Part V

PERSPECTIVES ON FEDERAL GRADING:

USDA, INDUSTRY, AND CONSUMERS Part V

Perspectives on Federal Food Grading: USDA, Industry, and Consumers

Issues surrounding the present Federal food-grading system are volun- tary or mandatory grading, uniform grade nomenclature, and criteria used for determining grades. This section provides perspectives from the U.S. Department of Agriculture, the food processing industry, and consumers.

U.S. DEPARTMENT OF AGRICULTURE

USDA’s perspectives were acquired wholesale transaction only. While the General through interviews with USDA officials, pri- Counsel’s Office in USDA recognizes that the marily AMS. The following perspectives are wording of paragraph (h) is general and does drawn from statements made by those inter- not restrict food grading to wholesale use, viewed. AMS prefers a narrow interpretation.2 This partially explains the reluctance of USDA to Purpose for Grading modify food grades. Some USDA officials emphasize that grad- One USDA official maintains that the use of ing systems were devised primarily for grades has declined over the past few years for wholesale use. The 1974 Yearbook of Agriculture several reasons: (1) Costs charged by USDA has a passage which notes: for inspecting and grading food products have They (grading services) were originally increased; (2) A result of a 1973 General Ac- established as an aid in wholesale trading . . . To- counting Office (GAO) report was the execu- day, most grading is still done for this purpose, tion of a USDA-FDA Memorandum of Agree- 3 and the consumer is usually the indirect, instead ments. Under the agreement USDA would of the direct, beneficiary.1 have informed FDA of products headed for human consumption that did not meet The 1946 Agricultural Marketing Act so minimum standards for a grade. Some ele- mandates the system. USDA officials who ments of the apparently did not made this point were not suggesting con- want to deal with FDA if a product could not sumers should not benefit from grading, only meet minimum requirements for a grade, that grading was established primarily to ex- since this might be due to failure to meet pedite food industry wholesale transactions. minimum sanitation requirements as well as However, the Agricultural Marketing Act of minimum quality standards; (3) The Federal 1946 does not mandate that the food-grading Government has reduced its purchases for the program serve only wholesale transactions. military, specifically the Army, for the School Lunch Program, and for the Needy Persons The word quality is interpreted by USDA to be a synonym for grades and the modifying clauses are also interpreted by USDA to mean zMr. Richard Merryman, General Counsel’s Office, Marketing Division, Interview. Sprocessed Fruits and Vegetables: Potentially Adulterated IEleanor Ferris, “USDA Grades Can Help Out Food Products Need To Be Better Controlled~anitation in Some Shoppers, ” 1974 Yearbook of Agriculture. U.S. Govern- Plants Need improvement, U.S. Government Printing ment Printing Office, 1974. Office, February 21, 1973.

35 Program. Thus, grading no longer has signifi- there are “too many quality variables among cance for sales to Government it once had. different classes of food products to enable a Other USDA officials feel that the food in- single system to cover all food products.” In- dustry generally is against alteration of the stead, USDA prefers to develop “uniform present grading system. USDA believes that grade designations within several groups of industry executives fear change because they similar products. ” have no idea how the changes will affect costs For example, with the position advocated or brand share of their products at retail. Food by USDA, the Livestock Division of AMS industry people fear losing markets. Fear of would have uniform grade designations such the unknown hinders change, although indus- as those presently used. However, fresh fruits try occasionally requests changes of USDA if and vegetables would have a different no- problems cannot otherwise be rectified.4 menclature but uniform within that com- modity category. There already has been some Mandatory Grading movement in this direction with the pre- USDA maintains that the cost of mandatory viously mentioned proposal for fresh fruits grading would be high. Estimated costs for the and vegetables published in the October 6, present voluntary grading system and for a 1975, Federal Register, Mr. Floyd F. Hedlund, mandatory grading system for the same prod- Director of the Fruits and Vegetable Division ucts appear in the 1975 GAO food labeling of AMS, feels, however, that because of food report.* The 1974 cost estimated by USDA for industry resistance to the new grades, it might a voluntary grading system for six categories take up to 10 years for voluntary use by a sig- of food products (less than 100 percent of the nificant number of firms. products in the six categories were graded) Program Reform was approximately $183 million. If the grad- ing system became mandatory (100 percent While the Department supports some graded for the same six categories), USDA reform of its grading program, the Office of estimated cost would increase by about $327 the Special Assistant to the Secretary of million to a total of $510 millions Inference is Agriculture for Consumer Affairs under the that the cost of mandatory grading for all Ford Administration favored major reforms products would be considerably above $510 of the program. Specifically, this office wanted million. USDA’s belief that cost becomes a sig- mandatory retail grading with uniform no- nificant factor during this time of economic menclature for all four AMS divisions pres- difficulty may well be correct. However, at ently grading food. The reasoning behind this time there is little documentation of the this position was that a grading system aiding costs being discussed for mandatory grading. the consumer should benefit the marketing system as a whole, from farmer to consumer. Grading Designation or Nomenclature The office also felt that if a new grading The Department’s official position on system did come into being, considerable uniform grade nomenclature is expressed in effort would be needed to educate consumers its comments on GAO’s food labeling report, and that such education should be a require- ment in implementing any new grading sent to the Senate and House Committees on 6 Government Operations in 1975. USDA’s system. position is that it “continues to support the Congress is looked upon by some USDA goal of reducing consumer confusion regard- officials as the only possible and proper ing the use of grade nomenclature, ” but it feels branch of Government to change the present grading structure. Most USDA officials feel ADr. Clark Burbee, Project Leader, Consumer In- that without congressional action grading terests, Interview. sFoOd Labeling: Goals, Shortcomings, and proposed reform in the manner which consumer groups Changes, U.S. General Accounting Office, p. 122, January prefer would be unlikely. 29, 1975. *These estimates were supplied by USDA with no bMr. Andrew Gasparich, Assistant to the Special supporting data and were not analyzed for their ac- Assistant to the Secretary of Agriculture for Consumer curacy by GAO. Affairs, Interview.

