National School Lunch Program and School Breakfast Program: Nutrition Standards for All Foods Sold in School as Required by the Healthy, Hunger-Free Kids Act of 2010, 39067-39120 [2013-15249]

Agencies

• DEPARTMENT OF AGRICULTURE
• Food and Nutrition Service

[Federal Register Volume 78, Number 125 (Friday, June 28, 2013)]
[Rules and Regulations]
[Pages 39067-39120]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15249]



[[Page 39067]]

Vol. 78

Friday,

No. 125

June 28, 2013

Part II





Department of Agriculture





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Food and Nutrition Service





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7 CFR Parts 210 and 220





National School Lunch Program and School Breakfast Program: Nutrition 
Standards for All Foods Sold in School as Required by the Healthy, 
Hunger-Free Kids Act of 2010; Interim Final Rule

Federal Register / Vol. 78 , No. 125 / Friday, June 28, 2013 / Rules 
and Regulations

[[Page 39068]]


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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 210 and 220

[FNS-2011-0019]
RIN 0584-AE09


National School Lunch Program and School Breakfast Program: 
Nutrition Standards for All Foods Sold in School as Required by the 
Healthy, Hunger-Free Kids Act of 2010

AGENCY: Food and Nutrition Service, USDA.

ACTION: Interim final rule.

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SUMMARY: This interim final rule amends the National School Lunch 
Program and School Breakfast Program regulations to establish nutrition 
standards for all foods sold in schools, other than food sold under the 
lunch and breakfast programs. Amendments made by Section 208 of the 
Healthy, Hunger-Free Kids Act of 2010 (HHFKA) require the Secretary to 
establish nutrition standards for such foods, consistent with the most 
recent Dietary Guidelines for Americans, and directs the Secretary to 
consider authoritative scientific recommendations for nutrition 
standards; existing school nutrition standards, including voluntary 
standards for beverages and snack foods; current State and local 
standards; the practical application of the nutrition standards; and 
special exemptions for infrequent school-sponsored fundraisers (other 
than fundraising through vending machines, school stores, snack bars, 
[agrave] la carte sales and any other exclusions determined by the 
Secretary). In addition, this interim final rule requires schools 
participating in the National School Lunch Program and School Breakfast 
Program to make potable water available to children at no charge in the 
place where lunches are served during the meal service, consistent with 
amendments made by section 203 of the HHFKA, and in the cafeteria 
during breakfast meal service. This interim final rule is expected to 
improve the health and well-being of the Nation's children, increase 
consumption of healthful foods during the school day, and create an 
environment that reinforces the development of healthy eating habits.

DATES: Effective date: This rule is effective August 27, 2013. 
Implementation dates: State agencies, local educational agencies and 
school food authorities must implement the provisions of this rule as 
follows:
    1. The potable water provisions in Sec. Sec.  210.10(a)(1)(i) and 
220.8(a)(1) must be implemented no later than August 27, 2013.
    2. All other provisions of this interim final rule must be 
implemented beginning on July 1, 2014.
    Comment Date: Written comments on this interim final rule must be 
received on or before October 28, 2013 to be assured of consideration.

ADDRESSES: The Food and Nutrition Service (FNS), United States 
Department of Agriculture (USDA or Department), invites interested 
persons to submit written comments on this interim final rule. To be 
considered for this rulemaking, written comments must be submitted by 
one of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov, select ``Food and Nutrition Service'' from the 
agency drop-down menu, and click ``Submit.'' In the Docket ID column of 
the search results select ``FNS-2011-0019'' to submit or view public 
comments and to view supporting and related materials available 
electronically. Information on using Regulations.gov, including 
instructions for accessing documents, submitting comments, and viewing 
the docket after the close of the comment period, is available through 
the site's ``User Tips'' link.
     By Mail: Send comments to William Wagoner, Section Chief, 
Policy and Program Development Branch, Child Nutrition Division, Food 
and Nutrition Service, P.O. Box 66874, Saint Louis, MO 63166. Mailed 
comments must be postmarked on or before the comment deadline 
identified in the DATES section of this preamble to be assured of 
consideration.
    All submissions received in response to this interim final rule 
will be included in the record and will be available to the public. 
Please be advised that the substance of the comments and the identity 
of the individuals or entities submitting comments will be subject to 
public disclosure. FNS will also make the comments publicly available 
by posting a copy of all comments on http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: William Wagoner, Section Chief, Policy 
and Program Development Branch, Child Nutrition Division, Food and 
Nutrition Service, 3101 Park Center Drive, Alexandria, Virginia 22302, 
or by telephone at (703) 305-2590.

SUPPLEMENTARY INFORMATION: 

Executive Summary

Purpose of the Regulatory Action

    This interim final rule sets forth provisions to implement 
amendments made by sections 203 and 208 of Public Law 111-296, the 
Healthy, Hunger-Free Kids Act of 2010 (HHFKA), to the Child Nutrition 
Act of 1966 (CNA) and the Richard B. Russell National School Lunch Act 
(NSLA) for schools that participate in the National School Lunch 
Program (NSLP) and the School Breakfast Program (SBP). This rule amends 
the NSLP and SBP regulations consistent with amendments made in the 
HHFKA. The HHFKA requires that the Secretary promulgate regulations to 
establish nutrition standards for foods sold in schools other than 
those foods provided under the CNA and the NSLA. The amendments made by 
the HHFKA specify that such nutrition standards apply to all foods sold 
(a) outside the school meal programs; (b) on the school campus; and (c) 
at any time during the school day. In addition, the amendments made by 
the HHFKA require that such standards be consistent with the most 
recent Dietary Guidelines for Americans and that the Secretary consider 
authoritative scientific recommendations for nutrition standards; 
existing school nutrition standards, including voluntary standards for 
beverages and snack foods; current State and local standards; the 
practical application of the nutrition standards; and special 
exemptions for infrequent school-sponsored fundraisers (other than 
fundraising through vending machines, school stores, snack bars, 
[agrave] la carte sales and any other exclusions determined by the 
Secretary). These changes are intended to improve the health and well-
being of the Nation's children, increase consumption of healthful foods 
during the school day and create an environment that reinforces the 
development of healthy eating habits.
    The standards for food and beverages in this interim final rule 
represent minimum standards that local educational agencies, school 
food authorities and schools are required to meet. Should they wish to 
do so, State agencies and/or local school districts have the discretion 
to establish their own standards for non-program foods sold to 
children, as long as such standards are consistent with the Federal 
standards. This interim final rule also requires, per the amendments 
made by the HHFKA, that schools participating in the NSLP make free 
potable water available to children in the place lunches are served 
during

[[Page 39069]]

meal service, and also at breakfast when breakfast is served in the 
cafeteria.

Summary of Major Provisions

    Competitive foods and beverages must meet the nutrition standards 
specified in the interim final rule, beginning July 1, 2014. A special 
exemption to the standards is allowed for foods and beverages that do 
not meet competitive food standards but which are sold for the purpose 
of conducting infrequent school-sponsored fundraisers. Such exempt 
fundraisers must not occur more often than the frequency specified by 
the State agency. Exempted fundraiser foods or beverages may not be 
sold in competition with school meals in the food serving area during 
the meal service. In addition, NSLP and SBP entr[eacute]es sold 
[agrave] la carte are exempt from the interim final rule's nutrient 
standards if sold on the day that they are offered as part of a 
reimbursable meal, or sold on the following school day.

Food Requirements

    To be allowable, a competitive food must meet all of the 
competitive food nutrient standards and:
     Be a grain product that contains 50 percent or more whole 
grains by weight or have as the first ingredient a whole grain; or
     Have as the first ingredient one of the non-grain major 
food groups: fruits, vegetables, dairy or protein foods (meat, beans, 
poultry, seafood, eggs, nuts, seeds, etc.); or
     Be a combination food that contains \1/4\ cup of fruit 
and/or vegetable; or
     For the period through June 30, 2016, contain 10 percent 
of the Daily Value of a nutrient of public health concern based on the 
most recent Dietary Guidelines for Americans (i.e., calcium, potassium, 
vitamin D or dietary fiber). Effective July 1, 2016, this criterion is 
obsolete and may not be used to qualify as a competitive food; and
     If water is the first ingredient, the second ingredient 
must be one of the food items above.
    Fresh, canned, and frozen fruits or vegetables with no added 
ingredients except water, or in the case of fruit, packed in 100 
percent juice, extra light, or light syrup are exempt from the interim 
final rule's nutrient standards. Canned vegetables that contain a small 
amount of sugar for processing purposes are also exempt.
    Competitive foods must contain 35 percent or less of total calories 
from fat per item as packaged or served. Exemptions to the total fat 
standard are granted for reduced fat cheese and part-skim mozzarella 
cheese, nuts, seeds, nut or seed butters, products consisting of only 
dried fruit with nuts and/or seeds with no added nutritive sweeteners 
or fat, and seafood with no added fat.
    Competitive foods must contain no more than 10 percent of total 
calories from saturated fat per item as packaged or served. Exemptions 
to the saturated fat standard are granted for reduced fat cheese and 
part-skim mozzarella cheese, nuts, seeds, nut or seed butters, and 
products consisting of only dried fruit with nuts and/or seeds with no 
added nutritive sweeteners or fat.
    Competitive foods must have 0 g of trans fat per item as packaged 
or served.
    Sodium content in snacks is limited to 230 mg per item as packaged 
or served. On July 1, 2016, the sodium standard will move to 200 mg per 
item as packaged or served. Entr[eacute]e items must have no more than 
480 mg of sodium per item as packaged or served, unless they meet the 
exemption for NSLP/SBP entr[eacute]e items.
    Total sugar must be no more than 35 percent by weight. Exemptions 
to the sugar standard are provided for dried whole fruits or 
vegetables; dried whole fruit or vegetable pieces; dehydrated fruits or 
vegetables with no added nutritive sweeteners; and dried fruits with 
nutritive sweeteners that are required for processing and/or 
palatability purposes.
    Snack items and side dishes served [agrave] la carte must have no 
more than 200 calories per item as packaged or served, including 
accompaniments such as butter, cream cheese, salad dressing, etc. 
Entr[eacute]e items sold [agrave] la carte must contain no more than 
350 calories including accompaniments, unless they meet the exemption 
for NSLP/SBP entr[eacute]e items.
    Accompaniments must be included in the nutrient profile as a part 
of the item served.

Beverage Requirements

    Allowable beverages for elementary students are limited to plain 
water (carbonated or uncarbonated), lowfat milk (unflavored) and nonfat 
milk (including flavored), nutritionally equivalent milk alternatives 
(as permitted by the school meal requirements), and full strength fruit 
or vegetable juices and full strength fruit and vegetable juice diluted 
with water or carbonated water. All beverages must be no more than 
eight ounces with the exception of water, which is unlimited.
    Allowable beverages for middle school students are limited to plain 
water (carbonated or uncarbonated), lowfat milk (unflavored) and nonfat 
milk (including flavored), nutritionally equivalent milk alternatives 
(as permitted by the school meal requirements), and full strength fruit 
or vegetable juice and full strength fruit or vegetable juice diluted 
with water or carbonated water. All beverages must be no more than 12 
ounces, with the exception of water, which is unlimited.
    Elementary and middle school foods and beverages must be caffeine 
free with the exception of naturally occurring trace amounts.
    Allowable beverages for high school students are limited to plain 
water (carbonated or uncarbonated), lowfat milk (unflavored) and nonfat 
milk (including flavored), nutritionally equivalent milk alternatives 
(as permitted by the school meal requirements), and full strength fruit 
or vegetable juice and full strength fruit and vegetable juice diluted 
with water or carbonated water. Milk and milk equivalent alternatives 
and fruit or vegetable juice must be no more than 12 ounces.
    Also allowed in high schools are calorie-free, flavored and/or 
carbonated water and other calorie-free beverages that comply with the 
FDA requirement of less than five calories per 8 ounce serving (or less 
than or equal to 10 calories per 20 fluid ounces), in no more than 20 
ounce servings. Beverages of up to 40 calories per eight fluid ounce 
(or 60 calories per 12 fluid ounce) in no more than 12 ounce servings 
are also allowed. There is no ounce restriction on plain water 
(carbonated or uncarbonated). Beverages containing caffeine are also 
permitted. Allowable beverages are available in the food service area 
and elsewhere without restriction.

Costs, Benefits and Transfers

    This interim final rule requires schools to improve the nutritional 
quality of foods offered for sale to students outside of the Federal 
school lunch and school breakfast programs. The new standards apply to 
foods sold [agrave] la carte, in school stores, snack bars, or vending 
machines. The principal benefit of such a rule is improvement in public 
health. The primary purpose of the rule is to ensure that foods sold in 
competition with school meals (competitive foods) are consistent with 
the most recent Dietary Guidelines, effectively holding competitive 
foods to the same standards as other foods sold at school during the 
school day. The link between poor diet and health problems (such as 
childhood obesity) is a matter of policy concern because the associated 
health problems produce significant social costs; imposing nutrition 
standards on competitive foods is one way to ensure that children

[[Page 39070]]

are provided with healthy food options throughout the school day.
    The Department anticipates the rule will result in significant 
changes to the nutritional quality of competitive foods available in 
schools, although it is not possible to quantify those benefits on 
overall diets or student health. Excess body weight has long been 
demonstrated to have adverse health, social, psychological, and 
economic consequences for affected adults, and recent research has also 
demonstrated that excess body weight has negative impacts for obese and 
overweight children. Ancillary benefits, although also not 
quantifiable, may be realized by the nutrition standards in the rule, 
e.g., improving the nutritional value of competitive foods will support 
the efforts of parents to promote healthy choices at home and at 
school, reinforce school-based nutrition education and promotion 
efforts, and contribute significantly to the overall effectiveness of 
the school nutrition environment in promoting healthful food and 
physical activity choices.
    Upon implementation of the rule, students will have new food 
choices which will meet standards for calories, fats, sugar, and 
sodium, and have whole grains, lowfat dairy, fruits, vegetables, or 
protein foods as their main ingredients. Our regulatory impact analysis 
examines a range of possible behavioral responses of students and 
schools to these changes. To estimate the effects on school revenue, we 
look to the experience of school districts that have adopted or piloted 
competitive food reforms in recent years. While no State standard 
aligns to all of the provisions of the rule, these State standards 
offer the closest ``real-world'' analogue to the rule.
    The available information indicates that many schools have 
successfully introduced competitive food reforms with little or no loss 
of revenue. In some of those schools, losses from reduced sales of 
competitive foods were fully offset by increases in reimbursable meal 
revenue. In other schools, students responded favorably to the 
healthier options and competitive food revenue increased or remained at 
previous levels.
    But not all schools that adopted or piloted competitive food 
standards fared as well. Some of the same studies and reports that 
highlight school success stories note that other schools sustained 
losses after implementing similar standards. The competitive food 
revenue lost by those schools was not offset (at least not fully) by 
revenue gains from the reimbursable meal programs.
    We present a series of possible school revenue effects in the 
regulatory impact analysis that reflect the variation in outcomes 
across these case studies, differences in the adopted nutrition 
standards and implementation strategies, and differences in the 
schools' economic circumstances. This discussion illustrates a range of 
potential outcomes; the limited nature of available data and the 
substantial variation in school experiences to date prevent any 
assessment of the most likely outcome. The analysis examines the 
possible effects of the rule on school revenues from competitive foods, 
the administrative costs of complying with the rule, and the benefits 
to school children. The magnitude of these effects is subject to 
considerable uncertainty; the ultimate impact of the rule will be 
determined by the manner in which schools implement the new standards 
and how students respond. That said, the most current and comprehensive 
research available does indicate that nutritional standards for 
competitive foods can be successfully implemented with no revenue loss 
or even revenue gains by schools.

Background

    The NSLP served an average of 31.6 million children per day in 
Fiscal Year (FY) 2012. In that same FY, the SBP served an average of 
12.9 million children daily.
    The Richard B. Russell National School Lunch Act (NSLA) (42 U.S.C. 
1751 et seq.) and the Child Nutrition Act of 1966 (CNA) (42 U.S.C. 1771 
et seq.) require the Secretary to establish nutrition standards for 
meals served under the NSLP and SBP, respectively. Prior to the 
enactment of the Healthy, Hunger-Free Kids Act of 2010 (HHFKA), section 
10 of the CNA limited the Secretary's authority to regulate competitive 
foods, i.e., foods sold in competition with the school lunch and 
breakfast programs, to those foods sold in the food service area during 
meal periods. The Secretary did not have authority to establish 
regulatory requirements for food sold in other areas of the school 
campus or at other times in the school day.
    The HHFKA, enacted December 13, 2010, directed the Secretary to 
promulgate regulations to establish science-based nutrition standards 
for foods sold in schools other than those foods provided under the 
NSLP and SBP. Section 208 of the HHFKA amended section 10 of the CNA 
(42 U.S.C. 1779) to require that such nutrition standards apply to all 
foods sold:
     Outside the school meal programs;
     On the school campus; and
     At any time during the school day.
    Section 208 requires that such standards be consistent with the 
most recent Dietary Guidelines for Americans (DGA) and that the 
Secretary consider authoritative scientific recommendations for 
nutrition standards; existing school nutrition standards, including 
voluntary standards for beverages and snack foods; current State and 
local standards; the practical application of the nutrition standards; 
and special exemptions for infrequent school-sponsored fundraisers 
(other than fundraising through vending machines, school stores, snack 
bars, [agrave] la carte sales and any other exclusions determined by 
the Secretary).
    In addition, the amendments made by section 203 of the HHFKA 
amended section 9(a) of the NSLA (42 U.S.C. 1758(a)) to require that 
schools participating in the NSLP make potable water available to 
children at no charge in the place where meals are served during the 
meal service. This is a nondiscretionary requirement of the HHFKA that 
became effective October 1, 2010.
    The Department published a proposed rule in the Federal Register on 
February 8, 2013 (78 FR 9530), also titled National School Lunch 
Program and School Breakfast Program: Nutrition Standards for All Foods 
Sold in School as Required by the Healthy, Hunger-Free Kids Act of 
2010. This rule proposed nutrition standards for foods offered for sale 
to students outside of the Federal school lunch and school breakfast 
programs, including foods sold [agrave] la carte and in school stores 
and vending machines. The proposed standards were designed to 
complement recent improvements in school meals, and to help promote 
diets that contribute to students' long term health and well-being. For 
information on recent improvements to school meals, refer to the final 
rule, Nutrition Standards in the National School Lunch and School 
Breakfast Programs (January 26, 2012, at 77 FR 4088). The proposed rule 
also would have required schools participating in the NSLP and 
afterschool snack service under NSLP to make water available to 
children at no charge during the lunch and afterschool snack service.
    As previously indicated, the nutrition standards established by the 
Secretary must be consistent with the most recent DGA, which are the 
2010 DGA released on January 31, 2011. The guidelines are available at 
http://www.cnpp.usda.gov/DietaryGuidelines.htm. In accordance with the 
amendments made by the HHFKA, in developing competitive food

[[Page 39071]]

standards, the Secretary was also to consider authoritative scientific 
recommendations for nutrition standards; existing school nutrition 
standards, including voluntary standards for beverages and snack foods 
and State and local standards; and the practical application of the 
nutrition standards. As part of USDA's review of authoritative 
scientific recommendations for nutrition standards, the Agency gave 
consideration to the National Academies' Institute of Medicine's (IOM) 
2007 report, Nutrition Standards for Foods in Schools: Leading the Way 
Toward Healthier Youth (available at: http://www.iom.edu/Reports/2007/Nutrition-Standards-for-Foods-in-Schools-Leading-the-Way-toward-Healthier-Youth.aspx).
    The Department also conducted a broad review of nutrition standards 
developed by other entities, including USDA's HealthierUS School 
Challenge (HUSSC) standards, existing State and local school nutrition 
standards for foods and beverages sold in competition with school 
meals, and existing voluntary standards and recommendations developed 
by various organizations such as the National Alliance for Nutrition 
and Activity and the Alliance for a Healthier Generation. In addition, 
the Department solicited input from Federal child nutrition program 
stakeholders, including nutrition and health professionals, academia, 
industry, interest groups and the public through a variety of channels. 
The practical application of the competitive food nutrition standards 
in school settings was a key consideration for the standards.
    USDA received a total of 247,871 public comments during the 60-day 
comment period from February 8, 2013, through April 9, 2013. This total 
included several single submissions with thousands of identical 
comments. Approximately 245,665 of these were form letters, nearly all 
of which were related to 104 different mass mail campaigns. The 
remaining comments--over 2,200--were unique comments rather than form 
letters. Comments represented a diversity of interests, including 
advocacy organizations; health care organizations; industry and trade 
associations; farm and industry groups; schools, school boards and 
school nutrition and education associations; State departments of 
education; consumer groups; and others. Comments were analyzed using 
computer software that facilitated the identification of the key issues 
addressed by the commenters.
    In general, there was support for the proposed rule. Approximately 
17,827 submissions, including a mass mail campaign, expressed general 
overall support for the proposed rule in its entirety without 
commenting on specific provisions. Approximately 426 submissions 
expressed general opposition to the proposed rule in its entirety 
without commenting on specific provisions. USDA considered all comments 
in the development of this interim final rule. Given the unprecedented 
volume and complexity of comments on the proposed rule, USDA prepared a 
comprehensive comment summary and analysis which includes detailed 
information on the comments, including the source of the comments. The 
description and analysis of comments in this preamble focus on general 
comment themes, most frequent comments, and those that influenced 
revisions to the proposed rule. The preamble also discusses 
modifications made to the proposed rule in response to public input. To 
view all public comments on the proposed rule, go to 
www.regulations.gov and search for public submissions under document 
number FNS-2011-0019. Once the search results populate, click on the 
blue text titled, ``Open Docket Folder.'' The comprehensive comment 
summary and analysis is available as supporting material under the 
docket folder summary. It is also available at www.fns.usda.gov/cnd/Governance/Legislation/allfoods.htm.
    USDA greatly appreciates the public comments as they have been 
essential in developing an interim final rule that is expected to 
improve the quality of foods sold in schools participating in the NSLP 
and SBP.

General Requirements

Definitions

    The amendments made by the HHFKA stipulate that the nutrition 
standards for competitive food apply to all foods and beverages sold: 
(a) Outside the school meals programs; (b) on the school campus; and 
(c) at any time during the school day. The proposed rule at Sec.  
210.11(a) included definitions of Competitive food, School day, and 
School campus, as follows:
    Competitive food means all food and beverages other than meals 
reimbursed under programs authorized by the Richard B. Russell National 
School Lunch Act and the Child Nutrition Act of 1966 available for sale 
to students on the School campus during the School day.
    School day means, for the purpose of competitive food standards 
implementation, the period from the midnight before, to 30 minutes 
after the end of the official school day.
    School campus means, for the purpose of competitive food standards 
implementation, all areas of the property under the jurisdiction of the 
school that are accessible to students during the school day.
    Another term, Combination foods was also proposed to be defined 
under Sec.  210.11(a) to mean products that contain two or more 
components representing two or more of the recommended food groups: 
fruit, vegetable, dairy, protein or grains.
    In addition, an Entr[eacute]e item was defined in Sec.  
210.11(k)(1) of the proposal as an item that includes only the 
following three categories of main dish food items:
     A combination food of meat or meat alternate and whole 
grain rich bread;
     A combination food of vegetable or fruit and meat or meat 
alternate; or
     A meat or meat alternate alone, with the exception of 
yogurt, low-fat or reduced fat cheese, nuts, seeds and nut or seed 
butters.
    The preamble provided several examples for each part of the 
entr[eacute]e definition.
    Almost 6,000 commenters provided input on the proposed definition 
of Competitive food. Many of these commenters generally agreed with the 
proposed definition. Of the more than 6,000 comments received on the 
definition of School day, many generally agreed with the proposed 
definition. Numerous commenters suggested the definition should be 
expanded to include the extended school day and afterschool programs 
that take place on the school campus. Commenters recommended a range of 
times, both before and after school, including 30 minutes before the 
start of the instructional day, instead of the midnight before.
    Per amendments by section 208 of the HHFKA, the CNA requires that 
the competitive food standards apply to foods sold at any time during 
the school day, which does not include afterschool programs, events and 
activities. The timeframe for the school day definition starting the 
``midnight before'' was proposed to ensure that the competitive food 
standards would apply during the School Breakfast Program meal service, 
in recognition of the variety of school schedules and methods of 
serving breakfast to students.
    Almost 3,000 commenters provided input on the proposed definition 
of School campus. Many of these commenters generally agreed with the 
proposed definition. Several

[[Page 39072]]

commenters requested clarification on the applicability of the 
definition to various locations and activities, including teachers' 
lounges and similar areas restricted to faculty and staff. The proposed 
definition of School campus includes specific reference to areas that 
are ``accessible to students'' during the school day. To the extent 
that teachers' lounges and other similar areas are restricted areas not 
accessible to students, the competitive food standards in this rule 
would not apply to foods sold in those areas.
    Approximately 850 commenters provided input on the proposed 
definition of Entr[eacute]e item. Several commenters requested a 
separate definition of ``breakfast entr[eacute]e'' to allow grain only, 
whole grain rich entr[eacute]es, which are commonly served in the SBP. 
Including this definition would allow a higher calorie limit for many 
popular breakfast items such as pancakes, waffles, bagels and cereal, 
some of which could have difficulty qualifying under the snack/side 
item limits. The Department acknowledges that the proposed definition 
of Entr[eacute]e item could present challenges to schools in serving 
some traditional breakfast items. At this time, the consequences of 
modifying the proposed definition of Entr[eacute]e item or adding a 
separate definition of ``breakfast entr[eacute]e'' are unclear. The 
Department would appreciate further comment on this issue in the 
context of the totality of the competitive food standards set forth in 
this interim final rule, so that we can appropriately address this in 
future guidance and/or the final rule.
    A few commenters recommended that meat snack items, such as beef 
jerky and meat sticks, be excluded similar to yogurt, cheese, nuts, 
seeds and nut butters, as these are typically not considered main 
dishes but rather snacks. USDA agrees and will add an exclusion for 
meat snack items to the definition.
    Accordingly, this interim final rule codifies the proposed 
definitions of Combination foods, Competitive food, School day, and 
School campus at Sec.  210.11(a), without change. In addition, this 
interim final rule adopts the proposed definition of Entr[eacute]e 
item, with an additional exception added for meat snacks, and a 
technical correction to change ``whole grain rich bread'' to ``whole 
grain rich food'' to ensure that entr[eacute]es with pasta, rice and 
other grain items are included as intended. The definition of 
Entr[eacute]e item is also moved to Sec.  210.11(a) of this interim 
final rule, as the definition is applicable to several provisions 
across the competitive food standards.

State and Local Educational Agency Standards

    Under Sec.  210.11(b)(1) of the proposed rule, State and/or local 
educational agencies would have the discretion to establish additional 
restrictions on competitive food, as long as they are consistent with 
the provisions set forth in program regulations.
    Approximately 10,280 commenters addressed the discretion of States 
and local school districts to establish more rigorous competitive food 
standards. Numerous commenters expressly supported the proposed 
provision. However, a few commenters expressed concern about additional 
competitive food restrictions created by States and/or individual 
school districts, arguing that the standards should be as consistent as 
possible across States. The commenters asserted that having one set of 
standards would facilitate the development of nutritious formulations 
by manufacturers which could potentially lower the overall cost.
    The ability of State agencies and school districts to establish 
additional standards that do not conflict with the Federal competitive 
food requirements is consistent with the intent of section 208 of the 
HHFKA, and with the operation of the Federal school meal programs in 
general. That discretion also provides an appropriate level of 
flexibility to States and school districts to set or maintain 
additional requirements that reflect their particular circumstances 
consistent with the development of their local school wellness 
policies. Any additional restrictions on competitive food established 
by school districts must be consistent with both the Federal 
requirements as well as any State requirements.
    Accordingly, this interim final rule codifies in Sec.  
210.11(b)(1), as proposed, the provision allowing States and local 
educational agencies to establish additional restrictions on 
competitive food that are not inconsistent with the Federal 
requirements.

Nutrition Standards for Competitive Food

    In response to section 208 of the HHFKA, the proposed rule at Sec.  
210.11(c) included general nutrition standards for foods sold in 
schools outside of the Federal school meal programs. At a minimum, all 
competitive food sold to students on the school campus during the 
school day would be required to meet these competitive food nutrition 
standards.

General Nutrition Standards for Competitive Food

    Under Sec.  210.11(c)(1) and (c)(2) of the proposal, an allowable 
competitive food item would be required to meet all of the proposed 
competitive food nutrient standards and:
     Be a grain product that contains 50 percent or more whole 
grains by weight or have whole grains as the first ingredient; or
     Have as a first ingredient one of the non-grain major food 
groups as defined by the 2010 DGA: fruits, vegetables, dairy products, 
protein foods (meat, beans, poultry, seafood, eggs, nuts, seeds, etc.); 
or
     Contain 10 percent of the Daily Value of a naturally 
occurring nutrient of public health concern from the DGA (i.e., 
calcium, potassium, vitamin D or dietary fiber); or
     Be a combination food that contains at least \1/4\ cup of 
fruit or vegetable.
    If water is the first ingredient listed for a food item, the second 
ingredient must be one of the food items above.

General Comments

    Approximately 209,400 commenters expressed general support for the 
food requirements in the proposed rule, while approximately 20 
commenters expressed general opposition to the food requirements.
    Some commenters recommended that USDA remove the general standards 
for food and only require competitive food to meet the nutrient 
standards. The Department does not agree. The general standards for 
competitive food, as proposed, are consistent with the IOM 
recommendations, and are intended to promote and encourage the 
consumption of foods in their whole forms as much as possible, as 
recommended by the DGA. Removing the general standards and requiring 
that foods meet only the nutrient standards would not support this 
goal.
    Some commenters recommended that USDA require a proportionate 
increase in, and/or recommended amounts of, food group contributions 
for entr[eacute]e-type competitive food items, since entr[eacute]es are 
larger and should contribute more to dietary needs than snacks or side 
dishes. We acknowledge that due to their larger size and composition, 
entr[eacute]e items generally contribute more to diets than other 
items. However, the Department does not agree that a separate, higher 
general standard for entr[eacute]es is necessary, since an 
entr[eacute]e's portion size and overall nutrient content will be 
controlled by the standards for calories, fats, sodium and sugar. A 
separate general standard for entr[eacute]es

[[Page 39073]]

would also add complexity to the determination of whether a food item 
meets the standards.
    More than 1,100 commenters recommended that combination foods be 
required to contain only \1/8\ cup of fruit or vegetable, instead of 
\1/4\ cup. The comment reflects USDA's current policy allowing schools 
to credit \1/8\ cup fruit or vegetable toward the total quantity 
required for school meals. Maintaining the higher \1/4\ cup fruit/
vegetable quantity for combination foods generally supports the 
availability of more nutritious products and is consistent with the IOM 
recommendation and the DGA. However, it is possible that combination 
foods with less than \1/4\ cup of fruit or vegetable could qualify 
under the whole grain rich or food group criteria, depending on their 
composition.
    One commenter suggested specifying that ``dairy products'' include 
non-standard products such as cultured dairy snacks and frozen dairy 
desserts. In drafting the proposed rule, the Department did not intend 
to exclude non-standard dairy products such as those mentioned by the 
commenter. We will ensure that guidance and technical assistance 
materials in support of this interim final rule will include that 
clarification.
    Based on these comments, this interim final rule does not make any 
change to these proposed general standards for competitive food, except 
to correct technical errors with references in the proposed regulatory 
text regarding the applicability of water as the first ingredient in a 
product, and to clarify that fruit ``and/or'' vegetable may be present 
in a combination food. Additional discussion of the general standards 
related to whole grains and naturally occurring nutrients of concern 
follows.

Whole Grains

    As mentioned above, one of the general standards for competitive 
food, proposed at paragraphs (c)(2)(ii) and (e) in Sec.  210.11, would 
require that grain products contain 50 percent or more whole grains by 
weight, or have whole grains as the first ingredient.
    Approximately 25 commenters expressed support for the proposed 
whole grain standard, stating that this standard would align with the 
DGA as well as the school meal standard. Other commenters urged 
amendment of the standard by allowing FDA whole grain health claims to 
ensure consistency with the standards for school meals. Approximately 
40 commenters supported making the standard more stringent, suggesting 
that 100 percent of grains should be whole grain, not whole grain rich.
    Approximately 980 commenters supported making the proposed standard 
less stringent. Some of these commenters suggested that USDA expand the 
whole grain rich grain product standard to allow products that contain 
at least 8 grams of whole grains per serving.
    As indicated in the preamble to the proposed rule, this standard is 
consistent with the DGA recommendations, the whole grain rich 
requirements for school meals, including FDA health claims, and the 
HUSSC whole grain rich requirement. The whole grain criteria for 
competitive food is used as a criterion for determining product 
allowability, while school meals' whole grain rich criteria determine 
crediting of the grain portion of menu items toward the grain component 
of the meal. Allowing the additional measures for grain suggested by 
some commenters such as >= 8 grams of whole grain would not ensure that 
grain products contain at least 50 percent whole grain and would be 
inconsistent with the DGA. Therefore, this interim final rule adopts 
the standard as proposed.

Naturally Occurring Nutrients

    One of the general standards for competitive food, proposed at 
Sec.  210.11(c)(2)(iv), would require an allowable competitive food to 
contain 10 percent of the Daily Value of a naturally occurring nutrient 
of public health concern (i.e., calcium, potassium, vitamin D, or 
dietary fiber). The proposed rule requested comments on whether or not 
food items that contain only naturally occurring nutrients should be 
allowed, or whether food items to which specific nutrients of concern 
have been added should also be allowable.
    Approximately 450 commenters expressed support for the proposal to 
limit non-DGA food group competitive food to only those with 
``naturally occurring'' 10 percent Daily Value of nutrients of concern. 
Numerous commenters reasoned that limiting nutrients to those that are 
naturally occurring would promote the intake of foods closer to their 
whole, natural state, which is recommended in the 2010 DGA, and is 
consistent with the IOM recommendations. Several commenters expressed 
concern that if the competitive food requirements permitted 
fortification, unhealthy or less healthy foods would be fortified and 
made available in schools. Some commenters also argued that crediting 
nutrients added through fortification could lead food manufacturers to 
add nutrients to foods that would not usually be sources of a 
particular nutrient and could lead to the potential for nutrient 
imbalances. Some commenters suggested that school food service 
personnel would require training to identify which food items contain 
naturally occurring nutrients of concern versus those that have been 
fortified. Several commenters suggested that the regulation specify 
that the nutrients of concern are based on the most recent DGA so that 
if future versions of the DGA include different nutrients of concern, 
USDA would have the authority to update them for competitive food.
    A few commenters urged USDA to broaden the list of ``nutrients of 
concern'' to include vitamins A and C, iron, folic acid, and protein, 
referencing the FDA definition of ``healthy'' (21 CFR 101.65(d)(2)) and 
the current Nutrition Facts label.
    Approximately 1,240 commenters opposed the proposed restriction to 
only ``naturally occurring'' nutrients. Several commenters argued that 
allowing competitive foods to qualify because of fortified nutrients 
would provide greater flexibility in menu planning and increase the 
variety of items that schools can offer as competitive foods. Several 
commenters stated that the current nutrition information on food labels 
does not distinguish between fortified and naturally occurring 
nutrients and that there is no standardized labeling for nutrients of 
concern. These commenters argued that the requirement for nutrients 
should be aligned with the information that is currently present on 
food nutrition labels. These same commenters concluded that it would be 
challenging or impossible for food service staff to determine from food 
labels what nutrients are naturally occurring and which are added 
through fortification.
    This is a particularly challenging issue. The Department recognizes 
some of the current difficulties and limitations with determining 
whether products contain naturally occurring nutrients. We also 
appreciate the complexity this would create for local educational 
agencies and schools in identifying allowable competitive food, as well 
as the challenges for State agencies in monitoring compliance with 
these standards. In addition, there are existing voluntary standards 
that have no restriction on adding nutrients to qualify, and therefore 
some product manufacturers may not be prepared to support a naturally 
occurring nutrient standard.

[[Page 39074]]

    However, as indicated in the preamble to the proposed rule, the 
Department also supports recognizing only naturally occurring nutrient 
sources as more consistent with the recommendation of the DGA that 
``nutrients should come primarily from foods.'' The nutrients of 
concern referenced in the proposed rule--calcium, potassium, vitamin D, 
and dietary fiber--are explicitly identified in the 2010 DGA. It is not 
appropriate for the Department to add other nutrients at this time, but 
it would be the Department's intent to update the nutrients as future 
changes occur. As commenters noted, the proposed criterion is also 
consistent with the recommendations from IOM, which indicated that this 
approach ``reinforces the importance of improving the overall quality 
of food intake rather than nutrient-specific strategies such as 
fortification and supplementation.''
    Therefore, in recognition of the current marketplace and 
implementation limitations but also mindful of important national 
nutrition goals, this interim final rule implements a phased-in 
approach to identifying allowable competitive food under the general 
standard. For the initial implementation period in School Year 2014-15, 
through June 30, 2016, the general food standard will include a 
criterion that an allowable competitive food may contain 10 percent of 
the Daily Value of a nutrient of public health concern (i.e., calcium, 
potassium, vitamin D, or dietary fiber). The specified nutrient may be 
naturally occurring, which is encouraged, or may be added to the 
product. Effective July 1, 2016, the criterion for 10 percent of the 
Daily Value of a nutrient of public health concern will be removed as a 
general criterion. At that time, competitive food must qualify on the 
basis of being whole grain rich, having one of the non-grain main food 
groups as the first ingredient (or second if water if the first 
ingredient), or a combination food with at least \1/4\ cup fruit and/or 
vegetable. This approach will allow three years for product 
manufacturers to reformulate their products, if desired, to qualify 
under the other criteria of the general standards. It will also provide 
a more straightforward method for schools to identify allowable 
products, both initially and in the long-term. Ultimately this will 
more closely align the competitive food standards with the DGA, as 
required by the HHFKA. Should the 2015 DGA identify additional 
nutrients of concern applicable to school-age children, the Department 
anticipates allowing these additional nutrients to qualify products 
until that criterion is removed on July 1, 2016.

Summary of Changes to the General Nutrition Standards

    Accordingly, this interim final rule modifies the proposed general 
standards for competitive food to require that an allowable competitive 
food item must meet all of the competitive food nutrient standards and:
     Be a grain product that contains 50 percent or more whole 
grains by weight or have whole grains as the first ingredient; or
     Have as a first ingredient one of the non-grain major food 
groups: Fruits, vegetables, dairy, protein foods (meat, beans, poultry, 
seafood, eggs, nuts, seeds, etc.); or
     Be a combination food that contains at least \1/4\ cup of 
fruit and/or vegetable; or
     Through June 30, 2016, contain 10 percent of the Daily 
Value of a nutrient of public health concern from the DGA (i.e., 
calcium, potassium, vitamin D or dietary fiber).
    If water is the first ingredient listed for a food item, the second 
ingredient must be one of the food items listed above. These provisions 
are found in paragraphs (c)(1) and (c)(2) in Sec.  210.11 of this 
interim final rule.

