[Federal Register: July 6, 1999 (Volume 64, Number 128)]
[Proposed Rules]
[Page 36516-36539]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06jy99-39]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration
21 CFR Parts 16, 101, and 115
[Docket No. 99N-1307]
RIN 0910-AB30
Preliminary Regulatory Impact Analysis and Initial Regulatory
Flexibility Analysis of the Proposed Rule to Require Refrigeration of
Shell Eggs at Retail and Safe Handling Labels
Agency: Food and Drug Administration, HHS.
Action: Preliminary regulatory impact analysis and initial regulatory
flexibility analysis.
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Summary: The Food and Drug Administration (FDA) is publishing both the
preliminary regulatory impact analysis prepared under Executive Order
12866 and the initial regulatory flexibility analysis prepared under
the Regulatory Flexibility Act on the proposed rule (published
elsewhere in this issue of the Federal Register) to require shell eggs
to contain safe handling statements and to be stored and displayed
under refrigeration at 7.2 deg.C when held by retail establishments.
FDA is issuing the proposed rule because of the large number of
illnesses and deaths caused by Salmonella enteritidis (SE) associated
with shell eggs that have not been treated to destroy the pathogen. The
proposed rule is intended to ensure that consumers will have the
information necessary to protect themselves from eggs contaminated with
SE and to ensure that eggs will be held at retail at temperatures that
discourage pathogen growth.
Dates: Submit written comments on the analysis of the proposed rule by
September 20, 1999.
Addresses: Submit written comments to the Dockets Management Branch
(HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061,
Rockville, MD 20852. Comments should be identified with the docket
numbers found in brackets in the heading of this document.
For Further Information Contact: Clark Nardinelli, Center for Food
Safety and Applied Nutrition (HFS-726), Food and Drug Administration,
200 C St. SW., Washington, DC 20204, 202-205-8702.
Supplementary Information:
Table of Contents:
I. Preliminary Regulatory Impact Analysis
A. Introduction
B. Failure of the Existing Regime
C. Regulatory Options
1. No New Regulatory Action
2. Labeling Provision Only
3. Refrigeration Provision Only
4. Refrigerate at 5 deg.C (41 deg.F)
5. Implement a HACCP-Style System for Shell Eggs
6. In-Shell Pasteurization
7. Longer Compliance Periods
8. Limit the ``Sell By'' Period
D. Coverage
1. Establishments
2. Products
E. Benefits
1. The Shell Eggs and Egg Products Risk Assessment Model
2. Cases of Salmonellosis Prevented
3. Health Benefits from Preventing Salmonellosis
4. Total Health Benefits
5. Additional Benefits
a. Reduced Risk From Other Pathogens
b. Fewer Recalls
6. Uncertainty of Estimated Benefits
F. Costs
1. Types of Establishments Covered
a. Labeling Provision Coverage
b. Refrigeration Provision Coverage
2. Cost Estimates by Requirement and Type
a. Egg Container Labels
i. Administrative Costs
ii. Inventory Disposal Costs
iii. Label Redesign Costs
iv. Summary of Costs to Incorporate Safe Handling Labeling
b. Refrigeration Costs
i. Equipment Costs to Refrigerate at 7.2 deg.C (45
deg.F)
ii. Energy Costs
iii. Shares of Refrigeration Equipment Costs by Type of
Establishment
iv. Comparison with Other Studies of Estimated
Refrigeration Costs
c. Changes in Consumer Practices
G. Summary of Benefits and Costs
II. Initial Regulatory Flexibility Analysis
A. Introduction
B. Economic Effects on Small Entities
1. Number of Small Entities Affected
2. Costs to Small Entities
C. Regulatory Options
1. Exemption for Small Entities
2. Longer Compliance Periods
D. Description of Recordkeeping and Reporting Requirements
E. Worst Case to Small Entities
F. Summary
III. References
IV. Request for Comments
I. Preliminary Regulatory Impact Analysis
A. Introduction
FDA has examined the economic implications of the proposed rule as
required by Executive Order 12866. Executive Order 12866 directs
agencies to assess all costs and benefits of available regulatory
alternatives and, when regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety, and other advantages;
distributive effects; and equity). Executive Order 12866 classifies a
rule as significant if it meets any one of a number of specified
conditions, including: (1) Having an annual effect on the economy of
$100 million, (2) adversely affecting a sector of the economy in a
material way, (3) adversely affecting competition, or (4) adversely
affecting jobs. A regulation is also considered a significant
regulatory action under Executive Order 12866 if it raises novel legal
or policy issues.
The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), requiring
cost-benefit and other analyses, in section 1531(a) defines a
significant rule as ``a Federal mandate that may result in the
expenditure by State, local, and tribal governments in the aggregate,
or by the private sector, of $100 million (adjusted annually for
inflation) in any 1 year.'' The Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121) defines a major rule for the
purpose of congressional review as having caused or being likely to
cause one or more of the following: (1) An annual effect on the economy
of $100 million; (2) a major increase in costs or prices; (3)
significant effects on competition, employment, productivity, or
innovation; or (4) significant effects on the ability of U.S.-based
enterprises to compete with foreign-based enterprises in domestic or
export markets.
In the Federal Register of May 19, 1998 (63 FR 27502), USDA and FDA
published an advance notice of proposed rulemaking (ANPRM) entitled
``Salmonella Enteritidis in Eggs.'' Among other things, this ANPRM
solicited public comment on what regulations might be required to
reduce the public health risk of SE in shell eggs. USDA received
approximately 73 responses to this ANPRM, each containing one or more
comments. Responses were received from egg farmers, egg packers,
associations for the egg industry, other trade associations, consumers,
consumer interest groups, animal interest groups, academia, State
[[Page 36517]]
government agencies, and foreign government agencies. Included in these
responses were several comments concerning the economic implications
raised by the approaches discussed in the ANPRM. One comment suggested
that FDA consider mandatory sell-by dates, prohibition of re-packaging,
and mandatory pasteurization of shell eggs intended for at-risk
consumers (such as residents of nursing homes). Several comments stated
that in-shell pasteurization was costly; according to one comment,
pasteurization equipment would cost $1.5 million. Several comments
stressed the cost and difficulty of placing the safe handling statement
on egg cartons, which are already crowded with printing. In one
comment, a carton manufacturer estimated that designing and producing
new plates for all of its egg cartons would cost about $2 million. One
comment suggested allowing existing safe handling labels. Several
comments advocated some form of HACCP for shell eggs. Comments
regarding the regulatory impact of the proposed rule are addressed
below.
B. Failure of the Existing Regime
The proposed rule addresses the handling and preparation of shell
eggs by retail establishments and consumers, and should reduce the
illnesses and deaths that can occur from consumption of eggs
contaminated with SE.
Private markets operate within the framework of legal institutions.
The tort system of the common law evolved, in part, to provide remedies
to injuries suffered in transactions in private markets. Under this
system, if a defective product injures someone, then the injured person
may recover damages from the producer of the defective product. The
recovery of damages requires the injured person to prove that his/her
injuries were caused by the producer's product. However, regardless of
the legal theory chosen (negligence, warranty, or strict liability), to
recover damages the injured person must be able to link his/her injury
to the specific product of a specific producer.
In most instances, consumers experiencing illness from food
consumption do not recognize the illness as foodborne or are unable to
link the illness to consumption of a particular food. This inability to
connect illness and food exists because many symptoms do not occur
immediately after consumption of the product. The proposed rule
addresses the inability of the tort system to address adequately the
mishandling of eggs by retailers and the failure to provide consumers
with information needed to reduce SE-related illnesses.
The proposed refrigeration provision addresses the possible market
failure (because illnesses are not easily traced to processors) that
occurs when eggs are not held at appropriate temperatures at retail and
consumers are put at greater risk from SE-contaminated eggs. The
increased risk resulting from SE-contaminated eggs that are not held at
appropriate temperatures in retail establishments can lead to
involuntary health effects for consumers who do not know about the
temperature abuse or do not know about the associated increased risk
from SE. Indeed, retailers may be as poorly informed as consumers about
the SE-related health effects from temperature abused eggs. Because
both retailers and consumers may be ignorant or uncertain about the
risk, the implicit contract between consumers and retailers does not
incorporate the potential harm to consumers caused by the hidden health
risk associated with shell eggs. Furthermore, the uncertainty and
ignorance may persist about the risk--despite the occurrence of
illnesses--because of the long time lapse between the purchase of the
SE-contaminated eggs and the onset of SE-related illnesses.
By requiring safe handling statements, the proposed rule will
provide information about the potential adverse health effects of SE-
contaminated eggs. The information will persuade some consumers to
change potentially risky handling practices and thereby reduce the
number of illnesses associated with SE in shell eggs. The proposed
labeling provision helps correct the failure of the existing regime
that occurs when consumers lack relevant information about the safe
handling (refrigeration and thorough cooking) of eggs. Because this
information is associated with a negative characteristic of the
product, and this negative characteristic is not easily differentiated
among egg products, processors have little incentive to make this
information available to consumers. Without the relevant information,
some consumers may not properly refrigerate or may not adequately cook
eggs, and some may consume foods containing raw eggs. Information about
shell eggs is not complete if people do not know the potential health
risks associated with SE-contaminated eggs. The lack of information
places consumers, especially the young, the elderly, and persons with
immune deficiencies, at a greater health risk.
C. Regulatory Options
1. No New Regulatory Action
Under this option, FDA would rely on current regulations,
publicizing risks, voluntary changes in behavior, and current or
enhanced State and local enforcement activity to bring about a
reduction in illnesses caused by SE in shell eggs. State and local
governments that adopt and enforce the 1999 Food Code as issued by FDA
will meet the goals of the proposed refrigeration rule. Adopting the
Food Code as issued by FDA will also reduce undercooking of eggs in
restaurants, which will accomplish part of the goals of the proposed
labeling provision. The 1999 Food Code requires raw shell eggs to be
cooked 15 seconds at 63 deg.C (145 deg.F) if prepared for immediate
service in response to a consumer's order. Other raw eggs are required
to be cooked 15 seconds at 68 deg.C (155 deg.F). Because the 1999
Food Code has not been adopted everywhere and because billions of shell
eggs are prepared in the home, the coverage of this option would be
less than with the proposed rule.
The threat of litigation might also help bring about the goals of
the proposed rule. If victims could sue sellers of SE-contaminated eggs
for damages, the incentives to retailers to eliminate SE from shell
eggs would increase. Creating incentives for individual retailers to
refrigerate eggs, however, may not create incentives for all retailers.
Furthermore, the effectiveness of litigation is questionable because
the link between the consumption of SE-contaminated eggs and illnesses
may be difficult to establish for outbreaks and is nearly impossible to
establish for sporadic cases. Moreover, if the link could be
established it is not clear whether retailers would be held liable,
although new techniques such as deoxyribonucleic acid (DNA) finger
printing may someday make it possible to link cases to individual
retailers.
2. Labeling Provision Only
The agency could require that egg cartons contain the instructions
to food handlers to ``keep refrigerated'', ``cook until yolks are
firm'', and ``cook foods containing eggs thoroughly'' described in the
context of the microbial hazard and the persons at risk. Requiring the
safe handling label alone would place the burden of reducing risk from
SE-contaminated eggs solely on food handlers, which includes consumers,
restaurants, and institutions. If food handlers follow good sanitation
practices and eggs are cooked thoroughly, the risk of salmonellosis
[[Page 36518]]
from SE-contaminated shell eggs can be virtually eliminated. FDA
believes that the safe handling label will improve cooking practices
but will not eliminate SE. The additional safeguard of proper
refrigeration is therefore needed to slow the growth of SE and thereby
reduce the risk of illness from mishandling. The median estimated
annual benefits from labeling only are $261 million for the U.S.
Department of Agriculture (USDA) SE risk assessment baseline and $124
million for the Centers for Disease Control and Prevention (CDC)
surveillance baseline; the costs from labeling only are $28 million in
the first year, with a recurring annual cost of $10 million.\1\
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\1\ The two baselines are explained in section I.E.1 of this
document.
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3. Refrigeration Provision Only
The agency could require that retailers refrigerate shell eggs to
7.2 deg.C (45 deg.F), without also requiring safe handling labeling.
Refrigeration at less than 10 deg.C (50 deg.F) slows the growth of
SE. Because the level of Salmonella that initially contaminates eggs is
usually low, refrigeration following laying should keep the numbers of
pathogens low until the egg reaches the consumer. Retail refrigeration
is particularly important because it occurs later in the flow of eggs
from farm to table and, therefore, it can play an important role in
postponing yolk membrane breakdown and the consequent rapid growth of
SE. Even if SE can be attenuated by refrigeration, some illnesses may
still occur because small numbers of SE can cause illness. Moreover,
improper storage by consumers after proper retail refrigeration could
result in rapid growth of SE. The median estimated benefits from
refrigeration alone are $387 million for the USDA SE risk assessment
baseline and $211 million for the CDC surveillance baseline;
refrigeration alone would impose a one-time cost of $31 million.
4. Refrigerate at 5 deg.C (41 deg.F)
Instead of requiring an ambient temperature of 7.2 deg.C (45
deg.F) for egg-containing refrigerators at retail, FDA could require an
ambient temperature of 5 deg.C (41 deg.F), the internal temperature
for potentially hazardous foods in the 1999 Food Code. Although current
studies show Salmonella growth at ambient temperatures under 50 deg.F
is significantly slowed, the advantage of a lower standard is that eggs
will cool down slightly faster. FDA could require those establishments
to reduce ambient temperatures to 5 deg.C (41 deg.F), with a 5-year
compliance period. FDA estimated the present value of the total cost of
reaching 5 deg.C (41 deg.F) in 5 years to be $65 million.\2\ Because
eggs cool down only slightly faster at 5 deg.C (41 deg.F)than at 7.2
deg.C (45 deg.F), the lower temperature would not generate additional
benefits.
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\2\ FDA estimated that 236,500 retail establishments hold eggs
at ambient temperatures greater than 5 deg.C (41 deg.F). FDA
assumed that the mean and median additional cost per establishment
of moving to 5 deg.C to be $3,500 in current dollars. FDA also
assumed that establishments would have 5 years beyond the 7.2 deg.C
compliance period to reach 5 deg.C, that refrigerators last 20
years, and that additional costs would be zero for those
establishments already planning to replace refrigerators within 5
years. The $65 million therefore represents the discounted (at 7
percent) additional costs of refrigeration from 5 to 20 years after
the labeling and the 7.2 deg.C provisions would take effect.
