Regulatory Flexibility Analysis Final Rule

Transcription

1 12/08/2016 Regulatory Flexibility Analysis Final Rule Enhancing Retailer Standards in SNAP: Changes to Depth of Stock and Stocking Requirements Using New Farm Bill Definition Agency: Food and Nutrition Service, USDA. Background: The Regulatory Flexibility Act (RFA) requires agencies to consider the impact of their rules on small entities and to evaluate alternatives that would accomplish the same objectives without undue burden when the rules impose a significant economic impact on a substantial number of small entities. Inherent in the RFA is the desire to remove barriers to competition and encourage consideration of ways to tailor regulations to the size of the regulated entities. The RFA does not require that agencies necessarily minimize a rule s impact on small entities if there are significant legal, policy, factual, or other reasons for the rule s impacts. The RFA requires only that agencies determine, to the extent feasible, the rule s economic impact on small entities, explore regulatory alternatives for reducing any significant economic impact on a substantial number of such entities, and explain the reasons for their regulatory choices. Reasons That Action Is Being Considered The Food and Nutrition Service (FNS) is finalizing a rule that would revise minimum stocking requirements for stores eligible to redeem Supplemental Nutrition Assistance Program (SNAP) benefits. Several changes in the rule will affect retailer stocking requirements. First, retailers may need to add varieties within four staple food categories (meat, poultry or fish; bread or cereals; vegetables or fruits; and dairy products). Under previous requirements, most retailers were eligible to redeem SNAP using the criteria that they offered for sale, on a continuous basis, at least three varieties of qualifying foods in each of four staple food categories, with at least one variety of perishable foods in at least two of the staple food categories. The Agricultural Act of 2014 (the 2014 Farm Bill) modified those criteria by requiring that most retailers stock at least seven varieties of qualifying foods in each of four staple food categories, with at least one variety of perishable foods in at least three of the staple food categories. As part of this final rule FNS is also requiring that retailers now stock at least three stocking units of each qualifying variety of food in each staple food category. Current regulations do not specify a minimum depth of stock. The proposed rule recommended a depth of stock of six items per variety. FNS received numerous comments on this required depth of stock, many of which were opposed to this requirement because of concerns that stores would need to maintain a larger number of items per variety in order to remain continuously stocked. In response to these concerns, FNS has reduced the depth of stock requirement to three units and has clarified that stores with certain stocking shortfalls observed during a store visit may provide verifying documentation, such as receipts or invoices, in order to prove the store has purchased and 1

2 stocked a sufficient quantity of stocking units and staple varieties within the last 21 days. Finally, FNS is revising the definition of accessory food items to include snack foods and clarifying that accessory food items may not be used to meet either the variety (breadth of stock) or stocking unit (depth of stock) requirements. In the proposed rule, FNS had recommended excluding multiple ingredient food items from counting towards breadth and depth of stock requirements for staple food stock. FNS received extensive comments on this provision, most of which opposed the change. Most were concerned that this provision would increase confusion and make it more difficult to comply with other provisions of the rule. FNS agrees that the concerns raised are valid and therefore has removed this provision from the final rule. This action is being taken by FNS in part due to Section 4002 of the 2014 Farm Bill, which revises eligibility for SNAP retail food stores by increasing the required number of varieties and number of staple food categories containing at least one perishable variety. Additional changes to depth of stock and to the classification of accessory foods are included to ensure that retailers are maintaining sufficient food stock for sale to SNAP recipients at all times and to align regulations and policy with statutory intent. Under current law, a store could stock as few as 12 food items (3 varieties x 4 staple food categories x 1 stocking unit) and be eligible to redeem SNAP benefits. The impact of the combined changes in this final rule results in a new minimum stocking requirement of 84 items (7 varieties x 4 staple food categories x 3 stocking units). While this change in stocking requirements appears substantial, for the vast majority of stores, the changes needed would be much smaller (24 additional stocking units) because they already stock many of the required items in appropriate amounts. Objectives of, and Legal Basis for, the Final Rule As stated above, the legal basis for the final rule is the Food and Nutrition Act of 2008 as amended by the 2014 Farm Bill. The objectives of this rule are to establish new parameters for stocking requirements for retailers that are authorized to accept SNAP. Number of Small Entities to Which the Final Rule Will Apply This rule directly regulates all retailers that accept SNAP benefits pursuant to agreements with USDA s Food and Nutrition Service. However, many of these stores already stock a sufficient quantity and variety of foods to meet the eligibility criteria in the final rule. Certain stores, however, primarily combination stores, convenience stores, and small grocery stores, may need to make changes to their stock in order to remain eligible to redeem SNAP benefits. Of the 51,568 combination stores, 120,313 convenience stores, and 15,262 small grocery stores authorized under Criterion A 1 to accept SNAP benefits in July 2016, almost all would fall under 1 Retailers must meet one of two criteria in order to be authorized to accept SNAP. Under Criterion A, stores must offer for sale, on a continuous basis, a certain number of qualifying foods in each of the four staple food groups, with perishable foods in at least two of the categories. Under Criterion B, more than one-half (50%) of the total dollar amount of all retail sales (food, nonfood, gas and services) sold in the store must be from the sale of eligible staple foods. 2