Exemptions From Some or All of the Nutrition Standards for Menu Items 
Provided as Part of the NSLP/SBP

    The proposed rule at Sec.  210.11(c)(3) identified two alternatives 
by which any menu item (both entr[eacute]es and side dishes) provided 
as part of the NSLP and/or SBP school meal would be exempt from all or 
some of the proposed competitive food nutrition standards. Under both 
proposed alternatives, grain based dessert products would be required 
to meet all competitive food standards, and all menu items would be 
required to be served in the same or smaller portion sizes as the NSLP 
and SBP.
    Under proposed Alternative A1, all menu items provided as part of 
the NSLP or SBP reimbursable meal would be exempt from all of the 
proposed competitive food standards except the standards established 
for fat and sugar. (The fat and sugar standards are discussed later in 
this preamble.)
    Under proposed Alternative A2, all menu items provided as part of 
the NSLP or SBP reimbursable meal would be exempt from all of the 
proposed competitive food standards, provided such menu items are 
served within specified timeframes. Two alternatives (Alternatives B1 
and B2) were proposed regarding the timing of allowable service of the 
exempted menu items. The proposed alternatives would allow an exemption 
to the proposed nutrient standards for competitive food for NSLP and 
SBP menu items served:
     On the same day that the items were served in the school 
meals program (proposed Alternative B1); or
     Within four operating days of service in the programs 
(proposed Alternative B2).
    The Department received a wide variety of comments on the proposed 
exemptions for NSLP/SBP menu items.
    More than 209,000 commenters suggested that NSLP/SBP menu items 
should not receive any exemption from the competitive food standards. 
Many suggested that allowing exemptions would introduce ``loopholes'' 
for items sold in the [agrave] la carte lines. Others asserted that the 
nutritional benefits of the school meal are diminished when items from 
the meal are sold individually. Several of these commenters warned that 
the exemptions would undermine the integrity of the competitive food 
standards.
    Approximately 740 commenters suggested that NSLP/SBP menu items 
should be exempted from all competitive food standards. Some of these 
commenters specifically opposed restrictions on fat, sugar, sodium and 
the frequency of allowable sale of NSLP/SBP menu items, which they 
asserted would decrease flexibility and increase food costs for 
schools. Some commenters supported the idea that because foods in 
reimbursable meals have already been determined to be a nutritious part 
of a school meal, they should not be subjected to a second set of 
nutrition standards in order to be served as a competitive food.
    Approximately 25 commenters expressed support for proposed 
Alternative A1 (NSLP/SBP menu items sold [agrave] la carte exempt from 
all competitive food standards except the fat and sugar standards). 
Several commenters recommended that if NSLP/SBP menu items are 
exempted, Alternative A1 should be chosen over Alternative A2 because 
students could purchase those foods [agrave] la carte at any time but 
Alternative A1 would promote limited fat and sugar intake.
    Approximately 935 commenters expressed support for proposed 
Alternative A2 (NSLP/SBP menu items sold [agrave] la carte exempt from 
all competitive food standards). These commenters cited reasons for 
their support including flexibility in menu planning for school food 
authorities, positive messaging to students about

[[Page 39075]]

healthy foods, and consistency between [agrave] la carte and 
reimbursable meal requirements. Several of the commenters that 
supported proposed Alternative A2 did so with the recommendation that 
there be no frequency restrictions for service of the [agrave] la carte 
menu items. Some of these commenters suggested that not allowing the 
service of NSLP/SBP menu items would send a confusing message that 
particular foods are healthful when they are part of a meal but not 
when they are sold separately. Another commenter recommended that only 
NSLP/SBP entr[eacute]es be exempted from the competitive food 
standards, and not side dishes.
    Approximately 40 commenters expressed support for proposed 
Alternative B1 (allowing an exemption to the nutrient standards for 
NSLP/SBP menu items on the day of service). Several commenters 
suggested that this alternative would offer consistency between the 
[agrave] la carte offering and the school meal offerings. Other 
commenters suggested that schools be allowed to serve NSLP/SBP menu 
items on the day the items are offered as well as the day after.
    Approximately 80 commenters expressed support for proposed 
Alternative B2 (allowing an exemption to the nutrient standard for 
NSLP/SBP menu items served within four operating days of their service 
in the meal). Commenters suggested that proposed Alternative B2 would 
provide the most flexibility for menu planners and would reduce food 
waste.
    Approximately 960 commenters expressed the view that there should 
be no frequency restrictions on the service of NSLP/SBP menu items, 
citing implementation difficulties such inventory control and tracking 
and maintaining student participation. Other commenters suggested that 
compliance with the meal pattern would ensure that students are 
consuming nutritious foods.
    The Department appreciates the diverse public comment on this 
provision. Any exemption to the competitive food standards for NSLP/SBP 
menu items must ensure that improvements from updated school meal 
standards are not undermined and also take into account implementation 
by program operators and messaging to students. This interim final rule 
adopts an exemption for NSLP/SBP entr[eacute]e items only. Side dishes 
served [agrave] la carte would be required to meet all applicable 
competitive food standards. The exemption for the entr[eacute]e items 
is available on the day the entr[eacute]e item is served in NSLP/SBP, 
and the following school day. Entr[eacute]e items are provided an 
exemption, but side dishes are not, in an attempt to balance 
significant commenter opposition to any exemptions for NSLP/SBP menu 
items and needed menu planning flexibilities. The approach adopted in 
this interim final rule supports the concept of school meals as being 
healthful, and provides flexibility to program operators in planning 
[agrave] la carte sales and handling leftovers. The ``day after'' 
exemption is provided primarily to accommodate leftovers. We anticipate 
that this approach, along with the recent changes to school meal 
standards will result in healthier menu items in meals than in the 
past, including entr[eacute]es.
    Additionally, providing flexibility for schools to sell [agrave] la 
carte those entr[eacute]e items that are served as part of the 
reimbursable meal on the day of service greatly mitigates potential 
operational disruption in the cafeteria that may occur from students 
being confused about whether particular foods being served to other 
students can be purchased individually. This approach also mitigates 
potential confusion among parents, students and schools that a 
particular entr[eacute]e item is healthful when sold as part of the 
reimbursable meal but not when the same entr[eacute]e item is sold 
separately. That said, USDA will closely monitor this exemption during 
implementation to determine the overall nutrient profile of products 
being offered under the exemption, as well as any food safety impacts 
related to leftovers served [agrave] la carte. Should the exemption 
undermine the overall goal of the competitive food standards for 
healthier products for sale in schools, we will consider a stricter 
standard.
    Accordingly, this interim final rule, in Sec.  210.11(c)(3)(i), 
provides an exemption to the competitive food standards for NSLP and 
SBP entr[eacute]e items that are offered on the same day or the school 
day after they are offered in the NSLP or SBP. Exempt entr[eacute]es 
that are sold as competitive food must be offered in the same or 
smaller portion sizes as the NSLP and SBP, and with the same 
accompaniments.

Fruits and Vegetables

    Consistent with the DGA and IOM recommendations, the proposed rule 
at Sec.  210.11(d) would exempt from the competitive food nutrition 
standards fresh, frozen and canned fruits and vegetables with no added 
ingredients except water or, in the case of fruit, packed in 100 
percent fruit juice or extra light syrup.
    Over 900 commenters asserted that the proposed exemption for fruits 
and vegetables should be expanded, including a recommendation that USDA 
expand the exemption to include fruit packed in light syrup. These 
commenters and others also recommended expanding the exemption to allow 
certain canned vegetables to which a small amount of sugar has been 
added to maintain the structural integrity of the vegetable. A few 
commenters supported the allowance of frozen fruit with added sugar. 
Some commenters expressed the need to include dried fruit with no added 
ingredients in the proposed nutrient standard exemption.
    USDA agrees that the fruit and vegetable nutrient exemption should 
be expanded to include fruit packed in light syrup, consistent with 
what is allowed in school meals. The Department also agrees that this 
exemption should include canned vegetables to which a small amount of 
sugars has been added to maintain the structural integrity of the 
vegetable, e.g., corn and peas, as is allowed in USDA's Special 
Supplemental Nutrition Program for Women, Infants and Children (WIC). 
We would like to clarify that frozen fruit with added sugar is also 
exempt, if it can be considered to be packed in extra light syrup or 
light syrup. The Department prefers to address an exemption for dried 
fruit under the sugar standard, since including dried fruit under the 
general nutrient exemption for fruits and vegetables may result in 
servings that are high in calories due to the nature of dried fruit.
    Accordingly, this interim final rule codifies in Sec.  210.11(d) an 
exemption to the nutrient standards for fresh, frozen and canned fruits 
and vegetables with no added ingredients except water or, in the case 
of fruit, packed in 100 percent fruit juice, extra light syrup, or 
light syrup; and for canned vegetables that contain a small amount of 
sugar for processing purposes, to maintain the quality and structure of 
the vegetable.

Nutrient Standards

    The proposed rule included standards for total fat, saturated fat, 
trans fat, total sugars, calories, and sodium. These standards were 
proposed to apply to the competitive food ``per portion as packaged'' 
or ``per portion.'' Over 206,000 commenters expressed support for the 
proposed nutrient standards for competitive food, while approximately 
1,050 expressed general opposition. A few commenters suggested that the 
phrase ``per portion as packaged'' needs clarification because there is 
a difference between a ``portion'' and a ``serving.'' One commenter 
stated that per portion as packaged means the

[[Page 39076]]

entire package of food sold, not a serving within the package.
    The intent of the proposed language ``per portion as packaged'' and 
``per portion'' was to apply the competitive food standards to the item 
sold to the student, as noted by the commenter, and not to each 
``serving'' in a package. Some packaged items may include more than one 
``serving'', as indicated on the Nutrition Facts label. We also 
understand that some items provided as a competitive food are not 
``packaged'' by a manufacturer but rather are scratch prepared in the 
school and served to the student. For clarity, we are modifying the 
regulatory text for the nutrient standards to use the term ``per item 
as packaged or served'' instead of ``per portion as packaged'' or ``per 
portion.'' This language more effectively reflects how the standards 
must be applied.

Total Fat, Saturated Fat and Trans Fat

    To qualify as an allowable competitive food, the proposal at Sec.  
210.11(f)(1) would require that not more than 35 percent of the total 
calories per portion as packaged be derived from fat. Exemptions to the 
total fat requirement, in proposed Sec.  210.11(f)(2), would include:
     Reduced fat cheese; and
     Nuts and seeds and nut/seed butters (excluding combination 
products that contain nuts, nut butters or seeds or seed butters with 
other ingredients such as peanut butter and crackers, trail mix, 
chocolate covered peanuts, etc.); and
     Products that consist of only dried fruit with nuts and/or 
seeds with no added nutritive sweeteners or fat; and
     Seafood with no added fat.
    For saturated fat, the proposal at Sec.  210.11(g)(1) would require 
that less than 10 percent of the total calories per portion of a food 
be derived from saturated fat. The proposal included an exemption to 
the saturated fat standard, in paragraph (g)(2), for reduced fat 
cheese.
    Under proposed Sec.  210.11(h), the trans fat content of a 
competitive food must be zero grams trans fat per portion as packaged 
(not more than 0.5 g per portion).
    Several thousand commenters expressed support for the proposed 
limits on total fat, saturated fat, and trans fat; many also expressed 
specific support for the proposed exemptions from the fat standards. 
Approximately 130 commenters were opposed to the proposed restriction 
on total fat; approximately 70 commenters were opposed to the proposed 
restriction on saturated fat; and a few commenters opposed the proposed 
trans fat restriction. These commenters argued in favor of making the 
restrictions less stringent or eliminating the standards entirely.
    Some commenters wanted USDA to consider adding an exemption for 
nuts and seeds and nut/seed butters to the saturated fat standard, in 
addition to the proposed total fat standard exemption. The Department 
agrees with providing a saturated fat exemption for nuts and seeds and 
nut/seed butters, given the healthy fat profile and positive nutrition 
benefits of these products.
    Numerous commenters urged USDA to expand the exemption for reduced 
fat cheeses to include all cheeses, citing the importance of increasing 
children's access to dairy products. Many of the commenters in support 
of the exemption for reduced fat cheese asked USDA not to extend the 
exemption to combination products that include reduced-fat cheese 
(e.g., cheese and crackers). A few commenters recommended that USDA 
extend the fat exemptions to part-skim cheese (mozzarella), which is 
lower in fat than full fat cheese but may not necessarily meet the FDA 
criteria for the reduced fat claim.
    In response, USDA looked closely at the fat content of cheeses, 
including part-skim cheeses, to determine if additional exemptions to 
the fat standards are warranted. Based on our examination, we agree 
that extending an exemption to the total fat and saturated fat 
standards for part-skim mozzarella cheese is appropriate, as there is 
an FDA standard of identity for part-skim mozzarella cheese. In 
addition, there is a similar fat profile for part-skim mozzarella 
compared to many reduced fat cheeses. Other part-skim cheese may be 
exempt if it also meets the FDA requirement as a reduced fat cheese. 
The reduced-fat cheese (and now part-skim mozzarella) exemptions do not 
apply to combination foods.
    Another commenter recommended that protein foods which supply at 
least 10 percent Daily Value for protein be exempt from the total fat 
and saturated fat limits. The Department does not agree that such an 
exemption from the fat standards is appropriate. To support the DGA, 
meat and poultry should be consumed in lean forms to decrease the 
intake of solid fat. Nuts and seeds and nut/seed butters and seafood, 
which have been exempted, contain oils rather than solid fats.
    Accordingly, this interim final rule codifies in Sec.  210.11(f) 
the total fat and saturated fat standards and exemptions as proposed, 
with additional exemptions to the total fat and saturated fat standards 
for part-skim mozzarella cheese, an additional exemption to the 
saturated fat standard for nuts and seeds and nut/seed butters, and 
clarification that the standards apply to the item as packaged or 
served. This language also clarifies that the exemptions for cheese and 
nuts and seeds and nut/seed butters do not apply to combination foods. 
The trans fat standard is adopted in this interim final rule as 
proposed, in Sec.  210.11(g).

Total Sugars

    The proposed rule at Sec.  210.11(i)(1) provided two alternatives 
for comment regarding total sugars in foods. Under proposed Alternative 
C1, total sugars contained in a competitive food could not be more than 
35 percent of calories per portion. Under proposed Alternative C2, not 
more than 35 percent of the weight per portion could be derived from 
total sugars.
    Regardless of which measure (total sugars by calories or weight) is 
utilized, the proposed rule at Sec.  210.11(i)(2) would provide the 
following exemptions to the total sugar standard:
     Dried whole fruits or vegetables; dried whole fruit or 
vegetable pieces; and dehydrated fruits or vegetables with no added 
nutritive sweeteners;
     Products that consist of only dried fruit with nuts and/or 
seeds with no added nutritive sweeteners or fat; and
     Flavored and unflavored nonfat and low-fat yogurt with no 
more than 30 grams of total sugars per 8 ounce serving.
    More than 2,500 commenters expressed general support for a sugar 
restriction for competitive food. Approximately 70 commenters supported 
proposed Alternative C1 (total sugar by calories), citing consistency 
with IOM and other public health recommendations. Some commenters 
stated that Alternative C1 would be easier to implement because the 
calculation is simpler to perform. A number of commenters argued that a 
standard based on calories would be better than limiting sugars to 35 
percent by weight, which would allow a number of sugary foods to be 
sold that would otherwise be excluded by a limit based on percent of 
calories, e.g., those with high water content such as ice pops, fruit 
snacks, ice cream, pudding, granola bars, and snack cakes.
    More than 1,100 commenters expressed support for proposed 
Alternative C2 (total sugars by weight). These commenters argued that 
this is the standard many schools and food manufacturers have been 
using, and that it is consistent with other standards such as USDA's 
HUSSC and the Alliance for a Healthier Generation, which many schools 
have already

[[Page 39077]]

implemented. Many commenters stated that this alternative would allow 
greater flexibility and would permit more products that are favorites 
among students, such as low-fat ice cream, sweetened frozen fruit, and 
yogurt parfaits. Several commenters expressed support for Alternative 
C2 because they believe it would be easier to implement. A few 
commenters asserted that it would be easier for school food service 
personnel to assess a product's conformance to the sugar standard as a 
percentage of the product's weight because it would only involve 
calculations based on information provided on the Nutrition Facts 
label.
    Many commenters suggested USDA should set the sugar standard based 
on added sugars, rather than total sugars. These commenters argued that 
added sugars are what science shows should be limited in children's 
diets. However, these commenters acknowledged that added sugars are not 
specified on the Nutrition Facts label, which would make it difficult 
for local schools to determine. Consequently, some of these commenters 
urged USDA to work with FDA to ensure that added sugars are listed on 
the revised Nutrition Facts label.
    In response, USDA agrees with these commenters that a sugar 
standard based on added sugars is preferable but that it would be very 
difficult for local program operators to implement and State agencies 
to monitor since the current Nutrition Facts label does not 
differentiate between naturally occurring and added sugars. If added 
sugars information is required on the Nutrition Facts label in the 
future, USDA would anticipate updating the standards for competitive 
food to incorporate that standard.
    The interim final rule adopts Alternative C2, which requires that 
35 percent or less of the weight of the food come from total sugars. We 
acknowledge that this standard generally allows more products to 
qualify, but the portion sizes of these and all foods would be limited 
by the calorie and fat standards. Sugar by weight is also a standard 
used by some voluntary standards. State agencies and school districts 
could choose to implement a sugar standard based on calories, as long 
as it is at least as restrictive as the regulatory standard (i.e., no 
allowable product under the calorie measure could exceed 35 percent 
sugar by weight). As mentioned earlier, any additional restrictions on 
competitive food established by school districts must be consistent 
with both the Federal requirements as well as any State requirements.
    Approximately 350 commenters provided input on the proposed 
exemptions to the sugar standard. Many of these commenters expressed 
support for the sugar exemptions as proposed. Approximately 130 
commenters addressed the exemption for dried fruits/vegetables. 
Numerous commenters expressed general support for the exemption for 
dried fruits/vegetables with no added nutritive sweeteners. Many 
commenters suggested expanding the sugar exemptions to allow certain 
dried fruits with added nutritive sweeteners where it is required for 
processing and palatability. However, many other commenters did not 
support an expansion of the exemption for dried fruits with added 
caloric sweeteners. A few commenters requested that processed fruit and 
vegetable snacks (e.g., fruit strips or fruit drops) be included under 
the proposed exemption for dried fruit, as many are processed with 
fruit juice concentrate.
    USDA supports an additional limited exemption for dried fruit with 
added nutritive sweeteners only when the added sweeteners are required 
for processing and/or palatability of the product, such as dried 
cranberries, tart cherries and blueberries. The portion sizes of these 
dried fruits would be limited by the calorie standards. The Department, 
however, does not agree that processed fruit and vegetable snacks 
should be included under either dried fruit exemption. Since these 
snack type products are not whole dried fruit pieces, the fruit 
concentrate (added sugar) used to make these products is often the 
primary ingredient. These products could still qualify without the 
exemption as a competitive food if they meet all of the standards, 
including a fruit or vegetable as the first ingredient.
    Approximately 360 commenters addressed the proposed exemption of 
flavored and unflavored non-fat and low-fat yogurts from the sugar 
limit. Most of these commenters expressed support for the proposed 
exemption, based on a desire to increase the availability of popular 
dairy products that children are likely to eat. Several commenters 
recommended that the 30 grams per 8 ounce limit for total sugars in 
yogurt be scaled proportionately by serving size (e.g., 22 grams total 
sugar for a 6 ounce portion). Several commenters proposed more 
restrictive standards for yogurt products to receive an exemption from 
the sugar limit, while a few commenters proposed less restrictive 
standards.
    The intention of the proposed exemption for yogurt was that the 
total sugars limit be scaled according to serving size. Since this 
interim final rule adopts a sugar standard based on the weight of the 
product, as discussed above, an exemption for yogurt is unnecessary and 
is removed in this interim final rule. However, USDA encourages local 
program operators to select yogurt with lower amounts of sugar whenever 
possible. Ingredient lists reveal that many popular drinkable yogurts 
have significant levels of added sugars instead of sugars conveyed 
naturally from fruit or dairy. USDA will gather additional information 
as competitive food standards are implemented and may address standards 
for drinkable yogurt in a future rulemaking.
    Accordingly, this interim final rule requires, in Sec.  
210.11(h)(1), that the total sugar content of a competitive food must 
be not more than 35 percent of weight per item as packaged or served. 
Section 210.11(h)(2) includes the exemptions to the total sugar 
standard that were proposed, except for the yogurt exemption which is 
not retained. This section also includes an exemption for dried fruit 
with added nutritive sweeteners that are required for processing and/or 
palatability purposes. USDA will issue future guidance on determining 
which dried fruits with added nutritive sweeteners for processing and/
or palatability qualify for the exemption.

Calories and Sodium

    Under the proposed rule at Sec.  210.11(j), snack items and side 
dishes sold [agrave] la carte could contain no more than 200 calories 
and 200 mg of sodium per portion as served, including the calories and 
sodium in any accompaniments, and must meet all other nutrient 
standards for non-entr[eacute]e items.
    Under proposed Sec.  210.11(k), entr[eacute]e items sold [agrave] 
la carte could contain no more than 350 calories and 480 mg sodium per 
portion as served, including any accompaniments, and meet all other 
nutrient standards.
    As indicated in the Definitions section of this preamble, an 
entr[eacute]e item was defined in Sec.  210.11(k)(1) of the proposal, 
and would apply in determining the calorie and sodium limits.

Calories

    Almost 2,600 commenters expressed general support for calorie 
restrictions for competitive food, while approximately 30 commenters 
generally opposed the proposed calorie restrictions.
    Approximately 200,000 commenters suggested separate calorie limits 
by grade, similar to the structure of the school meal program, 
reasoning that

[[Page 39078]]

children have different calorie needs as they grow. Some of these 
commenters stated that many schools across the country have already 
successfully implemented tiered calorie maximums for snack foods as 
part of the Alliance for a Healthier Generation's Healthy Schools 
Program.
    More than 1,000 commenters opposed the proposed calorie limits for 
entrees, while approximately 165 opposed the proposed limits for snack 
items. Commenters said the proposed limits were too stringent and would 
limit student access to many food products. Some of these commenters 
stated that the calorie limit for entr[eacute]e items is inconsistent 
with USDA's HUSSC criteria, and is not required for entrees served as 
part of the NSLP. Other commenters expressed concern that manufacturers 
would have to expend resources to repackage or reformulate products to 
meet a 200 calorie limit for snack items, stating that many 
manufacturers' current packaging for school districts is just slightly 
over 200 calories. Some commenters provided specific suggestions for 
alternative calorie limits for snacks, ranging from 240 to 300 
calories, and for entr[eacute]es, ranging from 400 to 500 calories.
    This interim final rule retains the proposed calorie limits for 
snacks/side dishes (200 calories per item as packaged or served), and 
entr[eacute]e items (350 calories per item as packaged or served), 
which are consistent with IOM recommendations and some voluntary 
standards. The Department does not agree that higher limits are 
appropriate, as suggested by some commenters. In addition, we 
appreciate that separate calorie limits by grade levels for snacks 
would align with existing voluntary standards that many schools have 
adopted, and would be more tailored to the nutritional needs of 
children of different ages. However, separate calorie limits for 
different grade levels would also add complexity for local program 
operators with schools of varying grade levels. State agencies or 
school districts could choose to implement varying calorie limits based 
on grades, provided the maximum level does not exceed the limit in this 
interim final rule. Please note that the calorie limit for 
entr[eacute]e items would apply to all entr[eacute]es that do not meet 
the exemption for NSLP/SBP entr[eacute]e items.

Sodium

    Over 2,600 commenters expressed support for the proposed limits on 
sodium of 200 mg per portion as served for snacks/side dishes and 480 
mg per portion as served for entr[eacute]e items. Some of these 
commenters cited studies that they asserted show a growing prevalence 
of high blood pressure in American children linked to obesity rates, 
high sodium level intakes, and high calorie diets.
    More than 900 commenters generally opposed the proposed sodium 
restrictions. Approximately 80 commenters specifically opposed the 
proposed sodium limit for entr[eacute]es, while approximately 90 
opposed the proposed limits for snack items. Many suggested the sodium 
limits be raised and made consistent with the NSLP/SBP standards or 
with USDA's HUSSC standards, citing difficulty for manufacturers to 
reduce sodium levels while maintaining palatability and low food costs. 
Several commenters recommended that the sodium reductions should be 
phased in gradually to allow taste preferences and manufacturers time 
to adjust. A few commenters suggested that additional assessments of 
health and student acceptance be conducted or reviewed prior to setting 
sodium requirements. Some commenters provided suggestions for higher 
sodium limits, ranging from 230 mg to 360 mg for snacks and 550 mg to 
650 mg for entr[eacute]es. One commenter, a manufacturer, wanted USDA 
to add an exemption to the sodium limit for natural reduced fat cheese 
and reduced fat, reduced sodium pasteurized processed cheese.
    The Department's proposed standards for sodium were based on the 
IOM recommendations. The proposed ``per portion as served'' standards 
for competitive food were considered in the context of overall sodium 
limits for school meals, the first of which take effect in School Year 
2014-15, the same school year these competitive food standards are 
implemented. USDA acknowledges that sodium reduction is an issue that 
impacts the broader marketplace, not just schools, and understands that 
sodium reduction is a process that will take time. However, it is an 
important health issue that must be addressed. We also understand that 
there are existing voluntary standards for competitive food that have a 
higher sodium limit of 230 mg for snacks/side dishes, which means there 
are existing products that have been formulated to meet the higher 
standard available to schools. Therefore, we are setting an initial 
limit for sodium for snacks and side dishes of 230 mg per item as 
packaged or served, for the first two years of implementation of these 
standards. As of July 1, 2016, the sodium limit for snacks and side 
dishes will be reduced to 200 mg per item as packaged or served. This 
phased in approach will ensure product availability for schools for 
initial implementation and provide ample time for manufacturers to 
adjust to meet the lower limit. We are not changing the proposed 
entr[eacute]e limit of 480 mg per item as packaged and served, as 
entr[eacute]es served in school meals will be covered under the NSLP/
SBP entr[eacute]e item exemption, in Sec.  210.11(c)(3)(i). We are also 
not providing an exemption to the sodium standard for cheese, as we are 
concerned given the nutrient profile of cheese that this would result 
in high sodium products as competitive food.

Summary of Changes to Calories and Sodium Limits

    Accordingly, this interim final rule in Sec.  210.11(i) requires 
that snack items and side dishes sold [agrave] la carte must have not 
more than 200 calories and 230 mg of sodium per item as packaged or 
served, including accompaniments, and must meet all other nutrient 
standards. Effective July 1, 2016, these snack items and side dishes 
must have not more than 200 calories and 200 mg of sodium per item as 
packaged or served. Section 210.11(j) requires that entr[eacute]e items 
sold [agrave] la carte, other than those that meet the exemption for 
NSLP/SBP entr[eacute]e items, must have not more than 350 calories and 
480 mg of sodium per item as packaged or served, including 
accompaniments, and must meet all other nutrient standards.

Accompaniments

    The proposed rule at Sec.  210.11(n) limited the use of 
accompaniments to competitive food, such as cream cheese, jelly, 
butter, salad dressing, etc., by requiring that all accompaniments to a 
competitive food item be pre-portioned and included in the nutrient 
profile as part of the food item served.
    More than 1,000 commenters opposed the requirement that 
accompaniments be pre-portioned as being costly and impractical.
    About 20 commenters supported requiring accompaniments to be 
included in the nutrient profile as part of the food item served. Some 
of these commenters urged USDA to amend the proposed requirement to 
include an average serving size of the appropriate accompaniments when 
evaluating the nutrient profile for an item. Other commenters urged 
USDA to provide technical assistance to schools on strategies to limit 
accompaniments that are high in sodium, fats, and sugars.
    About 470 commenters did not support pre-portioning or inclusion of 
accompaniments in the nutrient profile of the competitive food.
    In response to these comments, USDA acknowledges that pre-
portioning of

[[Page 39079]]

accompaniments could add some cost and complication to competitive food 
service in some schools. We maintain, however, as many commenters did, 
that it is important to account for the dietary contribution of 
accompaniments in determining whether a food item may be served as a 
competitive food. Therefore, this rule removes the proposed requirement 
for pre-portioning of competitive food accompaniments but retains the 
requirement that accompaniments be included in the nutrient profile of 
foods. Schools may determine the average serving size of the 
accompaniments at the site of service (e.g., school district). This is 
similar to the approach schools have used in conducting nutrient 
analysis of school meals in the past. USDA will provide guidance and 
technical assistance as needed during implementation.
    Accordingly, this interim final rule requires, in Sec.  210.11(l) 
that the accompaniments to a competitive food item must be included in 
the nutrient profile as a part of the food item served in determining 
if an item meets the nutrition standards for competitive food. The 
contribution of the accompaniments may be based on the average serving 
size of the accompaniment used per item.

Chewing Gum

    The proposed rule did not address chewing gum. Several commenters 
recommended that USDA provide an exemption from the competitive food 
standards for sugar-free chewing gum, claiming it has a proven impact 
on dental and oral health. Some of these commenters also suggested that 
States should retain the authority to establish more restrictive 
standards governing the sale of sugar-free gum in their schools should 
they chose to do so for reasons unrelated to health or nutrition.
    USDA agrees that sugar-free chewing gum should be provided an 
exemption from the competitive food standards. Clinical studies have 
shown that chewing sugarless gum for 20 minutes following meals can 
help prevent tooth decay. State agencies and school districts may 
choose not to allow the sale of sugar-free gum, for a variety of 
reasons.
    Accordingly, this interim final rule includes in Sec.  
210.11(c)(3)(ii) an exemption to the competitive food standards for 
sugar-free chewing gum.

Nutrition Standards for Beverages

    The proposed rule at paragraphs (b)(2) and (m) of Sec.  210.11 
established standards for allowable beverage types for elementary, 
middle and high school students. At all grade levels, water, low fat 
and nonfat milk, and 100 percent juice would be allowed, in specified 
maximum container sizes which varied by grade level. The proposed rule 
would also allow additional beverages for high school students, 
specifically calorie-free and low-calorie (less than 40 or 50 calories 
per 8 ounces) beverages, with and without carbonation. These additional 
beverages for high school students would not be allowed in the meal 
service area during meal service. This approach was designed to 
recognize the wide range of beverages available to high school students 
in the broader marketplace and the increased independence such students 
have, relative to younger students, in making consumer choices. The 
proposed beverage requirements in Sec.  210.11(m) included:

Elementary School

     Plain water (no size limit);
     Low fat milk, plain (not more than 8 fluid ounces);
     Non fat milk, plain or flavored (not more than 8 fluid 
ounces);
     Nutritionally equivalent milk alternatives as permitted by 
the school meal requirements (not more than 8 fluid ounces); and
     100% fruit/vegetable juice (not more than 8 fluid ounces).

Middle School

     Plain water (no size limit);
     Low fat milk, plain (not more than 12 fluid ounces);
     Non fat milk, plain or flavored (not more than 12 fluid 
ounces);
     Nutritionally equivalent milk alternatives as permitted by 
the school meal requirements (not more than 12 fluid ounces); and
     100% fruit/vegetable juice (not more than 12 fluid 
ounces).

High School

     Plain water (no size limit);
     Low fat milk, plain (not more than 12 fluid ounces);
     Non fat milk, plain or flavored (not more than 12 fluid 
ounces);
     Nutritionally equivalent milk alternatives as permitted by 
the school meal standards (not more than 12 fluid ounces); and
     100% fruit/vegetable juice (not more than 12 fluid 
ounces);
    Additional beverages proposed to be allowed for sale in high 
school, but not in the meal service area during the meal service:
     Calorie-free, flavored and/or carbonated water (not more 
than 20 fluid ounces);
     Other beverages (not more than 20 fluid ounces) that 
comply with the FDA requirement for bearing a ``calorie free'' claim of 
less than 5 kcals/serving; and
     Other beverages in <= 12 oz servings. Two ``other 
beverage'' alternatives were proposed:
      Allow beverages with not more than 40 calories per 8 
fluid ounce serving or 60 calories per 12 fluid ounce serving. 
(proposed Alternative D1)
      Allow beverages with not more than 50 calories per 8 
fluid ounce serving or 75 calories per 12 ounce fluid serving. 
(proposed Alternative D2)
    Over 10,000 commenters expressed general support for the proposed 
beverage requirements, while only approximately 55 commenters expressed 
general opposition. Many commenters provided specific suggestions 
related to the proposed beverage requirements. Discussion of these 
comments and USDA's response follows.

Grade Groupings

    A few commenters suggested that USDA use only two grade groups for 
the beverage standards--elementary and secondary--to ease 
implementation. Some commenters stated that it would be difficult and/
or costly to administer the proposed beverage requirements in combined 
grade campuses, such as 7-12 or K-12. In response, USDA appreciates 
that implementation could be more difficult in schools with overlapping 
grade groups, but considers it important to maintain the three grade 
groupings proposed. These groupings reflect IOM's recommendations and 
appropriately provide additional choices to high school students, based 
on their increased level of independence. USDA will provide technical 
assistance and facilitate the sharing of best practices during 
implementation.

Water

    Some commenters encouraged USDA to change ``plain water'' to 
``water with no additives.'' Several commenters urged USDA to allow 
carbonated water without additives at all grade levels with no portion 
size limit. One commenter recommended that the standards allow for 
water with carbonation and/or natural flavors but not sweeteners 
(whether caloric or non-caloric) at all grade levels. Some commenters, 
including advocacy organizations, asked USDA to clarify that water 
could include added fluoride.
    In response, the nutritional differences between carbonated water 
without additives and water are insignificant. Therefore, USDA agrees 
that this rule should not restrict access on portion size at any grade 
levels. However, we are not allowing natural

[[Page 39080]]

flavors or sweeteners under this standard for all grade levels; these 
beverages would likely qualify as allowable beverages for high school 
students. As for terminology, USDA is retaining the use of the term 
``plain water,'' as it accurately describes the intent of what may be 
provided in unlimited quantities at all grade levels. We recognize that 
some bottled waters have added minerals including fluoride, which is 
acceptable.

Milk

    Some commenters suggested replacing the term ``plain milk'' with 
``unflavored milk.'' USDA agrees that unflavored milk (e.g., milk with 
no sweeteners) is a more accurate term than plain milk, and it is also 
consistent with terminology used in the school meal patterns. 
Therefore, we will modify the regulatory text to use the term 
``unflavored milk.''
    Several commenters provided input on flavored milk. A few 
commenters requested that USDA allow low fat flavored milk, in addition 
to nonfat flavored milk. To address the sugar content in flavored milk, 
commenters made several suggestions. One suggestion would establish a 
sugar maximum of no more than 28 grams of sugar per 8 fluid ounces of 
milk. Another suggestion would have USDA provide schools with 
information on how to select flavored milk that contains minimum levels 
of added sugars. USDA was also encouraged to provide a calorie limit 
for flavored milk (no more than 130 calories per 8 fluid ounces) to 
help limit calories and added sugar intake.
    USDA does not support allowing low fat flavored milk. It is not an 
allowable milk type under the school meal patterns, based on IOM's 
school meal recommendations to help control calories. USDA recognizes 
that some flavored milk (even nonfat versions) can be high in calories 
and added sugars, but we are not supportive of requiring a calorie or 
sugar limit for flavored milk at this time. Nonfat flavored milk is 
allowed in the school meal patterns without any sugar or calorie caps. 
In general, schools that wish to offer nonfat flavored milk must select 
products that are lower in calories and added sugars, in order to stay 
within the school meal calorie ranges. The milk offered with the school 
meal is usually the same milk that is offered for sale to students 
[agrave] la carte. In addition, over time many manufacturers have 
reformulated flavored milk to be lower in calories and added sugar. We 
will continue to monitor this issue as the competitive food standards 
are being implemented to determine if a future calorie cap and/or sugar 
limit for flavored milk is warranted. We will also provide technical 
assistance as necessary to assist schools in selecting flavored milk 
with lower sugar levels.

Juice

    Many commenters supported the proposal to require 100 percent 
juice, as well as the proposed portion size limits. Several of these 
commenters recommended allowing diluted juices, with and without 
carbonation, at all grade levels. Some commenters encouraged USDA to 
allow juice diluted with water, but only in high schools. Some 
commenters suggested a calorie cap for all juices that are sold, and 
similarly other commenters suggested smaller maximum serving sizes for 
100 percent juice.
    Beverages combining full-strength juice and water or carbonated 
water are increasingly popular in the marketplace. Allowing these 
blends with juice results in a product with fewer calories and less 
sugar than a comparable amount of natural unsweetened 100 percent 
juice, and provides additional options for schools. Therefore, this 
interim final rule allows 100 percent fruit and/or vegetable juice 
diluted with water, with or without carbonation and with no added 
sweeteners, at all grade levels. The portion size limit for each grade 
level would be the same as the maximum juice portion size--i.e., 8 
fluid ounces for elementary schools, and 12 fluid ounces for middle and 
high schools. We do not agree that is it necessary to add a calorie cap 
for full-strength juice, as calories are controlled by the portion size 
limit.

Other Beverages for High School

    USDA received a significant number of comments on the proposed 
standards for other beverages allowed in high school.
    A few commenters wanted low-calorie beverages to be available in 
elementary and middle schools as well as high schools, while others 
opposed these beverages at any grade level.
    A few commenters also requested that USDA modify the proposed 
language regarding FDA's ``calorie free'' claim, to avoid inconsistent 
treatment of very low calorie beverages based on labeling decisions 
made by manufacturers and allowed by FDA. The suggested modification 
would specify beverages could contain less than 5 calories per 8 fluid 
ounces, or less than or equal to 10 calories per 20 fluid ounces.
    Several commenters expressed support for establishing a more 
stringent calorie restriction for low-calorie beverages in high 
schools. A few commenters expressed opposition to sports drinks in 
schools, stating these beverages contribute to excess calorie 
consumption and are not needed for hydration. Approximately 30 
commenters supported proposed Alternative D1 (allowing no more than 40 
calories per 8 fluid ounces and no more than 60 calories per 12 fluid 
ounces), 12 ounces maximum. A few commenters requested technical 
changes to the proposed language for clarity and consistency. Several 
commenters suggested a limit of 40 calories ``per container,'' instead 
of the standards that were proposed. These commenters reasoned that the 
FDA defines low-calorie beverages as those with fewer than or equal to 
40 calories per Reference Amount Customarily Consumed (RACC).
    More than 500 commenters supported proposed Alternative D2 
(allowing no more than 50 calories in 8 fluid ounces and no more than 
75 calories in 12 fluid ounces), 12 ounces maximum. Several commenters 
recommended that USDA adopt a modified version of Alternative D2 that 
would reflect the fact that FDA rounding rules require a beverage with 
75 calories in a 12 ounce portion to be labeled as having 80 calories 
per 12 fluid ounces.
    In response, USDA appreciates the input provided by commenters on 
the proposed standards for other beverages allowed in high school. In 
this interim final rule, we are allowing calorie-free beverages with a 
maximum container size of 20 fluid ounces, as proposed but with the 
technical changes requested by commenters. We are also adopting 
proposed Alternative D1 for lower-calorie beverages, which allows up to 
40 calories per 8 ounces and 60 calories per 12 ounces, with the 
maximum proposed 12 ounce limit. This standard allows a great variety 
of popular beverage choices to be available for sale in high schools, 
while also limiting the calories these beverages could provide. 
Limiting the maximum container size to 12 ounces for these lower 
calories beverages also reinforces the important concept of appropriate 
serving sizes for items with calories.

Restrictions on the Sale of Other Beverages in High School--``Time and 
Place'' Rule

    Approximately 1,300 commenters addressed proposed ``time and 
place'' restrictions for the sale of other beverages in high school. 
Numerous commenters opposed the distinction in the proposed rule 
between beverages allowed to be sold during meal times in meal service 
areas (i.e., water, milk and

[[Page 39081]]

juice) and those available only outside of meal times and meal service 
areas (other beverages in high school). These commenters argued that if 
an alternative beverage is allowed under the competitive food 
standards, it should be allowed regardless of the point of service. 
They reasoned that allowing the sale of lower-calorie and calorie-free 
beverages but not during the meal periods would send a mixed message to 
students regarding whether such beverages are a part of a healthy diet 
or should be avoided. Some of these commenters also stated that this 
provision would drive revenue from school nutrition programs into the 
alternative areas of the schools because students would go elsewhere to 
purchase those beverages.
    USDA agrees with commenters that the distinction on when and where 
beverages can be sold in high schools during the school day may be 
unnecessary. The beverage standards adopted in this interim final rule 
allow a variety of beverage choices in high school, while limiting 
their calories. Therefore, we are removing the ``time and place'' 
restrictions for ``other'' beverages in high schools, as set forth in 
the proposed rule. Therefore, this rule does not restrict the sale of 
any allowable beverage, at any grade level, throughout the school day 
anywhere on the school campus. However, USDA will monitor this 
provision to ensure that the sale of such competitive beverages in the 
food service area does not negatively impact consumption of milk, an 
excellent source of calcium. USDA will continue monitoring milk sales 
and consumption in schools in periodic studies. State agencies or 
school districts could choose to prohibit sale of these other beverages 
in food service areas.

Summary of Changes to Nutrition Standards for Beverages

    Accordingly, this interim final rule codifies, in Sec.  
210.11(m)(1) and (m)(2), the proposed nutrition standards for beverages 
for elementary schools and middle schools, with the addition of plain 
carbonated water with no size limit; 100 percent juice diluted with 
water (with or without carbonation and with no added sweeteners) in the 
proposed size limit for juice for each grade group; and a change in 
terminology from plain milk to unflavored milk.
    Section 210.11(m)(3) of this interim final rule adopts the proposed 
nutrition standards for water, milk and juice in high schools, with the 
addition of plain carbonated water with no size limit; 100 percent 
juice diluted with water (with or without carbonation and with no added 
sweeteners) in no more than 12 ounces; and a change in terminology from 
plain milk to unflavored milk.
    In addition, Sec.  210.11(m)(3) allows, in high schools, calorie-
free, flavored water, with or without carbonation (no more than 20 
fluid ounces); other beverages that are labeled to contain less than 5 
calories per 8 fluid ounces, or less than or equal to 10 calories per 
20 fluid ounces (no more than 20 fluid ounces); and other beverages 
that are labeled to contain no more than 40 calories per 8 fluid ounces 
or 60 calories per 12 fluid ounces (no more than 12 fluid ounces).

Caffeine

    The proposed rule at Sec.  210.11(l) would require foods and 
beverages available in elementary and middle schools to be caffeine 
free, with the exception of trace amounts of naturally occurring 
caffeine substances. This is consistent with IOM recommendations. 
However, the proposed nutrition standards for beverages would permit 
caffeine for high school students, and the proposed rule requested 
commenter input on this issue.
    Over 350 commenters supported the proposed caffeine restrictions 
for elementary and middle schools. Approximately 120 commenters thought 
the standard for these lower grade levels should be less restrictive. 
Some commenters requested guidance on what constitutes ``trace amounts 
of naturally occurring'' caffeine. More than 400 commenters supported 
allowing caffeine in high schools, while 75 commenters opposed allowing 
caffeine for high school students at all, citing that it is not 
consistent with IOM's recommendation. A number of commenters, including 
advocacy organizations, also highlighted their particular concern over 
the growing popularity and consumption of energy drinks because these 
often have very high levels of caffeine. One of these commenters cited 
potential adverse health and safety effects of energy drinks on 
students.
    USDA is concerned, as are some commenters, that some foods and 
beverages with very high levels of caffeine may not be appropriate to 
be sold in schools, even at the high school level. Although the 
American Academy of Pediatrics discourages the consumption of caffeine 
and other stimulants by children and adolescents, the FDA has not set a 
daily caffeine limit for children. However, FDA recently announced that 
it will investigate the safety of caffeine in food products, 
particularly its effects on children and adolescents. The FDA 
announcement cites a proliferation of products with caffeine that are 
being aggressively marketed to children, including ``energy drinks.'' 
FDA is working with the IOM to convene a public workshop in the near 
future to explore these issues, including determining a safe level for 
caffeine consumption and the potential consequences to children of 
caffeinated products in the food supply.
    Given the lack of authoritative recommendations at this time, this 
interim final rule will not prohibit caffeine for high school students. 
However, USDA acknowledges commenters' concerns and encourages schools 
to be mindful of the level of caffeine in food and beverages when 
selecting products for sale in schools, especially when considering the 
sale of high caffeine products such as energy drinks. USDA will 
continue to monitor research and recommendations on caffeine in 
children as we develop a final rule. We will also provide guidance to 
program operators on what constitutes trace amounts of naturally 
occurring caffeine, for use at the elementary and middle school levels.
    Accordingly, this interim final rule codifies the caffeine 
provisions, as proposed, in Sec.  210.11(k).

Non-nutritive sweeteners

    The proposal did not explicitly address the issue of non-nutritive 
sweeteners; however, the proposal would allow calorie-free and low-
calorie beverages in high schools, which implicitly would allow 
beverages including non-nutritive sweeteners.
    Approximately 40 commenters addressed the use of non-nutritive 
sweeteners in food products. Some commenters opposed allowing 
artificially sweetened beverages. For example, some commenters opposed 
the sale of diet sodas, whereas others stated that there is little 
evidence regarding the advisability of intake of sugar-sweetened 
beverages versus intake of non-nutritive sweeteners in beverages. In 
contrast, some commenters supported the use of non-nutritive 
sweeteners. USDA appreciates commenter input but is not explicitly 
addressing in the regulatory text of this interim final rule the use of 
non-nutritive sweeteners. Local program operators can decide whether to 
offer items for sale with non-nutritive sweeteners.