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5. Implement a HACCP-Style System for Shell Eggs
The agency could require that a Hazard Analysis and Critical
Control Point (HACCP) system be implemented at any or all levels of the
shell egg production and distribution chain. In order to match the
coverage of the proposed rule, the HACCP-style rule would have to be
limited to the same set of establishments covered by the safe handling
label. The advantage of a full farm-to-table HACCP is that it could
eliminate, reduce, or control SE and other hazards at the source and
keep them out throughout the egg processing chain. The disadvantage is
that the technological knowledge needed to identify the critical
control points and remedial steps to eliminate SE from shell eggs is
incomplete. FDA believes that a HACCP-like program, possibly including
in-shell pasteurization, is currently not feasible. However, FDA is
evaluating whether a HACCP-like program in the future may be necessary
to further ensure the safety of eggs.
6. In-Shell Pasteurization
The agency could require that all eggs be pasteurized.
Pasteurization of shell eggs should practically eliminate SE. The time
and temperatures required to pasteurize shell eggs, however, are close
to the combination that will cook the eggs. Successful in-shell
pasteurization on a large scale is therefore likely to be quite costly.
Currently, pasteurized shell eggs sell for approximately $0.30 more per
dozen than regular shell eggs (Ref. 1). Assuming that average cost
remained constant with the increased output, to pasteurize all 47
billion shell eggs sold each year (around 4 billion dozen) would cost
approximately $1.2 billion per year. In addition to the annual costs,
the changeover to pasteurization would require large capital costs.
Another potential disadvantage is that pasteurization might lead some
consumers to erroneously believe that other safety measures, such as
refrigeration and avoiding cross-contamination, might no longer be
necessary. Because pasteurization eliminates competing microorganisms,
recontamination after pasteurization might lead to rapid growth of SE.
Finally, FDA believes that other interventions between farm and table
could reduce the risk at lower cost.
7. Longer Compliance Periods
FDA is giving firms 180 days to meet the labeling and refrigeration
provisions of this proposed rule. Lengthening the compliance period for
labeling to 18 months would reduce labeling costs by allowing some of
the changes to be incorporated into planned label changes. Total
labeling costs, as shown in Table 14 of this document, fall from $18
million to $7 million if the compliance period is extended to 18
months. Total refrigeration costs fall by about $2 million, which is
the difference (at a 7 percent discount rate) in the capital costs of
refrigeration in 6 months and refrigeration in 18 months. The total
cost savings from extending the compliance period to 18 months, then,
are approximately $13 million. One disadvantage would be that a longer
compliance period would delay the realization of the public health
benefits of the proposed rule. Those benefits substantially exceed $13
million per year. As shown in Table 9 of this document, estimated
median annual benefits are $300 million for the CDC surveillance
baseline and $700 million for the SE risk assessment baseline.
8. Limit the ``Sell By'' Period
The agency could introduce a ``sell by'' date. Limiting the ``sell
by'' period, which is the time within which retailers must sell shell
eggs, would limit the SE growth period, thereby reducing the potential
dose of SE when it is already in the egg. The disadvantage of this
option is that it could not take the place of the proposed
refrigeration or labeling provisions. Introducing a ``sell by''
provision without the proposed refrigeration provision would not
necessarily prevent the growth of SE in the egg. Moreover, introducing
the shortened ``sell by'' provision without the labeling provision
would not inform consumers that they should still refrigerate and cook
eggs thoroughly. Proper refrigeration is important because it will
prevent the rapid growth of SE beyond the ``sell by'' date. The benefit
of a ``sell by'' provision is it
[[Page 36519]]
would reduce the likelihood of membrane breakdown and shorten the time
for growth should breakdown occur. FDA estimated the benefits from a
limited ``sell by'' period by calculating the reduction in average
retail storage time if all eggs were sold within 30 days (the USDA
period used for pull dating). The benefits of a limited retail storage
time are $1.3 million for the USDA SE risk assessment baseline and
$600,000 for the CDC surveillance baseline.
The limited shelf life would impose the additional cost of reducing
the egg supply, which raises the price of eggs to consumers. If
limiting the shelf life were to reduce the egg supply by 5 percent, the
additional cost would be approximately $150 million. If limiting the
shelf life were to reduce the egg supply by 15 percent, the additional
cost would be approximately $450 million.
Other options could reduce the storage time of eggs. A ``use by''
date on the label might lead more people to consume eggs before
membrane breakdown occurs. If the storage time in retail
establishments, institutions, and homes is reduced by 1 percent, the
USDA SE risk assessment model generates about a 0.5 percent decrease in
the number of illnesses.
D. Coverage
1. Establishments
Table 1 of this document lists the establishments covered by the
proposed rule. FDA expects that the initial costs of labeling will fall
on egg processors, until ultimately the costs are passed on to
consumers. Refrigeration will affect the entire retail sector,
including noncommercial establishments.
Table 1.--Coverage by Establishment
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Affected by
Establishment Affected by Safe Refrigeration at 7.2 C
Handling Labeling (45 F )
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Grocery stores No Yes
Restaurants No Yes
Health food stores No Yes
Roadside stands Yes Yes
Convenience stores No Yes
Prisons No Yes
Nursing homes No Yes
Schools No Yes
Hospitals No Yes
Military No Yes
Shell egg packers Yes No
Transportation No No
Farm No No
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2. Products
Table 2 of this document lists the products covered by the two
provisions of the proposed rule.
Table 2.--Coverage by Product
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Affected by
Product Affected by Safe Refrigeration at 7.2 C
Handling Labeling (45 F )
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Shell eggs in cartons Yes Yes
Bulk shell eggs in Yes Yes
cases
Egg products\1\ No No<SUP>1</SUP>
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\1\ Egg products include pasteurized egg products and other eggs treated
to remove pathogens. The USDA regulates these products.
E. Benefits
The benefits of the proposal come from reducing the incidence of
SE-related illness. FDA will estimate health benefits with the
following model of marginal benefits (MB):
MB = R x M x V
where:
R = the baseline risk. In this case, the baseline risk is the
estimate of the annual incidence of SE-related illnesses associated
with shell egg consumption, proportionally broken down by severity
of health effects.
M = the expected marginal reduction in the number of SE-related
illnesses attributable to the two provisions of the proposed rule.
V = the cost per type of SE-related illness, including personal
utility losses (pain and suffering, productivity) and direct medical
expenditures.
The refrigeration and labeling provisions will reduce but not
eliminate the consumption of contaminated shell eggs. Requiring
refrigeration at all retail outlets and requiring labeling that states
that the product should be kept refrigerated, however, should decrease
the number of eggs that suffer temperature abuse in retail
establishments and in homes. The labeling rule will also generate
health benefits by reducing the consumption of raw or undercooked eggs.
In order to estimate the reduction in cases of SE-related illnesses
likely to be brought about by the proposed rule, FDA relied mainly on
the USDA's Salmonella Enteritidis Risk Assessment (Ref. 2). Indeed, FDA
could not have carried out the following assessment of benefits without
the USDA SE risk assessment. FDA slightly modified the risk assessment
in light of data that have become available since the completion of the
final version of the model, but the analysis closely followed that of
the USDA SE risk assessment team. FDA estimated the benefits of its
proposed rule by combining the USDA SE risk assessment's estimated
reductions in illnesses with FDA's estimates of the health cost per
illness.
1. The Shell Eggs and Egg Products Risk Assessment Model
The USDA's Salmonella Enteritidis Risk Assessment uses a farm-to-
table model of the production and consumption of eggs. The model
consists of five parts: (1) Egg
[[Page 36520]]
production, (2) shell egg processing and distribution, (3) egg products
processing and distribution, (4) food preparation and consumption, and
(5) public health outcomes.
Because the proposed rule will not affect the number of shell eggs
contaminated with SE, FDA did not directly use the first three parts of
the model. FDA estimated the effects of the proposed rule by
introducing the provisions of the proposed rule into the preparation
and consumption part of the model and then calculating the changes in
public health outcomes.
The presence of SE in the raw egg is not sufficient to ensure that
people will become ill from eating contaminated eggs. If the eggs are
continuously refrigerated from the time they leave the processor up
until the time they are cooked, and if they are thoroughly cooked, then
the risk assessment model predicts that the SE will not multiply before
cooking and cooking will eliminate the surviving pathogens. The large
number of outbreaks and sporadic cases identified--and the larger
number thought to occur--suggest that the conditions for pathogen kill-
off are not being met. In 1996, the CDC's surveillance found 9,566
confirmed SE isolates, or 25 percent of the 39,000 confirmed cases of
salmonellosis (Ref. 3). In 1997, the CDC's surveillance found 7,924
confirmed SE isolates, or 23 percent of the 34,608 confirmed cases of
salmonellosis (Ref. 3). From 1988 through 1992, SE accounted for more
than 40 percent of all bacterial foodborne outbreaks with known
etiology and about 33 percent of all outbreaks with known etiology
(Ref. 4).
The two requirements of this proposed rule form part of a farm-to-
table approach to shell egg safety. These requirements address the
table end of the hazard. Although they will lead to lower pathogen
counts, reduced pathogen strength, and reduced pathogen consumption,
they will not eliminate SE in shell eggs.
The baseline for the cases of salmonellosis prevented is the number
of illnesses attributable to shell eggs before the proposed rule. The
USDA SE risk assessment estimated the number of illnesses with a full
farm-to-table model. The first stage of the model estimated the number
of infected eggs laid with a simulation that incorporated the estimates
of the number of infected flocks and the likelihood of frequency of
infected eggs in an infected flock. The next stage of the model took
the estimated number of infected raw shell eggs and estimated the
number of infected eggs likely to be consumed. The model followed the
eggs through possible paths from the farm to the table. Depending on
how processors, transporters, and cooks treated the infected eggs, the
SE could be killed, remain stagnant, multiply, or (if pooled) spread to
other eggs. The last stages of the model used a dose-response function
to estimate the number and severity of illnesses caused by SE in shell
eggs. All stages of the model used computer simulations to generate
ranges and distributions rather than point estimates. FDA generated a
modified USDA SE risk assessment baseline by substituting more recent
data on the proportion of establishments not refrigerating shell eggs
at 7.2 deg.C (45 deg.F).
The CDC surveillance baseline estimated the distribution of
illnesses based on the number of confirmed cases as indicated by SE
isolates reported to CDC. The CDC surveillance baseline estimated the
number of illnesses as actual reported cases plus estimated unreported
cases.
Table 3 of this document shows the results of three Monte Carlo
simulations for the baseline estimates of SE-related illnesses caused
by shell eggs. All simulations used the Microsoft Excel version of the
Palisade@Risk<Register> quantitative risk assessment software. The
first simulation, shown in part a of Table 3 of this document, is the
baseline result of the SE risk assessment team model. The second
simulation is the baseline model with 95 percent rather than 90 percent
probability that shell eggs are refrigerated at 7.2 deg.C (45 deg.F)
in retail establishments and institutions. FDA modified the original
model because the agency had more recent information (see the next
paragraphs) on the number of establishments not refrigerating shell
eggs at 7.2 deg.C (45 deg.F). Part b of Table 3 of this document
presents the results of the simulation based on the more recent
information.
Part c of Table 3 of this document presents the third baseline
estimation, which is the result of estimating the number of cases
directly from CDC Salmonella surveillance data. FDA used the same
procedure as the USDA SE risk assessment team to estimate the number of
SE cases from surveillance data. The data collected by the CDC
Salmonella surveillance project show that from 1988 through 1997 the
number of SE isolates ranged from a low of 6,578 in 1992 to a high of
10,201 in 1995, with about 8,400 per year on average. The USDA SE risk
assessment estimated the probability that an isolate would be reported
to be 0.01431. With 8,400 isolates reported and a probability of
reporting equal to 0.01434, FDA simulated a distribution for all SE
illnesses, including those caused by foods other than shell eggs (not
shown in Table 3 of this document).\3\ The USDA SE risk assessment
assumed that shell eggs accounted for 20 to 100 percent of all
illnesses from SE. FDA assumed that shell eggs accounted for
approximately 10 to 60 percent of all illnesses from SE.\4\ The
assumption that 10 to 60 percent of all SE illnesses came from the
consumption of shell eggs, combined with the estimated number of
illnesses, generated the estimates shown in part c of Table 3 of this
document.
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\3\ FDA simulated the number of SE illnesses not reported with a
negative binomial distribution. The simulation calculated the total
number of illnesses (reported and not reported) as: Number reported
+ Negative binomial (number reported + 1, frequency of reporting) =
8,400 + NEGATIVE BINOMIAL (8,401, 0.01434).
\4\ According to the results of outbreak analyses for the years
1988 through 1992, eggs were the food vehicle in 64 percent of the
SE outbreaks for which the food vehicle could be identified (Ref.
4). Therefore, FDA assumed that 60 percent represented the maximum
fraction of cases attributable to eggs. More than half of the SE
outbreaks, however, did not have a known food vehicle. If outbreaks
with unknown vehicles are added to the total, then eggs accounted
for only 29 percent of all SE outbreaks (including outbreaks with
known and unknown vehicle) from 1988 through 1992. Furthermore, the
causes of outbreaks may not be the same as the causes of sporadic
cases. FDA believes that shell eggs may be less important cause of
sporadic SE cases than of SE outbreaks. Many outbreaks have been
linked to the pooling of large numbers of eggs in nursing homes and
other institutional settings. Because pooling eggs would have little
effect on the probability of a sporadic case occurring, eggs are not
likely to account for as large a proportion of sporadic cases as of
outbreaks. FDA believes it plausible that eggs account for only one-
third as high a fraction of all SE cases as of outbreaks. For a
lower bound on the fraction of cases caused by eggs, FDA multiplied
the fraction of all outbreaks caused by eggs (29 percent) by the
relationship between the egg fraction of all cases and the egg
fraction of outbreaks (one-third). Therefore, FDA estimated that 10
percent represented the minimum fraction of SE cases attributable to
eggs.
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All three baselines in Table 3 of this document are estimates of
the current incidence of SE from shell eggs. FDA estimated the health
benefits of the proposed rule based on the baselines in parts b and c
of Table 3 of this document. The baselines, however, could change
before the proposed rule takes effect. Other Federal or State
regulations, consumer education, and voluntary SE eradication by farms
or processors could reduce the baseline number of SE illnesses. If such
a reduction were to occur before or at the same time as the proposed
rule took effect, then FDA would be using a baseline that was too high
and, therefore, would over-estimate health benefits from the proposed
rule. FDA recognizes the potential bias, but believes that changes in
the baseline number of illnesses are likely to be small or negligible
before the proposed rule takes effect.