3 the Small Business Administration gross sales threshold to qualify as a small business for Federal Government programs. 2 Projected Reporting, Recordkeeping and Other Compliance Requirements All retailers attest to proper stocking requirements at authorization, and all retailers would be subject to periodic store reviews that evaluate whether the currently displayed stock and number of units are appropriate to maintain authorization to accept SNAP benefits. While there are generally no new reporting or recordkeeping requirements that would impact small entities, those that fail to meet certain stocking requirements will have the opportunity to provide stocking records indicating that food items had been stocked in the last 21 days. In addition, most small stores would be required to make changes to their stock in order to comply with this rule. Based on FNS analysis, the rule does not present a significant economic impact to a substantial number of small businesses. Although the number of stores impacted is large, we estimate that the cost to those small businesses of the changes in this rule would be nominal, on average about $245 in the first year and $620 over five years. This analysis uses data from a sample of 1,392 small stores 3 to estimate the average number of varieties that retailers may need to add in the staple groups as well as the number of stocking units the average retailer may need to add in order to be in compliance with other changes included in the final rule. Available data come from the Authorized Store Checklist (included in the Regulatory Impact Analysis for this rule). This checklist is used by FNS during store visits to determine how many varieties in a staple food category a retailer is currently stocking as well as how many individual stocking units are in the store at the time of the visit. It is important to note that this checklist groups certain foods together and that these groupings may combine foods from more than one variety as defined by the final rule. For example, with regard to Vegetables or Fruits, the checklist groups plums and apricots together, but these would be considered different varieties for purposes of meeting the clarified variety requirement. For this analysis, this means that for some staple food categories we are likely undercounting the actual number of varieties a store already stocks. This is especially true for the Dairy Products category the checklist only contains six product groupings, so no store in the data set could be classified as having seven different varieties of Dairy Products. 4 Farm Bill Changes to Variety and Perishable Criteria Based on analysis of this data, FNS estimates that 87.3 percent of small stores would not meet the new variety criteria. Most need to add one or two items per staple food category. This estimate is slightly lower than the estimate of 88.6 percent in the initial RFA primarily due to 2 Based on the North American Industry Classification System (NAICS code) categories for Convenience Stores (NAICS code , standard of $29.5 million) and Supermarkets and Other Grocery Stores (NAICS code , standard of $32.5 million). 3 Store visit data were collected in 2009 from a nationally- representative sample of SNAP authorized stores as part of an internal FNS estimation of the Store Eligibility Accuracy Rate, a measure of the percentage of authorized retailers that meet eligibility criteria. 4 The current Authorized Store Checklist will be updated to incorporate changes to the definition of variety and other provisions as part of FNS implementation of this final rule. 3

