Major food industry organizations will press the 110th Congress hard in 2007 to scrutinize and potentially cap dramatic rises in credit and debit card interchange fees, combat organized retail crime, and make estate tax repeal permanent before its temporary window closes in 2011.
And while a minimum wage rise seems a near certainty, because Democrats see this as a key issue and the rate has been static since 1997, government relations executives told SN they're aiming to mitigate its retail impact through passage of tax and regulatory relief.
Meanwhile, the urgency that trade groups are showing on these fiscal concerns is matched by strides being taken to help ensure the safety of America's food supply following recent deadly E. coli outbreaks. The produce industry, for example, is already updating “Commodity-Specific Guidance for Lettuce and Leafy Greens,” an outline on how to comply with good agricultural practice recommendations that were first introduced last April, but which will now “include more specific measures that growers and shippers can take,” said Kathy Means, vice president of government relations, Produce Marketing Association, Newark, Del.
Debate over a new food-safety agency
Moreover, two trade groups — the Washington-based Grocery Manufacturers/Food Products Association and PMA — came out specifically in favor of additional resources to enable the Food and Drug Administration to more effectively monitor the nation's food pipeline. (FDA oversees most foods except for red meat, poultry and egg products, which are under the jurisdiction of the U.S. Department of Agriculture.) A third group, the National Grocers Association, Arlington, Va., urged Congress to assign a high priority to resources for the food safety subdivisions of both FDA and USDA.
Their stance contrasts with a proposal by Rep. Rosa DeLauro, D-Conn., to create a single new food safety agency that would essentially remove the food safety subdivisions from FDA and USDA and make them part of the new entity. She has pledged that a hearing on the legislation will be her first order of business as the new chairwoman of the House Agriculture Appropriations Subcommittee.
Anticipating “vigorous discussion and a serious look at a single food safety agency or a lead food safety agency, though its probably a long shot,” John Motley, senior vice president of government and public affairs, Food Marketing Institute, Arlington, said the trade group is sticking to its six-year-old position favoring “meaningful, long-lasting reform of the U.S. food regulatory system” through “a true single agency with total regulatory authority for the safety of the nation's entire food system — an existing agency, not a new one,” he emphasized. Since the resources needed for such an agency already reside within current agencies, FMI feels the challenge is primarily one of reallocation at minimal expense.
“FDA has done a tremendous job of marshaling resources to confront the changing food safety landscape,” said Sean McBride, vice president, communications, GMA/FPA. “[It] will need additional resources to keep pace with emerging issues and rapid developments in food science.”
He noted that his trade group helped initiate the Coalition for a Stronger FDA, which advocates a substantial increase in the agency's budget over the next five to six years.
Meanwhile, Erik Lieberman, director of government affairs, NGA, cautioned: “Don't simply reshuffle the agencies. Placing an additional layer of bureaucracy on top of both agencies could be counterproductive and lead to problems similar to those faced by the Department of Homeland Security.”
Health, wellness issues on the table
Other health and wellness issues the trade groups expect Capitol Hill to address this year include:
Uniform national food safety and warning-labeling standards. “Currently, the FDA and each of the 50 states can require warning labels on packaged foods, leading to a regulatory nightmare for manufacturers and confusion for consumers,” said GMA/FPA's McBride, as he explained why the industry will continue to advocate passage of the National Uniformity for Food Act.
Country-of-origin labeling for produce. Since country-of-origin labeling is already under way on a voluntary basis, and labeling mechanisms are already in place for 80% of produce sold in U.S. food stores, leading produce associations prefer a voluntary resolution over a mandatory labeling law due to go into effect on Sept. 30, 2008. “Marketers should have the flexibility to label in ways that make sense for them. We're fine with a voluntary program that lays out how much produce needs to be labeled in order to be counted as labeled — say, 70% of the top 20 fruits and the top 20 vegetables, which equals about 90% of the produce Americans consume,” Means explained. “If the industry passes a USDA survey, we keep the voluntary program. If not, we want a chance to fix it. If we don't, then mandatory happens.”
The 70% benchmark figures were an agreement reached among the leading produce associations in the U.S. and a coalition of retail organizations, FMI's Motley said. “We spent the last year and a half discussing a different approach with the produce industry, which we were going to take to Congress last summer-fall, but we held off with the E. coli distractions, then the election and the change of leadership. Hopefully, we can get Tom Harkin (D-Iowa, chairman of the Senate Agricultural Committee) to see this is a better way to go than mandatory action.”