[[Page 36521]]
Table 3.--Three Baseline Estimates of SE From Shell Eggs
--------------------------------------------------------------------------------------------------------------------------------------------------------
5th percentile Median Mean 95th percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
a. USDA SE Risk Assessment
Illnesses 126,374 504,082 661,633 1,742,592
Arthritis 3,631 14,864 19,994 55,915
Deaths 68 301 391 1,050
b. USDA SE Risk Assessment as Modified by
FDA
Illnesses 115,645 416,156 569,231 1,508,814
Arthritis 3,372 12,548 17,175 48,594
Deaths 66 250 354 985
c. CDC Surveillance Model
Illnesses 63,884 189,599 191,511 319,275
Arthritis 1,330 5,533 5,727 12,202
Deaths 37 122 115 197
--------------------------------------------------------------------------------------------------------------------------------------------------------
2. Cases of Salmonellosis Prevented
FDA cannot precisely estimate the number of cases likely to be
prevented by the proposed rule; therefore, the agency used a range of
cases prevented to estimate the benefits of the proposed rules. For the
refrigeration provision, FDA used the USDA SE risk assessment model (as
modified by FDA) to determine the effects of eliminating virtually all
temperature abuse in retail and institutional establishments. In the
simulation of the model, the number of illnesses fell as the proportion
of establishments assumed to be holding eggs at 7.2 deg.C (45 deg.F)
or less increased from 95 percent to virtually 100 percent.
FDA used a study of changes in consumer behavior as a result of the
USDA safe handling label for meat to estimate the effects of the safe
handling label for shell eggs. The Food Marketing Institute (Ref. 5)
found that 59 percent of shoppers were aware of the USDA safe handling
labels for meat. Of those aware of the labels, 43 percent changed their
behavior as a result of the labels. Of those who changed their
behavior, the changes ranged from 1 percent (use of antibacteria soap
to wash hands) to 41 percent (washing or disinfecting counters, cooking
areas, and utensils after contact with meat). The behavioral changes
most similar to what the proposed rules aim to bring about for shell
eggs were the 19 percent increase in proper cooking of meats and the 7
percent increase in proper refrigeration. If the meat cooking and
refrigeration results indicate the likely effects of the proposed label
for eggs, then the likelihood that shell eggs will be undercooked or
consumed raw will decline by approximately 5 percent (= 59 percent x 43
percent x 19 percent) and the likelihood that consumers will fail to
properly refrigerate eggs will decline by approximately 2 percent (= 59
percent x 43 percent x 7 percent).\5\
---------------------------------------------------------------------------
\5\ The sample size was 1,007. The reduction in undercooked eggs
likely to be brought about by safe handling instructions rested on
several assumptions. The most important assumptions were that: (1)
The 5 percent reduction in unsafe cooking practices and the 2
percent reduction in unsafe refrigeration practices implied by the
survey results for the USDA meat handling labels accurately
reflected people's practices in their home, (2) the results for home
food handlers would hold for restaurant food handlers, (3) the
results for the meat label would hold for egg labels, (4) the change
in behavior would extend to raw eggs as well as undercooked eggs,
and (5) the sample of 1,007 consumers was reasonably representative
(Ref. 5). The greatest uncertainty in extrapolating from the meat
handling results is in assuming that the effects will hold for those
products that contain raw eggs. Cookie dough, cake and brownie
batter, egg nog, and other homemade products are major sources of
the consumption of raw eggs, but the desire to consume them also
appears to be deeply ingrained among consumers.
---------------------------------------------------------------------------
The USDA SE risk assessment model treats proper cooking as a kill
step for SE. Whatever the baseline, if undercooking falls by 5 percent,
so will the number of illnesses, all else the same. The effects of
retail refrigeration come early in the life of the egg. The effects of
the safe-handling label come later in the life of the egg than
refrigeration, so the effects of proper cooking in reducing illnesses
will be net of the effects of refrigeration. Safe cooking will reduce
the number of illnesses remaining--after the effect of refrigeration--
by 5 percent.
In separate simulations, FDA used the USDA SE risk assessment model
to estimate the effects of the labeling provision, the refrigeration
provision, and the proposed rule combining the provisions. In another
simulation, FDA estimated the effects of including a ``sell by'' date
on the label or some equivalent policy to reduce retail storage time.
If the ``sell by'' date were 30 days after receiving the eggs, the
average retail storage time would be reduced by 6 percent (Ref. 2).\6\
FDA used 6 percent as the potential shortening of average retail
storage time. FDA did not include shortened storage time in the
simulations that estimated the effects of the proposed rule.
---------------------------------------------------------------------------
\6\ In the risk assessment, retail storage time for eggs is a
truncated exponential distribution, with the unconstrained (that is,
nontruncated) expected storage time equal to 7 days, minimum storage
equal to 0, and maximum equal to 60. If the maximum is changed to
30, mean storage time falls by 6 percent.
---------------------------------------------------------------------------
FDA estimated policy effects for both the modified SE risk
assessment and the surveillance baselines. FDA first simulated the
possible regulatory approaches in the modified USDA SE risk assessment
model. The simulations generated distributions of the number of
illnesses prevented by those approaches. The results are shown in part
a of Table 9 and part a of Table 10 of this document. The CDC
surveillance baseline began with the final result--a distribution of
the number and severity of illnesses. No farm-to-table steps entered
the model. The CDC surveillance model could not estimate how the
illnesses occurred; the model only produced an estimate of the number
of illnesses. Because the CDC surveillance baseline was not an outcome
of a model, FDA could not directly estimate effects with the
surveillance baseline. Instead, FDA assumed that the policy effects
would be proportionally the same for both the CDC surveillance and the
USDA SE risk assessment baselines. The estimated effects of the
proposed rule on the surveillance baseline, then, equaled the
percentage effects from the SE risk assessment applied to the CDC
baseline.\7\ The results are shown in part
[[Page 36522]]
b of Table 9 and part b of Table 10 of this document.
---------------------------------------------------------------------------
\7\ Comparing the illnesses prevented in Tables 9 and 10 of this
document with the appropriate baseline in Table 3 of this document
can approximate the percentage effects. FDA also independently
estimated the proportional effects of the proposed rule. In that
simulation, the mean fraction of baseline illnesses prevented was 19
percent, the median was 15 percent, the 5th percentile was 6
percent, and the 95th percentile was 49 percent.
---------------------------------------------------------------------------
3. Health Benefits From Preventing Salmonellosis
The health benefits associated with preventing salmonellosis are:
(1) Lessening the loss of productivity, (2) the reduction in pain and
suffering, and (3) the reduced expenditures on medical treatment. In
order to quantify the losses suffered by victims of salmonellosis, it
is first necessary to develop an index to measure the losses associated
with pain, suffering, mobility, and other problems associated with
becoming ill. FDA estimated the utility losses caused by pain and
suffering with a symptom-problem health utility index. Lost
productivity was indirectly estimated by measures of body movement,
physical location, and functional state. FDA estimated medical costs
directly. The symptoms of salmonellosis vary by serotype and the immune
status of the victim. Diarrhea, nausea, vomiting, fever, and headache
lasting from 1 day to 1 week or more characterize a typical case of
salmonellosis. Mild cases last 1 to 3 days, moderate cases last 2 to 12
days, and severe cases last 11 to 21 days (Ref. 6). Some acute cases
are followed by post-Salmonella reactive arthritis, with symptoms that
include pain and possible functional disability (Ref. 7, 31, and 32).
Moreover, some acute cases lead to death, especially among elderly
victims.
Tables 4 through 7 of this document contain descriptions of the
health effects associated with salmonellosis. Table 4 of this document
lists the codes associated with salmonellosis of varying levels of
severity. Tables 5 and 6 of this document explain the codes.
Table 4.--Health Effects and Symptoms of Illnesses Associated With
Salmonellosis
------------------------------------------------------------------------
Symptom-Problem
Severity Functional Status Complex Code
------------------------------------------------------------------------
Mild MOB(4) + PAC(3) + 9
SAC(3)
Moderate MOB(4) + PAC(3) + 9
SAC(3)
Severe--acute MOB(2) + PAC(1) + 9
SAC(1)
Reactive arthritis, MOB(5) + PAC(3) + SAC(3 7
resolved in 4 months and 4)
Reactive arthritis-- MOB(5) + PAC(3) + SAC(3 7
chronic, intermittent, and 4)
waxing and waning, or
unremitting
------------------------------------------------------------------------
Table 5.--Description of Functional Status Codes (used to measure
productivity loss)
------------------------------------------------------------------------
Function Status Code Scale Weight or Utility Loss
------------------------------------------------------------------------
Mobility (MOB)
5 No limitations 0.000
4 Did not drive car; 0.062
other limitations
2 In hospital 0.090
Physical Activity (PAC)
4 No limitations 0.000
3 Walked with physical 0.060
limitations
1 In bed or wheelchair 0.077
Social Activity (SAC)
5 No limitations 0.000
4 Limited in other 0.061
activities
3 Limited in primary 0.061
activity
2 Performed self-care 0.061
1 Help with self-care 0.106
------------------------------------------------------------------------
Table 6.--Description of Symptom-Problem Complex Codes (used to measure
loss from pain and suffering)
------------------------------------------------------------------------
Symptom-
Problem Description Utility
Complex Weight
------------------------------------------------------------------------
9 Sick or upset stomach, vomiting, or diarrhea 0.290
(watery bowel movements)
7 Pain, stiffness, numbness, or discomfort of neck, 0.299
hands, feet, arms, legs, ankles, or several
joints together
------------------------------------------------------------------------
FDA estimated the health loss per day for the different levels of
illness severity by summing the lost productivity (as measured by
functional status) and the loss from pain and suffering (as measured by
the symptom-problem index). These losses per day can be interpreted as
the difference between 1 day of perfect health and 1 day of suffering
the productivity loss and pain and suffering associated with one of the
health conditions. The numerical scale is based on the notion of a
quality-adjusted life day. The quality-adjusted life day for a day of
perfect health equals 1; the quality-adjusted life day for death equals
0. For illnesses, the quality-adjusted life day falls between 0 and 1.
A day spent suffering a mild case of salmonellosis has a quality-
adjusted life day equal to 0.527 (= 1 - 0.473).
The loss of utility per illness equals the daily loss multiplied by
the duration of the illness. For example, mild salmonellosis lasts 1 to
3 days. The total utility losses for a mild case lasting 2 days equal 2
x 0.473 = 0.946, or about 1 quality-adjusted life day. The resolved
cases of post-Salmonella reactive arthritis may last 1 day to 4 months
(Ref. 7). FDA assumed that chronic cases of reactive arthritis last for
the rest of the victim's life. FDA used a distribution for the age of
onset for salmonellosis, based on FoodNet results for 1996 and 1997
(Ref. 8). FDA also used a distribution for the age of onset for
reactive arthritis. FDA combined the two distributions to generate a
single distribution for the
[[Page 36523]]
length of time that post-Salmonella reactive arthritis would be
expected to last.
Table 7.--Utility Losses From Salmonellosis
----------------------------------------------------------------------------------------------------------------
Symptom-
Functional Problem Duration Utility
Severity Utility Utility Total Utility Loss per (days per Losses per Medical Costs per Case
per Day Weight per Day year) Case per per Year
Day Year
----------------------------------------------------------------------------------------------------------------
Mild 0.183 0.290 0.473 1 to 3 0.473 to 0
1.419
Moderate 0.183 0.290 0.473 2 to 12 0.946 to $800
5.676
Severe--ac 0.273 0.290 0.563 11 to 21 6.193 to $9,100
ute 11.823
Reactive 0.121 0.299 0 to 0.42 1 to 121 0 to 50.4 $100
arthritis
-resolved
Reactive 0.121 0.299 0 to 0.42 365 0 to 153.3 $400
arthritis
-chronic
----------------------------------------------------------------------------------------------------------------
FDA assumed that the most likely value of a quality-adjusted life
day was $630, a value derived from the statistical estimate of the
benefit for a small reduction in the probability of death, commonly
called the value of a statistical life. If the value of a statistical
life is $5 million, and the average discounted number of life years (in
the studies that generated this estimate) lost is 21.8, then the value
of a single quality-adjusted life day is ($5 million <divide> 21.8)
<divide> 365 = $630.\8\ The value of utility losses for nonfatal cases
of acute salmonellosis would therefore equal the losses of quality-
adjusted life days multiplied by $630.
---------------------------------------------------------------------------
\8\ FDA calculated the discounted life expectancy based on 36
years lost, which was approximately the loss in the injury studies
used to estimate the value of a statistical life. The workers were
around 40 years old. The rate of time preference used to discount
the years if life lost was 3 percent, often identified as the pure
rate of time preference. If 36 years are continuously discounted at
3 percent per year, the result is 21.8 years.
---------------------------------------------------------------------------
The value of a quality-adjusted life day is highly uncertain.
Therefore, FDA used a distribution, not a point estimate, to value the
utility losses from salmonellosis. FDA based the distribution on a most
likely value, a minimum, and a maximum. The most likely value, as shown
previously, was $630. FDA based the minimum value of a quality-adjusted
life day on the average daily gross domestic product per person, which
was approximately $80 per day in 1997 (($8 trillion <divide> 268
million) <divide> 365) (Ref. 9). FDA believes that the gross domestic
product per person understates willingness to pay, because most studies
of the value of a statistical life indicate that people are willing to
pay more than their average earnings to avoid all of the costs
associated with illnesses. FDA used gross domestic product per person
as a strict lower bound, because it is not plausible that people on
average would be willing to pay less than the value of output per
person. FDA based the maximum value of a quality-adjusted life day on
the literature on the value of a statistical life. In a survey of the
literature on the value of a statistical life, the most plausible
upper-bound estimate was approximately $8.4 million in 1997 prices
(Ref. 10). The upper-bound value of a quality-adjusted life day would,
therefore, be about $1,000 (($8.4 million <divide> 21.8) <divide> 365).
In addition to utility losses (lost productivity, pain, and
suffering), salmonellosis leads to direct medical expenditures. The
medical costs of acute salmonellosis vary from nothing for a mild case
to more than $9,000 for severe cases (Ref. 11). The medical costs for
chronic cases vary from $100 for resolved cases to $400 per year for
long-lasting cases (Ref. 12).
