference: U.S. Department of Agriculture Policy Memorandum FD-134

Subject: Minimum Inventory Protection Requirements for Processors Participating in the National and/or State Processing Program

This Management Bulletin (MB) provides U.S. Department of Agriculture (USDA) Foods processors updated information on the process for calculating minimum inventory protection levels. This MB is effective beginning July 1, 2014.

Title 7, Code of Federal Regulations, Section 250.32(c), requires inventory protection for the contract value of USDA Foods diverted to processors either on hand or on order. This protection ensures that school food authorities receive the full benefit of USDA Foods entitled to them in the event the USDA Foods processor in unable to provide them with finished end products. In addition, inventory protection also ensures that processors will account for, return, and/or pay for all USDA Foods inventory (physical or book) that has been carried over from previous years. Inventory protection can be provided in one of the following three forms:
  • Performance bond
  • Irrevocable letter of credit
  • Escrow Account [No longer accepted as a form of inventory protection]
Minimum Inventory Protection for National Processors

Processors who have a National Processing Agreement (NPA) with the USDA and have participated for one or more school years will need to maintain minimum inventory protection. The following steps outline the process for calculating the amount of minimum inventory protection needed:

  • Determine the highest monthly ending inventory as reported on the Monthly Performance Reports during the 12 months beginning in December of the previous school year and ending in November of the current school year.
  • Obtain the dollar value of the highest monthly inventory using the USDA estimated cost-per-pound data provided in the November 15 Commodity File Report. The November 15 Commodity File Report is available on the USDA’s Food Distribution Processor Pricing Reports Web page at
  • Obtain the minimum inventory protection level required by multiplying the dollar value of the highest monthly inventory by 75 percent.

Example: Processor A is calculating its minimum inventory protection requirement for School Year (SY) 2014–15 for chicken (USDA Foods code 100103–Chix Chill Large). It has determined that:

  • The highest monthly ending inventory level was 65,000 pounds
  • According to the November 15 Commodity File Report (for SY 2014–15), the price per pound of this chicken is $0.8542

To calculate the minimum inventory protection requirement, Processor A will:

  • Determine the dollar value of the highest monthly inventory level by multiplying 65,000 pounds by $0.8542, which equals $55,523.00
  • Multiply this dollar value by 75 percent ($55,523.00 x 0.75), which equals $41,642.25

Therefore, Processor A’s minimum inventory protection requirement for SY 2014–15 would be $41,642.25.   

Minimum Inventory Protection for New Processors

If a processor is entering into an NPA for the first time, inventory protection must be secured prior to receiving USDA Foods deliveries. The minimum inventory protection levels required for new processors must equal 100 percent of the value of the USDA Foods the processor will receive in their first year of processing.  

Minimum Inventory Protection for California-Only Processors

The California Department of Education’s Food Distribution Program (FDP) will follow the same guidelines, outlined above, for calculating minimum inventory protection levels for California-only processors, whether new or returning. The FDP’s Processing Consultants are currently reviewing inventory protection levels for all processors approved under the State Master Processing Agreement and will contact those that need to obtain increased inventory protection levels.

Contact Information

If you have any questions regarding this MB, please contact Manpreet (Neena) Kaur, Processing Consultant, Distribution and Processing Unit, by phone at 916-323-2591 or by e-mail at

Questions:   Nutrition Services Division | 800-952-5609
Last Reviewed: Tuesday, September 24, 2019
Related Content
Recently Posted in Nutrition
  • Senate Bill 677 - Nonlatex Gloves (added 24-Jan-2020)
    Senate Bill 677 (Allen), Retail Food Safety: Nonlatex Gloves (Chapter 254, Statutes of 2019) was signed into law on September 5, 2019.
  • Food Service Mgmt. Company Contract Preapproval (added 24-Jan-2020)
    Food Service Management Company Contract Preapproval.
  • Summer Food Service Program Information (updated 15-Jan-2020)
    Administrative and operational information and guidance for organizations that participate in the program.
  • Earned Income Tax Credit Information Act (added 10-Jan-2020)
    The California Revenue and Taxation Code (RTC) Section 19853(b) requires local educational agencies (LEA) that operate the National School Lunch Program to annually notify households about the Earned Income Tax Credit (EITC) Information Act.
  • 2021 SBP and SMP Grants Available! (added 10-Jan-2020)
    The California Department of Education (CDE) Nutrition Services Division is sending this message to announce the availability of School Year 2020–21 School Breakfast Program (SBP) and Summer Meal Programs (SMP) Start-up and Expansion Grants.

  • Proposition 12 Public Comment Period (added 10-Jan-2020)
    California Department of Food and Agriculture’s (CDFA) open comment period regarding the draft regulation for Proposition 12, the Farm Animal Confinement Initiative.
  • New USDA Justice for All Posters Now Available (added 10-Jan-2020)
    The new U.S. Department of Agriculture’s (USDA) And Justice for All posters have arrived.
  • Overview: Competitive Food and Beverage Rules (added 03-Jan-2020)
    The School Nutrition Programs Overview, Definitions, and Resources: Competitive Food and Beverage Rules online training.
  • Community Eligibility Provision - Upcoming Review (added 03-Jan-2020)
    The purpose of this notice is to inform you that we will be conducting an off-site validation review of the identified student percentage (ISP) that was established upon approval for your participation in the CEP.
  • CNAC Member Recruitment 2020 (added 03-Jan-2020)
    The State Superintendent of Public Instruction (SSPI) Child Nutrition Advisory Council (CNAC) is currently recruiting.