4 changes in the Meat, Poultry, or Fish staple food category, where inclusion of a broader spectrum of protein-rich foods afforded small stores more freedom to meet stocking requirements. 83.4% of the stores in this subgroup would not meet the Dairy Products variety criteria (based on 6 Dairy Products categories analyzed) Median items needed = 2 items for non-qualifiers 6.9% would not meet the Vegetables or Fruits criteria Median items needed = 2 items for non-qualifiers 21.7% would not meet the Bread or Cereals variety criteria Median items needed = 1 item for non-qualifiers 54.3% would not meet the Meat, Poultry, or Fish variety criteria Median items needed = 1 item for non-qualifiers 1.5% of stores would no longer meet the perishable criteria. All stores that would no longer meet perishable criteria also no longer meet the variety criteria. In sum, most currently authorized small stores (87.3 percent) would not immediately meet the stocking requirements mandated in the 2014 Farm Bill. However, conformance typically requires adding only a few new products. Changes to Definition of Accessory Foods The proposed rule would have modified the definition of staple foods to exclude both multiple ingredient food items such as pizza and accessory food items such as potato chips or ice cream. FNS received numerous comments regarding the exclusion of multiple ingredient food items from countable staple food stock when determining store eligibility. As noted previously, commenters were strongly opposed to this change because of concerns that it would make it even more difficult for retailers to comply with other changes in stocking requirements. The final rule removes the provision related to multiple ingredient food items but retains the clarification regarding accessory food items such as snack foods or desserts. This latter change may potentially increase the number of varieties a store would need to add in order to remain compliant, as those items are currently separate groupings on the Store Checklist. For example, in the Dairy Products category, ice cream is its own category on the checklist, but now will not count toward the variety requirement. The analysis of the impact of the 2014 Farm Bill changes, which concluded that the median store would need to add two varieties in the Dairy Products category, counted ice cream as a variety. When ice cream is removed from the store counts of existing stock, we estimate that all retailers in the data set would need to add one additional variety of Dairy Products in order to be compliant, bringing the median number of Dairy Products varieties needed to three. Similarly, in the Bread or Cereals staple foods category, some snacks and cakes will be redefined as accessory foods. For purposes of this analysis, we removed those items from each store s total count of varieties. With those items removed, nearly 20% of retailers were still stocking seven varieties of Bread or Cereals and would remain eligible under the new requirements. An additional 68% of retailers would only need to add between one and three varieties in order to 4

5 remain eligible in the Bread or Cereals staple food category. For purposes of this analysis, we assume that the median store would need to add two varieties of Bread or Cereals to meet the new accessory foods definition. Changes to Depth of Stock FNS did further analysis to estimate the number of additional stocking units in each staple food category retailers might need to add in order to be compliant with the new requirement that retailers carry at least three stocking units of each variety. The proposed rule recommended a depth of stock of six items per variety; as noted earlier, that requirement has been revised to three items per variety in the final rule. Below we discuss the additional products/stocking units that would be needed to meet the depth of stock requirement. Dairy Products: As noted above, FNS estimates that the average store would need to add three varieties (nine stocking units) of products to the Dairy Products category to meet the new variety requirement and the new definition of accessory foods. When looking only at those varieties that stores already have in this category, most stores already have 6 or more stocking units in three (of their current four) varieties. 5 Therefore, FNS estimates that the average store would need to add up to three additional stocking units to meet the new depth-of-stock requirement. In total, we estimate that the average store would need to add 12 stocking units in the Dairy Products staple food category in order to meet the combined requirements of the final rule (see Table 1). Vegetables or Fruits: As noted above, the vast majority of retailers already meet or exceed the new variety requirement for this category, and changes in the definition of accessory foods are not expected to impact this category. When looking only at those varieties that stores already have in this category, most stores already have six or more stocking units in each variety. Therefore, FNS estimates that the average store would not need to add any stocking units in the Vegetables or Fruits staple food category in order to remain compliant with new requirements. Bread or Cereals: As noted above, the average store would need to add two varieties (six total stocking units) of products to the Breads and Cereals category after removing foods such as snack and dessert foods that would now be classified as accessory food items. When looking only at those varieties stores already have in this category, most stores have six or more stocking units within these varieties. Therefore, the depth-ofstock requirement does not add additional stocking changes beyond what is a needed to meet the new definition of accessory foods (two varieties, three stocking units per variety). Meat, Poultry, or Fish: As noted above, FNS estimates that the average store would need to add one new product (three stocking units) to the Meat, Poultry, or Fish category to meet the variety requirement and no additional products as a result of the new 5 The Authorized Store Checklist only indicates whether retailers have 0, 1-5, 6-20, or more than 20 stocking units of an item. For this analysis, if a store had 1-5 stocking units of a variety, we assumed that the store would need to add up to three additional stocking units of that variety in order to meet the depth-of-stock requirement. 5

