Dockets Management Branch (HFA-305)
Food and Drug Administration
Department of Health and Human Services
Room 1-23
Park Building
12420 Parklawn Drive
Rockville, MD 20857

Re: DOCKET #96N-0135; Proposed Rule on Prohibiting Animal Proteins in Ruminant Feed; Small Business Impact

Dear Docket Clerk:

On January 3, 1997, the Food and Drug Administration (FDA) proposed a rule to remove GRAS (generally recognized as safe) status from animal protein derived from ruminant (e.g., cattle) and mink tissues for use in ruminant feed. The rule seeks to establish a system of controls designed to ensure that ruminant feed does not contain animal protein derived from ruminant and mink tissues. FDA has requested comments on this ruminant-to-ruminant ban and on other alternatives outlined in the rule.

FDA is proposing the action referenced above in reaction to the outbreak of bovine spongiform encephalopathy (BSE, a.k.a. "Mad Cow Disease") in the United Kingdom (UK), and the fear that such an epidemic might occur in the United States. To date, no occurrences of the disease have been documented in the United States. BSE is a form of transmissible spongiform encephalopathy (TSE)-a fatal degenerative disease that attacks the central nervous system. Various forms of the disease can attack humans (new variant Creutzfeldt-Jakob disease), sheep (scrapie), etc.

There is some evidence that the disease is spread by feeding ruminants the protein derived from TSE infective tissues contained in ruminant feed. In other words, ruminant tissue is recycled into feed for ruminants and other commodities. If the recycled tissue is from infected ruminants, then the theory is that the disease will spread in this manner.

The Office of the Chief Counsel for Advocacy of the U.S. Small Business Administration was created in 1976 by Pub. L. No. 94-305 (codified as amended at 15 U.S.C. §§634a-g, 637) to represent the views and interests of small businesses in federal policy making activities. The Chief Counsel participates in rulemakings when he deems it necessary to ensure proper representation of small business interests. In addition to these responsibilities, the Chief Counsel monitors agency compliance with the Regulatory Flexibility Act (RFA) and works with federal agencies to ensure that their rulemaking procedures analyze the impact that rules will have on small businesses.

The instant rulemaking has been described as a "firewall" by former Commissioner of FDA, David Kessler, to head-off any potential outbreak of the disease in this country. While the intention of the rulemaking is laudable, and the goal of preserving a safe food supply for humans and animals is shared by the industry and the Office of Advocacy, the proposal lacks an adequate analysis of impacts-environmental and economic. The chief proposal of a ruminant-to-ruminant ban, combined with the labeling requirements and the removal of GRAS status translates to enormous economic costs on the regulated industries-costs that far exceed those estimated by FDA. Before the FDA implements a major rule designed to stop something that has never existed in this country, a careful analysis of the alternatives and economic impact is required. This is not to say that FDA must abandon its regulatory objectives, only that FDA should consider all the costs and benefits and select the least burdensome alternatives.

I. The Industry

The RFA requires agencies to determine whether there will be a significant economic impact on a substantial number of small entities. The instant rulemaking will affect a substantial number of small businesses in various industries as demonstrated below. Although SBA data is not available for all of the affected industries, it is useful to study the ones for which information is available. The impact of a rule cannot be determined unless the size of the industry or industries has first been determined. The Office of Advocacy maintains a database of industry sizes based on statistics obtained from the U.S Department of the Census.

1. Dog and Cat Food Manufacturers

	LARGE & SMALL BUSININESSES	SMALL BUSINESSES W/ <500 EMPLOYEES
FIRMS	110	89 (80.9%)
ESTABLISHMENTS	169	98 (58%)
EMPLOYMENT	13,939	3,042 (21.8%)
RECEIPTS x $1000	7,635,425	1,656,036 (21.7%)

2. Prepared Feeds for Animals (not Dogs and Cats)

	LARGE & SMALL BUSINESSES	SMALL BUSINESSES W/ <500 EMPLOYEES
FIRMS	1,158	1,097 (94.7%)
ESTABLISHMENTS	1,713	1,198 (69.9%)
EMPLOYMENT	35,014	18,467 (52.7%)
RECEIPTS x $1000	14,505,291	7,100,081 (48.9%)

3. Meat Packing Plants

	LARGE & SMALL BUSINESSES	SMALL BUSINESSES W/ <500 EMPLOYEES
FIRMS	1,283	1,233 (96.1%)
ESTABLISHMENTS	1,368	1,242 (90.8%)
EMPLOYMENT	122,507	26,678 (21.8%)
RECIEPTS x $1000	50,572,532	9,209,271 (18.2%)