The total health costs per case are the sum of utility losses
(which include productivity and pain and suffering) and medical
expenditures. The total costs of SE illnesses would be the costs per
case of each severity multiplied by the number of illnesses of each
severity. For chronic illnesses that are not resolved, the utility
losses and medical costs stretch indefinitely into the future. FDA
calculated the present value of chronic medical expenditures and
utility losses with a discount rate of 7 percent. For example, medical
costs for reactive arthritis of $400 per year take a present value of
$5,400 for cases that last 44 years. The annual costs of reactive
arthritis are the net present value of the costs of new cases.
FDA based the distribution of cases by severity on the FoodNet
results for diarrheal illness, which indicate that 92 percent of
victims do not seek medical attention (Ref. 8). The FoodNet population
survey could not determine the causes of diarrhea for people who did
not seek treatment. Salmonella accounts for a large portion of isolates
of the people who do seek medical treatment for diarrhea and is
therefore assumed to account for a large portion of all diarrheal
illness. FoodNet used the fraction of all victims who seek medical
attention Consistent with the FoodNet approach, FDA assumed that 92
percent of victims of salmonellosis do not seek medical treatement. FDA
assumed that these cases were mild. Also, the agency assumed that 15
percent of those who sought medical attention for SE would be
hospitalized (Ref. 8).\9\ Of those who were hospitalized, about 5
percent would die. The case-fatality rate simulated by the model
equaled the probability of hospitalization multiplied by the
conditional probability of death given hospitalization. In most
simulations it was around 0.05 to 0.06 percent.\10\ The proportion of
acute cases that lead to post-salmonellosis reactive arthritis has been
estimated at 2 to 3 percent (Ref. 13) and 6.4 percent (Ref. 7). The
USDA SE risk assessment used a 2 to 4 percent range, with the mean
equal to 3 percent. FDA used the same mean, but with a 0 to 6 percent
range, reflecting the continued wide uncertainty associated with
reactive arthritis after acute
[[Page 36524]]
salmonellosis. FDA estimated the distribution of cases by severity for
reactive arthritis based on an outbreak study (Ref. 7). The lost
quality-adjusted life days for post Salmonella reactive arthritis are
also uncertain. With only one study of severity, FDA did not have
sufficient information to justify a point estimate; therefore, the
agency used a range of 0 to 0.42 for the daily loss of quality-adjusted
life days.
---------------------------------------------------------------------------
\9\ FDA revised the USDA SE risk assessment's distribution of
illnesses by severity in light of FoodNet results (Ref. 8). The
FoodNet results were not available at the time the risk assessment
was carried out. The revisions to the USDA SE risk assessment,
however, were small. FDA used 92 percent as the fraction of
illnesses that are mild, compared with 94 percent in the USDA SE
risk assessment. The USDA SE risk assessment assumed that 10 percent
were hospitalized. FoodNet found that 15 percent of all persons with
foodborne pathogens (and sought medical care) were hospitalized.
Because the FoodNet data were more recent, FDA assumed that 15
percent of those who consulted physicians for SE illness were
subsequently hospitalized.
\10\ Many sources (Ref. 13) state that about 0.1 percent of
cases of salmonellosis lead to death. The SE risk assessment,
however, generated lower case-fatality rates for SE. Because the
result was specific to SE, FDA used the lower estimate generated by
the SE risk assessment. FoodNet has not generated enough cases to
compute a meaningful case-fatality rate for SE illnesses.
---------------------------------------------------------------------------
Most of the deaths attributed to SE are elderly persons. Of the 27
deaths linked to foodborne SE disease outbreaks from 1988 through 1992,
23 fatalities (85 percent) occurred in nursing homes (Ref. 4). To
estimate benefits from preventing deaths, FDA assumed that the
probability that the victim was age 75 or older was 80 percent. The
loss of quality-adjusted life years is much less for victims age 75 and
older than for victims from rest of the population. The use of the same
value for the benefits of preventing fatalities among the general
population and preventing fatalities among those age 75 and older
(especially the nursing home population) would therefore not be
appropriate. FDA assumed that the average loss of discounted quality-
adjusted life years would be about 6 for victims age 75 and older and
about 26 for other victims.\11\
---------------------------------------------------------------------------
\11\ FDA divided victims into 2 age groups, those age 75 and
over and all others. FDA then assumed that within the 2 categories
of those age 75 and over and all other, the age of vitims of fatal
SE illnesses was the same as the age of victims of all cases of
salmonellosis in the 1996 through 1997 FoodNet data base. The
average age of salmonellosis victims under age 75 was about 24, for
an estimated average years of life lost of 53. If 53 years of life
lost are discounted at 3 percent per year, the result is 26
discounted years lost. The average age of salmonellosis victims age
75 and over was about 82, for an estimated average years of life
lost of 7. The discounted years of life lost (at 3 percent per year)
is 6.
---------------------------------------------------------------------------
4. Total Health Benefits
FDA estimated the effects of the proposed rule by combining the
distribution of effects on the number of illnesses with the
distribution of monetary values associated with the illnesses
prevented. The calculations involved two steps. In the first step FDA
used the USDA SE risk assessment model to estimate the number of
illnesses prevented. In the second step, FDA estimated the health
benefits associated with preventing those illnesses. The uncertainties
associated with several important parts of the formula led FDA to use
Monte Carlo computer simulations to estimate the total health benefits
of the proposed rule.\12\
---------------------------------------------------------------------------
\12\ The simulations all used Latin Hypercube sampling, which
first sorts the samples in stratified groups and then samples
equally from each group. The one-stage simulations contained 1,000
iterations. The two-stage simulations used 50 uncertainty
iterations, then 50 simulations of 500 iterations each.
---------------------------------------------------------------------------
In the Monte Carlo simulation, the computer repeatedly calculated
health benefits based on the following formula:
total health benefits = (number of mild cases prevented x $ per
case) + (number of moderate cases prevented x $ per case) + (number
of severe-acute cases prevented x $ per case) + (number of resolved
cases of arthritis prevented x $ per case) + (number of chronic
cases of arthritis prevented x $ per case) + (number of deaths
prevented x $ per death)
Instead of calculating the total health benefits once, based on
single estimates for each value in the formula, the simulation
calculated the health benefits over and over again. Each calculation
(or iteration) used different values, with the values drawn from
probability distributions. The probability distributions used in the
simulation are shown in Table 8 of this document.\13\
---------------------------------------------------------------------------
\13\ The agency selected distributions based on the underlying
data or common assumptions about the variables being modeled. The
main innovations were the use of Beta and Beta-Pert distributions.
The Beta distribution is part of the Bernoulli family of
distributions and is closely related to the Binomial. The Binomial
gives the distribution of the number of successes (s) in n trials if
the probability of success in each trial is p. The Beta shows the
distribution of the value of p when s successes occur in n trials.
The Beta-Pert distribution is a Beta distribution that has been
rescaled to run between values other than 0 and 1. The Beta-Pert
uses a minimum, maximum, and most likely value to generate a
distribution running from the minimum to the maximum, with a mean
equal to (minimum + (4 x most likely) + maximum) <divide> 6. In
contrast to the Triangular, which has a mean of (minimum + most
likely + maximum) <divide> 3, the Beta-Pert is less sensitive to
extreme values and generates more outcomes close to the mean. For
those reason, the agency used the Beta-Pert rather than the
triangular when only the minimum, most likely, and maximum values
were given. For discussions of the nature and use of these
distributions in Monte Carlo simulation see Ref. 14.
Table 8.--Distributions Used to Estimate the Monetary Value of Cases of
Salmonellosis Prevented
------------------------------------------------------------------------
Variable Distribution Source
------------------------------------------------------------------------
Number of illnesses Cumulative Ref. 2
prevented
Number of mild illnesses Binomial (number of Ref. 8
illnesses, 0.92)
Number of moderate Binomial (number at Ref. 8
illnesses least moderate, 0.85)
Number of severe, acute Binomial (number at Ref. 2
illnesses least severe, 0.95)
Number of deaths Residual Ref. 2
Value of a quality- Beta-Pert (80, 630, See text
adjusted life day ($) 1,000)
Fraction of illnesses Beta-Pert (0, 0.03, See text
resulting in reactive 0.06)
arthritis
Fraction of reactive Beta (10, 19) Ref. 7
arthritis cases
resolved
Quality-adjusted life Uniform (0, 0.42) Ref. 15
day lost per day of
reactive arthritis
Duration of mild Uniform (1,3) Ref. 6
illnesses
Duration of moderate Uniform (2, 12) Ref. 6
illnesses
Duration of severe Uniform (11, 21) Ref. 6
illnesses
Duration of resolved General (1, 121; uniform Ref. 7
reactive arthritis (2,7), uniform (8,28),
uniform (29,120);
0.2222, 0.6666, 0.1111)
Duration of chronic Normal (35, 3.5) Refs. 8 and 16
reactive arthritis
Distribution of deaths Binomial (number of Ref. 4
between elderly and deaths, 0.8)
general population of
deaths that are old
people
Discounted years of life 6.2 See text
lost per death of
elderly victims
Discounted years of life 26.4 See text
lost per death of other
victims
------------------------------------------------------------------------
Each simulation calculated health benefits 1,000 times. FDA
simulated the
[[Page 36525]]
effects of the proposed rule, the separate effects of the refrigeration
and labeling components of the proposed rule, and the effects of a
decline in retail storage time. Tables 9 and 10 of this document
present the 5th percentile, mean, median, and 95th percentile simulated
health benefits.
Table 9.--Total Annual Health Benefits From the Reduction in Salmonellosis Attributable to the Proposed Shell Egg Rules: USDA Salmonella Enteritidis
Risk Assessment Baseline and CDC Surveillance Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Variable 5th Percentile Median Mean 95th Percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
a. Modified USDA SE Risk Assessment Baseline
Illnesses prevented 12,369 65,801 115,848 407,064
Mild 11,391 60,479 106,580 374,192
Moderate 831 4,484 7,878 27,900
Severe 142 747 1,321 4,685
Arthritis--resolved 147 588 1,171 4,453
Arthritis--chronic 468 1,146 2,313 8,317
Death 6 39 69 246
Health benefits $86.7 million $703 million $1,700 million $6,610 million
b. CDC Surveillance Baseline
Illnesses prevented 7,032 25,132 36,937 107,230
Mild 6,476 23,092 33,982 98,607
Moderate 475 1,691 2,511 7,286
Severe 80 284 421 1,235
Arthritis--resolved 47 240 382 1,182
Arthritis--chronic 95 488 714 2,073
Death 3 16 22 66
Health benefits $49.2 million $303 million $501 million $1,679 million
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 10.--Total Annual Health Benefits From the Reduction in Salmonellosis Attributable to the Various Regulatory Approaches: USDA Salmonella
Enteritidis Risk Assessment Baseline and CDC Surveillance Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Variable 5th Percentile Median Mean 95th Percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reduced Retail Storage Time
--------------------------------------------------------------------------------------------------------------------------------------------------------
a. Modified USDA SE Risk Assessment Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented 0 162 3,000 13,908
Health benefits (millions) 0 $1.3 $29.8 $169
--------------------------------------------------------------------------------------------------------------------------------------------------------
b. CDC Surveillance Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented 0 88 997 4,998
Health benefits (millions) 0 $0.6 $2.1 $71.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Refrigeration to 7.2 C (45 F) Only
--------------------------------------------------------------------------------------------------------------------------------------------------------
a. Modified SE Risk Assessment Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented 997 34,791 86,512 340,387
Health benefits (millions) $9.6 $387 $1,260 $5,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
b. CDC Surveillance Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented 548 15,812 27,447 94,317
Health benefits (millions) $3.2 $163 $372 $1,476
--------------------------------------------------------------------------------------------------------------------------------------------------------
Labeling only
--------------------------------------------------------------------------------------------------------------------------------------------------------
a. Modified SE Risk Assessment Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented 6,500 23,097 32,191 84,147
Health benefits (millions) $43.8 $261 $444 $1,460
--------------------------------------------------------------------------------------------------------------------------------------------------------
b. CDC Surveillance Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illnesses prevented 3,339 10,008 10,531 17,672
[[Page 36526]]
Health benefits (millions) $20.2 $103 $150 $421
--------------------------------------------------------------------------------------------------------------------------------------------------------
5. Additional Benefits
a. Reduced risk from other pathogens. Refrigeration and thorough
cooking may reduce the risk from pathogens other than SE in eggs. These
other product-pathogen combinations include other serotypes of
Salmonella in eggs and pathogenic organisms in other foods. Because
other foods are often stored in the same refrigerator cases as shell
eggs, refrigerating shell eggs at 7.2 deg.C (45 deg.F) will reduce
the ambient temperature for all foods stored in the same case. If some
of these other foods are ready-to-eat potentially hazardous foods, the
requirement to refrigerate at 7.2 deg.C (45 deg.F) may generate
additional health benefits by reducing the illnesses associated with
those products.
b. Fewer recalls. The rule could lead to fewer recalls. Although
FDA had no recalls of shell eggs in the most recent year, recalls that
might have occurred in the future could be prevented by the proposed
rule.
6. Uncertainty of Estimated Benefits
As Table 9 of this document shows, the range of potential benefits
from the proposed rule is wide. With the USDA SE risk assessment
baseline, the 95th percentile benefits are 75 times the 5th percentile
benefits. With the CDC surveillance baseline, the 95th percentile
benefits are 35 times the 5th percentile benefits. However they are
calculated, the estimated benefits from the proposed rule are
uncertain.
The uncertainty comes from many sources. Some uncertainty comes
from the ordinary variation of known factors. For example, the duration
and severity of the illnesses associated with acute salmonellosis vary.
The age of victims also varies. Many of the estimated factors affecting
the size of health costs, such as the division of deaths between the
elderly and younger people, the severity of reactive arthritis, and the
number of illnesses that progress from mild salmonellosis to more
serious illnesses can vary from year to year. Because of this ordinary
variability, it is impossible to generate a single number representing
the effects of the proposed rule. As the variable factors change, the
effects of the proposed rule change.
The wide range of outcomes shown in Table 9 of this document,
however, is not generated solely by the variability of known factors
such as ages of victims and severity of illness. Much of the range in
Table 9 of this document comes from uncertainty about the values of
several elements of estimated health benefits. Fundamental uncertainty
exists in that the agency does not know and may never know some of
those values. The principal fundamental uncertainties associated with
the benefit assessment are:
<bullet> Uncertainty about the baseline number of illnesses
associated with SE in shell eggs,
<bullet> Uncertainty about the proportion of cases of salmonellosis
that lead to reactive arthritis,
<bullet> Uncertainty about the number of illnesses likely to be
prevented by the proposed rule, and
<bullet> Uncertainty about the monetary value of illnesses caused
by SE in shell eggs.