6 definition of accessory foods. When looking only at those varieties that stores already stock in this category, most stores already have six or more stocking units within 5 varieties. FNS estimates that the average store may need to add up to three stocking units within this food category to meet the depth of stock requirement. In total, FNS estimates that the average store may need to add three stocking units in each of two varieties in this staple food category to meet the combined requirements of the final rule. As a result of these individual changes, FNS estimates that the average small retailer will need to add a total of 24 additional stocking units (Table 1) to comply with the requirements of this rule. Estimated Cost of Complying with Final Rule Changes Stores that need to make stocking adjustments should be able to do so at a relatively low total cost. Based on a review of 2015 wholesale prices for specific items in each staple food group, FNS estimates that a retailer who needed to purchase three stocking units of all seven varieties of food in all four staple food categories could obtain these items at a cost of approximately $165 (see attached Table 3). 6 Adding a stock carrying cost of 25% 7 to account for storage costs and potential spoilage, the total cost of stocking all 84 items would be approximately $ The average cost per variety and cost per unit (based on these wholesale prices) for each staple food category is as follows: Dairy Products: o Average cost of adding three stocking units of one variety: $7.60 o Cost of adding each stocking unit: $2.53 Vegetables or Fruits: o Average cost of adding three stocking units of one variety: $3.48 o Cost of adding each unit: $1.16 Breads and Cereals: o Average cost of adding three stocking units of one variety: $6.18 o Cost of adding each unit: $2.06 Meat, Poultry, or Fish: o Average cost of adding three stocking units one variety: $6.32 o Cost of adding each unit: $ In the Initial Regulatory Flexibility Analysis, FNS estimated a cost of $400 per store for stocking all items required in the proposed rule. The reduced cost is this final RFA is due to a combination of the reduced depth of stock requirement and the inclusion of plant-based protein items (which are generally lower cost) in the Meat, Poultry, or Fish staple food category. 7 Inventory carrying costs average 20-30% of the value of the stock. Source: 8 In addition to the cost of adding specific stocking units or varieties, a small number of stores may need to add additional storage for perishable items. FNS estimates that the cost of purchasing an additional cold case would be approximately $750, bringing the maximum total possible cost of compliance to approximately $955. However, FNS estimates that 98.5% of stores would currently meet the requirement for stocking perishable items, so it is unlikely that stores would need to add cold storage in order to remain compliant, nor is it likely that the ability to store perishable foods would be a barrier to remaining eligible. Cost of a refrigerated glass merchandiser: $749 new through 6

7 However, as noted above, most stores would need to add far fewer items approximately 24 stocking units for the median store, at an estimated cost of about $69 when factoring in the stock carrying cost of 25%. In most stores, this could be accomplished by swapping out certain items for others in order to meet the new requirements. In any case, the initial cost of adding new items to stock would be recouped when a retailer sells those items. In the event of spoilage, the stock carrying cost accounts for the need to replace items. FNS received comments on the proposed rule that suggested these costs were understated because opportunity costs and administrative costs associated with complying with the new stocking requirements should be included. FNS agrees that stocking items with lower profit margins in lieu of items with higher profit margins may result in some loss of revenue to retailers. FNS further agrees that store managers may need to devote additional time to activities associated with ensuring that store stock meets the new requirements. Therefore, these costs are now included in the total cost of the final rule. FNS estimates that the opportunity costs associated with stocking less profitable items will average $49 per store. 9 One commenter suggested an approach for estimating administrative costs based on cost avoidance, specifically, avoiding costs of potential sanctions. FNS does not find this approach to be valid, as stores would not face financial sanctions for failing to meet stocking requirements. Under existing regulations, a firm that fails to demonstrate an adequate stock is denied SNAP authorization or withdrawn from the Program. Once denied, such a firm must wait six months to reapply for SNAP authorization. Neither under existing regulations, under the proposed rule, nor under the final rule, will FNS levy fines against retailers who are denied or withdrawn on the basis of stock shortfalls. Instead, FNS is estimating administrative costs based on a reasonable estimate of the amount of time needed to read through guidance and ensure compliance. FNS estimates that these activities will take on average four hours in the first year of implementation and an average of one hour per year thereafter. Multiplying the median wage for management occupations at grocery stores ($31.88 in May 2015) 10 by the estimated four hours results in an average cost per store of $ in the first year. Table 1 below presents the Agency s estimates of the additional stocking units the average small store will need to add, by staple food category, as a result of each change to stocking requirements in the final rule. Specific wholesale food costs, used to estimate the cost per staple food group, are detailed in a table at the end of this document. 9 Comments submitted by industry trade associations (see comment FNS ) suggest that, on average, the difference in profit margin between the items required in the proposed rule and items that may have been replaced would be about $100 annually per store. FNS has no information available regarding profitability of various food items sold in stores. However, using the industry association estimate, adjusted for the fact that fewer items are required in the final rule versus the proposed rule (24 items v. 54 in the proposed rule), results in the estimated $49 cost per store of complying with the new inventory requirements. 10 Bureau of Labor Statistics wage data may be accessed at: 7

