Food Retail Focus Shifts to Regulatory Environment

MARK HAMSTRA

WASHINGTON — For food retailers, the government-relations agenda for 2011 has, in large part, shifted from one of legislative concerns in Congress to one of regulation and rule-making among federal agencies.

The Democratically controlled 111th Congress moved a mountain of legislation — some of which retailers supported — that over the coming months will take shape through the federal agencies responsible for the laws' implementation. In addition, some legislation retailers have opposed, such as the Employee Free Choice Act, appears to have faded from prominence amid Republican gains, although retail associations pointed out that the National Labor Relations Board could still seek to bring about some similar, unwanted changes for some businesses.

Other issues on the agenda this year for food retailers include implementation of the Food and Drug Administration Food Safety Modernization Act and the debit-card interchange piece of the financial reform legislation. In addition, retailers will seek to make some gains in tweaking the massive health care overhaul that Congress passed last year, and will also begin seeking to shape the 2012 Farm Bill — all against a backdrop of a weak economy, high unemployment and concern over the federal deficit.

“We will be facing the challenges of the budget this year,” Jennifer Hatcher, group vice president, government relations, Food Marketing Institute, told SN. “There are the budgets that not only the federal government is up against, but, perhaps even more critical, the budgets in the states. Revenues will need to be raised, and programs will need to be cut, and that will be an important part of what we do this year.”

Thomas Wenning, executive vice president, National Grocers Association, said that the overarching themes in Congress for the next two years will be employment, the economy and the 2012 elections.

“Those are the three parts of the triangle that will be affecting the legislative and regulatory environment,” he said. “There will be a lot of focus on the 2012 elections by the end of 2011.”

In the meantime, retail groups have been busy putting out fires like the more aggressive stance of the NLRB, which has supplanted EFCA as the critical labor issue.

“[EFCA] has very little chance of going anywhere on the legislative side, but we have a tremendous challenge on the regulatory front with the NLRB,” said Hatcher. “There are different things they are considering now and could consider further.”

Among the items reported to be under consideration at the NLRB are:

• Greater union access to employer property.

• Allowing employees to hold secret-ballot elections.

• Reduced time between employee petitions and union elections.

Another issue the NLRB could bring up is the incorporation of electronic elections, Hatcher explained, which presents “a number of challenges,” such as the potential for error or fraud.

“When you introduce a new way of doing things, you need a whole new system of verification,” she said.

Hatcher said FMI's plan is to comment on the proposed rules, and also to comment on certain legal cases that the NLRB brings against employers.

INTERCHANGE RULES

“We don't want to allow things to go through without full consideration,” she said.

Wenning said NGA also is keeping a wary eye on the NLRB, and earlier this month, in fact, filed an Amicus brief in a labor-related case against Roundy's Supermarkets concerning the distribution of leaflets by non-employees on Roundy's property.

In that case, the NLRB is supporting an administrative law judge's ruling that Roundy's was wrong to expel the Milwaukee Building and Construction Trades Council protesters from about two dozen Roundy's parking lots. The protesters were asking customers not to shop at the stores because the council alleged that Roundy's used nonunion construction workers.

“We are urging the NLRB to abandon its decision in the Roundy's case,” Wenning said.

Labor issues overall are one of the most important issues NGA sees on the legislative and regulatory agenda for 2011, trailing only tax reform, he pointed out.

NGA has been working with its law firm, Epstein Becker & Green, to help educate its members on labor relations in the current environment.

Another issue that has migrated from the legislative to the regulatory arena is debit-card interchange fee reform, although that issue could wind up back in the legislative arena if House Republicans, as they have promised, seek to overturn parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Federal Reserve has proposed a rule on debit-card fees that, it appears, would significantly lower the fees retailers now pay. The proposal suggests two options for banks and card issuers that could place the rate between 7 cents and 12 cents per transaction.

Retailer groups, however, said the fees should be even lower.

“We think the [proposed] rate piece is too high,” said Hatcher of FMI. “The Fed says it costs 4 cents for authorization, clearing and settlement, and if the law says the fee should be for authorization, clearing and settlement, then that's what it should be — not authorization, clearing and settlement plus some nebulous amount.”

However, she said FMI believes the Fed is “on the right track — they considered the right things, and they are moving in the right direction.”

Another component of the debit-card fee rule would be an additional amount banks could charge for fraud protection, which could be as much as 1.8 cents per transaction, Hatcher said. The Fed is still working on that calculation, but Hatcher said FMI believes that should not hold up the rule-making process.

“They can work on the fraud adjustment later,” she said.

Public comments on the proposed rule are due Feb. 20, and the rule is expected to be finalized by the end of April.

Opposition to the law remains strong among the big credit-card issuers, however.

“There are certainly big banks that have fought us from the beginning, and they will continue to do so,” Hatcher said. “You can see the boondoggle of this thing — if the real cost of this is 4 cents, and they are getting 84 cents, there's a lot of silver lining there.”

TAX REFORM

Another aspect of the rule that retailers are keeping an eye on is the requirement that card issuers offer at least two processing networks on each card to generate competition. FMI believes that to break the stronghold of MasterCard and Visa, card issuers should offer two networks each for both PIN debit and credit on bank cards.

Wenning said NGA, which, like FMI, is part of the 23-member Merchants Payment Coalition that has long fought for the legislation, will also be filing comments on the proposed rule, both on its own and as part of the MPC.

“We support many of the things Fed has proposed — we think that's a positive step in the right direction, and we think there's more than can be done. We think the cap of 12 cents is a significant improvement over what they charge now, and we think it could even be lower — we think it could be as low as 1/3 of a cent to 1½ cents.”