36 FOOD PROCESSING INDUSTRY

The National Canners Association repre- One company, for instance, argues that sents processors. The Canners have a mem- though canned Freestone peaches lack bership of 500 firms that process 85 to 90 per- uniform appearance, many consumers prefer cent of all canned . Also, the National their to other canned peaches. Association of Food Chains (NAFC) stated in interviews that it supported the position the An objective test of taste, as a criterion, was Canners advocate. Moreover, NAFC repre- attempted at Cornell University Agricultural sents 200 companies in a country where 50 Station (Paper No. 1, Merchandising Ex- percent of the value of food for at-home con- periences, September 1959). After USDA in- sumption is sold in chain supermarkets. Since spectors were presented with eight different the Canners Association is vehemently op- applesauce to grade, 652 people tasted all posed to any grade labeling at retail, the eight applesauce and registered their weight of the food processing industry’s op- preferences. The results of the study demonstrated that most people preferred the position to increased food grading at retail is 8 apparent. two applesauce graded USDA Grade C. This study supports arguments of food processors. Grade Criteria Industry fears the average consumer will in- terpret “A” or other higher sounding grade to At present, many food processors maintain mean that product flavor is “best” when that that they are not using the USDA grading may not be true. system at either retail or wholesale. Del Monte and General Foods, major food companies in Historically, food-processing industry op- canning and packaging of fruits “and vegeta- position to grading at retail dates back at least bles, explained that they have their own food to 1935. In hearings that year before a sub- quality standards which may differ from the committee of the Senate Commerce Commit- USDA grades. They said their standards of tee, Henry Stude, representing the American quality were more rigorous than USDA stand- Bakers Association, testified against portions ards. General Foods asserts that this is one of a bill that was to become the Federal Food, reason that Birdseye products, for example, Drug, and Cosmetic Act of 1938, He said: “We command a premium price. Some firms main- feel that it is . . . impracticable and unwise to tain they have their own quality specifications standardize the taste, likes, and dislikes of the for raw products in their contractual arrange- consuming public. The result of such an at- ment, have mechanisms different from tempt to define standards of quality and iden- USDA’s to measure raw product quality, and tity would be to bring all food makers down to have stringent quality control requirements. a common denominator. . . .“ Inference is that They also admit that in some cases they do use the basis for quality is taste. Mr. Stude also USDA grades. testified that consumers could distinguish by themselves what is good quality.9 USDA grades are not used by some firms because they prefer different criteria. As Mr. Mandatory Grading Angelotti stated: Some members of the food industry still Major food manufacturers may not put the maintain that mandatory grading may reduce official (USDA) grade on any of their products. competition by discouraging introduction of They have their own grade standards, and it is superior products. They insist that food their perception of quality which they think the consumer wants or is telling them and they manufacturers would have no incentive to im- build that into their product. They have their own standards which they apply to their prod- uct .7 gOdonna Mathews, Grade Labeling, June 14-August 13, 1971. g74th Congress. Hearing before a subcommittee of the Senate Committee on Commerce, Vol. 276, March 2, WVorkshop, VO1. 1, p. 97. 1935.