Other Requirements

Fundraisers

    Proposed Sec.  210.11(b)(5) would require that food and beverage 
items sold

[[Page 39082]]

during the school day meet the nutrition standards for competitive 
food, but would allow for special exemptions for the purpose of 
conducting infrequent school-sponsored fundraisers. Commenters were 
asked to address two proposed alternatives to establishing the 
limitations on the frequency of specially exempted fundraisers. Under 
the proposed alternatives, the frequency would be specified:
     By the State agency during such periods that schools are 
in session (proposed Alternative E1); or
     By the State agency and approved by USDA during such 
periods that schools are in session (proposed Alternative E2).
    In either case, the proposed rule required that no specially 
exempted fundraiser foods or beverages would be sold in competition 
with school meals in the food service area during meal service.
    As stated in the preamble to the proposed rule, the proposal would 
not limit the sale of food items that meet the proposed nutrition 
requirements (as well as the sale of non-food items) at fundraisers. In 
addition, the proposed standards would not apply to food sold during 
non-school hours, weekends and off-campus fundraising events such as 
concessions during after-school sporting events.
    Approximately 85 commenters supported proposed Alternative E1 
allowing State agencies the discretion to determine the allowed 
frequency of exempted fundraisers. Commenters argued that State 
agencies possess the necessary knowledge, understanding or resources to 
make decisions about what ``limited number'' of fundraisers is 
appropriate for their communities. Several commenters requested 
clarifying that if a State agency does not specify an acceptable 
exempted fundraiser frequency, it would be implied that no exemptions 
are granted.
    Approximately 800 commenters expressed support for proposed 
Alternative E2 which would allow State agencies to set the frequency of 
exempted fundraisers, with USDA approval, citing that this would better 
ensure consistent application of nutrient standards across all 
fundraisers. Some commenters suggested that USDA should set the number 
or standards for exempt fundraisers per year for purposes of 
consistency. A few commenters provided more specific recommendations 
for the frequency of fundraisers.
    More than 600 commenters suggested that there should be no 
exemptions for fundraisers from the competitive food standards because 
fundraiser foods compete with school meals and providing exemptions 
would blur the message of good nutrition practices.
    Approximately 550 commenters provided comments regarding the place 
and/or time that specially exempted fundraisers could be sold. Numerous 
commenters suggested that USDA prohibit sales by exempt fundraisers 
across the entire school campus instead of only food service areas 
during meal service.
    Several commenters expressed concern over the potential loss of 
revenue if fundraisers are limited; other commenters were concerned 
about the effects of the proposed fundraiser limitations on schools, 
clubs and student organizations that rely on revenue from fundraising.
    Some commenters requested clarification that the competitive food 
standards did not apply to fundraisers in which the food was not 
intended to be consumed on the school campus (e.g., catalog sales or 
frozen pizzas and cookie dough).
    In response, USDA believes that the most appropriate approach to 
specifying the standards for exempt fundraisers is to allow State 
agencies to set the allowed frequency (proposed Alternative E1). If a 
State agency does not specify the exemption frequency, no fundraiser 
exemptions may be granted. As noted in the preamble to the proposed 
rule, USDA's expectation is that State agencies will ensure that the 
frequency of such exempt fundraisers on school grounds during the 
school day does not reach a level to impair the effectiveness of the 
competitive food requirements in this rule. It is not USDA's intent 
that the competitive food standards in this interim final rule apply to 
fundraisers in which the food sold is clearly not for consumption on 
the school campus during the school day. It is important to note that 
school districts may implement more restrictive competitive food 
standards, including those related to the frequency with which exempt 
fundraisers may be held in their schools, and further restrictions on 
the areas and times when exempt fundraisers may occur.
    Accordingly, Sec.  210.11(b)(4) of this interim final rule 
specifies that competitive food and beverage items sold during the 
school day must meet the nutrition standards for competitive food, and 
that a special exemption is allowed for the sale of food and/or 
beverages that do not meet the competitive food standards for the 
purpose of conducting an infrequent school-sponsored fundraiser. Such 
specially exempted fundraisers must not take place more than the 
frequency specified by the State agency during such periods that 
schools are in session. Finally, no specially exempted fundraiser foods 
or beverages may be sold in competition with school meals in the food 
service area during the meal service.

Availability of Water During the Meal Service

    The proposed rule at Sec.  210.10(a)(1) would require schools to 
make potable water available to children at no charge in the place 
where lunches and afterschool snacks are served during the meal 
service. The proposed rule encouraged, but did not require potable 
water to be served in the SBP. The proposal responded to amendments 
made to Section 9(a)(5) of the NSLA, 42 U.S.C. 1758(a)(5), by section 
203 of the HHFKA which requires schools participating in the school 
lunch program to make available to children free of charge, potable 
water for consumption in the place where meals are served during meal 
service and which was effective as of October 1, 2010.
    Approximately 490 commenters addressed implementation issues 
related to this provision. Approximately 7,000 commenters addressed 
other issues. Many of these commenters expressed support for the 
requirement for schools to make potable water readily accessible to 
children at no charge during the school meal service. Many commenters 
urged USDA to strengthen the proposed water requirements to include 
breakfast food service. Several commenters opposed requiring that 
potable water be available in schools in the afterschool snack service, 
citing concern that some groups outside of school food service may have 
logistical difficulty complying. Many commenters suggested that USDA 
specify that schools must make potable water available ``readily 
accessible without restriction'' in addition to being ``available'' 
(e.g., if only one water source is available, cups should be provided).
    USDA agrees with many commenters that the potable water requirement 
be added to the breakfast meal service. We acknowledge, however, the 
variety of models of serving school breakfast including kiosks and 
breakfast in the classroom. In recognition of these alternative 
approaches to serving breakfast, we are only requiring the availability 
of free potable water during the SBP breakfast meal service when 
breakfast is served in the cafeteria. We encourage schools to provide 
water in other settings to the extent possible. In addition, we 
understand that afterschool

[[Page 39083]]

snack service could present logistical difficulties in compliance. 
Therefore, we are not requiring that free potable water be made 
available during afterschool programs, though we would strongly 
encourage program operators to do so, to the extent possible, 
particularly if milk or juice is not offered as part of the snack.
    USDA issued an implementation memorandum entitled Child Nutrition 
Reauthorization 2010: Water Availability During National School Lunch 
Program Meal Service, on April 14, 2011 (SP 28-2011). On July 12, 2011, 
the memorandum was revised to provide more detailed guidance in the 
form of a series of questions and answers regarding the implementation 
of the water requirement. This memorandum is available on the FNS Web 
site at http://www.fns.usda.gov/cnd/governance/policy.htm. In that 
memorandum, we indicated that water should be available ``without 
restriction,'' to ensure program operators implement the provision as 
intended. The words ``without restriction'' are included in this 
interim final rule, and the memorandum will be updated to reflect the 
addition of breakfast when it is served in the cafeteria.
    Please note that this provision, as revised, will become effective 
60 days after publication of this interim final rule, as the HHFKA 
potable water provision was effective as of October 1, 2010, and 
program operators have been implementing the requirement for lunch meal 
service since that time.
    Accordingly, this interim final rule, in Sec.  210.10(a)(1), 
requires that schools make potable water available and accessible 
without restriction to children at no charge in the place where lunches 
are served during the meal service. In addition, Sec.  220.8(a)(1) 
requires that when breakfast is served in the cafeteria, schools must 
make potable water available and accessible without restriction to 
children at no charge.

Recordkeeping Requirements

    Under proposed Sec.  210.11(b)(3), local educational agencies and 
school food authorities would be required to maintain records 
documenting compliance with the proposed requirements. Local 
educational agencies would be responsible for maintaining records 
documenting compliance with the competitive food nutrition standards 
for food sold in areas that are outside of the control of the school 
food service operation. Local educational agencies also would be 
responsible for ensuring any organization designated as responsible for 
food service at the various venues in the school (other than the school 
food service) maintains records documenting compliance with the 
competitive food nutrition standards. The school food authority would 
be responsible for maintaining records documenting compliance with the 
competitive food nutrition standards for foods sold in meal service 
areas during meal service periods. Required records would include, at a 
minimum, receipts, nutrition labels and/or product specifications for 
the items available for sale.
    Many commenters expressed concerns about these recordkeeping 
requirements. Some suggested recordkeeping is an unfunded mandate; 
others considered it costly, unrealistic and/or not necessary. Yet 
others recommended minimizing the recordkeeping on non-school groups. A 
number of commenters representing school food service were concerned 
that the local educational agency would require school food service to 
be responsible for recordkeeping on behalf of school food service as 
well as other entities/organizations within the local educational 
agency. These commenters were particularly concerned that additional 
recordkeeping responsibilities would compromise their efforts to 
implement the updated school meal pattern requirements. Additionally, 
they were concerned that school food service could not affect the 
requirements throughout the local educational agency since they have no 
authority over other school organizations. Some commenters suggested 
the responsibility should be at the local educational agency, not at 
individual schools. Finally, some commenters suggested a delayed 
implementation of the recordkeeping requirements, including an 
opportunity to study the impact of the requirements.
    The Department appreciates that this regulation will create some 
new challenges initially, as schools seek to improve the school 
nutrition environment. However, evaluating records is essential to the 
integrity of the competitive food standards. To determine whether a 
food item is an allowable competitive food, the local educational 
agency designee(s) must assess the nutritional profile of the food 
item. Absent an evaluation of the nutritional profile, the local 
educational agency has no way of knowing whether a food item meets the 
nutrition standards set forth in this interim final rule. The 
recordkeeping requirement simply requires the local educational agency 
to retain the reviewed documentation (e.g., the nutrition labels, 
receipts, and/or product specifications).
    Perhaps the larger issue raised by commenters is who is responsible 
for this activity. The Department does not necessarily expect the 
responsibility to rest solely with the nonprofit school food service. 
School food service personnel are expected to have a clear 
understanding of the nutrition profile of foods purchased using 
nonprofit school food service funds for reimbursable meals, [agrave] la 
carte offerings, etc. Retaining receipts, nutrition labels or product 
specifications for foods purchased with nonprofit school food service 
funds is a part of doing business. Yet their authority and 
responsibilities are typically limited to the nonprofit school food 
service. Local educational agencies are responsible for ensuring that 
all entities involved in food sales within a school understand that the 
local educational agency as a whole must comply with these 
requirements.
    The Department appreciates that sorting through who is responsible 
will initially require planning and cooperation which could be 
facilitated by the local school wellness policy designee(s). Section 
204 of the HHFKA amended the NSLA by adding section 9A (42 U.S.C. 
1758b) which requires each local educational agency to (a) establish a 
local school wellness policy which includes nutrition standards for all 
foods available on each school campus, and (b) designate one or more 
local educational agency officials or school officials, to ensure that 
each school complies with the local school wellness policy. State 
agencies were advised of the section 204 requirements in FNS 
Memorandum, Child Nutrition Reauthorization 2010: Local School Wellness 
Policies, issued July 8, 2011 (SP 42-2011).
    The Department acknowledges the first year of implementation may be 
challenging as groups work together to establish a healthy school 
nutrition environment; however, if the local school wellness 
designee(s), school food service and other entities and groups work 
together to share information on allowable foods, we believe that 
implementation in future years will be greatly streamlined. As always, 
State agencies and the Department will provide technical assistance to 
facilitate implementation of the competitive food nutrition standards. 
Further, since implementation is not required until July 1, 2014, local 
educational agencies have time to sort out implementation issues and 
ensure all parties are well trained. Delayed implementation combined 
with the opportunities for public comment provided by this

[[Page 39084]]

interim final rule, have the added benefit of providing additional 
information which will inform the final rule and future research 
agendas.
    Finally, the Department would like to address the comment 
suggesting this requirement is an unfunded mandate. The Department 
provides cash and donated food assistance to States and schools 
participating in the NSLP and SBP to strengthen and expand food service 
programs for children. In exchange, State agencies and participating 
local educational agencies/school food authorities agree to comply with 
the regulations set forth in 7 CFR 210 and 220.
    Accordingly, the interim final rule at 210.11(b)(2), codifies the 
provision, as proposed, with one minor technical change. The proposed 
rule stated the school food authority is responsible for maintaining 
records documenting compliance with these standards in meal service 
areas during meal service periods. The interim final rule modifies this 
language to state that the school food authority is responsible for 
maintaining records for foods served under the auspices of the 
nonprofit school food service. This change acknowledges that nonprofit 
school food service activity may extend beyond meal service areas.

Compliance

    Proposed Sec.  210.18(h)(7) would require State agencies to ensure 
that local educational agencies comply with the nutrition standards for 
competitive food and retain documentation demonstrating compliance with 
the competitive food service and standards.
    A number of commenters, largely school food service personnel, 
expressed concerns about how monitoring would occur for foods sold by 
groups outside of the school food service. Some commenters believed 
technical assistance would be insufficient and raised questions about 
means to effect compliance, e.g., some sort of fiscal action. Other 
commenters expressed concerns about the need to train and educate non-
school food service personnel as to how to comply with the regulations.
    The Department agrees that training will be needed to ensure 
compliance with the nutrition standards. As mentioned under 
Recordkeeping, the Department envisions local educational agency 
designees, potentially the local school wellness coordinator(s), taking 
the lead in developing performance or compliance standards and training 
for all local educational personnel tasked with selling competitive 
food on the school campus during the school day. The Department and 
State agencies will also offer training to ensure local educational 
agencies are able to comply in the most efficient manner possible.
    School food service operations are routinely monitored by State 
agencies. State agencies conduct administrative reviews of school 
nutrition program operations once every three years. However, the HHFKA 
expanded the scope of the Department's responsibilities to include the 
school nutrition environment, not just school nutrition program 
operations. The Department now has responsibilities regarding the 
development and implementation of local school wellness policies, as 
required by the amendments made to the NSLA by section 204 of the 
HHFKA. In addition, the Department now has oversight and authority of 
foods sold outside of the school nutrition programs on the school 
campus during the school day, as required by the amendments made to the 
NSLA by section 208 of the HHFKA.
    The Department will be addressing the scope of these extended 
monitoring responsibilities in a forthcoming proposed rule addressing 
administrative review requirements. Interested parties will have an 
opportunity to comment on the Department's approach to monitoring 
during the public comment period following publication of the proposed 
administrative review rule. The Department would like to assure 
commenters that we see technical assistance and training as the first 
approach to non-compliance, however, we recognize that egregious, 
repeated cases of non-compliance may require a more aggressive 
approach. In this regard, section 303 of the HHFKA amended section 22 
of the NSLA (42 U.S.C. 1769c) to provide the Department with the 
authority to impose fines against any school or school food authority 
failing to comply with program regulations. This authority will be 
addressed in a forthcoming proposed rule addressing a number of 
integrity issues related to local educational agencies administering 
the Child Nutrition Programs. As with the proposed administrative rule, 
interested parties will have an opportunity to address these issues 
during a public comment period following publication of that proposed 
integrity rule.
    Accordingly, Sec.  210.18(h) is adopted as proposed.

Special Situations

    The proposed rule would have required all local educational 
agencies and schools participating in the NSLP and SBP to meet the 
competitive food nutrition standards.
    Several commenters noted the competitive food nutrition standards 
may be difficult for small schools, residential child care institutions 
(RCCIs) and culinary programs to administer. Commenters noted small or 
medium-sized schools may not have sufficient resources to carry out the 
required calculations or comply with the proposed recordkeeping 
requirements. In the case of RCCIs, one commenter noted that existing 
State regulations for juvenile detention centers may obviate the need 
for USDA nutrition standards for competitive foods. Several commenters 
recommended that foods made and sold by career centers and culinary 
arts programs be exempted from the competitive food standards, as the 
foods made in these programs may not meet the new standards and, 
therefore, could not be sold at student-run cafes. Alternatively, the 
proposed standards could limit the skills development necessary for 
careers in the food industry because the foods prepared would exceed 
the proposed standards. Yet other commenters argued there should be no 
difference between standards applying to the nonprofit school food 
service and other food service operations in the schools, such as 
school stores, culinary arts programs and vending machines. The 
competitive food standards should ``level the playing field'' between 
the nonprofit school food service and other school food sellers, 
including culinary arts programs.
    Regarding small schools and RCCIs, the Department firmly believes 
the overall health and well-being of students in small entities is just 
as important as that of students in large entities. For this reason, 
the interim final rule continues to apply to all schools participating 
in the NSLP and SBP, including small schools and RCCIs. However, we do 
appreciate that these entities may have staffing limitations that make 
implementation more challenging. We look to the State agency to provide 
guidance to these entities, possibly sharing observations on allowable 
products and practices employed by other school districts in the State 
to meet the requirements. Schools with limited resources are likely to 
offer a limited number of competitive foods for sale which may 
facilitate meeting the requirements in these situations.
    Career centers and culinary arts programs present a more 
challenging issue. These programs often make and sell foods to 
students. These programs are providing vocational training for culinary 
art careers. Students are

[[Page 39085]]

preparing to enter the workforce where the nutritional standards and 
requirements may vary widely from those required under the NSLP and 
SBP. Applying the nutrition standards for competitive food to these 
programs may limit the skill development necessary for careers in the 
food industry. Section 12(c) of the NSLA (42 U.S.C. 1760(c)) and 
section 11(a) of the CNA (42 U.S.C. 1780(a)) prohibit the Secretary 
from imposing any requirement with respect to teaching personnel, 
curriculum, instructions, methods of instruction, and materials for 
instruction in any school. However, section 10 of the CNA, as amended 
by section 208 of the HHFKA requires any food sold outside of the 
school meal programs, on the school campus and at any time during the 
school day to meet the competitive food nutrition standards set forth 
in this interim final rule. Therefore, in recognition of the potential 
conflict of legislative intent, the Department is willing to consider 
each situation on a case by case basis, and provide a waiver where 
appropriate. State agencies are advised to contact FNS' Regional 
Offices as situations arise.

Related Information

Implementation

    State agencies and local educational agencies must implement the 
competitive food provisions of this interim final rule beginning on 
July 1, 2014, as specified in the DATES section of this preamble. 
Amendments made by section 208 of the HHFKA made it clear that the 
Department must allow State and local educational agencies at least one 
full school year from the date of publication of this interim final 
rule to implement the competitive food provisions. For this reason, the 
interim final rule retains the existing competitive food requirements 
which included a prohibition on the sale of foods of minimal 
nutritional value in the food service areas during the meal periods 
(hereafter termed ``foods of minimal nutritional value regulation''). 
Prior to August 27, 2013, these requirements were found at 7 CFR 
210.11.
    State and local educational agencies may begin implementing the 
competitive food provisions of this interim final rule prior to July 1, 
2014; provided that those provisions complement and do not conflict 
with the foods of minimal nutritional value regulation which remains in 
effect through June 30, 2014.
    To effect these changes, the foods of minimal nutritional value 
regulation (entitled Competitive food services) is being redesignated 
as Sec.  210.11a in this rule. The new interim competitive food 
nutrition standards are added to Sec.  210.11. The Department intends 
to remove Sec.  210.11a and its corresponding Appendix B in the final 
rule. Similar changes are made to the breakfast program regulations. 
Until such time as the final rule is published, the Department added 
paragraph Sec.  210.11a(c), which limits the effective period for the 
foods of minimal nutritional value regulation through June 30, 2014. 
Thus, when the new interim regulations take effect, the old regulations 
expire.

                            Summary of Interim Final Rule Competitive Food Standards
----------------------------------------------------------------------------------------------------------------
           Food/nutrient                            Standard                     Exemptions to the standard
----------------------------------------------------------------------------------------------------------------
General Standard for Competitive     To be allowable, a competitive FOOD     Fresh and frozen fruits and
 Food.                                item must:.                            vegetables with no added
                                     (1) Meet all of the proposed            ingredients except water are exempt
                                      competitive food nutrient standards;   from all nutrient standards.
                                      and.                                   Canned fruits with no added
                                     (2) Be a grain product that contains    ingredients except water, which are
                                      50% or more whole grains by weight     packed in 100% juice, extra light
                                      or have whole grains as the first      syrup, or light syrup are exempt
                                      ingredient*; or.                       from all nutrient standards.
                                     (3) Have as the first ingredient* one   Canned vegetables with no
                                      of the non-grain main food groups:     added ingredients except water or
                                      fruits, vegetables, dairy, or          that contain a small amount of
                                      protein foods (meat, beans, poultry,   sugar for processing purposes to
                                      seafood, eggs, nuts, seeds, etc.);     maintain the quality and structure
                                      or.                                    of the vegetable are exempt from
                                     (4) Be a combination food that          all nutrient standards.
                                      contains at least \1/4\ cup fruit
                                      and/or vegetable; or.
                                     (5) Contain 10% of the Daily Value
                                      (DV) of a nutrient of public health
                                      concern (i.e., calcium, potassium,
                                      vitamin D, or dietary fiber).
                                      Effective July 1, 2016 this
                                      criterion is obsolete and may not be
                                      used to qualify as a competitive
                                      food.
                                     * If water is the first ingredient,
                                      the second ingredient must be one of
                                      the above.
NSLP/SBP Entr[eacute]e Items Sold    Any entr[eacute]e item offered as
 [agrave] la Carte.                   part of the lunch program or the
                                      breakfast program is exempt from all
                                      competitive food standards if it is
                                      served as a competitive food on the
                                      day of service or the day after
                                      service in the lunch or breakfast
                                      program.
Grain Items........................  Acceptable grain items must include
                                      50% or more whole grains by weight,
                                      or have whole grains as the first
                                      ingredient.
Total Fats.........................  Acceptable food items must have <=      Reduced fat cheese
                                      35% calories from total fat as         (including part-skim mozzarella) is
                                      served.                                exempt from the total fat standard.
                                                                             Nuts and seeds and nut/seed
                                                                             butters are exempt from the total
                                                                             fat standard.
                                                                             Products consisting of only
                                                                             dried fruit with nuts and/or seeds
                                                                             with no added nutritive sweeteners
                                                                             or fats are exempt from the total
                                                                             fat standard.
                                                                             Seafood with no added fat
                                                                             is exempt from the total fat
                                                                             standard.
                                                                            Combination products are not exempt
                                                                             and must meet all the nutrient
                                                                             standards.

[[Page 39086]]

 
Saturated Fats.....................  Acceptable food items must have <10%    Reduced fat cheese
                                      calories from saturated fat as         (including part-skim mozzarella) is
                                      served.                                exempt from the saturated fat
                                                                             standard.
                                                                             Nuts and seeds and nut/seed
                                                                             butters are exempt from the
                                                                             saturated fat standard.
                                                                             Products consisting of only
                                                                             dried fruit with nuts and/or seeds
                                                                             with no added nutritive sweeteners
                                                                             or fats are exempt from the
                                                                             saturated fat standard.
                                                                            Combination products are not exempt
                                                                             and must meet all the nutrient
                                                                             standards.
Trans Fats.........................  Zero grams of trans fat as served
                                      (<=0.5 g per portion).
Sugar..............................  Acceptable food items must have <=35%   Dried whole fruits or
                                      of weight from total sugar as          vegetables; dried whole fruit or
                                      served.                                vegetable pieces; and dehydrated
                                                                             fruits or vegetables with no added
                                                                             nutritive sweeteners are exempt
                                                                             from the sugar standard.
                                                                             Dried whole fruits, or
                                                                             pieces, with nutritive sweeteners
                                                                             that are required for processing
                                                                             and/or palatability purposes (i.e.,
                                                                             cranberries, tart cherries, or
                                                                             blueberries) are exempt from the
                                                                             sugar standard.
                                                                             Products consisting of only
                                                                             dried fruit with nuts and/or seeds
                                                                             with no added nutritive sweeteners
                                                                             or fats are exempt from the sugar
                                                                             standard.
Sodium.............................  Snack items and side dishes sold
                                      [agrave] la carte: <=230 mg sodium
                                      per item as served. Effective July
                                      1, 2016 snack items and side dishes
                                      sold [agrave] la carte must be:
                                      <=200 mg sodium per item as served,
                                      including any added accompaniments.
                                     Entr[eacute]e items sold [agrave] la
                                      carte: <=480 mg sodium per item as
                                      served, including any added
                                      accompaniments.
Calories...........................  Snack items and side dishes sold
                                      [agrave] la carte: <= 200 calories
                                      per item as served, including any
                                      added accompaniments.
                                     Entr[eacute]e items sold [agrave] la
                                      carte: <=350 calories per item as
                                      served including any added
                                      accompaniments.
Accompaniments.....................  Use of accompaniments is limited when
                                      competitive food is sold to students
                                      in school. The accompaniment must be
                                      included in the nutrient profile as
                                      part of the food item served and
                                      meet all proposed standards.
Caffeine...........................  Elementary and Middle School: foods
                                      and beverages must be caffeine-free
                                      with the exception of trace amounts
                                      of naturally occurring caffeine
                                      substances.
                                     High School: foods and beverages may
                                      contain caffeine.
Beverages..........................  Elementary School
                                      Plain water or plain
                                      carbonated water (no size limit);.
                                      Low fat milk, unflavored
                                      (<=8 fl oz);.
                                      Non fat milk, flavored or
                                      unflavored (<=8 fl oz), including
                                      nutritionally equivalent milk
                                      alternatives as permitted by the
                                      school meal requirements;.
                                      100% fruit/vegetable juice
                                      (<=8 fl oz); and.
                                      100% fruit/vegetable juice
                                      diluted with water (with or without
                                      carbonation), and no added
                                      sweeteners (<=8 fl oz)..
                                     Middle School
                                      Plain water or plain
                                      carbonated water (no size limit);.
                                      Low-fat milk, unflavored
                                      (<=12 fl oz);.
                                      Non-fat milk, flavored or
                                      unflavored (<=12 fl oz), including
                                      nutritionally equivalent milk
                                      alternatives as permitted by the
                                      school meal requirements;.
                                      100% fruit/vegetable juice
                                      (<=12 fl oz); and.
                                      100% fruit/vegetable juice
                                      diluted with water (with or without
                                      carbonation), and no added
                                      sweeteners (<=12 fl oz)..

[[Page 39087]]

 
                                     High School
                                      Plain water or plain
                                      carbonated water (no size limit);.
                                      Low-fat milk, unflavored
                                      (<=12 fl oz);.
                                      Non-fat milk, flavored or
                                      unflavored (<=12 fl oz), including
                                      nutritionally equivalent milk
                                      alternatives as permitted by the
                                      school meal requirements;.
                                      100% fruit/vegetable juice
                                      (<=12 fl oz);.
                                      100% fruit/vegetable juice
                                      diluted with water (with or without
                                      carbonation), and no added
                                      sweeteners (<=12 fl oz);.
                                      Other flavored and/or
                                      carbonated beverages (<=20 fl oz)
                                      that are labeled to contain <=5
                                      calories per 8 fl oz, or <=10
                                      calories per 20 fl oz; and.
                                      Other flavored and/or
                                      carbonated beverages (<=12 fl oz)
                                      that are labeled to contain <=40
                                      calories per 8 fl oz, or <=60
                                      calories per 12 fl oz..
Sugar-free Chewing Gum.............  Sugar-free chewing gum is exempt from
                                      all of the competitive food
                                      standards and may be sold to
                                      students at the discretion of the
                                      local educational agency.
----------------------------------------------------------------------------------------------------------------

Procedural Matters

Issuance of an Interim Final Rule and Date of Effectiveness

    USDA, under the provisions of the Administrative Procedure Act at 5 
U.S.C. 553(b)(B), finds for good cause that it is impracticable to 
issue a final rule at this time and thus is issuing an interim final 
rule, as authorized by section 208 of the Healthy, Hunger-Free Kids Act 
of 2010, Public Law 111-296, enacted on December 13, 2010. On February 
8, 2013, USDA published a proposed rule to implement section 208 of the 
Healthy, Hunger-Free Kids Act of 2010 (78 FR 9530). The rule provided 
for a 60-day comment period, which ended on April 9, 2013. This interim 
final rule reflects comments received during that period. Section 208 
requires that implementation of this statutory provision shall take 
effect at the beginning of the school year that is not earlier than one 
year and not later than two years following the date of the publication 
of an interim final or final rule. USDA recognizes that the 
significant, statutorily established, implementation delay will provide 
federal and state partners a lengthy period in which to provide 
technical assistance and administrative support to SFAs working toward 
compliance. At this time, as provided for in the DATES section, USDA 
invites public comment on this interim final rule. USDA will consider 
amendments to the rule based on comments submitted during the 120-day 
comment period. The agency will address comments and affirm or amend 
the interim final rule in a final rule.

Executive Order 12866 and Executive Order 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility.
    This interim final rule has been designated an ``economically 
significant regulatory action'' under section 3(f) of Executive Order 
12866. Accordingly, the rule has been reviewed by the Office of 
Management and Budget.

Regulatory Flexibility Analysis

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). The interim 
final rule directly regulates the 54 State education agencies and 3 
State Departments of Agriculture that operate the NSLP pursuant to 
agreements with USDA's Food and Nutrition Service. While State agencies 
are not considered small entities as State populations exceed the 
50,000 threshold for a small government jurisdiction, many of the 
service-providing institutions that work with them to implement the 
program do meet definitions of small entities.
    The requirements established by this interim final rule will apply 
to school districts, which meet the definitions of ``small governmental 
jurisdiction'' and other establishments that meet the definition of 
``small entity'' in the Regulatory Flexibility Act. An Initial 
Regulatory Flexibility Act analysis is included as an Appendix to this 
rule.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and Tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Department generally must prepare a written statement, including a 
cost/benefit analysis, for proposed and final rules with Federal 
mandates that may result in expenditures by State, local, or Tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. When such a statement is needed for a 
rule, section 205 of the UMRA generally requires the Department to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, more cost-effective or least burdensome 
alternative that achieves the objectives of the rule. Because data is 
not available to meaningfully estimate the quantitative impacts of this 
rule on school food authority revenues, we are not certain that this 
rule is subject to the requirements of sections 202 and 205 of the 
UMRA. That said, it is possible that the rule's requirements could 
impose costs on State, local, or Tribal governments or to the private 
sector of $100 million or more in any one year. FNS therefore conducted 
a regulatory impact analysis that includes a cost/benefit analysis and 
describes and explains six alternatives to the interim final rule, 
substantially meeting the

[[Page 39088]]

requirements of sections 202 and 205 of the UMRA.

Executive Order 12372

    The NSLP is listed in the Catalog of Federal Domestic Assistance 
under No. 10.555. The SBP is listed in the Catalog of Federal Domestic 
Assistance under No. 10.553. For the reasons set forth in the final 
rule in 7 CFR part 3015, Subpart V and related notice (48 FR 29115, 
June 24, 1983), these programs are included in the scope of Executive 
Order 12372, which requires intergovernmental consultation with State 
and local officials.

Executive Order 13132

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations in terms of the three categories 
called for under section (6)(b)(2)(B) of Executive Order 13132. USDA 
has considered the impact of this rule on State and local governments 
and has determined that this rule does not have federalism 
implications. This rule does not impose substantial or direct 
compliance costs on State and local governments. Therefore, under 
Section 6(b) of the Executive Order, a federalism summary impact 
statement is not required.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is intended to have preemptive effect with 
respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless specified in the DATES section of the final rule. Prior to any 
judicial challenge to the provisions of this rule or the application of 
its provisions, all applicable administrative procedures must be 
exhausted.

Civil Rights Impact Analysis

    FNS has reviewed this rule in accordance with Departmental 
Regulations 4300-4, ``Civil Rights Impact Analysis,'' and 1512-1, 
``Regulatory Decision Making Requirements.'' After a careful review of 
the rule's intent and provisions, FNS has determined that this rule is 
not intended to limit or reduce in any way the ability of protected 
classes of individuals to receive benefits on the basis of their race, 
color, national origin, sex, age or disability nor is it intended to 
have a differential impact on minority owned or operated business 
establishments and woman-owned or operated business establishments that 
participate in the Child Nutrition Programs.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 
part 1320), requires that the Office of Management and Budget (OMB) 
approve all collections of information by a Federal agency from the 
public before they can be implemented. Respondents are not required to 
respond to any collection of information unless it displays a current, 
valid OMB control number. This rule does contain information collection 
requirements subject to approval by OMB under the Paperwork Reduction 
Act of 1995.
    A 60-day notice was embedded into the proposed rule, ``7 CFR Parts 
210 and 220 National School Lunch Program and School Breakfast Program: 
Nutrition Standards for All Foods Sold in School as Required by the 
Healthy Hunger Free Kids Act of 2010,'' published in the Federal 
Register at 78 FR 9530 on February 8, 2013, which provided the public 
an opportunity to submit comments on the information collection burden 
resulting from this rule. The information collection requirements 
associated with this interim final rule have been submitted for 
approval to the Office of Management and Budget (OMB). FNS will publish 
a document in the Federal Register once these requirements have been 
approved.
    FNS is requesting 927,634 burden hours for recordkeeping to 
document compliance with the new nutrition standards. The estimated 
average number of respondents for this rule is 122,662 (57 State 
agencies, 20,858 school food authorities, and 101,747 schools). The 
following table reflects the estimated burden associated with the new 
information collection requirements.

Estimated Annual Burden for 0584-New, 7 CFR Part 210 National School Lunch Program and School Breakfast Program:
                                Nutrition Standards for All Foods Sold in School
----------------------------------------------------------------------------------------------------------------
                                                                                             Average
                                                      Estimated     Records per   Average     burden     Annual
                                        Section       number of    recordkeeper    annual      per       burden
                                                    recordkeepers                 records     record     hours
----------------------------------------------------------------------------------------------------------------
Recordkeeping:
SA shall ensure that the LEA                 7 CFR           57            122       6,954       0.25      1,739
 complies with the nutrition          210.18(h)(7)
 standards for competitive foods
 and retains documentation
 demonstrating compliance.........
LEAs and SFAs shall be responsible           7 CFR       20,858              1      20,858         20    417,160
 for maintaining records              210.11(b)(3)
 documenting compliance with the
 competitive food standards.......
Organizations responsible for                7 CFR      101,747              1     101,747          5    508,735
 competitive food service at          210.11(b)(3)
 various venues in schools shall
 maintain records.................
                                   -----------------------------------------------------------------------------
    Total Recordkeeping Burden....  ..............      122,662         1.0562     129,559     7.1599    927,634
----------------------------------------------------------------------------------------------------------------

E-Government Act Compliance

    The Food and Nutrition Service is committed to complying with the 
E-Government Act of 2002, to promote the use of the Internet and other 
information technologies to provide increased opportunities for citizen 
access to Government information and services and for other purposes.

[[Page 39089]]

Executive Order 13175--Consultation and Coordination With Indian Tribal 
Governments

    Executive Order 13175 requires Federal agencies to consult and 
coordinate with Tribes on a government-to-government basis on policies 
that have Tribal implications, including regulations, legislative 
comments or proposed legislation, and other policy statements or 
actions that have substantial direct effects on one or more Indian 
Tribes, on the relationship between the Federal Government and Indian 
Tribes, or on the distribution of power and responsibilities between 
the federal government and Indian Tribes. In Spring 2011, FNS offered 
opportunities for consultation with Tribal officials or their designees 
to discuss the impact of the Healthy, Hunger-Free Kids Act of 2010 on 
tribes or Indian Tribal governments. The consultation sessions were 
coordinated by FNS and held on the following dates and locations:
    1. HHFKA Webinar & Conference Call--April 12, 2011
    2. Mountain Plains--HHFKA Consultation, Rapid City, SD--March 23, 
2011
    3. HHFKA Webinar & Conference Call--June, 22, 2011
    4. Tribal Self-Governance Annual Conference in Palm Springs, CA--
May 2, 2011
    5. National Congress of American Indians Mid-Year Conference, 
Milwaukee, WI--June 14, 2011
    The five consultation sessions in total provided the opportunity to 
address Tribal concerns related to school meals. There were no comments 
about this regulation during any of the aforementioned Tribal 
consultation sessions.
    Currently, FNS provides regularly scheduled quarterly consultation 
sessions as a venue for collaborative conversations with Tribal 
officials or their designees. The most recent specific discussion of 
the Nutrition Standards for Foods Sold in Schools proposed rule was 
included in the consultation conducted on February 13, 2013. No 
questions or comments were raised specific to this rulemaking at that 
time.
    Reports from these consultations are part of the USDA annual 
reporting on Tribal consultation and collaboration. FNS will respond in 
a timely and meaningful manner to Tribal government requests for 
consultation concerning this rule.

Regulatory Impact Analysis Summary

    A Regulatory Impact Analysis (RIA) was developed for this proposal, 
which is summarized below. The full RIA is included as an Appendix to 
this rule.

Need for Action

    The interim final rule responds to two provisions of the Healthy, 
Hunger-Free Kids Act of 2010. Section 208 of HHFKA amended Section 10 
of the Child Nutrition Act of 1966 to require the Secretary to 
establish science-based nutrition standards for all foods sold in 
schools during the school day.

Response to Comments

    The full Regulatory Impact Analysis, which appears as an Appendix, 
includes a brief discussion of comments on the costs and benefits of 
the proposed rule submitted by school officials, public health 
organizations, industry representatives, parents, students, and other 
interested parties. The analysis also contains a discussion of how USDA 
modified the interim final rule in response, and the effect of those 
modifications on the costs and benefits of the rule.

Benefits

    The primary purpose of the rule is to ensure that nutrition 
standards for competitive foods are consistent with the most recent DGA 
recommendations, effectively holding competitive foods to the same 
standards as the rest of the foods sold at school during the school 
day. These standards, combined with recent improvements in school 
meals, will help promote diets that contribute to students' long-term 
health and well-being. And they will support parents' efforts to 
promote healthy choices for children at home and at school.
    Obesity has become a major public health concern in the U.S., with 
one-third of U.S. children and adolescents now considered overweight or 
obese (Beydoun and Wang 2011 \1\), with current childhood obesity rates 
four times higher in children ages six to 11 than they were in the 
early 1960s (19 vs. 4 percent), and three times higher (17 vs. 5 
percent) for adolescents ages 12 to 19.\2\ Research focused 
specifically on the effects of obesity in children indicates that obese 
children feel they are less capable, both socially and athletically, 
less attractive, and less worthwhile than their non-obese 
counterparts.\3\ Further, there are direct economic costs due to 
childhood obesity: $237.6 million (in 2005 dollars) in inpatient costs 
\4\ plus annual prescription drug, emergency room, and outpatient costs 
of $14.1 billion.\5\
---------------------------------------------------------------------------

    \1\ Beydoun, M.A. and Y. Wang. 2011. Socio-demographic 
disparities in distribution shifts over time in various adiposity 
measures among American children and adolescents: What changes in 
prevalence rates could not reveal. International Journal of 
Pediatric Obesity, 6:21-35. As cited in Food Labeling: Calorie 
Labeling of Articles of Food in Vending Machines NPRM. 2011. 
Preliminary Regulatory Impact Analysis, Docket No. FDA-2011-F-0171.
    \2\ Ogden et al. Prevalence of Obesity Among Children and 
Adolescents: United States, Trends 1963-1965 Through 2007-2008. CDC-
NHCS, NCHS Health E-Stat, June 2010. On the web at http://www.cdc.gov/nchs/data/hestat/obesity_child_07_08/obesity_child_07_08.htm.
    \3\ Riazi, A., S. Shakoor, I. Dundas, C. Eiser, and S.A. 
McKenzie. 2010. Health-related quality of life in a clinical sample 
of obese children and adolescents. Health and Quality of Life 
Outcomes, 8:134-139. Samuels & Associates. 2006. Competitive Foods. 
Policy Brief prepared by Samuels & Associates for The California 
Endowment and Robert Wood Johnson Foundation. Available at: http://www.healthyeatingactivecommunities.org/downloads/.
    \4\ Trasande, L., Y. Liu, G. Fryer, and M. Weitzman. 2009. 
Trends: Effects of Childhood Obesity on Hospital Care and Costs, 
1999-2005. Health Affairs, 28:w751-w760.
    \5\ Cawley, J. 2010. The Economics of Childhood Obesity. Health 
Affairs, 29:364-371. As cited in Food Labeling: Calorie Labeling of 
Articles of Food in Vending Machines NPRM. 2011. Preliminary 
Regulatory Impact Analysis, Docket No. FDA-2011-F-0171.
---------------------------------------------------------------------------

    Because the factors that contribute both to overall food 
consumption and to obesity are so complex, it is not possible to define 
a level of disease or cost reduction expected to result from 
implementation of the rule. There is some evidence, however, that 
competitive food standards can improve children's dietary quality.
     Taber, Chriqui, and Chaloupka (2012 \6\) concluded that 
California high school students consumed fewer calories, less fat, and 
less sugar at school than students in other States. Their analysis 
``suggested that California students did not compensate for consuming 
less within school by consuming more elsewhere'' (p. 455).
---------------------------------------------------------------------------

    \6\ Taber, D.R., J.F. Chriqui, and F. J. Chaloupka. 2012. 
Differences in Nutrient Intake Associated With State Laws Regarding 
Fat, Sugar, and Caloric Content of Competitive Foods. Archives of 
Pediatric & Adolescent Medicine, 166:452-458.
---------------------------------------------------------------------------

     Schwartz, Novak, and Fiore, (2009 \7\) determined that 
healthier competitive food standards decreased student consumption of 
low nutrition items with no compensating increase at home.
---------------------------------------------------------------------------

    \7\ Schwartz, M.B., S.A. Novak, and S.S. Fiore. 2009. The Impact 
of Removing Snacks of Low Nutritional Value from Middle Schools. 
Health Education & Behavior, 36:999-1011.
---------------------------------------------------------------------------

     Researchers at Healthy Eating Research and Bridging the 
Gap found that ``[t]he best evidence available indicates that policies 
on snack foods and beverages sold in school impact children's diets and 
their risk for obesity. Strong policies that prohibit or restrict the 
sale of unhealthy competitive foods and drinks in schools are 
associated with lower proportions of

[[Page 39090]]

overweight or obese students, or lower rates of increase in student 
BMI'' (Healthy Eating Research and Bridging the Gap, 2012, p. 3 \8\).
---------------------------------------------------------------------------

    \8\ Healthy Eating Research and Bridging the Gap. 2012. 
Influence of Competitive Food and Beverage Policies on Children's 
Diets and Childhood Obesity. Available at http://www.healthyeatingresearch.org/images/stories/her_research_briefs/Competitive_Foods_Issue_Brief_HER_BTG_7-2012.pdf.
---------------------------------------------------------------------------

    A recent, comprehensive, and groundbreaking assessment of the 
evidence on the importance of competitive food standards conducted by 
the Pew Health Group concluded that a national competitive foods policy 
would increase student exposure to healthier foods, decrease exposure 
to less healthy foods, and would also likely improve the mix of foods 
that students purchase and consume at school. Researchers concluded 
that these kinds of changes in food exposure and consumption at school 
are important influences on the overall quality of children's diets.
    Although nutrition standards for foods sold at school alone may not 
be a determining factor in children's overall diets, they are critical 
to providing children with healthy food options throughout the entire 
school day. Thus, these standards will help to ensure that the school 
nutrition environment does all that it can to promote healthy choices, 
and help to prevent diet-related health problems. Ancillary benefits 
could derive from the fact that improving the nutritional value of 
competitive foods may reinforce school-based nutrition education and 
promotion efforts and contribute significantly to the overall 
effectiveness of the school nutrition environment in promoting 
healthful food and physical activity choices.\9\
---------------------------------------------------------------------------

    \9\ Pew Health Group and Robert Wood Johnson Foundation. 2012. 
Health Impact Assessment: National Nutrition Standards for Snack and 
[agrave] la Carte Foods and Beverages Sold in Schools. Available 
online: http://www.pewhealth.org/uploadedFiles/PHG/Content_Level_Pages/Reports/KS%20HIA_FULL%20Report%20062212_WEB%20FINAL-v2.pdf.
---------------------------------------------------------------------------

Costs

    Any rule-induced benefit of healthier eating by school children 
would be accompanied by costs, at least in the short term. Healthier 
food may be more expensive than unhealthy food--either in raw 
materials, preparation, or both--and this greater expense would be 
distributed among students, schools, and the food industry. Moreover, 
students who switch to less-preferred foods and beverages could 
experience a utility loss. If students do not switch to healthier 
foods, they may incur travel or other costs related to obtaining their 
preferred choices from a location less convenient than school. 
Regardless of student response, the proposed rule would also impose 
administrative costs on schools and their food authorities.

