USDA Foods

Overview

The current USDA Foods Program—formerly referred to as the USDA Commodity Distribution Program and administered by the Agricultural Marketing Service (AMS) and the Farm Service Agency (FSA)—provides approximately 15-20% of the food used to prepare meals in Child Nutrition Programs. The funds are allocated to the states on a per meal basis. School districts receive their portion of the allocation based on how many reimbursable meals were served in the prior year multiplied by the rate set for that year. In school year 2014, the rate was $0.2325 per meal.

Background

The program, which began in 1935 to support American agriculture and stabilize the farm economy, became a part of the National School Lunch Program that began in 1946. In addition to its role as a check and balance for the agricultural economy, the USDA Commodity Distribution Program serves as a nutrition “safety net” that supports the NSLP, Summer Feeding, Child and Adult Care Food Program, and other emergency food distribution programs. The majority of the 1.9 billion dollars distributed via USDA Foods goes to school districts.

Commodities make up only 15-20% of your plate costs, but the amount of time and focus spent by the school districts to manage their commodity allocation can be significant depending on the size of the district and the type of menus served. Making full use of the commodity value is not something that every school district does well. Individual states and the USDA Food and Nutrition Service offer a lot of information and assistance to help school districts spend the allocation. But truly understanding the complex environment of USDA Foods remains a challenge for even the most seasoned procurement professional.

The most widely used handbook for school districts with regard to the overall understanding and handling of USDA Foods is the American Commodity Distribution Association’s School Recipient Agency Processing Handbook (ACDA RA Handbook). This regularly updated guide provides one the clearest and most detailed explanations for the distribution of USDA Foods to schools. Another excellent detailed examination and critique of the role of USDA Food in schools meals was published by our colleagues at School Food FOCUS. We suggest these readings primarily because USDA Foods are often misunderstood, both by school personnel as well as the general public. Fully grasping the system and potentially its broader impact of how we plan menus and make procurement choices is important to the overall topic of school food change.

The State's Role

Anyone who has crossed a state line in their school food service career can attest to the fact that the commodity program—how it’s distributed, the dates that orders are due, and the foods that are offered—is not the same from state to state. Since each state is the administrator for the USDA Food distribution, there are many nuances for districts to navigate, so understanding how your state manages and distributes commodities is essential.

There is a huge list of USDA Foods that is updated annually based on the planning of the AMS and FSA, but most states do not inventory every product. Typically, each state sends out a survey in the fall to find out which foods school districts are interested in using in their menu. Depending on volume, the state may or may not make the foods available in their inventory. Distribution of food is also different by state; it may be handled by different state agencies like health and human services, the state child nutrition division, or the state agriculture department. Some states have passed the commodity distribution over to cooperatives, as is the case in Michigan where all school districts must join one of three buying cooperatives in order to access their commodity allocation. The bottom line: get to know the representative(s) who manage your state’s program.

The variety of administrative models for USDA Foods management across the 50 states seems to override the efficiency that the federal government attempted as it undertook the task of digitizing the system for all agencies working with commodities. The resulting Web Based Supply Chain Management (WBSCM) system addresses all aspects of commodity management for both the FNS, AMS, and the FSA, but access to the system by the recipient agencies (RAs ‒ in our case, school districts) is controlled by the states, so there is no universally accepted process across all school districts with regard to how they plan, request, or receive their commodities. It often leaves us wishing that we could just have the cash. But “cash in lieu” is only fully available in one state, Kansas, plus a few isolated school districts scattered across the country. Some have argued that the cost of managing the current program outweighs the benefits. Furthermore, the 1.9 billion dollars spent to create a check and balance for the agricultural economy represents only a fraction of the actual agricultural cash receipts nationally, suggesting that the economic justification for the USDA Commodity Distribution is outdated and not necessary. Advocates for “cash in lieu” like to point out that school districts could invest in regionally produced foods, which would support the agricultural economy of their state and local area. Nonetheless, until “cash in lieu” gains traction we must manage our USDA Foods allocation to the maximum benefit of our menu planning.

Types of Distribution

The two primary types of commodity food distribution as described by the ACDA RA Handbook:

Direct Delivery: Also known as “brown box”: Products, which USDA purchases for delivery to Recipient Agencies, Direct delivery items include both unprocessed and minimally processed products as well as further processed “value added” items. Unprocessed or minimally processed items include like canned or frozen fruits and vegetables, raw ground beef, cut up chicken and whole-body turkey, roasted pieces, and sliced cheese. Value added products include items like turkey taco meat, roasted chicken pieces, and frozen fruit cups. These products are not diverted to processors for further processing.

