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6
Proposed Phase II Analyses: Sensitivity Analysis, Cost Implications, and Market Effects

The development of sound recommendations for revised Nutrition Standards and Meal Requirements will require extensive analyses. It is likely that the results of the analyses will point to the need to make adjustments to initial proposals for revisions. In developing its final recommendations, the committee will balance the findings from the analyses to achieve a reliable correspondence with the criteria presented in Chapter 3 of this report. The following sections provide an overview of the proposed sensitivity analysis, a specific description of the methods proposed for analysis of cost implications, and a description of how market effects will be estimated.

SENSITIVITY ANALYSIS

In the process of carrying out its tasks during Phase II, the committee will compare the recommended revisions to the Nutrition Standards and Meal Requirements with the current standards for the School Breakfast Program (SBP) and the National School Lunch Program (NSLP). The sensitivity analysis will critically examine each recommendation with respect to likely benefits and consequences. Specifically, the committee will examine the following factors:

  1. food intake sample menus with respect to improved adherence to the 2005 Dietary Guidelines for Americans (HHS/USDA, 2005),

  2. possible effects of nutrient intake contributions from school meals with respect to the prevalence of inadequacy and excessive intake as defined by the Dietary Reference Intakes, (DRIs),

  3. cost and administrative impacts on food service operations,

  4. menu characteristics that influence acceptance by the students, and

  5. participation rates.

One method of examining nutrient intake with respect to the prevalence of inadequacy and excessive intake as defined by the DRIs will be to take the mean nutrient content of the recommended food group intakes (across the day), and determine what the prevalence of inadequacy and excess would be using the shape of the current nutrient intake distribution. This



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6 Proposed Phase II Analyses: Sensitivity Analysis, Cost Implications, and Market Effects The development of sound recommendations for revised Nutrition Standards and Meal Requirements will require extensive analyses. It is likely that the results of the analyses will point to the need to make adjustments to initial proposals for revisions. In developing its final recommendations, the committee will balance the findings from the analyses to achieve a reliable correspondence with the criteria presented in Chapter 3 of this report. The following sections provide an overview of the proposed sensitivity analysis, a specific description of the methods proposed for analysis of cost implications, and a description of how market effects will be estimated. SENSITIVITY ANALYSIS In the process of carrying out its tasks during Phase II, the committee will compare the recommended revisions to the Nutrition Standards and Meal Requirements with the current standards for the School Breakfast Program (SBP) and the National School Lunch Program (NSLP). The sensitivity analysis will critically examine each recommendation with respect to likely benefits and consequences. Specifically, the committee will examine the following factors: 1. food intake sample menus with respect to improved adherence to the 2005 Dietary Guidelines for Americans (HHS/USDA, 2005), 2. possible effects of nutrient intake contributions from school meals with respect to the prevalence of inadequacy and excessive intake as defined by the Dietary Reference Intakes, (DRIs), 3. cost and administrative impacts on food service operations, 4. menu characteristics that influence acceptance by the students, and 5. participation rates. One method of examining nutrient intake with respect to the prevalence of inadequacy and excessive intake as defined by the DRIs will be to take the mean nutrient content of the recommended food group intakes (across the day), and determine what the prevalence of inadequacy and excess would be using the shape of the current nutrient intake distribution. This 105

