[Federal Register Volume 78, Number 27 (Friday, February 8, 2013)]
[Proposed Rules]
[Pages 9529-9567]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02584]



[[Page 9529]]

Vol. 78

Friday,

No. 27

February 8, 2013

Part III





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; Proposed Rule

Federal Register / Vol. 78, No. 27 / Friday, February 8, 2013 / 
Proposed Rules

[[Page 9530]]


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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: Proposed rule.

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SUMMARY: This rule proposes to amend the National School Lunch Program 
and School Breakfast Program regulations consistent with amendments 
made in the Healthy, Hunger-Free Kids Act of 2010 (HHFKA). The HHFKA 
requires that the Secretary promulgate proposed regulations to 
establish nutrition standards for foods sold in schools other than 
those foods provided under the Child Nutrition Act of 1966 (CNA) and 
the Richard B. Russell National School Lunch Act (NSLA). The HHFKA 
amends the CNA, requiring that such standards shall be consistent with 
the most recent Dietary Guidelines for Americans and that the Secretary 
shall 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, a 
la carte sales and any other exclusions determined by the Secretary). 
The HHFKA also amended the NSLA to require that schools participating 
in the National School Lunch Program make potable water available to 
children at no charge in the place where lunches are served during the 
meal service. These proposed 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.

DATES: Online comments submitted through the Federal eRulemaking Portal 
on this proposed rule must be received on or before April 9, 2013. 
Mailed comments on this rule must be postmarked on or before April 9, 
2013.
    Comments on Paperwork Reduction Act requirements: Comments on the 
information collection requirements associated with this rule must be 
received by April 9, 2013.

ADDRESSES: The Food and Nutrition Service (FNS) invites interested 
persons to submit comments on this proposed rule. Comments may be 
submitted by either of the following methods:
     Federal eRulemaking Portal: Comments on the provisions in 
this rule must be received on or before April 9, 2013 to be assured of 
consideration. 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: Mailed comments on the provisions in this rule 
must be postmarked on or before April 9, 2013 to be assured of 
consideration and should be sent to Julie Brewer, Chief, Policy and 
Program Development Branch, Child Nutrition Division, Food and 
Nutrition Service, P.O. Box 66874, Saint Louis, MO 63166.
    All submissions received in response to this proposed 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: Julie Brewer, 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 proposed rule sets forth provisions to implement sections 203 
and 208 of Public Law 111-296, the Healthy, Hunger-Free Kids Act of 
2010 (HHFKA) for schools that participate in the National School Lunch 
Program (NSLP) and the School Breakfast Program (SBP). This rule 
proposes to amend the NSLP and SBP regulations consistent with 
amendments made in the HHFKA. The HHFKA requires the Secretary to 
promulgate proposed regulations to establish nutrition standards for 
foods sold in schools other than those foods provided under the Child 
Nutrition Act of 1966 (CNA) and the Richard B. Russell National School 
Lunch Act (NSLA). The HHFKA specifies 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 HHFKA requires 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, a 
la carte sales and any other exclusions determined by the Secretary). 
These proposed 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 proposed in this rule 
represent minimum standards that local educational agencies, school 
food authorities and schools would be required to meet. State agencies 
and/or local schools would have the discretion to establish their own 
standards for non-program foods sold to children should they wish to do 
so, as long as such standards are consistent with the final minimum 
standards. This rule also proposes to codify a provision of the HHFKA 
that requires schools participating in the NSLP to make free, potable 
water available to children in the place lunches are served during meal 
service.

Summary of Major Provisions

    In formulating the proposal, USDA considered the Institute of 
Medicine's (IOM) 2007 Nutrition Standards for Foods in Schools: Leading 
the Way Toward Healthier Youth report, and reviewed nutrition standards 
developed by other entities, including existing State and local 
standards, and voluntary standards developed by organizations such as 
the Alliance for a Healthier Generation (AHG). Rather than offer a

[[Page 9531]]

single approach, the proposal offers alternatives in several areas and 
requests comment on the relative merits of each of the alternatives. 
(These are noted below.)
    Food Requirements--Under the proposed rule, any food sold in 
schools must:
    (1) Be either a fruit, a vegetable, a dairy product, a protein 
food, a ``whole-grain rich'' grain product (50% or more whole grains by 
weight or have whole grains as the first ingredient), or a combination 
food that contains at least [frac14] cup of fruit or vegetable; or
    (2) Contain 10% of the Daily Value (DV) of a nutrient cited as a 
public health concern in the 2010 Dietary Guidelines for Americans 
(DGA) (calcium, potassium, vitamin D, or fiber).
    Additionally, foods sold must meet a range of calorie and nutrient 
requirements:
     Total fat must be <=35% of calories; saturated fat must be 
<10% of calories; and trans fat must be 0g as stated on the label. 
Exemptions are provided for reduced fat cheese; nuts and nut butters 
without other ingredients and seafood with no added fat.
     Snack items shall contain <=200 milligrams of sodium. For 
entr[eacute]e items, sodium levels must be <=480 milligrams per 
portion, for non-NSLP/SBP entr[eacute]e items.
     For total sugar levels the proposal includes two 
alternatives: one is <=35% of calories and the other is <=35% of 
weight. Exemptions are provided for fruits and vegetables packed in 
juice or extra-light syrup and for certain yogurts.
     Snack items have a limit on calories of <=200 calories per 
portion. Non- NSLP/SBP entr[eacute]e items have a calorie limit of 
<=350 calories.
    The proposal includes two alternatives to exempt one set of foods 
from the food requirements--NSLP/SBP entrees and side dishes sold a la 
carte. The first alternative would subject NSLP/SBP menu items only to 
the fat and sugar standards with no restrictions regarding timeframes 
for the service of such items sold a la carte. The second alternative 
would exempt any menu item served as part of the NSLP or SBP, subject 
to specific timeframe restrictions as outlined in the proposed rule 
(the day that they are served in a meal or within 4 operating days of 
service).

Beverage requirements

    Under the proposal, all schools may sell plain water, plain low fat 
milk, plain or flavored fat-free milk and milk alternatives permitted 
by NSLP/SBP, and 100% fruit/vegetable juice. Portion sizes of milk and 
juice vary by the age of students. Elementary schools may sell up to 8-
ounce portions. Middle schools and high schools may sell up to 12-ounce 
portions.
    Beyond this, the proposal offers additional beverage options in 
high schools. These include 20 ounce servings or less for calorie-free, 
flavored and/or unflavored carbonated water and other calorie-free 
beverages that comply with the Food and Drug Administration (FDA) 
standard of <5 cals/serving.
    Additionally, the proposal would allow 12 ounce servings of other 
beverages within a specified calorie limit. The proposal offers two 
alternatives for this limit. The first is <= 40 cals/8 oz serving (or 
<= 60 cals/12 oz serving), and the second is 50 cals/8 oz serving (or 
75 cals/12 oz serving). Such beverages shall not be available in the 
meal service area during the meal service periods.
    Accompaniments--The proposal requires accompaniments to be pre-
portioned and offered only when food is sold. In addition, 
accompaniments must ``fit'' within the nutrient profile of the food 
that they accompany.
    Fundraisers--The sale of food items that meet the proposed 
nutrition requirements at fundraisers would not be limited in any way 
under the proposed rule. However, the law permits USDA to allow for a 
limited number of fundraisers to sell food and beverage items that do 
not meet the proposed nutrition requirements. Because of the wide 
variety of options available with regard to the frequency of fundraiser 
exemptions, the proposed rule includes two alternative approaches that 
provide discretion to State agencies in determining the frequency with 
which such fundraising activities may take place, and requests other 
suggestions. The proposed standards would not apply to non-school 
hours, weekends and off-campus fundraising events.

Costs and Benefits

    The principal benefit of the proposed rule is improvement in public 
health. The primary purpose of the proposed rule is to ensure that 
competitive foods are consistent with the most recent DGA, 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 particular policy 
concern because the relevant health problems produce significant social 
costs; imposing nutrition standards on competitive foods is one way to 
ensure that children are provided with healthy food options throughout 
the school day.
    We anticipate the proposed 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, which are also not quantifiable at the 
present time, may also be realized by the nutrition standards in the 
proposed 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.
    The proposed 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. Upon implementation of the rule, students will face new food 
choices from these sources. The new choices will meet standards for 
calories, 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 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 proposed rule, these State programs offer the closest ``real-
world'' analogue to the proposal.
    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

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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 this 
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 included in the proposed rule examines the possible 
effects of the proposed rule on school revenues from competitive foods, 
the administrative costs of complying with the rule and the benefits to 
school children.\1\ 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.
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    \1\ For simplicity and because the consumption of competitive 
foods at breakfast is relatively low compared to the consumption of 
competitive foods at lunch, we model the shift from competitive 
foods to program meals as one that takes place at lunchtime only. 
SNDA-III found that competitive foods were consumed by 29 percent of 
NSLP non-participants during the lunch period in SY 2004-2005 
(Gordon, et al., 2007, vol. 2, table VI.9, p. 196), but that 
competitive foods were consumed by just 5 percent of SBP non-
participants during the breakfast period (vol. 2, table VII.9, p. 
264).
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Background

    This rule sets forth proposed provisions to implement sections 203 
and 208 of Public Law 111-296, the Healthy, Hunger-Free Kids Act of 
2010 (HHFKA), which set conditions on schools that participate in 
programs authorized under NSLA and the CNA. The largest of these 
programs are the National School Lunch Program (NSLP) and the School 
Breakfast Program (SBP). NSLP is available to over 50 million children 
each school day; an average of 31.8 million children per day received a 
reimbursable lunch in Fiscal Year (FY) 2011. In that same FY, SBP 
served an average of 12.1 million children daily. Schools that 
participate in the NSLP and SBP receive Federal reimbursement and USDA 
Foods (donated commodities) for lunches that meet program requirements. 
The level of Federal support provided varies by the household income of 
the participating child, with the highest reimbursements to schools for 
meals provided free to the children eligible for such meals.