Direct Diversion: Items purchased in bulk form for shipment to further processors on behalf of RAs. Diverted items include chilled chickens and turkey, coarse ground beef and pork and similar items that are used in making finished end products for RAs.

On the Lunch Box we will refer to “direct diversion” as “pass-through” commodities, which are bulk goods that are diverted and passed through to manufacturers (aka “processors”) for further processing. From there, the processors either ship directly to the school districts or the products are delivered to the districts through their distributors. Likewise, In lieu of “direct delivery” we will use the term “brown box” to describe goods that are shipped in standardized finished case packs directly via the USDA. In both instances we acknowledge that the USDA would prefer that we call them “USDA Foods,” but “pass-through” and “brown box” are widely recognized by school food service professionals.

Commodity Foods – Cost and Value

The most common use of commodity foods, regardless of whether your emphasis is on brown box or pass-through, has been to focus on proteins and the center of the plate. The logic has to do with the value of a particular commodity as compared to acquiring the same or similar product commercially. Volatility in the modern commodity market—particularly in beef, chicken, dairy, and pork (the highest categories in commodity allocation)—do require more care in decision-making with regard to commodity allocation decisions.

However, we cannot presume that a commodity product will always be less expensive than a commercial product. It is important to evaluate the fair-market value of all commodity products as compared to the commercial acquisition of the same or similar product. Shipping, storage, and handling costs should also be evaluated as part of the product cost. In addition, every product needs to be considered with regard to the ingredient integrity. Are you comparing like items or apples to oranges? When comparing brown box foods, you can utilize the USDA material fact sheets to review the specifications that the USDA sets for the product and compare them with the equivalent commercial product. For pass-through commodities, the processors will supply the specifications including: ingredient listing, nutrient analysis, CN labeling, and allergen information. Most pass-through items have a commercial equivalent, but the cost differential can be pertinent depending on the commodity and the volume of the school district’s planned allocation for a particular product. 

The USDA commodity food listings provide the “fair market value” (FMV) for all available commodities. The FMV of brown box commodities are fairly simple to evaluate compared to the commercial cost of the same item. Again, any delivery, storage, or handling costs need to be considered as part of the overall cost of bringing that product to your door. If you’ve forecasted your annual need for a particular item, you can use that volume when pricing it commercially to determine if a volume discount from the distributor might be available.   

Commodities that are diverted for pass-through products will have a lower FMV cost per pound because they are factored in bulk, while a similar brown box item such as ground beef patties packed in 40 pound cases will be higher. The difference is that the pass-through will carry additional costs for manufacturing and additional ingredients known as the “fee for service” (FFS) in addition to any storage and delivery costs. The brown box commodities will have a set case charge plus any additional storage and delivery costs charged by your state. If you allocate 10,000 pounds or more (a quarter truck load) of a particular product, you will only pay a nominal case fee and nothing for delivery or storage, but you must have ample cold storage and a well-executed menu plan to assure that you will use the volume. It is important to compare the true price of the pass-through product with its commercial equivalent. The formula is as follows:

True Price of Pass-Through Product = value of USDA donated food + state charges + processing fees + delivery + storage and handling fees

Illustration of price comparisons and how they might determine whether to select one product over another

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Pass-Through Commodities in School Food

Approximately 50% of all commodity allocation is diverted to manufacturers for further processing. Almost any brand name, ready-to-heat item that you can think of is available through pass-through. In addition to items like chicken patties or packaged burritos there are also products that compete with some of the brown box commodities like sliced American cheese, fruit cups, chicken fajita meat, and cooked diced chicken. So why would a district divert commodities to receive a pass-through version of cooked diced chicken? This is usually due to convenience and sometimes specification.

Distribution is key to the popularity of pass-through. The ease of having a guaranteed flow of required goods as opposed to wondering when something will show up is critical. The states and USDA have worked to improve the distribution methods and delivery schedules for brown box commodities but it is still often less than ideal, particularly for smaller districts. In many states, we see school districts buying from cooperatives that manage the delivery of both brown box and pass-through since most districts allocate a combination of the two depending on value and their menu-cycle. For larger districts that have sufficient storage, the processor can ship the end product to the district directly (aka “drop-ship”). Drop shipping is the most cost effective way to deliver a pass-through product to a district.