8 Table 1 Estimated Additional Stocking Required for the Average Small Retailer Due to Rule Changes Farm Bill Change in Number of Varieties Stocking (3 per Varieties variety) Change to Definition of Accessory Foods Varieties Stocking New Depth of Stock Requirement Stocking Stocking Total Average Price $ Cost per Staple Group $ Dairy Products Vegetables or Fruits Bread or Cereals Meat, Poultry, or Fish Stocking Cost $55.35 Stock Carrying Costs $13.84 Opportunity Costs $49.00 Administrative Costs $ Total Cost per Store in the First Year $ In the proposed rule, FNS estimated that the cost of complying with the changes contained therein would average about $140 per store. Based on changes made to certain provisions in the final rule, most notably the reduction in depth of stock requirements, the removal of the provision related to multiple ingredient food items, and the inclusion of plant-based protein sources in the Meat, Poultry, or Fish staple food category, initial stocking costs are now lower than previously estimated. However, based on comments received on the proposed rule, the cost estimate now includes opportunity costs associated with replacing more profitable food items with foods that have a lower profit margin and administrative costs to retailers of complying with the new stocking requirements. Table 2 below illustrates how changes from the proposed to the final rule impacted the expected retailer costs. Table 2 Comparison of Estimates in Proposed and Final Rules Total Stocking Proposed Rule Final Rule Difference Total Cost Total Stocking Total Cost Total Stocking Total Cost Dairy Products Vegetables or Fruits Bread or Cereals Meat, Poultry, or Fish Total Initial Stocking Cost $ $58.89 Inventory Carrying Costs $ $14.72 Opportunity Costs Not included $ $49.00 Administrative Costs Not included $ $ Total Cost In First Year $ $ $

9 Costs as a Share of Total SNAP Redemptions While FNS estimates that the costs to individual stores of complying with the stocking requirements in the final rule are small on average, stores that redeem a very small amount of SNAP benefits may find that even small changes to stocking requirements would not be cost effective, given the overall contribution that SNAP has to their monthly revenue. Alternatively, some smaller stores may determine that they redeem enough SNAP benefits to justify these minor stock changes. As noted, Combination stores, Convenience stores, and Small Grocery Stores are most likely to require changes to their depth of stock in order to remain eligible to redeem SNAP benefits. FNS examined SNAP redemption patterns at these smaller stores. FNS looked at the number of these stores that are authorized, the total amount of SNAP benefits that are redeemed in these stores, and the average amount of SNAP benefits redeemed per store on an annual and monthly basis. While these stores make up a substantial percentage (73%) of all authorized retailers, their share of SNAP redemptions is much smaller (13%). Combination Stores: o 26% of all authorized stores in 2015 o 6.6% of total SNAP benefits redeemed o $67,053 annual SNAP benefits redeemed on average per store o $5,588 monthly SNAP benefits redeemed, on average per store o $9.5 million in annual gross sales, on average per store Convenience Stores: o 42% of all authorized stores in 2015 o 5.04% of total SNAP benefits redeemed o $30,179 annual SNAP benefits redeemed on average per store o $2,515 monthly SNAP benefits redeemed, on average per store o $2.3 million in annual gross sales, on average per store Small Grocery Stores: o 4.8% of all authorized stores in 2015 o 1.09% of total SNAP benefits redeemed o $52,338 annual SNAP benefits redeemed on average per store o $4,362 monthly SNAP benefits redeemed, on average per store o $190,809 in annual gross sales, on average per store For the average small retailer, the cost of adding the additional stock represents a negligible share of their SNAP redemptions and of total gross sales. Retailers that redeem the least amount of SNAP benefits may be most likely to make a business decision to leave the Program because they find the changes needed to comply with the new stocking requirements to be more costly than the profit from SNAP participation. An analysis of the lowest 10%, 20%, and 30% of SNAP redemptions by retailer type indicates that many of these stores do not generate a significant portion of their revenue from SNAP. According to 9