Availability of Water During the Meal Service

    Section 203 of the HHFKA amends section 9(a) of the NSLA (42 U.S.C. 
(1758(a)) by requiring that schools participating in the NSLP make 
potable water available to children at no charge in the place where 
lunches are served during the meal service. This is a nondiscretionary 
requirement of the HHFKA that became effective October 1, 2010.
    There are a variety of ways that schools can choose to implement 
this requirement. For example, schools can offer water pitchers and 
cups on lunch tables, a water fountain, or a faucet that allows 
students to fill their own bottles or cups with drinking water. 
Whatever method is chosen, the water must be available without 
restriction in the location where meals are served.
    While potable water is required to be made available to students, 
it is not considered part of the reimbursable meal, and students are 
not required to take water. There is no separate funding available for 
this provision and reimbursement may not be claimed. However, 
reasonable costs associated with providing potable water would be an 
allowable cost to the non-profit school food service account. Please 
note that this proposed rule would also apply to afterschool snack 
service claimed through the NSLP. In addition, while the statute does 
not specifically require that potable water be served in the School 
Breakfast Program, the availability of water during all meal services 
is encouraged.
    The Department recognizes that some food service areas and/or 
procedures may require significant changes to properly implement this 
provision, and guidance has been provided to State agencies to use with 
schools. The Department issued an implementation memorandum entitled 
``Child Nutrition Reauthorization 2010: Water Availability During 
National School Lunch Program Meal Service,'' SP 28-2011, on April 14, 
2011, and participated in the Food Research and Action Center's 
webinar, ``Strategies for Success: Making the Most of the New School 
Water and Milk Requirements,'' on May 24, 2011. On July 12, 2011, SP 
28-2011 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.
    State agencies and local school food authorities are reminded that 
schools were required to comply with this provision not later than the 
beginning of School Year 2011-12. This nondiscretionary requirement is 
included in this proposed rule as an amendment to Sec.  210.10(a)(1).

Nutrition Standards for Food Sold in Schools in Competition With School 
Meals

    Federal child nutrition programs play a critical role in providing 
nutritious, balanced meals to children and promoting healthy 
lifestyles. Major strides have been made in recent years to improve the 
quality of meals served to children through Federal child nutrition 
programs. Despite this significant progress, however, considerable work 
remains to be done to improve children's diets. Available research has 
consistently shown that the diets of children in the U.S. do not meet 
current national dietary recommendations for nutrition and health. 
Overall, children today have diets that are low in fruits, vegetables, 
whole grains, and dairy foods and high in sodium, fat and added sugars. 
The 2010 DGA recommend that Americans increase their consumption of 
whole grains, but according to the U.S. Department of Health and Human 
Services (DHHS) report, Healthy People 2010, only 7 percent of children 
ages 2 to 19 years currently meet this recommendation.
    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, in addition to 
nutrition and physical activity, has become a major public health 
concern in the U.S.\2\ 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

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all socio-economic classes, regions of the country, and have affected 
all major racial and ethnic groups (Olshansky, et al., 2005).
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    \2\ HealthyPeople.gov. ``Nutrition, Physical Activity, and 
Obesity. Available at http://healthypeople.gov/2020/LHI/nutrition.aspx?tab=data.
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    Available health research \3\ shows a strong association between 
obesity and other chronic diseases, including cardiovascular disease, 
hypertension, and diabetes. Cardiovascular disease is the leading cause 
of death in America, resulting in 500,000 annual deaths. Risk factors 
for cardiovascular disease occur with much greater frequency among 
obese children than they do among normal weight children. One quarter 
of children ages 5 to 10 show early warning signs for heart disease, 
such as elevated blood pressure or high cholesterol.
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    \3\ See, for example, Preventing Childhood Obesity: Health in 
the Balance by Jeffrey P. Koplan, Catharyn T. Liverman, and Vivica 
A. Kraak (Editors), Committee on Prevention of Obesity in Children 
and Youth, Washington, DC: The National Academies Press, 2005.
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    This and other evidence indicates a need to improve the diets of 
children. Since a significant portion of calories consumed by children 
takes place at school, improving the nutritional profile of all foods 
sold in school beyond Federally-reimbursable meals is critical to 
improve the diets and overall health of American children more 
generally, and to ensure that more children from all income levels 
adopt the kind of healthful eating habits and lifestyles that will 
enable them to live healthier, more productive lives.
    Section 208 of the HHFKA amended Section 10 of the CNA providing 
the Secretary new authority to establish nutrition standards for all 
foods and beverages sold outside of the Federal child nutrition 
programs in schools. Specifically, the HHFKA amended the CNA to require 
that the Secretary promulgate proposed regulations to establish 
nutrition standards for foods sold in schools other than those foods 
provided under the CNA and the NSLA. The provisions specify 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.
    The provisions further stipulate that such standards be consistent 
with the most recent DGA and that the Secretary consider authoritative 
scientific recommendations for nutrition standards; existing school 
nutrition standards, including voluntary standards for beverages and 
snack foods and 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, a la carte sales and any 
other exclusions determined by the Secretary).
    Prior to enactment of the HHFKA, the Secretary's authority to 
regulate the types of foods sold in schools was limited to meal pattern 
requirements for meals served under NSLP and SBP and other foods sold 
in the food service areas during meal periods. Restrictions on the sale 
of foods of minimal nutritional value (FMNV) in food service areas 
during meal periods are found at 7 CFR 210.11 and 220.12 and Appendix B 
to parts 210 and 220. The term ``food service areas'' means any place 
where school meals are being served or consumed, including classrooms 
and multipurpose rooms that double as cafeterias during meal periods. 
The Secretary did not have authority to establish regulatory 
requirements for foods sold in other areas of the school campus or at 
other times during the school day.
    While meals provided through the Federal school meal programs must 
meet certain nutritional requirements, schools may also provide foods 
and beverages outside of these programs, such as a la carte items in 
the school cafeteria as well as those sold through vending machines, 
school stores, school fundraisers, and snack bars. These foods are 
commonly referred to as ``competitive foods'' because they are sold in 
competition with foods offered in school meal programs. The requirement 
that local educational agencies have local school wellness policies, 
pursuant to Section 9A of the NSLA, 42 USC 1786b, was initially 
established in the Child Nutrition and WIC Reauthorization of 2004, 
P.L. 108-265, and further strengthened by section 204 of the HHFKA. As 
part of local wellness policies, schools are encouraged to establish 
their own standards for competitive foods. In many cases, school food 
authorities have been very successful in increasing the number of 
healthy offerings in the area of competitive food sales and developing 
standards for the sale of such foods and beverages in schools; however, 
implementation of such policies has been varied. Likewise, voluntary 
certification initiatives, such as USDA's HealthierUS School Challenge 
(HUSSC) and the Healthy Schools program of the Alliance for a Healthier 
Generation, set criteria for competitive foods and beverages when 
schools offer them, but not all schools participate.
    The goal of both the changes to the nutrition requirements for NSLP 
and SBP meals required by the HHFKA and contained in the final rule, 
Nutrition Standards in the National School Lunch and School Breakfast 
Programs, (77 FR 4088, January 26, 2012), and the standards for 
competitive foods outlined in this proposed rule is to improve the 
health and well being of the Nation's children, increase consumption of 
healthful foods during the school day and to create an environment that 
reinforces the development of healthy eating habits.
    This proposed rule includes standards for both foods and beverages 
sold in schools outside of the Federal child nutrition programs, in 
accordance with the intent of the HHFKA. Specifically, the HHFKA 
clearly directs the Secretary to consider authoritative scientific 
recommendations (which include those for both food and beverages) as 
well as existing State, local and other voluntary standards for 
beverages and snack foods. All such standards include beverage 
standards. In addition, the Secretary's authority to set standards with 
regard to reimbursable meals has historically included beverages, so it 
is reasonable to believe that in extending this authority to other 
foods sold in schools, Congress intended to include beverage standards.
    Alternative approaches to several of the proposed provisions are 
described in the preamble of this rulemaking and presented in the 
proposed regulatory language, in order to solicit public comment on 
their merits. Please note that the order in which these alternatives 
are presented is not intended to indicate a preferred approach.