4. Sausages and Other Prepared Meat Products

	LARGE & SMALL BUSINESSES	SMALL BUSINESSES W/ <500 EMPLOYEES
FIRMS	1,102	1,028 (93.3%)
ESTABLISHMENTS	1,236	1,063 (86%)
EMPLOYMENT	83,993	36,054 (42.9%)
RECEIPTS x $1000	20,525,474	8,366,265 (40.8%)

5. Animal and Marine Fats and Oils (Including Renderers)

	LARGE & SMALL BUSINESSES	SMALL BUSINESSES W/ <500 EMPLOYEES
FIRMS	153	133 (86.9%)
ESTABLISHMENTS	258	155 (60.1%)
EMPLOYMENT	10,333	3,659 (35.4%)
RECEIPTS x $1000	2,467,494	907,122 (36.8%)

There are a host of other industries that could be affected indirectly by this rulemaking like the cosmetic, food and human pharmaceutical industries. FDA acknowledges that an estimated 1.4 million enterprises are engaged in ruminant production.

II. Economic Impact

Having determined that a substantial number of small entities will be affected, it is necessary to determine whether there will be a significant economic impact. FDA concluded that there would be a significant economic impact, but the analysis that followed did not present the best available alternatives or data-causing FDA to inadequately assess the actual impact of the regulation. According to an industry analysis, which has been assessed by the Office of Advocacy's Economic Research staff as credible, FDA has grossly underestimated the economic impact of the instant regulation. FDA's estimates place the overall economic impact at about $21-$56 million, whereas the industry placed the overall impact between $160-$287 million

While it can be expected that the industry data may be somewhat inflated, the analysis is thoughtful and comprehensive. The data estimates have been obtained from the best available and most current information. Of course, intangibles like consumer confidence can only be determined after the damage has already occurred. Nevertheless, there is a quantifiable impact on many industries due to price discounting, lost sales, capital expenditures, etc.

Therefore, based on the evidence, the rule should be classified as "major" pursuant to Executive Order 12,866, the Unfunded Mandates Reform Act of 1995, and the Small Business Regulatory Enforcement Fairness Act of 1996.

1. Labeling Issues

Of particular concern to the pet food industry and the Office of Advocacy is the issue of labeling. The Pet Food Institute, representing the vast majority of all food for dogs and cats produced in the United States, estimates $9 billion in domestic retail sales and nearly $1 billion in export sales annually. The instant rule would require all businesses that manufacturer and distribute products that may contain protein from ruminant or mink tissues to comply with the following labeling requirement:

"CONTAINS OR (MAY CONTAIN) PROTEIN DERIVED FROM RUMINANT AND MINK TISSUES. DO NOT FEED TO RUMINANT ANIMALS, AND DO NOT USE TO MANUFACTURE FEED INTENDED FOR RUMINANT ANIMALS."

Such a label would likely serve only to confuse consumers and place an economic hardship on the many small businesses in the industry (nearly 81% of all firms that manufacture dog and cat food, See supra p. 3), while doing nothing to promote the regulatory objectives of FDA. The Office of Advocacy takes the position that such foods are already labeled for their intended use, "Dog Food" or "Cat Food," and that additional labeling requirements are unnecessary.

A consumer reading the proposed label could draw a number of false conclusions as revealed by the public survey commissioned by the Pet Food Institute in January 1997. Of 351 respondents, 71% would buy a different product if they saw the label, 68% would be concerned about the safety of their pet food, 57% did not know if dogs and cats were ruminants, and 40% would be concerned about the safety of humans eating beef and lamb. The last example is particularly telling because it seems to indicate that consumers are likely to make a negative association between products for ruminants (if they can figure out what a ruminant is), pets and humans. Other products for animals and humans containing animal meal or protein may also be affected eventually (e.g., calcium supplements).

Decreased consumer confidence translates into decreased retail sales, which in turn, will necessitate new (and more expensive) pet food formulations that exclude ruminant proteins. This seems to indicate, contrary to FDA's opinion, that industries like those that manufacture and distribute pet food will not be able to absorb the additional ruminant tissue banned from use in the ruminant feed industry under the proposed rule. According to the Pet Food Institute, about 80% of pet foods contain ruminant protein-450,000 metric tons annually. This amount of ruminant product cannot simply evaporate and will require costly disposal by the ruminant feed industry.

Other costs associated with the labeling proposal would include label redesign, printing and waste of in-stock labels. There are about 15,000 different labels within the industry on multiple product lines within brands and different sizes of packages. Costs could exceed $1 million.