37 prove products if they are not already in the While the cost of mandatory grade labeling highest grade. They believe standards could is a legitimate concern of the food industry, a lack flexibility needed to allow industry to recent Grocery Manufacturers of America seek improvements in growing, processing, 10 (GMA) survey (March 6, 1975) concluded that packaging, or transportation. $8.4 billion worth of food products would The main food industry objection to man- have nutritional labeling by the end of 1975. datory grading is its potential cost. Processors The survey indicated that for the $8.4 billion feel that small canning and packaging opera- the initial average cost of putting the informa- tions might be unable to meet mandatory in- tion on labels per dollar of sales is .004 cents spection and grading costs and be forced to and that the average continuing cost of nutri- tion labeling is .00016 cents per dollar of shut down. Larger plants, better able to absorb 14 costs because of lower per unit grading costs, sales. One food industry objection to nutri- could continue to operate. Although small tional labeling was its potential high costs. canning operations are the numerical majority GMA’s survey would indicate that industry’s of canning operations in this country, their concern for nutritional labeling costs was total output is less than that of the eight overstated, at least for a voluntary program largest canning firms. In 1972, of 1,201 can- which currently operates for nutritional label- ning firms, the eight largest accounted for ap- ing. Thus, manufacturers’ cost concerns proximately 50 percent of the Nation’s can- regarding mandatory grading could be ning production.11 Industry maintains that similarly overstated. many food chains depend on these small Arguments about costs hinge on manufacturers to process their private labels cost/benefit ratios. Some food industry and that the food distribution system would officials interviewed believe consumer benefit be hurt by shut downs of small manufac- from mandatory grading would not be worth 12 turers. In general, the existence of numerous costs incurred by the consumer. Food indus- Federal agencies already regulating food proc- try position on cost-benefit is based on the essors in terms of labeling, safety, pollution, following:15 backhauling, pesticides, advertising, and energy results in a total cost that helps to drive (a) The American consumer is already buy- out small processors. ing high quality foods at reasonable prices; and the quality and variety of This position is supported by research com- this food is the best in the world. pleted by C. R. Handy and D. I. Padberg. They found that very large retail chains have their (b) Quality of food is high because industry private label stock processed by relatively is regulating itself. The competitive small firms and that major brands--e.g., Del marketplace demands that a given com- Monte-are sold primarily through medium pany produce quality food, or the con- sized and small retailers. These relatively sumer will be dissatisfied and the firm small firm processors have little or no market- will lose business. ing capability. If they have a brand, it means Others would reply that brand names—i.e., little to consumers. Brand development costs Del Monte, Green Giant, and Birdseye--serve are exorbitant for their small volume, and pri- a function similar to retail grades. The argu- vate label programs enable them to specialize ment is that brand names have proven them- in the physical functions of food processing— selves to consumers over time as providing their primary competitive advantage.13 high quality products. Consumers can easily identify products by their brand name and 10Mr. Robert Wait, Washington Representative for General Foods, Interview. compare quality of various brand name prod- 1 IBureau of Census: 1970 Annual Survey of Manufac- ucts. If consumers like the product, then they tures Report, Concentration Ratios, Table 4. would be able to identify the same quality IZRichard Dougherty, Assistant Vice President, Na- product for future purchases by the brand tional Canners Association, Interview. lqMr. C.R. Handy, and Dr. D. I. Padberg, “A Model of Competitive Behavior in Food Industries,” American IAPackaging and Labeling, Vol. 6, No. 26, July 2, 1975. journal of Agricultural Economics, May 1971. 15 Richard Dougherty, interview.

38 name. Brand names thus serve as a means of tional processor indicates that tomato juice assuring consistent quality over time, but at made from Midwest tomatoes may have an some cost to the consumer by having to pay average Vitamin C content equal to 86 percent promotion costs of brand names. of that of juice packed from California tomatoes in the same season due to differences Industry also argues that mandatory grad- in sunshine. Conversely, juice from their ing could not accommodate quality California tomatoes may have only one-half differences due to geography. They contend the calcium of the Midwest juice due to harder that quality of produce, for example, varies water present in some Midwest locations. because weather and soil conditions differ in various regions. Some industry people fear The food industry representatives inter- mandatory grading could not take this into ac- viewed believe the industry will oppose any count. This argument may be valid. However, legislation establishing mandatory grading. with regard to soil differences and their effect They also saw little need for compromise since on product quality, FDA maintained that the many feel that costs of a mandatory system nutritional variation of produce due to soil would prevent it from being enacted. The Na- difference is nominal and does not ultimately tional Canners Association supports con- effect food nutrient differences.16 In addition sumer cost evaluations in the hope that con- to possible soil-related natural quality varia- sumers will stop much of the regulatory tion, other factors such as the amount of legislation if they understand how much it sunshine and rainfall are important. One na- costs.