Considerations

    As previously indicated, the nutrition standards established by the 
Secretary must be consistent with the most recent DGA, which, for the 
purposes of developing this proposed rule, are the 2010 Dietary 
Guidelines for Americans released on January 31, 2011. The guidelines 
are available at http://www.cnpp.usda.gov/DietaryGuidelines.htm. In 
developing the competitive food standards, the Secretary is also 
directed by the HHFKA 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 entitled Nutrition

[[Page 9534]]

Standards for Foods in Schools: Leading the Way Toward Healthier Youth 
(available at: http://www.cdc.gov/HealthyYouth/nutrition/standards.htm).
    In addition, the Department conducted a broad review of nutrition 
standards developed by other entities. These included USDA's 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 that have been developed by 
various organizations such as the National Alliance for Nutrition and 
Activity and the Alliance for a Healthier Generation.
    The Department also 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. Input gathered from these various sources has served to 
assist the Department in formulating the standards and options proposed 
in this rule. The practical application of the competitive food 
nutrition standards in school settings was a key consideration for all 
of the proposed standards. Additionally, over 4,400 schools to date 
have been recognized through the HUSSC initiative and have adopted 
strong competitive foods policies as part of their application for 
recognition. The HUSSC criteria for competitive food policies is based 
on IOM recommendations that promote offering competitive food items 
that are limited in calories and low in total fat, trans fat, saturated 
fat, sugar, sodium, and that also limit the types and portion sizes of 
beverages that can be sold in competition with the reimbursable meal.
    This proposed rule is predicated on the principle that the present 
and future health and well-being of school-age children is profoundly 
affected by dietary intake and the maintenance of a healthy weight. 
Schools contribute to current and lifelong health and dietary patterns 
and are uniquely positioned to model and reinforce healthful eating 
behaviors in partnership with parents, teachers, and the broader 
community. The practice of food sales in competition with federally-
reimbursable program meals and snacks is widespread. In school year 
(SY) 2004-2005, 82 percent of all schools--and 92 percent of middle and 
high schools--offered a la carte foods at lunch. Vending machines were 
available in 52 percent of all schools and 26 percent of elementary 
schools, 87 percent of middle schools and 98 percent of high schools 
(Gordon, et al., 2007; SNDA-III, Volume 1, pp 102-114). Because all 
foods and beverages available on the school campus represent 
significant opportunity for the intake of calories and foods and 
nutrients encouraged by the DGA, competitive food standards should be 
designed to meet such nutrition recommendations.
    Nutrition standards for all foods and beverages sold in schools 
should be considered in the context of new meal patterns for the 
Federal school meal programs and the goals of improving the nutrition 
environment of our Nation's schools. The intent of this proposal is to 
support the federally-reimbursed school nutrition programs as the major 
source of foods and beverages offered at school and to ensure that all 
foods and beverages sold on the school campus during the school day 
will contribute to an overall healthful eating environment. These 
proposed standards do not exclude any of the USDA NSLP/SBP Meal Pattern 
food components or the DGA subgroups as long as the product meets the 
general standards proposed for allowable competitive foods. It is 
intended that these standards for competitive foods be simple in order 
to encourage the inclusion of the ``Foods and Nutrients to Increase'' 
identified in the 2010 DGA, and that the standards be practical for 
application at the school or district level.
    The proposed standards and the proposed exceptions to the standards 
include numerous areas of consensus and/or consistency among the 
various source recommendations that were reviewed. In addition, there 
are a number of areas where existing recommendations and/or voluntary 
or State/local standards vary considerably in their specific approach 
to issues. We carefully considered each of these. As a result, where 
appropriate in these areas, the Department has proposed two or more 
options for implementing standards and is interested in receiving 
comments on which of these options best achieves the objectives of the 
DGA while considering the practical application of standards in a 
school setting.

Definitions

    The HHFKA stipulates that the nutrition standards for competitive 
food shall 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. Therefore, for the purpose of implementing 
section 208 of the HHFKA, this rule includes proposed definitions for 
``competitive food'', ``school campus'' and ``school day''.
    There are many definitions of ``school day'' currently utilized by 
schools across the country. In almost every instance, such definitions 
apply to the instructional day, rather than to the availability of food 
or meal services in schools during the school day. The definitions 
proposed in this rule deal exclusively with the application of the 
proposed competitive food standards and are intended to have no impact 
whatsoever on any definition of instructional day or school campus that 
is established by a State or a local educational agency or school for 
other purposes. Competitive food is proposed to be defined as all food 
and beverages sold to students on the School campus during the School 
day, other than those meals reimbursable under programs authorized by 
the NSLA and the CNA. School day is proposed to be defined, for the 
purpose of competitive food standards implementation, as the period 
from the midnight before, to 30 minutes after the end of the official 
school day. Finally, School campus is proposed to be defined, for the 
purpose of competitive food standards implementation, as all areas of 
the property under the jurisdiction of the school that are accessible 
to students during the school day.
    The intent of the proposed definitions of school day and school 
campus is to provide simple and straightforward criteria to ensure that 
food that does not meet the standards outlined in this proposed rule is 
not sold to students on the school campus during the school day. Given 
the many activities, programs and schedules established by schools, it 
is not possible to specify in regulations a precise time for the start 
of the school day; therefore, this rule proposes that the sale of 
competitive food to students be prohibited from the midnight before, to 
30 minutes after the end of the official school day (i.e., 
instructional day). Competitive food, school day, and school campus are 
defined in Sec.  210.11(a).
    In addition, Sec.  210.11(b)(4) of this rule proposes that these 
nutrition standards for competitive foods apply to any program 
operating in the school on the school campus during the school day that 
is serving meals reimbursed under any program authorized under the NSLA 
or the CNA. Foods that do not meet the nutrition standards outlined in 
this proposal should not be available for sale to students on the 
school campus during the school day.

Nutrition Standards for Foods and Beverages

    The standards proposed in this rule represent minimum standards 
that local

[[Page 9535]]

educational agencies, school food authorities and schools must meet. 
State agencies and/or local schools have the discretion to establish 
their own competitive food standards should they wish to do so, as long 
as such standards are consistent with the final minimum standards. This 
option is included in Sec.  210.11(b)(1) of the proposed rule. 
Competitive food standards apply to all age groups of students. 
Additionally, the proposed rule includes separate standards for foods 
and beverages.

General Nutrition Standards for Competitive Foods

    The IOM in their report entitled Nutrition Standards for Foods in 
Schools: Leading the Way Toward Healthier Youth categorized food and 
beverages into two tiers, based on the extent of their consistency with 
the DGA. Tier 2 foods are not relevant to this proposal since such 
foods are those recommended to only be served to high school students 
after the school day. Tier 1 foods and beverages are consistent with 
``foods to be encouraged'' as defined in the DGA and are the basis for 
many of the provisions of this proposed rule. IOM Tier 1 foods are 
defined as fruit, 100% fruit and vegetable juices, vegetables, whole 
grains and related combination products, and nonfat and low-fat dairy 
products and NSLP food items that are part of the reimbursable meal 
that are also sold a la carte that meet fat and sugar limits outlined 
in the IOM report. This proposed rule is generally consistent with the 
IOM standards and the DGA in that it permits the sale of Tier 1 foods 
as well as additional foods containing a significant amount of one of 
the four nutrients of public health concern, and/or fruits/vegetables.
    To be an allowable competitive food in schools, an item shall:
    (1) Meet all of the proposed competitive food nutrient standards; 
and
    (2) Be a grain product that contains 50 percent or more whole 
grains by weight or have whole grains as the first ingredient or be one 
of the non-grain main food groups as defined by the 2010 DGA: a fruit, 
vegetable, dairy product, protein food (meat, beans, poultry, seafood, 
eggs, nuts, seeds, etc.); or
    (3) Contain 10 percent of the Daily Value (DV) of a naturally 
occurring nutrient of public health concern from the DGA (e.g., 
calcium, potassium, vitamin D or dietary fiber); or
    (4) Be a combination food that contains at least \1/4\ cup of fruit 
or vegetable.
    This proposal stipulates that, in cases in which water is the first 
ingredient listed for a food item, the second ingredient must be one of 
the above. Below is a brief summary chart depicting the proposed 
standards contained in this rule. A thorough discussion of each 
standard follows.

                  Proposed Competitive Foods Standards
------------------------------------------------------------------------
                                                      Exemptions to the
        Food/nutrient               Standard              standard
------------------------------------------------------------------------
General Standard for          To be allowable, a     Fresh,
 Competitive Food.             competitive FOOD      frozen and canned
                               item must:            fruits and
                              (1) meet all of the    vegetables with no
                               proposed              added ingredients
                               competitive food      except water or, in
                               nutrient standards;   the case of fruit,
                               and.                  packed in 100%
                              (2) be a grain         juice or extra
                               product that          light syrup, exempt
                               contains 50% or       from all proposed
                               more whole grains     nutrient standards.
                               by weight or have
                               whole grains as the
                               first ingredient or
                               be one of the non-
                               grain main food
                               groups: a fruit,
                               vegetable, dairy
                               product, protein
                               food (meat, beans,
                               poultry, seafood,
                               eggs, nuts, seeds,
                               etc.), or.
                              (3) contain 10% of
                               the Daily Value
                               (DV) of a naturally
                               occurring nutrient
                               of public health
                               concern (i.e.,
                               calcium, potassium,
                               vitamin D or
                               dietary fiber) or;.
                                 (4) be a
                                  combination food
                                  that contains at
                                  least \1/4\ cup
                                  of fruit or
                                  vegetable.
                              If water is the       ....................
                               first ingredient,
                               the second
                               ingredient must be
                               one of the above.
NSLP/SBP Entrees and Side     Alternative A1: NSLP/
 Dishes Sold A la Carte.       SBP entrees and
                               side dishes sold a
                               la carte exempt
                               from all standards
                               except the fat and
                               sugar standards (<=
                               35% of total
                               calories from fat
                               or <= 35% of
                               calories or weight
                               from total sugar
                               (See Alternative C1
                               and C2)) ; or
                              Alternative A2: NSLP/ ....................
                               SBP entrees and
                               side dishes (except
                               grain based dessert
                               products) sold a la
                               carte exempt from
                               all standards.
                               Alternatives B1 and
                               B2 describe two
                               approaches to the
                               timing of service
                               associated with
                               this exemption.
Grain Items.................  Acceptable grain      ....................
                               products must
                               include 50% or more
                               whole grains by
                               weight or have
                               whole grains as the
                               first ingredient.
Total Fats..................  Dietary fat per        Reduced fat
                               portion as            cheese;
                               packaged: <= 35% of   Nuts and
                               total calories from   seeds and nut/seed
                               fat per portion as    butters. Exemption
                               packaged.             does not extend 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.;
                                                     Products
                                                     consisting of only
                                                     dried fruit with
                                                     nuts and/or seeds
                                                     with no added
                                                     nutritive
                                                     sweeteners or fat;
                                                     Seafood
                                                     with no added fat.
Saturated Fats..............   < 10% of      Reduced fat
                               total calories per    cheese
                               portion as packaged.
Trans Fats..................   Zero grams   ....................
                               of trans fat per
                               portion as packaged
                               (<= 0.5 g per
                               portion).