10 FNS retailer data, in 2014 average annual redemptions for the stores (among these three store types) that redeemed the least amount of SNAP benefits were as follows: Combination stores (20,500 in the bottom 30 th percentile): o 10 th percentile- $2,830 in SNAP redemptions, 0.05% of Total Gross Sales o 20 th percentile- $7,050 in SNAP redemptions, 0.15% of Total Gross Sales o 30 th percentile- $11,720 in SNAP redemptions, 0.20% of Total Gross Sales Convenience stores (33,600 in the bottom 30 th percentile): o 10 th percentile- $2,130 in SNAP redemptions, 0.08% of Total Gross Sales o 20 th percentile- $5,530 in SNAP redemptions, 0.12% of Total Gross Sales o 30 th percentile- $8,750 in SNAP redemptions, 0.37% of Total Gross Sales Small Grocery Stores (4,500 in the bottom 30 th percentile) o 10 th percentile- $1,990 in SNAP redemptions, 1.4% of Total Gross Sales o 20 th percentile- $6,300 in SNAP redemptions, 4.0% of Total Gross Sales o 30 th percentile- $11,650 in SNAP redemptions, 6.7% of Total Gross Sales Depending on the amount of stock these retailers need to add, some may be unwilling to make stocking improvements in order to comply with the new regulations. In these cases, since their total annual redemptions are relatively small, stores may make the economic choice to opt out of SNAP. However, FNS anticipates that only those stores whose current SNAP redemptions are extremely low may make that choice. In addition, FNS has included safeguards to allow for exemptions in areas with low food access to ensure that SNAP participants will be able to utilize their benefits. Shelf Space Requirements Commenters on the proposed rule expressed concerns that the new stocking requirements would require stocking a quantity of food items that exceed the available shelf space at most small format retail food stores. To examine these concerns more closely, we estimated the space requirements of each item included in Table 2, using standard packaging sizes (for example, a 15 ounce can of fruit cocktail). We calculated the space requirements in terms of both total cubic inches and linear length and determined that in total the 84 items would occupy less than 7500 cubic inches of space. Assuming stores choose to display these items in a standard manner (i.e., cans of fruit cocktail are shelved 3 items deep on the shelf) we estimate that the non-refrigerated items would require about 5.6 feet of shelf space. This is equal to one and one-half shelves of a standard 3-shelf wall shelving unit (84 height x 48 length x 16 depth). While we estimate that the refrigerated items would require about 4.3 feet of refrigerated shelf space, 98 percent of small SNAPauthorized firms already stock sufficient perishable items to meet the perishables requirement. Therefore, FNS considers it unlikely that the small SNAP-authorized stores will need additional refrigerated space beyond their current capacity. In addition, our analysis indicates that most stores will need to add far fewer than 84 items to meet the combined stocking requirements of 10