CONSUMER INTEREST GROUPS

Grade Criteria characteristics cannot be included in one standard but that nutritional labeling is a sup- Consumer groups and advocates, unlike 18 plement to USDA grades. USDA and industry officials, want mandatory quality grading as an information tool for Both Ms. Ellen Zawal, National Consumers consumers to compare food. Consumer repre- Congress, and Ms. Ellen Haas, formerly of the sentatives want grading criteria changed to National Consumer League and presently a reflect nutrition and “life-giving values.17 staff member of the Community Nutrition In- They feel present standards, based primarily stitute, are confident that the grading system on physical appearance, benefit the they and other consumers advocate can be wholesaler but not consumers. Grades, they designed to satisfy everyone concerned. They contend, should reveal whether the food assert that the problems inherent in develop- product is nutritious and wholesome, not ing useful uniform, retail grades in which merely its appearance. nutrient values are a factor can be overcome. The term “quality” is loosely defined. Two Though consumer advocates are quite con- definitions exist: one is quality based on fident that their positions are well-founded, preferences and sensory characteristics, while they have presented little evidence supporting another is quality based on nutrition. Con- their positions. They want nutritional value to sumer representatives want Federal food partially determine grades. However, they grades to include the product’s nutrition have little or no supporting evidence that quality in addition to the already defined sen- nutritional value can be accurately measured sory product quality, with more emphasis on or that such grades can be effectively imple- nutrition and less on sensory factors. USDA mented on a national scale. At the same time, maintains that both nutrition and sensory consumer representatives will respond that

IGl%iera/ Register, January 29, 1973, Vol. 38, No. 13, p. la Richard L. Feltner, Assistant Secretary of 2150. Agriculture. Letter to Senator George McGovern, Chair- 17E]len ~wal, National Consumers League, Inter- man, Senate Select Committee on Nutrition and Human view. Needs, October 8, 1975.

39 An Alternative to the Present Food Grading Program

Voluntary/ Mandatory System

Processed Food Products Present Grade Criterion: Present—U.S. Grade A Canned Tomatoes—These typical sam- Alternative—U.S. Grade A ples of U.S. Grade A, U.S. Grade B, and U.S. Grade C canned tomatoes show that in the higher grades, the color is redder and more of the tomato portions are in whole or large pieces. Alternative: Same as the present grade criterion, Present—U.S. Grade B Alternative—U.S. Grade B

Present—U.S. Grade C Alternative—U.S. Grade C Us. Department of Agriculture photos.

40 Fresh Fruits and Vegetables Present Grade Criterion: Present—U.S. Fancy Grapefruit—These samples of Alternative—U.S. Grade A u.S. Fancy, U.S. No. 1, and U.S. No. 2 Florida Grapefruit show that U.S. Fancy grapefruit has better color and shape, smoother skin texture, and is free from bruises and other skin damage. Alternative: Same as the present grade criterion. Present—U.S. No. 1 Alternative—U.S. Grade B

Present—U.S. No. 2 Alternative-U.S. Grade C

U.S. Department of Agriculture photos.

Fresh Red Meat Present Grade Criterion— Present—U.S. Prime Carcass Grade: Alternative—U.S. Grade A Rib Steaks—These three steaks, all the same cut, show the top three beef grades—U.S. Prime, U.S. Choice, and U.S. Good. As beef increases in quality, it has more marbling (flecks of fat within the lean), is more tender, juicy, and flavorful. Alternative: Present—U.S. Choice - - Retail Cut Grade—Based on yield per Alternative--U.S. Grade B lb. or per serving. Yield is the trim or amount of external fat in relation to lean per retail cut. Grade A would have the highest ratio of lean to fat, Grade B the next highest, and Grade C the least.

Present—U.S. Good Alternative—U.S. Grade C U.S. Department of Agriculture Photos.