[[Page 9536]]

 
Sodium......................   Snack and
                               side items: <= 200
                               mg sodium per
                               portion as packaged
                               for non NSLP/SBP
                               snack items;
                                            ....................
                               Entr[eacute]e
                               items: <= 480 mg
                               sodium per portion
                               for non-NSLP/SBP
                               entr[eacute]e items.
Total Sugars................   Alternative   Fresh,
                               C1: <= 35% of         frozen and canned
                               calories from total   fruits/vegetables
                               sugars in foods; or   with no added
                               Alternative   sweeteners except
                               C2: <= 35% of         for fruits packed
                               weight from total     in 100% juice or
                               sugars in foods.      extra light syrup;
                                                     Dried whole
                                                     fruits/vegetables,
                                                     dried whole fruit/
                                                     vegetable pieces;
                                                     and dried
                                                     dehydrated fruits/
                                                     vegetables with no
                                                     added nutritive
                                                     sweeteners.
                                                     Lowfat/
                                                     nonfat yogurt with
                                                     less than 30 grams
                                                     of sugar per 8
                                                     ounces.
Calories....................   <= 200
                               calories per
                               portion as packaged
                               including any added
                               accompaniments such
                               as butter, cream
                               cheese, salad
                               dressing etc. for
                               non NSLP/SBP snack
                               items and side
                               dishes sold a la
                               carte;.
                               <= 350       ....................
                               calories for non
                               NSLP/SBP
                               entr[eacute]e items
                               sold a la carte.
Accompaniments..............   Use of       ....................
                               accompaniments
                               should be limited
                               when food is sold
                               to students in
                               school. All
                               accompaniments
                               shall be pre-
                               portioned and must
                               be included in the
                               nutrient profile as
                               a part of the 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. No
                               caffeine
                               restriction for
                               high school
                               students.
Beverages...................  Elementary School...
                               No
                               caffeinated
                               beverages;
                               Plain water
                               (no size limit);
                               Low fat
                               milk, plain (<= 8
                               oz);
                               Non fat
                               milk, plain or
                               flavored (<= 8 oz),
                               including
                               nutritionally
                               equivalent milk
                               alternatives as
                               permitted by the
                               school meal
                               requirements; and
                               100% fruit/
                               vegetable juice (<=
                               8 oz).
                              Middle School.......
                               No
                               caffeinated
                               beverages;
                               Plain water
                               (no size limit);
                               Low fat
                               milk, plain (<= 12
                               oz);
                               Non fat
                               milk, plain or
                               flavored (<= 12 oz)
                               including
                               nutritionally
                               equivalent milk
                               alternatives as
                               permitted by the
                               school meal
                               requirements; and
                               100% fruit/
                               vegetable juice (<=
                               12 oz).
                              High School.........
                               Plain water
                               (no size limit);
                               Low fat
                               milk/plain (<= 12
                               fl. oz.);
                               Non fat
                               milk, plain or
                               flavored (<= 12 fl.
                               oz.), including
                               nutritionally
                               equivalent milk
                               alternatives as
                               permitted by the
                               school meal
                               requirements;
                               100% fruit/
                               vegetable juice (<=
                               12 fl. oz.);
                               Calorie-
                               free, flavored and/
                               or unflavored,
                               caffeinated or non-
                               caffeinated
                               carbonated water
                               allowed (<= 20fl.
                               oz), but not during
                               the meal service
                               periods;
                               Other
                               calorie free
                               caffeinated or non-
                               caffeinated
                               beverages that
                               comply with the FDA
                               standard of less
                               than 5 kcals/
                               serving. (<= 20 fl.
                               oz.), allowed, but
                               not during the meal
                               service periods;
                               and
                               Alternative
                               D1: Other
                               caffeinated or non-
                               caffeinated
                               beverages (<= 40
                               calories/8 oz
                               serving or <= 60
                               calories/12 oz
                               serving) in <= 12
                               oz servings
                               allowed, but not
                               during the meal
                               service periods; or.
                               Alternative
                               D2: Other
                               caffeinated or non-
                               caffeinated
                               beverages (<= 50
                               calories/8 oz or <=
                               75 calories/12 oz
                               serving) in <= 12
                               oz servings, but
                               not during the meal
                               service periods.
------------------------------------------------------------------------


[[Page 9537]]

    The following discussion outlines the nutrition standards for 
allowable competitive foods as proposed in this rule at Sec.  210.11.

General Exemption of NSLP and SBP Entrees and Side Dishes

    This rule proposes two alternatives by which any menu item (both 
entrees 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, with the exception of grain based dessert products 
which must meet all standards in order to be served.
    The first alternative (A1) would align such an exemption with the 
IOM recommendations related to NSLP and SBP menu items. If items are 
served in the reimbursable meal, they would be exempt from all of the 
proposed nutrition standards except they would still have to meet the 
limits on fat and sugar. As discussed later in this preamble, the 
proposed limit for fat is <=35% of total calories from fat per portion 
as packaged. For sugar, two alternatives are proposed: Alternative C1: 
<=35% of calories from total sugars in foods; or Alternative C2: <= 35% 
of weight from total sugars in foods. The purpose of including this 
alternative for meals is to ensure that the improvements that will 
result from the updated nutrition standards would not be undermined.
    The second alternative (A2) would exempt all menu items provided as 
part of the NSLP or SBP reimbursable meal from the proposed competitive 
food standards, with the exception of grain based dessert products 
which must meet all standards in order to be served. For this 
alternative, the rule also proposes two alternatives for comment with 
regard to the frequency of allowable sale of the NSLP/SBP menu items as 
competitive foods which are described as Alternatives (B1) and (B2) 
below. These NSLP/SBP menu items would have to be served in the same or 
smaller portion sizes as in the NSLP or SBP to be allowable. In 
general, the proposed exemption for NSLP/SBP menu items supports the 
new school meal patterns and the concept of school meals as being 
healthful.
    The first alternative proposed regarding the frequency of allowable 
service of the exempted NSLP/SBP menu items (B1) would allow an 
exemption to the proposed nutrient standards for competitive foods for 
NSLP and SBP menu items on the same day that the items were served in 
the school meals program. While this may limit flexibility for the 
school food service and prevent the service of some leftover entrees 
and/or side dishes during the menu cycle, this option would alleviate 
concerns regarding the frequency with which particular food items are 
available.
    The second alternative (B2) would allow an exemption to the 
proposed nutrient standards for competitive foods for NSLP and SBP menu 
items served within four operating days of service in the programs. 
This option provides an increase in flexibility for the school food 
service.
    The Department seeks comments on these alternatives, identified at 
Alternatives B1and B2 in Sec.  210.11(c)(3) of the proposed rule.

Naturally Occurring Nutrients

    One of the general standards proposed in this rule is that, in 
order to be allowable, food items must contain 10% of the Daily Value 
(DV) of a naturally occurring nutrient of public health concern: 
calcium, potassium, vitamin D, and dietary fiber. Including the 10% DV 
as a method to determine the foods that may be sold in schools 
encourages consumption of these nutrients.
    The Department is interested in receiving comments from the public 
as to whether or not food items that contain only naturally occurring 
nutrients should be allowed in this rule, or whether food items to 
which specific nutrients of concern have been added should also be 
allowable.
    For example, if only naturally occurring nutrients were specified, 
a product may be formulated to have 10% calcium by including 
ingredient(s) in the product formulation that are naturally high in 
calcium such as non-fat dry milk solids, or cheese. Obviously, the 
ingredient(s) used and the amount needed would vary depending on the 
product and may not be feasible for some products, but the nutrients 
from these ingredients would be included in meeting the 10% DV level. 
Using this method would not allow the addition of the discrete nutrient 
(many forms exist for the addition of calcium to food, such as 
tricalcium phosphate, calcium citrate malate, calcium lactate, etc.) to 
count toward meeting the 10% DV requirement. The rationale to limit the 
products to the naturally occurring nutrients is to limit the 
consumption of products to which specific nutrients of concern have 
been added and encourage consumption of whole foods or foods closer to 
their whole state as encouraged by the DGA. One concern with this 
approach is that schools may not be able to recognize when a specific 
nutrient of concern has been added to a product or when the nutrient is 
naturally occurring. Fortifications are often not highlighted on the 
label and the nutrient facts panel does not currently make any 
distinction between naturally occurring nutrients and those nutrients 
available in a food through fortification. This requirement may be 
found in Sec.  210.11(c)(2)(iv) of the proposal.

Combination Foods

    Since many of the foods available to students contain a combination 
of ingredients, for the purposes of this proposal, combination foods 
are defined as products that contain two or more components that 
represent two or more of the recommended food groups as specified in 
the DGA (fruit, vegetable, dairy, protein or grains). This proposed 
definition may be found at Sec.  210.11(a)(4).