Transfers

    The rule requires schools to improve the nutritional quality of 
foods offered for sale to students outside of the Federal school lunch 
and school breakfast programs. The new standards apply to foods sold 
[agrave] la carte, in school stores or vending machines, and, with 
limited exceptions, through in-school fundraisers sponsored by 
students, parents, or other school-affiliated groups. Upon 
implementation of the rule, students will face new food choices from 
these sources. The new choices will meet standards for fat, saturated 
fat, sugar, and sodium, and have whole grains, low fat dairy, fruits, 
vegetables, or protein foods as their main ingredients. Our analysis 
examines a range of possible behavioral responses of students and 
schools to these changes. To estimate potential effects on school 
revenue, we look to the experience of school districts that have 
adopted or piloted competitive food reforms in recent years.
    The practice of selling foods in competition with federally 
reimbursable program meals and snacks is widespread. In SY 2004-2005, 
82 percent of all schools--and 92 percent of middle and high schools--
offered [agrave] la carte foods at lunch. Vending machines were 
available in 39 percent of all schools, including 13 percent of 
elementary schools, 72 percent of middle schools, and 87 percent of 
high schools (Fox, et al., 2012; Volume 1, p. 3-42).
    The limited information available indicates that many schools have 
successfully introduced competitive food reforms with little or no loss 
of revenue and in a few cases, revenues from competitive foods 
increased after introducing healthier foods. In some of the schools 
that showed declines in competitive food revenues, losses from reduced 
sales were fully offset by increases in reimbursable meal revenue. In 
other schools, students responded favorably to the healthier options 
and competitive food revenue declined little or not at all.
    But not all schools that adopted or piloted competitive food 
standards fared as well. Some of the same studies and reports that 
highlight school success stories note that other schools sustained some 
loss after implementing similar standards. While in some cases these 
were short-term losses, even in the long-term the competitive food 
revenue lost by those schools was not offset (at least not fully) by 
revenue gains from the reimbursable meal programs.
    Our analysis examines the possible effects of the rule on school 
revenues from competitive foods and the administrative costs of 
complying with the rule's competitive foods provisions. The analysis 
uses available data to construct model-based scenarios that different 
schools may experience in implementing the rule. While these vary in 
their impact on overall school food revenue, each scenario's estimated 
impact is relatively small (+0.5 percent to -1.3 percent). In 
comparison, the regulations implementing the school food service 
revenue provisions of HHFKA would increase average overall school food 
revenue by roughly six percent. That said, the data behind the 
scenarios are insufficient to assess the frequency or probability of 
schools experiencing the impacts shown in each.

List of Subjects

7 CFR Part 210

    Grant programs-education; Grant programs-health; Infants and 
children; Nutrition; Reporting and recordkeeping requirements; School 
breakfast and lunch programs; Surplus agricultural commodities.

7 CFR Part 220

    Grant programs-education; Grant programs-health; Infants and 
children; Nutrition; Reporting and recordkeeping requirements; School 
breakfast and lunch programs.

    Accordingly, 7 CFR parts 210 and 220 are amended as follows:

PART 210--NATIONAL SCHOOL LUNCH PROGRAM

0
1. The authority citation for 7 CFR part 210 continues to read as 
follows:

    Authority: 42 U.S.C. 1751-1760, 1779.''

0
2. In Sec.  210.1, the second sentence of paragraph (b) is revised to 
read as follows:


Sec.  210.1  General purpose and scope.

* * * * *
    (b) * * * It specifies Program responsibilities of State and local 
officials in the areas of program administration, preparation and 
service of nutritious lunches, the sale of competitive foods, payment 
of funds, use of program funds, program monitoring, and reporting and 
recordkeeping requirements.

0
3. In Sec.  210.10, amend paragraph (a)(1)(i) by adding a sentence at 
the end to read as follows:

[[Page 39091]]

Sec.  210.10  Meal requirements for lunches and requirements for 
afterschool snacks.

    (a) * * *
    (1) * * *
    (i) * * * Schools must make potable water available and accessible 
without restriction to children at no charge in the place(s) where 
lunches are served during the meal service.
* * * * *


Sec.  210.11  [Redesignated as Sec.  210.11a]

0
4. Redesignate Sec.  210.11 as Sec.  210.11a and dd new Sec.  210.11 to 
read as follows:


Sec.  210.11  Competitive food service and standards.

    (a) Definitions. For the purpose of this section:
    (1) Combination foods means products that contain two or more 
components representing two or more of the recommended food groups: 
fruit, vegetable, dairy, protein or grains.
    (2) Competitive food means all food and beverages other than meals 
reimbursed under programs authorized by the Richard B. Russell National 
School Lunch Act and the Child Nutrition Act of 1966 available for sale 
to students on the School campus during the School day.
    (3) Entr[eacute]e item means an item that is either:
    (i) A combination food of meat or meat alternate and whole grain 
rich food; or
    (ii) A combination food of vegetable or fruit and meat or meat 
alternate; or
    (iii) A meat or meat alternate alone with the exception of yogurt, 
low-fat or reduced fat cheese, nuts, seeds and nut or seed butters, and 
meat snacks (such as dried beef jerky).
    (4) School campus means, for the purpose of competitive food 
standards implementation, all areas of the property under the 
jurisdiction of the school that are accessible to students during the 
school day.
    (5) School day means, for the purpose of competitive food standards 
implementation, the period from the midnight before, to 30 minutes 
after the end of the official school day.
    (b) General requirements for competitive food. (1) State and local 
educational agency policies. State agencies and/or local educational 
agencies must establish such policies and procedures as are necessary 
to ensure compliance with this section. State agencies and/or local 
educational agencies may impose additional restrictions on competitive 
foods, provided that they are not inconsistent with the requirements of 
this part.
    (2) Recordkeeping. The local educational agency is responsible for 
the maintenance of records that document compliance with the nutrition 
standards for all competitive food available for sale to students in 
areas under its jurisdiction that are outside of the control of the 
school food authority responsible for the service of reimbursable 
school meals. In addition, the local educational agency is responsible 
for ensuring that organizations designated as responsible for food 
service at the various venues in the schools maintain records in order 
to ensure and document compliance with the nutrition requirements for 
the foods and beverages sold to students at these venues during the 
school day as required by this section. The school food authority is 
responsible for maintaining records documenting compliance with these 
for foods sold under the auspices of the nonprofit school food service. 
At a minimum, records must include receipts, nutrition labels and/or 
product specifications for the competitive food available for sale to 
students.
    (3) Applicability. The nutrition standards for the sale of 
competitive food outlined in this section apply to competitive food for 
all programs authorized by the Richard B. Russell National School Lunch 
Act and the Child Nutrition Act of 1966 operating on the school campus 
during the school day.
    (4) Fundraiser restrictions. Competitive food and beverage items 
sold during the school day must meet the nutrition standards for 
competitive food as required in this section. A special exemption is 
allowed for the sale of food and/or beverages that do not meet the 
competitive food standards as required in this section for the purpose 
of conducting an infrequent school-sponsored fundraiser. Such specially 
exempted fundraisers must not take place more than the frequency 
specified by the State agency during such periods that schools are in 
session. No specially exempted fundraiser foods or beverages may be 
sold in competition with school meals in the food service area during 
the meal service.
    (c) General nutrition standards for competitive food. (1) General 
requirement. At a minimum, all competitive food sold to students on the 
school campus during the school day must meet the nutrition standards 
specified in this section. These standards apply to items as packaged 
and served to students.
    (2) General nutrition standards. To be allowable, a competitive 
food item must:
    (i) Meet all of the competitive food nutrient standards as outlined 
in this section; and
    (ii) Be a grain product that contains 50 percent or more whole 
grains by weight or have as the first ingredient a whole grain; or
    (iii) Have as the first ingredient one of the non-grain major food 
groups: fruits, vegetables, dairy or protein foods (meat, beans, 
poultry, seafood, eggs, nuts, seeds, etc.); or
    (iv) Be a combination food that contains \1/4\ cup of fruit and/or 
vegetable; or
    (v) For the period through June 30, 2016, contain 10 percent of the 
Daily Value of a nutrient of public health concern based on the most 
recent Dietary Guidelines for Americans (i.e., calcium, potassium, 
vitamin D or dietary fiber). Effective July 1, 2016, the criterion in 
this paragraph is obsolete and may not be used to qualify as a 
competitive food; and
    (vi) If water is the first ingredient, the second ingredient must 
be one of the food items in paragraphs (c)(2)(ii), (iii) or (iv) of 
this section.
    (3) Exemptions. (i) Entr[eacute]e items offered as part of the 
lunch or breakfast program. Any entr[eacute]e item offered as part of 
the lunch program or the breakfast program under 7 CFR Part 220 is 
exempt from all competitive food standards if it is offered as a 
competitive food on the day of, or the school day after, it is offered 
in the lunch or breakfast program. Exempt entr[eacute]e items offered 
as a competitive food must be offered in the same or smaller portion 
sizes as in the lunch or breakfast program. Side dishes offered as part 
of the lunch or breakfast program and served [agrave] la carte must 
meet the nutrition standards in this section.
    (ii) Sugar-free chewing gum. Sugar-free chewing gum is exempt from 
all of the competitive food standards in this section and may be sold 
to students on the school campus during the school day, at the 
discretion of the local educational agency.
    (d) Fruits and vegetables. (1) Fresh, frozen and canned fruits and 
vegetables with no added ingredients except water or, in the case of 
fruit, packed in 100 percent fruit juice or light syrup or extra light 
syrup, are exempt from the nutrient standards included in this section.
    (2) Canned vegetables that contain a small amount of sugar for 
processing purposes, to maintain the quality and structure of the 
vegetable, are also exempt from the nutrient standards included in this 
section.
    (e) Grain products. Grain products acceptable as a competitive food 
must

[[Page 39092]]

include 50 percent or more whole grains by weight or have whole grain 
as the first ingredient. Grain products must meet all of the other 
nutrient standards included in this section.
    (f) Total fat and saturated fat. (1) General requirements. (i) The 
total fat content of a competitive food must be not more than 35 
percent of total calories from fat per item as packaged or served, 
except as specified in paragraphs (f)(2) and (3) of this section.
    (ii) The saturated fat content of a competitive food must be less 
than 10 percent of total calories per item as packaged or served, 
except as specified in paragraph (f)(3) of this section.
    (2) Exemptions to the total fat requirement. Seafood with no added 
fat is exempt from the total fat requirement, but subject to the 
saturated fat, trans fat, sugar, calorie and sodium standards.
    (3) Exemptions to the total fat and saturated fat requirements. (i) 
Reduced fat cheese and part skim mozzarella cheese are exempt from the 
total fat and saturated fat standards, but subject to the trans fat, 
sugar, calorie and sodium standards. This exemption does not apply to 
combination foods.
    (ii) Nuts and Seeds and Nut/Seed Butters are exempt from the total 
fat and saturated fat standards, but subject to the trans fat, sugar, 
calorie and sodium standards. This exemption does not apply to 
combination products that contain nuts, nut butters or seeds or seed 
butters with other ingredients such as peanut butter and crackers, 
trail mix, chocolate covered peanuts, etc.
    (iii) Products that consist of only dried fruit with nuts and/or 
seeds with no added nutritive sweeteners or fat are exempt from the 
total fat, saturated fat and sugar standards, but subject to the trans 
fat, calorie and sodium standards.
    (g) Trans fat. The trans fat content of a competitive food must be 
zero grams trans fat per portion as packaged or served (not more than 
0.5 grams per portion).
    (h) Total sugars. (1) General requirement. The total sugar content 
of a competitive food must be not more than 35 percent of weight per 
item as packaged or served, except as specified in paragraph (h)(2) of 
this section.
    (2) Exemptions to the total sugar requirement. (i) Dried whole 
fruits or vegetables; dried whole fruit or vegetable pieces; and 
dehydrated fruits or vegetables with no added nutritive sweeteners are 
exempt from the sugar standard, but subject to the total fat, saturated 
fat,, trans fat, calorie and sodium standards. There is also an 
exemption from the sugar standard for dried fruits with nutritive 
sweeteners that are required for processing and/or palatability 
purposes;
    (ii) Products that consist of only dried fruit with nuts and/or 
seeds with no added nutritive sweeteners or fat are exempt from the 
total fat, saturated fat, and sugar standards, but subject to the 
calorie, trans fat, and sodium standards; and
    (i) Calorie and sodium content for snack items and side dishes sold 
[agrave] la carte. Snack items and side dishes sold [agrave] la carte 
must have not more than 200 calories and 230 mg of sodium per item as 
packaged or served, including the calories and sodium contained in any 
added accompaniments such as butter, cream cheese, salad dressing, 
etc., and must meet all of the other nutrient standards in this 
section. Effective July 1, 2016, these snack items and side dishes must 
have not more than 200 calories and 200 mg of sodium per item as 
packaged or served.
    (j) Calorie and sodium content for entr[eacute]e items sold 
[agrave] la carte. Entr[eacute]e items sold [agrave] la carte other 
than those exempt from the competitive food nutrition standards in 
paragraph (c)(3)(i) of this section must have not more than 350 
calories and 480 mg of sodium per item as packaged or served, including 
the calories and sodium contained in any added accompaniments such as 
butter, cream cheese, salad dressing, etc., and must meet all of the 
other nutrient standards in this section.
    (k) Caffeine. Foods and beverages available to elementary and 
middle school-aged students must be caffeine-free, with the exception 
of trace amounts of naturally occurring caffeine substances. Foods and 
beverages available to high school-aged students may contain caffeine.
    (l) Accompaniments. The use of accompaniments is limited when 
competitive food is sold to students in school. The accompaniments to a 
competitive food item must be included in the nutrient profile as a 
part of the food item served in determining if an item meets all of the 
nutrition standards for competitive food as required in this section. 
The contribution of the accompaniments may be based on the average 
amount of the accompaniment used per item at the site.
    (m) Beverages. (1) Elementary schools. Allowable beverages for 
elementary school-aged students are limited to:
    (i) Plain water or plain carbonated water (no size limit);
    (ii) Low fat milk, unflavored (no more than 8 fluid ounces);
    (iii) Non fat milk, flavored or unflavored (no more than 8 fluid 
ounces);
    (iv) Nutritionally equivalent milk alternatives as permitted in 
Sec.  210.10 and Sec.  220.8 of this chapter (no more than 8 fluid 
ounces); and
    (v) 100 percent fruit/vegetable juice, and 100 percent fruit and/or 
vegetable juice diluted with water (with or without carbonation and 
with no added sweeteners) (no more than 8 fluid ounces).
    (2) Middle schools. Allowable beverages for middle school-aged 
students are limited to:
    (i) Plain water or plain carbonated water (no size limit);
    (ii) Low fat milk, unflavored (no more than 12 fluid ounces);
    (iii) Non fat milk, flavored or unflavored (no more than 12 fluid 
ounces);
    (iv) Nutritionally equivalent milk alternatives as permitted in 
Sec.  210.10 and Sec.  220.8 of this chapter (no more than 12 fluid 
ounces); and
    (v) 100 percent fruit/vegetable juice, and 100 percent fruit and/or 
vegetable juice diluted with water (with or without carbonation and 
with no added sweeteners) (no more than 12 fluid ounces).
    (3) High schools. Allowable beverages for high school-aged students 
are limited to:
    (i) Plain water or plain carbonated water (no size limit);
    (ii) Low fat milk, unflavored (no more than 12 fluid ounces);
    (iii) Non fat milk, flavored or unflavored (no more than 12 fluid 
ounces);
    (iv) Nutritionally equivalent milk alternatives as permitted in 
Sec.  210.10 and Sec.  220.8 of this chapter (no more than 12 fluid 
ounces);
    (v) 100 percent fruit/vegetable juice, and 100 percent fruit and/or 
vegetable juice diluted with water (with or without carbonation and 
with no added sweeteners) (no more than 12 fluid ounces);
    (vi) Calorie-free, flavored water, with or without carbonation (no 
more than 20 fluid ounces);
    (vii) Other beverages that are labeled to contain less than 5 
calories per 8 fluid ounces, or less than or equal to 10 calories per 
20 fluid ounces (no more than 20 fluid ounces); and
    (viii) Other beverages that are labeled to contain no more than 40 
calories per 8 fluid ounces or 60 calories per 12 fluid ounces (no more 
than 12 fluid ounces).
    (n) Implementation date. This section is to be implemented 
beginning on July 1, 2014.

0
5. In newly redesignated Sec.  210.11a and add paragraph (c) to read as 
follows:


Sec.  210.11a  Competitive food services.

* * * * *

[[Page 39093]]

    (c) Effective date. This section remains in effect through June 30, 
2014.

0
6. In Sec.  210.18, paragraph (h)(6) is added to read as follows:


Sec.  210.18  Administrative reviews.

* * * * *
    (h) * * *
    (6) Competitive food standards. The State agency must ensure that 
the local educational agency and school food authority comply with the 
nutrition standards for competitive food and retain documentation 
demonstrating compliance with the competitive food service and 
standards.

0
7. Appendix B to Part 210 is amended by adding paragraph (c) to read as 
follows:

Appendix B to Part 210--Categories of Foods of Minimal Nutritional 
Value

* * * * *
    (c) Appendix B remains in effect through June 30, 2014.

PART 220--SCHOOL BREAKFAST PROGRAM

0
8. The authority citation for 7 CFR part 220 continues to read as 
follows:

    Authority: 42 U.S.C. 1773, 1779, unless otherwise noted.


Sec.  220.2  [Amended]

0
9. In Sec.  220.2, remove the definitions of ``Competitive foods'' and 
``Foods of minimal nutritional value''.

0
10. In Sec.  220.8, amend paragraph (a)(1) by adding a sentence at the 
end to read as follows:


Sec.  220.8  Meal requirements for breakfasts.

    (a) * * *
    (1) * * * When breakfast is served in the cafeteria, schools must 
make potable water available and accessible without restriction to 
children at no charge.
* * * * *


Sec.  220.12  [Redesignated as Sec.  220.12a].

0
11. Redesignate Sec.  220.12 as Sec.  220.12a and add new Sec.  220.12 
to read as follows:


Sec.  220.12  Competitive food services.

    School food authorities must comply with the competitive food 
service and standards requirements specified in Sec.  210.11 of this 
chapter.

0
12. In newly redesignated Sec.  220.12a, add paragraphs (c) and (d) to 
read as follows:


Sec.  210.12a  Competitive food services.

* * * * *
    (c) Definitions. For the purpose of this section:
    (1) Competitive foods means any foods sold in competition with the 
School Breakfast Program to children in food service areas during the 
breakfast period; and
    (2) Foods of minimal nutritional value means:
    (i) In the case of artificially sweetened foods, a food which 
provides less than five percent of the Reference Daily Intake (RDI) for 
each of eight specified nutrients per serving; and
    (ii) In the case of all other foods, a food that provides less than 
five percent of the RDI for each of eight specified nutrients per 100 
calories and less than five percent of the RDI for each of eight 
specified nutrients per serving. The eight nutrients to be assessed for 
this purpose are protein, vitamin A, vitamin C, niacin, riboflavin, 
thiamin, calcium and iron. Categories of foods of minimal nutritional 
value are listed in appendix B of this part.
    (d) Effective date. This section remains in effect through June 30, 
2014.
    13. Appendix B to Part 220 is amended by adding paragraph (c) to 
read as follows:

Appendix B to Part 220--Categories of Foods of Minimal Nutritional 
Value.

* * * * *
    (c) Appendix B remains in effect through June 30, 2014.

    Dated: June 21, 2013.
Kevin W. Concannon,
Under Secretary, Food, Nutrition, and Consumer Services.

    Note: The following appendices will not appear in the Code of 
Federal Regulations.

Appendix A

Regulatory Flexibility Analysis--Interim Final Rule

Nutrition Standards for All Foods Sold In School

    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.

I. Reasons That Action Is Being Considered

    This interim final rule sets forth provisions to implement 
section 208 of Public Law 111-296, the Healthy, Hunger-Free Kids Act 
of 2010 (HHFKA). Section 208 amends Section 10 of the Child 
Nutrition Act of 1966 (42 U.S.C. 1779) (CNA) to give the Secretary 
of Agriculture new authority to establish science-based nutrition 
standards for all foods sold outside of the Federal child nutrition 
programs on the school campus during the school day. The Act also 
specifies that the nutrition standards shall apply to all foods sold 
(a) outside the school meal programs; (b) on the school campus; and 
(c) at any time during the school day.

II. Objectives of, and Legal Basis for, the Interim Final Rule

    As stated above, the legal basis for the interim final rule are 
the amendments made to the CNA by HHFKA. The objectives of this rule 
are to establish nutrition standards for all foods and beverages 
sold to students in schools other than meals served through child 
nutrition programs authorized under the NSLA or the CNA and to 
improve the health and well being of the Nation's school-aged 
children.

III. Number of Small Entities to Which the Interim Final Rule Will 
Apply

    Small entities include independently owned and operated small 
businesses \10\ or not-for profit organizations that are not 
dominant in their fields. Small businesses or non-profits that fall 
below certain size standards established by SBA (in terms of annual 
receipts or number of employees) are presumed not to be dominant in 
their fields.\11\ Small entities also include small governmental 
jurisdictions (including school districts) with populations under 
50,000.
---------------------------------------------------------------------------

    \10\ Small businesses for purposes of the RFA are ``small 
business concerns'' as defined by the Small Business Act. These 
include independently owned and operated firms that are not dominant 
in their field of operation.
    \11\ ``Guide to SBA's Definitions of Small Business,'' http://www.sba.gov/content/guide-size-standards, accessed 06/03/2013. Small 
business concerns for purposes of the RFA.
---------------------------------------------------------------------------

    The interim final rule directly regulates the 54 State education 
agencies and 3 State Departments of Agriculture that operate the 
NSLP pursuant to agreements with USDA's Food and Nutrition Service. 
In turn, its provisions apply to school food authorities (SFAs) and 
non-SFA school groups that sell competitive foods and beverages to 
students during the school day. While State agencies are not 
considered small entities as State populations exceed the 50,000 
threshold for a small government jurisdiction, many of the service-
providing institutions that work with them to implement the program 
do meet definitions of small entities:\12\
---------------------------------------------------------------------------

    \12\ For purposes of this analysis we refer to business 
``establishments'' that serve the school market. Establishments are 
the smallest units of a firm; large firms may include multiple 
establishments. We use statistics for establishments rather than 
larger corporate entities to avoid understating the number of small 
business entities that may be indirectly affected by the interim 
final rule. SBA Office of Advocacy, A Guide for Government Agencies: 
How to Comply with the Regulatory Flexibility Act, May 2012. http://www.sba.gov/content/guide-government-agencies-how-comply-with-regulatory-flexibility-act-0.

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[[Page 39094]]

     More than 20,000 SFAs, consisting of about 100,000 
schools and residential child care institutions (RCCIs) participate 
in the NSLP. Many schools provide competitive foods through [agrave] 
la carte menus, vending machines, school stores, snack bars, 
fundraisers, or some combination of these sources. Within individual 
schools, a variety of school groups (e.g., student clubs, parent 
teacher organizations, or parent ``booster'' organizations 
supporting activities such as sports, music, and enrichment 
activities) earn revenue from competitive foods. Census data 
indicate that 90 percent of U.S. school districts had populations 
under 50,000 in 2010.\13\
---------------------------------------------------------------------------

    \13\ U.S. Census, Small Area Income and Poverty Estimates, 
http://www.census.gov/did/www/saipe/data/interactive/#. The percent 
of SFAs with populations under 50,000 almost certainly exceeds 90 
percent since there are more SFAs than school districts.
---------------------------------------------------------------------------

     Vending machine operators are not regulated by the rule 
but are indirectly affected. Most of these businesses are likely 
small entities. Vending machine operators with annual receipts below 
$10 million are presumed not to be dominant in their field.\14\ 
Census data indicate that 97 percent of vending machine 
establishments that operated for the entire year of 2007 generated 
less than $10 million in revenue.\15\
---------------------------------------------------------------------------

    \14\ ``U. S. Small Business Administration Table of Small 
Business Size Standards Matched to North American Industry 
Classification System Codes'', (SBA Size Standards, 2013), http://www.sba.gov/sites/default/files/files/size_table_01072013(1).pdf, 
accessed 06/03/2013.
    \15\ NAICS 454210 ``vending machine operators.'' U.S. Census 
Bureau, 2007 Economic Census, accessed through the American Fact 
Finder Guided Search Web site, http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml, 06/03/2013. Because we are comparing 2007 
revenues against SBA's 2013 revenue standard, 97 percent may 
overstate the share of vending machine operator establishments that 
meet the SBA definition of small entities.
---------------------------------------------------------------------------

     Like vending machine operators, food manufacturers are 
not directly regulated. Food manufacturers are a diverse group, 
consisting of large national firms as well as regional and even 
local food producers. The rule does not define a set of products 
that can be sold in schools. Instead, it sets standards that may be 
satisfied by a wide variety of snack items, beverages, entrees, and 
side dishes. SFAs will turn to the food industry for pre-packaged 
items that are ready for sale to students, as well as for 
ingredients that will be used in foods prepared in schools. These 
foods and ingredients will be provided by establishments in nearly 
all subsectors of the food manufacturing industry. Without data on 
the relative share of the school market served by establishments in 
these subsectors, USDA cannot say very much about the impact on 
small entities. SBA size standards for the food manufacturing 
industry range from 500 to 1,000 employees per establishment, 
depending on industry subsector.\16\ Establishments with employment 
below these thresholds are presumed not to be dominant in their 
fields. For the food manufacturing industry as a whole (NAICS code 
311), more than 98 percent of establishments employ fewer than 500 
people.\17\
---------------------------------------------------------------------------

    \16\ SBA Size Standards, 2013
    \17\ NAICS 311 ``vending machine operators.'' U.S. Census 
Bureau, 2007 Economic Census, accessed through the American Fact 
Finder Guided Search Web site, http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml, 06/04/2013.
---------------------------------------------------------------------------

     Beverage manufacturers are indirectly affected in the 
same way as food manufacturers. The rule establishes standards that 
can and will be met by a variety of products from many 
manufacturers, some that market their products nationally, and 
others with a more limited regional or local presence. The SBA's 
size standard for beverage manufacturers is 500 employees.\18\ 
Almost 97 percent of soft drink manufacturing establishments and 
essentially all bottled water manufacturing establishments employ 
fewer than 500 people.\19\
---------------------------------------------------------------------------

    \18\ SBA Size Standards, 2013
    \19\ NAICS codes 312111 and 312112 ``soft drink manufacturing'' 
and ``bottled water manufacturing.'' U.S. Census Bureau, 2007 
Economic Census, accessed through the American Fact Finder Guided 
Search Web site, http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml, 06/04/2013. For beverage manufacturers, our use of the 
Census's ``establishment'' size data, rather than firm-level data 
likely overstates the percentage of small entities that produce 
beverages for the school market given the importance of large 
national firms in this industry sector.
---------------------------------------------------------------------------

     Food service management companies (FSMCs) that prepare 
or serve reimbursable school meals under contract to SFAs are 
indirectly affected by the rule to the extent that they also provide 
schools with [agrave] la carte or other competitive foods. Nineteen 
percent of public school SFAs contracted with FSMCs in school year 
(SY) 2009-2010 for all or part of their food service operations.\20\ 
Food service contractors with annual receipts below $35.5 million 
are presumed not to be dominant in their field.\21\ Of 21,000 food 
service contractors that operated for the entire year in 2007, no 
fewer than 98 percent generated less than $35.5 million.\22\
---------------------------------------------------------------------------

    \20\ U.S. Department of Agriculture, Food and Nutrition Service, 
Office of Research, Nutrition and Analysis, School Nutrition Dietary 
Assessment Study-IV, Vol. I, 2012 (SNDA-IV), p. 2-24, http://www.fns.usda.gov/Ora/menu/Published/CNP/FILES/SNDA-IV_Vol1Pt1.pdf.
    \21\ SBA Size Standards, 2013.
    \22\ NAICS code 72231, ``food service contractors.'' U.S. Census 
Bureau, 2007 Economic Census. Accessed through http://factfinder2.census.gov/faces/nav/jsf/pages/guided_search.xhtml, 06/
03/2013. 98 percent is the share of establishments with 2007 
receipts under $10 million, the top revenue category on the Census 
table.
---------------------------------------------------------------------------

IV. Projected Reporting, Recordkeeping and Other Compliance 
Requirements

School Food Authorities and Other School Groups

    An estimated 95 percent of competitive school food sales accrue 
to SFAs; the remaining five percent accrues to other school groups 
such as student clubs, parent teacher organizations, or parent 
``booster'' organizations. If SFAs, other school groups, and the 
food industry are able to satisfy current student demand for 
competitive foods with new options that meet the interim final rule 
standards, then there may be no change in competitive food sales or 
competitive food revenue. Although the evidence base is limited, it 
demonstrates that competitive food reforms can be implemented by 
SFAs with little or no loss of revenue. In some cases, revenues from 
competitive food sales have increased after introducing healthier 
foods. In some cases, decreases in competitive food sales have been 
offset by increases in school meal participation. In other cases, 
schools have experienced a decline in overall school food revenue.
    The available data do not allow us to estimate the potential 
school revenue effect with any certainty. Instead, we have prepared 
a series of estimates that represent a range of plausible outcomes 
given the variety of experiences observed in several case 
studies.\23\ At one end of this range, we calculate that a four 
percent increase in competitive food revenues would result in a +0.5 
percent increase in school food revenue over five years. At the 
other end of the range, we calculate that the standards in the 
interim final rule could reduce school food revenues by -1.3 
percent. (Additional detail is provided in the Regulatory Impact 
Analysis for this rule.)
---------------------------------------------------------------------------

    \23\ These are described in detail in the Regulatory Impact 
Analysis (RIA) for the interim final rule.
---------------------------------------------------------------------------

    Case studies that consider the impacts of competitive food 
nutrition standards on SFA revenues find that reductions in 
competitive food revenue are often fully offset by increases in 
reimbursable meal revenue as students redirect their demand for 
competitive foods to the reimbursable school meal programs. In other 
instances, the lost competitive food revenue was not offset (at 
least not fully) by revenue gains from the reimbursable meal 
programs.
    Most SFAs have a number of options and some flexibility within 
available revenue streams and operations that can help minimize lost 
revenue. For example, about half of all SFA revenues are from 
Federal payments for reimbursable meals. SFAs can increase revenues 
to the extent that schools successfully encourage greater meal 
participation. In addition, the revenue impacts presented here are 
from a baseline that increased substantially at the start of SY 
2011-2012, on implementation of interim regulations for Sections 205 
and 206 of HHFKA. Section 206 is intended to ensure that the revenue 
from competitive food sales is aligned with competitive food 
costs.\24\ The requirements of Section 206 are estimated to increase 
competitive food revenue by 35 percent, while the scenarios 
presented in the RIA for this rule anticipate far smaller 
competitive food revenue effects. The combined effect of HHFKA 
Section 206 and this rule remains a net increase in SFA competitive 
food revenue under all of the RIA scenarios.\25\
---------------------------------------------------------------------------

    \24\ Federal Register, Vol. 76, No. 117, pp. 35301-35318.
    \25\ The same is not true of competitive food revenue of non-SFA 
school groups. Competitive food revenue that does not accrue to the 
foodservice account is not subject to regulation under Section 206.

---------------------------------------------------------------------------

[[Page 39095]]

    Unlike SFAs, other school groups cannot make up lost revenues 
through school meal sales. The interim final rule mitigates the 
impact on such groups by providing an exception for infrequent 
fundraisers that do not meet the rule's competitive food standards. 
Alternatively, these groups may explore fundraising options that 
include foods that do meet the interim final rule standards or find 
other modes of fundraising that do not include competitive foods.

Industry Groups

    Manufacturers, wholesalers, foodservice management companies, 
and distributors, including vending machine operators, are not 
directly regulated under the rule but may be affected indirectly to 
the extent that schools will need to purchase a different mix of 
foods to satisfy the requirements of the rule.
    Vending machine operators served an estimated 18,000 primary and 
secondary schools in the U.S. in 2009.\26\ For 2009, the vending 
industry estimated that primary and secondary schools accounted for 
just two percent of total vending machine dollar sales. Although the 
school market is a relatively small one for the vending industry as 
a whole, it makes up a significant part of some vending machine 
operators' businesses.\27\ Some vending machine operators will be 
challenged by the changes contained in the rule. Whether small or 
large, many vending machine operators will need to modify their 
product lines to meet the requirements of the rule. Similarly, food 
service management companies that provide [agrave] la carte foods to 
schools under contract to SFAs will need to provide a different mix 
of foods that conform to the changes in the rule.
---------------------------------------------------------------------------

    \26\ VendingTimes.com, Census of the Industry, 2010 Edition, p. 
4. http://www.vendingtimes.com/Media/E-CommerceProductCatalog/VendingTimes_Census2010.pdf, accessed 06/04/2013.
    \27\ This point was raised by several individuals and industry 
representatives who submitted comments on USDA's proposed rule.
---------------------------------------------------------------------------

    Although industry will incur some costs to produce and deliver 
products to schools that meet the interim final rule standards, some 
of that cost has already been incurred. Many States and school 
districts have already adopted their own competitive food standards, 
some aligned with guidelines developed by the Alliance for a 
Healthier Generation (Alliance). The food industry has responded to 
these State and local standards by changing their product mix, and 
by producing a variety of new or reformulated products. One recent 
study found that between 2004 and 2009, the beverage industry 
reduced calories shipped to schools by 90 percent, with a total 
volume reduction in full-calorie soft drinks of over 95 percent.\28\ 
As noted by some commenters on the proposed rule, the vending 
machine industry has taken an active role in supporting schools that 
have adopted State or local competitive food standards consistent 
with the Alliance guidelines. USDA made some changes to the interim 
final rule that move the rule closer to the Alliance guidelines as 
well as to NSLP requirements and USDA's HealthierUS School Challenge 
standards (HUSSC). These changes will help reduce industry's costs 
of providing foods to schools that comply with the interim final 
rule standards.
---------------------------------------------------------------------------

    \28\ Wescott R., B. Fitzpatrick, and E. Philips. 2012. Industry 
Self-Regulation to Improve Student Health: Quantifying Changes in 
Beverage Shipments to Schools. American Journal of Public Health, 
published online August 16, 2012.
---------------------------------------------------------------------------

Administrative Costs

    The interim final rule requires that State agencies ensure that 
all schools, SFAs, and other food groups comply with its competitive 
food standards. State agencies must also retain documentation 
demonstrating compliance. Schools, SFAs, and other food groups are 
responsible for maintaining records documenting compliance with 
competitive food standards. It is anticipated that the 
administrative cost to 57 State agencies, 102,000 schools, and 
21,000 SFAs and local educational agencies will total $126 million 
over five years (or about $247 per school per year on average).

Distributional Impacts

    A key characteristic associated with a school's dependence on 
competitive food revenue is grade level. High schools are more 
likely to offer competitive foods than are elementary schools. This 
is true of [agrave] la carte foods, foods sold through vending 
machines, and foods sold in school stores or snack bars.\29\ 
Competitive food revenue is also associated with a school's mix of 
low and high income students. According to SNDA- III, schools 
serving at least one-third of their meals at full price to higher 
income students obtain more than seven times as much revenue from 
competitive food sales as schools serving a larger percentage of 
free and reduced-price (and hence lower-income) students.\30\ Other 
factors that may be associated with student access to competitive 
food sources and school revenue from competitive foods include 
whether students have the option of leaving campus during the school 
day, and whether schools grant students the right to leave the 
cafeteria during meal times. Generally, student mobility privileges 
increase with grade level.\31\ These factors are not necessarily 
associated with school or SFA size.
---------------------------------------------------------------------------

    \29\ U.S. Department of Agriculture, Food and Nutrition Service, 
Office of Research and Analysis, School Nutrition Dietary Assessment 
Study IV, Vol. I, by Mary Kay Fox, et al., 2012, p. 3-32.
    \30\ Unpublished ERS analysis of data from: U.S. Department of 
Agriculture, Food and Nutrition Service, 2007, School Nutrition 
Dietary Assessment Study-III, Vol. I by Mathematica Policy Research, 
Inc., (SNDA-III)
    \31\ U.S. Department of Agriculture, Food and Nutrition Service, 
Office of Research and Analysis, School Nutrition Dietary Assessment 
Study IV, Vol. I, by Mary Kay Fox, et al., 2012, p. 3-4.
---------------------------------------------------------------------------

    The most important source of competitive food revenue is 
[agrave] la carte sales. Sales from vending machines are less 
common, accounting for only about five percent of all competitive 
food sales. In general, small schools are less likely than larger 
schools to have vending machines accessible to students: just 36 
percent of schools with fewer than 500 students had vending machines 
in SY 2004-2005. That increases to 48 percent of schools with 500 to 
1,000 students and 78 percent of schools with more than 1,000 
students.\32\
---------------------------------------------------------------------------

    \32\ U.S. Department of Agriculture, Food and Nutrition Service, 
2007, School Nutrition Dietary Assessment Study-III, Vol. I by 
Mathematica Policy Research, Inc., p. 88.
---------------------------------------------------------------------------

V. Response to Public Comments on the Initial Regulatory Flexibility 
Analysis

    In order to maximize stakeholder input in the comment process, 
USDA developed and presented two or more alternatives for several of 
the key provisions of the proposed rule. USDA anticipated that 
commenters would help clarify the relative merits of each of the 
alternatives, as well as identify critical concerns. USDA used this 
input from commenters to help guide the development of the interim 
final rule. The ultimate goal was to develop an interim final rule 
that adheres to the requirements of the statutory mandate while 
limiting adverse impacts on affected groups and facilitating 
implementation of the new standards.
    USDA received more than 247,000 comments on the proposed rule 
from school and school food authority officials, industry 
representatives, parents, students, child health advocates, and 
other interested parties. Although very few comments mentioned the 
Initial Regulatory Flexibility Analysis by name, many comments 
addressed the economic impact of the rule on directly and indirectly 
regulated individuals or businesses. This section of the analysis 
describes the issues raised by the commenters, USDA's response to 
those comments, and changes made to the rule that limit its impact 
on small entities.
    Given that almost all SFAs and schools, and many or most 
industry establishments that serve the school market are small 
entities, USDA's response to these concerns is appropriate for 
discussion in this analysis. However, because the industry groups 
affected by the rule are not directly regulated by it, our analysis 
of the effects of the rule on industry, and USDA action taken in 
response to those comments, is not required by the Regulatory 
Flexibility Act. Nevertheless, we include a discussion of the 
comments raised by industry, and USDA action in response to those 
comments, as recommended by the SBA.\33\
---------------------------------------------------------------------------

    \33\ ``Although it is not required by the RFA, the Office of 
Advocacy believes that it is good public policy for the agency to 
perform a regulatory flexibility analysis even when the impacts of 
its regulation are indirect. An agency should examine the reasonably 
foreseeable effects on small entities that purchase products or 
services from, sell products or services to, or otherwise conduct 
business with entities directly regulated by the rule.'' SBA Office 
of Advocacy, A Guide for Government Agencies: How to Comply with the 
Regulatory Flexibility Act, May 2012. http://www.sba.gov/content/guide-government-agencies-how-comply-with-regulatory-flexibility-act-0
---------------------------------------------------------------------------

    SFA and school officials, non-SFA school groups, and 
representatives of food manufacturing, vending, and food service 
management industries expressed concern that Federal competitive 
food standards would reduce the sale of competitive foods in schools 
and the impact the revenue generated by those sales. Commenters 
raised several points in this regard. Among the most common were:

[[Page 39096]]

     The rule would reduce the number and variety of 
compliant competitive food products available for sale,
     Students will replace their competitive school food 
purchases with food brought from home or purchased off campus, and 
revenue lost from competitive food sales will not be offset by 
increased participation in the reimbursable meal programs, and
     Compliance with the new standards will be 
administratively costly.
    We discuss each of these separately below.

