Small Farms, Big Costs

By Miller, Sofie E.; West, Cassidy B. | Regulation, Fall 2013 | Go to article overview

Small Farms, Big Costs


Miller, Sofie E., West, Cassidy B., Regulation


The Food and Drug Administration recently extended to November 15 the deadline for public comment on its proposed rule, Standards for the Growing, Harvesting, Packing and Holding of Produce for Human Consumption. This is the second extension, providing the public an unusually long 304 days to comment on the proposed regulation and offer suggestions for its improvement. It is also a welcome opportunity, as the draft rule does not meet statutory and executive requirements and may needlessly harm consumers as well as small farmers domestically and abroad.

The proposed rule, which would implement the Food Safety Modernization Act of 2011 (FSMA), establishes certain standards for farm-grown produce that are intended to reduce the presence of microbiological hazards that can lead to food-borne illness. It includes requirements related to worker training, worker health and hygiene, agricultural water quality, soil treatment, the presence of domesticated animals on produce fields, and for equipment, tools, and buildings.

The FDA estimates the cost of complying with these requirements at $630.18 million per year. It also predicts benefits of $1.04 billion per year; however, the benefit estimates are based on very limited data and unscientific methods. The agency concedes that it probably overstates the likely incidence of food-borne illness in the absence of the proposed regulations, and its estimates of the effectiveness of the proposed requirements at reducing microbial hazards are based on nothing more scientific than surveys of its own staff.

However, even accepting the FDA's analysis at face value, the proposed rule does not maximize net benefits as required by Executive Orders 12866 and 13563, which require agencies to "select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity)." In its proposal, the FDA rejected alternatives that it estimates would provide more than $100 million in net benefits annually above the benefits of its selected alternative.

Very small farms | According to the FDA's analysis, implementation of the proposed rule will result in significant compliance costs to all covered farms. However, the costs will be especially burdensome for farms with sales of less than $250,000 annually, which the FDA defines as "very small" farms. Very small farms beneath this threshold comprise nearly one-quarter of all farms that would be covered under this rule.

Table 1 shows the FDA's estimates of annualized compliance costs (over a seven-year period) for farms of different sizes. "Large" farms (which the agency defines as having sales of more than $500,000 per year) have average food sales of $2.6 million. Their compliance costs--$30,566--constitute only 1 percent of their annual sales. For "very small" farms (sales less than $250,000 per year) and "small" farms (sales between $250,000 and $500,000 per year), the FDA expects compliance costs to consume a higher share of the farms' annual food sales--6 percent and 4 percent, respectively.

According to the FDA's analysis, its preferred version of the proposed rule, which would exempt farms with annual food sales of less than $25,000, would produce $411 million in annual net benefits. However, of all the exemption thresholds the FDA considered in its analysis, this proposed option offers the lowest net benefits. Net benefits are maximized by exempting all farms with produce sales less than $100,000, which would increase the annual net benefits of the rule by $115 million, to $526 million annually. Over a 10-year timeframe, exempting farms smaller than $100,000 would increase the rule's anticipated net benefits by more than $1 billion above the estimated benefits of the FDA's preferred version. …

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