Fruits and Vegetables

    To be consistent with both the DGA and the IOM recommendations, 
this rule proposes that fresh, frozen and canned fruits and vegetables 
with no added ingredients except water or, in the case of fruit, packed 
in 100 percent juice or extra light syrup, be exempt from all the 
nutrient standards included in this rule. According to the DGA, fruits 
and vegetables are nutrient dense; greater consumption of such foods in 
the diet is encouraged. This provision is included at Sec.  210.11(d) 
of this proposed rule.

Grain Items

    This rule proposes that acceptable grain products must include 
whole grains. To qualify as an allowable competitive food, grain 
products shall meet at least one the following criteria as well as meet 
all of the proposed nutrient standards:
    (1) Contain 50% or more whole grains by weight; or
    (2) Have whole grains as the first ingredient.
    This standard is consistent with the DGA recommendations, the NSLP 
meal pattern standards and the HUSSC whole grain requirement. It is 
also practical because it can be easily identified by reading a product 
label. This provision is included at Sec.  210.11(e).

Total Fats

    To qualify as an allowable competitive food, this proposal 
specifies that not more than 35 percent of the total calories per 
portion as packaged shall be derived from fat. Nuts and seeds, peanut 
and other nut butters, seafood, and reduced fat cheese would be exempt 
from this standard. This standard is identical to the IOM 
recommendation for total fats. However,

[[Page 9538]]

the Department is proposing to allow the following exemptions to the 
total fat limitation. Please note that requirements and exemptions 
other than total fat mentioned below are discussed later in this 
preamble under the applicable section.
    (1) Reduced fat cheese is exempt from the total fat and saturated 
fat standard, but subject to the trans fat, calorie, sugar and sodium 
standards. The exemption for reduced fat cheese is based primarily on 
the availability of lower fat cheeses that children find palatable and 
the recognition that reduced fat cheese is a source of calcium, a 
nutrient of concern, and contributes to overall bone health. In 
addition, this exemption is consistent with voluntary standards that 
have been reviewed during the course of developing this proposal.
    (2) Nuts and seeds and nut/seed butters are exempt from the total 
fat standard, but subject to the saturated fat, trans fat, calorie, 
sugar, and sodium standards. This exemption does not extend 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. This exemption from the 
total fat standard allows the inclusion of nuts and seeds within 
reasonable calorie amounts. Without such an exemption, nuts and seeds 
could not be sold alone without being combined with some other product 
like added sugars or refined grain, which is not the intent of these 
competitive food nutrition standards. Nuts, seeds and nut/seed butters 
are nutrient-dense, good sources of monounsaturated and polyunsaturated 
fatty acids, some of which are essential, and are sources of many 
vitamins and minerals, as well as dietary fiber. In addition, ensuring 
the allowance of nuts and seeds provides a shelf stable, vegetarian-
friendly protein source.
    (3) 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 and sugar standard; but are subject to the saturated fat, 
trans fat, calorie and sodium standards, for reasons similar to those 
cited above. In addition, dried fruit has the same nutritional benefits 
of fruits and will assist in helping children meet their daily fruit 
requirements.
    (4) Seafood with no added fat is exempt from the total fat 
requirement in order to increase omega-3 fatty acids; but still subject 
to the proposed sugar, saturated fat, trans fat, calorie and sodium 
standards.
    In summary, reduced fat cheese, nuts, seeds and nut/seed butters 
and dried fruit are popular food items among school-aged children and 
can make a positive contribution to overall health, especially since 
these food items must meet the other nutrient standards proposed. These 
provisions may be found at Sec.  210.11(f).

Saturated Fats

    To qualify as an allowable competitive food, it is proposed that 
less than 10% of the total calories per portion of a food be derived 
from saturated fats. Cheese is exempt from the total fat and saturated 
fat standard if it is reduced fat cheese, as discussed above. However, 
such reduced fat cheese products remain subject to the proposed 
calorie, trans fat, sugar and sodium standards outlined in this 
rulemaking. This standard is also consistent with the DGA and may be 
found in Sec.  210.11(g) of this proposed rule.

Trans Fats

    It is proposed that allowable competitive foods contain zero grams 
trans fat per portion as packaged (not more than 0.5 g per portion). 
This standard is identical to the IOM and DGA recommendations and may 
be found in Sec.  210.11(h) of this proposed rule.

Total Sugars

    This proposed rule provides two alternatives for comment regarding 
total sugars in foods. Alternative C1 requires that in order to be 
considered an allowable competitive food item, no more than 35% of 
calories shall be derived from total sugars in foods. This is identical 
to the recommendation made by the IOM. Alternative C2 requires that 
allowable competitive food items shall not contain more than 35% of 
their weight from total sugars in foods. This standard was included in 
a number of voluntary standards that were reviewed during the 
development of this proposed rule. The calculations associated with 
these two alternatives differ. Generally, when sugar by weight is 
utilized, foods with a higher percentage of calories from total sugar 
would be allowable as competitive foods in schools. This may also 
result in an increase in the number/types of foods which may be sold in 
schools, particularly with regard to dairy products such as ice cream. 
The Department requests comment on these alternatives.
    In addition, ideally, the sugar standard would apply to the added 
sugars in foods, since added sugars are identified in the 2010 DGA as a 
food component to reduce. However, because the Nutrition Facts label 
does not differentiate between added and naturally occurring sugars in 
foods and beverages, a standard limiting total sugars is the most 
reasonable standard. Regardless of which measure (total sugars by 
weight or calories) is utilized, this proposed rule includes the 
following exemptions to this requirement:
    (1) Dried whole fruits or vegetables; dried whole fruit or 
vegetable pieces; and dried dehydrated fruits or vegetables with no 
added nutritive sweeteners are exempt from the sugar standard, but are 
subject to the calorie, total fat, saturated fat, trans fat and sodium 
standards;
    (2) 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 and sugar standard, but are subject to the calorie, trans 
fat, saturated fat and sodium standards; and
    (3) Flavored and unflavored nonfat and low-fat yogurt with no more 
than 30 grams of total sugars per 8 ounce serving are exempt from the 
sugar standard, but are subject to the calorie, total fat, saturated 
fat, trans fat and sodium standards.
    The exemption from the total sugar standard proposed in items (1) 
and (2) above has been made since those food items are nutrient dense 
and contribute to total intake of fruit and vegetables, which has been 
identified in the 2010 DGA as a food group targeted for increased 
consumption. Since the water has been removed from dried products 
during processing, it is more calorically dense than fresh fruits and 
vegetables. For this reason, the calorie standards are proposed to 
apply to dried fruits and dried vegetables as well as dried fruits 
mixed with nuts and/or seeds. We acknowledge that for certain dried 
fruit products, the addition of nutritive sweeteners may be necessary 
for processing and palatability (i.e. cranberries). Therefore we are 
requesting feedback from commenters on whether the standard should 
include specific dried fruit products that require nutritive sweeteners 
in the total sugars exemption.
    The proposed sugar standards are found in Sec.  210.11(i).

Sodium

    This rule proposes that allowable entr[eacute]e items contain no 
more than 480 mg sodium per portion as served. This standard is 
identical to the IOM recommendation for entrees.
    For purposes of this proposed rule, an entr[eacute]e item is 
proposed to be defined in Sec.  210.11(k) as an item that includes only

[[Page 9539]]

the following three categories of main dish food items:
    (1) A combination food of meat or meat alternate and whole grain-
rich bread (for example, turkey sandwich, peanut butter on grain-rich 
bread, pizza with whole grain-rich crust, hot dog or hamburger on a 
grain-rich bun, a bean and cheese burrito, nachos with chili and 
cheese);
    (2) A combination food of vegetable or fruit and meat or meat 
alternate (for example, chef's salad, fruit and cheese platter, chicken 
vegetable stir-fry); or
    (3) A meat or meat alternate alone (e.g., fish filet, Salisbury 
steak, seafood, egg or chicken) with the exception of yogurt, low-fat 
or reduced fat cheese, nuts, seeds and nut or seed butters. This 
exception is being proposed since yogurt, cheese, nuts, seeds and nut 
or seed butters alone are generally considered to be snack or dessert 
items, not entr[eacute]e items.
    The Department is proposing that allowable snack items contain no 
more than 200 mg of sodium per portion as packaged. This standard 
reflects the IOM recommendation with regard to snack items.
    In addition, as previously discussed, this rule proposes to exempt 
any items sold as part of the school meal during specified periods from 
all or most (except total fat and sugar) competitive food standards 
(Sec.  210.11(c)(3)). The proposed sodium standards are found in Sec.  
210.11(j) and (k).

Calories

    This rule proposes that, to be considered allowable, snack items 
shall contain no more than 200 calories per portion as packaged 
including any added accompaniments such as butter, cream cheese, salad 
dressing etc. A la carte snack items/side dishes served in the same or 
smaller portion size as served in the NSLP or the SBP during specific 
periods would be exempt from this calorie restriction.
    This proposed rule stipulates that entr[eacute]e items sold a la 
carte shall contain no more than 350 calories per portion as served and 
meet all of the other nutrition standards specified.
    However, consistent with the sodium standard exemption, this rule 
proposes to exempt entr[eacute]e items from this calorie requirement if 
the entr[eacute]e items sold a la carte are NSLP or SBP entrees that 
are to be offered during specific periods as part of the reimbursable 
school meal and are served in the same or smaller portion size as 
offered in the NSLP or SBP (Sec.  210.11(c)(3)). The proposed calorie 
standards are found in Sec.  210.11(j) and (k).