PMA also supports immigration reform, favored by President Bush, to develop an effective guest worker program because “our industry is heavily reliant on immigrant workers to harvest, pack and ship our crops,” Means said. PMA also wants the current Farm Bill of 2002 to quietly expire as scheduled in 2007 because it “hasn't fairly addressed all of U.S. agriculture,” she added. “It is heavily weighted to certain program crops, and the fresh fruit and vegetable industry — which represents about half of farm value — isn't adequately represented. We've never looked for subsidies or price supports like program crops get. We want to enhance competitiveness and increase consumption of fresh fruits and vegetables.”
To that end, PMA helped lobby successfully for passage of the Specialty Crop Competitive Act of 2004 and currently supports HR6193, the Equitable Agriculture Today for a Healthy America Act, which was introduced in 2006 but isn't currently on the docket. SCCA continues to provide block grants to states in proportion to their production of “specialty crops,” virtually all the produce found in supermarkets except potatoes. The states in turn allocate these funds to pest and disease research, as well as to nutrition and conservation programs approved by USDA, to help growers within their states.
Credit and debit card fees
While nationwide concern over food safety is virtually guaranteed to receive legislative attention, the industry's agenda of financial matters seems no less dire for its own health outlook.
Credit and debit card interchange fees are the most contentious financial issue of all. Two trends have converged to make these fees particularly onerous: their rapid rise, and their mounting frequency. Weis Markets, Sunbury, Pa., told SN last year, for example, that its interchange fees catapulted by 700%, and customer usage soared by 560%, over the past decade. FMI's annual financial review shows debit and credit cards were used on 45.6% of supermarket transactions in 2005. Another source estimated the dollar share of card usage approaches 60%, because purchases tend to be larger when cards are used.
The practical effect of these fees is a profit drain that puts retailer viability at risk and impedes trade growth. “The cost of interchange fees is a ballpark 2% [of store revenues], which exceeds industry net profit of ballpark 1%,” noted FMI's Motley.
FMI and NGA are pounding this message home to legislators. “This is one issue that's probably elevated the most by the outcome of the recent election. We already have a great deal of interest by different committee chairmen. The credit card industry will face continued pressure in Congress, and dramatically more pressure in states,” predicted FMI's Motley. “We're very hopeful we can shine a bright light on their industry practices and begin to talk about potential solutions.”
Industry hopes hinge on Rep. Barney Frank, D-Mass., who is expected to closely examine interchange fees as the probable new chairman of the House Financial Services Committee. He may bring an added bonus to retailers with bank branches, according to NGA's Lieberman: “He's been a champion of closing the industrial loan company loophole in federal banking law, which Wal-Mart is currently trying to use to establish a bank.”
Frank's scrutiny of the credit card industry would rejuvenate retailers that “want a transparent cost-based system where credit card companies have to compete for business,” Motley said. “The problem in coming up with solutions is we're in the dark. No one knows the operating rules of credit card companies. We've been asking. Committees have been asking. We expect the Financial Services, Banking, Judiciary and one or two of the Small Business committees to be involved.”
They'll pursue this, he contended, because legislators increasingly understand that the fees affect prices for cash-paying customers, as costs have to be generalized across everything sold in the store. “Their rates are complicated. You need a Ph.D. in math to understand them. They've changed their format to protect themselves more going forward against antitrust suits. They're easily accused and will probably be convicted of price-fixing,” Motley suggested.
FMI pegs the annual cost to consumers in interchange fees at $30.7 billion. “It is hidden, and people don't even realize they're paying it,” NGA's Lieberman said. Interchange fees aren't disclosed to cardholders, because Visa and MasterCard forbid merchants from disclosing them on receipts, NGA explained in an earlier statement. NGA members are typically smaller, family-run retail operators that incur higher fees on a percentage basis than larger chains.
FMI and NGA teamed with 16 other trade associations to form the Merchants Payments Coalition to fight for a more transparent credit card fee system; MPC represents 2.7 million retail sites.
Organized retail crime
Retailers suffer some $30 billion in merchandise losses a year due to organized retail crime perpetrated by gangs of thieves, with stolen goods fenced through flea markets, street vendors, websites and shady storefronts. But a means to battle back through federal criminalization of these activities is gaining strength. “The Justice Department hasn't wanted to expand the number of crimes that are federal crimes, because they lack resources to enforce them,” Motley explained. “Yet Democrats may be more open-minded on solutions” such as drafting legislation that would expand the reach of RICO statutes and allow prosecutors to go after the mechanism by which products are fenced, he suggested. “This is a bipartisan issue, and we've already received a warm welcome from Sen. Richard Durbin, D-Ill., the No. 2 ranking Democrat and a member of the Judiciary Committee.”