Product Availability

    Commenters indicated that many popular competitive food items 
will not meet the new standards and will no longer be allowed for 
sale in [agrave] la carte lines, vending machines, or school stores. 
Both school and industry officials are concerned that the 
availability, variety, and appeal of compliant products is 
insufficient to meet student demand. These officials fear that 
students, especially older students, will respond by purchasing 
fewer competitive foods and beverages at school.
    Comments from some industry representatives and school officials 
focused on the investments that they have already made to meet State 
or local competitive food standards, or to meet USDA's HUSSC 
standards. As we discuss in Section III of the Regulatory Impact 
Analysis (RIA) prepared for the interim final rule, USDA recognizes 
the value in aligning the rule's competitive food requirements with 
existing or emerging standards to the extent that those standards 
are consistent with the statutory mandate behind the rulemaking. 
USDA made several changes to the proposed rule standards that more 
closely align the interim final rule with existing NSLP standards, 
guidelines developed by the Alliance for a Healthier Generation, and 
USDA's HUSSC requirements. These include:
     Increasing the proposed rule's sodium limit on snacks 
and non-program side dishes from 200 mg per portion as packaged to 
230 mg (through June 2016),
     Exempting nuts/seeds and nut/seed butters from the 
rule's total and saturated fat standards,
     Exempting part skim mozzarella cheese from the total 
and saturated fat standards,
     Allowing full strength juice diluted with added water 
(or carbonated water), and
     Allowing fruit packed in light syrup.
    In addition, the interim final rule adopts the proposed rule's 
35 percent by weight standard for sugar over the alternate 35 
percent of calories standard.
    Each of these changes further aligns the interim final rule with 
existing NSLP requirements, voluntary HUSSC standards, and Alliance 
for a Healthier Generation guidelines. The effect of these changes 
is to increase the number of already available healthy products, 
many already for sale in schools that meet interim regulations. This 
will tend to reduce the risk that SFAs will lose revenue due to the 
lack of readily available, market-tested products that meet interim 
final rule standards.
    For food manufacturers, greater alignment of the interim final 
rule with existing standards will ensure a continued market for 
existing products that they may have developed specifically to meet 
those standards. Similarly, for distributors such as vending machine 
operators, greater alignment with existing standards will eliminate 
some of the cost associated with adjusting to a different set of 
product specifications (such as finding new products to carry, and 
developing relationships with new producers).
    In comments submitted to USDA on the proposed rule, the National 
Automatic Merchandising Association (NAMA) urged USDA to adopt 
standards that consistent with the vending industry's voluntary Fit 
Pick[supreg] program. That program promotes vending machine snack 
items that meet certain nutritional standards. One of the industry's 
two Fit Pick[supreg] packages promotes foods whose calories from 
fat, calories from saturated fat, percent of sugar by weight, total 
calories per serving, and sodium per serving match the guidelines 
developed by the Alliance for a Healthier Generation. NAMA notes 
that the vending industry's Fit Pick program is ``popular and 
successful'' within the industry. With regard to the Alliance 
standards, NAMA notes that

    ``These standards are already widely used in schools and provide 
more flexibility while assuring that the items that are sold on 
school campuses meet established nutritional guidelines. Fit 
Pick[supreg] would provide the USDA with an option that provides 
flexibility for the industry and lessens the impact on small 
business on both the revenue and expense sides. This would provide a 
program that the industry and schools are familiar with, therefore 
creating a simpler and more cost-effective implementation process.''

    By moving closer to the Alliance standards, USDA's interim final 
rule responds directly to concerns about the cost of implementation 
faced by vending machine operators, particularly small businesses.
    Other school groups that rely on competitive food sales as 
fundraisers benefit along with SFAs to the extent that they can 
choose from a wider variety of foods to sell.

Loss of Competitive Food Sales to Other Student Options

    A reduction in competitive food sales following the 
implementation of Federal standards is a concern of both schools and 
industry that rely on that revenue. The changes discussed above that 
better align several of the rule's nutrient and food standards with 
existing standards and guidelines helps to guarantee that a wide 
variety of market-tested products will be available on 
implementation. Along with school-based strategies to win student 
acceptance of healthier competitive foods,\34\ schools should have 
an easier time retaining existing competitive food revenues to the 
extent that industry is able to offer a variety of appealing 
choices.
---------------------------------------------------------------------------

    \34\ The Regulatory Impact Analysis discusses strategies that 
schools around the country have employed successfully to limit or 
eliminate revenue losses after implementing State or local 
competitive food standards.
---------------------------------------------------------------------------

    USDA also modified the proposed rule's provision regarding the 
sale of beverages other than milk, plain water, and 100 percent 
fruit and vegetable juice in the cafeteria during meal service 
periods. Although the proposed and interim final rules allow the 
sale of a wider selection of beverages to high school students, the 
proposed rule would have kept those beverages out of meal service 
areas during a meal service. Commenters were concerned about the 
effect of that ``time and place'' restriction on SFA revenues. The 
proposed rule restriction had the potential to discourage some high 
school students from even entering the cafeteria at meal time and 
considering a reimbursable meal or [agrave] la carte foods as an 
option to food brought from home or purchased off campus. The 
interim final rule's elimination of that restriction removes a 
potential barrier to SFA efforts to maintain existing levels of 
competitive food revenue, or to replace lost competitive food 
revenue with revenue from reimbursable meals. Higher in-school sales 
of competitive foods or program meals also benefits the food service 
industries that sell food to schools.

Administrative Costs

    As we note in the RIA, the proposed and the interim final rules 
impose some new recordkeeping requirements on school officials. 
These recordkeeping requirements are necessary to document 
compliance and ensure that the benefits of the rule are fully 
realized, and they are retained in the interim final rule with only 
one small technical change. However, the changes that USDA made to 
the interim final rule to align several provisions with existing 
NSLP standards, HUSSC requirements, or Alliance for a Healthier 
Generation guidelines will help reduce transition and compliance 
costs for many schools.

VI. Significant Alternatives

    Each of the following alternatives is discussed more fully in 
the RIA. What follows is a summary of that broader discussion with 
particular focus on the economic and administrative impact on the 
small entities directly regulated or indirectly affected by the 
rule.

Exemption for Reimbursable Meal Entr[eacute]es

    The proposed rule presented two basic alternatives for the 
treatment of entr[eacute]es and side dishes that are served as part 
of a reimbursable meal. Under the first alternative, these items 
could be served [agrave] la carte as long as they met the rule's fat 
and sugar standards that apply to all other competitive foods. Under 
the second alternative, NSLP entr[eacute]es and sides (except grain-
based desserts) would be exempt from all of the rule's competitive 
food requirements if served [agrave] la carte on same day that they 
are part of a reimbursable meal (alternative B1) or within four days 
of service as part of a reimbursable meal (alternative B2).
    The interim final rule adopts a variation on the second 
alternative. Entr[eacute]es (but not side dishes) served as part of 
a reimbursable meal will be exempt from the rule's competitive food 
requirements on the day they are served as part of the meal and the 
following day. USDA recognizes that being able to serve leftover 
entr[eacute]es the next day is an important tool for menu planning 
and cost control. The

[[Page 39097]]

interim final rule provision attempts to balance those 
administrative and cost concerns against the need to make sure that 
an exemption from competitive food standards for reimbursable meal 
entr[eacute]es does not undermine the broader health related goals 
of the rule. For that reason, USDA did not adopt alternative B2.
    The interim final rule provision offers somewhat greater 
administrative simplicity compared to the other alternative 
considered by USDA. That alternative would have required a nutrient 
analysis of reimbursable meal items before they could be sold 
[agrave] la carte in order to measure their compliance with the 
rule's fat and sugar standards.

School-Sponsored Fundraisers

    The proposed rule offered two alternatives for establishing 
limits on the frequency of exempt fundraisers. One would have 
allowed States to set limits subject to USDA approval. The other 
would grant full discretion to the States.
    After consideration of comments from interest groups and school 
officials, USDA opted to allow States to set their own limits on the 
frequency of exempt fundraisers without USDA review.\35\ Eliminating 
USDA review will not directly affect school or SFA administrative 
costs, although it will reduce administrative costs at the State 
agency and Federal levels. However, to the extent that offering 
State agencies somewhat greater discretion in making this decision, 
it may offer some relief to schools and SFAs. Full State discretion 
allows State administrators' to tailor their policies, and adjust 
them when necessary (without having to wait for Federal review) to 
address unanticipated inefficiencies or cost issues at the local 
level. The time and administrative expense of USDA review might 
discourage fine-tuning of established policies.
---------------------------------------------------------------------------

    \35\ FNS will provide guidance to ensure that State policies are 
consistent with the legislative requirement that exemptions for 
fundraisers are ``infrequent'' (Pub. L. 111-296).
---------------------------------------------------------------------------

Total Sugar

    The proposed rule solicited public comment on two alternate 
sugar standards for competitive foods. These would have limited 
total sugar content to either 35 percent of calories or 35 percent 
of weight. Both standards would have placed a meaningful check on 
the amount of sugar allowed in competitive foods while providing 
exceptions for certain fruit and vegetable snacks and yogurt. After 
considering arguments in favor of each of these standards, USDA 
adopted the sugar by weight standard for the interim final rule.
    Administrative burden and product availability were among the 
factors that weighed most heavily in this decision. Commenters who 
favored the 35 percent by weight standard argued that
     It was consistent with standards already in place 
through voluntary programs such HUSSC and the Alliance for a 
Healthier Generation,
     Sugar is commonly reported by weight by industry and 
others,
     Calculators for sugar by weight already exist to aid 
school food service professionals in their calculations,
     The sugar as a percent of calories standard would 
negatively affect food service revenues; and
     Sugar by weight allows greater flexibility in the 
products available to students.

    The first four of these points suggest that the sugar by weight 
standard will be less costly to implement for both the schools and 
industry that have already invested in that standard. Schools that 
are new to competitive food reform will also benefit from the sugar 
by weight standard to the extent that industry has already developed 
products designed to meet the demand of HUSSC schools and schools 
that follow Alliance guidelines.
    The alternate percent of calories standard, by contrast, would 
have added to some schools' cost of compliance with the rule. It 
would have been most disruptive and potentially costly to schools 
that have already established relationships with suppliers and 
distributors who provide the schools with products intended to meet 
the sugar by weight standard.
    The net effect on industry of choosing the weight standard over 
the calorie standard is unclear. Manufacturers and distributors that 
have already invested in supplying schools with products that meet 
the sugar by weight standard may realize the greatest immediate 
benefit. Comments from representatives of the vending industry point 
to that industry's voluntary efforts to support schools that follow 
Alliance guidelines on competitive foods, and urged USDA to adopt 
standards consistent with those guidelines. The interim final rule's 
sugar standard, in combination with some of the other changes to the 
rule, aligns the rule with more of the existing products that meet 
the sugar by weight and other Alliance guidelines. Manufacturers as 
well as distributors of such products may see additional demand once 
all schools implement the rule.
    Not all sectors of the food industry favored the sugar by weight 
standard. Compared to the alternate sugar as a percent of calories 
standard, the weight standard may be more difficult to meet for 
sugar-sweetened products with low moisture content, where the ratio 
of fat to sugar may mean the difference between compliance and non-
compliance. Because a gram of fat has more than twice as many 
calories as a gram of sugar, snack products and desserts with a 
relatively high fat content (from nuts or chocolate, for example) 
may be less likely to meet the interim final rule's weight-based 
sugar standard although they might have met the alternative calorie-
based standard.\36\ Where product reformulation is an option, 
manufacturers of non-compliant snacks may choose to incur those 
costs.
---------------------------------------------------------------------------

    \36\ Certain varieties of trail mix, granola bars, and whole 
grain cookies sometimes fall into this group. Two examples from the 
USDA's National Nutrient Database for Standard Reference (release 
24) are product IDs 25056 (chocolate coated granola bar) and 18533 
(iced oatmeal cookie).
---------------------------------------------------------------------------

Naturally Occurring Ingredients and Fortification

    Competitive foods that do not satisfy one of the interim final 
rule's food group requirements may be sold in school if they contain 
at least 10 percent of the daily value of one of several nutrients 
of concern (i.e., calcium, potassium, vitamin D, and fiber), but 
only through June 2016. Beginning July 1, 2016 this criterion will 
be obsolete and may not be used to qualify an item as an allowable 
competitive food.
    The primary alternative considered by USDA was the proposed 
rule's handling of nutrients of concern. The proposed rule would 
have allowed products that met the 10 percent threshold, but only 
through the use of naturally occurring ingredients. In addition, the 
proposed rule would have made this option permanent.
    USDA's decision to modify the proposed rule provision was driven 
primarily by concerns other than cost or administrative burden. 
However, in the critical early months of implementation, the interim 
final rule offers one administrative cost advantage relative to the 
proposed rule. Because the 10 percent threshold need not be met with 
only naturally occurring ingredients, the interim final rule 
potentially allows a number of existing fortified foods to be sold 
as competitive foods. This may reduce costs and positively impact 
SFA competitive food revenues by ensuring the widest availability of 
compliant products during a 24-month transition to an entirely food-
based set of standards.

Low Calorie Beverages in High Schools

    The proposed rule offered two alternatives for public comment on 
lower-calorie beverages for high school students. The first would 
have permitted up to 40 calories per 8 fl oz serving (and 60 
calories per 12 fl oz). The second would have allowed up to 50 
calories per 8 fl oz serving (and 75 calories per 12 fl oz). The 
higher 50 calorie limit would have permitted the sale of national 
brand sports drinks in their standard formulas. The lower 40 calorie 
limit would have allowed only reduced-calorie versions of those 
drinks. The interim final rule adopts the lower 40 calorie limit as 
the better alternative to limit the consumption of added sugar in 
beverages sold in school, and to further advance the public health 
goals of the rule.
    This decision was driven by the health benefits of the lower 
calorie standard. Although the 40 calorie standard in the interim 
final rule does not go as far as recommended by some public health 
groups, it will have a substantial effect on the types of sweetened 
beverages offered in high schools.\37\ In particular, the 40 calorie 
standard falls below the sugar content of popular sports drinks in 
their standard formula.
---------------------------------------------------------------------------

    \37\ Both the standard adopted for the interim final rule as 
well as the 50 calorie alternative, would end the sale of sweetened 
beverages in elementary and middle schools.
---------------------------------------------------------------------------

    Food and foodservice industry representatives, as well as some 
school administrators, favored the higher calorie

[[Page 39098]]

limit. The beverage industry has invested in developing and 
marketing products that meet the Alliance for a Healthier 
Generation's 66 calorie per 8 fl oz guideline, and may have been 
better positioned to meet a 50 calorie standard than the interim 
final rule's 40 calorie standard. There may be fewer products 
currently available that meet or can be reformulated to meet the 
interim final rule standard. If so, then the immediate transition to 
the interim final rule may be more challenging for manufacturers, 
distributors, and vending machine operators, as well as SFAs, 
student organizations, and other non-SFA school groups that rely on 
the sale of such beverages. However, while some businesses may face 
a reduced market for their products, at least in the short term, 
manufacturers and distributors of competing lower calorie products 
have an opportunity to increase sales.

Caffeinated Beverages

    Consistent with IOM recommendations, the proposed rule required 
that beverages served to elementary and middle school students be 
caffeine free or include only small amounts of naturally occurring 
caffeine. The proposed rule, however, did not put caffeine 
restrictions on products for high school students; a departure from 
the IOM guidelines. Many of the comments from health professionals 
and school officials expressed concern about the effects of large 
amounts of caffeine on adolescents and suggested that the Department 
either disallow caffeinated beverages at the high school level 
entirely, or at least provide some guidelines for caffeine limits. 
After considering these comments, and because of the lack of an 
accepted standard for caffeine consumption by high school-aged 
students, USDA retains the proposed rule standard. The interim final 
rule retains maximum flexibility for high schools, allowing the 
continued sale of beverages containing caffeine. At the same time, 
in response to concerns expressed by health professionals, USDA 
encourages schools to consider the high caffeine content of 
beverages such as energy drinks before considering their sale. To 
the extent that caffeinated products generate revenue for schools, 
the interim final rule will have a lesser economic impact on SFAs 
and other school groups than the primary alternative considered by 
USDA.

Appendix B

Regulatory Impact Analysis

    Agency: Food and Nutrition Service, USDA.
    Title: Nutrition Standards for All Foods Sold in School.
    Nature of Action: Interim Final Rule.
    Need for Action: Section 208 of the Healthy, Hunger-Free Kids 
Act of 2010 requires the U.S. Department of Agriculture (USDA) to 
establish science-based nutrition standards for all foods sold in 
schools during the school day, outside the school meal programs. The 
standards in this interim final rule are intended to complement 
USDA's efforts to ensure that all foods sold at school--whether 
provided as part of a school meal or sold in competition with such 
meals--are aligned with the latest dietary recommendations. The 
standards will work in concert with recent improvements in school 
meals to support and promote diets that contribute to students' 
long-term health and well-being. The standards will support efforts 
of parents to promote healthy choices for children, at home and at 
school.
    Affected Parties: All parties involved in the operation and 
administration of programs authorized under the National School 
Lunch Act or the Child Nutrition Act that operate on the school 
campus during the school day. These include State education 
agencies, local school food authorities, local educational agencies, 
schools, students, and the food production, distribution, and 
service industry.
    Abbreviations:

DGA Dietary Guidelines for Americans
FDA Food and Drug Administration
FMNV Foods of Minimal Nutritional Value
FY Fiscal Year
GAO Government Accountability Office
HHFKA Healthy, Hunger-Free Kids Act
IOM Institute of Medicine
LEA Local Educational Agency
NSLP National School Lunch Program
SBP School Breakfast Program
SFA School Food Authority
SLBCS-II School Lunch and Breakfast Cost Study II
SNDA-III School Nutrition Dietary Assessment III
SNDA-IV School Nutrition Dietary Assessment IV
SY School Year
USDA United States Department of Agriculture

Contents

I. Introduction
    A. Overview
    B. Background
    C. Baseline Competitive Food Revenue
    D. Previous Recommendations and Existing Standards
    1. Institute of Medicine Recommendations
    2. Voluntary Standards
    3. Competitive Food Standards in Five Largest States
II. Development of Federal Standards
III. Response to Comments
    A. Concerns about Reduced SFA Revenue
    B. Relative Contribution of Competitive Food Revenue to SFA 
Finances
    C. Impacts on School Food Vendors and Manufacturers
    D. Financial Impacts on Non-SFA School Groups
    E. Effects on School Foodservice Administration
    F. Health Benefits
IV. Cost--Benefit Analysis
    A. School Revenue Effects
    1. Existing Research on Revenue Effects
    2. Estimating School Revenue Changes
    B. Impacts on Participating Children and Families
    C. Administrative Costs
    D. Industry Effects
    E. Distributional Effects
    1. Revenues and Grade Level
    2. Low-Income Students
    F. Benefits
    G. Limitations and Uncertainties
    1. Limitations in Available Research
    2. Prices of Competitive Foods
    3. State and Local Support of Reimbursable Meals
    4. Student Response to New Standards
    5. Industry Response
    6. SFA and School Compliance
    7. School Participation in Federal Meal Programs
    8. Food and Labor Costs
IV. Alternatives
    A. Exemption for Reimbursable Meal Entr[eacute]es and Side 
Dishes
    B. School-Sponsored Fundraisers
    C. Total Sugar
    D. Naturally Occurring Ingredients and Fortification
    E. Low Calorie Beverages in High Schools
    F. Caffeinated Beverages
VI. Accounting Statement
VII. References

I. Introduction

A. Overview

    There has been increasing public interest in the rising 
prevalence of overweight and obesity in the United States, 
particularly among children. The school nutrition environment is a 
significant influence on children's health and well-being. Recent 
studies have shown that children typically consume between 26 and 35 
percent of their total daily calories at school, and as much as 50 
percent for children who participate in both school lunch and 
breakfast programs (Fox 2010; Guthrie, et al., 2009).
    In response to these concerns, the Healthy Hunger-Free Kids Act 
(HHFKA) of 2010 required USDA to establish science-based nutrition 
standards for all foods sold in schools during the school day. The 
standards are intended to complement the Department's efforts to 
ensure that all foods sold at school--whether provided as part of a 
school meal or sold in competition with such meals--are aligned with 
the latest dietary recommendations.
    The interim competitive food standards will work in concert with 
recent improvements in school meals to support and promote diets 
that contribute to students' long-term health and well-being. 
Congress highlighted the relationship between school meal 
improvements and standards for other school foods, noting that the 
prevalence of ``unhealthy [competitive] foods in our schools not 
only undermines children's health but also undermines annual 
taxpayer investments of over $15.5 billion in the National School 
Lunch and School Breakfast Programs'' (Senate Report 111-178, p. 8).
    The benefits sought through this rulemaking focus on improving 
the food choices that children make during the school day. A growing 
body of evidence tells us that giving school children healthful food 
options will help improve these choices. A recent, comprehensive, 
and groundbreaking assessment of the evidence by the Pew Health 
Group and Robert Wood Johnson Foundation (2012) concluded that:
     A national competitive foods policy would increase 
student exposure to healthier foods and decrease exposure to less 
healthy foods, and
     Increased access to a mix of healthier food options is 
likely to improve the mix of

[[Page 39099]]

foods that students purchase and consume at school (Pew, RWJF, 2012, 
p. 61).\38\
---------------------------------------------------------------------------

    \38\ The Pew Health Group and the Robert Wood Johnson Foundation 
publication is a formal Health Impact Assessment (HIA), prepared in 
accordance with North American HIA Practice Standards and National 
Research Council Guidelines. The HIA reviewed and synthesized 
exiting research findings on the potential impacts on children's 
health and the effects on school revenue as a result of competitive 
school food policies. The researchers also conducted interviews with 
experts in the public health community, academia, industry, 
educators, school administrators, parents, and students.
---------------------------------------------------------------------------

    Researchers for Healthy Eating Research and Bridging the Gap, 
Robert Wood Johnson Foundation-sponsored research programs examining 
environmental influences on youth diets and obesity, concluded that 
strong policies that prohibit or restrict the sale of unhealthy 
competitive foods and drinks in schools improve children's diets and 
reduce their risk for obesity (Healthy Eating Research and Bridging 
the Gap, 2012, p. 3).
    Because setting national standards will change the range of food 
products sold in schools, they may affect the revenues schools earn 
from these foods, as well as participation in school meals. The 
evidence on the overall impact of competitive food standards on 
school revenues is mixed. However, a number of schools implementing 
such standards have reported little change, and some increases, in 
net revenues.\39\
---------------------------------------------------------------------------

    \39\ See Pew, RWJF, 2012, chapter 4, for a recent review of the 
literature on the revenue impacts of State and local competitive 
food policies.
---------------------------------------------------------------------------

B. Background

    Children generally have two options for school food purchases: 
(1) Foods provided under the National School Lunch Program (NSLP), 
the School Breakfast Program (SBP), or other child nutrition 
programs authorized under the National School Lunch Act or the Child 
Nutrition Act, and (2) competitive foods purchased [agrave] la carte 
in school cafeterias or from vending machines at school. NSLP is 
available to over 50 million children each school day; an average of 
31.6 million children per day ate a reimbursable lunch in fiscal 
year (FY) 2012.\40\ Additional children are served by the Child and 
Adult Care Food and the Summer Food Service Programs that operate 
from NSLP and SBP participating schools. While meals served through 
these programs are required to meet nutritional standards based on 
the most recent Dietary Guidelines for Americans (DGA), competitive 
foods are subject to far fewer Federal dietary standards. Existing 
regulations address only the place and timing of sales of foods of 
minimal nutritional value (FMNV).\41\
---------------------------------------------------------------------------

    \40\ http://www.fns.usda.gov/pd/slsummar.htm.
    \41\ FMNV include carbonated beverages, water ices, chewing gum, 
hard candy, jellies and gums, marshmallow candies, fondant, 
licorice, spun candy, and candy-coated popcorn. The current policy 
restricts the sales of FMNV during meal service in food service 
areas. See 7 CRF 210.11.
---------------------------------------------------------------------------

    The sale of food in competition with Federal reimbursable 
program meals and snacks is widespread. In school year (SY) 2009-
2010, 86 percent of all schools--and 90 percent or more of middle 
and high schools--offered [agrave] la carte foods at lunch. Vending 
machines were available in 37 percent of all schools, including 13 
percent of elementary schools, 67 percent of middle schools, and 85 
percent of high schools (Fox, et al., 2012, Volume 1, p 3-32).\42\ 
Revenues from competitive foods, however, are far smaller on average 
than revenues from USDA-funded school meals. In SY 2005-2006, an 
average 84 percent of public school food authority (SFA) revenue was 
derived from reimbursable school meals, from a combination of USDA 
subsidies, State and local funds, and student meal payments. The 
remaining 16 percent was derived from non-reimbursable food sales 
(USDA 2008, p xii).\43\ Half of secondary school students consume at 
least one snack food per day at school, an average of 273 to 336 
calories per day. This amount is significant considering that an 
extra 110 to 165 calories per day may be responsible for rising 
rates of childhood obesity (Fox et al. 2009, Wang et al. 2006).
---------------------------------------------------------------------------

    \42\ SNDA-IV found the top five most commonly offered [agrave] 
la carte lunch items were milk, juice and water, snacks, fruit, and 
vegetables. For vending machines, the most commonly offered items 
were juice and water, other beverages (for example, carbonated and 
energy drinks, coffee and tea, etc.) snacks, and baked goods.
    \43\ These revenue figures are averages. Some SFAs receive 
substantially greater shares of total revenue from competitive 
foods. Schools at or above the 75th percentile in terms of percent 
of revenue from competitive foods generated an average 34 percent of 
total revenue from competitive foods. Those at or above the 90th 
percentile generated an average 40 percent of revenue from 
competitive foods.
---------------------------------------------------------------------------

    Many observers, including parents and military leaders, have 
expressed concerns about the competitive foods available to children 
at school (Gordon, et al., 2007; Christeson, Taggart, and Messner-
Zidell, 2010; Christeson, et al., 2012). In response, a number of 
States have implemented competitive food standards. In 2004, GAO 
reported that 21 States had created standards that went beyond 
existing Federal standards. In 2010, the School Nutrition 
Association reported that the number of States with competitive food 
policies had increased to 36.44 45 In a 2012 assessment 
of competitive food standards across the U.S., the Centers for 
Disease Control and Prevention (CDC) reported that 39 States had 
established competitive food policies as of October 2010 (CDC, 2012, 
p. 6).\46\ Finally, a 2012 study conducted for FNS found that at 
least half of States had competitive food standards for foods sold 
[agrave] la carte, in vending machines, in school stores, and in 
snack bars, and almost half had nutrition standards for foods sold 
in bake sales (Westat, 2012, p., 5-25).
---------------------------------------------------------------------------

    \44\ GAO-04-673. April 2004. The GAO identified 23 States, but 2 
of the 23 had only created committees to assess competitive food 
issues. The report considered both timing of competitive foods sales 
and the types of products offered. In terms of timing, of the 21 
States with competitive food policies, 14 limited access to 
competitive foods at times associated with meal periods, 5 limited 
competitive food sales during the entire school day, and 2 States 
varied the standards by the type of school. In terms of the types of 
foods, 6 of the 21 States limited access to all competitive foods, 8 
limited access only to FMNV, and 7 States limited selected 
competitive foods. Seventeen of the States limited access at all 
grade levels, while the remaining 4 States had policies that applied 
only to selected schools. GAO also found that within States, 
individual schools and districts had policies that were stricter 
than the State standards.
    \45\ Similar to the GAO report, a report from the School 
Nutrition Association (SNA) indicates 23 States had competitive food 
policies on or before 2004. There is at least one difference among 
the States identified by GAO and those identified by SNA, but it is 
not clear how many other discrepancies may exist.
    \46\ Two of these States had not established standards at the 
time of the report's publication, though legislation in both States 
requires the establishment of standards. CDC included State laws, 
regulations, and policies enacted or passed since October 2010. We 
use the term policy to generically refer to all three.
---------------------------------------------------------------------------

    The Pew Health Group and Robert Wood Johnson Foundation recently 
reviewed data on the types of snack foods and beverages sold in 
secondary schools via vending machines, school stores, and snack 
bars.\47\ The data were extracted from a biennial assessment from 
the CDC that uses surveys of principals and health education 
teachers to measure policies and practices across the nation. Key 
findings show:
---------------------------------------------------------------------------

    \47\ ``Out of Balance: A Look at Snack Foods in Secondary 
Schools across the States,'' The Pew Health Group and the Robert 
Wood Johnson Foundation (2012). The report examines data contained 
in N.D. Brener et al., ``School Health Profiles 2010: 
Characteristics of Health Programs Among Secondary Schools in 
Selected U.S. 21 Sites,'' U.S. Department of Human Services, Centers 
for Disease Control and Prevention (2011).
---------------------------------------------------------------------------

     The availability of snack foods in secondary schools 
varies tremendously from state to state, and this variation is 
likely the result of a disparate patchwork of policies at the state 
and local levels. Fewer than five percent of school districts have 
food and beverage policies that meet or exceed the 2010 Dietary 
Guidelines for Americans.
     ``Under this patchwork of policies, the majority of our 
nation's children live in states where less healthy snack food 
choices are readily available (p. 3).''
    Overall, the availability of healthy snacks such as fruits and 
vegetables is limited. The vast majority of secondary schools in 49 
states do not sell fruits and vegetables in snack food venues (Pew 
Health Group, 2012).

C. Baseline Competitive Food Revenue

    As shown in Table 1, we estimate that overall revenue in SFAs 
will be about $35 billion to $37 billion each fiscal year between 
2015 and 2018.\48\ Overall revenue includes the value of Federal 
reimbursements for NSLP and SBP meals,\49\ student payments, and 
State and local contributions. These estimates are derived from the 
relationship between Federal reimbursements and total SFA revenue 
estimated in the School Lunch and Breakfast Cost Study (SLBCS-II) 
(USDA 2008).
---------------------------------------------------------------------------

    \48\ The FY 2014 baselines in Table 1 are partial year figures; 
they include revenues from July 2014, the effective date of the 
rule's competitive food standards, through the end of the fiscal 
year.
    \49\ estimates prepared for the FY 2014 President's Budget
---------------------------------------------------------------------------

    USDA's most recent budget projections forecast a total of $16.8 
billion in Federal meal reimbursements in FY 2014. We use

[[Page 39100]]

findings from the SLBCS-II about the relationship between Federal 
meal reimbursements and overall SFA revenue to derive an estimate of 
$32.5 billion in SFA revenue in FY 2014, and then adjust this upward 
for HHFKA impacts \50\ to a total of $34.4 billion in SFA revenue in 
that year.
---------------------------------------------------------------------------

    \50\ The estimated increase in SFA revenues in 2014 from these 
provisions is $581 million for reimbursable meals, and $1.3 billion 
for competitive food revenue, for a total increase of about $1.9 
billion. See 76 Federal Register 35301-35318, especially p. 35305.
---------------------------------------------------------------------------

    Our estimate of competitive food revenues under current policies 
and practices also uses SLBCS-II \51\, which showed that SFA 
competitive food revenue accounted for 15.8 percent of overall SFA 
revenue prior to HHFKA. For FY 2014, we begin with the estimated 
$32.5 billion in SFA revenue that excludes the effects of HHFKA on 
Federal meal reimbursements and student payments for program meals 
and competitive foods. For FY 2014, that implies baseline SFA 
competitive food revenues of $5.1 billion.\52\ We add an estimated 
$1.3 billion increase in competitive food revenue from HHFKA Section 
206 to get an adjusted $6.5 billion in SFA competitive food 
revenue.\53\
---------------------------------------------------------------------------

    \51\ For purposes of this analysis we assume that the revenue 
generated from competitive food sales has increased at the same rate 
as the growth in SFA revenue from reimbursable paid lunches. For 
years after FY 2012, we assume that baseline competitive food 
revenue will increase at the same rate as the projected increase in 
SFA revenue from reimbursable paid lunches contained in the FY 2014 
President's Budget.
    \52\ $32.5 billion x 15.8% = $5.1 billion.
    \53\ HHFKA Section 206 is a competitive food pricing reform 
designed to ensure that revenues generated from competitive foods 
are at least equal to their share of SFA food costs. Section 206 is 
intended to correct a historic subsidy of competitive foods with 
revenue from reimbursable meals. Where necessary to meet this 
requirement, SFAs are required to raise prices charged to students 
for competitive foods. The $1.3 billion adjustment for Section 206 
in this paragraph is USDA's estimate of the net impact of those 
price increases on SFA revenues. See 76 Federal Register 35301-
35318, Table 2.
---------------------------------------------------------------------------

    To estimate the proportions of these revenues generated by 
[agrave] la carte sales and vending machines, we use SNDA-III data 
to show that about 98.3 percent of SFA competitive food revenue was 
generated by sales of [agrave] la carte foods; virtually all of the 
rest, 1.7 percent, was generated by vending machine sales.\54\
---------------------------------------------------------------------------

    \54\ ERS analysis of unpublished data from the third School 
Nutrition Dietary Assessment Study, SNDA-III, (Gordon, et al., 
2007).
---------------------------------------------------------------------------

    Data from SNDA-III indicate that 95 percent of competitive food 
revenue accrues to SFA accounts; just five percent of competitive 
food revenue accrues to non-SFA student, parent and other school 
group accounts.\55\ Our estimate of competitive food revenue 
generated by these groups in FY 2014 is $270 million.\56\ If none of 
the competitive food revenue raised by non-SFA school groups comes 
from [agrave] la carte, then [agrave] la carte sales accounted for 
roughly 93 percent (= 0.98 x 0.95) of total SFA and non-SFA 
competitive food revenue.
---------------------------------------------------------------------------

    \55\ ERS analysis of unpublished SNDA-III data. Note that SNDA-
III may underestimate other school group revenues to the extent that 
these groups share in revenue from school stores that sell food or 
engage in separate fundraising events. SNDA-III reports that 44 
percent of schools allow student group fundraisers, but 75 percent 
of those schools tend to hold them less than once per week. Just 14 
percent of schools operated snack bars or school stores that might 
generate revenue for non-SFA school groups. For this reason, we 
believe that our estimates capture the larger share of revenue 
raised by these groups. According to SNDA-III's principals' surveys, 
44 percent of schools sold competitive foods in vending machines and 
through periodic fundraisers in SY 2004-2005. Just 11 percent of 
schools sold competitive foods in school stores, and just 3 percent 
sold competitive foods in school snack bars. See Gordon, et al., 
2007, vol. 1, pp. 77-79.
    \56\ Because other school groups do not generate revenue from 
[agrave] la carte sales, we start with the SFA competitive food 
revenue excluding our estimate of the SFA competitive food revenue 
increase from HHFKA, which is almost entirely from [agrave] la carte 
sales. Our FY 2014 competitive food baseline for other school groups 
is therefore: [($32.5 billion x 15.8 percent) / 0.95] x .05 = $270 
million.
---------------------------------------------------------------------------

    We inflate these figures for 2015 through 2018 based on the 
assumptions in the President's Budget. Because the rule will take 
effect in July 2014, the start of SY 2014-2015, we reduce the FY 
2014 figures in Table 1 to include only the last three months of the 
fiscal year--about 14 percent of the full-year figures.\57\
---------------------------------------------------------------------------

    \57\ The FY 2014 figures in Table 1 are 13.9 percent of our full 
year FY 2014 estimates. 13.9 percent is the ratio of paid 
reimbursable lunches served from July through September 2012 to the 
number of paid reimbursable lunches served from October 2011 through 
September 2012. We use paid reimbursable lunches, rather than total 
lunches or total Federal reimbursements, as the best proxy (among 
available administrative data) for the share of competitive foods 
purchased in the last three months of the fiscal year. An 
unpublished ERS analysis of SNDA-III data found that schools with 
the greatest share of children eligible for paid meals generate far 
more competitive food revenue than schools with higher percentages 
of free or reduced-price eligible children. For SFA revenue, the 
figure in Table 1 is equal to $34.4 billion x 13.9 percent, or $4.8 
billion.

                           Table 1--Baseline Competitive Food and Overall SFA Revenue
----------------------------------------------------------------------------------------------------------------
                                                               Fiscal Year (millions)
                                   -----------------------------------------------------------------------------
                                       2014*         2015         2016         2017         2018        Total
----------------------------------------------------------------------------------------------------------------
Baseline SFA revenue (all sources)       $4,781      $35,039      $35,713      $36,436      $37,273     $149,243
Baseline competitive food revenue.         $935       $6,923       $7,091       $7,282       $7,432      $29,663
    SFA revenue...................         $897       $6,649       $6,812       $7,000       $7,143      $28,501
        [agrave] la carte.........          882        6,536        6,697        6,881        7,022       28,017
        vending and other sources.           15          113          116          119          121          485
    Other school group revenue....          $38         $274         $278         $283         $289       $1,162
        [agrave] la carte.........            0            0            0            0            0            0
        vending and other sources.           38          274          278          283          289        1,162
----------------------------------------------------------------------------------------------------------------
*The FY 2014 figures include July-September only which is 13.9 percent of the FY 2014 full year estimate.

    Other school groups generate their competitive food revenue from 
periodic fundraisers, vending machines, snack bars, and school 
stores. These groups include student clubs, parent teacher 
organizations, or parent organizations supporting sports, music, and 
other enrichment activities. Much of the non-SFA competitive food 
revenue is controlled by school principals for special school 
events, sports, or general fundraising.
    Given the implementation of Section 206 and significant State 
and local school food initiatives adopted since SY 2004-2005, our 
baseline estimate of competitive food revenue generated by other 
school groups is uncertain.

D. Previous Recommendations and Existing Standards

    Although HHFKA established Federal authority for comprehensive 
nutrition standards for all foods in school, efforts to define and 
implement such standards have been underway for a number of years. 
Our analysis briefly describes these activities to provide 
additional context for the interim final rule.

1. Institute of Medicine Recommendations

    In 2005, Congress directed CDC to commission the Institute of 
Medicine (IOM) to develop a set of nutrition standards for 
competitive school foods (House Report 108-792). Nutrition Standards 
for Foods in Schools: Leading the Way toward Healthier Youth is the 
result of the work done by the IOM and contains its recommendations 
for nutrient and other standards. The committee began by identifying 
a set of guiding principles based on the premise that maintaining a 
healthy weight is important for children and noting the important 
role that schools play in children's lives. These

[[Page 39101]]

principles then guided the IOM in advocating that all foods 
available in schools be required to meet nutrition standards (IOM, 
2007a, p. 3).
    The committee set out its recommendations, first arguing that 
Federal nutrition programs be the primary source of foods and 
beverages at school and second, that nutrition standards based on 
the Dietary Guidelines for Americans (DGA) be implemented for all 
foods and beverages offered to all school-age children (IOM, 2007a). 
These recommendations were followed by a discussion of a two-tier 
system consisting of foods and beverages to be encouraged (Tier 1) 
and a second tier consisting of snack foods that do not meet Tier 1 
criteria but still meet the recommendations for fats, sugars, and 
sodium set forth in the DGA. Following the IOM recommendations, 
[agrave] la carte entr[eacute]es would be required to be on the NSLP 
menu and meet Tier 1 criteria with two exceptions: the amount of 
allowed sodium would increase from 200 milligrams (mg) to no more 
than 480 mg, and the 200 calorie limit imposed on Tier 1 foods would 
not apply; [agrave] la carte entr[eacute]es would have to meet the 
calorie content of comparable NSLP entr[eacute]e items.