Caffeine

    This rule proposes that competitive foods and beverages served to 
elementary and middle school-aged children must be caffeine-free, with 
the exception of trace amounts of naturally occurring caffeine 
substances. This standard is consistent with the IOM recommendation. In 
the IOM report, it was concluded that although there may be some 
benefits associated with caffeine consumption among adults, offering 
foods and beverages containing significant amounts of caffeine to 
school aged children was not appropriate due to the potential for 
adverse effects, including physical dependency and withdrawal. Caffeine 
is not proposed to be restricted for high school-aged students. Given 
the practical realities and market for caffeinated beverages enjoyed by 
high school aged students, it was not deemed practical to restrict 
caffeinated beverages for this age group. However, the Department does 
request comments on this exception for high school students. This 
proposed provision may be found at Sec.  210.11(l).

Beverages

    In developing proposed standards for beverages sold in competition 
with school meals, the Department is proposing standards for allowable 
beverage types that are consistent with the IOM recommendations for 
elementary and middle school students, but which allow a greater 
variety of beverages for sale to high school students. Specifically, 
calorie-free, flavored and/or carbonated water, and low-calorie (less 
than 40 or 50 calories per 8 ounces) beverages are allowed for high 
school students, but not allowed for elementary or middle school 
students. This approach recognizes 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. Given those circumstances, the 
Department considers it reasonable to provide high school students a 
broader range of choices, while still limiting those choices to those 
which are more nutrient dense and/or lower in calories than other 
options. Elementary and middle school students may develop healthier 
habits because of this limitation.
    The proposed rule also specifies allowable beverages and maximum 
portion sizes for such beverages. The proposed beverage standards 
provide consistent sizes for each age group.
    The proposed beverage requirements are:
    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);
     100% fruit/vegetable juice (not more than 12 fluid 
ounces);
     Calorie-free, flavored and/or carbonated water (not more 
than 20 fluid ounces) allowed, but not in the meal service area during 
meal service periods;
     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 allowed, but not in the meal service area 
during meal service periods; and
     Other beverages in <= 12 oz servings allowed, but not in 
the meal service area during the meal service periods. Two alternatives 
are proposed. The first (D1) would allow 40 calories per 8 ounce 
serving of beverages (or no more than 60 calories per 12 ounce serving 
of such beverages) for high school students. The second (D2) would 
allow 50 calories per 8 ounce serving of beverages (or no more than 75 
calories per 12 ounce serving of such beverages) for high school 
students. The slightly higher calorie limit would allow a broader range 
sports drinks to be purchased.
    The beverage standards proposed in this rule are consistent with 
most currently established voluntary standards regarding the types of 
beverages sold to students on campus

[[Page 9540]]

during the school day. However, the package/container sizes for 100% 
juice and milk as proposed in this rule are larger than those 
recommended by the IOM in its report on nutrition standards for food in 
schools (IOM did not recommend allowing any amount of other caloric 
beverages aside from juice and milk). The amounts of 100% juice and 
milk proposed for elementary and middle schools are also higher than 
the voluntary standards set by the Alliance for a Healthier Generation.
    The American Academy of Pediatrics recommends limiting 100 percent 
juice for children 7 to 18 years old to 8 to 12 ounces per day. Under 
the interpretation of the new meal pattern requirements there is no 
juice limit per day but rather per week. The Dietary Guidelines 
Advisory Committee Report states that limited and inconsistent evidence 
suggests that for most children, intake of 100 percent fruit juice is 
not associated with increased fat, when consumed in amounts that are 
appropriate for age and energy needs of the child. The DGA 2010 
recommends that most of one's fruit choices should be whole or cut-up 
fruit, rather than juice, for the benefits that dietary fiber provides.
    Most children 9 years and older consume less than one cup of milk 
per day. While allowing package sizes for milk up to 12 ounces for 
secondary school students does contribute extra calories, it also 
provides children with needed calcium, vitamin D and potassium and 
could help move children's consumption of Dairy foods closer to dietary 
recommendations.
    As indicated previously, the rationale behind the approach taken in 
this proposed rule is the practical recognition of current packaging 
practices.
    However, the Department realizes that there would be an increase in 
calories and added sugars incurred by allowing larger package sizes and 
welcomes public comments on the proposed beverage amounts.
    These proposed provisions are found in Sec.  210.11(b)(2) and Sec.  
210.11(m).

Fundraisers

    School-sponsored fundraisers are recognized as reasonable 
enhancements to the school community as well as a method of financing 
some important school-sanctioned activities for students. The sale of 
food items that meet the proposed nutrition requirements (as well as 
the sale of non-food items) at fundraisers would not be limited in any 
way under the proposed rule. 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. Further, the proposed standards would not apply to food or 
beverages sold on school grounds, during school hours at ``a limited 
number'' of school fundraisers. The determination of what constitutes 
``a limited number'' will be decided by the state agencies under one of 
two alternative approaches. It is expected that state agencies will 
ensure that the frequency of such fundraisers on school grounds, during 
school hours does not reach a level to impair the effectiveness of 
nutrition requirements described in this rule. With respect to other 
non-exempted fundraising activities during the school day (including 
fundraising through vending machines, school stores, snack bars, a la 
carte sales, and other similar activities as determined by the 
Secretary), the food and beverage items sold must meet the proposed 
nutrition standards for competitive foods.
    The Department is especially interested in obtaining input from the 
public on this particular provision. This proposed rule includes two 
alternative approaches to exemptions to the competitive food standards 
for school-sponsored fundraisers, as well as a request for other 
suggestions from commenters. In addition, since the Department does not 
have detailed data regarding fundraising activities at schools, 
especially with regard to the types, frequency, restrictions during 
meal time, etc., that have been established by schools, commenters may 
also wish to provide input in this area.
    The first alternative is to allow State agencies the discretion to 
establish limitations on the number of exempt fundraisers that may be 
held during the school year. The second alternative is to allow State 
agencies to set exempt fundraising frequency standards, subject to USDA 
approval.
    Suggested timeframes from commenters for the conduct of exempt 
fundraisers in schools are also welcome. The two alternative approaches 
discussed above are included in Sec.  210.11(b)(5).
    Regardless of the approach ultimately adopted by the Department in 
a final rule, it is important to note that individual States and/or 
school districts may implement more restrictive competitive food 
standards, including those related to the frequency with which exempt 
fundraisers may be held in schools.
    As stated above, this rule does not propose standards for frequency 
of school-sponsored fundraisers that provide foods or beverages that 
meet the nutrition standards for competitive foods. The limitations in 
this rule would deal only with those school-sponsored fundraisers that 
are exempt from the competitive food nutrition standards. However, the 
proposal does prohibit the sale of specially exempted fundraiser foods 
and beverages during the school meal service so as not to compete with 
the school meal.

Other Proposed Standards

Accompaniments

    To reduce the added sodium, fats and sugars in food available and 
served to students during the school day, it is proposed that the use 
of accompaniments be limited when food is sold to students in school. 
All accompaniments shall be pre-portioned and must be included in the 
nutrient profile as a part of the item served as well as meet all of 
the proposed standards. For example, dressings served with salads, 
butter or jelly on muffins, cream cheese with a bagel and garnishes 
shall be pre-portioned in amounts appropriate to ensure that the 
competitive food standards are met and shall be included in the 
nutrient profile of the item. The Department seeks comment on the 
impact that such a requirement may have on competitive food service in 
schools. This proposed provision is found in Sec.  210.11(n).

Foods of Minimal Nutritional Value (FMNV)

    This rule requires that all food and beverages available and served 
to students meet the specific standards for competitive foods outlined 
in this proposed rule. It is no longer necessary, therefore, to retain 
the more narrowly defined standards for food of minimal nutritional 
value included in the current regulations. Accordingly, the proposal 
would remove the definition of ``food of minimal nutritional value'' 
from 7 CFR part 210 and the definition of ``foods of minimal 
nutritional value'' from 7 CFR part 220, and make other conforming 
changes in both of these parts.

Summary of General Impacts of the Proposed Competitive Food Standards

    As proposed in this rule, all food and beverage products are 
subject to each of the proposed competitive food standards, with some 
specific exemptions for food items to be encouraged. Many existing 
products, particularly those encouraged by the Dietary Guidelines, 
would be available without restriction under these standards. Many 
products that would not meet these standards under current product 
formulations and package sizes