11 this rule (24 additional items for the average store). FNS does not believe that the new stocking requirements represent an overly burdensome requirement as it pertains to a firm s shelf space. Federal Rules That May Duplicate, Overlap or Conflict with the Final Rule FNS is unaware of any such Federal rules or laws. Significant Alternatives Prior to the passage of the Farm Bill, in 2013, FNS released a Request for Information and held five listening sessions across the country to gather feedback from interested stakeholders relative to alternatives for enhancing this area. These comments were considered when developing the final rule, as were comments on the proposed rule published on February 17, Alternative proposals that were considered but are not in this final rule include: Multiple ingredient food items. The proposed rule would have included multiple ingredient food items, such as pizza, in the definition of accessory foods. As such, those foods would not count toward the variety or depth of stock requirements. Depth of Stock. FNS considered requiring a minimum of six stocking units for each variety in each staple food group. However, based on concerns from retailers and retailer associations, FNS has reduced the depth of stock requirement to three stocking units Prepared Foods Threshold. In the proposed rule, FNS included changes to the definition of retail food store that would have excluded firms that had less than 85 percent of the total food sales from items that were not cooked or heated on site. The purpose of the proposed provision was to eliminate from participation firms that primarily sell cold food and heat or cook it on premises for a fee. As commenters noted, however, sales of hot and prepared foods average nearly 40 percent of food sales in convenience stores, and this proportion is growing. The provision as proposed would have unintentionally excluded many stores beyond the you buy, we fry stores that were the intended focus. Therefore, this provision is not included in the final rule. Variety and Perishables. The changes related to variety (breadth of stock) and perishables are directed by statute. Therefore, no significant alternatives were examined for these changes. Farm Bill Changes only. The Agency considered revising the final rule to only include those changes mandated by the 2014 Farm Bill (seven varieties per staple food category and perishable varieties in at least three staple food categories). Making only those changes would require the average authorized store to make fewer modifications to their existing stock. Ultimately, however, the Agency believes that the benefits associated with the combined changes in the final rule warrant the additional changes included in the final rule. In particular, the combined changes will increase the variety of nutrient-dense staple food products offered for sale at SNAP-authorized firms and will help to ensure that SNAP households have access to healthier foods on a continuous basis. It should also be noted that current Agency policy defining variety limits the number of acceptable varieties in the dairy products staple food category, while the current Agency definition of variety for acceptable varieties in the meat, poultry, and fish staple food category excludes plant-based proteins. Based on these realities, the Agency anticipates 11

12 that small format firms would have had difficulty reaching the statutory requirement of seven varieties if no modifications were made to this long-standing definition of variety. Changes made in this final rule address these concerns. 12

13 Meat, Poultry, or Fish Table 3 11 Wholesale Costs for Specific Food Items in Each Staple Food Group Staple Food Group Price Quantity Total Canned Chicken $ $4.50 Dried Peas $ $3.75 Canned Tuna $ $4.05 Beef Franks/3 pack $ $8.98 Canned Pinto Beans $ $3.15 Turkey Lunch Meat/ 2 pack $ $14.68 Eggs/ 1 dozen $ $5.10 Bread or Cereals Cornmeal $ $4.92 Pasta/ 4 pack $ $5.58 Quick Oats $ $7.80 Cheerios/ 6 pack $ $7.42 Rice $ $4.05 Bread/packs of 2 loaves $ $7.96 Flour $ $5.52 Vegetables or Fruits Fruit Cocktail (pears) $ $4.14 Canned Pineapple $ $3.72 Canned Mushrooms $ $3.15 Canned Mixed Vegetables (Corn) $ $3.15 Canned Sliced Carrots $ $2.97 Canned Beets $ $2.97 Canned Tomato Sauce $ $4.26 Dairy Products Cheese- hard (cheddar)/ 3 pack $ $6.48 Cheese- fresh (cream)/ 6 pack $ $6.98 Soy Milk/ 6 pack $ $8.58 Milk $ $7.89 Yogurt/ 18 pack $ $7.98 Butter/ 4 pack $ $10.98 Sour Cream/3 pack $ $4.28 Price Per Variety Per Unit Cost $44.21 $6.32 $2.11 $43.25 $6.18 $2.06 $24.36 $3.48 $1.16 $53.17 $7.60 $2.53 Total All Groups $ Total with Stock Carrying Costs $ Source: Internet search of wholesale and/or retail prices of grocery items, various websites. 13