Over the years, several methods for adulterating juice have been used. Adulteration ranges in sophistication from simply diluting juice with water to adding beet sugar, the adulterant that is most difficult to detect. Introducing these ingredients is not illegal; however, knowingly selling the resulting product as pure juice constitutes fraud. Processors can increase their margin of profit or undercut competitors' prices to increase sales by adulterating juice and selling it as 100-percent-pure juice. Although these types of adulteration provide an economic advantage (and are therefore referred to as economic adulteration), they pose little threat to the public's health and safety. The nutritional benefits of adulterated juices are generally similar to those of their pure counterparts, and the adulterated products are usually considered harmless except for customers who are allergic to a substituted ingredient. Orange juice and apple juice are the most widely purchased juices for the school meal programs, as well as for consumption nationwide. For example, orange juice represents almost 45 percent of the fruit juice served by schools. For the 1994 school year, schools purchased over 98 percent of the juice they served directly from vendors, obtaining the remainder through one of the U.S. Department of Agriculture's (USDA) commodity distribution programs. Two federal agencies--the U.S. Department of Health and Human Services' Food and Drug Administration (FDA) and USDA's Agricultural Marketing Service (AMS)--have primary responsibility for ensuring the quality and safety of the fruit juice served in the federal school meal programs. A third federal agency, USDA's Food and Consumer Service, is responsible for setting minimum nutrient requirements for the meals served in the school meal programs. In addition, the Department of Justice (Justice) prosecutes companies and individuals suspected of adulterating fruit juice products. FDA has oversight and regulatory responsibility for domestic and imported food products sold in interstate commerce. To ensure that foods are safe, wholesome, and honestly labeled, FDA monitors the food industry, including fruit juice processors, by periodically inspecting production facilities and occasionally sampling and testing products. FDA's standards identify the sweeteners that may be added and specify certain labeling requirements and maximum levels of water (expressed as minimum solid contents) that juice may contain. FDA investigates companies suspected of violating these standards and refers cases to Justice for criminal fraud prosecutions. AMS has responsibility for inspecting and grading food products. The agency grades the quality of juice on the basis of such factors as appearance, color, flavor, aroma, and defects, as well as the level of water, acid, and oils in the juice. AMS grades products sold to USDA's commodity programs and provides fee-for-service inspections to companies that want AMS to certify other food products. However, there is no federal requirement that AMS inspect or grade the juice that schools purchase directly from vendors for the school meal programs. The Food and Consumer Service has responsibility for administering the child nutrition programs sponsored by USDA. The agency subsidizes the cost of school meals and sets nutritional standards for the meals. These standards require schools to serve fruit, vegetables, or pure fruit juice on a regular basis. Although schools may serve "juice drinks" that are less than 100 percent juice, only pure juice meets the standards for nutrients established by the Food and Consumer Service. For example, to satisfy the school breakfast requirements, schools may serve a 1/2-cup portion of 100-percent-pure juice. Serving a 1/2-cup portion of 50-percent-pure juice would satisfy only half of the breakfast requirements. The agency also distributes federal commodities, including a relatively small amount of juice, to schools. To protect the government's interests in the event that a vendor has been convicted of fraudulent practices, such as juice adulteration, the Food and Consumer Service has the authority to administratively suspend for up to 1 year or debar for up to 3 years a company or individual from selling to the government or government programs, such as the school meal programs. Justice's Office of Consumer Litigation and U.S. Attorneys' offices prosecute fruit juice processors for violating federal fraud statutes. The Office of Consumer Litigation also forwards information on convicted companies and individuals to the Food and Consumer Service for possible debarment actions. The extent to which fruit juice purchased under the federal school meal programs is adulterated cannot be determined precisely at this time. Generally, AMS' and FDA's inspections are not designed to detect economic adulteration, and current tests cannot effectively detect adulteration at levels below 10 percent. In addition, schools do not take steps to determine whether the juice they purchase is adulterated. Although comprehensive data are not available, industry officials believe that the adulteration of apple juice is insignificant. However, on the basis of the testing that has been conducted for orange juice, FDA, USDA, the Florida Department of Citrus (FDOC), and private laboratories estimate that 1 to 20 percent of the supply is adulterated. AMS' inspections are designed to grade the product, and FDA's inspections are designed primarily to identify unsanitary conditions in food-processing plants. These agencies do not routinely inspect all U.S. juice-processing plants, which number