2. Voluntary Standards

    USDA's HealthierUS School Challenge (HUSSC), and the Alliance 
for a Healthier Generation's Healthy Schools Program offer two 
models of voluntary standards adopted by many schools across the 
country.
    HUSSC began in 2004 as a way to promote healthier school 
environments through nutrition and physical activity, with four 
award levels: bronze, silver, gold, and gold of distinction. HUSSC 
includes standards for competitive foods that are similar to the 
standards in the proposed rule. At all award levels, competitive 
foods and beverages must meet the following standards:
     No more than 35 percent of calories from total fat 
(excluding nuts, seeds, nut butters and reduced-fat cheese),
     Less than 0.5 grams (g) trans fats per serving,\58\
---------------------------------------------------------------------------

    \58\ Current rules allow manufacturers to report a product has 
``zero grams'' of trans fat as long as there are less than 0.5 g 
trans fat per serving. See 21 CFR Part 101.62.
---------------------------------------------------------------------------

     No more than 10 percent saturated fat (reduced-fat 
cheese is exempt),
     Total sugar at or below 35 percent by weight (includes 
naturally occurring and added sugars. Fruits, vegetables, and milk 
are exempt),
     Portion sizes may not exceed the serving size of the 
food served in school meals and no other competitive foods may 
exceed 200 calories (as packaged).
     Only lowfat or nonfat milk and USDA approved 
alternative dairy beverages may be offered,
     Milk serving size is limited to 8-fluid ounces,
     100 percent fruit and vegetable juices with no 
sweeteners or non-nutritive sweeteners, and
     Water that is non-flavored, non-sweetened, non-
carbonated, non-caffeinated, without non-nutritive sweeteners is 
allowed.
    Variable standards, depending on award level, include:
     For bronze and silver awards, competitive food 
standards apply to foods sold in the meal service area during meal 
periods.
     For gold and gold of distinction awards, competitive 
food standards apply anywhere in the school and at any time during 
the school day.
     For bronze, silver, and gold awards, sodium cannot 
exceed 480 mg for snack foods or 600 mg for entr[eacute]es.
     For gold of distinction awards, sodium cannot exceed 
200 mg for snack foods or 480 mg for entr[eacute]es.
    By May 2013, over 6,500 schools in 49 States and the District of 
Columbia had become certified HUSSC schools, and all of these 
schools, regardless of award level, have already moved at least part 
way to the interim competitive food standards.\59\
---------------------------------------------------------------------------

    \59\ FNS HealthierUS School Challenge at http://www.fns.usda.gov/tn/healthierus/index.html. A nutrition standards 
chart is available at http://www.fns.usda.gov/tn/healthierus/award_chart.pdf.
---------------------------------------------------------------------------

    Similar to HUSSC, the Alliance for a Healthier Generation's 
Healthy Schools Program is comprised of schools that voluntarily 
adopt Alliance competitive food standards. According to an Alliance 
fact sheet,\60\ the competitive food standards are:
---------------------------------------------------------------------------

    \60\ Alliance for a Healthier Generation School Competitive Food 
Guidelines. Available at http://www.k12.wa.us/ChildNutrition/SchoolWellness/School_Comp_food_guidelinest.pdf.
---------------------------------------------------------------------------

     No more than 35 percent of calories from total fat,
     No more than 10 percent of calories from saturated fat,
     0 g trans fat,
     No more than 35 percent sugar by weight,
     No more than 230 mg sodium for snacks and no more than 
480 mg sodium for dairy products, soups, and vegetables with dips, 
and
     Graduated calories for elementary, middle and high 
schools (150, 180, and 200 calories, for elementary, middle, and 
high schools respectively).
    The Alliance for a Healthier Generation also recommends schools 
serve whole grain products; fresh, canned, or frozen fruit (in fruit 
juice or light syrup); and non-fried vegetables. As with the HUSSC 
schools, the more than 15,000 schools currently participating in the 
Alliance for a Healthier Generation program have also moved their 
competitive food standards towards those in the interim final 
rule.\61\
---------------------------------------------------------------------------

    \61\ School participation numbers are from the Healthy School 
Program, Alliance for a Healthier Generation Web site. https://schools.healthiergeneration.org/how_it_works/program_overview/healthy_schools_program_in_your_state/.
---------------------------------------------------------------------------

3. Competitive Food Standards in Five Largest States

    The five States with the largest numbers of students enrolled in 
NSLP-participating schools are California, Florida, Illinois, New 
York, and Texas. These States account for 37 percent of all students 
enrolled nationally in NSLP participating schools (18.9 million 
students). All five of these States have had some level of school 
competitive food policies in place since 2004 or earlier. Thus, 
school districts in these States have already confronted some of the 
challenges of transitioning students toward improved competitive 
foods and have dealt with the consequences of changes in overall 
revenues.
    In California, elementary children may purchase only milk (2% or 
less), soy, rice, other nondairy milk, fruit or vegetable juices 
that are at least 50 percent juice with no added sweeteners, and 
water with no added sweeteners. Generally, foods must not have more 
than 35 percent of calories from fat, 10 percent of calories from 
saturated fat, 0 calories from trans fat, and no more than 35 
percent sugar by weight. Foods must also have no more than 175 
calories per individual food item. Nuts, nut butters, seeds, eggs, 
cheese packaged for individual sale, fruit, vegetables that have not 
been deep fried, and legumes are also allowed for purchase. These 
standards apply regardless of the time of day.
    Secondary school children may purchase water, milk (2% or less), 
soy, rice, and other nondairy milk, fruit and vegetable drinks that 
are at least 50 percent juice, and electrolyte replacement beverages 
with no more than 42 g of added sweetener per twenty fluid ounces. 
Snack items must be no more than 250 calories per item and [agrave] 
la carte foods may have no more than 400 calories per entr[eacute]e 
and no more than four g of fat per 100 calories. Entr[eacute]es from 
NSLP meals are also allowed. These standards are in place from 30 
minutes before the school day through 30 minutes after the school 
day (California Education Code sections 49430-49436).
    Florida does not allow any competitive food sales on elementary 
school campuses during the day and does not allow competitive foods 
from vending, school stores, and other food sales in secondary 
schools until an hour after the last lunch period. Carbonated 
beverages are allowed for high school students if 100 percent fruit 
juices are also available where those beverages are sold but may not 
be sold where breakfast or lunch is being served or eaten (Florida 
Administrative Code 6A-7.0411).
    Illinois policy on competitive foods applies only to grades 
eight and below, for foods sold during the school day, with the 
exception of foods that are sold as part of a reimbursable meal or 
sold within the food service area. Allowable beverages include 
water, reduced fat, lowfat, and nonfat milk; rice, nut, or soy 
reduced-fat milk; fruit and vegetable drinks that are at least 50 
percent fruit juice; and yogurt or ice-based smoothie drinks with 
fewer than 400 calories that are made with fresh or frozen fruit or 
fruit drinks containing at least 50 percent fruit juice.
    Foods that are allowed to be sold outside food service areas or 
within food service areas other than during meal service must have 
no more than 35 percent of calories from fat and 10 percent of 
calories from saturated fat, no more than 35 percent sugar by 
weight, and may not contain more than 200 calories per serving. 
Nuts, seeds, nut butters, eggs, cheese packaged for individual sale, 
fruits or non-fried vegetables, or lowfat yogurt products are also 
allowed (Illinois Administrative Code Title 23 section 305.15).
    New York State broadly restricts the sales of FMNV and ``all 
other candy'' from the

[[Page 39102]]

beginning of the school day through the end of the last scheduled 
meal period (New York Education Code section 915). New York's State 
Education Department, however, allows competitive food standards to 
be set at the district level (DiNapoli, 2009) and New York City, for 
example, has adopted standards that are much more rigorous than the 
State-level standards.
    Competitive food sales standards within New York City schools 
apply to food sales from the beginning of the school day through 6 
p.m. weekdays. Students can sell New York State Department of 
Education approved foods in schools any time during the day, as long 
as the sale occurs outside of the school cafeteria. PTAs can hold a 
monthly fundraiser during the day with non-approved food items as 
long as the sale occurs outside the cafeteria and complies with 
standards set in the Chancellor's Regulations. Allowed beverages 
include water or low-calorie drinks without artificial flavors or 
colors with 10 calories per eight ounces for elementary and middle 
schools and 25 calories per eight ounces in high schools. Lowfat and 
nonfat milk are also allowed (New York Education Code section 915).
    New York City has also implemented nutrition standards for all 
foods sold in vending machines in city facilities, including 
schools. Accordingly, New York City requires that all foods in 
vending machines meet the following per-package requirements: <= 200 
calories, <= 7 g fat, <= 2 g saturated fat, <= 200 mg sodium, <= 10 
g sugar, and >= 2 g fiber for grain or potato-based items (Kessler, 
Walcott, and Farley, 2013). In addition, snack vending machines are 
not permitted in schools with students in pre-kindergarten through 
fifth grade. For students above grade five, competitive foods (from 
other than vending machines) must have no more than 35 percent of 
calories from fat (nuts and nut butters are exempt), less than 10 
percent of calories from saturated fat, and 0.5 g or less of trans 
fat; no more than 35 percent of calories from sugar (fruit products 
with no added sugar are exempt), less than 200 total calories, may 
not exceed 200 mg sodium, and grain-based products must contain at 
least two grams of fiber per serving (New York City, 2010).\62\
---------------------------------------------------------------------------

    \62\ These city-level food standards became effective in 
February of 2010 and are different than the State-level standards.
---------------------------------------------------------------------------

    Texas State policy does not allow the sale of FMNV until after 
the end of the last scheduled class period in any grades. All 
schools must offer fruits and vegetables daily at all points of 
service and the fruits and vegetables must be fresh whenever 
possible. Frozen and canned fruits (in natural juice, water, or 
light syrup where possible) may also be served.
    Individual food items may not contain more than 23 g of fat per 
serving, with the exception that once per week one food with 28 g (1 
ounce) of fat per serving is allowed. Schools must eliminate deep-
fat frying as a method of on-site preparation for foods served as 
part of reimbursable school meals, [agrave] la carte, snack lines, 
and competitive foods. Servings of potatoes may not exceed three 
ounces, may be offered no more than once per week, and students may 
only purchase one serving at a time. Baked potato products (wedges, 
slices, whole, new potatoes) that are produced from raw potatoes and 
have not been pre-fried, flash-fried or par-fried in any way may be 
served without restriction.
    All schools must offer two percent, lowfat, or nonfat milk at 
all points where milk is served. Elementary schools must serve only 
milk, unflavored water and 100 percent fruit and or vegetable juice. 
In secondary schools, beverages must contain no more than 30 g sugar 
per eight fluid ounces (Texas Administrative Code Title 4 sections 
26.1-26.9).
    While none of these States have policies that match all of the 
standards in the interim final rule, California, Illinois, and New 
York City meet several. California meets the interim standards for 
total, saturated, and trans fats and sugar. Illinois meets interim 
standards for calories, total and saturated fat, and sugar. New York 
City meets interim standards for total, saturated, and trans fats, 
sodium, and sugar. On the other end of the spectrum, Texas only 
provides a standard for total fat (though it is more restrictive 
than the interim final rule), and Florida does not set specific 
nutrient standards.
    Table 2 provides a summary description of a number of existing 
sets of nutrition standards that are already in place. These include 
the two voluntary programs discussed previously: the HealthierUS 
Schools Challenge and the Alliance for a Healthier Generation's 
Healthy Schools Program. We have also outlined the standards in 
effect in four of the five States with the largest numbers of 
students enrolled in NSLP-participating schools.\63\
---------------------------------------------------------------------------

    \63\ Florida is not included in this summary table because it 
does not identify nutrient standards. Instead, it bans competitive 
food sales on elementary school campuses during the school day and 
does not allow competitive foods from vending, school stores, and 
other food sales in secondary schools until an hour after the last 
lunch period.

                                                    Table 2--Current Competitive Food Standards \64\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Healthier U.S.      Alliance for a
    Nutrition standards  (per      schools* (gold of       healthier          California          Illinois **      New York City ***         Texas
            serving)              distinction level)      generation
--------------------------------------------------------------------------------------------------------------------------------------------------------
Snack calories..................  <=200.............  <=150 (elementary)  <=175 (elementary)  <=200.............  <=200.............
                                                      <=180 (middle)....  <=250 (secondary).
                                                      <=200 (high)......
Entr[eacute]e calories..........  = NSLP serving      ..................  <=400 (secondary).
                                   size.
Snack sodium....................  <=200 mg..........  <=230 mg..........  ..................  ..................  <=200 mg..........
Entr[eacute]e sodium............  <=480 mg..........
Sugar...........................  <=35% by weight...  <=35% by weight...  <=35% by weight...  <=35% by weight...  <=35% by calories.
Total fat.......................  <=35%.............  <=35%.............  <=35%.............  <=35%.............  <=35%.............  <=23 g
Saturated fat...................  <10%..............  <10%..............  <10%..............  <10%..............  <10%..............
Trans fat.......................  <0.5 g............  0%................  0%................  0%................  <0.5 g............
Milk............................  8 oz 1% or less...  1% or less (must    2% or less........  2% or less........  1% or less........  2% or less
                                                       meet calorie
                                                       standards above).
Juice...........................  6 oz 100% juice...  ..................  50% juice.........  50% juice.........  ..................  100% juice
--------------------------------------------------------------------------------------------------------------------------------------------------------
* HUSSC has four levels--bronze, silver, gold, and gold of distinction. The nutrition standards for all levels are the same with the exception of
  sodium. For bronze through gold, the sodium standard is <= 480 mg for non-entr[eacute]es and <= 600 mg for entr[eacute]es.
** Illinois standards apply only to grades 8 and below.
*** New York City standards apply to 5th grade and above. Competitive foods are not allowed for younger school children in New York City. There are City-
  wide standards for foods in vending machines that are not included.


[[Page 39103]]

     
---------------------------------------------------------------------------

    \64\ Many of the standards provide exemptions for nuts, nut 
butters, seeds, and fruits, etc. Those exemptions are not shown in 
the table.
---------------------------------------------------------------------------

II. Development of Federal Standards

    Section 208 of the HHFKA requires USDA to establish science-
based nutrition standards for all foods and beverages sold on school 
campuses during the school day, which are identified in this interim 
final rule. These standards must be consistent with the most recent 
DGA and authoritative scientific recommendations (Pub. L. 111-296). 
At the same time, in developing the rule FNS reviewed existing, 
currently implemented State and local school nutrition and voluntary 
standards to promote practicality and ease of implementation and 
considered comments from the public on the proposed rule.
    The interim final rule improves the competitive food options 
available to students by replacing less healthy items with 
appropriately sized entr[eacute]es, side dishes, and snacks that 
emphasize foods from the food groups that are the basis of a healthy 
diet, consistent with the DGA. In this way, the rule is designed to 
help ensure the success of school meal standards introduced in July 
2012. However, the rule does not prescribe a specific set of 
competitive foods, nor does it establish targets for particular food 
groups. Instead, the rule puts students in a position to make their 
own healthy choices, and encourages the development of healthy 
habits for life.
    The rule establishes guidelines for all foods sold outside of 
school meal programs on the school campus at any time during the 
school day. The school day for purposes of this rule extends from 
midnight to 30 minutes past the end of the official school day. 
Although some organizations and individuals who submitted comments 
on the proposed rule suggested we extend this definition of the 
school day to capture additional after school events, the interim 
final rule maintains the proposed rule definition. The school campus 
includes all areas under jurisdiction of the school that are 
accessible to students.
    The preamble to the interim final rule describes how its 
provisions differ from those of the proposed rule. The preamble also 
describes the reason for changes relative to the proposed rule. What 
follows is a brief summary of the interim final rule provisions 
without further discussion of those changes.
     Competitive foods and beverages must meet the nutrition 
standards specified in the interim final rule. A special exemption 
is allowed for foods and beverages that do not meet competitive food 
standards for the purpose of conducting infrequent school-sponsored 
fundraisers. Such exempt fundraisers must not take place more than 
the frequency specified by the State agency. Exempted fundraiser 
foods or beverages may not be sold in competition with school meals 
in the food serving area during the meal service.
     NSLP/SBP entr[eacute]es sold [agrave] la carte are 
exempt from the rule's nutrient standards if sold on the day that 
they are offered as part of a reimbursable meal or the following 
school day.
     To be allowable, a competitive food must
    [cir] Meet all of the competitive food nutrient standards; and
    [cir] Be a grain product that contains 50 percent or more whole 
grains by weight or have as the first ingredient a whole grain; or
    [cir] Have as the first ingredient one of the non-grain major 
food groups: fruits, vegetables, dairy products, or protein foods 
(meat, beans, poultry, seafood, eggs, nuts, seeds, etc.); or
    [cir] Be a combination food that contains \1/4\ cup of fruit 
and/or vegetable; or
    [cir] For the period through June 30, 2016, contain 10 percent 
of the Daily Value of a nutrient of public health concern based on 
the most recent Dietary Guidelines for Americans (i.e., calcium, 
potassium, vitamin D or dietary fiber). Effective July 1, 2016, the 
criterion in this paragraph is obsolete and may not be used to 
qualify as a competitive food; and
    [cir] If water is the first ingredient, the second ingredient 
must be one of the food items above.
     Fresh, canned, and frozen fruits or vegetables with no 
added ingredients except water, or in the case of fruit, packed in 
100 percent juice, extra light, or light syrup are exempt from the 
interim final rule's nutrient standards. Canned vegetables that 
contain a small amount of sugar for processing purposes are also 
exempt.
     Competitive foods must contain 35 percent or less of 
total calories from fat per item as packaged or served. Exemptions 
to the total fat standard are granted for reduced fat cheese and 
part-skim mozzarella cheese, nuts, seeds, nut or seed butters, 
products consisting of only dried fruit with nuts and/or seeds with 
no added nutritive sweeteners or fat, and seafood with no added fat.
     Competitive foods must contain no more than 10 percent 
of total calories from saturated fat per item as packaged or served. 
Exemptions to the saturated fat standard are granted for reduced fat 
cheese and part skim mozzarella cheese, nuts, seeds, nut or seed 
butters, and products consisting of only dried fruit with nuts and/
or seeds with no added nutritive sweeteners or fat.
     Competitive foods must have 0 g of trans fat per 
portion as packaged.
     Sodium content in snacks is limited to 230 mg per item 
as packaged or served. In July 2016, the sodium standard will move 
to 200 mg per portion. Entr[eacute]e items must have no more than 
480 mg of sodium per item as packaged or served, unless they meet 
the exemption for NSLP/SBP entr[eacute]e items.
     Total sugar must be no more than 35 percent of weight. 
Exemptions are provided for dried whole fruits or vegetables; dried 
whole fruit or vegetable pieces; dried dehydrated fruits or 
vegetables with no added nutritive sweeteners; and dried fruits with 
nutritive sweeteners that are required for processing and/or 
palatability purposes.
     Snack items and side dishes served [agrave] la carte 
must have no more than 200 calories per item as packaged or served, 
including accompaniments such as butter, cream cheese, salad 
dressing, etc. Entr[eacute]e items sold [agrave] la carte must 
contain no more than 350 calories unless they meet the exemption for 
NSLP/SBP entr[eacute]e items.
     Accompaniments must be included in the nutrient profile 
as a part of the item served (technical assistance will be 
provided).
     Elementary and middle school foods and beverages must 
be caffeine free with the exception of naturally occurring trace 
amounts.
     Allowable beverages for elementary students are limited 
to plain water (carbonated or uncarbonated), lowfat milk 
(unflavored) and nonfat milk (including flavored), nutritionally 
equivalent milk alternatives (as permitted by the school meal 
requirements), and full strength fruit or vegetable juices and full 
strength fruit and vegetable juice diluted with water or carbonated 
water. All beverages must be no more than eight ounces with the 
exception of water, which is unlimited.
     Allowable beverages for middle school students are 
limited to plain water (carbonated or uncarbonated), lowfat milk 
(unflavored) and nonfat milk (including flavored), nutritionally 
equivalent milk alternatives (as permitted by the school meal 
requirements), and full strength fruit or vegetable juice and full 
strength fruit or vegetable juice diluted with water or carbonated 
water. All beverages must be no more than 12 ounces, with the 
exception of water (which is unlimited).
     Allowable beverages for high school students are 
limited to plain water (carbonated or uncarbonated), lowfat milk 
(unflavored) and nonfat milk (including flavored), nutritionally 
equivalent milk alternatives (as permitted by the school meal 
requirements), and full strength fruit or vegetable juice and full 
strength fruit and vegetable juice diluted with water or carbonated 
water. Milk and milk equivalent alternatives and fruit or vegetable 
juice must be no more than 12 ounces. Calorie-free, flavored water, 
with or without carbonation, and other calorie free beverages that 
comply with the FDA requirement of less than five calories per 8 
ounce serving (or less than or equal to 10 calories per 20 fluid 
ounces) in no more than 20 ounce servings. Beverages of up to 40 
calories per eight fluid ounce (or 60 calories per 12 fluid ounce) 
in no more than 12 ounce servings are also allowed. There is no 
ounce restriction on water. Beverages containing caffeine are also 
permitted. Allowable beverages are available in the food service 
area and elsewhere without restriction.

III. Response to Comments

    The proposed rule generated more than 247,000 comments. While 
most of these were focused primarily on the rule itself, a 
significant portion touched on issues addressed in the Regulatory 
Impact Analysis. Many addressed the implications for SFA and other 
school group revenues, some focused on the effects on industry, and 
others discussed the impacts on students. Many commenters, 
regardless of their concern for the revenue impacts of the rule, 
expressed sentiments that were captured in recent research conducted 
by the University of Illinois Institute for Health Research and 
Policy. Specifically, SFA and industry officials as well as 
organizations devoted to

[[Page 39104]]

public health are interested in ``doing the right thing'' for 
student health (Bassler, et al., 2013, p. 16). At the same time, the 
impact on revenues is a concern for SFAs, other school groups, and 
businesses. Some of these comments also provided additional 
information for use in the analysis (see Section IV). What follows 
is a discussion of the major themes in comments that addressed 
costs, benefits, and other impacts on affected parties.

A. Concerns About Reduced SFA Revenue

    The majority of the commenters that addressed SFA finances were 
concerned that the rule's competitive food standards will reduce 
school revenue. Generally, the commenters focused on popular 
existing products that do not meet the proposed standards and will 
no longer be allowed for sale in [agrave] la carte lines, vending 
machines, or school stores. Both SFA and industry officials 
expressed concern that the new standards will reduce variety and 
limit choices. These officials fear that students, especially older 
students, will respond by purchasing fewer competitive foods and 
beverages at school.
    While representatives from some food industry groups indicated 
that relatively few of the snack foods now marketed to schools meet 
the proposed rule standards, other food industry commenters 
highlighted the work they have done in recent years, in cooperation 
with schools and non-school interest groups, to provide healthier 
school food alternatives. One major manufacturer noted that it has 
introduced more than 50 new products and is continuing to work on 
new product formulations and packaging. This manufacturer 
contributed to efforts by schools to earn HUSSC ``Gold of 
Distinction'' designations; schools that have earned Gold of 
Distinction status have competitive food standards that meet or 
exceed the standards in the interim final rule.
    USDA acknowledges these efforts by schools and the food industry 
and recognizes the value in adopting existing or emerging standards 
to the extent that they facilitate the success of Federal 
regulations in making school food offerings more consistent with the 
DGA. To that end, USDA made several changes to the proposed rule 
which:
     Increase sodium limit on snacks and non-program side 
dishes from 200 mg per portion as packaged to 230 mg (through June 
2016),
     Exempt nuts and nut butters from the rule's total and 
saturated fat standards,
     Exempt part skim mozzarella cheese from the total and 
saturated fat standards,
     Allow full strength juice with added water (or 
carbonated water), and
     Allow fruit packed in light syrup
    In addition, the interim final rule adopts the proposed rule's 
35 percent by weight standard for sugar over the alternate 35 
percent of calories standard.
    Each of these changes further aligns the interim final rule with 
existing NSLP requirements, voluntary HUSSC standards, Alliance for 
a Healthier Generation, and IOM guidelines. The effect of these 
changes is to increase the number of already available healthy 
products, many already for sale in schools that meet interim 
regulations. This will tend to reduce the risk that SFAs will lose 
revenue due to the lack of readily available, market-tested products 
that meet interim final rule standards.\65\
---------------------------------------------------------------------------

    \65\ The Alliance for a Healthier Generation maintains a list of 
products that meet Alliance guidelines as a resource to schools. The 
National Automatic Merchandising Association (NAMA) maintains its 
own list of products that meet Alliance standards as a resource for 
vending machine operators and other NAMA members.
---------------------------------------------------------------------------

    The proposed rule would have prohibited the sale of beverages 
other than milk, plain water, and 100 percent fruit and vegetable 
juice in the cafeteria during meal service periods. Many SFA 
professionals commented on this restriction, noting that allowing 
these beverages to be sold in other parts of the school campus would 
disadvantage SFAs relative to other school groups who raise revenue 
from the sale of these beverages at meal times. These commenters 
strongly supported removing the ``time and place'' restriction. 
Restricting the sale of these beverages in the meal service area, 
while allowing them elsewhere on campus, had the potential to 
discourage some high school students from even entering the 
cafeteria at lunch time and considering a reimbursable meal as an 
option. Other commenters expressed concern with the mixed message 
sent by the proposed rule which identifies a group of beverages as 
healthy options for older students, but prohibits students from 
purchasing them in the cafeteria at meal times. As a direct response 
to these comments, the interim final rule removes the proposed 
rule's time and place restriction.
    Other commenters argued that the competitive food standards will 
reduce SFA revenues as students replace in-school purchases with 
food from home or food purchased off campus. USDA recognizes both of 
these risks to SFA revenue. In the case of revenue lost to off-
campus purchases, however, the risk is limited to relatively few, 
mostly upper-grade schools. SNDA-III found that 11 percent of all 
schools and 25 percent of high schools in SY 2004-2005, had open 
campus policies (Gordon, et al., 2007, vol. 1, pp. 77-79, pp. 96-
100). SNDA-IV, conducted in SY 2009-2010, found that only five 
percent of all schools and 19 percent of high schools had an open 
campus policy (Fox, et al., 2012; Volume 1, p. 3-29). To the extent 
that the changes mentioned above increase the variety of snacks and 
side dishes that meet Federal standards, schools should be able to 
retain more of their existing competitive food sales, and lose fewer 
sales to food brought from home or purchased off campus.
    A third outcome mentioned by commenters is that some students 
will turn to reimbursable school meals. The American Public Health 
Association (APHA) made this point, citing a study that found that 
students in schools with beverage vending machines were 3.5 times 
more likely to buy lunch from vending machines than to purchase a 
school lunch. The APHA concluded that as a result, ``fewer children 
consume meals at school that meet nutrition standards and have 
proven health benefits, and schools receive less cash and commodity 
support through the federal school meal programs'' (APHA comment, 
April 9, 2013, p. 4).
    Peer-reviewed studies offer additional support for this 
conclusion. Researchers routinely find that competitive food revenue 
losses following adoption of State or local nutrition standards are 
at least partially offset by increases in reimbursable meal revenue 
(see, for example, Wharton, Long, and Schwartz, 2008; Guthrie, 
Newman, Ralston, Prell, and Ollinger, 2012; Healthy Eating Research 
and Bridging the Gap, 2012; Bassler, et al., 2013).

B. Relative Contribution of Competitive Food Revenue to SFA 
Finances

    The impact analysis for the proposed rule noted that SFAs 
received 16 percent of their revenue from competitive food sales on 
average. This figure is from USDA's school year 2005-2006 School 
Lunch and Breakfast Cost Study--II (USDA 2008). Comments from 
representatives of school districts with relatively few free or 
reduced-price eligible students argued that competitive food revenue 
accounts for a far bigger share of such districts' food service 
budgets, and that many rely on competitive food revenue to break 
even. Other comments indicated that competitive food sales subsidize 
reimbursable meals in their districts. And several commenters 
indicated that implementation of the proposed rule would prompt 
their districts to leave the Federal school meal programs.
    We recognize that 16 percent is the average share of SFA revenue 
from competitive foods and that there is considerable variation 
across school districts. Some schools, especially those that serve 
few free or reduced-price meals, may see substantial reductions in 
competitive food revenue after implementation of Federal standards, 
at least in the short term. But even districts in this category tend 
to generate a significant share of their revenue from reimbursable 
meals. For example, data from the SLBCS-II shows that SFAs whose 
share of revenue from competitive foods puts them in the top 
quartile of all districts generated nearly as much from USDA 
subsidies \66\ as they did from competitive foods in SY 2005-2006. 
USDA subsidies combined with student payments for program meals 
generated 60 percent of total SFA revenue in those districts; 
revenue from competitive foods accounted for 34 percent of the 
total. Even in SFAs whose reliance on competitive food revenue 
places them at or above the 90th percentile, USDA subsidies and 
student payments for program meals accounted for more than half of 
SFA revenue, while competitive food sales contributed just over 40 
percent.\67\
---------------------------------------------------------------------------

    \66\ Reimbursement for program meals and the value of USDA Food 
(commodity) assistance accounted for 30 percent of these SFAs' 
budgets. Student payments for reimbursable meals added another 31 
percent. Revenue from competitive foods contributed 34 percent.
    \67\ The figures for SFAs at or above the 90th percentile are 
based on a small sample and are subject to greater error than the 
mean values reported for all SFAs in the SLBCS-II.
---------------------------------------------------------------------------

    These figures are not meant to understate the potential revenue 
challenge of

[[Page 39105]]

implementing nutrition standards for school foods for SFAs that rely 
heavily on competitive food revenue. But they do indicate that 
Federal subsidies and student payments for program meals are at 
least as important as competitive food sales in the great majority 
of SFAs.\68\ FNS is committed to working with the States to 
facilitate successful implementation of competitive food reform, 
ensuring that students have access to the healthiest food choices 
and guaranteeing that the revenue generated from reimbursable meals 
continues to make an important contribution to the finances of all 
SFAs.
---------------------------------------------------------------------------

    \68\ The percentages cited above are based on data collected in 
SY 2005-2006, several years prior to the SY 2011-2012 implementation 
of competitive food pricing reforms. At that time, SFA revenues from 
reimbursable meals tended to subsidize the prices charged for a la 
carte and other non-reimbursable foods (USDA 2008, Exhibits 7-2 and 
7-9). Eliminating the price advantage of competitive foods will, all 
else equal, increase the appeal of reimbursable meals relative to 
competitive foods. This rule will further level the playing field by 
eliminating snack foods of poor nutritional quality as an 
alternative to program meals. Both of these reforms are expected to 
increase the contribution of reimbursable meal revenues to SFA 
budgets.
---------------------------------------------------------------------------

    Elsewhere in this subsection we describe steps taken by FNS, in 
response to public comments, that better align the rule with 
standards already embraced by schools through their own competitive 
food policies, and by the industry groups that make and market those 
foods to schools. But it is also important to recognize, as a number 
of commenters observed, that the certainty of national standards has 
its own independent value. Uniform and definite standards are likely 
to encourage industry to invest additional resources in new product 
development.
The school market is important to industry as well as to school 
foodservice administrators, especially in districts that generate 
the most revenue from competitive food sales. In those districts, 
local vendors, distributors, and foodservice management companies 
will continue to compete for school contracts after the rule's 
implementation, and can be expected to work creatively to maintain 
student sales and the value of their own investments. These firms' 
success will depend in large part on the availability of appealing 
new products. Their success will also be aided by the efforts of 
industry associations and public interest organizations that have 
invested in the development of toolkits and other resources to 
assist local businesses and their school customers. The rule takes 
effect 12 months after publication, which gives industry, interest 
groups, and schools added time to prepare for implementation. In 
addition, USDA's decision to issue an interim rather than a final 
rule will provide another opportunity for review to ensure the 
rule's success.

C. Impacts on School Food Vendors and Manufacturers

    Commenters representing various sectors of the food industry 
expressed concern that the proposed rule would reduce their sales to 
schools. Much of this concern was expressed by or on behalf of small 
vendors, distributors, and manufacturers. The National Automatic 
Merchandising Association (NAMA) noted that some small vending 
machine operators generate most or all of their revenue from sales 
to schools. NAMA expressed support for the goals behind USDA's 
proposed rule, but urged USDA to modify its proposal by adopting 
standards already embraced by the vending machine industry through 
one of its voluntary healthy snack programs. NAMA indicated that 
adoption of competitive food standards aligned with the industry's 
``Fit Pick'' program would reduce the impact on small businesses 
``on both the revenue and expense sides.'' NAMA's ``Fit Pick'' 
standards for calories from fat, calories from saturated fat, 
percent of sugar by weight, total calories per serving, and sodium 
per serving match the guidelines developed by the Alliance for a 
Healthier Generation. NAMA urged USDA to adopt the Alliance 
guidelines for those nutrients, guidelines that both ``the industry 
and schools are familiar with,'' in order to create ``a simpler and 
more cost-effective implementation process.'' USDA recognizes that 
substantive competitive food standards present the vending industry 
with new challenges. USDA also recognizes that small vending machine 
operators may have fewer resources available than large firms to 
manage the transition to the new standards. In response to concerns 
expressed by several of these small businesses, by industry groups 
such as NAMA, and by school foodservice administrators, USDA 
modified its proposed rule standards on sugar and sodium per serving 
to match the Alliance guidelines.\69\ Additional product exemptions 
from the total fat and saturated fat requirements also move the rule 
closer to the Alliance guidelines.\70\ These changes are intended to 
reinforce the investment already made by the vending industry, and 
to help guarantee the industry's successful contribution to a 
healthier competitive school food environment.
---------------------------------------------------------------------------

    \69\ The interim final rule's 230 mg sodium limit per portion, 
as packaged, will drop to 200 mg on July 1, 2016.
    \70\ The Alliance's per-serving calorie guidelines for 
elementary and middle schools are more restrictive than the calorie 
standards in the interim final rule. Products that meet the Alliance 
calorie guidelines also meet the interim final rule standards.
---------------------------------------------------------------------------

    Other food industry commenters, primarily food producers and 
trade associations, urged delay in the implementation of new 
standards to allow time for costly product development and 
reformulation. Some commenters also pointed to the need to allow 
time for student acceptance of reformulated products, particularly 
those with reduced sodium levels. Commenters from industry 
associations recommended delays of 18-36 months-between issuance of 
final standards and implementation. In response, we note that the 
standards contained in the interim final rule will take effect in 
July 2014, a full year after publication. USDA expects that the year 
between issuance of final standards and implementation will lessen 
the risk of revenue loss by industry and SFAs due to limited 
availability or variety of appealing foods that meet the new 
standards. At the same time, USDA's decision to more closely align 
some of the rule's nutrient standards with Alliance guidelines 
ensures that a long list of familiar products already marketed to 
schools will be available for sale on implementation. Finally, 
comments from some producer groups recognize the rule's emphasis on 
fruits, vegetables, whole grains, and lowfat dairy as an opportunity 
to expand their presence in schools with their existing product 
lines. This further reduces the risk that schools will be unable to 
offer a sufficient variety of products that meet the interim final 
rule requirements.

D. Financial Impacts on Non-SFA School Groups

    Other school groups, i.e., school bands, parent teacher groups, 
and school clubs, earn revenue through the sale of competitive foods 
in vending machines, school stores, and fundraisers. Some commenters 
expressed concern that those organizations rely heavily on the sale 
of foods that do not meet the proposed requirements. Other 
commenters wrote that the rule would eliminate funding for student 
organizations. Other commenters noted the importance of lunchtime 
food sales outside the cafeteria by student groups. In all of these 
cases, the commenters were concerned with the continued viability of 
these organizations without revenues from competitive foods.
    The National Confectioner's Association pointed out that their 
products are often sold in fundraisers conducted outside of the 
school day and off school grounds. School group revenues from those 
sales are not impacted by the rule, as it places no restrictions on 
sales that occur away from school or more than 30 minutes after the 
school day. Sales through vending machines and school stores, or 
non-exempt fundraisers held on the school campus are, however, 
required to meet the same standards as other competitive foods.
    Some commenters suggested that food sales may not be the best 
option for raising funds. A comment from the State Director of Child 
Nutrition Programs for North Carolina pointed out that while school 
groups rely on fundraisers for important revenue, there are many 
non-food alternatives that can generate revenue without incurring 
the potential risk of ``food-borne illness by well-intended groups 
that may not be sufficiently trained to prepare and serve 
potentially hazardous foods'' (Harvey, 2013, p. 2). The National 
PTA, Nemours, a children's health organization, and others also 
discussed alternative ways for school groups to generate revenue, 
e.g., walk-a-thons; no-bake bake sales; selling school logo items 
such as clothing, pens, pencils, and book covers; custom-labeled 
bottles of water; and book fairs.
    Another line of comments expressed support for the proposed 
rule's general requirement that non-exempt fundraisers comply with 
the same standards that apply to SFAs. These commenters are 
concerned that even a limited exemption for occasional fundraisers 
establishes a loophole that threatens the rule's public health goals 
and student participation in the reimbursable meals program. Some 
suggested that exempt

[[Page 39106]]

fundraisers should be allowed only outside school hours.
    The proposed rule offered two options for infrequent school-
sponsored fundraisers that do not have to meet the rule's 
competitive food standards. The first would allow State agencies to 
set limits on the number of exempt fundraisers allowed during the 
year. The second option would require USDA approval of those State 
agency plans. USDA adopted the less restrictive option, allowing 
States to set limits on frequency without USDA review. This option 
reduces the estimated administrative burden of the rule. It also 
allows individual States, not USDA, to determine how best to balance 
the interests of SFA officials and child nutrition advocates, who 
tend to favor more restrictive rules for exempt fundraisers, against 
the interests of student organizations and industry groups that 
depend on the revenue from those sales.

E. Effects on School Foodservice Administration

    School foodservice directors, foodservice staff, State 
officials, and foodservice management companies expressed concern 
about the administrative burden that the proposed rule would place 
on SFAs. Some commenters were particularly concerned that 
implementation of competitive food standards would occur before 
schools have fully adjusted to the administrative challenges of the 
new lunch and breakfast meal patterns. Others pointed to the burden 
of identifying whether foods meet the rule standards and noted that 
that burden would impose ongoing costs as new products are 
introduced and as kitchen staff develop new recipes. Recordkeeping 
and monitoring of compliance by non-SFA groups engaged in 
fundraising also raised concern among foodservice administrators 
over their need to train and potentially oversee non-SFA staff. USDA 
acknowledges that the rule imposes new administrative costs on SFA 
and LEA staff. However, the administrative burden of establishing 
and documenting compliance with the new standards is necessary to 
ensure that students realize the benefits of a healthier school food 
environment. In addition, some of the comments indicated a 
preference for additional time to implement the standards. USDA does 
commit to providing the necessary guidance to SFAs and LEAs to 
clarify their respective documentation and recordkeeping 
responsibilities.

F. Health Benefits

    Some commenters questioned the potential health benefits of the 
proposed rule, suggesting that school children will not buy healthy 
snacks but will instead bring food from home or go off campus to buy 
the foods they want. While some students may refuse to buy healthy 
snacks that comply with Federal standards, others may respond 
positively to newly available healthy snacks. The immediate goals of 
the interim final rule are to encourage healthy eating habits by 
students who might respond to such encouragement, make healthy 
snacks an option for students who desire it, reinforce parents' 
efforts to encourage healthy eating, and support the investment that 
schools are making in a healthier meals program. The longer-term 
benefits of achieving these goals are ``improved dietary intake[s] 
and the long-term health of millions of children across the 
country'' (Lavizzo-Mourey, 2013, p. 4).
    The National Education Association Health Information Network 
summed up the need for standards, writing, ``[g]iven the high 
childhood obesity rates in the United States and the important role 
foods and beverages available for sale in school play in children's 
diet, it is imperative that competitive foods are held to high 
standards, as are school meals'' (Howley, 2013, p. 2). The American 
Heart Association discussed hypertension and the benefits of 
restricting sodium in diets and noted that children are at risk for 
developing ``heart disease and elevated blood pressure at an earlier 
age now because an estimated 97% of them currently consume too much 
salt'' (Arnett, 2013).
    Some of the students who submitted comments expressed interest 
in making healthy food choices a part of their lifestyles, and that 
requires healthy options in school. The rule's competitive food 
standards will contribute to a school environment that supports 
these students' efforts to eat healthier. Other commenters 
criticized USDA for substituting government rules for lessons that 
ought to be learned at home. A number of parents expressed approval 
that the healthy environments they were creating in their homes, 
especially with regard to healthy eating behaviors, would be 
``supported and encouraged'' at school.
    Although some commenters expressed skepticism that the rule 
could deliver on its promised health benefits, and others criticized 
the rule as too intrusive on student and school decision-making, few 
commenters, if any, took issue with the goal of improving the health 
of American schoolchildren. USDA modified the proposed rule in 
response to comments that expressed concerns about cost, revenue 
impacts, and administrative practicality, in order to facilitate 
successful implementation of the rule and realize its full potential 
health benefits.

IV. Cost-Benefit Analysis

    The rule requires schools to improve the nutritional quality of 
foods offered for sale to students outside of the Federal school 
lunch and school breakfast programs.
    The key benefit sought through this interim final rule is to 
improve the food choices that children make during the school day. 
By helping to ensure that all foods sold at school--those provided 
as part of a school meal or sold in competition with such meals--are 
aligned with the latest dietary recommendations, the rule should 
also improve the mix of foods that students purchase and consume at 
school.
    Although the complexity of factors that influence overall food 
consumption and obesity prevent us from defining a level of dietary 
change or disease or cost reduction that is attributable to the 
rule, there is evidence that standards like those in the rule will 
positively influence--and perhaps directly improve--food choices and 
consumption patterns that contribute to students' long-term health 
and well-being, and reduce their risk for obesity.
    Any rule-induced benefit of healthier eating by school children 
would be accompanied by costs, at least in the short term. Healthier 
food may be more expensive than unhealthy food--either in raw 
materials, preparation, or both--and this greater expense would be 
distributed among students, schools, and the food industry. 
Moreover, students who switch to less-preferred foods and beverages 
could experience a utility loss. If students do not switch to 
healthier foods, they may incur travel or other costs related to 
obtaining their preferred choices from a location less convenient 
than school. Regardless of student response, the proposed rule would 
also impose administrative costs on schools and their food 
authorities.
    Additional effects of the rule may include transfers of food 
sales revenue to or from school food authorities. Such effects would 
be correlated with health outcomes.