The popularity of pass-through is understandable since it provides the following:

  1. Predictable supply and delivery methods (two of the key drivers in procurement)
  2. Ready-to-heat foods with CN labeling, making it easy for school food employees to plan a menu
  3. The use of the foods promotes the concept of using the commodity allocation to the fullest

The other attraction to using pass-through in menu planning is that the manufactured products are also available commercially. This allows the district to keep a product on their menu cycle once their commodity allocation has been exhausted. For example, a district may distribute bulk chicken to Tyson to make spicy chicken patties, and they can still buy the same product once their bulk chicken allotment is gone. While this eliminates the need to change the menu, it also furthers the manufacturers’ foothold on the school food market.

Another downside of pass-through is that many of the most popular products are also cornerstones of fast-food style school food service. Examples include pre-cooked beef patties, chicken patties, nuggets, and individually packaged burritos—all items with fairly long ingredient lists, and not all of those ingredients are food substances. Unfortunately, these are the kid-friendly products marketed not only in schools, but also in the mainstream.

It is difficult to understate the enormous impact of pass-through commodities on the school food system. For most districts that rely on pass-through, ready-to-heat products, moving away from that model will impact every area of their operation from food delivery to storage to facilities to the labor required to produce the meals.

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DoD Fresh ‒ Department of Defense Fresh Fruit and Vegetable Program

A third aspect of using commodity allocation is the DoD Program. This program provides the opportunity for school districts to use their entitlement dollars to buy fresh produce. The program is operated by the Defense Logistics Agency at the Department of Defense and is available in 46 states, District of Columbia, Puerto Rico, the Virgin Islands, and Guam. There is no rule for what percentage of the entitlement can be used for DoD, so a district can adjust the percentage throughout the school year.

The distribution model for DoD has changed a lot since its inception and currently follows a prime vendor model—meaning that the vendor who is delivering the product is selected geographically and is typically a known “local” produce distributor. Orders are placed via the centralized website by school. Use of DoD varies by district and location. For some districts, the DoD system provides access to the following: a produce-specific vendor, school site delivery (if minimums are met), and products that are generally of good quality, which is by far an improvement over their prior access.

For districts that are located in competitive markets where multiple produce distribution companies are competing for their business, DoD may serve as a part of their procurement model but not as their primary choice because of the inability to develop a specific relationship that is tailored to their district vision. The other factor to consider is recordkeeping. While the centralized ordering system is easy to use, it is a by-school order and does not allow for consolidation like the more advanced capabilities of K-12 back-office software. For districts that have product delivered to one central location this is less of an issue, but for districts that require by-school delivery there is no current function for exporting a consolidated report for the district. Most commonly, we see districts cobble together several ordering and receiving steps that are somewhat outside of their typical ordering standard in order to include the DoD order system known as FFAVORS into their routine and still maintain transparency.

Still, DoD is evolving and improving every year. For districts that are committed to spending some of their procurement dollars locally, DoD can provide an avenue for that, although the level of availability may vary depending on your location. For DoD, local is defined in three ways: product is produced within 400 miles, product is from within the state, or product is from the area of service. Your state agency may be able to assist you in creating a more expansive local product offering if you contact them about products that you want or if know producers that the prime vendor contracted for the DoD.

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Whole Food Procurement and Commodities

Use your vision and procurement goals as a guide when selecting appropriate commodities to use with your entitlement dollars. If eliminating foods with a high level of processing is a priority, then the menu plan needs to be comprised of items that are sustainable for your program from a production standpoint. Take advantage of our Recipes and Menus secton to consider some options and even consider testing ideas with your students to see if you want to include those recipes in your menu plan. You will notice that the most common selection of commodity ingredients in scratch programs are those without added ingredients like textured soy protein or other fillers. Whole muscle, raw or cooked protein ingredients like turkey roasts, eight-cut chicken, diced chicken, ground beef, and bulk cheeses are common choices. 

Sourcing Strategies ‒ Commercial vs. USDA Foods

The reason that we don’t build menus around sources—meaning USDA Foods or pass-through commodity products vs. commercial products—is because your menu needs to reflect the vision developed for your program. That vision may be a multi-year process that requires your team to gain skills, or your district to renovate or build kitchens or other physical infrastructure to create capacity for the growth of the program. In that sense, procurement is ever evolving. It is not a “set it and forget it” process in our business. Wherever you are in your timeline of change, remember that school food is continuously challenged to provide the quality we want at a price point that we can afford.

From the Blog

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