over 500. Most inspections do not include tests for adulteration. Moreover, the tests for adulteration performed by these agencies and by private laboratories have limitations, and most are expensive. AMS' inspections are not designed to detect adulteration, but rather to grade products in accordance with AMS' standards. Lot inspections, which look only at juice and not at a plant's operations, can allow illegal activities, such as adulteration, to occur in the plant without being observed by the inspector. According to AMS officials, even during an in-plant inspection, which looks at both juice and a plant's operations, an inspector can identify adulteration only if a company is blatant in its actions and the inspector observes unusual piping arrangements or substances commonly used as adulterants. AMS' inspections are mandatory only for juice produced for USDA's commodity distribution programs and for juice processed in Florida. Therefore, many juice processors in the United States do not have their products inspected by AMS. In fiscal year 1995, for example, AMS inspected the operations and juice products of 130 plants. (See app. I for additional information on AMS' inspection services and costs.) AMS officials told us that the routine tests done to grade juice products, such as determinations of acid levels and solid contents, might identify some potential adulteration. However, these officials emphasized that such tests are not designed to identify potential adulteration. In a special agreement with the state of Florida, AMS also tests frozen concentrated juice coming into the state for economic adulteration, among other things. However, this juice accounts for only 15 percent of the juice processed in Florida. FDA's inspections of juice plants are likewise not specifically designed to detect the economic adulteration of juice. These inspections are instead done primarily to determine if a juice plant engages in good manufacturing practices. As a result, such inspections focus on sanitary conditions at the plant, as determined primarily by the inspector's visual observations.Furthermore, FDA does not inspect all juice plants each year. From 1992 to 1994, FDA inspected no more than 20 percent of the nation's over 500 juice plants in any one year. In fiscal year 1992, FDA (and its contractors) inspected 77 juice plants; in fiscal year 1993, 70 plants; and in fiscal year 1994, 102 plants. Although FDA can test juice for adulteration at several of its laboratories, FDA officials told us that juice samples are not routinely collected for analysis. If an inspector observes something suspicious that might indicate a product is being adulterated, products may be selected for laboratory analysis to determine whether they comply with FDA's standards for fruit juice. For example, adulteration was detected by one inspector who happened to observe an employee adding other ingredients to orange juice. Even the presence of inspectors in the plant during processing does not preclude adulteration. Two companies convicted of adulterating juice since the mid-1980s had their juice inspected by AMS and FDA while they were adulterating it. One company had been adulterating juice while AMS was inspecting its plant and certifying its juice as USDA Grade A. The adulteration went undetected because it occurred at night when the AMS inspector was not in the plant. The company also passed an inspection by FDA during the same period. Another company was also inspected by AMS and FDA but evaded detection by elaborately modifying the structure of its plant to hide a sophisticated piping system through which beet sugar was added to orange juice. With today's testing technology, it is not possible to detect all adulterants in juice. Most experts agree that current tests cannot effectively detect adulteration levels below 10 percent. Tests that examine the sugars in the juice to determine their authenticity appear to be the most sensitive. These tests can generally detect adulteration rates as low as 10 to 20 percent. Government and industry experts agree that a battery of tests is needed to verify that nothing has been added to or substituted for pure juice. The costs of analyzing juice samples for adulteration range from $15 for a basic test to identify dilution with water, to $700 for a test to identify the presence of pure beet sugar. A battery of tests to detect adulterants in orange juice and apple juice, excluding the most sophisticated test to detect pure beet sugar, can cost from $450 to $800. Currently, only a few government and private laboratories in this country can conduct such a complete analysis for authenticity, and the most sophisticated test used to detect beet sugar is not currently available in the United States. (See app. II for additional information on tests and costs.) Few if any school districts take steps to ensure that the juice they purchase is free from adulterants. Food and Consumer Service officials told us that schools rely on government regulators and assume that juice processors are complying with federal and state laws. Sixteen of the 18 school districts we contacted required 100-percent-pure juice to meet the Food and Consumer Service's nutritional standards, but none of these districts took additional steps to ensure that the juice they purchased met this specification. Instead, the schools relied primarily on the integrity of the vendor and the product label. Six districts also required that their juice be graded by AMS to further ensure its quality. Estimates of the extent to which juice is adulterated vary according to the kind of juice and the