Although no additional labeling requirement would be the preferred course in this case, the Office of Advocacy would consider a simplified shipping label that reads, "DO NOT FEED TO CATTLE OR OTHER RUMINANTS" when pet food products are sold as salvage. This label would help convey the definition of a ruminant and that dog and cat food should not be fed to those particular animals. If this label option were adopted, this office would advocate an exemption for blood, milk, grease, tallow and pure porcine-all animal proteins which have not been associated with BSE.

The Office of Advocacy ponders whether FDA has determined what amount/percentage, if any, of dog or cat food actually is fed to ruminants. Is it realistic to assume that cattle farmers would start popping open cans of gourmet cat food to feed to a cow? How many one-pound boxes of dry cat food would it take to feed a cow? More importantly, would not the cost be prohibitive for cattle producers?

This clearly is an example of a lack of analysis leading to over regulation. Why regulate an industry that is not contributing to a problem that may or may not exist?

2. Non-GRAS Determination

In many instances, GRAS status is what gives U.S. businesses the ability to compete in the global marketplace. The proposed rule regards protein derived from tissues of ruminant and mink animals as not generally recognized as safe because the tissues could contain (at some time in the future) a form of TSE. According to the National Renderers Association and the Animal Protein Producers Industry (NRA and APPI, respectively), ruminant tissue comprises over 75% of the industry's end product. Removal of GRAS status would likely have a tremendous economic impact. As in the case of pet foods, the negative characterization of ruminant proteins may have a secondary effect on producers of other types of feed. Moreover, the environmental degradation and fees for high tech disposal resulting from unusable product could cost millions.

There are less costly regulatory alternatives to designating non-GRAS status that would still accomplish FDA's goal of increasing prevention. Industry experts have suggested either an interim food additive regulation or the Compliance Policy Guide (CPG). The former may be evoked by FDA when historically safe products have their safety or functionality called into question by new information that is not in itself conclusive. The latter would focus on guidance as a tool to monitor compliance with a temporary suspension of the use of the products until additional research proved conclusive or until an acceptable level of risk reduction has been quantified. Both options would provide the industry the opportunity to expand on existing research about BSE-particularly since FDA has stated publicly that it does not intend to expend the necessary resources to study BSE at this time. Moreover, both options would decrease the likelihood of stigmatizing a product that has been used safely for over 100 years.

3. Alternative Bans

Although little is know about BSE, there are certain indisputable facts: 1) there have been no reports of BSE in this country, 2) no acceptable level of risk reduction has been established, 3) practices for raising and feeding cattle in the U.S. are not the same as in the U.K., 4) studies and theories regarding spontaneous occurrences and cross-species infection have been inconclusive. Notwithstanding, FDA is proposing several types of bans to prohibit ruminant meat and bone meal from ruminant feed. Even though FDA apparently is indifferent toward actively collecting data, the industry has expressed its desire to work with FDA toward a compromise solution that would increase prevention while preserving a vital industry. The data below are principally derived from the NRA Economic Impact Analysis (cited in supra, note 7, at 4).

A. Ruminant-to-Ruminant Ban

The chief proposal of a ruminant-to-ruminant ban would mean that meat and bone meal (MBM) containing ruminant proteins would be sold only to non-ruminant industries. Aside from the fact that such a ban would be difficult to enforce, because of the lack of available technology to test whether a product has ruminant versus other animal proteins, there are strong economic reasons that make this alternative undesirable.

Ruminant producers and distributors are asked to believe that other markets/industries will absorb the product that is no longer salable to the ruminant feed industry. If we accept this logic, then we must also accept that there will be a degree of price discounting to induce other industries to purchase additional quantities. Based on the economic analysis commissioned by the NRA, there could be a discount of $15 or more per ton for MBM over and above the $53.27 per ton drop in price that occurred shortly after reports from the U.K. that there may be a link between BSE and human disease. A $68.27 per ton discount equals $160 million in annual lost revenue for renderers.

B. Mammalian-to-Ruminant Ban

A mammalian-to-ruminant ban would also prohibit MBM that contains product derived from ruminants and hogs. The enforceability of this type of ban would be greater, but there have been no instances of oral transmission of BSE between hogs and cows. The same price discounting would be applicable ($68.27), but the amount by which that figure is multiplied would be over 6 billion pounds The economic impact for such a ban is estimated to be about $212 million per year in lost revenue.

C. Specified Bovine Offal Ban (SBO)

Under this alternative, specified tissues from ruminants that are thought to be most infective would have to be separated from other ruminant materials (e.g., spinal cord and brain tissue). This would be the most costly alternative because of lost sales of the rendered products that could have been derived from SBO. Unusable product would most likely have to be landfilled at a premium bio-hazard price. In addition, the cost of adding additional rendering lines for ruminant material in mixed species plants would be prohibitive. Ironically, the same brain tissue is safe for human consumption. However, it is unlikely that there will be an explosion in sales for human consumption that would offset the losses caused by SBO disposal and lost sales.