[[Page 9541]]

could meet the standards with changes to product packaging size or 
product formulation. In some cases, necessary formulation changes would 
be relatively modest (e.g., adding or increasing whole grains in 
certain products), while in others, more significant changes would be 
required in order for a product to meet the competitive food standards. 
Some products may also be able to meet the standards by modifying 
packaging; for example, reducing existing single-serving packages to 
meet calorie or sodium requirements. Finally, there are some products, 
such as those in which sugar is the primary ingredient, for which it is 
unlikely that changes could modify the product in a way that would 
allow the product to comply with the competitive food standards. Such 
products include soft drinks that contain sugar and/or caffeine 
(proposed to be restricted for elementary and middle school students), 
candy and other confections, whole milk, jams, jellies, certain dessert 
items as well as certain fruit products that contain added sugars.
    Snack foods such as chips and other bagged snack items would most 
likely be most impacted by the proposed sodium, calorie and fat 
standards, as well as the requirement that the item contain 50% or more 
whole grains, or have its first ingredient be a whole grain or other 
food to encourage as recommended by the DGA. As currently packaged, 
many baked tortilla chips, reduced fat corn chips and baked potato 
chips would meet the proposed standards and would be allowed. However, 
other snack products as currently packaged and formulated, such as 
regular corn chips, cheese puffs and many flavored popcorn snack items 
would not meet the standards.
    Grain based dessert items such as cookies, snack bars, pastries and 
cakes would likely be most impacted by the proposed grain, sugar, fat, 
and calorie standards. As currently packaged, many low-fat granola bars 
could be sold, while many cereal bars, cookies, and snack cakes 
currently contain too much sugar to meet the proposed standards. A 
number of other popular products, such as certain sweet snack crackers, 
may be able to meet the standards if such items are reformulated to 
increase the amount of whole grains they contain.
    Fruit-based products with relatively limited amounts of added sugar 
or other products would be allowed. For example, some frozen fruit 
treats have water and fruit as their first ingredients and are below 
the sugar limits. However, many other fruit snacks and fruit beverages 
that have added ingredients would be limited by sugar and calorie 
limits. For example, nearly half of the calories contained in most 
gummy fruit snack and fruit roll-up type products are derived from 
sugar. Similarly, many frozen fruit popsicles or sorbet products have 
water and sugar as their first ingredients and, as such, would not meet 
the proposed standards.
    Dairy snack products are most impacted by the proposed fat, sugar, 
and sodium standards included in this rule. Some frozen dairy products, 
puddings, etc, as currently formulated would meet the proposed 
standards, while others would not. However, most low fat/nonfat yogurt 
products will meet the standards due to the total sugar exemption 
proposed in this rule.
    In addition, low fat cheeses are proposed to be exempt from the fat 
standards, and many lower-sodium cheese products would qualify.
    Beverages, other than milk, would be limited by calorie and 
caffeine standards. While regular soda would not be allowed, diet sodas 
would be permitted in high schools in 20 oz. containers. Zero calorie 
versions of sport drinks or fitness waters would also be allowed in 
high schools in 20 oz. portions, as would 12 oz. portions of sports 
drinks or other beverages with 40 calories per 8 oz. (Alternative D1) 
or 50 calories per 8 oz (Alternative D2)In evaluating the impacts of 
this proposed rule, the Department has also considered the impacts of 
these changes on the vendors that supply food items, including 
competitive food items, to schools for sale outside of the Federal 
school meal programs. The proposed rule may require a number of SFA's 
to significantly change the food items that are offered for sale on 
school grounds. However, from the date of publication of this proposed 
rule, SFA's and their vendors will have significant time to prepare for 
this transition. Further, while it is anticipated that this regulation 
will eventually improve the nutritional options offered to students, 
the Department estimates overall direct impact on the sales of food 
items in the U.S. would be very limited. Currently, the Department 
estimates that the sale of competitive foods in schools may represent 
less than one percent of all food shipments from U.S. food 
manufacturers. Notwithstanding this initial analysis, the Department is 
specifically seeking comments on impacts of the proposed rule on the 
U.S. food industry, including small businesses, beyond what is 
discussed above and on ways these impacts can be minimized consistent 
with the purposes of section 10 of the Child Nutrition Act of 1966.

Recordkeeping and Monitoring Requirements

    This rule proposes to impose recordkeeping requirements on local 
educational agencies regarding the implementation of these proposed 
nutrition standards in areas under their jurisdiction that are outside 
of the control of the school food service operation. The competitive 
food nutrition standards apply throughout the school campus and apply 
to all food available for sale to students outside of the reimbursable 
school meals at any venue available to students for the purchase of 
food, such as school stores, vending machines, concession stands, 
fundraising events held on campus, snack bars, etc. It is the 
responsibility of school food authorities to ensure and document that 
foods sold by the school food service to students during the meal 
service periods in meal service areas meet the proposed competitive 
food standards. However, since these competitive food standards apply 
to foods sold throughout all of the venues available in the schools 
(other than reimbursable meals), the responsibility for demonstrating 
compliance with these competitive food requirements must also include 
the local educational agency, as defined in Sec.  210.2 of the current 
NSLP regulations, as well. This proposed rule provides that local 
educational agencies shall require that, at a minimum, receipts, 
nutrition labels or product specifications be maintained by those 
designated as responsible for competitive food service at the various 
venues in the schools in order to ensure and document compliance with 
the competitive food requirements for the foods and beverages available 
to be sold to students at these venues. FNS will provide technical 
assistance and guidance as necessary to State agencies and local 
educational agencies in this regard. This proposed provision may be 
found at Sec.  210.11(b)(3).
    It is proposed that State agencies be responsible for monitoring 
compliance with the requirements of the competitive food nutrition 
standards through a review of local educational agency records 
documenting compliance with these requirements. This requirement has 
been included in Sec.  210.18(h)(7) as part of the general areas of 
State agency administrative review responsibilities. As with other 
program violations, if a State agency determines during an 
administrative review that violations of the competitive food standards 
have occurred, corrective action plans would be required to be 
submitted to the State agency by the local educational agency and 
school

[[Page 9542]]

food authority. FNS will consider any further actions that may be 
associated with continued noncompliance with competitive food 
standards, among other program violations, in a forthcoming proposed 
rule implementing Section 303 of the HHFKA, Fines for Violating Program 
Requirements.

Procedural Matters

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 proposed 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). It has been 
certified that this rule will have a significant economic impact on a 
substantial number of small entities.
    The requirements established by this proposed rule will apply to 
school districts, which meet the definitions of ``small governmental 
jurisdiction'' and ``small entity'' in the Regulatory Flexibility Act. 
An Initial Regulatory Flexibility Act analysis is included in the 
preamble.

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 to State, local, or Tribal 
governments, in the aggregate, or to 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. This rule does 
not contain Federal mandates (under the regulatory provisions of Title 
II of the UMRA) that impose costs on State, local, or Tribal 
governments or to the private sector of $100 million or more in any one 
year. This rule is, therefore, not subject to the 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 
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 proposal would require a new collection. The 
new provisions in this rule which would increase burden hours, affect 
the information collection requirements that will be merged into the 
National School Lunch Program, OMB Control Number 0584-0006, 
expiration date 5/31/2012. The current collection burden inventory for 
the National School Lunch Program is 12,181,012. These changes are 
contingent upon OMB approval under the Paperwork Reduction Act of 1995. 
When the information collection requirements have been approved, FNS 
will publish a separate action in the Federal Register announcing OMB's 
approval.
    Comments on the information collection in this proposed rule must 
be received by April 9, 2013.
    Send comments to the Office of Information and Regulatory Affairs, 
OMB, Attention: Desk Officer for FNS, Washington, DC 20503. Please also 
send a copy of your comments to Jon Garcia, Program Analysis and 
Monitoring Branch, Child Nutrition Division, 3101 Park Center Drive, 
Alexandria, VA 22302. For further information, or for copies of the 
information collection requirements, please contact Lynn Rodgers-
Kuperman at the address indicated above. Comments are invited on: (1) 
Whether the proposed collection of information is necessary for the

[[Page 9543]]

proper performance of the Agency's functions, including whether the 
information will have practical utility; (2) the accuracy of the 
Agency's estimate of the proposed information collection burden, 
including the validity of the methodology and assumptions used; (3) 
ways to enhance the quality, utility and clarity of the information to 
be collected; and (4) ways to minimize the burden of the collection of 
information on those who are to respond, including use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology.
    All responses to this request for comments will be summarized and 
included in the request for OMB approval. All comments will also become 
a matter of public record.
    Title: 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.
    OMB Number: 0584-NEW
    Expiration Date: Not Yet Determined
    Type of Request: New Collection
    Abstract: This rule sets forth proposed provisions to implement 
sections 203 and 208 of Public Law 111-296, the Healthy, Hunger-Free 
Kids Act of 2010 (HHFKA), enacted December 13, 2010.
    Section 203 of the HHFKA amends section 9(a) of the Richard B. 
Russell National School Lunch Act by requiring that schools 
participating in the NSLP make potable water available to children at 
no charge in the place where lunches are served during the meal 
service. This is a nondiscretionary requirement of the HHFKA, effective 
October 1, 2010.
    Section 208 of the HHFKA amends Section 10 of the Child Nutrition 
Act of 1966 (42 U.S.C. 1779) to give the Secretary of Agriculture new 
authority to establish nutrition standards for all foods and beverages 
sold outside of the Federal school meal programs on the campus of 
schools during the school day. The CNA as amended by the HHFKA requires 
that the Secretary promulgate proposed regulations to establish 
science-based nutrition standards for foods sold in schools other than 
those foods provided under the CNA and NSLA.
    Those participating in the SBP also participate in the NSLP, thus 
the burden associated with the SBP will be carried in the NSLP. The 
average burden per record and the annual burden hours for recordkeeping 
are explained below and summarized in the charts which follow. In 
addition, provisions under sections 203 and 208 of the HHFKA do not 
contain new reporting requirements.
    Recordkeepers for this Proposed Rule: State Agencies (SAs) (57) and 
School Food Authorities (SFAs) (20,858) and Schools (101,747)
    Estimated Number of Recordkeepers for this Proposed Rule: 122,662
    Estimated Number of Records per Recordkeeper for this Proposed 
Rule: 1.033457
    Estimated Total Annual Records: 126,766
    Estimated Average Burden Hours per Record: 7.31217
    Estimated Total Annual Burden Hours on Recordkeepers for this 
Proposed Rule: 926,935

                                 Estimated Annual Burden for 0584--New, Nutrition Standards for All Foods Sold in School
                                                                       [7 CFR 210]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Estimated
                                                                             number of      Records per       Average     Average burden  Annual  burden
                                                     Section                  record-     record- keeper  annual records    per record         hours
                                                                              keepers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Recordkeeping
--------------------------------------------------------------------------------------------------------------------------------------------------------
SAs shall ensure that the LEA complies   7 CFR 210.18(h)(7)                           57              73           4,161            0.25           1,040
 with the nutrition standards for
 competitive foods and retains
 documentation demonstrating compliance.
LEAs and SFAs shall be responsible for   7 CFR 210.11(b)(3)                       20,858               1          20,858              20         417,160
 maintaining records documenting
 compliance with the competitive food
 standards.
Organizations responsible for            7 CFR 210.11(b)(3)                      101,747               1         101,747               5         508,735
 competitive food service at various
 venues in schools shall maintain
 records.
                                                                         -------------------------------------------------------------------------------
    Total Recordkeeping for Proposed     ...............................         122,662  ..............         126,766          7.3122         926,935
     Rule.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    7 CFR 210.15 and 7 CFR 210.20 require that, to participate in the 
National School Lunch Program, school food authorities and State 
agencies must maintain records to demonstrate compliance with Program 
requirements. 7 CFR 210.23 further requires that State agencies and 
school food authorities maintain records for a period of 3 years.