type of customer. Government and industry experts said that in their experience, adulteration rates for apple juice are insignificant. However, estimated rates of adulteration for orange juice (based on limited testing by government and private laboratories) range from a low of 1 percent for juice sold in the retail market to as high as 20 percent for juice sold to institutions, such as schools. The lower end of this range comes from retail and institutional testing by AMS' and FDOC's laboratories. For example, FDOC found that about 1 percent (16 out of 2,503) of the juice samples that it tested from August 1992 to April 1995 were adulterated. The higher end of the range comes from testing by private laboratories and FDOC of juice sold in the institutional market. For example, FDOC found, under its program for monitoring adulteration, that from August 1992 to April 1995, 18 percent of the samples destined specifically for the institutional market were adulterated. Government and industry experts believe that the institutional market, which is generally the source of juice for the school meal programs, is more vulnerable to adulteration than the retail market because juice is less likely to be tested in this market. (See app. III for more information on estimates.) According to government and industry experts, the incentive for adulteration increases when the price of orange juice rises. FDOC's monitoring program found, for example, that when juice supplies were down because of the freezes during the early 1980s, orange juice was extensively adulterated with pulpwash and diluted with water. In 1981, 50 percent of the samples analyzed in accordance with Florida's standards were adulterated with pulpwash, and in 1984, 32 percent were diluted with water. FDOC officials attributed the high adulteration rates to the reduced supplies of frozen concentrated orange juice and higher prices, which created an economic incentive to adulterate orange juice. In contrast, the supply of concentrated orange juice is currently high, and the prices for it are low. Industry figures show that the total volume of domestically produced and imported orange juice increased by 31 percent from 1990 to 1994. During the same period, the annual average price of frozen concentrated orange juice decreased by 41 percent. Hence, FDOC officials believe that the incentive to adulterate has decreased and the level of adulteration is comparatively low. Since the mid-1980s, Justice has successfully prosecuted six of seven fruit juice adulteration cases. These successful actions resulted in fines and settlements of more than $11 million and prison sentences for company employees of up to 104 months, as table 1 shows. Collectively, 32 employees were convicted of felonies or misdemeanors. Federal prosecutors believe that the fruit juice industry is less subject to fraud today than it was 10 years ago because of the publicity surrounding these prosecutions and the significant prison sentences imposed by the courts. Estimates of the magnitude of the fraud associated with the individual prosecuted cases ranged from about $2 million to $37 million and represent the difference between the processor's costs for pure juice and for adulterated juice. However, these estimates may understate the true magnitude of the fraud because they are based on available company records, which may be incomplete. For example, prosecutors said the adulteration scheme in one case probably began in 1979, but the $10.3 million estimate of the fraud's magnitude was based on company records that were available only from 1985. In addition, since prosecutors base these fraud estimates on reduced costs to producers, the ultimate impact on customers is not known. Instead of using differences in retail prices, prosecutors use differences in the cost of ingredients to estimate the magnitude of the fraud because they generally lack complete information on who purchased the juice and at what price. Prosecutors said the impact on customers is further obscured by the widespread practice of repackaging and distributing adulterated juice products under several brand names at different prices. For example, adulterated concentrated juice in one fraud case was sold over a period of several years under more than 20 brand names in at least 29 states. The Food and Consumer Service has initiated debarment actions against companies or former employees in four of the six successfully prosecuted cases. Collectively, it has debarred or is debarring 21 individuals associated with these cases and all three companies that remain in operation. Debarment actions were not taken in two cases prosecuted before the agency was authorized to take such actions in March 1989. Government and industry officials identified two primary options for enhancing the detection of adulterated fruit juice: conducting in-plant inspections and instituting a juice-testing program. Officials agree that inspections alone, no matter how comprehensive, cannot effectively identify juice adulteration. Most experts believe that juice testing, used in conjunction with definitive purchasing specifications for juice, would enhance the ability of the federal government and school districts to detect adulterated juice. Both of these options, however, would be costly. Industry officials have proposed that all processors selling juice to schools for the federal school meal programs be subject to in-plant inspections by USDA. Under these inspection programs, inspectors would be located in the plants to observe processing and packaging operations and to sample juice for use in grading the product. The