The effects of these uncertainties can be characterized with a
series of figures.\14\ In Figure 1 of this document, the agency shows
how the distribution of estimated health benefits changes when the
baseline distribution of estimated SE illnesses associated with shell
eggs changes. As the figure shows, there is much overlap, but the USDA
SE risk assessment baseline leads to higher estimated benefits than
does the CDC surveillance baseline. The figure also shows that even if
the agency knew which distribution the USDA SE risk assessment or the
CDC surveillance was the appropriate baseline, large uncertainty would
remain. The ranges of outcomes for each baseline distribution cover
several billion dollars.
---------------------------------------------------------------------------
\14\ The next several paragraphs and the figures are based on
Ref. 14.
---------------------------------------------------------------------------
As FDA acquires more information, the uncertainties caused by the
agency's lack of knowledge of the incidence of reactive arthritis
caused by salmonellosis, the effectiveness of the proposed rule, and
the monetary value of the illnesses caused by SE may be reduced but
will not be eliminated. Better estimates of the incidence of arthritis
are likely to become available in the future, but some uncertainty will
remain. The agency will never precisely know the effectiveness of the
rule or the average monetary value of preventing a case of
salmonellosis. The uncertainty about the effects of policy stem from
the many other factors that affect the number of illnesses, including
other policies, changes in consumer behavior (perhaps because of
education), changes in the pathogen itself, and possible technological
changes in processing and other sectors of the industry. All of these
changes will affect the baseline distribution of estimated illnesses
and, therefore, change the distribution of estimated effects of the
proposed rule. The other remaining uncertainty, the monetary value of
preventing a case, is based on estimates of the average person's
willingness to pay to avoid a small increase in the probability of
illness, injury, or death. FDA believes that although it is possible to
identify a range of plausible values for the willingness to pay, the
true average willingness to pay is probably unknowable.
FDA illustrates the effects of the principal uncertainties in
Figures 2 and 3 of this document. In Figure 2 of this document, the
uncertainties are assumed away. In other words, Figure 2 of this
document is constructed on the assumption that FDA knows the correct
baseline, knows the incidence of post-Salmonella reactive arthritis,
knows the effectiveness of the proposed rule, and knows the value of a
statistical life year. If FDA knew those values, one possible
distribution of health benefits would be that shown in Figure 2 of this
document. In this figure, the values of the main uncertain variables
are fixed.\15\
---------------------------------------------------------------------------
\15\ The values for the baseline illnesses, incidence of
reactive arthritis, effectiveness of the proposed rule, and the
monetary value of preventing illnesses were randomly selected and
then fixed for the simulation illustrated in Figure 2 of this
document.
---------------------------------------------------------------------------
The problem with Figure 2 of this document is that FDA does not
know if the selected values of the uncertain variables (which were
chosen randomly from the distributions of possible values) are correct.
Different values for the principal uncertainties would generate
different distributions. Ten values for the uncertain variables would
generate 10 different distributions, not one as in Figure 2 of this
document. Figure 3 of this document contains the distribution
illustrated in Figure 2 of
[[Page 36527]]
this document, as well as nine others--four more from the CDC
surveillance baseline and five from the USDA SE risk assessment
baseline. The agency does not know which of the 10 distributions
pictured in Figure 3 of this document is correct. Indeed, the correct
distribution could be another one entirely. In Figure 4 of this
document, 100 different values of the uncertain variables generate 100
different simulated distributions of health benefits. The best estimate
of health benefits is somewhere in the thick mass of Figure 4 of this
document, but it is impossible to tell where.
The uncertainty does not mean that nothing can be concluded about
the benefits of the proposed rule. The distributions shown in Figures 3
and 4 of this document tend to be of two types: (1) Narrow
distributions concentrated in the low end of the benefits scale, and
(2) wide distributions encompassing everything from small benefits to
enormous benefits. The narrow distributions bunched at the low end of
the scale represent large health benefits. For example, the 5th
percentile benefits from the CDC surveillance baseline are, as shown in
Table 9 of this document, approximately $50 million per year--a large
health benefit. The distributions shown in Figures 1 through 4 of this
document suggest that although there is some small probability of small
benefits, most of the values generated by the simulations represent
large public health benefits.
BILLING CODE 4160-01-F
[[Page 36528]]
[GRAPHIC] [TIFF OMITTED] TP06JY99.014
BILLING CODE 4160-01-C
[[Page 36529]]
F. Costs
The costs of the proposed rule include the redesign of egg cartons,
the other costs necessary to add the safe handling label to egg
cartons, the additional equipment and energy costs to achieve the
specified refrigeration temperatures for shell eggs, and the costs of
changes in consumer practices resulting from the safe handling label.
1. Types of Establishments Covered
The labeling provision and the refrigeration provision will affect
different parts of the food industry.
a. Labeling provision coverage. The labeling provision covers
shell eggs sold in labeled cartons or in cases for bulk sale. The
labeling provision would affect all egg packers, processors, and
distributors (hereinafter collectively referred to as ``packers'').
There are 669 packers registered with USDA (Ref. 17).
b. Refrigeration provision coverage. The refrigeration provision
covers all retail establishments that sell or otherwise provide eggs as
products to consumers (such as grocery stores selling cartons of eggs)
or that use shell eggs in the production of other products sold or
provided to consumers (such as hospitals providing prepared eggs to
patients). These retail establishments include grocery stores,
restaurants, health food stores, convenience stores, other retail
establishments, as well as such institutions as prisons, nursing homes,
schools, hospitals, and the military establishments.
2. Cost Estimates by Requirement and Type
a. Egg container labels. The proposed labeling provision requires
shell egg containers to have a safe handling statement. The cost of the
proposed provision may be estimated by measuring the additional costs
either where they first occur--at the carton manufacturers--or at the
segments of the industry that bear the costs of relabeling. Because the
egg industry, which includes egg producers, carton manufacturers, egg
distributors, and retailers is competitive, the carton manufacturers
will likely pass some or all of the costs of relabeling on to
packers.\16\ The cost of relabeling if measured correctly will be the
same no matter where in the carton market they are measured; therefore,
the agency used the most readily accessible cost information for its
estimates, which came from the carton manufacturers. It is irrelevant
for purposes of cost estimation that packers are covered by the rule
and carton manufacturers are not, because the costs are the same
wherever measured.
---------------------------------------------------------------------------
\16\ If both segments of the egg industry are competitive, the
measured costs of carton manufactures could equal the costs borne by
packers. Competition is a reasonable assumption for the packers
because there are at least 669 firms in the industry. Competition
may also be assumed for the carton manufacturers because their
segment of the industry is contestable, meaning that it is a market
with the potential for firm entry and exit. The economic theory of
contestable markets suggests that when there is relatively free
entry and exit into the market, prices will be set just high enough
to cover the additional costs of production caused by the rule. The
carton manufacturing industry four-firm concentration ratio is 85
percent, which is high. Despite a high concentration ratio, carton-
manufacturing firms will still set carton prices at competitive
levels or risk entry from new competitors. Anecdotal evidence exists
that a new carton manufacturing firm did attempt to enter the market
a few years ago (Ref. 18). It failed to be profitable and left the
market shortly after entering, implying that the existing industry
structure is competitive. The agency does not expect existing firms
in the industry to exit as a consequence of the rule, because the
increased costs from the rule are one-time costs. The remaining
question is how those one-time costs will be split between carton
manufacturers and packers. Although the question is important from
the standpoint of the distribution of the burden of labeling costs,
it does not affect the size of those costs.
---------------------------------------------------------------------------
The agency assumed that the carton manufacturer's additional costs
or relabeling would be for administration, inventory disposal, and
label redesign. The one-time costs include the costs of replacing
existing printing plates (if the planned useful life of plates expires
after the start of the compliance period), the loss of existing carton
inventory (if the inventory does not meet label requirements at the
start of the compliance period), and an additional administrative
expense to interpret and execute the firm's compliance with the rule.
The agency does not expect any firms in the industry to shut down as a
consequence of the rule, because the increased costs from the rule are
one-time costs that are not expected to be large enough to make
shutting down the best option.
FDA calculated labeling costs with the following formula:
labeling costs = ($ administrative costs per firm x number of
affected firms) + ($ value of cartons manufactured x disposal
percentage of carton inventory) + ($ redesign cost per label x
number of affected labels)
FDA calculated, separately, each of the three costs:
Administrative, inventory disposal, and label redesign.
i. Administrative costs. To estimate the administrative costs, the
agency used the following formula:
AC = A x F
where:
AC = administrative costs.
A = administrative costs per firm.
F = number of firms in the industry.
Administrative costs include the firm's additional management and
other overhead expenses needed to implement the proposed rule. Total
administrative cost for the industry will be the administrative cost
per firm multiplied by the number of firms that manufacture egg
cartons. The Food Serving and Packaging Institute supplied information
on the number of carton manufacturers (Ref. 19). Table 11 of this
document shows FDA's estimates of the administrative cost per firm for
different compliance periods. Administrative costs tend to decrease
with the length of the compliance period, because longer compliance
periods allow carton producers more time to incorporate the mandated
label changes into regularly planned design, equipment, and personnel
changes. In addition, fewer overtime hours would be required and
possibly a lower level of management would be involved. Industry
sources provided the agency with estimates of the cost per firm for a
12 month-compliance period (Refs. 19 through 24). FDA inferred the
amounts shown for the 6-month and 18-month compliance periods from the
estimate for the 12-month compliance period. The agency assumed that a
firm would require more hours with a shorter compliance period, and
fewer hours with a longer compliance period.
Table 11.--Administrative Costs (estimated for carton manufacturers)
----------------------------------------------------------------------------------------------------------------
Compliance Period 6 Months 12 Months 18 Months
----------------------------------------------------------------------------------------------------------------
Number of firms 8 8 8
Cost per firm $35,000 $25,000 $15,000
Total $280,000 $200,000 $120,000
----------------------------------------------------------------------------------------------------------------
[[Page 36530]]
ii. Inventory disposal costs. To estimate the inventory disposal
costs, the agency used the following formula:
ID = IV x I
where:
ID = inventory disposal costs.
IV = total value of egg cartons manufactured annually.
I = lost carton stock as a percent of industry volume.
Inventory disposal costs are the costs of discarding otherwise
useable carton inventory that does not comply with the new rule. The
agency estimated inventory disposal costs by multiplying the total
dollar value of the cartons produced annually by an estimate of the
percentage of stock left over after the proposed rule would take
effect.
Many egg packers have carton turnover rates of once or twice a
week, while other firms turn over their carton stock once or twice a
year. Egg packers, whatever their rate of turnover, never hold a large
number of cartons in inventory. Inventory disposal costs tend to
decrease with longer compliance periods, because longer compliance
periods allow packers to use up their carton inventory. Based on
information provided by industry sources, the agency estimated the
likely percentage of stock remaining for three compliance periods: 6
months, 12 months, and 18 months (Refs. 19 through 24). Table 12 of
this document shows FDA's estimate of the inventory disposal costs.
Table 12.--Inventory Disposal Costs
----------------------------------------------------------------------------------------------------------------
Compliance Period 6 Months 12 Months 18 Months
----------------------------------------------------------------------------------------------------------------
Total industry volume $150,000,000 $150,000,000 $150,000,000
Lost stock as percent of 2 percent 1 percent 0.5 percent
industry
Total inventory disposal $3,000,000 $1,500,000 $750,000
cost
----------------------------------------------------------------------------------------------------------------
iii. Label redesign costs. To calculate the label redesign costs
the agency used the following formula:
LRC = $ per SKU x SKU's
where:
LRC = label redesign cost.
$ per SKU = cost per stock keeping unit.
SKU's = number of stock keeping units.
Label redesign costs are associated with the redesign of the
carton's printed label that would be needed to incorporate the proposed
safe handling statement. FDA estimated the costs by multiplying the
number of affected separable labels on cartons or containers, referred
to as stock keeping units (SKU's), by the estimated cost per SKU. The
total number of SKU's for the industry is about 20,000 (Refs. 19
through 24). Although the labels affected would only be those without
safe handling statements consistent with the proposed rule, the agency
assumed that because the proposed rule requires specific language, no
existing statements would be acceptable. Therefore, the agency
estimated the costs based on the assumption that all labels would be
changed.
Label redesign costs decrease with a longer compliance period,
partly because the carton's design, printing plates, and other capital
investments must be changed periodically regardless of regulatory
initiatives. If the compliance period were as long as the useful life
of the existing carton design, the label redesign costs of the proposed
rule would be greatly reduced.
Redesign costs are lower, the more surface area on the carton, and
are higher, the less surface area on the carton. Surface area is a
major problem for labeling egg cartons, because of the relative absence
of large, flat surfaces suitable for labels. When the surface area is
not large enough to accommodate the proposed safe handling statement,
the costs of redesign may also include redesigning the carton itself.
Surface area is a significant issue for pulp paper carton
manufacturers, because virtually all pulp paper cartons are ``view
style'' cartons. View style cartons have a significantly reduced
printable area. The additional cost of carton redesign to the pulp
paper sector of the industry would put it at a competitive
disadvantage. The alternative to pulp paper as carton material is foam.
Foam cartons can more easily accommodate the proposed safe handling
statement than can pulp paper cartons and, therefore, the cost of
redesign would be less for foam cartons. The agency estimated the costs
to redesign the labels per SKU, for both the pulp paper and foam carton
segments of the industry, from information provided by industry sources
(Refs. 19 through 24). Table 13 of this document shows a summary of the
estimated costs for the foam carton segment of the industry for three
compliance periods. Table 13a of this document shows the estimated
costs for the pulp paper segment for three compliance periods. Table
13b of this document shows the total cost for both segments of the
industry for the three compliance periods.
