LA school district wants to change the way commodity distribution works in California.
A proposal sent in September from the Los Angeles Unified School District (LAUSD) to the California State Department of Education (CDE) would dramatically change the way USDA commodities are purchased for and distributed to the district, one of the largest in the country.
According to LAUSD Deputy Food Services Director David Binkle, the changes would drive a number of operational efficiencies that would save the district significant sums of money it could use to improve the quality of food served to its students.
The proposal also focuses attention on the interest many districts have in moving away from the use of so-called “brown box” commodity products that are ordered, stored and distributed by state entities, and toward standardized, commercially available products that can be sourced through commercial food distribution systems.
More competitive bids
The proposal is controversial because it challenges longstanding funding and coordination practices among different public entities, and highlights conflicts among the overlapping interests of school districts, state and federal nutrition programs and the administration of USDA's agricultural support programs.
Basically, LAUSD has proposed that USDA:
combine free and reduced price meal reimbursement funds the district receives with the value of its annual commodity credits;
direct its commodity procurement arm, the Agricultural Marketing Services (AMS) to use that total to procure product for the district in USDA-specified categories;
then, divert those commodities to manufacturers selected as a result of LAUSD's school bid process where they would be used as ingredients in further processing.
At the district level, LAUSD would consolidate its food needs for the year ahead in the same categories so as to offer bidding manufacturers and distributors larger contracts based on their commercially available, already slotted products.
Once bids were awarded, the selected manufacturers would:
rebate the value of the commodity ingredients to LAUSD in the form of per case discounts against the bid price of its commercial products until the credits are used up.
At that point, the district would continue to purchase the identical products at the full bid price. All along, the cost of actual product distribution would be included directly in the bid prices it receives from manufacturers and distributors competing for its business.
The per-case discount approach has already been used successfuly in other states that have introduced a different system known as Net Off Invoice (NOI) pricing. Significantly, however, LA's proposal would let the district design much larger local bids for commercially available product well in advance of the school year and remove much of the uncertainty that plagues the commodity system in use now.
Because districts never definitively know in advance when and how much of the commodity products they have requested will actually be available, they can't easily integrate them with commercial grade product they purchase through regular distribution channels. This plays havoc with advance menu cycle planning and with efforts to achieve consistency in production.
Other advantages such an approach would offer LAUSD:
more standardized menu planning and production;
larger category-based school procurement bids that should elicit more competitive pricing from both bidding food processors and distribution companies;
the elimination of several hundred thousand dollars in annual commodity distribution fees currently paid by the district's foodservices to the CDE each year for state warehousing and distribution services Binkle says the district does not need or receive.
In a larger context, such fees are one of many ways that states have supplemented USDA commodity distribution program funding over the years, and every state handles the costs and manner of such distribution differently.
Some, like California, maintain warehouses and transportation fleets that evolved to handle distribution of so-called “brown box” commodity products, processed to meet minimum USDA specs.
To pay for that system, California levies a $3.25 per case fee on every case of product going through its warehouses and $1 a case fee from other entities that participate in the commodity program. In some other states, the systems are funded from other funds at the state level; USDA also partially funds the administration of such programs directly.
The devil in the details
To be fair, it's worth noting that the program serves more than just the interests of school districts. CDE also makes commodity product available to recipients ranging from food pantries to low-income assistance feeding programs. The system has always involved some cross-subsidization because it has spread out all its fixed costs over allotments to all recipients, large and small.
On the other hand, a district like LAUSD, with some of the highest labor costs and one of the most financially challenged school nutrition programs in the country, argues that savings it earns through a more competitive bid process could be much better spent to improve the quality of food offered to LAUSD's students.
Clearly, the idea of making such changes have made LA's proposal into a hot potato for state and federal USDA administrators.
Food Management spoke to Phyllis Bramson-Paul, California's state child nutrition director,. We asked if she was familiar with LAUSD's proposal and if the state would be willing to recommend implementing it to USDA authorities in Washington.
“LA Unified has sent us a letter outlining their ideas in concept on how it would like to use both its Section 4 and Section 11 money differently, and we are open to working with the district where we have the legal authority to do so,” Bramson-Paul says.
“Notwithstanding any other provision of law, the Secretary may enter into an agreement with a State agency, acting on the request of a school food service authority, under which funds payable to the State under section 4 or 11 may be used by the Secretary for the purpose of purchasing commodities for use by the school food service authority in meals served under the school lunch program under this Act.”
—from the Richard B. Russell National School Lunch Act, SEC. 7. [42 U.S.C. 1756] of Public Law 109-97 as amended November 10, 2005
At the same time, “the devil is in the details” in terms of how such changes would have to be handled in practice, she adds. “These matters will be complicated and cannot be changed over night.”
Bramson-Paul says such a change would raise numerous practical issues that have to be thought through and addressed. Among them: how and by when could such changes be accomodated in state-wide reimbursement procedures; the amount of funds LAUSD would want to be offset from the district's meal reimbursements; and whether such offsets could be handled manually.
Also complicating matters: how the new approach might be accommodated within a web based reimbursement system USDA has just implemented for the school meal programs and is in the process of implementing for other programs it administers. (USDA is also implementing a new web-based commodity ordering system in the beginning of 2010).
On the issue of changing the way USDA Section 32 commodity credits for schools are distributed, Bramson-Paul says that “my understanding is that authority to make the kinds of changes LAUSD has talked about does not rest with the states, but is a federal matter.”
Looking for a more conclusive answer, FM also contacted USDA's Food and Nutrition Services department in Washington. While officials there would not speak for the record, a public affairs spokesperson said that “USDA has not received a formal request regarding the Los Angeles Unified School District, which would come through the State agency.
“Because we have not seen anything in writing, USDA would not be able to comment on the proposition.”
If the past is any guide, USDA has often sought to test new ideas with limited scope pilot projects, although that might prove difficult in this case because many large commodity receiving entities in California would likely want similar arrangements made.
For its part, LAUSD says it is continuing to make its case. But if it can not make headway before procurement bids are let for the 2010-2011 school year, “We may simply decide to not participate in the commodity program next year,” says Binkle.
“Our larger objectives are focused on improving the district's school meal quality and procurement efficiency. The way the commodity program operates for us now, we don't believe it effectively supports either objective.”