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106 NUTRITION STANDARDS AND MEAL REQUIREMENTS method might be particularly useful in estimating whether intakes would exceed the Tolerable Upper Intake Levels. Assumptions about the levels of acceptance of the proposed changes by students, participation rates, and the degree of supplementation or substitution resulting from the recommendations will be considered by using a range of values. For many changes, the likely benefits and consequences will be multidimensional, in the sense that several of the key factors will be affected by the recommended revisions. For example, a likely consequence of eliminating flavored milk (i.e., chocolate or strawberry) would be to reduce the intake of added sugars, as recommended by the Dietary Guidelines for Americans. However, another likely consequence would be to reduce the consumption of milk and thus reduce calcium intakes, thereby increasing the likelihood of inadequate calcium intakes. Similarly, a change designed to reduce the prevalence of inadequate intakes might be so unattractive to students that the net effect of the change would be the opposite of what was intended. During Phase II, the committee will review publications that provided data on menu characteristics and other factors that influence meal acceptance by students. The committee will examine the recommendations relative to each of the factors separately and consider qualitatively the net effect of the combined benefits and consequences. The sensitivity analysis will rely on published studies and reports, when they are available, as well as the experiences of practitioners in the school food service industry. A key type of information will be the experiences of school districts that have implemented changes similar to those recommended in the proposed standards. Whenever possible, the sensitivity of the likely benefits and consequences will be assessed with respect to the uncertainties in the assumptions used to evaluate the recommendations. ADDRESSING COST IMPLICATIONS Because the U.S. Department of Agriculture (USDA) does not anticipate that additional funding will be available to schools to implement the revised requirements, any proposed revisions to the Nutrition Standards and Meal Requirements used for the school meal programs should be examined with respect to how change may be affected and increases in costs may be minimized. The committee’s intent is to design recommended revisions that will keep program costs economical and as close as possible to current levels (adjusted for inflation). The objective of maintaining program costs at current levels is particularly challenging during periods of rapidly rising food costs and other costs, as was the case in 2008. This section provides an overview of the committee’s proposed approach and the data sources that it will consider when it estimates the anticipated economic impacts of its recommendations. Use of this approach will allow consideration of the implications of the recommended changes for school food authorities (SFAs) and commodity markets under the assumptions of full substitution and full supplementation (defined below) and the impacts at the expected levels of substitution and supplementation. Substitution may involve either the addition or the deletion of a food outside of the school meal: (1) if a food is deleted from the school meal, the students replace it in their diet by obtaining the food elsewhere and eating it, or (2) if a food is added to the school meal, the student drops it from foods ordinarily eaten outside of the school meal.

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SENSITIVITY ANALYSIS, COST IMPLICATIONS, AND MARKET EFFECTS 107 Supplementation occurs if the students and the members of their households do not make any changes in food expenditures or food consumption outside of the changes in the foods consumed in the school meal. The key sources of information for this task will be published national-level studies of meal and food costs (USDA, 1998b, 2008e) and information based on the experiences of school districts that have implemented these or similar changes. Background The fiscal year 2007 total costs for the SBP and the NSLP were estimated to be $2.2 billion and $8.7 billion, respectively (USDA/ERS, 2008). Most of the support from the USDA to participating school districts, independent schools, and institutions is in the form of a cash reimbursement for each meal served. As described in Table 2-4 of Chapter 2, the basic cash reimbursement rates are calculated annually and are published in the Federal Register each July for immediate application to school financial claims submitted for the new school year (July through June of the next school year). Higher reimbursement rates are available to schools with high percentages of low-income students and to schools that are determined to be in severe need because they serve a high percentage of children eligible for free and reduced-price meals (see the bottom part of Table 2- 4). Schools also are entitled by law to receive commodity foods at a value of $0.2075 for each lunch meal served during the previous school year. When market conditions dictate, bonus commodities may be available to schools. In the 1996–1997 school year, the most recent complete set of data available, school districts acquired 83 percent of the value of all food as purchased food, 4 percent as processed foods containing donated commodities, and 13 percent as donated commodities 1 (USDA, 1998b). Milk and other dairy products accounted for almost one- fourth of the total value of the foods acquired; and bakery products, red meats, poultry, fruits and fruit juices, vegetables, and prepared foods each accounted for about 10 percent of the total value of the foods acquired. Commodities accounted for the majority of the total value of some products, including turkey products, beef products, cheese, flour, and eggs (USDA, 1998b). However, the composition of USDA commodity donations varies from year to year (USDA, 2008b). Since 1996, the cost of food has increased substantially. In the 12 years between May 1996 and May 2008, the cost of food away from home expenditures increased by nearly 41 percent, and the cost increased 4.3 percent between May 2 2006 and May 2007. The prices of dairy and related products, eggs, and processed fruits and vegetables rose at a faster rate than those of many other food items between May 2006 and May 2008 (Table 6-1). The increase in the prices of other product (such as meats) was less than the average increase. Thus, today, school districts must make significant adjustments to accommodate rising costs. 1 A 2008 report now indicates that approximately 20 percent of food served in school lunches is derived from commodities (CFPA, 2008). 2 May is the month of adjustment for the school meal programs.

