# Presentation: 661895

## Basic Conceptsof CommodityProcessing

- Basic Conceptsof CommodityProcessing

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

## 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

## 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)

## How’s our driving??

- Cathie McCullough, Director FDD

## Operations Branch Chief

- Peggy Cantfil

## Dave Brothers

## Mary Beth Flowers

- Mark Crewdson

## What is the CommodityProcessing 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

## Our Sister Agencies

**AMS** – Agricultural Marketing Service
- “Group A” Commodities
- Beef, Pork, Poultry, Eggs, F&V
- “Surplus Removal”
- End Product Certification (Grading)
**FSA** – Farm Service Agency
- “Group B” Commodities
- Cheese, Grain, Oil, Peanut
-  “Price Support”

## 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

## 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

## 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.

## 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.

## Processing Agreements

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

## Yields

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

## Value Pass Through

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

## 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

## 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

## State Distributing Agency Role in Commodity Processing

## 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

- 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

- State Responsibilities

## State Responsibilities

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

## 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

## FLEXIBILITY

**What can commodity processing**
** ****mean to YOUR district?**

**	****Menu planning**
**	****Less prep**
**	****Food Safety**

## ASSURANCE

**Why should a school process?**

**	****HACCP – Safety issues**
**	****Maximize commodity $$**

## Where to Begin?

**Where to Begin?**

## Where to Begin?

**Where to Begin?**

**	****Evaluate**
**	****Identify**
**	****Select**

**Notes:**
Evaluate current purchased food items to potential processed products. Identify one or two items to begin with. For example, chicken nuggets or hamburger patties are staples in every cafeteria.

## How does a school start a processing

**program in their district?**

**	****Contact State Agency**
**	****Talk to local CN Directors**

## How does it work 

**in North Carolina?**

## What does your district process?

**	****Chicken**
**	****Beef**
**	****Cheese**

## WHY?

**	****Better $$$**
**	****Fully utilize Commodities**

## Where do you spend most of your

**Commodity $$$$ ?**

## Do you understand USDA’s 

**processing methods?**

**	****100%**
**	****SY**
**	****GRO**
**	****GMR**

## What methods do you use

**To get back your “value”?**

**	****FFS**
**	****Rebate**
**	****NOI**

## How do you track inventory

**At the Processor?**

## Sample Worksheet

| Price to assign each processed case for “receiving” purposes
Calculations | Product
Name | Amount
Ordered | Amount of DF received this order | NOTES |
| --- | --- | --- | --- | --- |
| DF/case of product
22 lbs
Per Jim’s Chicken Processor | Jim’s Chicken Nugget #11123 | 1000 cases | 1,000 X 22=
22,000 lbs. | Shipment was short 5 cases. Will reship. |
| $ Value of 
DF raw Commodity
.43 Value from NC 209 report |  |  |  |  |
| .43 x 22=$9.46 |  |  |  |  |

## Processing

**Example**

## Compare prices
For purchased foods
For processed foods
add the commodity $$$

**For purchased foods**
**For processed foods**
**add the commodity $$$**

**Commodity Math 101**

**Notes:**
Compare prices.
For purchased foods, that is easy (just look at your invoice).
For processed foods, you must consider the “processing fee for service” per case
AND 
	add the commodity dollar value of the donated food (DF) that is in one case of their product.

## 1 case purchased chicken nuggets = $50.50 (145 servings per case)

Purchased Cost per serving:
five(5) nuggets =$.35

- Purchased Cost per serving:
**five(5) nuggets =$.35**

**Commodity Math 101**

## Commodity Math 101

***Jim’s 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**

## Add the DF value to the case cost

**value of the raw chicken = $.43/pound.**
**Jim’s chicken 22 lbs/ case DF chicken. **
**$.43/lb x 22 lbs = $9.46/case**
**$9.46/case divided by 145 servings = $.07/serving.**

## Let’s Add It Up

**Let’s Add It Up**

**	****Processed:**
**	****FFS = $.17/serving**
**	****DF Value = $.07/serving**
**	****Total serving cost = ****$.24****/serving**
**	****Purchased:  ****	****  ****$.35****/serving**
**A SAVINGS OF ****$.11/SERVING**

## 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

**Notes:**
Once you have determined that you are going to process, and all of the procurement guidelines have been met, you have ordered the raw commodity from USDA, you begin by completing for ordering form provided by your processor.
Refer to definitions and terms in earlier slides.  It really is GREEK! You will need to know how your state/processor/mainline food vendor will work with you on delivery and billing.

## FFS established with Jim’s Chicken
Issue a Purchase Order
Order 1,000 cases
Chicken Delivered
Owe Jim’s $24,450.00

- Issue a Purchase Order
- Order 1,000 cases
- Chicken Delivered
- Owe Jim’s $24,450.00

**How the flow goes...**

**Notes:**
We are going to assume (again) that you are going to pay the fee for service directly to Jim’s Chicken Processor. 
You have determined that you will order 1,000 cases of chicken nuggets, and you will owe Jim $24,450.  A purchase order need to be issued.  I pay this fee for service out of our regular purchased food account (check with your state or local finance officer to determine what account code you should use).

## 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

- Pay attention to YIELD.
- Start small and work your way up.
- Set up a worksheet/spread sheet to track DF

**Notes:**
Negotiate Delivery schedule options with Processor.  Most processors will allow you to spread large deliveries over a year. 
Pay attention to the yield’s a product will have.  You may end up with a lot more than you realize.
Start small and work your way up.
You will need to have a worksheet/spreadsheet to have for verification on your DF case value calculations, especially when you do multiple products from one type of raw commodity (such as nuggets, patties, and tenders).  Each product may have different DF values per case.

## Questions??

**Questions??**

**Notes:**
Negotiate Delivery schedule options with Processor.  Most processors will allow you to spread large deliveries over a year. 
Pay attention to the yield’s a product will have.  You may end up with a lot more than you realize.
Start small and work your way up.
You will need to have a worksheet/spreadsheet to have for verification on your DF case value calculations, especially when you do multiple products from one type of raw commodity (such as nuggets, patties, and tenders).  Each product may have different DF values per case.

## Contact Us

- FNS General Commodity Inquiries
- 		FDD-PSB@fns.usda.gov
- FNS Commodity Processing Inquiries
- 		NPA@fns.usda.gov
- Gary Gay, Director FDD NC
- 		Gary.Gay@ncmail.net
- Daughn Baker, CN Director Davie Co.
- 		bakerd@davie.k12.nc.us