A. School Revenue Effects

    Changing the mix of competitive foods offered by schools will 
likely change student expenditures on those foods, with potential 
implications for school food service revenues. It may also change 
the extent to which students purchase reimbursable school meals, 
resulting in changes in amounts transferred from USDA to schools 
(via SFAs) and from students to SFAs for reduced price and paid 
meals.
    This analysis examines a range of possible responses of students 
and schools, and resulting changes in school revenue, based on the 
experience of States, school districts, and schools with similar 
standards. The analysis incorporates research findings published 
since publication of the proposed rule and it reflects input 
provided by school foodservice administrators and other interested 
parties who submitted comments. While evidence on the overall impact 
of competitive food standards on school revenues is mixed, a number 
of schools implementing such standards have reported little change, 
and some have seen increases in revenues.\71\ Our analysis 
illustrates a number of different possible revenue impacts that 
could result, all of which are relatively small (+0.5 percent to -
1.3 percent).\72\ By way of comparison, USDA has previously 
estimated that the combined effect of the other school food service 
revenue provisions included in HHFKA are expected to increase 
overall school food revenue by roughly six percent.\73\ The combined 
estimated effect of

[[Page 39107]]

these rules is thus a net increase in SFA revenue.
---------------------------------------------------------------------------

    \71\ Throughout this analysis we rely on data collected by 
researchers from a number of studies. In most cases, financial 
impacts are described in terms of ``revenues'' gained or lost; those 
studies did not collect the data necessary to compare changes in 
revenues from the sale of competitive foods compared to changes in 
costs of acquiring those foods for sale.
    \72\ These figures are intended to illustrate possible national 
level net effects. As noted by interested parties who submitted 
comments on the proposed rule, relatively modest national net 
impacts do not preclude greater positive or negative effects in 
individual SFAs.
    \73\ http://www.fns.usda.gov/cnd/Governance/regulations/2011-06-17.pdf.
---------------------------------------------------------------------------

1. Existing Research on Revenue Effects

    Students who currently purchase competitive foods will adjust 
their behaviors in a number of ways in response to Federal 
standards. Some students will accept the new competitive food 
offerings. Some will not and will turn instead to the Federal 
reimbursable meals programs. Other students will replace school food 
purchases with food from home. And, where the option exists, 
students may spend their competitive food dollars off campus. 
Student responses, in turn, will depend on the ability of schools, 
food manufacturers, and the foodservice industry to offer appealing 
choices.
    It is instructive to begin with a review of studies and 
evaluations of existing State and local standards. While none of the 
existing standards are fully aligned with the provisions of the 
interim final rule, they offer the best available insight into the 
likely consequences of the rule on school revenues and costs.
    A number of studies have looked at the effects of implementation 
of nutrition standards on school food service revenues in a handful 
of States:
     A series of studies examined California's Linking 
Education, Activity and Food (LEAF) pilot program (Woodward-Lopez et 
al 2005a; Vargas et al 2005). Among 16 high schools that received 
LEAF grants to implement competitive food standards adopted by 
California, 13 reported increases in total food service revenues, 
usually through increased reimbursable meal sales that offset a 
concurrent decrease in [agrave] la carte sales. Net income increased 
in three of the five sites that provided data on expenditures, and 
fell at the other two sites. It is not clear how much of the 
observed effects are solely due to the changes in competitive food 
standards because the pilot schools received grants ranging from 
about $200,000 to $740,000 for a 21 month implementation period \74\ 
(Center for Weight and Health, 2005).
---------------------------------------------------------------------------

    \74\ Receipt of grant money may have contributed to these 
schools' successful implementation of competitive food reforms.
---------------------------------------------------------------------------

     A related assessment of the impact of California's 
legislated nutrition standards reports that 10 of 11 schools that 
reported financial data experienced increases of more than five 
percent in total food and beverage revenue after implementation 
(Woodward-Lopez et al. 2010). Among the five schools that provided 
data for non food service sales of competitive foods and beverages 
(primarily from vending machines), four experienced a decrease in 
revenue of more than five percent and one experienced a modest 
increase.
     An estimated 80 percent of surveyed principals in West 
Virginia reported little or no change in revenues after 
implementation of a state policy requiring schools to offer 
healthier beverages and restrict low nutrient dense foods and soda 
(West Virginia University, 2009).
     Pilot projects in Connecticut and Arizona report, in 
some cases, increased food sales, increased meal participation, and 
no significant change or loss in food service revenue (Long, 
Henderson, and Schwartz, 2010; Arizona Healthy School Model Policy 
Implementation Pilot Study, 2005).
     Green Bay, Wisconsin officials reported that ``[w]hen 
low-nutrient foods were removed from [agrave] la carte lines and 
replaced with healthful alternatives, daily [agrave] la carte 
revenue decreased by an average of 18 percent. However, the 
decreased emphasis on [agrave] la carte sales prompted a 15 percent 
increase in school meal participation! The revenue generated by the 
additional school meals more than doubled the lost [agrave] la carte 
revenue. Therefore, bottom-line dollars for school foodservice have 
increased overall'' (USDA, et al., 2005, p. 98).
     South Carolina's Richland One District ``reported 
losing approximately $300,000 in annual [agrave] la carte revenue 
after implementing [competitive food] changes, [but] school lunch 
participation and subsequent federal reimbursements increased by 
approximately $400,000 in the same year'' (GAO 2005, p. 43).
     Wharton, Long, and Schwartz (2008) reviewed ``the few 
available'' revenue-related articles and studies focused on 
healthier competitive food standards and determined that the ``. . . 
data suggest that most schools do not experience any overall losses 
in revenue'' after implementing healthier standards (p. 249).
     Most studies have assessed the impact of nutrition 
policies in the immediate post-implementation period. A recent 
effort examined longer-term impacts. Comparing revenue data over 
three years from 42 middle schools in five States, half of which 
adopted healthier competitive food standards, Trevi[ntilde]o et al. 
(2012) found no difference and concluded that providing healthier 
food options is affordable and does not compromise school food 
service finances.
    The Pew Health Group addressed the issue of revenue changes due 
to healthier competitive foods in its recent Health Impact 
Assessment (HIA). After analyzing the relationship between State 
policies and school-related finances, Pew researchers concluded 
that:
    When schools and districts adopted strong nutrition standards 
for snack and [agrave] la carte foods and beverages, they generally 
did not experience a decrease in revenue overall. In most instances, 
school food service revenues increased due to higher participation 
in school meal programs. However, in some cases, school districts 
experienced initial declines in revenue when strengthening nutrition 
standards. The HIA concluded that, over time, the negative impact on 
revenue could be minimized--and in some cases reversed--by 
implementing a range of strategies (Pew, RWJF, 2012, p. 4).
    Similarly, after reviewing the evidence, the National Center for 
Chronic Disease Prevention and Health Promotion at CDC concluded 
that ``[w]hile some schools report an initial decrease in revenue 
after implementing nutrition standards, a growing body of evidence 
suggest that schools can have strong nutrition standards and 
maintain financial stability'' (CDC, Implementing Strong Nutrition 
Standards for Schools: Financial Implications, p. 2).
    A 2013 report by the Illinois Public Health Institute studied 
the experience of eight U.S. school districts that implemented 
``strong'' competitive food standards without negative financial 
consequences.\75\ The standards adopted by these districts, whether 
on their own initiative or in response to State mandates, are 
comparable to USDA's interim final rule standards. The study's 
purpose was to learn from districts that successfully implemented 
strong standards without financial loss, not to determine the 
success rate among all districts that implemented similar standards. 
Nevertheless, among 27 districts that imposed strong competitive 
food standards (from a national sample of 622 districts selected for 
a broader study of school wellness policies) food service directors 
in 12 of those districts perceived no negative financial impact. 
Although competitive food profits generally declined in these 
districts, overall food service profits increased or remained 
stable, due largely to increased participation in the school meal 
programs. Only three of the 27 districts reported losing money.\76\
---------------------------------------------------------------------------

    \75\ The authors selected districts that both implemented and 
enforced clear standards for particular foods and/or nutrients. ``To 
identify possible districts, `strength' scores were computed for the 
competitive food provisions included in each district's policy for 
each grade level of applicability--middle and high school. Scores 
represented strong standards for vending machines AND [agrave] la 
carte lines AND school stores in terms of specific and required 
limits on fats and sugars in foods, bans on regular soda, other 
sugar-sweetened beverages (SSBs) (other than sports drinks), and 2% 
or whole fat milk. All school districts that allowed the sale of any 
candy, energy drinks, soda, or other SSBs (not including sports 
drinks) were categorically excluded from the selection process.'' 
(Bassler, et al., 2013, p. 11)
    \76\ One district reported no competitive food sales at all. The 
remaining 11 districts either failed to return the researchers' 
screening questionnaire, or chose not to participate in the study.
---------------------------------------------------------------------------

    While the existing research suggests that the national impact of 
competitive food standards is likely to be relatively modest, there 
is substantial variation in the experience and results to date. The 
information available indicates that many schools have successfully 
introduced competitive food reforms with little or no loss of 
revenue. In some of those schools, losses from reduced sales of 
competitive foods were fully offset by increases in reimbursable 
meal revenue. In other schools, students responded favorably to the 
healthier options and competitive food revenue increased or remained 
at previous levels.
    But not all schools that adopted or piloted competitive food 
standards fared as well. A number of SFA and school officials who 
submitted comments on the proposed rule indicated that they suffered 
significant reductions in competitive food revenue following 
adoption of local or State imposed standards. Others noted that 
their schools depend on competitive food revenue to balance their 
foodservice budgets, and that even a moderate decrease in 
competitive food revenue will be difficult to absorb. Some 
officials, particularly those with relatively few free or reduced-
price eligible students, noted that USDA's analysis of possible 
revenue effects from the proposed rule did not adequately address 
their situation. These

[[Page 39108]]

officials indicated that even if the overall average impact at the 
national level is modest, some SFAs will experience far bigger 
revenue losses.
    The updated impact analysis presented below attempts to capture 
wider variation in potential SFA revenue outcomes than the proposed 
rule analysis, and give greater attention to the downside risk of 
significant revenue losses. At the same time, the analysis 
incorporates data that has been made available since preparation of 
the proposed rule analysis that offers additional support for the 
conclusion that revenue effects are likely to be modest over the 
long term in most SFAs.

2. Estimating School Revenue Changes

    To assess the impacts of the interim final rule on school 
revenue, we reviewed the evidence summarized above, identified three 
scenarios for student behavior, and estimated the revenue changes 
that could result. Each of these scenarios is meant to illustrate 
one reasonable response to competitive food nutrition standards. The 
actual response of students, and the impact on SFAs, will likely 
include some mix of all three. In addition, the experience of States 
and SFAs that have already imposed their own competitive food 
standards makes clear that each of these scenarios can result in 
revenue impacts of varying size.
     Scenario 1: Relatively high student acceptance of new 
competitive foods, thereby allowing schools to maintain existing 
competitive food sales.
     Scenario 2: Lower competitive food sales with fully 
offsetting increases in school meal participation.
     Scenario 3: Lower competitive food sales with partially 
offsetting increases in school meal participation.
    We assume that the percentage change in NSLP participation 
([Delta]L) following implementation of competitive food standards 
will be directly related to the percent change in competitive food 
purchases ([Delta]CF), since a portion of competitive food purchases 
are for lunch consumption. We assume that the change in competitive 
food revenue occurs largely from students whose response to new 
standards takes the form of increased or decreased demand, and that 
all other students maintain previous levels of purchasing.\77\ 
Students who do not buy the new options are assumed to behave as if 
competitive foods were not available, and we model their behavior 
using the effect of competitive foods availability on NSLP 
participation as measured by Gordon, et al. (2007). Gordon, et al. 
(SNDA III, vol. 2, p. 117) estimate that the NSLP participation rate 
was 4.6 percentage points higher in schools that did not offer 
competitive foods during mealtimes compared to those that did. We 
scale this result by the percentage change in competitive food sales 
potentially brought about by the interim final rule ([Delta]CF) and, 
in order to express [Delta]L as a percentage (rather than percentage 
point) change, divide by the baseline NSLP participation rate, 
estimated in the SNDA-III to be 61.7 percent.\78\
---------------------------------------------------------------------------

    \77\ This is in contrast to the possibility that all students 
reduce their purchases by the same percentage.
    \78\ This relationship assumes that (1) the increase in NSLP 
participation must come from non-participants who bought competitive 
foods as part of lunch, (2) that the decrease in competitive food 
purchases occurs as a reduction in the number of students purchasing 
competitive foods while students still purchasing competitive foods 
do not change their behavior, and (3) the proportion of students who 
switch from purchasing competitive foods as part of lunch to NSLP 
participation is the same as the additional proportion of students 
who participate in NSLP in schools where competitive foods are not 
available.

---------------------------------------------------------------------------
[Delta]L = [Delta]CF x (-4.6/61.7).

    The value of comparing changes in competitive food revenue to 
changes in NSLP revenue is limited to the extent that costs per 
dollar of gross revenue from the two sources differ. Although we do 
not have the data necessary to estimate profit margins on 
competitive foods, we expect that margins on NSLP meals and [agrave] 
la carte items, the most important subgroup of competitive foods, 
are similar.

Scenario 1: High Student Acceptance of New Competitive Foods

    For this scenario, we look to the experience of schools and 
school districts that have maintained or increased competitive food 
sales after introduction of healthier standards. With relatively 
modest efforts to engage students in developing standards and to 
promote healthier choices, these schools have demonstrated that 
student demand for healthier competitive foods can be maintained or 
increased.
    Most competitive food revenue is generated by sales of [agrave] 
la carte foods. If competitive food revenue continues to be driven 
largely by [agrave] la carte sales, and the transition to healthier 
school meals (and, by extension, healthier [agrave] la carte items) 
is well under way prior to the implementation of competitive food 
standards, then the incremental effect of those standards on 
competitive food revenue in the short term could be relatively 
small.
    Under this scenario, we assume a modest five percent increase 
(beginning in SY 2016-2017 following no change in the first full 
school year after implementation) in competitive food revenue after 
the initial transition to healthier competitive foods. We choose 
five percent to match the minimum competitive food revenue increase 
recorded by three of ten schools in the California Healthy Eating 
Active Communities study (Woodward-Lopez, et al., 2010).
    Given that many schools have already adopted competitive food 
standards, we then adjust our five percent assumption to account for 
the effects already experienced by those schools. While we cannot 
precisely quantify these costs and revenue impacts, our review of 
the standards in place in the four largest States and the nation's 
largest school district provides a basis for adjusting the 
assumption: We reduce all of our estimates by 20 percent. After the 
20 percent adjustment, we estimate an increase in competitive food 
revenues of four percent ([Delta]CF = 4.0).
    These case studies confirm the general NSLP participation effect 
described in SNDA-III, suggesting that an increase in competitive 
food purchases after implementation of the proposed rule may come at 
the expense of NSLP participation. Because this scenario assumes a 
small increase in competitive food revenues, we estimate that SFAs 
will experience a slight (0.3 percent) decrease in school meal 
participation ([Delta]L = -0.3).
    We attribute 36 percent of the 0.3 percent change in the lunch 
participation to students who are eligible for free and reduced-
price meals, and the other 64 percent to students who pay full 
price,\79\ based on unpublished results showing that 64 percent of 
competitive food purchases were made by students not eligible for 
free or reduced-price meals.\80\ Our analysis uses the relative 
proportions of free and reduced-price lunches projected by USDA for 
the FY 2014 President's Budget to divide the 36 percent into 
separate free and reduced price components. For FY 2012, the 
observed proportions were 60 percent and 9 percent for free and 
reduced price lunches, and 32 percent for paid.
---------------------------------------------------------------------------

    \79\ Paid, reduced price, and free NSLP meals each have some 
level of government subsidy, therefore even lunches that are ``full 
price'' are subsidized.
    \80\ Unpublished ERS analysis of SNDA-III data.
---------------------------------------------------------------------------

    Our estimated reduction in SFA revenue from free lunches is 
equal to the projected Federal subsidy for free lunches multiplied 
by our estimated reduction in free lunches served. The projected 
Federal per-meal subsidy is from the President's Budget. The 
reduction in free lunches is equal to 0.3 percent of the Budget's 
baseline number of all reimbursable lunches multiplied by our 
estimated share of free lunches (60 percent of 36 percent, from 
above).
    We use similar logic to estimate the reduction in SFA revenue 
from reduced-price and paid lunches, except that we also include the 
lost value of student payments for those meals. For reduced-price 
lunches we use the 40 cent maximum charge allowed by the NSLA.\81\ 
For paid lunches we use the same projected average price per meal 
developed for the regulatory impact analysis for the rule to 
implement Sections 205 and 206 of HHFKA.\82\
---------------------------------------------------------------------------

    \81\ 42 USC 1758(b)(9)(B).
    \82\ See rule and RIA in Federal Register Vol. 76, No. 117, pp. 
35301-35318. For SY 2014-2015 we use an average paid meal price of 
$2.29.
---------------------------------------------------------------------------

    Federal reimbursements are necessarily lower than SFA revenues 
for the same meals since the SFA revenue includes student payments 
for meals served at reduced or full price. Our estimated reduction 
in Federal costs is the product of the estimated decrease in NSLP 
meals multiplied by projections of the value of the reimbursements 
for free, reduced price, and paid meals.\83\ The net impact in 
schools whose experiences align with this estimate is an overall 
school food revenue (SFA and other school group revenue) increase of 
roughly 0.5 percent. Our estimated reduction in Federal payments is

[[Page 39109]]

equal to roughly 0.2 percent of overall NSLP reimbursements.
---------------------------------------------------------------------------

    \83\ FNS projections of Federal reimbursements for free, reduced 
price, and paid lunches are those used to prepare the FY 2014 
President's Budget, adjusted for changes for Sections 205 and 206 of 
HHFKA.
---------------------------------------------------------------------------

Scenario 2: Lower Competitive Food Sales With Fully Offsetting 
Increases in School Meal Participation

    School districts that have implemented strong competitive food 
standards without lasting adverse financial effects commonly report 
that increases in reimbursable meal participation and revenue offset 
reductions in revenue from competitive food sales. A 2013 
compilation of case studies by the Illinois Public Health Institute 
reported offsetting reimbursable meal revenue in large and small 
districts, both urban and rural, in all regions of the country 
(Bassler, et al., 2013).\84\
---------------------------------------------------------------------------

    \84\ Unlike other studies cited in this analysis, the Bassler 
study focused on profits, rather than revenues. Citing USDA and 
other research, Bassler and colleagues point out that changes in net 
profits from reimbursable meals and competitive food sales are more 
meaningful than changes in net revenue, given that excess profits 
from reimbursable meals sometimes subsidize competitive food losses 
when costs are properly allocated across reimbursable meal and 
competitive food accounts, p. 95.
---------------------------------------------------------------------------

    ``In spite of a perceived decline in competitive food profits, 
none of the food service directors [interviewed for the study] 
reported significant on-going financial concerns. In fact, when 
considering all food service accounts, as opposed to just 
competitive food revenues, profits either increased or stayed the 
same after implementation of stronger nutrition standards, with 
increases to food services accounts largely attributed to increased 
participation in the school meal program'' (Bassler, et al., 2013, 
p. 18).
    As discussed in Section IV.A. above, these districts were 
selected for study by the Illinois researchers precisely because 
they were able to implement strong standards without a negative 
impact on overall food service profits. The study was not designed 
to determine how common this experience is, although only a minority 
of districts that implemented strong standards reported a reduction 
in overall food service profits. One of the goals of the case 
studies was to identify the policies and practices that contributed 
to the districts' success. At least one food service industry 
representative commented that USDA's proposed rule analysis was 
based on the experience of schools whose voluntary standards may not 
have been comparable to the proposed rule. The Illinois Public 
Health Institute case studies suggest that implementation of strong 
competitive food standards--standards comparable to those contained 
in the interim final rule--need not necessarily strain food service 
budgets.
    Although overall food service profits remained stable, profits 
from competitive foods decreased on implementation of strong 
standards in all but one of the eight case study districts. Food 
service directors in five of the seven districts that reported 
decreases indicated that the initial drop in competitive food 
profits ranged from five to 20 percent. Two reported initial 
decreases in profits greater than 20 percent. In all but one 
district, initial decreases in competitive food profits were 
followed by substantial though not complete recovery within a couple 
of years. For purposes of this scenario, we model a sustained 10 
percent decrease in competitive food revenue for both SFAs and non-
SFA school groups.
    To adjust for States and school districts that have already 
adopted competitive food standards, we assume that 20 percent of the 
revenue impact has already been realized nationwide. That reduces 
the estimated 10 percent competitive food revenue loss to 8 percent 
([Delta]CF = -8).
    As students reduce their competitive food consumption in search 
of alternatives, many turn to reimbursable meals. After 
implementation of changes to competitive food and school meal 
standards, many of the items offered [agrave] la carte (the largest 
component of SFA competitive food sales) will be identical to 
components offered in reimbursable meals. In this scenario, those 
most likely to turn away from competitive foods are also those who 
recognize that they may be able to get the same foods at lower price 
in an NSLP meal.
    It is possible that students' economic circumstances will play a 
role in their decision to replace competitive foods with 
reimbursable meals. Once reimbursable meals and competitive foods 
are subject to comparable nutrition standards, and the difference 
between competitive foods and a reimbursable meal is reduced largely 
to price, increased participation in the reimbursable meals program 
may be particularly attractive to students who qualify for free or 
reduced-price benefits.
    Districts with relatively few low-income students may have to 
rely more heavily on marketing and nutrition education to maintain 
or increase participation in the meal programs. In at least one of 
the higher-income districts in the Bassler study, these strategies 
were coupled with modest increases in full-price lunches.
    For SFAs with a mix of competitive food and program revenue 
equal to the U.S. average, an eight percent reduction in competitive 
food revenue would be fully offset with a three percent increase in 
reimbursable meal revenue.
    For other school groups, net revenues are driven by a different 
set of rules and opportunities. School group sales that are held off 
campus or after school hours are not subject to the interim final 
rule standards. In addition, the interim final rule provides for 
infrequent in-school fundraisers that permit the sale of foods that 
would not otherwise meet the new standards. And unlike SFAs, school 
groups need not depend on food sales to raise revenue; they may turn 
instead to non-food sales to compensate for reduced sales from 
competitive foods.\85\ For these reasons, it may be reasonable to 
assume a smaller net reduction in overall revenue for school groups 
than for SFAs. At the same time, some groups may have little 
experience with non-food sales, and may find it more challenging 
than SFAs to fully offset their loss of competitive food revenue, at 
least in the short term. For this scenario and for Scenario 3, then, 
we assume a net reduction of five percent in school group revenue.
---------------------------------------------------------------------------

    \85\ Bassler, et al., 2013, confirms the viability of non-food 
sales as an alternate revenue source. See, for example, pp. 19 and 
62.
---------------------------------------------------------------------------

    Overall, the net impact on overall school food revenue (SFA and 
other school group revenue) under Scenario 2 is estimated at -0.04 
percent. The estimated increase in Federal payments is roughly 2 
percent of NSLP reimbursements.

Scenario 3: Lower Competitive Food Sales With Partially Offsetting 
Increases in School Meal Participation

    The Illinois Public Health Institute case studies confirm what 
earlier researchers identified as strategies for successful 
implementation of competitive food reform (Bassler, et al., 2013). 
Successful districts commonly adopt a comprehensive strategy to 
maintain overall food service revenue, a strategy that focuses on 
reimbursable meals as well as competitive foods, rather than an 
approach designed to maintain each component's pre-reform share of 
revenue.
    Like earlier studies, the Illinois study found that student 
engagement, involvement of cafeteria staff, cooperation from 
vendors, and leadership from food service directors, school boards, 
and district administrators were all important contributors to 
success. Specific strategies include ensuring a variety of healthy 
food options for students, introducing new foods gradually, 
marketing and packaging, nutrition education, appropriate pricing of 
competitive foods and reimbursable meals, and encouraging selection 
of healthy foods with small changes in cafeteria layout or 
displays.\86\
---------------------------------------------------------------------------

    \86\ See also: USDA, et al., 2005; Pew, RWJF, 2012; Just and 
Wansink, 2009.
---------------------------------------------------------------------------

    These strategies, in various combinations, have proven 
successful in districts regardless of size, urban or rural status, 
and the percent of student enrollment certified for free and 
reduced-price meals. Because the same strategies will be available 
to districts whose implementation of the interim final rule will be 
their first step toward competitive food reform, we expect that most 
will implement the new standards without significant financial 
impact.
    Nevertheless, some food service managers and at least one 
management company who submitted comments on the proposed rule 
analysis indicated that their own adoption of competitive food 
reforms coincided with decreases in competitive food sales without 
offsetting increases in reimbursable meal revenue. At least one 
commenter even pointed to decreases in reimbursable meal revenue, 
noting that some districts implemented competitive food reforms at 
the same time that they were adopting new NSLP meal patterns in SY 
2012-2013.
    There are reasons to expect that the experience of these 
districts is not a good predictor of how other districts will fare 
when they implement the interim final rule standards. One key 
difference is that the interim final rule will take effect in July 
2014, two years after the effective date of revised NSLP meal 
patterns. This implementation lag means that students will have had 
time to adjust to a variety of healthier school foods before the 
introduction of competitive food standards.

[[Page 39110]]

USDA believes that given the July 2014 implementation date, school 
districts and the food and food service industries will have time to 
continue developing a variety of healthy competitive food options 
that meet the standards. Both incremental change in the school food 
environment and a variety of healthy options are cited as factors in 
successful competitive food policy implementation.
    Even though we expect that implementing interim final rule 
standards in 2014 will prove less challenging than had we adopted 
comprehensive school meal and competitive food reforms in SY 2012-
2013, we recognize that some districts will see a reduction in 
competitive food revenue that is not fully offset by increases in 
revenue from reimbursable meals.
    As suggested by some commenters, this risk is perhaps greatest 
for districts with relatively few students certified for free or 
reduced-price meals. Two of the districts studied by the Illinois 
Health Institute reported relatively few free or reduced-price 
eligible students (just 22 percent and 35 percent of enrollment). 
One of these reported an initial 20 percent reduction in competitive 
food profit after implementation of new standards with some recovery 
over time.\87\
---------------------------------------------------------------------------

    \87\ Interestingly, though, district officials attributed that 
reduction primarily to their new standard's ban on soda sales. 
Relatively few districts will see a drop in competitive food profits 
for that reason: just 12 percent of U.S. schools, and 24 percent of 
high schools in the U.S. sold soda in school vending machines in SY 
2009-2010 (Fox, et al., 2012; Volume 1, p. 3-47).
---------------------------------------------------------------------------

    For purposes of Scenario 3, a 20 percent reduction in 
competitive food revenue is an extreme outcome. This case study 
district has an open campus policy in its high schools, a policy 
shared by just 19 percent of U.S. high schools in SY 2009-2010 (Fox, 
et al., 2012; Volume 1, p. 3-4). Also, the study reported some 
recovery in competitive food revenue over time. Scenario 3 models an 
outcome where only a small fraction of the loss in competitive food 
revenue is offset with revenue from within the food service account. 
Since students have finite options for meals during the school day, 
a reduction in competitive food revenue near the extreme end of the 
case study findings (where reductions in competitive food profits 
were fully offset by profits on other food service sales) is 
unlikely. We assume the more reasonable, but still substantial 10 
percent reduction in SFA revenue that we used in Scenario 2. We also 
assume here, as we do in Scenario 2, that other school group revenue 
decreases by 5 percent.
    Applying the same adjustment we used in the previous two 
scenarios for competitive food policies already implemented around 
the country, we assume a reduction in SFA competitive food revenue 
of 8 percent ([Delta]CF = -8). With that reduction in competitive 
food revenue, our model of partially offsetting NSLP participation 
is 0.6 percent ([Delta]L = 0.6).
    Overall, Scenario 3 suggests a net decrease in school food 
revenue of roughly 1.3 percent, and an increase in Federal NSLP 
reimbursements of 0.4 percent.

B. Impacts on Participating Children and Families

    Beyond revenue impacts to SFAs and other school groups, changes 
in food purchasing choices caused by the interim final rule will 
also have an economic effect on children and their families. The 
projected decreases in competitive food revenues represent 
reductions in spending by school children and their families on 
school-provided competitive foods. We do not have sufficient 
information to estimate increases or decreases in overall spending 
by students who find alternatives to school-provided competitive 
foods. Some students will spend less overall by replacing 
competitive foods consumption with free or reduced price school 
meals. A decrease in competitive food sales may also increase foods 
brought from home and/or foods purchased outside of schools. These 
imply revenue increases for food industries that sell foods brought 
from home and purchased outside the school setting.
    The rule will not impact all students in the same way. For 
example, price and availability of competitive foods may differ by 
region of the country, constraining choices for some but not all 
students. For some students, choices will be limited by their 
incomes. For other students, alternatives to competitive foods will 
be limited by school policy. For example, students at schools with 
open campuses may have more available competitive food options than 
students on closed campuses. However, taking advantage of that 
option has some cost in terms of time and perhaps money, resources 
that are not equally available to all students.\88\ Students on 
closed campuses lack the ability to leave school at lunch time, 
which may tend to minimize the differences in the competitive food 
choices available to students of different economic means. Faced 
with fewer opportunities to make poor food choices, students on 
closed campuses may benefit by choosing healthier competitive foods 
or reimbursable meals.
---------------------------------------------------------------------------

    \88\ Open campus policies are relatively uncommon. As we note in 
Section III.A., just 19 percent of high schools had open campus 
policies in SY 2009-2010, down from 25 percent 5 years earlier. Open 
campus policies are rare among lower grades; just 1.9 percent of 
elementary schools, and 1.3 per cent of middle schools reported 
having such policies in SY 2009-2010 (Fox, et al., 2012, Vol. 1, p. 
3-29).
---------------------------------------------------------------------------

C. Administrative Costs

    Under the interim final rule, LEAs and SFAs will be required to 
maintain records such as receipts, nutrition labels, and/or product 
specifications for food items that will be available to students on 
the school campus during the school day. The purpose of this 
documentation is to ensure that those foods comply with the 
competitive food standards. Thus, there will be recordkeeping costs 
associated with the interim final rule and these costs will occur at 
the State agency level, the SFA and LEA level, and at the school 
level. The estimated additional annual burden for recordkeeping 
under the proposed rule is 927,633 hours, divided among the State 
agencies (1,739 hours), LEAs and SFAs (417,160 hours), and schools 
(508,735) hours.\89\ Our estimate uses data from the Bureau of Labor 
Statistics on wages and salaries for State and local government 
employees and assumes no growth in burden hours over time. Wages are 
inflated using estimates from the 2014 President's Budget. \90\ Note 
that the rule increases recordkeeping costs, but does not impose any 
new reporting requirements on State or local officials.
---------------------------------------------------------------------------

    \89\ See the preamble of the rule for additional detail on these 
Paperwork Reduction Act estimates.
    \90\ We use wages and salaries for administrative employment in 
the state and local government sector from the Bureau of Labor 
Statistics' ``Employer Cost for Employee Compensation'' database 
(http://www.bls.gov/data/home.htm). For FY 2011, wages and salaries 
for these positions averaged $23.52 per hour. We inflate these 
through FY 2016 with projected growth in the State and Local 
Expenditure Index prepared by OMB for use in the FY 2014 President's 
Budget.
    \91\ Table 3 estimates costs in nominal dollars. The same table, 
using constant 2013 dollars, appears in Section VI.

                                 Table 3--Estimate of Administrative Costs for Recordkeeping for Interim Final Rule \91\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Fiscal year (millions)
                      Recordkeeping                      -----------------------------------------------------------------------------------------------
                                                               2014            2015            2016            2017            2018            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
State Agencies..........................................           $0.04           $0.05           $0.05           $0.05           $0.05           $0.24
SFAs & LEAs.............................................           10.6            10.9            11.3            11.7            12.0            56.5
Schools.................................................           12.9            13.3            13.8            14.2            14.7            68.9
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................           23.5            24.3            25.1            25.9            26.8           125.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    It is also possible that some schools and LEAs may have 
additional costs due to the rule. For example, some schools may 
require new equipment such as vending machines to accommodate new 
products and package sizes. Additionally, schools and/or LEAs may

[[Page 39111]]

have contracts with vendors that will require modification which 
could result in some additional labor cost. Those costs are not 
estimated here because we lack sufficient information on how many 
schools or LEAs could be affected and how those costs might be 
distributed among affected locations.

D. Industry Effects

    Although they are not directly regulated by the proposed rule, 
food manufacturers and distributors will face changes in demand by 
schools and SFAs in response to the rule.
    Manufacturers will face reduced school demand for some products 
and increased demand for others. Some food manufacturers may not 
have existing product lines that meet the interim final rule's 
requirements and may lose market share to other manufacturers. The 
impact of tightening the nutritional standards for food and 
beverages sold at public schools in the United States on food 
vendors is difficult to know ex-ante. It is likely that the 
elasticity of demand for food at schools is quite steep, implying 
that absent available alternatives, most consumption behavior will 
change aggregate sales by a small amount.
    U.S. SFAs that participate in the NSLP purchased roughly $8.5 
billion in food in SY 2009-2010, including the value of USDA 
foods.\92\ That represents only about 1.3 percent of the $644 
billion worth of shipments from U.S. food manufacturers in 2010.\93\ 
FNS estimates that SFA revenue from competitive food equals about 20 
percent of overall SFA revenue. If we assume that the ratio of food 
cost to revenue is consistent between competitive foods and other 
school foods, then SFA purchases of competitive foods totaled about 
$1.7 billion in SY 2009-2010. That represents only about 0.3 percent 
of the $644 billion worth of shipments from U.S. food manufacturers 
in 2010.
---------------------------------------------------------------------------

    \92\ USDA School Food Purchase Study III, 2012.
    \93\ Bureau of Economic Analysis, Gross Domestic Product by 
Industry, data for NAICS 311 and 312, excluding animal foods, 
tobacco and alcoholic beverages (http://bea.gov/industry/xls/GDPbyInd_SHIP_NAICS_1998-2011.xls).
---------------------------------------------------------------------------

    According to the 2007 Economic Census, about 23.4 percent of 
food manufacturing sales are by firms with 100 or fewer 
employees.\94\ If we assume that competitive food sales are 
distributed to firms in proportion to their share of overall sales, 
we can estimate that in 2010 figures, about $400 million of 
competitive food sales is carried out by these small businesses, out 
of over $150 billion in total sales by these firms.
---------------------------------------------------------------------------

    \94\ Bureau of the Census, 2007 Economic Census (http://www.census.gov/econ/census07).
---------------------------------------------------------------------------

    Implementing nutrition standards for competitive foods will 
result in a more nutritious, and potentially more expensive, mix of 
foods offered. If we assume that the cost of these foods is, on 
average, seven percent higher under the new standards--comparable to 
the estimated cost increase for school meals under updated nutrition 
standards--and that this increase will reduce demand for these foods 
comparably to school meals,\95\ we would expect to see a two percent 
reduction in overall sales of competitive foods--about $34 million 
of the $1.7 billion in sales estimated for SY 2009-2010, with about 
$8 million of these losses experienced by small business.
---------------------------------------------------------------------------

    \95\ See Gleason, ``Participation in the National School Lunch 
Program and the School Breakfast Program,'' Am J Clin Nutr 61: 213S-
220S.
---------------------------------------------------------------------------

    While data is not available to estimate the possible 
distributional effects across the food industry overall, research 
indicates that some of the marketplace changes that would be 
required under the interim standards are already taking place. 
Wescott et al. (2012), for example, found that between 2004 and 2009 
the beverage industry reduced the number of calories shipped to 
schools by 90 percent, with a total volume reduction in full-calorie 
soft drinks of over 95 percent. In addition, in comments submitted 
in response to the proposed rule, representatives of the vending 
industry pointed to their own efforts to identify and market items 
to schools that comply with Alliance for a Healthier Generation 
guidelines. NAMA indicated that its members would incur lower costs 
if the proposed rule were aligned more closely with Alliance 
guidelines. On several items, USDA did align the interim final rule 
more closely with Alliance guidelines. Therefore, at least with 
respect to some products, many of the changes required by the rule 
have already taken place under existing self-regulation and State 
and local standards. And for other products, industry has positioned 
itself well to meet new demand from schools as they implement the 
new Federal standards.
    Local vending machine operators may also face some changes to 
their current business model. Although the effect of the interim 
final rule on individual operators will vary, available industry and 
school data suggest that the effect on this industry group as a 
whole will be small. Vending machine sales made up a small 
percentage of total competitive food revenue in SY 2004-2005. We 
estimate that [agrave] la carte sales accounted for 93 percent of 
total competitive food revenue. The remaining seven percent is 
generated by a variety of alternate sources. Although vending 
machines are the most common of these alternate sources of 
competitive food revenue (they were found in 39 percent of schools 
in SY 2009-2010 (Fox, et al., 2012, vol. 1, p. 3-42)) they are not 
the only alternate source. Based on principals' reports, 13 percent 
of all schools had a school store that sold food and/or beverages 
(including snack foods) and 4 percent had a snack bar (Fox, et al., 
2012, vol. 1, pp. 3-51-52).
    Vending and manual foodservice operators served 18,000 primary 
and secondary schools in 2009, which was down about 17 percent from 
2007 (VendingTimes.com, p. 4).\96\ Primary and secondary schools 
accounted for just 2.2 percent ($930 million out of $42.9 billion) 
of total vending machine sales in 2009 (VendingTimes.com, p. 4).
---------------------------------------------------------------------------

    \96\ This figure is much smaller than the 39 percent of schools 
figure from SNDA-IV. The VendingTimes' industry data was gathered 
through a survey of vending machine operators, providers of coin-
operated entertainment services, coffee-break service providers, and 
related industry subgroups.
---------------------------------------------------------------------------

    These data suggest that the impact of the interim final rule on 
the vending machine industry as a whole will be limited. Just a 
small share of vending industry revenue is generated in primary and 
secondary schools. And, importantly, some of that revenue is 
generated from sales of foods that are already compliant with the 
proposed rule standards, such as 100 percent juice and bottled 
water. Other products found in school vending machines in SY 2009-
2010 were also likely compliant or near-compliant with the proposed 
rule.\97\
---------------------------------------------------------------------------

    \97\ The SNDA-IV data do not allow us to identify which other 
products in school vending machines are compliant with the interim 
final rule standards. Nor do the data allow us to estimate revenue 
from vending machine sales of compliant products. Nevertheless, the 
list of foods found in school vending machines includes several 
categories of products, in addition to water and 100 percent juice, 
that are likely compliant with the interim final rule, or include 
specific products that are compliant. These include milk, other 
lowfat dairy products, certain low calorie beverages, snacks such as 
pretzels and reduced-fat chips, and even fruits and vegetables. See 
Fox, et al., 2012, pp. 3-47-48.
---------------------------------------------------------------------------

    Both industry and Census Bureau data indicate that most vending 
machine operations are small businesses. The majority of vending 
machine operators that operated for the entire year in 2007 (76 
percent) employed fewer than ten individuals according to the U.S. 
Economic Census.\98\ About 37 percent of operators generated less 
than $250,000 in receipts, although those operators accounted for 
less than three percent of total revenue from this industry 
group.\99\ Some small vendors may be challenged by the changes 
contained in the interim final rule. Whether small or large, many 
vending machine operators will need to modify their product lines to 
meet the requirements of the rule.
---------------------------------------------------------------------------

    \98\ Data for NAICS code 454210, ``vending machine operators.'' 
U.S. Census Bureau, http://factfinder2.census.gov/faces/nav/jsf/pages/guided_search.xhtml (accessed 06/03/2013).
    \99\ Ibid. Note that these statistics are for all vending 
machine operators in NAICS code 4545210, not just those that serve 
the school market. We do not know whether the concentration of small 
vending machine operators that serve the school market differs from 
the concentration of small operators in the industry as a whole.
---------------------------------------------------------------------------

    Limited data from California suggests that the transition to 
healthier competitive foods can be managed, that healthier foods can 
be marketed successfully in schools, and that competitive food sales 
outside of the [agrave] la carte line need not decline. In the first 
year healthier competitive food policies under California Senate 
Bill 19 (2001), seven of ten pilot sites that were able to report 
such data saw per capita decreases in non-foodservice competitive 
food sales (Center for Weight and Health, UC Berkeley, 2005, p. 12). 
However, vending machine and/or school store revenue increased in 
two other sites (both high schools) which led researchers to 
conclude that ``SB 19 compliant foods and beverages can be marketed 
successfully at the high school level'' (Center for Weight and 
Health, UC Berkeley, 2005, p. 12).
    As we discuss elsewhere in this document, the interim final rule 
provisions take effect one year after publication, giving industry 
time to modify their product lines. In addition, USDA has chosen to 
implement an interim final rule rather than a final rule, to

[[Page 39112]]

allow an additional opportunity for public comment by all parties 
before the new standards take effect.

E. Distributional Effects

1. Revenues and Grade Level

    Competitive food purchases and revenues are not equally 
distributed across schools. Elementary schools derive much less 
revenue from competitive foods than do secondary schools. They are 
typically smaller, much less likely to have vending machines, and 
usually serve a smaller assortment of [agrave] la carte items. 
According to SNDA-IV, middle and high schools obtain almost three 
times as much revenue from [agrave] la carte foods (the biggest 
source of school competitive food revenue) as do elementary schools 
(Fox, et al., 2012, Volume 1, p. 3-4); therefore, changes in 
competitive food standards will have a greater impact at the middle- 
and high-school levels than they will in elementary schools.

2. Low-Income Students

    Differences in competitive food revenues by free and reduced-
price meal participation, one indicator of whether schools serve 
primarily lower-income students, are even more dramatic. According 
to SNDA-III, schools serving at least one-third of their meals at 
full price to higher income students obtain more than seven times as 
much revenue from competitive food sales as schools serving a larger 
percentage of free and reduced-price (and hence lower-income) 
students.\100\ Guthrie, et al. (2012) found that when considering 
competitive food revenue, schools with high percentages of students 
who qualify for free and reduced price meals were more likely to see 
revenues increase after the introduction of competitive food 
standards, due primarily to increases in meal participation. However 
as noted previously, revenues may drop more in terms of percentages 
at lower-income schools if low-income students are more price-
sensitive than high-income students.\101\ This difference is 
mirrored in the behavior of high-income students. About two-thirds 
(64 percent) of competitive foods and beverages are selected by 
students who are not receiving free or reduced price meals.
---------------------------------------------------------------------------

    \100\ Unpublished ERS analysis of SNDA-III data.
    \101\ Woodward-Lopez, et al., 2010.
---------------------------------------------------------------------------

    Given these purchasing patterns, revenue losses would be 
substantial if students who previously bought competitive foods and 
beverages not allowed under the Federal standards simply stopped 
buying any foods. The revenue losses would be concentrated in 
secondary schools and schools serving higher proportions of non-poor 
students, i.e., students not eligible for free or reduced-price 
meals. However, case studies based on experience with established 
State- or district-level nutrition standards indicate that many 
students will substitute other competitive food and beverage 
purchases, or switch to purchasing USDA school meals. This would 
likely result in reducing revenue losses substantially. In 
predominantly low-income schools, students may be even more inclined 
to turn to reimbursable meals if not satisfied with competitive food 
options. For those students, a free or reduced price meal may become 
the most attractive option.\102\
---------------------------------------------------------------------------

    \102\ See, for example, Bassler, et al., 2013, p. 17. ``While 
many in the school community worry that stronger competitive food 
and beverage standards will disparately and negatively impact low-
income districts, this was not the case in the districts studied 
here. As mentioned above, many of the districts found that 
reimbursable school meal program participation increased. Several 
respondents from low-income districts suggested that when most 
students participate in the free lunch program, the school does not 
rely on competitive food sales. Thus, a drop in competitive food 
sales is unlikely to have a significant impact on the financial 
status of districts with high rates of free- and reduced-price lunch 
participation.''
---------------------------------------------------------------------------

    Some of the greatest concern among school and SFA officials who 
commented on the proposed rule was expressed by those from districts 
with relatively few low-income students. These officials indicated 
that they rely heavily on competitive food revenue, and do not 
expect a significant shift to participation in the reimbursable meal 
programs by students who are dissatisfied with their new competitive 
food choices. Although the challenges faced by these districts may 
be different than those faced by less affluent districts, and the 
strategies for addressing those challenges may be different too, 
case studies offer some insight into how these districts can 
implement competitive food reform without an adverse financial 
impact.
    Finally, there is some suggestion that access to healthy foods 
in schools varies by the socio-economic standing of the school and 
its neighborhood (Tipler, 2010). Improved nutrition standards for 
competitive foods could lessen the nutrition gap among schools.