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108 NUTRITION STANDARDS AND MEAL REQUIREMENTS TABLE 6-1 Percent Change in the Consumer Price Index for Food for All Urban Consumers (May) Percent Change Item 2006–2007 2007–2008 All foods 3.9 5.1 Food at home 4.4 5.8 Food away from home 3.3 4.3 Bakery products 4.6 11.1 Dairy and related products 3.5 11.0 Fluid milk 7.5 10.2 Eggs 29.6 18.2 Meat 4.7 0.53 Fruit and vegetables 6.7 4.4 Fresh 7.7 3.3 Processed 2.9 8.4 NOTE: The adjusted increase for the school meal programs was 4.272 percent in the 2007–2008 school year. This percent change differs from the number for food away from home reported here (4.256 percent) because of rounding. SOURCE: U.S. Bureau of Labor Statistics, 2008. Cost of Food to School Food Authorities Food purchasing practices are complex, and in turn, so are the costs and the sources of foods acquired. Table 1-3 in Chapter 1 provides brief summaries of relevant findings from cost studies and a school food purchasing study, along with the websites that can be accessed to obtain further information. Procurement and purchasing regulations are determined at the federal level, however states policies vary considerably from state to state. Some states (for example, Minnesota) allow districts to purchase food with other districts under what is known as a joint powers agreement. Such agreements allow school districts to increase their purchasing powers. Nevertheless, SFAs’ food costs vary widely for a variety of reasons, including the following: • the methods that the state uses to handle commodities (as well as the values of commodities that a school district receives, which depends on participation the previous year); • the purchasing rules of the state or district; • geographical differences that govern the availability of fresh produce, dairy products, and grain products; • bid pricing and purchasing power; • distributor costs and district and distributor locations; • the school’s location in a metropolitan or a rural area; • student, geographical, or cultural food preferences; and • the variety of cooking and food production methods used (for example, the use of an onsite versus a central kitchen with satellite sites and convenience heat-and-serve food preparation versus from cooking from scratch).

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SENSITIVITY ANALYSIS, COST IMPLICATIONS, AND MARKET EFFECTS 109 School districts do have the flexibility to change menus as needed, depending on market prices, the availability of certain products, and other factors. Nevertheless the menu must still meet the Meal Requirements. When a major beef recall occurred in spring 2008, for example, districts (SFAs) had to substitute chicken or turkey. The substitutions resulted in some cost variations and in problems with meeting the Meal Requirement for iron. USDA manages the procurement of agricultural (food) commodities through the Agricultural Marketing Service (AMS) and the Kansas City Commodity Office of the Farm Service Agency. AMS purchases a variety of food products designed to stabilize the prices in agricultural commodity markets. The fresh and processed foods customarily purchased under these programs include fruit and vegetables, beef and pork, poultry and egg products, and fish. The Kansas City office purchases grain products, including pasta, processed cereal, flours, crackers, ready-to-eat cereals, rice products, corn products, and miscellaneous dairy products; the Kansas City office also facilitates food distribution and multifood warehouse contracts. Benchmark for Estimated School Meal Costs To derive a benchmark for estimated school meal costs, the committee considered the following data from a national survey of SFAs for the 2005–2006 school year (USDA, 2008e): • The costs reported to be required to run the NSLP and the SBP, which include o food costs (about 46 percent), o labor costs (slightly less than 45 percent), and o other costs (supplies, contract services, and indirect charges incurred by school districts, slightly less than 10 percent). School districts also incur costs in support of SFA operations that are not charged to the SFA (unreported costs not charged to the food service budget or transfers of local educational money to cover food service budget losses in excess of the program fund balance). • For the average SFA, the national mean reported costs of producing a reimbursable lunch and a reimbursable breakfast and the mean cost of the NSLP and the SBP meals are shown in Table 6-2. Table 6-2 does not provide data on the variability of meal costs, which may be substantial during a school year or even during a single week. TABLE 6-2 Comparison of the Reported Costs of Producing a Reimbursable Meal, NSLP and SBP, by Unit of Analysis, 2005–2006 School Year NSLP SBP Type of Cost Mean SFA Cost Mean Meal Cost Mean SFA Cost Mean Meal Cost Reporteda $2.36 $2.28 $1.92 $1.46 Food $1.09 $0.98 $0.73 $0.65 Labor $1.05 $1.04 $1.02 $0.64 Other $0.23 $0.25 $0.17 $0.17 a Reported costs may not equal the sum of the component costs because of rounding. SOURCE: USDA, 2008e.