presence of such an inspector might serve as a deterrent by making it more difficult for adulterators to receive shipments of adulterants, store them on the premises, and add them to the juice during processing. However, as previously mentioned, in-plant inspections are costly and do not always detect adulteration. USDA's inspections would be labor-intensive and, according to the agency, would require it to hire at a minimum between 30 and 40 more staff. These inspections, charged to the juice processor, cost about $40 per hour. For example, USDA's in-plant inspections currently cost one plant selling a medium volume of juice (i.e., about 250,000 gallons) destined for schools about $8,538 per year. Some industry and government officials believe the added costs would place an unfair burden on small juice companies with fewer resources. A portion, if not all, of these added costs would likely be passed on to the school districts in the form of higher juice prices. Alternatives to observations made by in-plant inspectors are systematic or risk-based programs for testing fruit juice sold to schools. Many experts believe that school purchase contracts with definitive specifications for juice, combined with either of these two forms of testing, would reduce the likelihood of schools' purchasing adulterated juice. Systematic and risk-based juice-testing programs differ significantly in that systematic programs test a set number of samples at a set frequency, while risk-based programs vary the number of samples and the frequency of the testing with the estimated risk. Since the number of samples and the frequency of the testing can be reduced when the risk is thought to be low, programs based on specific risk factors tend to be less expensive than systematic programs. Under a risk-based testing program, school purchase contracts would include definitive specifications for juice and a provision for random testing that would form the basis for rejecting substandard juice. Such an approach would call for increasing the frequency of sampling and testing when certain high-risk factors were present. High-risk factors could include bids that were significantly below market; suspicious results from federal, state, or other monitoring programs; referrals from industry; or unusually high prices for concentrated juice that would presumably increase the economic incentive to adulterate juice. Although testing against juice specifications could reduce a school district's risk of buying adulterated juice, such testing would likely increase the cost of juice significantly. For example, the cost of purchasing fruit juice for the 1993-94 school year in the school districts we examined ranged from $7,600 in a small district to $240,000 in a large district. According to our calculations, the annual cost of testing for that period would have averaged about $6,400 per district if each district had tested only one sample of juice each quarter. Thus, for that 1-year period, the cost of testing in the small district would have been almost 84 percent of the entire cost of purchasing the juice. Many officials believe that if industry were required to incur the cost of testing, this cost would most likely be passed on to schools in the form of higher juice prices. The federal government would also incur additional costs in implementing and administering such testing programs. Such costs would include those that the Food and Consumer Service and FDA would incur in developing a set of definitive juice specifications, disseminating these specifications to the school districts, and educating the districts about the new testing program. Because of the many factors involved in these actions, we did not attempt to determine these costs. We provided copies of a draft of this report to AMS, the Food and Consumer Service, FDA, and Justice. We met with AMS' Deputy Director, Science Division, and Deputy Director, Fruit and Vegetable Division; the Food and Consumer Service's Branch Chief, Program Analysis and Monitoring Branch, Child Nutrition Division; and FDA's Director, Executive Operations and Consumer Safety Officer, Office of Plants, Dairy Foods and Beverages, Center for Food Safety and Applied Nutrition. These officials generally agreed with the factual accuracy of the report and made suggestions for technical revisions, which we incorporated as appropriate. We also discussed the report with Justice's Assistant Director, Office of Consumer Litigation, who said the report presents a balanced picture of the economic adulteration of fruit juice in this country and accurately reflects Justice's successful prosecution of cases in this area. He also made suggestions for technical revisions, which we incorporated as appropriate. We conducted our work from March through October 1995 in accordance with generally accepted government auditing standards. Details on our objectives, scope, and methodology appear in appendix IV. We are providing copies of this report to the appropriate congressional committees, interested Members of Congress, the Secretaries of Agriculture and Health and Human Services, the Attorney General, and other interested parties. We will also make copies available to others on request. If you have any questions, please contact me at (202) 512-5138. Major contributors to this report are listed in appendix V. The U.S. Department of Agriculture's (USDA) Agricultural Marketing Service (AMS) offers food producers three types of inspection services, as table I.1 shows. USDA requires that fruit juice processors agree to being inspected by AMS if they want to participate in USDA's commodity