Table 13.--Foam Carton Label Redesign Costs
----------------------------------------------------------------------------------------------------------------
Compliance Period 6 Months 12 Months 18 Months
----------------------------------------------------------------------------------------------------------------
Cost per SKU $500 $250 $100
SKU's 10,000 10,000 10,000
Subtotal foam carton $5,000,000 $2,500,000 $1,000,000
----------------------------------------------------------------------------------------------------------------
Table 13a.--Pulp Paper Carton Label Redesign Costs
----------------------------------------------------------------------------------------------------------------
Compliance Period 6 Months 12 Months 18 Months
----------------------------------------------------------------------------------------------------------------
Cost per SKU $1,000 $750 $500
SKU's 10,000 10,000 10,000
Subtotal pulp paper carton $10,000,000 $7,500,000 $5,000,000
label redesign
----------------------------------------------------------------------------------------------------------------
[[Page 36531]]
Table 13b.--Total Industry Label Redesign Costs
----------------------------------------------------------------------------------------------------------------
Compliance Period 6 Months 12 Months 18 Months
----------------------------------------------------------------------------------------------------------------
Subtotal foam carton label $5,000,000 $2,500,000 $1,000,000
redesign
Subtotal pulp paper carton $10,000,000 $7,500,000 $5,000,000
label redesign
Total label redesign cost $15,000,000 $10,000,000 $6,000,000
----------------------------------------------------------------------------------------------------------------
iv. Summary of costs to incorporate safe handling labeling. Table
14 of this document summarizes the estimated costs to incorporate safe
handling statements on egg cartons.
Table 14.--Estimated Total Industry Costs to Incorporate Safe Handling Statements
----------------------------------------------------------------------------------------------------------------
Compliance Period 6 Months 12 Months 18 Months
----------------------------------------------------------------------------------------------------------------
Total administrative costs $280,000 $200,000 $120,000
Total inventory disposal costs $3,000,000 $1,500,000 $750,000
Total label redesign costs $15,000,000 $10,000,000 $6,000,000
Total labeling costs $18,000,000 $12,000,000 $7,000,000
----------------------------------------------------------------------------------------------------------------
b. Refrigeration costs. The refrigeration provision of the proposed
rule requires retailers to refrigerate shell eggs at 7.2 deg.C (45
deg.F) or less within 6 months from the date of publication of the
final rule. The refrigeration provision potentially generates two
additional costs to retailers: (1) An additional one-time capital cost
to replace existing refrigeration equipment if the existing equipment
is unable to cool to the proposed temperature, and (2) the cost of the
additional energy needed to achieve and maintain the lower cooling
temperature.
i. Equipment costs to refrigerate at 7.2 deg.C (45 deg.F). FDA
used the following formula to estimate the additional equipment costs
to refrigerate eggs at 7.2 deg.C (45 deg.F):
C = R x $ per R
where:
C = cost to refrigerate at 7.2 deg.C (45 deg.F).
R = number of retailers that would incur an additional cost.
$ per R = cost per retailer.
The baseline number of establishments affected was the number of
retailers that were not already required to refrigerate at 7.2 deg.C
(45 deg.F) by State or local requirements, and who did not have
refrigerators cooling at 7.2 deg.C (45 deg.F).
The number of establishments and the additional refrigeration cost
per establishment were both uncertain. The agency did not know: (1) How
many and which retail establishments sell eggs, (2) the temperature at
which the eggs are refrigerated in the establishments that sell eggs,
(3) the age and temperature capability of the refrigerators, or (4) the
price of refrigerators and components. FDA used ranges for the
uncertain values and then estimated costs with Monte Carlo computer
simulations similar to those described in section I.E of this document.
To estimate the total number of retail establishments likely to be
affected by the refrigeration provision, the agency first determined
the number of establishments in each State with data from Dun's Market
Identifiers (Ref. 25).\17\ If a State had already adopted the 1997 Food
Code as issued by FDA or a similar code that required refrigeration to
the proposed temperature, FDA assumed that there would be no additional
equipment costs attributable to the proposed rule. The agency assumed
that retailers in States with a refrigeration rule that met or exceeded
the Federal requirement would incur no additional equipment costs.
---------------------------------------------------------------------------
\17\ See Table 15 of this document.
---------------------------------------------------------------------------
Table 15 of this document illustrates how the agency estimated the
number of establishments likely to be affected by the requirement to
refrigerate eggs at 7.2 deg.C (45 deg.F). Column A of Table 15 of
this document lists each State. Column B shows the maximum allowable
refrigeration temperature for each State, where there is a State
requirement.\18\ Column C shows the total number of grocery or similar
stores per State. Using Standard Industrial Classification (SIC)
categories, the retail establishments included in this column are
grocery stores (SIC 5411), poultry stands (SIC 5144), fruit and
vegetable markets (SIC 5431), and dairy products stores (SIC 5451).
Column D shows the number of grocery or similar stores that would be
required to lower their refrigeration temperatures because of the
proposed Federal provision. The agency assumed that between 0 and 100
percent of all establishments without a 7.2 deg.C or lower
refregeration requirement, with 33 percent the most likely value, would
be required to reduce their refrigeration temperatures.\19\ FDA
combined the estimated number of establishments refrigerating at 7.2
deg.C in States without a requirement with the number of establishments
in the 37 States (and the District of Columbia) with such a
requirement, the result was that 95 percent of all establishments were
estimated to refrigerate shell eggs at 7.2 deg.C or less. The agency
based the assumption on the belief that most establishments in States
that did not have a refrigeration rule would nevertheless refrigerate
eggs at 7.2 deg.C (45 deg.F) or less. FDA assumed that these
establishments would either be required to refrigerate by a local rule
or would choose to refrigerate at 7.2 deg.C (45 deg.F) in order to
satisfy consumer demand. The agency seeks comments on this assumption.
Column E shows the total number of restaurants (eating places) (SIC
5812) per State. Column F shows the number of restaurants that would be
required to lower their refrigeration temperatures because of the
proposed rule. The agency assumed that the most likely fraction of
restaurants that would be required to lower their temperature would
also be 33 percent of the total restaurants in those States without a
State requirement. Column G shows the total number of institutions that
serve eggs to consumers in each State. Institutions include prisons,
military establishments, hospitals, nursing homes, public and private
schools grades kindergarten through 12, colleges, and universities.
Column H
[[Page 36532]]
shows the number of institutions that would be required to lower
refrigeration temperatures because of the proposed rule. Column I shows
the total number of retailers, including grocery stores, restaurants,
and institutions in each State. Column J shows the total number of
retailers that would be required to lower their refrigeration
temperatures because of the proposed rule.
---------------------------------------------------------------------------
\18\ If a State has no temperature requirement, FDA used 100 as
the default value.
\19\ In the calculations shown in Table 15 of this document, FDA
used a Beta-pert distribution (0,33,1). For an explanation (see Ref.
14).
Table 15.--Estimated Effects of Refrigeration Provision by State
----------------------------------------------------------------------------------------------------------------
A B C D E F G H I J
----------------------------------------------------------------------------------------------------------------
Total Affected Total
State State Temp. Grocery Grocery Total Affected Total Affected Total Affected
Requirement Stores Stores Restaurants Restaurants Institutions Institutions Retail Retail
----------------------------------------------------------------------------------------------------------------
AL 45 4,142 0 5,957 0 2,443 0 12,542 0
AK 100 327 126 971 375 664 257 1,962 759
AZ 60 1,990 769 6,970 2,695 1,760 681 10,720 4,145
AR 45 2,341 0 3,702 0 1,883 0 7,926 0
CA 41 16,230 0 57,209 0 14,880 0 88,319 0
CO 45 1,733 0 7,260 0 2,369 0 11,362 0
CT 45 2,192 0 6,317 0 1,870 0 10,379 0
DE 41 467 0 1,340 0 375 0 2,182 0
DC 45 516 0 1,651 0 390 0 2,557 0
FL 41 10,223 0 27,256 0 5,629 0 43,108 0
GA 41 6,287 0 12,229 0 3,454 0 21,970 0
HI 45 596 0 2,187 0 450 0 3,233 0
ID 45 790 0 2,017 0 917 0 3,724 0
IL 41 5,916 0 19,158 0 7,358 0 32,432 0
IN 45 3,023 0 8,692 0 3,740 0 15,455 0
IA 45 2,214 0 4,783 0 2,755 0 9,752 0
KS 60 1,595 617 4,183 1,617 2,637 1,020 8,415 3,254
KY 45 3,550 0 5,806 0 2,449 0 11,805 0
LA 45 4,317 0 6,630 0 2,737 0 13,684 0
ME 100 1,396 540 2,328 900 1,143 442 4,867 1,882
MD 45 2,982 0 8,162 0 2,442 0 13,586 0
MA 45 3,467 0 11,819 0 3,609 0 18,895 0
MI 40 5,716 0 14,321 0 5,632 0 25,669 0
MN 45 2,795 0 6,561 0 3,022 0 12,378 0
MS 41 3,332 0 3,806 0 11,726 0 18,864 0
MO 60 3,440 1,330 7,876 3,045 3,998 1,546 15,314 5,921
MT 41 642 0 1,589 0 1,318 0 3,549 0
NE 45 1,186 0 2,515 0 2,239 0 5,940 0
NV 100 704 272 2,431 940 652 252 3,787 1,464
NH 100 866 335 2,407 931 846 327 4,119 1,593
NJ 60 5,619 2,173 15,234 5,890 4,133 1,598 24,986 9,661
NM 100 1,419 549 2,801 1,083 1,187 459 5,407 2,091
NY 45 14,757 0 35,667 0 8,207 0 58,631 0
NC 45 6,635 0 11,316 0 3,559 0 21,510 0
ND 41 883 0 984 0 894 0 2,761 0
OH 45 5,988 0 17,434 0 6,886 0 30,308 0
OK 60 2,741 1,060 4,877 1,886 3,071 1,187 10,689 4,133
OR 45 2,204 0 6,088 0 1,951 0 10,243 0
PA 45 7,868 0 19,864 0 7,006 0 34,738 0
RI 41 642 0 2,033 0 614 0 3,289 0
SC 45 3,827 0 6,315 0 1,888 0 12,030 0
SD 41 570 0 1,236 0 1,043 0 2,849 0
TN 100 5,264 2,035 8,634 3,338 2,954 1,142 16,852 6,516
TX 41 15,307 0 31,907 0 10,488 0 57,702 0
UT 41 956 0 2,911 0 1,060 0 4,927 0
VT 100 719 278 1,064 411 564 218 2,347 908
VA 45 4,872 0 10,483 0 3,229 0 18,584 0
WA 45 3,467 0 10,438 0 3,085 0 16,990 0
WV 100 1,703 658 2,349 908 1,414 547 5,466 2,114
WI 40 2,635 0 7,688 0 3,931 0 14,254 0
WY 45 309 0 926 0 586 0 1,821 0
Total 183,360 10,743 448,382 24,022 163,137 9,676 794,87 44,440
9
----------------------------------------------------------------------------------------------------------------
The agency assumed that each retailer not already in compliance
with a State or local refrigeration rule would incur additional
equipment costs in order to comply with the proposed rule. The agency
also assumed that each retail establishment would have only one
refrigerator that would be affected by the proposed rule. The equipment
cost would be either the cost to replace old refrigerator components
before the end of the component's useful life or the cost to purchase a
new refrigerator after deducting the remaining useful value of the old
refrigerator. Not all current refrigerators or refrigerator components
such as compressors and coils are capable of cooling to the proposed
lower temperatures. Older cooling equipment may not be able to achieve
lower cooling temperatures, or if able to do so
[[Page 36533]]
cannot maintain a uniform temperature. Many older compressors lack
sufficient horsepower (compressor power) and many older refrigeration
coils lack the surface area for sufficient heat exchange. Attempting to
meet the temperature requirements of the proposed rule with under-
capacity refrigerators in a multishelf display case can cause both
under-cooling and over-cooling of the products (Ref. 26). Excessively
cold temperatures for products located at the top of display shelves
can occur when the bottom shelves are targeted to meet the temperature
requirement; excessively warm temperatures can occur at the bottom if
the top shelves are targeted to meet the temperature requirement.
Furthermore, products must be cooled to an even lower temperature than
the proposed rule to ensure that at the end of the defrost cycle, when
there is no cooling, the refrigerator does not exceed the allowable
temperature. Maintaining a uniformly cool temperature in display cases,
then, is not feasible when refrigerator components lack sufficient
capacity. Because attempting to maintain the temperature with
insufficient cooling capacity can adversely affect the safety, quality,
and shelf life of the food products, some establishments would be
forced to purchase new refrigerators or components.
All commercial refrigerators eventually wear out and have to be
replaced. The cost of replacement resulting from the proposed rule only
occurs if replacement becomes necessary before the planned end of the
useful life of the existing equipment. Commercial refrigeration
industry sources say that the useful life of a commercial refrigerator
can be as long as 20 years, although on average commercial
refrigerators last about 10 years (Ref. 27). The life of the
refrigerator matters, because the longer the useful life of existing
refrigerators, the greater will be the foregone capital cost borne by
firms compelled to replace them. It follows that the longer the
compliance period, the smaller will be the useful life left at the time
of replacement and the smaller will be the cost borne by firms.
Retailers whose equipment could not reach the proposed safe cooling
temperature and who were not planning to purchase a refrigerator or
components during the compliance period would be forced to make a one-
time purchase of refrigerators or components. The difference between
the planned capital replacement cost without the proposed rule and the
capital cost with the proposed rule would be the equipment cost of the
refrigeration provision (the new equipment cost minus the salvage value
of the old equipment). It would be a one-time cost, because all future
purchases would occur at the end of the useful life of the refrigerator
and not in response to the proposed rule.
The agency assumed that only one refrigerator per retailer would be
potentially affected by the provision, because even the largest retail
outlets (such as supermarkets) rarely have more than one refrigerator
or display case exclusively devoted to selling eggs. Some large grocery
stores might have more than one refrigerator containing eggs such as
when eggs are displayed in island refrigerators for marketing purposes
or in display cases in the dairy section. The agency assumed that for
every retailer with more than one refrigerator devoted to eggs, there
would be one, probably a smaller retailer, who did not sell eggs.
The agency assumed that additional equipment costs per affected
establishment varied from close to 0 to approximately $6,000. This
range of estimated equipment costs combined two separate ranges, one
for small equipment costs and one for large equipment costs. The small
equipment costs ranged from 0 to $1,000, with $700 the most likely
value. The large equipment costs ranged from $1,000 to $6,000, with
$4,000 the most likely value. FDA assumed that equipment expenditures
would be highly correlated with the size of establishment, so that
small firms would have small equipment costs and large firms would have
large equipment costs. With 80 percent of establishments classified as
small, the assumption that costs and establishment size were correlated
led to the assumption that 80 percent of refrigeration costs would fall
in the small range and 20 percent would fall in the large range.\20\
FDA recognized, however, that the correlation would likely not be
perfect; some small firms could have large equipment costs and some
large firms could have small equipment costs.
