Basic Concepts of Commodity Processing

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Basic Conceptsof CommodityProcessing

• Why Process, How to Start, Yield and Other
  Traffic Signals

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Meet the Panel

• Sherry Thackeray
• Commodity Processing Specialist
• USDA FNS FDD
• Gary Gay
• Director, Food Distribution Division
• North Carolina Dept. of Agriculture Consumer
  Services
• Daughn Baker
• Child Nutrition Director
• Davie County Schools, Mocksville, North Carolina

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Who Are We?

• U.S. Department of Agriculture
• Food, Nutrition, and Consumer Services
• Special Nutrition Programs
• Food Distribution Division
• Operations Branch
• Processing Initiatives Team (PITs)

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Cathie McCullough, Director FDD
Hows our driving??
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Operations Branch Chief
Peggy Cantfil
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Dave Brothers
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Mary Beth Flowers
Mark Crewdson
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What is the CommodityProcessing Program?

• Regulatory Authority 1958 to maximize the use
  of commodity
• Commercial food manufacturers convert raw bulk
  commodity into end products
• Wide variety
• More convenient
• Ready-to-use

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Our Sister Agencies

• AMS Agricultural Marketing Service
• Group A Commodities
• Beef, Pork, Poultry, Eggs, FV
• Surplus Removal
• End Product Certification (Grading)
• FSA Farm Service Agency
• Group B Commodities
• Cheese, Grain, Oil, Peanut
• Price Support

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Program Partners

• Distributing Agency (DA) State government
  agency which enters into an agreement with FNS
  for the distribution of DF to eligible RAs
• Recipient Agency (RA) Organizations within a
  State eligible to receive DF
• Schools (public and private), RCCI, CI,
  NPE/NSIP, SFSP, summer camps, soup kitchens

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Sources of Commodity

• Entitlement A dollar value of commodity
  assistance which is required by law to be
  provided to the CN Programs
• Per-Meal-Rate x Meals Served
• PAL Planned Assistance Level
• Bonus Food items not charged against
  entitlement or appropriated funds
• Surplus Removal or Price Support
• Use Without Waste or Fair-Share

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Delivery Options

• Direct Diversion Food is shipped directly from
  the USDA vendor to the processor
• AKA Direct Shipment or Direct Delivery
• Backhaul The pick up of a DF from a DA or RA
  for processing and return.

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Types of Processors

• Multi-State Processor enters into agreements
  with agencies in more than one State or an agency
  in a State other than where the plant or business
  office is located.
• Single State Processor processor doing business
  solely within a State where the plant or business
  office is located.

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Processing Agreements

• National Processing Agreement
• Multi-State Processors
• State (Master) Agreement
• Single State Processors
• Recipient Agency Agreement
• Single State Processors

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Yields

• 100 Yield
• Guaranteed Minimum Return/Yield
• Traditional Processing
• Red meat Poultry
• Standard Yield
• Poultry Only
• Fruit Veg
• Guaranteed Return/Yield
• Beef Pork Only

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Value Pass Through

• Refund or Rebate
• Direct Discount
• Hybrid System
• Net Off Invoice is a variation
• Alternate VPT
• Fee-for-Service

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USDA Responsibilities

• USDA enters in to agreement with processor
• USDA approves EPDS and SEPDS
• USDA holds surety instrument
• USDA purchases commodity and delivers to State
  designated location/processor
• Processor sells end products to RA
• Processor submits national MPR to USDA

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National Processing Agreement DOES NOT

• Eliminate bidding/procurement by SDA/RA
• Specify delivery and billing terms
• Specify value-pass-thru method
• Coordinate truck loading or commodity ordering
• Monitor State inventory draw-downs
• Verify minimum yield/return met
• Monitor acceptability or field complaints

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State Distributing Agency Role in Commodity
Processing
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State Responsibilities

• Ordering
• Make commodities available for order
• Divert for further processing
• Receive brown box from USDA
• Advise schools what processed products are
  available
• Consolidate truckloads
• Coordinate diversions with processors
• Monitor inventory levels

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State Responsibilities

• Agreements
• Enter into participation agreements with
  processors
• Select Value Pass Though systems
• Select end products
• Specify delivery terms
• Verify yields, where applicable

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State Responsibilities

• Procurement Assistance
• State bid
• Bid template
• Help with any problem that may occur
• Monitor acceptability of processed product and
  field complaints
• Quality
• Delivery

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What can commodity processing mean to YOUR
district?
FLEXIBILITY

• Menu planning
• Less prep
• Food Safety

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Why should a school process?
ASSURANCE

• HACCP Safety issues
• Maximize commodity

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Where to Begin?
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Where to Begin?

• Evaluate
• Identify
• Select

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How does a school start a processing program in
their district?

• Contact State Agency
• Talk to local CN Directors

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How does it work in North Carolina?
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What does your district process?

• Chicken
• Beef
• Cheese

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WHY?

• Better
• Fully utilize Commodities

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Where do you spend most of your Commodity ?
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Do you understand USDAs processing methods?

• 100
• SY
• GRO
• GMR

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What methods do you use To get back your value?

• FFS
• Rebate
• NOI

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How do you track inventory At the Processor?
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Sample Worksheet
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Processing Example
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Commodity Math 101

• Compare prices
• For purchased foods
• For processed foods
• add the commodity

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Commodity Math 101

• 1 case purchased chicken nuggets 50.50 (145
  servings per case)
• Purchased Cost per serving
• five(5) nuggets .35

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Commodity Math 101

• Jims Chicken Processor is offering a chicken
  nugget that meets your specifications and is
  acceptable student preference.
• Processing fee per case 24.45
• (145 servings per case)
• (FOB destination delivery fee included)
• Processing Cost per serving
• five(5) nuggets .17

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• Add the DF value to the case cost

• value of the raw chicken .43/pound.
• Jims chicken 22 lbs/ case DF chicken.
• .43/lb x 22 lbs 9.46/case
• 9.46/case divided by 145 servings .07/serving.

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Lets Add It Up

• Processed
• FFS .17/serving
• DF Value .07/serving
• Total serving cost .24/serving
• Purchased .35/serving
• A SAVINGS OF .11/SERVING

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Ready, Set, Order!

• Decide to Process
• Procurement Guidelines Met
• Ordered Raw DF into Processor
• Complete Order
• Know how delivery and billing will happen with
  state/processor/mainline food vendor

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How the flow goes

• FFS established with Jims Chicken
• Issue a Purchase Order
• Order 1,000 cases
• Chicken Delivered
• Owe Jims 24,450.00

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• Negotiate Delivery schedule options with
  Processor.
• Pay attention to YIELD.
• Start small and work your way up.
• Set up a worksheet/spread sheet to track DF

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• Questions??

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Contact Us

• FNS General Commodity Inquiries
• FDD-PSB_at_fns.usda.gov
• FNS Commodity Processing Inquiries
• NPA_at_fns.usda.gov
• Gary Gay, Director FDD NC
• Gary.Gay_at_ncmail.net
• Daughn Baker, CN Director Davie Co.
• bakerd_at_davie.k12.nc.us