distribution programs. Otherwise, inspections are optional for juice processors. Number of juice plants inspected (FY 1995) Only those products sold to the government (the plant itself is not inspected) Several tests are available for detecting the various types of adulterants in fruit juice. The costs of these tests range from $15 to $700. However, the tests generally cannot detect adulteration levels below 10 percent, as table II.1 shows. Comprehensive or statistically valid data are not available on the extent to which orange juice is adulterated, but government and private laboratory officials' estimates ranged from 1 to 20 percent. The lower estimates were for orange juice sold to retail customers, and the higher estimates were for orange juice sold to institutions, as table III.1 shows. Table III.1: Estimates on the Extent of Orange Juice Adulteration Florida Department of Citrus (FDOC) Food and Drug Administration (FDA) Testimonial evidence based on laboratory experience. Testimonial evidence based on laboratory experience. Testimonial evidence based on laboratory experience. Testimonial evidence based on laboratory experience. Testimonial evidence based on laboratory experience. Testimonial evidence based on laboratory experience. The Congress mandated in the Healthy Meals for Healthy Americans Act of 1994 that we review the costs and problems associated with the sale of adulterated fruit juice to the school meal programs. Subsequent discussions with your offices refined the scope of the mandate into the following questions: (1) What are the nature and extent of the juice adulteration problem in the federal school meal programs, and can current inspection and testing methods detect adulteration? (2) What recent federal enforcement actions have been taken against juice adulterators, and what was the magnitude of the fraud? (3) What are the options for enhancing the detection of juice adulteration, including mandatory inspection of juice plants that sell their products to the federal school meal programs? To determine the nature and extent of the adulteration problem and the ability of current inspection and testing methods to detect adulteration, we contacted officials from the Food and Drug Administration's (FDA) Center for Food Safety and Applied Nutrition and Office of Regulatory Affairs, the U.S. Department of Agriculture's (USDA) Food and Consumer Service and Agricultural Marketing Service, and the Florida Department of Citrus, as well as academic experts and officials from private laboratories involved in testing juice for adulteration. We also contacted various industry associations, including the National Food Processors' Association, the Technical Committee for Juice and Juice Products (an independent organization), and the Apple Processors' Association. We contacted 18 school districts in the 6 states that receive the most federal funding for school meals (California, Florida, Illinois, New York, Pennsylvania, and Texas). We reviewed FDA's and USDA's regulatory standards for fruit juice and USDA's school meal requirements for fruit juice. We also reviewed relevant reports, technical publications on fruit juice testing, and data from FDA and USDA on fruit juice inspections. To determine recent federal enforcement actions taken against companies for adulterating fruit juice, we discussed prosecutions and the debarment of juice adulterators with officials from FDA, USDA, and the Department of Justice. In addition, we reviewed available literature on court cases and case files maintained by the Department of Justice. To determine the various options for detecting adulterated juice, we solicited the opinions of government and industry experts. We discussed these options with officials from FDA, USDA, the Florida Department of Citrus, state education offices, and school districts, and with industry experts, such as members of the Technical Committee for Juice and Juice Products. We did not fully analyze the cost implications of these options. Keith Oleson, Assistant Director David Moreno, Project Leader Wayne Marsh, Staff Member Jon Silverman, Staff Member Kathy Stone, Staff Member The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. 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Summary:
Pursuant to a legislative requirement, GAO reviewed the sale of adulterated fruit juice to school meal programs, focusing on: (1) the nature and extent of the problem; (2) whether federal inspection and testing methods can detect juice adulteration; (3) recent federal enforcement actions taken against juice adulterators; and (4) options for enhancing the detection of adulterated juice. GAO found that: (1) juice adulterators have cut costs by adding less expensive ingredients to juice and labeling the product as pure; (2) although most school districts require that the juice it serves be 100 percent pure, they generally rely on the product label and the vendor's integrity to ensure that the juice meets nutritional standards; (3) the extent of juice adulteration is unclear, since juice plant inspections and laboratory tests are not designed to detect adulteration; (4) government and industry officials believe that apple juice adulteration is not a major problem, but as much as 20 percent of the orange juice sold to school meal programs may be adulterated; (5) the Department of Justice has convicted six juice adulterators and the Department of Agriculture has debarred three companies that remain in operation; and (6) in-plant inspections and juice testing programs are potentially effective but costly options for enhancing the detection of adulterated juice.