The strategy follows a successful 2006 on this front, in which President Bush signed into law legislation that established an FBI task force to focus on organized retail crime. The task force will help the industry establish a national database, to be housed and maintained in the private sector, to track and identify where crimes are occurring. The law also funds these initiatives with $5 million a year.
FMI contends further that public safety is at risk from diluted or expired medicines or unsafe infant formula sold in the fence markets, as well as from the potential channeling of ill-gotten funds to terrorists.
Minimum wage raise
The clean bill that Democrats want to pass quickly to raise the federal minimum wage in two increments over two years, from $5.15 per hour currently to $7.25 per hour, may lack the 60 Senate votes to clear initially. That, Lieberman said, could present the opportunity to add some tax and regulatory relief, which would soften the blow on smaller retailers and which President Bush favors.
“The increase is a foregone conclusion. It will pass the House very quickly. But we might see Republican and Democratic senators from rural states withhold support until such changes are added,” Motley said.
Estate tax repeal
Permanent repeal of the estate tax is a high-priority issue for NGA and FMI, but both organizations feel their latest best chance for that to happen failed this past fall when the Republican-controlled Senate vote fell a few votes shy of passage. “With Democrats in the majority of Congress, there's not much chance the issue will be revived again until the majority changes again,” Motley speculated. “They don't have to do anything to raise the tax again. They just have to let the 2001 law [that was part of a budget reconciliation package] go out of existence in 2011.”
A saving grace may be that “nobody wants to hurt family-owned businesses,” said NGA's Lieberman, whose 1,800-plus retail members are almost all family-owned. “We want to eliminate the burden of the death tax for them. The tax is devastating when one of the founders dies, and it makes it hard to compete against chains. What saddens me is I've heard from members in their 50s whose children are coming out of college and are trying to evaluate if they should work in the family business and if they'll be able to keep it going. This isn't something we want to have happen in this country.”
Indeed, Motley said, that's why this is “a dangerous issue for Democrats. If they won't go for full repeal, we might see compromise that provides a significant exemption to a couple, and somewhat lower tax rates. We've always been in favor of the lowest possible estate tax rate. It's possible we'll see a freezing of the rate where it is now at 40% to 45%, and perhaps a bit lower, though last year we'd hoped to get a compromise down to the 15% capital gains rate.”
Simply increasing the exemption won't have much beneficial effect for supermarkets, because each store has so much invested in brick-and-mortar, inventory, trucking, refrigeration and other capital equipment. “This is a huge issue for independents and any operations that are privately held,” he added.
Robinson-Patman not likely to go
Even if the Antitrust Modernization Commission urges repeal of the Robinson-Patman Act when it presents its findings to Congress in April, its suggestions won't be binding, and Democrats are unlikely to favor such an action, even though Federal Trade Commission Chair Deborah Platt Majoras referred to the law as unenforceable and called for its repeal in 2006.
“Robinson-Patman is one of the sacred cows. I'm skeptical Congress will deal with the issue,” Motley said.
Nevertheless, NGA is being vocal about its desire to strengthen the act to maintain a vibrant marketplace for consumers. In a recent position paper, Tom Zaucha, president and CEO, NGA, called the act “a leveling force for the playing field on which retailers, wholesalers and suppliers compete and consumers benefit. R-P has historically enabled suppliers to say ‘no’ to the unfair, unjustified and illegal demands of power buyers for various forms of competitive advantages over their rivals.”
Because the industry is split between operators that employ organized labor and those the don't, Motley anticipates a possible congressional push to allow union certification through signatures on postcards — a move that would eliminate the need for secret ballots. “Legislators may say that if, over time, a majority of employees sign a card, then a union would be automatically recognized,” he said. “Industry is very concerned. There'll be a lot of discussion and debate, but in the end I don't see the postcard legislation being enacted.”
Certainly the industry has worked through major shifts in political power before. But the convening of this Congress ends a 12-year Republican siege, and food industry lobbyists expect a Democratic imprint on a wide range of matters.
“It's a new Congress, with new leadership,” PMA's Means said. “Democrats are more regulatory-focused than Republicans, but they're also more focused on health and nutrition. One isn't better than the other, it's just different. We have the whole Congress to deal with.”
“We have to look realistically at what can be accomplished before the 2008 presidential and congressional elections,” Motley noted. “That doesn't leave a lot of time, with such a big agenda.”