It was revealed during the February FDA hearing that Wisconsin renderers would have to pay $65 per ton to landfill such waste. This price is consistent with the nationwide average price of $66.61 per ton derived from a NRA survey of renderers. Not including cost of SBO disposal, there is also an issue of 1.7 billion pounds of dead stock disposal under the SBO alternative. Loss of sales by renderers and cost of disposal for producers in combination could exceed $140 million.

In addition, separate processing lines for renderers of multiple species material would have beneficial offsets, but the cost for construction and annual maintenance would still exceed the benefits. Renderers who have the space and the finances to install a separate line would be able to sell non-ruminant MBM at market price-assuming that consumer confidence did not erode to the point that non-ruminant MBM would lose its market value. The NRA analysis estimates that renderers would incur about $110 million in construction costs, with $83 million in annual operation costs, offset by increased revenues from the sales of non-ruminant MBM. The net cost for the first year would be $141.5 million. When added to the price discount for the ruminant-containing MBM (but not SBO), the net economic impact on renderers would be about $287 million.

Finally, FDA proposes certain clean-out requirements for operations intending to separate ruminant and non-ruminant materials. To avoid unnecessary cost and disruption to business activities, the Office of Advocacy recommends that clean-out procedures only be used at the stage when raw product is co-mingled. For instance, if the materials are kept separate until the cooking or storage stage, then clean-out procedures should not be instituted until that stage.

D. Summary and Recommendation

Of the three options, the most workable seems the be the mammalian-to-ruminant ban. The enforcement possibilities are greater, and with a few modifications, it will address adequately the goals of the FDA.

It cannot be emphasized enough that any such ban should be temporary-utilizing the CPG or interim food additive regulation as a guide.

Moreover, exemptions should be granted for products that have never been determined to contain BSE agents (e.g., blood, grease, tallow, milk, gelatin and pure porcine).

Finally, the labeling requirements should be dropped altogether-particularly for pet food sold for its intended use.

III. Environmental Impact Analysis

As referenced several times above, waste disposal is a costly proposition at nearly every stage of the production process. Waste disposal is particularly expensive for the small livestock producer because they generally do not have their own rendering facilities and have to rely on renderers to stay in business. Since unusable product will not evaporate, and FDA's conclusion that the product will be absorbed by other industries is anything but a certainty, then the problems of waste disposal and environmental degradation remain. Landfills would explode with dead animals and by-products under the proposed rule-not to mention the water and air pollution problems which may result from illegal dumping.

The Office of Advocacy cannot agree with the assessment that there will not be a significant environmental impact, and we recommend that FDA consult with experts at the Environmental Protection Agency to accurately assess the impact.

IV. Time Allowed for Comments

Finally, although the Office of Advocacy was granted an short extension of the comment period as a courtesy for a Federal government agency, this office is still concerned about the fact that FDA failed to extend the comment period per the request of the regulated industry. Although denial of the request probably is not sufficiently egregious to amount to arbitrary and capricious authority, the 45-day comment period was not nearly adequate to address the far-reaching and complicated issues presented in the rulemaking. If the agencies wanted to demonstrate their desire to collect solid data and to develop the most science-based rule possible-particularly given the economic impact of the rule-a longer period should have been granted. For this reason, the Office of Advocacy requests that the agencies issue an interim final rule as opposed to a final rule in order to provide the regulated industry additional opportunity to comment.

V. Conclusion

Flexibility is as important to drafting a firmly grounded regulation as sound science and accurate data. FDA is faced with a serious and highly political dilemma: what preventative measures to take to head-off a possible, but unlikely animal health disaster? The Office of Advocacy is not insensitive to this dilemma, but believes that enough data and evidence are available upon which to base a proportionate response to the potential problem. Again, flexibility is the key.

Most of the proposed alternatives would cause severe disruption and stigmatize entire industries. FDA contracted with an outside consultant for an analysis of impacts, but negated the findings of the analysis by relying heavily on certain assumptions regarding economic offsets. FDA's reliance on speculative offsets is troubling because it ignores many factors like the effect of consumer confidence and price discounting.

The Office of Advocacy recommends temporary preventative measures that focus on on-going industry discussions, cleanliness with process verification, research and education.

We are prepared to assist your staff in the further development of this rule. Please do not hesitate to contact us, 202-205-6532.

Sincerely,

Jere W. Glover
Chief Counsel for Advocacy

Shawne Carter McGibbon
Assistant Chief Counsel for Advocacy

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