F. Benefits

    The interim final rule is intended to help ensure that all foods 
sold at school--whether provided as part of a school meal or sold in 
competition with such meals--are aligned with the latest dietary 
recommendations. They will work in concert with recent improvements 
in school meals to support and promote diets that contribute to 
students' long-term health and well-being. And they will support 
efforts of parents to promote healthy choices for children, at home 
and at school.
    A growing body of evidence tells us that giving school children 
healthful food options will help them make healthier choices during 
the school day. In 2012, the Pew Health Group and the Robert Wood 
Johnson Foundation conducted an extensive Health Impact Assessment 
to evaluate potential benefits that could result from national 
standards for competitive foods sold in schools during the school 
day. They concluded that:
     A national competitive foods policy would increase 
student exposure to healthier foods and decrease exposure to less 
healthy foods, and
     Increased access to a mix of healthier food options is 
likely to change the mix of foods that students purchase and consume 
at school, for the better.
    These kinds of changes in food exposure and consumption at 
school are important influences on the overall quality of children's 
diets. While nutrition standards for foods sold at school may not on 
their own be a determining factor in children's overall diets, they 
are a critical strategy to provide children with healthy food 
options throughout the entire school day, effectively holding 
competitive foods to the same standards as the rest of the foods 
sold at school during the school day. This, in turn, helps to ensure 
that the school nutrition environment does all that it can to 
promote healthy choices, and help to prevent diet-related health 
problems. Ancillary benefits could derive from the fact that 
improving the nutritional value of competitive foods may reinforce 
school-based nutrition education and promotion efforts and 
contribute significantly to the overall effectiveness of the school 
nutrition environment in promoting healthful food and physical 
activity choices.
    The link between poor diets and health problems such as 
childhood obesity are a matter of particular policy concern given 
their significant social and economic costs. Obesity has become a 
major public health concern in the U.S., second only to physical 
activity among the top 10 leading health indicators in the United 
States Healthy People 2020 goals.\103\ According to data from the 
National Health and Nutrition Examination Survey 2007-2008, 34 
percent of the U.S. adult population is obese and an additional 34 
percent are overweight (Ogden and Carroll, 2010). The trend towards 
obesity is also evident among children; 33 percent of U.S. children 
and adolescents are now considered overweight or obese (Beydoun and 
Wang, 2011), with current childhood obesity rates four times higher 
in children ages 6 to 11 than they were in the early 1960s (19 vs. 4 
percent), and three times higher (17 vs. 5 percent) for adolescents 
ages 12 to 19 (IOM, 2007b, p. 24). These increases are shared across 
all socio-economic classes, regions of the country, and have 
affected all major racial and ethnic groups (Olshansky, et al., 
2005).
---------------------------------------------------------------------------

    \103\ http://www.cdc.gov/nchs/healthy_people/hp2010/hp2010_indicators.htm
---------------------------------------------------------------------------

    Excess body weight has long been demonstrated to have health, 
social, psychological, and economic consequences for affected adults 
(Guthrie, Newman, and Ralston, 2009; Wang, et al., 2008). Recent 
research has also demonstrated that excess body weight has negative 
impacts for obese and overweight children. Research focused 
specifically on the effects of obesity in children indicates that 
obese children feel they are less capable, both socially and 
athletically, less attractive, and less worthwhile than their non-
obese counterparts (Riazi, et al., 2010). Further, there are direct 
economic costs due to childhood obesity; $237.6 million (in 2005 
dollars) in inpatient costs (Trasande, et al., 2009)\104\ and annual 
prescription drug,

[[Page 39113]]

emergency room, and outpatient costs of $14.1 billion (Cawley, 
2004).
---------------------------------------------------------------------------

    \104\ Trasande, et al., 2009 report that between 1999 and 2005, 
hospitalizations related to obesity increased 8.8 percent among 
children ages 2 to 5, 10.4 percent among children 6 to 11, and 11.4 
percent among children ages 12 to 19 after controlling for other 
factors.
---------------------------------------------------------------------------

    Childhood obesity has also been linked to cardiovascular disease 
in children as well as in adults. Freeman, Dietz, Srinivasan, and 
Berenson (1999) found that ``compared with other children, 
overweight children were 9.7 times as likely to have 2 
[cardiovascular] risk factors and 43.5 times as likely to have 3 
risk factors'' (p. 1179) and concluded that ``[b]ecause overweight 
is associated with various risk factors even among young children, 
it is possible that the successful prevention and treatment of 
obesity in childhood could reduce the adult incidence of 
cardiovascular disease'' (p. 1175). In comments, the American Heart 
Association also discussed the fact that childhood obesity has 
resulted in problems of hypertension for people at younger ages and 
noted that America's children are at higher risk for heart problems 
and blood pressure problems due to the amounts of sodium in their 
diets.
    It is known that overweight children have a 70 percent chance of 
being obese or overweight as adults. However, the actual causes of 
obesity have proven elusive (ASPE, no date). While the relationship 
between obesity and poor dietary choices cannot be explained by any 
one cause, there is general agreement that reducing total calorie 
intake is helpful in preventing or delaying the onset of excess 
weight gain.
    There is some recent evidence that competitive food standards 
can improve children's dietary quality:
     Taber, Chriqui, and Chaloupka (2012) compared calorie 
and nutrient intakes for California high school students--with 
competitive food standards in place--to calorie and nutrient intakes 
for high school students in 14 States with no competitive food 
standards. They concluded that California high school students 
consumed fewer calories, less fat, and less sugar at school than 
students in other States. Their analysis ``suggested that California 
students did not compensate for consuming less within school by 
consuming more elsewhere'' (p. 455). The consumption of fewer 
calories in school ``suggests that competitive food standards may be 
a method of reducing adolescent weight gain'' (p. 456).
     A study of competitive food policies in Connecticut 
concluded that ``removing low nutrition items from schools decreased 
students' consumption with no compensatory increase at home'' 
(Schwartz, Novak, and Fiore, 2009, p. 999).
     Similarly, researchers for Healthy Eating Research and 
Bridging the Gap found that ``[t]he best evidence available 
indicates that policies on snack foods and beverages sold in school 
impact children's diets and their risk for obesity. Strong policies 
that prohibit or restrict the sale of unhealthy competitive foods 
and drinks in schools are associated with lower proportions of 
overweight or obese students, or lower rates of increase in student 
BMI'' (Healthy Eating Research, 2012, p. 3).
    Pew Health Group and Robert Wood Johnson Foundation researchers 
noted that the prevalence of children who are overweight or obese 
has more than tripled in the past three decades, which is of 
particular concern because of the health problems associated with 
obesity. In particular, researchers found an increasing number of 
children are being diagnosed with type 2 diabetes, high cholesterol, 
and high blood pressure. These researchers further observed that 
children with low socioeconomic status and black and Hispanic 
children are at a higher risk of experiencing one or more of these 
illnesses (pp. 39-40, 56).
    Their analysis also noted that:
    There is a strong data link between diet and the risk for these 
chronic diseases. Given the relationship between childhood obesity, 
calorie consumption, and the development of chronic disease risk 
factors at a young age, this report proposes that a national 
[competitive food] policy could alter childhood and future chronic 
disease risk factors by reducing access to energy-dense snack foods 
in schools.
    To the extent that the national policy results in increases in 
students' total dietary intake of healthy foods and reductions in 
the intake of low-nutrient, energy-dense snack foods, it is likely 
to have a beneficial effect on the risk of these diseases. However, 
the magnitude of this effect would be proportional to the degree of 
change in students' total dietary intake, and this factor is 
uncertain (p. 68).
    In summary, the most current, comprehensive, and systematic 
review of existing scientific research concluded that competitive 
foods standards can have a positive impact on reducing the risk for 
obesity-related chronic diseases.
    Because the factors that contribute both to overall food 
consumption and to obesity are so complex, it is not possible to 
define a level of disease or cost reduction that is attributable to 
the changes in competitive foods expected to result from 
implementation of the rule. USDA is unaware of any comprehensive 
data allowing accurate predictions of the effect of the interim 
requirements on consumer choice, especially among children. But to 
illustrate the magnitude of the potential benefits of a reduction in 
childhood obesity, based on $237.6 million in inpatient costs and 
$14.1 billion in outpatient costs, a one percent reduction in 
childhood obesity implies a $143 million reduction in health care 
costs.
    Some researchers have suggested possible negative consequences 
of regulating nutrition content in competitive foods. They argue 
that not allowing access to low nutrient, high calorie snack foods 
in schools may result in overconsumption of those same foods outside 
the school setting (although as noted earlier, the Taber et al. 
study concluded overcompensation was not evident among the 
California high school students in their sample). Some groups have 
expressed concerns that the focus on competitive foods is less on 
nutrition than obesity, thus regulating competitive foods may 
contribute to bodyweight and/or appearance issues and result in 
increasing body insecurity feelings among children. The focus on 
obesity may also increase the stigmatization of children who are 
perceived as being obese.

G. Limitations and Uncertainties

    We conducted this analysis using available data; due to the 
limitations of these data, there are some important qualifications 
to our analysis that should be noted. We discuss a few of these 
below.

1. Limitations in Available Research

    Available research generally supports the notion that school 
food revenues will not necessarily be adversely affected by the 
implementation of healthier competitive food standards. Some schools 
or school districts, however, have seen revenue losses. Cullen and 
Watson (2009, p. 709) note that smaller districts might ``have more 
barriers associated with the bidding and food contract process and 
availability of alternative products'' relative to large districts. 
In addition, a five-month pilot program in North Carolina elementary 
schools saw decreases in competitive food sales with no offsetting 
increase in school meal participation (North Carolina General 
Assembly 2011). North Carolina's State Superintendent commented on 
the lack of available foods that met the pilot standards and 
although she stated that increases in the availability of 
appropriate replacements would likely improve the economic impact of 
the healthier food standards, she still had concerns that healthier 
products may never generate the revenue necessary to meet North 
Carolina school needs (NCGA 2011, p. 2 Atkinson letter).
    Commenters also expressed two primary concerns in this regard. 
The first set of comments noted, as we have throughout this 
analysis, that the case study data are not generalizable, that is, 
those studies do not necessarily reflect the experiences of their 
schools. Some commenters requested that the standards not be 
implemented until broader studies could be conducted.
    We are mindful of the comments that are concerned with the 
limitations of our data. We used the data available to us with the 
understanding that there would be a wide variation in impacts, and 
considerable uncertainty about which impacts would be most likely or 
frequent. We have also updated the scenarios based on experiences 
from more current case studies.
    Finally, we are mindful that instituting competitive food 
standards and the effects on revenue will vary. It is possible that 
older students who are more accustomed to having less healthy 
options available will be less receptive to the changes than younger 
students. This combined with the increasing availability of products 
that do meet the standards and the increasing acceptance of a more 
healthful environment overall, will help to mitigate revenue losses 
in the long run.

2. Prices of Competitive Foods

    We do not have actual prices paid for specific competitive food 
and beverage items. While we assume that competitive items meeting 
and not meeting the interim final rule standards contribute equally 
to revenues, this is uncertain. It is likely that reformulated 
versions of existing competitive foods will cost at least as much as 
foods currently available. However, to meet calorie or fat 
standards, manufacturers may simply reduce package sizes, e.g., 
replacing 16 ounce containers of full strength juice with eight or 
12 ounce bottles. In those cases, there is little

[[Page 39114]]

reason to expect higher prices. Additionally, not all compliant 
foods will be close substitutes for existing foods, e.g., fruit 
drinks that are not 100 percent fruit juice may be replaced by 
bottled water at a similar or lower cost.

3. State and Local Support of Reimbursable Meals

    Information on State and local payments in support of USDA 
school meals is not available. Some States and localities make 
payments that are tied to USDA school meal participation. If 
combined Federal, State, and local payments are greater (or less) 
than the costs of producing meals, SFAs would likely make lunch 
pricing decisions with a view toward optimizing their levels of 
Federal, State, and local subsidizes.

4. Student Response to New Standards

    Only a few limited case studies assess possible behavior change 
that may occur in response to the interim final rule. Even these 
limited studies are based on standards that are not exactly the same 
as the interim final rule. The local conditions in which they take 
place may not match national conditions. Implementation of State 
standards may have been accompanied by other factors, such as 
nutrition education or promotion of school meals, which may have 
influenced outcomes. While we believe that the evidence we examined 
is generally consistent with the suggestion that new standards will 
be associated with purchases of healthier competitive foods and 
increased school meal participation, data limitations create 
considerable uncertainty about the size of these changes. We also 
lack information on changes in purchasing behavior over time. As 
students adjust to the new range of competitive options, their 
purchasing behavior could adapt, altering revenue patterns.

5. Industry Response

    This analysis assumes that food manufacturers and vendors, SFAs, 
and other school groups that sell competitive foods and beverages 
will adapt their behaviors in response to the interim final rule. 
Studies of State and local changes in competitive food and beverage 
policies indicate that these behavioral changes will occur (Cullen 
and Watson, 2009; Wharton, Long, and Schwartz, 2008; Woodward-Lopez, 
et al., 2010; USDA 2005; Bassler, et al., 2013). We draw on this 
literature to estimate the possible effects of behavioral changes on 
competitive food and beverage revenues.
    This literature indicates that to a large extent, lost revenues 
from products that can no longer be sold in schools because of the 
interim final rule may be offset by increased purchases of products 
that are already widely available and purchased as competitive items 
(for example, bottled water) or by purchases of newly available, 
healthier products. In some cases changes are relatively simple. For 
example juices currently sold in 16-oz containers could be sold in 
12-oz or 8-oz containers, as appropriate for grade level. In other 
cases, reformulations of existing products are already underway. 
Actions by State agencies and voluntary groups such as Alliance for 
a Healthier Generation have already encouraged food manufacturers to 
develop new products for competitive food sales: 4-oz fruit bowls; 
nonfat, no-sugar added frozen yogurt; 4-oz frozen fruit bars; and 
reduced-fat and sodium pizza with whole grain crust (Alliance for a 
Healthier Generation, 2010). In a 2013 compilation of case studies, 
researchers note that some

``. . . food service directors reported having difficulty finding 
foods and beverages that met the stronger nutrition standards for 
competitive foods and beverages in the early stages of 
implementation. However, they also reported that as time went on, 
vendors responded to the demand and more and more appealing items 
became available. As stronger standards begin to be implemented 
nationwide, the research team anticipates this trend will continue'' 
(Bassler, et al., 2013, p. 20).

    Establishment of Federal standards is likely to spur further 
product development and increased sales volume that may help to 
bring prices in line with those of less-nutritious competitive 
items. Comments from one beverage manufacturer noted that existing 
competitive food standards have already resulted in the company 
developing or reformulating products that meet or exceed the 
standards in the interim final rule. Because State and local 
experience to date has preceded the establishment of Federal 
standards, their results may overstate the challenges that schools 
will face in implementing the interim final rule. The pressures on 
school revenue from high costs and limited availability could ease 
in the 12-month period between publication of the interim final rule 
and its effective date.

6. SFA and School Compliance

    Early studies on competitive food revenues indicate that not all 
schools have complied with existing State competitive food 
standards.\105\ This may be due, in part, to a lack of approved 
product choices, especially for early implementers. Compliance may 
be less of a challenge with national standards, especially as 
industry and students continue to adapt to State standards already 
in place. But, to the extent that schools fail to implement or fully 
enforce certain provisions of the interim final rule, the cost, 
benefit and revenue impacts of the rule will be lower. Each of our 
estimates assumes full compliance with the interim final rule.
---------------------------------------------------------------------------

    \105\ See, for example, SNDA-III, V. 1, 2007; Woodward-Lopez, et 
al., 2005b; Bullock, et al., 2010; Woodward-Lopez, et al., 2010.
---------------------------------------------------------------------------

7. School Participation in Federal Meal Programs

    It is possible that some schools could choose to leave NSLP and 
SBP to avoid the new competitive food standards, and this 
possibility was reflected in some of the comments received on the 
proposed rule. Although some schools may realize significant losses 
in revenue from competitive foods, especially in the short term, we 
believe it is unlikely that many schools will choose to leave the 
Federal meals program. As noted previously, on average SFAs receive 
16 percent of their total revenue from competitive foods; 84 percent 
of revenue is derived from Federal reimbursements for NSLP and SBP 
meals, student payments, and State and local contributions tied to 
those meals (USDA, 2008). But even in SFAs with competitive food 
revenues that are greater than the average, e.g., SFAs in the 90th 
percentile for competitive food revenues, USDA subsidies and student 
payments for program meals still account for more than half of SFA 
revenue while competitive food sales amounted to less than 
half.\106\
---------------------------------------------------------------------------

    \106\ The figures for SFAs at or above the 90th percentile are 
based on a small sample and are subject to greater error than the 
mean values reported for all SFAs in the SLBCS-II.
---------------------------------------------------------------------------

8. Food and Labor Costs

    This analysis focuses on revenues in SFAs and other school 
groups. It does not address food and labor costs directly because 
few of the research reports and case studies report detailed cost 
information. One study (Trevi[ntilde]o et al., 2012) that did report 
expenses and labor costs in addition to revenues found no 
statistically significant difference between intervention and 
control schools after the intervention schools implemented stronger 
competitive food standards. Although the differences were not 
statistically different, intervention schools were found to have 
higher excess revenue over expenses than the control schools ($3.5 
million versus $2.4 million) (pg. 421).
    Although we do not address costs directly, we expect that cost 
will have a limited effect on the net revenue of SFAs and other 
school groups. SFA competitive food revenue is derived primarily 
from [agrave] la carte sales. Under the interim final rule, [agrave] 
la carte items that are available as part of a reimbursable meal are 
deemed to meet the new standards and those items will be subject to 
new school meal standards under regulations that took effect July 1, 
2012.\107\ To the extent that schools' [agrave] la carte lines are 
stocked with school meal entr[eacute]es, side dishes, and beverages 
that are also available in reimbursable meals, much of the cost of 
providing healthier [agrave] la carte items will have been incurred 
before competitive food standards take effect.
---------------------------------------------------------------------------

    \107\ The proposed school meal standards rule was published in 
January, 2011. See Federal Register Vol. 76, No. 9, p. 2494.
---------------------------------------------------------------------------

    This does not apply, of course, to [agrave] la carte items that 
are not components of a reimbursable meal or to items sold in 
vending machines or through other outlets; schools may incur higher 
costs to replace those items with items that meet this rule's 
standards. However, even for those foods, industry and schools will 
have had some time after implementation of new school meals 
standards to prepare. Some of the fixed costs of product 
development, contracting with new suppliers, developing recipes, and 
training kitchen staff will have already been incurred by industry 
and schools as they implement Federal school meal standards, easing 
pressure, perhaps, on prices and the administrative costs of 
complying with this competitive foods rule.
    A number of SFA professionals commented that requiring 
accompaniments (e.g., salad dressings, catsups, etc.) to be pre-
portioned would potentially add large additional costs (purchasing 
individual

[[Page 39115]]

packets) or involve considerable labor for staff who had to pre-
portion the accompaniments. In response to these concerns, the 
interim final rule eliminates the proposed pre-portioning 
requirement, which should result in labor and cost savings.

V. Alternatives

A. Exemption for Reimbursable Meal Entr[eacute]es

    The proposed rule presented two basic alternatives for the 
treatment of entr[eacute]es and side dishes that are served as part 
of a reimbursable meal. Under the first alternative, these items 
could be served [agrave] la carte as long as they met the rule's fat 
and sugar standards that apply to all other competitive foods. Under 
the second alternative, NSLP entr[eacute]es and sides (except grain-
based desserts) would be exempt from all of the rule's competitive 
food requirements if served [agrave] la carte on same day that they 
are part of a reimbursable meal (alternative B1) or within four days 
of service as part of a reimbursable meal (alternative B2).
    The interim final rule adopts a variation on the second 
alternative. Entr[eacute]es (but not side dishes) served as part of 
a reimbursable meal will be exempt from the rule's competitive food 
requirements on the day they are served as part of the meal and the 
following day. Exempt entr[eacute]es that are sold as competitive 
food must be offered in the same or smaller portion sizes as the 
NSLP and SBP, and with the same accompaniments.
    The primary benefit of an exemption that is limited strictly to 
foods on the current day's menu is that those items could be offered 
[agrave] la carte no more often than they could be served in 
reimbursable meals without exceeding weekly NSLP or SBP restrictions 
on average calories, fat, or sodium. Such an exemption would also 
encourage students to consume a greater variety of foods, even if 
they choose foods consistently from the [agrave] la carte line. The 
interim final rule achieves these same goals while offering SFAs the 
ability to serve leftover entr[eacute]es the next day, an important 
tool for menu planning and cost control.
    The interim final rule provision offers somewhat greater 
administrative simplicity compared to the other alternative 
considered by USDA. That alternative would have required a nutrient 
analysis of reimbursable meal items before they could be sold 
[agrave] la carte in order to measure their compliance with the 
rule's fat and sugar standards.

B. School-Sponsored Fundraisers

    The proposed rule offered two alternatives for establishing 
limits on the frequency of exempt fundraisers. One would have 
allowed States to set limits subject to USDA approval. The other 
would grant full discretion to the States.
    After consideration of comments from interest groups and school 
officials, USDA opted to allow States to set their own limits on the 
frequency of exempt fundraisers without USDA review.\108\ Full State 
discretion should benefit from State administrators' knowledge of 
what will prove most effective in their schools. In addition, 
eliminating USDA review will reduce administrative costs at both the 
State and Federal levels. It may also encourage States to modify 
their policies, as needed, to address unanticipated problems. The 
time and administrative expense of USDA review might discourage 
fine-tuning of established policies.
---------------------------------------------------------------------------

    \108\ FNS will provide guidance to ensure that State policies 
are consistent with the legislative requirement that exemptions for 
fundraisers are ``infrequent'' (Pub. L. 111-296)
---------------------------------------------------------------------------

    The alternative considered by USDA would have given Federal 
administrators the opportunity to review State plans prior to 
implementation. Although Federal review would have entailed some 
cost, it may have resulted in little difference in the policies 
ultimately adopted. Nevertheless, State discretion entails some 
small risk that one or more States or school districts (if States 
use their discretion to leave the decision to local districts) will 
adopt standards that impose little or no restriction on the 
frequency of exempt fundraisers. At least some commenters expressed 
concern that State discretion will lessen the consistency that might 
have been achieved with USDA review. Ultimately, however, State 
administrators are, like USDA, committed to the success of 
competitive food reform. Whether success is measured by student 
well-being or the financial health of SFAs, it is in the interest of 
the States to set fairly narrow exemptions for infrequent 
fundraisers.

C. Total Sugar

    The proposed rule solicited public comment on two alternate 
sugar standards for competitive foods. These would have limited 
total sugar content to either 35 percent of calories or 35 percent 
of weight. Both standards would have placed a meaningful check on 
the amount of sugar allowed in competitive foods while providing 
exceptions for certain fruit and vegetable snacks and yogurt. After 
considering arguments in favor of each of these standards, USDA 
adopted the sugar by weight standard for the interim final rule.
    Administrative burden and product availability were among the 
factors that weighed most heavily in this decision. Commenters who 
favored the 35 percent by weight standard argued that
     It was consistent with standards already in place 
through voluntary programs such HUSSC and the Alliance for a 
Healthier Generation,
     Sugar is commonly reported by weight by industry and 
others,
     Calculators for sugar by weight already exist to aid 
school food service professionals in their calculations,
     The sugar as a percent of calories standard would 
negatively affect food service revenues, and
     Sugar by weight allows greater flexibility in the 
products available to students.
    The first four of these points suggest that the sugar by weight 
standard will be less costly to implement for both the schools and 
industry that have already invested in that standard. Schools that 
are new to competitive food reform will also benefit from the sugar 
by weight standard to the extent that industry has already developed 
products designed to meet the demand of HUSSC schools and schools 
that follow Alliance guidelines.
    The alternate percent of calories standard, by contrast, would 
have added to some schools' cost of compliance with the rule. It 
would have been most disruptive and potentially costly to schools 
that have already established relationships with suppliers and 
distributors who provide the schools with products intended to meet 
the sugar by weight standard.
    The net effect on industry of choosing the weight standard over 
the calorie standard is unclear. Manufacturers and distributors that 
have already invested in supplying schools with products that meet 
the sugar by weight standard may realize the greatest immediate 
benefit. Comments from representatives of the vending industry point 
to that industry's voluntary efforts to support schools that follow 
Alliance guidelines on competitive foods, and urged USDA to adopt 
standards consistent with those guidelines. The interim final rule's 
sugar standard, in combination with some of the other changes to the 
rule, aligns the rule with more of these existing products. 
Manufacturers as well as distributors of such products may see 
additional demand once all schools implement the rule.
    Not all sectors of the food industry favored the sugar by weight 
standard. Compared to the alternate sugar as a percent of calories 
standard, the weight standard may be more difficult to meet for 
sugar-sweetened products with low moisture content, where the ratio 
of fat to sugar may mean the difference between compliance and non-
compliance. Because a gram of fat has more than twice as many 
calories as a gram of sugar, snack products and desserts with a 
relatively high fat content (from nuts or chocolate, for example) 
may be less likely to meet the proposed rule's weight-based sugar 
standard although they might have met the alternative calorie-based 
standard.\109\ Where product reformulation is an option, 
manufacturers of non-compliant snacks may choose to incur those 
costs.
---------------------------------------------------------------------------

    \109\ Certain varieties of trail mix, granola bars, and whole 
grain cookies sometimes fall into this group. Two examples from the 
USDA's National Nutrient Database for Standard Reference (release 
24) are product IDs 25056 (chocolate coated granola bar) and 18533 
(iced oatmeal cookie).
---------------------------------------------------------------------------

D. Naturally Occurring Ingredients and Fortification

    Competitive foods that do not satisfy one of the interim final 
rule's food group requirements may be sold in school if they contain 
at least 10 percent of the daily value of one of several nutrients 
of concern (i.e., calcium, potassium, vitamin D, and fiber), but 
only through June 2016. Beginning July 1, 2016 this criterion will 
be obsolete and may not be used to qualify an item as an allowable 
competitive food.
    The primary alternative considered by USDA was the proposed 
rule's handling of nutrients of concern. The proposed rule would 
have allowed products that met the 10 percent threshold, but only 
through the use of naturally occurring ingredients. In addition, the 
proposed rule would have made this option permanent.

[[Page 39116]]

    USDA's decision to modify the proposed rule provision was driven 
primarily by concerns other than cost or administrative burden. The 
interim final rule's long-term focus on foods that satisfy the 
rule's food group requirements is better aligned with IOM 
recommendations. IOM cited ``[e]merging evidence for the health 
benefits of fruits, vegetables, and whole grains'' that ``reinforces 
the importance of improving the overall quality of food intake 
rather than nutrient-specific strategies such as fortification and 
supplementation'' (IOM, 2007a, p. 41).
    The proposed rule's requirement that only naturally occurring 
nutrients could satisfy its 10 percent of daily value threshold was 
viewed by commenters as impractical. It would be difficult for food 
service professionals to distinguish products that satisfied the 
naturally occurring requirement from products that did not. At 
present, the contribution of food-based and non-food sources to 
nutrient values are not shown separately on processed food nutrition 
labels. For that reason, the proposed rule's naturally occurring 
nutrient criterion offered only limited flexibility for schools.
    In the critical early months of implementation, the interim 
final rule offers a more meaningful administrative cost advantage 
relative to the proposed rule. The interim final rule provision is 
intended to reduce costs by ensuring the widest availability of 
compliant products during a 24-month transition to an entirely food-
based set of standards.

E. Low Calorie Beverages in High Schools

    The proposed rule offered two alternatives for public comment on 
lower-calorie beverages for high school students. The first would 
have permitted up to 40 calories per 8 fl oz serving (and 60 
calories per 12 fl oz). The second would have allowed up to 50 
calories per 8 fl oz serving (and 75 calories per 12 fl oz). The 
higher 50 calorie limit would have permitted the sale of national 
brand sports drinks in their standard formulas. The lower 40 calorie 
limit would have allowed only reduced-calorie versions of those 
drinks. The interim final rule adopts the lower 40 calorie limit as 
the better alternative to limit the consumption of added sugar in 
beverages sold in school, and to further advance the public health 
goals of the rule.
    Leading public health organizations that submitted comments on 
the proposed rule tended to prefer the interim final rule standard 
to the proposed rule's higher calorie alternative. Many of the same 
organizations, however, would have preferred even stricter limits on 
sugar-sweetened beverages, a major source of discretionary calories 
in competitive school foods.
    Schools, with strong support from the beverage industry, have 
largely eliminated full-calorie carbonated drinks from school 
vending machines. But representatives from some public health groups 
point out that sports drinks remain widely available in schools, and 
they note that these products are an important contributor to excess 
added sugar intake by children. Data from USDA's SNDA studies 
indicate a modest reduction in the percent of high schools that 
offered sports drinks in vending machines from SY 2004-2005 to SY 
2009-2010, although percentages remain high \110\ The same studies 
show a more substantial reduction in high schools that offer sports 
drinks in [agrave] la carte lines. Adoption of the 50 calorie per 8 
fl oz standard would have undermined the efforts of school 
administrators who are leaders in reducing the availability of 
sugary drinks in schools. Although the 40 calorie standard in the 
interim final rule does not go as far as recommended by some public 
health groups, it will have a substantial effect on the types of 
sweetened beverages offered in high schools.\111\
---------------------------------------------------------------------------

    \110\ In SY 2009-2010, 64 percent of high schools sold ``energy 
and sports drinks'' in vending machines. This is down from 78 
percent in SY 2004-2005. (Gordon, et al., 2007, Volume 1, p. 104; 
Fox, et al., 2012, Volume 1, p 3-47)
    \111\ Both the standard adopted for the interim final rule as 
well as the 50 calorie alternative, would end the sale of sweetened 
beverages in elementary and middle schools.
---------------------------------------------------------------------------

    Food and foodservice industry representatives, as well as some 
school administrators, favored the higher calorie limit. The 
beverage industry has invested in developing and marketing products 
that meet the Alliance for a Healthier Generation's 66 calorie per 8 
fl oz guideline, and may have been better positioned to meet a 50 
calorie standard than the interim final rule's 40 calorie standard. 
There may be fewer products currently available that meet or can be 
reformulated to meet the interim final rule standard. If so, then 
the immediate transition to the interim final rule may be more 
challenging for manufacturers, distributors, and vending machine 
operators, as well as SFAs, student organizations, and other non-SFA 
school groups that rely on the sale of such beverages. However, 
while some businesses may face a reduced market for their products, 
at least in the short term, manufacturers and distributors of 
competing lower calorie products have an opportunity to increase 
sales.
    The interim final rule drops the proposed rule restriction on 
the sale of lower calorie beverages in the meal service area during 
a meal service. As discussed more fully in Section III.A., the 
proposed rule's time and place restriction would have put some SFA 
revenue at risk, and might have depressed the sale of reimbursable 
meals. The proposed rule restriction would also have sent a mixed 
message on the acceptability of the excluded beverages. For these 
reasons, the interim final rule eliminates the restriction. Although 
the interim final rule provides greater flexibility to SFAs, greater 
choice to students, and reduces the risk to SFA revenue, the interim 
final rule provision has the potential to reduce the amount of milk 
consumed by high school students during meal times. USDA will 
monitor this after implementation and take those preliminary 
observations into consideration in the development of a final rule.

F. Caffeinated Beverages

    Consistent with IOM recommendations, the proposed rule required 
that beverages served to elementary and middle school students be 
caffeine free or include only small amounts of naturally occurring 
caffeine. The proposed rule, however, did not put caffeine 
restrictions on products for high school students; a departure from 
the IOM guidelines. Many of the comments from health professionals 
and school officials expressed concern about the effects of large 
amounts of caffeine on adolescents and suggested that the Department 
either disallow caffeinated beverages at the high school level 
entirely, or at least provide some guidelines for caffeine limits. 
After considering these comments, and because of the lack of an 
accepted standard for caffeine consumption by high school-aged 
students, USDA retains the proposed rule standard. The interim final 
rule retains maximum flexibility for high schools, allowing the 
continued sale of beverages containing caffeine. At the same time, 
USDA urges schools not to allow the sale of energy drinks, in 
response to concerns expressed by health professionals. To the 
extent that caffeinated products generate revenue for schools, the 
interim final rule will have a lesser economic impact on SFAs and 
other school groups than the primary alternative considered by USDA.

VI. Accounting Statement

    As required by OMB Circular A-4, we have prepared an accounting 
statement showing the annualized estimates of benefits, costs and 
transfers associated with the provisions of this proposed rule.\112\ 
As discussed throughout this impact analysis, available data do not 
allow us to develop point estimates of competitive food or 
reimbursable meal revenue effects with any certainty. For this 
reason, the only dollar figures presented in the accounting 
statement are those associated with Table 3's State agency, LEA, and 
school-level recordkeeping costs.
---------------------------------------------------------------------------

    \112\ OMB Circular A-4 is available at www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf.
---------------------------------------------------------------------------

    The accounting statement's cost figures are equal to the 
annualized, discounted sum of the estimated cost stream from Table 
3:

[[Page 39117]]



----------------------------------------------------------------------------------------------------------------
                                                                          Fiscal year ($ millions)
                                                           -----------------------------------------------------
                                                              2014     2015     2016     2017     2018    Total
----------------------------------------------------------------------------------------------------------------
Total projected nominal cost of interim final rule........    $23.5    $24.3    $25.1    $25.9    $26.8   $125.7
----------------------------------------------------------------------------------------------------------------

    Applying 7 and 3 percent discount rates to this nominal cost 
stream gives present values (in 2013 dollars):

----------------------------------------------------------------------------------------------------------------
                                                                          Fiscal year ($ millions)
                                                           -----------------------------------------------------
                                                              2014     2015     2016     2017     2018    Total
----------------------------------------------------------------------------------------------------------------
Total cost (present value, 7% discount rate)..............    $22.0    $21.2    $20.5    $19.8    $19.1   $102.6
Total cost (present value, 3% discount rate)..............     22.8     22.9     23.0     23.0     23.1    114.9
----------------------------------------------------------------------------------------------------------------

    The annualized values in FY 2013 dollars of these discounted 
cost streams are computed with the following formula, where PV is 
the discounted present value of the cost stream ($102.6 in the 
illustration), i is the discount rate (7 percent), and n is the 
number of years beyond FY 2013 (5).\113\
---------------------------------------------------------------------------

    \113\ The Excel formula for this is PMT(rate,  periods, 
PV, 0, 1)
[GRAPHIC] [TIFF OMITTED] TR28JN13.000


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Outcome                                      Discount Rate
                    Benefits                        scenario        Estimate       Year dollar         (%)                    Period covered
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/year)..........            n.a.            n.a.            n.a.            n.a.  FY 2014-2018.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Qualitative: The rule will ensure that all foods sold to children in school during the school day will meet macronutrient and food group standards that
 are consistent with a healthy diet and are based on current nutrition science. The proposed rule will encourage the consumption of foods such as whole
 grains, fruit, vegetables, and dairy products that are low in fat and added sugar. By allowing only the sale of competitive foods that comply with
 Dietary Guidelines recommendations, this proposed rule aims to promote healthy eating habits.
--------------------------------------------------------------------------------------------------------------------------------------------------------


 
                                                     Outcome                                      Discount rate
                     Costs                          scenario        Estimate       Year dollar         (%)                   Period covered.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quantitative: SFA and State educational agency administrative expenses to comply with the rule's recordkeeping requirements (estimated here). Additional
 costs (not estimated) include the potential higher costs to schools and to industry of acquiring or producing healthier competitive foods, the extra
 costs incurred by students to purchase higher priced competitive foods, and the costs incurred by students (including travel costs) in purchasing
 competitive foods off campus.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Qualitative: Net utility losses to students who lose access to favorite competitive foods and must switch to less preferred foods.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/year)..........             1-3           $23.4            2013              7%  FY 2014-2018.
                                                                           24.4            2013              3%
--------------------------------------------------------------------------------------------------------------------------------------------------------


 
                                                     Outcome
                   Transfers                        scenario        Estimate       Year dollar    Discount rate               Period covered
--------------------------------------------------------------------------------------------------------------------------------------------------------
Qualitative: The changes in competitive foods offered by schools will likely result in changes in student expenditures on competitive foods (sold by
 SFAs and non-SFA school groups). It will also change the extent to which students purchase and consume reimbursable school meals, resulting in changes
 in amounts transferred from students to school food authorities, and from USDA to school food authorities, for reduced price and paid meals. We have
 modeled a number of potential scenarios based on available data to assess impacts of competitive food standards on overall school food revenue. While
 they vary widely, each scenario's estimated impact is relatively small (+0.5 percent to -1.3 percent). The data are insufficient to assess the
 frequency or probability of schools experiencing any specific level of impact.
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 39118]]

VII. References

Alliance for a Healthier Generation. Available at: http://www.healthiergeneration.org/companies.aspx?ID=3306
Alliance for a Healthier Generation. Competitive Food Success 
Stories. Posted on University of Missouri Extension Web site 
(accessed 6/22/2012). http://extension.missouri.edu/healthylife/resources/policydevelopment/FoodBevSuccessStories.pdf
Alliance for a Healthier Generation. Key Strategies for Maintaining 
Revenue while Changing School Foods for the Better. Fall 2010. 
Available at: http://www.healthiergeneration.org/uploadedfiles/For_Schools/_New_Builder_Pages/Resources/10-2237.pdf
Alliance for a Healthier Generation. Moving the Needle on 
Competitive Foods. Fall 2010. Available at: http://www.healthiergeneration.org/uploadedfiles/For_Schools/_New_Builder_Pages/Resources/10-2237.pdf.
American Public Health Association. Electronic comment submitted to 
www.regulations.gov. Docket ID FNS-2011-0019-0001. April 9, 2013. 
APHA, 800 I Street NW., Washington, DC 20001.
Arnett, D.K. Comments on Proposed Rule Docket ID FNS-2011-0019. 
American Heart Association. April 9, 2013. AHA, 1150 Connecticut 
Ave. NW., Washington, DC 20036.
ASPE, Health & Human Services. (No Date.) Childhood Obesity. 
Assistant Secretary for Planning and Evaluation, U.S. Department of 
Health & Human Services. Available at: http://aspe.hhs.gov/health/reports/child_obesity.
Bassler E.J., Chriqui J.F., Stagg K., Schneider L.M., Infusino K., 
Asada Y. 2013. Controlling Junk Food and the Bottom Line: Case 
Studies of Schools Successfully Implementing Strong Nutrition 
Standards for Competitive Foods and Beverages. Chicago, IL: Illinois 
Public Health Institute. Available: http://iphionline.org/2013/03/controlling-junk-food/.
Beydoun, M.A. and Y. Wang. 2011. Socio-demographic disparities in 
distribution shifts over time in various adiposity measures among 
American children and adolescents: What changes in prevalence rates 
could not reveal. International Journal of Pediatric Obesity, 6:21-
35. As cited in Food Labeling: Calorie Labeling of Articles of Food 
in Vending Machines NPRM. 2011. Preliminary Regulatory Impact 
Analysis, Docket No. FDA-2011-F-0171.
Bullock, S.L., L. Craypo, SE. Clark, J. Barry, and SE. Samuels. 
2010. Food and Beverage Environment Analysis and Monitoring System: 
A Reliability Study in the School Food and Beverage Environment. 
Journal of the American Dietetic Association, 110:1084-1088.
Cawley, J. 2010. The Economics of Childhood Obesity. Health Affairs, 
29:364-371. As cited in Food Labeling: Calorie Labeling of Articles 
of Food in Vending Machines NPRM. 2011. Preliminary Regulatory 
Impact Analysis, Docket No. FDA-2011-F-0171.
Centers for Disease Control and Prevention. 2012. Competitive Foods 
and Beverages in U.S. Schools: A State Policy Analysis. Atlanta: 
U.S. Department of Health and Human Services. http://www.cdc.gov/healthyyouth/nutrition/pdf/compfoodsbooklet.pdf
Centers for Disease Control. (No Date). Implementing Strong 
Nutrition Standards for Schools: Financial Implications. Available 
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Center for Science in the Public Interest (CSPI), 2007. State School 
Foods Report Card 2007: A State-by-State Evaluation of Policies for 
Foods and Beverages Sold through Vending Machines, School Stores, 
[Agrave] La Carte, and Other Venues Outside of School Meals. 
Available at: http://www.cspinet.org/2007schoolreport.pdf. Access 
date, August 15, 2011.
Center for Weight and Health, College of Natural Resources, and 
School of Public Health, University of California, Berkeley, 2005. 
LEAF--Linking Education, Activity, and Food, Pilot Implementation of 
SB 19 in California Middle and High Schools, Fiscal Impact Report.
Christeson, W., A. D. Taggart, and S. Messner-Zidell. 2010. Too Fat 
to Fight. Mission Readiness: Military Leaders for Kids. Available 
at: http://cdn.missionreadiness.org/MR_Too_Fat_to_Fight-1.pdf.
Christeson, W., A. D. Taggart, S. Messner-Zidell, M. Kiernan, J. 
Cusick, and R, Day. 2012. Still Too Fat to Fight. Mission Readiness: 
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Texas. American Journal of Public Health, 99:706-712.
DiNapoli, T.P. 2009-MS-3. Nutrition in School Districts Across New 
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Fox, M.K. 2010. Improving Food Environments in Schools: Tracking 
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Fox, M. K. et al., ``Availability and Consumption of Competitive 
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Freeman, D.S., W.H. Dietz, S.R. Srinivasan, and G.S. Berenson. 1999. 
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Gordon, A., M.K., Fox, M. Clark, R. Nogales, E. Condon, P. Gleason 
and A. Sarin. 2007. School Nutrition Dietary Assessment Study--III. 
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Alexandria, VA.
Guthrie, J., C. Newman, and K. Ralston. 2009. USDA School Meal 
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2012. Understanding School Food Service Characteristics Associated 
with Higher Competitive Food Revenues Can Help Focus Efforts To 
Improve School Food Environments. Childhood Obesity, 8:298-304.
Harvey, L. Comments on Proposed Rule (RIN 0584-AE09). Public Schools 
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Competitive Food and Beverage Policies on Children's Diets and 
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IOM (Institute of Medicine). 2007a. Nutrition Standards for Foods in 
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governance/legislation/SFArevenue--interimrule.pdf.
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352:1138-1145.
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Impact Assessment: National Nutrition Standards for Snack and a la 
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Health-related quality of life in a clinical sample of obese 
children and adolescents. Health and Quality of Life Outcomes, 
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Nutrition Standards. Available at: http://www.schoolnutrition.org/uploadedfiles/school_nutrition/106_legislativeaction/policiesandregulations/summary#of#state#nutrition#standards#march#2010.doc. Access Date: 
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Schwartz, M.B., S.A. Novak, and S.S. Fiore. 2009. The Impact of 
Removing Snacks of Low Nutritional Value from Middle Schools. Health 
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[FR Doc. 2013-15249 Filed 6-27-13; 8:45 am]
BILLING CODE 3410-30-P