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Government User Fees And The Inherent Conflict Of Interest They Create

With all the severe fiscal problems government at all levels is experiencing, there is a temptation to impose lots of user fees on industry. In fact, it is hard to imagine how the Food Safety Bill that President Obama pushed will ever be funded without substantial user fees. There is just no budget for all the inspections called for in the law. Yet user fees create a horrible conflict of interest for regulatory agencies.

King 5 News in Seattle did a report titled, Mold at Washington Food Plant Reveals Flaws in Food Safety Net. In reality, it showed the conflict of interest created when governmental organizations depend on user fees:

Federal inspectors knew of serious food safety violations at a Washington state fruit processing plant. It seemed like the kind of thing that the United States Department of Agriculture would jump on. But that’s not what happened.

Government whistleblowers tell the KING 5 Investigators that the agency was more concerned about the money Snokist was generating for the USDA than the safety of the citizens it serves.

“I think it’s pretty poor,” said Wendy Alguard, the USDA’s former inspector assigned to Snokist. “All (the USDA) is out to do is try and make money, instead of doing what their original job is, being concerned about the product and the safety of people,” said Alguard.

“Money, it’s money,” agreed Jerry Pierce, the USDA inspector who as Alguard’s predecessor at Snokist.

The substantive complaint was that Snokist was reprocessing moldy applesauce:

The inspectors say they witnessed employees “reprocessing” large bins of moldy applesauce. Snokist workers scraped mold off the top of spoiled applesauce, heat-treated the remaining applesauce and then mixed it with fresh applesauce to sell it to the public.

“It’s appalling that a company would take those measures just to make a few dollars,” said Alguard.

Both inspectors said they considered the reprocessing a health hazard and immediately reported it to their boss at the USDA. 

But they say the USDA never put meaningful pressure on Snokist.

Records obtained by the KING 5 Investigators show the reprocessing continued for more than three years.

It is not 100% clear that this is against some rule or even that it is a health hazard. The applesauce was moldy, not contaminated with E. coli 0157:H7 or other lethal pathogen, and Snokist heat-treated the applesauce. Assuming the heat treatment worked as designed, there should not have been any health hazard.

Still it is hard to believe that organizations such as Costco, Gerber and Kroger — all of which were buying applesauce from Snokist during this period would have found this acceptable.

In other words, this was really a quality, not a food safety, issue at all, which is consistent with what the USDA is saying about the issue:

In a written statement, the USDA told KING 5 that its inspectors were “diligent” about keeping the reprocessed applesauce out of the national school lunch program. Snokist was a major supplier of fruit products and bid on school lunch contracts across the United States.

But the USDA says its employees don’t have the authority to halt questionable applesauce that could be going to non-government contracts.

Yet it does seem an idiosyncratic interpretation of the rules regarding the USDA inspections in the plant to say that a plant that does unacceptable things is OK, as long as they segregate. There is little question that the USDA could have simply said that the risk of such “segregation” efforts failing was too great and that it wouldn’t certify anything from the plant as acceptable for the school lunch program unless the whole plant operated to standard.

Why didn’t the USDA err on the side of caution? The former inspectors seem to have a good handle on the motivations:

The former inspectors think the USDA could have cracked down on the company, but say their boss didn’t want to lose the “fees” Snokist was paying the USDA to remain in the school lunch program.

Records obtained by the KING 5 Investigators show Snokist paid more than a half-million dollars in user fees to the USDA in just over three years. The fees pay for USDA inspections and services to monitor the food Snokist is sending to USDA programs like school lunches and food banks.

The inspectors believe their boss ignored their concerns about the applesauce because he didn’t want to lose the money Snokist’s contract brought in to the USDA.

“It was a good boost for my supervisor,” said Pierce. “It made him look good in the western region as well as Washington, DC.”

In other words, the point is that regulatory personnel are not indifferent to the user fees. If Snokist was closed down and a New York State facility got the business, then the western region supervisor would lose staff, power and influence with his bosses. His odds of promotion would be lessened.

It is worth remembering these types of incidents and the inherent conflict of interest the next time someone starts pushing user fees to pay for regulatory activities, especially those related to food safety. If you scroll over the image below you can watch the news report.


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