41 little or no evidence exists which indicates that cover all food categories For example, either a nutrition cannot be incorporated. In addition, letter or number system would be acceptable, while consumer advocates are concerned but it must be uniform—A, B, C, etc., or 1,2,3, about costs of mandatory grading, their con- etc.,—in addition to limiting the number of cern does not equal industry ’s. Consumer grades for each product.21 representatives believe industry’s cost con- cerns are an expected position for them. In ad- Preference for letter grades was indicated dition, they point to such products as by 43.6 percent of those consumers surveyed juice, eggs, and poultry which use retail in a 1970 USDA poll, while 31.6 percent grades already without any apparent preferred words and 18.2 percent preferred 22 problems. numbers. Consumer groups consider uniform grade designations necessary to Mandatory Grading allow consumers to easily recognize and un- Some consumers’ representatives want to derstand the grades and thus compare prod- make grading mandatory. They believe the ucts. entire food industry will not use it unless the law requires it to do so. Consumers want A summarization of desires by consumer retail grades to assist them in their shopping. advocates with respect to grading was given Interestingly, in 1933 such a system was by Ms. Cross and Mr. Rodney Leonard, con- desired by Mrs. Harris T. Baldwin, the Na- sumerist, Consumer Nutrition Institute, dur- tional Vice President of the League of Women ing the OTA workshop: Voters. She expressed the hope in a hearing before a Senate Commerce subcommittee with . . . There is essential consumer desire for a grad- the following statement: “. . . we are looking ing system which generates information on the nutritional quality, the economic value, and the forward to the day when there will be grade relative safety of the product being offered to the labeling on the food products which we buy in consumer. the stores.”19 However, one OTA panelist, Ms. Jennifer Cross, consumerism, Consumer Action Such a system should provide at a minimum, in California, perceived no consumer senti- first, standard grade nomenclature across the ment for mandatory grading: system. I certainly would not make grades mandatory if they are going to add to the cost of the product, Secondly, standard values within the class or or bog us (consumers) down in a welter of costly category (of food products). regulations. I detect no consumer clamor at all for mandatory grades at least as presently And third, mandatory grades, if the processor or designed. However, I believe shoppers would retailer wants to use grading, the standard no- use a simple national system, e.g., A, B, C, or 1, 2, menclature should be stated in symbols that 3, which gave some weighting to nutritional communicate known values-that is, 1, 2, 3, or values.20 A, B, and C.

The mandatory/voluntary issue is discussed in The standard values within the categories are more depth in later sections of this report. value judgments and should be determined in a Grade Designation or Nomenclature process prior to public hearings where more than half of those who participate do not have a Consumer advocates want uniform no- conflicting responsibility.23 menclature for various grades which would

zlMr. Jim Turner, Lawyer-Consumer Advocate, In- terview. 1974th congress. Hearing Before a Subcommittee of ZZUSDA Consumer Study, “Consumer Knowledge the Senate Committee on Commerce. Vol. 276, March 2, and Use of Government Grades for Selected Food 1935, P. 38. Items,” Economic Research Service, April p. 23. Zoworkshop, vol. I, p. 118. Zsworkshop, vol. V, pp. 86-87.

42 SUMMARY

As a result of its study, OTA has identified Mandatory Grading the major issues surrounding the present Because they are voluntary, USDA grades Federal food-grading system. These are: do not appear on all products for which grad- ing programs exist at either wholesale or ● Criteria used for grading, retail. Of the two marketing levels, grades are ● Mandatory or voluntary grading, used least at retail. Industry maintains that grades should not be made mandatory at the ● Nomenclature used for grading. wholesale or retail level because it would reduce competition, costs would outweigh Government agencies charged with ad- benefits to the consumer, and quality ministering the present grading program, con- difference due to geographic location could sumer groups, and the food processing indus- not be taken into account. USDA does not try all have different perspectives on each favor mandatory grades at either marketing issue. level because it maintains the program would be too costly. Some consumer groups believe grades are needed at retail, and the only way Grade Criteria grades would be used at retail is if the law re- Present grade standards are disputed by quires industry to use such grades. both industry and consumer groups, but for Grade Designation or Nomenclature different reasons. Both question how much physical appearance should have to do with One of the principal reasons for consumer grade. Both contend that factors such as color, confusion about food grades is their variety. shape, lack of blemishes, and uniformity are Consumers are perplexed by the many not the most important criteria for grades. different letters, numbers, and words and by Some consumer groups view nutritional con- the fact that there are at least ten different tent or health value of food as the primary terms denoting the top grade for various food quality factor on which to base grades. Indus- products. USDA’s position is that it continues try views sensory characteristics as the con- to support the goal of reducing consumer con- sumer’s real criteria for quality and hence fusion regarding grade nomenclature but feels grading. USDA maintains that both nutrition there are too many quality variables among and sensory quality cannot be included in one different classes of food products to enable a standard and that nutritional labeling should single system to cover all food products. be a supplement to USDA grades. USDA gives USDA prefers to develop uniform grade no indication that it intends to attempt reform designations within several groups of similar or modification of present grade standards to products, such as within fresh fruits and include nutritional values. vegetables.

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