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110 NUTRITION STANDARDS AND MEAL REQUIREMENTS By the use of either unit of analysis (the mean SFA cost or the mean meal cost), food and labor costs represented most (approximately 90 percent) of the average reported costs. The full costs of meals, which include the costs incurred but not charged to the SFA, are higher than the mean SFA and mean meal cost for both lunch and breakfast. The food costs and the associated reported labor and administrative costs shown in Table 6-2 provide a benchmark for estimated school meal costs. In addition, the committee will consider indirect costs for labor, equipment, and other items that may not be reported. These indirect costs have also been investigated (USDA, 2008e) and used to determine the total costs of the meals. Although these costs are reported on the basis of average meal costs, it is useful to note that ultimately, SFAs establish costs and resolve the reimbursement process at the end of a menu cycle and at the end of the school year. Hence, for planning purposes, there may be considerable variability in costs on a specific day. Proposed Method of Assigning Costs and Changes in Costs for a Set of Representative School Menus Use of a Representative Set of Menus Assessment of the impacts of reimbursable lunch and reimbursable breakfast meals on costs requires data on the relative amounts of foods used in a representative (typical or average) meal and the relative prices of the individual food items used. During Phase II, the committee proposes to 1. select a representative set of menus for the lunch and breakfast meals by drawing from menus for each type of meal from frequently observed menus (and food items) from data for elementary schools from the School Nutrition Dietary Assessment Study-III (SNDA-III); 2. estimate the cost of the representative menu set; and 3. use the representative menu set to examine the cost implications of offering that menu versus a set of menus planned by using proposed revisions to the Nutrition Standards and Meal Requirements. For the purposes of the cost analysis, the committee will use a menu plan for an elementary school and include 5 days of menus in the representative week. To test possible changes in cost resulting from changes to the representative menu set (substitutions of foods, addition or deletion of foods, or respecification of products), the committee will use a method similar to that described below for the determination of baseline cost data. Determination of Baseline Cost Data Baseline cost data that use available nationally representative food cost data at the individual food item level will be developed, and the costs will be adjusted to current (2005–2006 school year or more current) costs by following these steps: • Use the most recent cost data at the individual food item level, namely, the data from the 1996–1997 school year (USDA, 1998b). 3 3 The more recent Cost Study II (USDA, 2008e) cannot be used for this purpose because it includes no data on specific food items.

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SENSITIVITY ANALYSIS, COST IMPLICATIONS, AND MARKET EFFECTS 111 • Adjust the aggregate week’s meal costs to the more current period (the 2005–2006 school year or later) by using the Consumer Price Index for Food Away from Home (CPI-FAFH) (U.S. Bureau of Labor Statistics, 2008) to adjust the data for inflation. • Evaluate the adjusted food and average meal cost data. • Calibrate the data, if necessary, to more recent estimates of meal costs available from a study of the Food and Nutrition Service of USDA (USDA, 2008e). Although this approach is limited in its ability to ensure that the total cost of all meals adds up to the total value of the food acquisitions and other costs for the school meal program, it is useful for estimating the cost implications of possible adjustments in the types and amounts of foods needed to meet the recommended revisions to the Nutrition Standards. Test Application of the Determination of Base Food Cost To explore the feasibility of determining base food costs of a meal for a representative menu, the committee applied the method described above to a sample 5-day week of lunch menus for an elementary school, as shown in Appendix M and described in the three steps below. The lunch menus were selected from the most commonly used school menus reported in SNDA-III (and compiled by Abt Associates for the committee’s use). 1. The food items for School 1 were matched to food item codes and assigned the cost from the 1996–1997 school year, adjusted to cost per serving. 2. The cost of food for meals for each of the 5 days was calculated as the weighted average of costs on the basis of the number of servings of each item and the number of meals served. In this example, the (weighted) average meal and food cost based on the 5 days of menus was $0.818 (see “Weekly Means” in Appendix M). This weighted average was estimated from a range of costs ($0.616 to $0.959 per meal). 3. The costs then were adjusted by the CPI-FAFH, yielding an average food cost of $1.07 per meal for 2006 and $1.16 per meal for 2008 (see numbers in boldface at the bottom of Appendix M). Notably, the average SFA cost of food for the 2005–2006 school year for a reimbursable meal was $1.09, $0.02 higher than the committee’s estimate for 2006. Advantages and Limitations of the Proposed Overall Approach The advantage of the proposed overall approach to estimating cost implications is that it is feasible and allows considerable flexibility in making adjustments to the proposed changes in Meal Requirements as reflected in the menus. However, some limitations should be noted. Price changes over the period are not uniform across all foods. Moreover, new foods and packaging change costs, as do changes in school procurement procedures. These factors will be considered in a qualitative way, and if it is deemed to be necessary, additional adjustments in prices will be made. Such adjustment will be based on the recent experience of school districts in purchasing and implementing practices that are consistent with the proposed revisions of the Nutrition Standards and the Menu Requirements.