---------------------------------------------------------------------------
\20\ In the simulation used to estimate total equipment costs,
the distributions of small and large equipment costs were
characterized as Beta-pert distributions with small costs
distributed as Beta-Pert (0,700,1000) and large costs distributed as
Beta-pert (1000,4000,6000). The two distributions were combined with
a discrete distribution that assumed that the probability that costs
were small was 0.8 and the probability that costs were large was
0.2. The full distribution for the simulation was: Discrete ((Beta
Pert (0,700,1000), Beta-Pert (1000,4000,6000)), (0.8, 0.2)).
---------------------------------------------------------------------------
FDA estimated total equipment costs with a Monte Carlo simulation
of 1,000 calculations (or iterations). Each calculation consisted of an
estimate of the number of affected establishments multiplied by an
estimate of the equipment cost per establishment. The 5th percentile,
median, mean, and 95th percentile of simulated total equipment costs
are shown in Table 16 of this document.
Table 16.--Total Annual Equipment Costs to Refrigerate to 7.2 C (45 F)
----------------------------------------------------------------------------------------------------------------
5th Percentile Median Mean 95th Percentile
----------------------------------------------------------------------------------------------------------------
$7,000,000 $31,000,000 $56,000,000 $228,000,000
----------------------------------------------------------------------------------------------------------------
ii. Energy costs. The additional energy costs likely to be caused
by the proposed rule appear to be negligible, because new commercial
refrigerators are significantly more energy efficient than older
refrigerators. As retailers replace their existing equipment to comply
with the rule, the agency expects retailers to adopt energy-efficient
technologies, which will reduce their energy consumption by
approximately the amount of additional energy used to lower their
existing refrigeration temperature to 7.2 deg.C (45 deg.F). FDA
therefore assumed that the proposed rule would lead to no additional
energy costs.
iii. Shares of estimated refrigeration costs by type of
establishment. The shares of total refrigeration costs by type of
establishment are shown in Table 17 of this document. FDA assumed that
equipment costs accounted for all refrigeration costs of the proposed
rule.
[[Page 36534]]
Table 17.--Refrigeration Cost Shares by Type of Establishment
------------------------------------------------------------------------
Share of Total Refrigeration Cost
Type of Establishment (in percent)
------------------------------------------------------------------------
Grocery stores 25
Restaurants 54
Institutions 21
------------------------------------------------------------------------
iv. Comparison with other studies of estimated refrigeration
costs. The agency found only two studies, by Dunn and Madison (Ref. 28)
and by Madison (Ref. 29), that have estimated the costs of a similar
proposed refrigeration rule. Dunn and Madison estimated the statewide
impact from lowering the refrigeration requirement from 55 deg.F to 45
deg.F. They assumed that the statewide average refrigeration
temperature before the proposed rule was 55 deg.F. They estimated the
most likely cost to egg packers to reduce refrigerator temperatures
from 55 deg.F to 45 deg.F to be $0.05 per dozen eggs, but that the
cost could be as low as $0.02 per dozen. The smaller cost held when the
eggs were produced from larger flocks and were cooled in refrigerators
with larger capacity. The estimates were based on the cost to modify
the existing cooling systems to increase cooling capacity. Although egg
packers and not retailers incurred the additional costs, the agency
believes that the costs to one segment of the industry would be passed
on to a downstream segment and would be nearly equal on a per carton
basis.\21\
---------------------------------------------------------------------------
\21\ The costs could be passed on if all segments of the
industry were competitive.
---------------------------------------------------------------------------
The Dunn and Madison estimates can be compared to the agency's
estimate of the cost to refrigerate eggs at 7.2 deg.C (45 deg.F). The
higher estimate of refrigeration costs (Refs. 28 and 29) of $0.05 per
dozen eggs equals $0.08 per dozen eggs in current (1998) dollars. The
lower estimate of refrigeration costs (Refs. 28 and 29) of $0.02 per
dozen eggs equals $0.032 per dozen eggs in current (1998) dollars. The
agency multiplied both the lower and the higher estimates of cost per
dozen eggs by the agency's estimate of the total number of eggs sold at
retail in States without a current refrigeration rule.
For the comparison with the Dunn and Madison estimates, FDA assumed
that there were no regional or State differences in consumption per
person of shell eggs across the country. The agency got the number of
shell eggs produced and consumed nationwide from the USDA Economics
Research Service (Ref. 30). The agency assumed that the national
consumption of eggs equaled to the national production of eggs after
subtracting for net exports, breakers, and diverted eggs. FDA further
assumed that a State's share of the national consumption of eggs
equaled the State's share of national population. Table 18 of this
document shows the resulting estimate of the number of affected eggs
sold in States that do not currently meet the proposed refrigeration
provision.
Table 18.--State Egg Consumption
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Eggs Consumed
State State Temperature Requirement (Millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama 45
Alaska None 106
Arizona 60 691
Arkansas 45
California 41
Colorado 45
Connecticut 45
Delaware 41
District of Columbia 45
Florida 41
Georgia 41
Hawaii 45
Idaho 45
Illinois 41
Indiana 45
Iowa 45
Kansas 60 455
Kentucky 45
Louisiana 45
Maine None 223
Maryland 45
Massachusetts 45
Michigan 40
Minnesota 45
Mississippi 41
Missouri 60 936
Montana 41
Nebraska 45
Nevada None 239
New Hampshire None 200
New Jersey 60 1,405
[[Page 36535]]
New Mexico None 285
New York 45
North Carolina 45
North Dakota 41
Ohio 45
Oklahoma 60 579
Oregon 45
Pennsylvania 45
Rhode Island 41
South Carolina 45
South Dakota 41
Tennessee None 906
Texas 41
Utah 41
Vermont None 103
Virginia 45
Washington 45
West Virginia None 327
Wisconsin 40
Wyoming 45
Total\1\ 6,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Rounded
The agency used the following formula to calculate the cost to
refrigerate at 7.2 deg.C (45 deg.F) using Dunn and Madison's
estimated average cost per dozen eggs:
RC = DE x $ per D
where:
RC = cost to refrigerate to 7.2 deg.C (45 deg.F).
DE = total number of eggs (in dozens) in States where eggs not
currently refrigerated to 7.2 deg.C (45 deg.F).
$ per D = cost per dozen eggs to refrigerate to 7.2 deg.C (45
deg.F).
The agency estimated that 6.5 billion eggs were not refrigerated at
7.2 deg.C (45 deg.F) (see Table 18 of this document). The number of
dozens not refrigerated at 7.2 deg.C (45 deg.F) would therefore be
540 million (= 6.5 billion <divide> 12). The high estimated cost of
refrigeration would be about $43 million (= 540 million dozen eggs x
$0.08 per dozen). The low estimated cost of refrigeration would be
about $17 million (= 540 million dozen eggs x $0.032 per dozen).
Table 19 of this document compares FDA's estimate of the costs of
refrigeration with estimates based on Dunn and Madison's high and low
average refrigeration cost per dozen eggs. As the table shows, FDA's
median estimate of total refrigeration costs fall between Dunn and
Madison's high and low estimates.
Table 19.--Comparative Summary of Costs From the Refrigeration Provision (millions)
----------------------------------------------------------------------------------------------------------------
Method FDA (Median) Dunn and Madison (High) Dunn and Madison (Low)
----------------------------------------------------------------------------------------------------------------
7.2 C (45 F) $31 $43 $17
----------------------------------------------------------------------------------------------------------------
c. Changes in consumer practices. A safe handling label will not
by itself lead to safer eggs. The changes people make in response to
the label lead to safer eggs. In the calculation of benefits from the
safe handling label, FDA assumed that some people would respond to the
proposed safe handling label by cooking eggs more thoroughly or by
switching away from foods that require raw or undercooked eggs. FDA
recognizes that if people for reasons of safety reduce their
consumption of foods they would have otherwise preferred, they bear the
costs of changing their preparation and consumption practices. If it
were possible to do so, many people would be willing to pay more to
continue to be able to eat the unsafe food, supposing it could be made
safe. The extra willingness to pay is the measure of the cost of
changing consumer practices when consumers are unable to purchase or
prepare a safe version of the preferred food.
The agency calculated the cost of changing consumer practices with
the following formula:
CS = E x UP x <greek-D>UP x $ per U
where:
CS = annual cost of changing consumer practices.
E = total eggs consumed per year.
UP = baseline percentage of total eggs that were not cooked
thoroughly before the rule.
<greek-D>UP = percentage reduction in eggs that are not cooked
thoroughly because of the rule.
$ per U = value of undercooking one egg.
The estimated number of eggs consumed was 46.8 billion. Based on
results of the Food Consumption and Preparation Survey, the USDA SE
risk assessment used a distribution with a most likely value of 33
percent to estimate the baseline percentage of eggs that were not
cooked thoroughly before the proposed rule.\22\ FDA estimated the
percentage reduction of consumption of undercooked eggs as a
distribution, with a most likely value of about 5 percent.\23\ The
agency assumed that $0.025 (= $0.30 <divide> 12), the cost per egg for
in-shell pasteurization, would be the upper bound that consumers would
be willing to pay for safe handling. The agency assumed that the lower
bound cost would be 1/25th of the upper bound
[[Page 36536]]
cost, or $0.001. The agency further assumed that the value to consumers
of one undercooked egg would vary uniformly between the lower bound
($0.001) and the upper bound ($0.025)\24\
---------------------------------------------------------------------------
\22\ The minimum was 27 percent and the maximum was 46 percent.
The distribution used in the simulation was Beta-Pert (0.27, 0.33,
0.46).
\23\ FDA used a Beta distribution to characterize the reduction
in undercooking. The Beta distribution (50,959) was based on survey
results for the USDA safe handling label for meat (Ref. 5). FDA used
the same survey to estimate the benefits of the proposed safe
handling label.
\24\ In the simulation, the value of an undercooked egg was
characterized as a uniform distribution: Uniform ($0.001, $0.025).
---------------------------------------------------------------------------
Because of the uncertainty associated with the calculation, the
agency estimated the costs of changing consumer practices with a Monte
Carlo simulation. Table 20 of this document shows the results of the
1,000 calculations of the annual cost of changes in consumer practices
brought about by the proposed rule.
Table 20.--Estimated Annual Cost of Changes in Consumer Practices Attributable to the Proposed Safe Handling Label
--------------------------------------------------------------------------------------------------------------------------------------------------------
Variable 5th Percentile Median Mean 95th Percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual cost to consumers $2,000,000 $10,000,000 $10,000,000 $20,000,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
G. Summary of Benefits and Costs
The agency estimated the median annual benefits of this proposed
rule to be about $300 million for the CDC surveillance baseline model
and about $700 million for the USDA SE risk assessment baseline model.
The estimated median costs to refrigerate shell eggs at 7.2 deg.C (45
deg.F) were $31 million in the first year. The agency estimated the
cost to incorporate safe handling statements as $18 million for a 6-
month compliance period. The median estimated cost of changing consumer
practices was $10 million per year. Therefore, the agency estimated the
total cost of the proposed rule in the first year to be about $60
million. After the first year, the only continuing cost would be
reduced consumer satisfaction, which recurs year after year as long as
consumers have a preference for undercooked eggs. FDA concludes that
the effects of the proposed rule would be economically significant
under Executive Order 12866. The proposed rule, based on the median
estimate of cost contained in the economic analysis, would not be
significant under the Unfunded Mandates Reform Act.
Table 21.--Median Annual Estimated Benefits and Costs of the Proposed Rule (in millions of $)
----------------------------------------------------------------------------------------------------------------
First year All other years
----------------------------------------------------------------------------------------------------------------
Median estimated benefits (USDA SE risk assessment baseline) $700 $700\1\
Median estimated benefits (CDC surveillance baseline) $300 $300\1\
Median estimated costs $60 $10
----------------------------------------------------------------------------------------------------------------
\1\ The benefits remain high after the first year if no other interventions affect SE in shell eggs. If other
Federal or State regulations, consumer education, and producer initiatives reduce the baseline incidence of SE
illness from shell eggs, then the benefits from the proposed rule will decline over time. The decline will be
roughly proportional to the decline in baseline incidence of SE illness from shell eggs.
II. Initial Regulatory Flexibility Analysis
A. Introduction
FDA has examined the economic implications of these proposed rules
as required by the Regulatory Flexibility Act (5 U.S.C. 601-612). If a
rule has a significant economic impact on a substantial number of small
entities, the Regulatory Flexibility Act requires agencies to analyze
regulatory options that would lessen the economic effect of the rule on
small entities.
B. Economic Effects on Small Entities
1. Number of Small Entities Affected
The proposed rule would affect many small entities, including egg
processors, grocery stores, restaurants, and other food service
establishments. Of the 669 egg processors registered with the USDA, FDA
has not been able to determine how many are small businesses (Ref. 17).
Egg processors generally fall into two industrial classifications:
Poultry slaughtering and processing (SIC code 2015) and whole poultry
and poultry products (SIC code 5144). The two classifications roughly
correspond to in-line and off-line processors. In-line processors
package the eggs at the egg laying facility. Off-line processors ship
the eggs to packers.
The Small Business Administration (SBA) defines in-line egg
processors (SIC code 2015-03) to be small businesses if they employ 500
or fewer people. According to a search in Dun's Market Identifiers
(Ref. 25), 25 in-line egg processing firms would be defined as small.
SBA defines off-line processors (SIC code 5144) to be small if they
employ 100 or fewer people. Dun's Market Identifiers did not have a
subcategory for egg processors. For the entire category of poultry and
poultry products (SIC code 5144), 80 percent of establishments employ
fewer than 100 workers. If the same proportion holds for the
subcategory composed of egg processors, then 470 firms would be
classified as small.\25\ FDA estimated the total number of small egg
processors to be 495 (= 25 + 470).
---------------------------------------------------------------------------
\25\ The estimated total number of in-line establishments is
134, but 52 are branches of firms. If the total number of in-line
firms is 82(=134--52), and the number of processors is 669, then 587
firms are off-line processors. If 80 percent are small, then 470
off-line (=0.8 x 587) processors are small.
---------------------------------------------------------------------------
The refrigeration provision would affect small establishments that
are not currently refrigerating at 7.2 deg.C (45 deg.F). The SBA
defines grocery stores (SIC code 5411) to be small if annual gross
revenue is less than $20 million. Other food stores (SIC codes 5431,
5451, and 5499), which include fruit and vegetable markets, dairy
product stores, and miscellaneous food stores, are small if annual
sales are less than $5 million. Restaurants are small if annual sales
are less than $5 million; institutions are small if sales are less than
$15 million.