The estate tax and corporate tax rates remain high on retailers' agenda in 2011, as the relief that was passed at the end of 2010 is only temporary.

The $5 million exemption and 35% rate on the estate tax, which had elapsed in 2010, will be in effect through 2012.

Hearings were scheduled last week in the House Ways and Means Committee on the subject of tax reform.

“We feel that estate tax permanency — either repeal or relief — needs to be a part of that,” Wenning said.

In addition, Wenning said NGA will remain involved in the debate over lowering corporate tax rates and allowing various deductions and credits. NGA members will benefit from 100% expensing of depreciation in 2011, but it remains uncertain how that issue will be treated going forward, he noted.

In addition, many NGA members, as Subchapter S corporations, are taxed as high-income individuals, so proposals such as the one last year that would have eliminated lower rates for people making $250,000 a year or more are of concern.

Wenning noted that since House Ways and Means Committee Chairman Dave Camp, R-Mich., has opened up the debate on tax reform, NGA is optimistic that 2011 could see some activity on the issue.

FARM BILL

“The question is, what happens when it gets to the Senate,” he said.

Hatcher of FMI noted that Sen. John Kyl, R-Ariz., was scheduled to speak at this week's FMI board meeting on the topic of estate-tax reform.

“Estate tax is at the top of the radar screen, and if we think there is any opportunity, we will look at that,” Hatcher said. “The goal is 100% repeal, but the question is what is doable. Sen. Kyl did as much as he could do in the last political environment — the question is whether the environment is any different now.”

Retailers also will be closely watching the Farm Bill, for which much of the groundwork will be laid this year before it comes up for reauthorization in 2012. It includes a broad range of issues, from nutrition benefit programs to retailer development in underserved areas, or so-called “food deserts.”

“We want to be involved in [the Farm Bill] on a host of different fronts, but in particular on nutrition policy,” Hatcher explained.

Along those lines, she said FMI recently met with presidential advisor Valerie Jarrett on the topic of voluntary front-of-pack nutritional labeling.

“We laid out to her what we intend to do with this, and it was very well received,” Hatcher said. “We are working to come up with guidelines that people can use for these labels.”

A growing issue for retailers related to the Farm Bill is the distribution of Supplemental Nutritional Assistance Program (SNAP) benefits, formerly known as food stamps.

“We're looking at that from both a legislative and a regulatory angle,” Hatcher explained, noting that the primary driver is to have states issue the benefits across a longer time frame, rather than at the start of each month.

“We still have 10 states that issue benefits on only one day a month, either the first or the fifth. Still, it's the same problem — cows don't produce any more milk on the first day of the month than they do on the 12th, so you have a problem with all that demand for fresh product.”

In addition, the influx of shoppers at the start of the month creates labor-scheduling issues, retailers say.

“A number of our members are passionate about this issue,” Hatcher explained.

She noted that it might be helpful if the USDA came out with some guidance on the issue. FMI has been seeking to gain the support of some consumer advocacy groups in the effort.

“We think if we can get a larger group behind this, it will help,” she said. “If it comes down to changing the language in the Farm Bill, that's another possibility.”

Financing for retail development in food deserts, she explained, is another important issue for many FMI members, although she noted that opportunities on that issue might be dwindling.

“The political environment is very different on this issue than it was a few weeks ago,” she noted, especially given the budget crisis.

FOOD SAFETY

NGA is also concerned about elements of the Farm Bill, SNAP distribution and food deserts, Wenning explained.

“There are a lot of independents and NGA members that are ideally suited to go into food deserts with assistance, either national or local, that could provide healthy foods in these areas,” Wenning said.

New nutritional labeling requirements from the USDA covering popular cuts of meat are also a concern, Wenning said, “particularly for retailers who grind their own meat products.”

After the passage of the FDA Food Safety Modernization Act last year, retailers have also moved to the regulatory side of that issue as well in 2011.

HEALTH CARE

“There will be a number of different regulatory pieces on food safety, and we will be involved in 90% of it,” Hatcher said, citing issues related to registration of distribution and manufacturing facilities and traceability.

Wenning said NGA will also seek to assist members with compliance.

“Overall, we're satisfied with the way it was passed,” he said, “but it was a very detailed bill, and there will be a lot to look at as far as meeting all the requirements,” especially for those operators that have manufacturing facilities.

In terms of the Affordable Health Care and Patient Protection Act, Hatcher said FMI will be seeking to lessen the impact of or eliminate some provisions.

“We see opportunities in both legislative and regulatory arenas,” she said, noting that FMI has ongoing bi-weekly phone conferences on the topic.

One of the “obvious issues” with the law, she said, is the elimination of certain OTC items that are eligible for health spending accounts.

“It makes no sense that contact solution is an eligible item and Claratin is not an eligible item,” Hatcher said. “That's bad policy that needs to be repealed.”

Another issue is the measurement of full- and part-time employment for the determination of benefit eligibility. FMI is pushing for a yearly evaluation of employee status, rather than monthly “look-back.”

“It would be cumbersome to look back over previous months every month to determine whether employees are full-time or part-time, because there are so many part-time employees in the industry.”

In addition, retailers are concerned about the requirements that accompany providing insurance to part-time workers, she noted.

Wenning also said health care reform could have “a significant impact on the independent community.”

“We are going to look for areas where we can get relief,” he said. “Coverage of part-timers is already having a significant impact on independents — they are covering more than in the past, and it is more expensive.”

Other issues that could come up in 2011 include pension reform. Retailers are seeking to get some relief from the burden of supporting workers from companies that have gone out business but were part of multi-employer pension funds.