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112 NUTRITION STANDARDS AND MEAL REQUIREMENTS Other Considerations Data on labor, administrative, and other costs will be included on the basis of the 2005–2006 school year estimates from the USDA cost study (USDA, 2008e), as well as relevant information obtained from school districts. Data on variations across SFAs by size and other factors from this recent USDA study will also allow the generation of a range of cost estimates. The effects of changes in labor and administrative costs will be considered in a qualitative manner, on the basis of the experience of the SFAs and schools that have implemented changes that are consistent with specific recommended changes to the Meal Requirements. In the same way, Phase II will consider changes in indirect costs for labor, equipment, and other items that may not be reported. The adjustments and changes that the committee tests with this model may have significant cost implications. Further adjustments in the foods included in the base menu may be required to temper projected increases in the cost of food. Such increases may result from decreases in the availability and use of donated commodities and from specific recommended changes to the Nutrition Standards and Meal Requirements. School districts have some experience with implementing changes in school meals and in responding to unexpected market events (product recalls, for example). Changes in student participation do not directly affect the cost estimates. However, for any proposed change, the committee will consider the potential effect of the change on student participation in the school meal program. That is, a change in the meal offered may induce more (or fewer) students to participate in the school meal program. Another possible effect might be the participation of more (or fewer) students who pay the full price of the meal. Expectations of changes in participation and implications for costs will be based on the experiences of SFAs and schools that have implemented changes that are consistent with the proposed changes. ESTIMATION OF MARKET EFFECTS The Phase II report will also include an analysis of the economic impacts of the recommended revisions to the Nutrient Standards and the Meal Requirements on SFAs and commodity markets. The impact of each of the proposed changes will be included and assessed on the basis of the available information. A USDA study of food costs (USDA, 1998b) that developed a summary of the dollar value of food acquisitions by public unified school districts that participate in the NSLP will provide a starting point. The USDA study provided estimated school expenditures (dollar values) for all foods, purchased foods, processed foods containing donated commodities, and donated commodities for the 1996–1997 school year, as well as the distribution of the costs (dollar values) of different food groups (i.e., the percentage of the total cost spent on grain products, bakery products, etc.). To view the complete list of dollar values, see Table V-II in the School Food Purchase Study (USDA, 1998b). Adjustment for changes in market prices and aggregate school purchase patterns will provide the basis for the development of the analysis of commodity markets. Proposed changes to the Nutrition Standards and the Meal Requirements will likely have an effect on the foods that are made available through the meals programs. Estimated economic effects on commodity markets will consider the impacts on markets under assumptions of full substitution and full supplementation and the expected levels of substitution and

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SENSITIVITY ANALYSIS, COST IMPLICATIONS, AND MARKET EFFECTS 113 supplementation. Estimates of the expected levels of substitution and supplementation will be based on information available from school districts that have experimented with changes and from the SNDA-III data on foods consumed as school meals (outside of the school meals program) and at home. Any changes to the Nutrition Standards and the Meal Requirements for the school meal programs will occur in a period of rapidly changing prices. The ability of SFAs to adjust meals and meet relevant standards in such an environment of changing costs is likely to depend on a number of factors, including the school’s state and local fiscal environment, the student population and demographics, and local food preferences. In addition, the 2008 Farm Bill proposes significant changes in the commodities available to schools, particularly fruits, vegetables, and whole grains. Under this bill, schools are encouraged to purchase locally grown and locally raised agricultural products, offered grants to provide fruits and vegetables distributed through the Fresh Fruit and Vegetable Program, and provided whole grains and whole grain products for use in the school lunch and breakfast programs (Food, Conservation, and Energy Act of 2008, P.L. 110-246 (June 18, 2008): § 4304). The committee will consider implications of relevant legislation. Projection of the expected economic impact in such an environment is difficult. The approach considered will make explicit the assumptions used to anticipate the specific economic impacts of proposed changes in the Nutrition Standards and the Meal Requirements. SUMMARY During Phase II, the committee will conduct many analyses in the process of developing its recommendations for the Nutrition Standards and Meal Requirements of the school meal programs. Sensitivity analysis will cover food and nutrient intakes according to the 2005 Dietary Guidelines for Americans and the DRIs, the costs and administrative impacts of program operations, acceptance by students, and student participation rates on the basis of the available data and evidence. Using a representative set of current school menus, the committee will examine the cost implications of offering that menu set versus a set of menus planned by using proposed revisions to the Nutrition Standards and the Meal Requirements. The committee anticipates that it will use an iterative process in conjunction with its criteria to develop a final set of recommendations for the Nutrition Standards and Meal Requirements of the NSLP and SBP.

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