As set out in Table 22 of this document, FDA estimated that the
number of small establishments affected by the proposed refrigeration
provision would be 25,400. The number of establishments (small and
large) currently not keeping eggs at an ambient temperature of 7.2
deg.C (45 deg.F) is approximately 44,400, which includes 10,700
grocery and other food stores,
[[Page 36537]]
24,000 restaurants, and 9,700 institutions (see Table 15 of this
document). FDA assumed that the proportion of small establishments
affected by the refrigeration provision would be the same as the
fraction of institutions for the entire industry in that category.
According to SBA size standards for small entities, 71 percent of
grocery and other food stores and 54 percent of restaurants are small.
Institutions are more complicated because they cut across SIC codes.
FDA assumed that 50 percent of institutions serving eggs are small. The
agency asks for comments on this assumption. FDA estimated the number
of small establishments affected by the refrigeration provision by
multiplying the fraction in each category defined to be small by the
total number of establishments affected. Table 22 of this document
shows the number of small entities likely to be affected by the
refrigeration provision of the proposed rule.
Table 22.--Number of Small Entities Likely to be Affected by the
Refrigeration Provision of the Proposed Rule
------------------------------------------------------------------------
Number of Small Establishments
Category Currently Storing Eggs Above 7.2 C (45
F)
------------------------------------------------------------------------
Grocery and other stores 7,600
Restaurants 13,000
Institutions 4,800
Total 25,400
------------------------------------------------------------------------
2. Costs to Small Entities
Redesigning the label accounts for most of the estimated additional
labeling costs for small processors. For a 6-month compliance period,
redesign costs would be $1,000 per SKU for pulp cartons and $500 per
SKU for foam cartons. The cost of the labeling provision borne by small
processors will vary with the number of SKU. The average number of
SKU's per processor for the industry is 30; FDA assumes that the output
of small processors falls in the range of 2 to 20 SKU's. Additional
redesign costs could therefore be as high as $20,000 per processor (=
20 x $1,000).
Refrigeration costs vary across establishments, depending on the
age of current refrigerators, the planned replacement cycle, and
whether the small establishments is currently keeping eggs at or below
7.2 deg.C (45 deg.F). Additional costs of refrigeration for small
retailers would average $633 per establishment, with $700 the most
likely cost. FDA assumed that the proportion of additional
refrigeration costs borne by small entities would be the same as the
proportion of small entities in each category of establishments. Table
23 of this document shows the estimated total cost of the refrigeration
provision to small entities. The agency requests comments on the effect
of the refrigeration provision on roadside stands.
Table 23.--Costs to Small Entities of the Refrigeration Provision of the
Proposed Rule
------------------------------------------------------------------------
Total Costs to Small Mean Cost per Small
Category Entities Entity
------------------------------------------------------------------------
Grocery $4.8 million $633
Restaurants $8.2 million $633
Institutions $3.1 million $633
Total $16.1 million $633
------------------------------------------------------------------------
C. Regulatory Options
1. Exemption for Small Entities
The burden on small entities would be lifted if they were exempt
from the provisions of the proposed rule. Most of the entities affected
by this proposed rule, however, are small. Thus, exempting small
entities from its provisions would effectively negate the rule.
2. Longer Compliance Periods
Lengthening the labeling compliance period from 6 months to 18
months and lengthening the refrigeration compliance period from the
proposed rule's effective date to 12 months after the effective date
would provide regulatory relief (cost reduction) to small entities. In
order to estimate the regulatory relief from lengthening the
refrigeration compliance period, the agency assumed that the cost
reduction would equal the interest (discounted at 7 percent per year)
on the cost of refrigeration equipment over the extension of the
compliance period. If the compliance period were extended by 12 months,
the interest on the cost of equipment would be over $1 million (= $16.1
x 0.07). For the most likely equipment cost of $700 per small
establishment, the interest saving would be about $50 (= 0.07 x $700).
In order to estimate the regulatory relief to small retail entities
from a longer labeling compliance period, FDA first estimated the
decline in total industry costs and then multiplied it by the small
business share of total costs. Total industry costs would fall by $11
million if the compliance period for labeling were extended from 6
months to 18 months (see Table 14 of this document). Most of the relief
to small businesses would come from the reduced costs of redesigning
the carton label. For pulp cartons, extending the compliance period to
18 months would reduce redesign costs from $1,000 (for a 6-month
compliance period) to $500 per SKU. For foam cartons, extending the
compliance period to 18 months would reduce redesign costs from $500
(for a 6-month compliance period) to $100 per SKU.
Although lengthening the compliance periods would provide some
regulatory relief to small entities, they make up such a large part of
the affected industries that longer compliance periods would
significantly delay the full public health benefits of the proposed
rule.
D. Description of Recordkeeping and Recording Requirements
The Regulatory Flexibility Act requires a description of the
recordkeeping and recording required for compliance with this rule.
This rule
[[Page 36538]]
does not require the preparation of a report or a record.
E. Worst Case to Small Entities
The greatest impact to a small retail establishment as a
consequence of the refrigeration provision would be to cause the entity
to bear the entire cost for the purchase of a new refrigerator. The
agency estimates that the cost of a new refrigerator is between $2,500
and $6,000. In order to estimate the worst possible outcome for a small
entity, FDA assumed that some small retail establishment would purchase
a new refrigerator at the maximum estimated cost of $6,000. If the
latter cost were amortized over a 10-year period (using a discount rate
of 7 percent) then the approximate annual expense would be $850 per
year for 10 years. According to Dun and Bradstreet, 85 percent of all
grocery stores have annual sales of less than $20 million, and 71
percent of all restaurants have annual sales of less than $5 million
(Ref. 25). Among the smallest 10 percent of these establishments, the
average sales volume is $100,000 per year for a grocery store and
$50,000 per year for a restaurant. Therefore, the additional expense of
$850 per year would be approximately 1 to 2 percent of average sales
volume per year. Grocery stores and restaurants typically have profit
margins on sales of 1 to 5 percent, so a reduction of the profit margin
by 40 to 100 percent would be the worst-case outcome for the smallest
entities in retail.
The worst case to a small entity attributable to the labeling
provision would occur if a small packer were unable to pass along any
of the cost to its customers. As shown previously, FDA estimated that
the redesign cost to a small processor could be as high as $20,000. If
the one-time cost could be amortized over a 10-year period at an annual
discount rate of 7 percent, the small packer would incur an additional
annual expense of approximately $3,000. FDA did not estimate the annual
sales revenues of the smallest egg packers and, therefore, it was
unable to compare the estimated amortized cost to annual profits. FDA
requests comments on this relationship.
F. Summary
FDA estimated that the labeling provisions could impose costs of up
to $20,000 on 495 small processing establishments. The refrigeration
provision would impose estimated average costs of $633 per small entity
(and up to $6,000) on approximately 25,400 small establishments. FDA
finds that, under the Regulatory Flexibility Act, this proposed rule
would have a significant economic impact on a substantial number of
small entities.
III. References
The following references have been placed on display in the Dockets
Management Branch (address above) and may be seen by interested persons
between 9 a.m. and 4 p.m., Monday through Friday.
1. Memorandum of telephone conversation between Marilyn Balmer,
FDA, and Peter Vardon, FDA, September 4, 1998.
2. Baker Jr., A. R., E. D. Ebel, R. M. McDowell, R. A. Morales,
W. D. Schlosser, and R. Whiting, Salmonella Enteritidis Risk
Assessment Team, Salmonella Enteritidis Risk Assessment: Shell Eggs
and Egg Products, Washington, DC: United States Department of
Agriculture, Food Safety and Inspection Service, June 12, 1998.
3. Centers for Disease Control and Prevention (CDC), Salmonella
Surveillance, Atlanta, GA: Centers for Disease Control and
Prevention, 1997.
4. Bean, N. H., J. S. Goulding, M. T. Daniels, and F. J. Angulo,
``Surveillance for Foodborne Disease Outbreaks--United Sates, 1988-
1992,'' Journal of Food Protection, vol. 60, pp. 1265-1286, 1997.
5. Food Marketing Institute (conducted by Abt Associates, Inc.),
``Trends in the United States: Consumer Attitudes & the
Supermarket,'' Washington, DC: Food Marketing Institute, 1996.
6. Mauskopf, J. A., M. T. French, A. S. Ross, D. M. Maguire, R.
W. Leukrith, Jr., and K. D. Fisher, ``Estimating the Value of
Consumers' Loss from Foods Violating the Federal Food, Drug, and
Cosmetic Act,'' Research Triangle Report to the Center for Food
Safety and Applied Nutrition, U.S. Food and Drug Administration,
September 1988.
7. Thompson, G. T. D., Debra A. De Rubeis, M. A. Hodge, C.
Rajanayagam, and R. D. Inman, ``Post-Salmonella Reactive Arthritis:
Late Clinical Sequelae in a Point Source Cohort,'' The American
Journal of Medicine, vol. 98, pp. 13-21, January 1995.
8. CDC/USDA/FDA Foodborne Diseases Active Surveillance Network
(FoodNet), 1997, Surveillance Results, U.S. Department of Health and
Human Services, U.S. Public Health Service, Centers for Disease
Control and Prevention, April 1998.
9. Economic Report of the President, Washington: United States
Government Printing Office, February 1998.
10. Viscusi, W. K., ``The Value of Risks to Life and Health,''
Journal of Economic Literature vol. 31, pp. 1912-1946, December
1993.
11. Buzby, J. C., T. Roberts, C.-T. Jordan Lin, and J. M.
MacDonald, Bacterial Foodborne Disease: Medical Costs and
Productivity Losses, Washington, DC: United States Department of
Agriculture, Economic Research Service, Agricultural Economic Report
No. 741, August 1996.
12. Zorn, D. J., and K. Klontz, Appendix: The Value of Consumer
Loss to Foodborne Reactive Arthritis, Federal Register 63, May 1,
1998.
13. Council for Agricultural Science and Technology (CAST),
Food-Borne Pathogens: Risks and Consequences. Ames, Iowa: Council
for Agricultural Science and Technology, Task Force Report No. 122,
September 1994.
14. Vose, D., Quantitative Risk Analysis: A Guide to Monte Carlo
Simulation Modeling, New York: Wiley, 1996.
15. Kaplan, R. M., J. P. Anderson, and T. G. Ganiats, ``The
Quality of Well-being Scale: Rationale for a Single Quality of Life
Index,'' In Quality of Life Assessment: Key Issues in the 1990's,
edited by Stuart R. Walker and Rachel M. Rosser, pp. 65-94 and 442-
444, The Netherlands: Kluwar Academic Publishers, 1993.
16. Adams, P. F., and M. A. Marano, Current Estimates from the
National Health Interview Survey, 1994, Series 10: Data from the
National Health Survey No. 193, Hyattsville, MD: U.S. Department of
Health and Human Services, Centers for Disease Control and
Prevention, National Center for Health Statistics, December 1995.
17. Memorandum of facsimile transmission from Gale Mason, USDA,
to Peter Vardon, FDA, February 25, 1998.
18. Memorandum of conversation between Carlton Lofgren, McAnally
Enterprises, and Peter Vardon, FDA, January 21, 1998.
19. Letter from Richard B. Norment, Food Serving and Packaging
Institute, to Peter Vardon, FDA, February 23, 1998.
20. Memorandum of telephone conversation between Norman
Patterson, Dalco Packaging Corp., and Peter Vardon, FDA, January 28,
1998.
21. Memorandum of telephone conversation between Norman
Patterson, Dalco Packaging Corp., and Peter Vardon, FDA, February 4,
1998.
22. Memorandum of telephone conversation between Barbara Walters
and Alan Andrews, Tenneco Packaging Co., and Peter Vardon, FDA,
January 15, 1998.
23. Memorandum of telephone conversation between Alan Andrews,
Tenneco Packaging Co., and Peter Vardon, FDA January 30, 1998.
24. Memorandum of telephone conversation between Dale Gerber,
Cascade Diamond Corp., and Peter Vardon, FDA, February 9, 1998.
25. Dun and Bradstreet, Dun's Market Identifiers, The Dialog
Corp. Mountain View, California, March 19, 1998.
26. Faramarzi, R., and M. Woodworth, ``Colder Temperatures in
Display Cases,'' ASREA Journal, vol. 39, No. 12, December 1997.
27. Memorandum of telephone conversation between Scatter
Satterfield, Commercial Refrigerators Manufacturers Association, and
Peter Vardon, FDA, January 26, 1998.
28. Dunn, J. W., and M. E. Madison, ``Interregional Competition
for Eggs,'' Journal of Applied Poultry Research, vol. I, No. 1,
March 1992.
29. Madison, M., ``Salmonella and Egg Handling Regulations,''
Farm Management Reports, Pennsylvania State University, February
1990.
30. Putnam, J. Jones, and J. E. Allshouse, Food Consumption,
Prices, and
[[Page 36539]]
Expenditures, 1970-1995. Washington, DC: U.S. Department of
Agriculture, Economic Research Service, Statistical Bulletin No.
939, August 1997.
31. Smith, J. L., S. A. Palumbo, and I. Walls, ``Relationship
Between Foodborne Bacterial Pathogens and the Reactive
Arthritides,'' Journal of Food Safety, vol. 13, 1993.
32. Granfors, K., S. Jalkanen, A. A. Lindberg, O. Maki-Ikola, R.
V. Essen, R. Lahesmaa-Rantala, H. Isomaki, R. Saario, W. J. Arnold,
and A. Toivanen, ``Salmonella Lipopolysaccharide in Synovial Cells
from Patients with Reactive Arthritis,'' Lancet, vol. 335, March 24,
1990.
IV. Request for Comments
Interested persons may, on or before September 20, 1999, submit to
the Dockets Management Branch (address above) written comments
regarding this preliminary regulatory impact analysis and initial
regulatory flexibility analysis. Two copies of any comments are to be
submitted, except that individuals may submit one copy. Comments are to
be identified with the docket numbers found in brackets in the heading
of this document. Received comments may be seen in the office above
between 9 a.m. and 4 p.m., Monday through Friday.
Dated: June 10, 1999.
Jane E. Henney
Commissioner of Food and Drugs.
Donna E. Shalala,
Secretary of Health and Human Services.
[FR Doc. 99-17121 Filed 7-1-99; 11:12 am]
BILLING CODE 4160-01-F
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