                Summary of Burden (OMB 0584-NEW)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total No. Recordkeepers...............................           122,662
Average No. Records per Recordkeeper..................          1.033457
Total Annual Records..................................           126,766
Average Hours per Record..............................           7.31217
Total Burden Hours for Part 210 with Proposed Rule....        13,107,947
Current OMB Inventory for Part 210....................        12,181,012
Difference (New Burden Requested with Proposed Rule)..           926,935
------------------------------------------------------------------------


[[Page 9544]]

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.

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.
    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. Currently, FNS provides regularly 
scheduled quarterly consultation sessions as a venue for collaborative 
conversations with Tribal officials or their designees.

Regulatory Impact Analysis Summary

    As required for all rules that have been designated as significant 
by the Office of Management and Budget, a Regulatory Impact Analysis 
(RIA) was developed for this proposal. A summary is presented below. 
The full RIA is published as part of the Docket on www.regulations.gov.

Need for Action

    The proposed 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.

Benefits

    The primary purpose of the proposed 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 \4\), 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.\5\ 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.\6\ Further, there are direct economic costs due to 
childhood obesity: $237.6 million (in 2005 dollars) in inpatient costs 
\7\ and annual prescription drug, emergency room, and outpatient costs 
of $14.1 billion.\8\
---------------------------------------------------------------------------

    \4\ 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.
    \5\ 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.
    \6\ 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/
    \7\ 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.
    \8\ 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 \9\) 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).
---------------------------------------------------------------------------

    \9\ 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 \10\) determined that 
healthier competitive food standards decreased student consumption of 
low nutrition items with no compensating increase at home.
---------------------------------------------------------------------------

    \10\ 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 overweight or obese students, or 
lower rates of increase in student BMI'' (Healthy Eating Research and 
Bridging the Gap, 2012, p. 3 \11\).
---------------------------------------------------------------------------

    \11\ 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.

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

[[Page 9545]]

    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.\12\
---------------------------------------------------------------------------

    \12\ Pew Health Group and Robert Wood Johnson Foundation. 2012. 
Heath Impact Assessment: National Nutrition Standards for Snack and 
a 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

    The proposed 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, pending provisions of the final rule regarding occasional 
exemptions, 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 52 percent of all schools and 26 percent of elementary 
schools, 87 percent of middle schools, and 98 percent of high schools 
(Gordon, et al., 2007; Volume 1, pp 102-114).
    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 proposed 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 proposed rule. While these 
vary in their impact on overall school food revenue, each scenario's 
estimated impact is relatively small (+0.4 percent to -0.7 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, for the reasons discussed in the preamble, 7 CFR parts 
210 and 220 are proposed to be 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, revise the second sentence of paragraph (b) 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 paragraphs (a)(1)(i) and (a)(1)(ii) by adding 
a new sentence at the end of the each paragraph.
    The additions read as follows:


Sec.  210.10  Nutrition standards and menu planning approaches for 
lunches and requirements for afterschool snacks.

    (a) * * *
    (1) * * *
    (i) * * * Schools shall make potable water available to children at 
no charge in the place where lunches are served during the meal 
service.
    (ii) * * * Schools shall make potable water available to children 
at no charge in the place where afterschool snacks are served during 
the afterschool snack service.
* * * * *
0
(4) Revise Sec.  210.11 to read as follows:


Sec.  210.11  Competitive food service and standards.

    (a) Definitions. For the purpose of this section:

[[Page 9546]]

    (1) 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;
    (2) 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;
    (3) 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; and
    (4) 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.
    (b) General requirements for competitive food.
    (1) State agencies and/or local educational agencies shall 
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) The sale of otherwise allowable calorie-free and low calorie, 
flavored and/or carbonated water as provided in paragraphs (m)(3)(vi), 
(m)(3)(vii), and (m)(3)(viii) of this section in food service areas 
during the meal service is prohibited.
    (3) 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. 
School food authorities shall be responsible for maintaining records 
documenting compliance with these standards in meal service areas 
during meal service periods. The local educational agency shall be 
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 available to be sold to 
students at these venues during the school day as required by this 
part. At a minimum, such records shall include receipts, nutrition 
labels and/or product specifications for the items available for sale 
to students on the school campus during the school day.
    (4) The nutrition standards for the sale of competitive food 
outlined in this section shall 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.
    (5) Fundraiser restrictions. Food and beverage items sold during 
the school day shall meet the nutrition standards for competitive food 
as required in this part. A special exemption shall be allowed for the 
sale of food and/or beverages that do not meet the competitive food 
nutrient standards as required in this section for the purpose of 
conducting a school-sponsored fundraiser. Such specially exempted 
fundraisers shall not take place more than:
    (i) Alternative E1: the frequency specified by the State agency 
during such periods that schools are in session; or
    (ii) Alternative E2: the frequency specified by the State agency 
and approved by USDA 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 foods.
    (1) 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.
    (2) 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 main food 
groups: fruit, vegetable, dairy product or protein foods (meat, beans, 
poultry, seafood, eggs, nuts, seeds, etc.); or
    (iv) 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); or
    (v) Be a combination food that contains \1/4\ cup of fruit or 
vegetable; and
    (vi) If water is the first ingredient, the second ingredient must 
be one of the food items in (c)(2)(i), (c)(2)(ii), (c)(2)(iii), 
(c)(2)(iv) or (c)(2)(v) of this section.
    (3) Exemptions.
    (i) Alternative A1: All menu items provided as part of the NSLP or 
SBP reimbursable meal are exempt from these competitive food standards 
with the exception of the standards established for total fat and 
sugar, as specified. Grain based dessert products must meet all 
standards in order to be served. Such menu items shall be served in the 
same or smaller portion sizes as in the NSLP or SBP to be allowable; or
    (ii) Alternative A2: All menu items provided as part of the NSLP or 
SBP reimbursable meal are exempt from these competitive food standards, 
with the exception of grain based dessert products which must meet all 
standards in order to be served. Such menu items shall be served in the 
same or smaller portion sizes as in the NSLP or SBP to be allowable, 
and must meet the timeframe exemptions specified in paragraph (4) of 
this section.
    (4) Exemptions.
    (i) Alternative B1: Exemptions to these nutrition requirements 
include side dishes (other than grain based dessert items) and 
entr[eacute]e items sold a la carte in accordance with the requirements 
of paragraph (3)(ii) [Alternative A2] that are NSLP or SBP meal items 
that are offered on the same day as part of the reimbursable school 
meal. Such side dishes and entr[eacute]e items must be offered in the 
same or smaller portion size as offered in the NSLP or SBP and meet the 
standards specific to the NSLP and SBP; or
    (ii) Alternative B2: Exemptions to these nutrition requirements 
include side dishes (other than grain based dessert items) and 
entr[eacute]e items sold a la carte in accordance with the requirements 
of paragraph (3)(ii) [Alternative A2] that are NSLP or SBP meal items 
that are offered within four operating days of their service as part of 
the reimbursable school meal during the current menu cycle. Such side 
dishes and entr[eacute]e items must be offered in the same or smaller 
portion size as offered in the NSLP or SBP and meet the standards 
specific to the NSLP and SBP.
    (d) Fruits and vegetables. 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, are 
exempt from the nutrient standards included in this section.
    (e) Grain products. Grain products acceptable as a competitive food 
must include 50 percent or more whole grains by weight or have whole 
grain as the first ingredient. Grain products shall

[[Page 9547]]

meet all of the other nutrient standards included in this section.
    (f) Total fat.
    (1) The total fat content of a competitive food shall be not more 
than 35 percent of total calories from fat per portion as packaged.
    (2) Exemptions to this requirement include the following:
    (i) Reduced fat cheese is exempt from the total fat and saturated 
fat standard, but subject to the required trans fat, calorie, sugar and 
sodium standards;
    (ii) Nuts and Seeds and Nut/Seed Butters are exempt from total fat 
standard, but subject to the required saturated fat, trans fat, 
calorie, sugar and sodium standards. This exemption does not extend 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 and sugar standards, but subject to the required saturated 
fat, trans fat, calorie and sodium standards; and
    (iv) Seafood with no added fat is exempt from the total fat 
requirement in order to increase omega-3 fatty acids in diets as 
recommended by the 2010 DGA; but subject to the required sugar, 
saturated fat, trans fat, calorie and sodium standards.
    (g) Saturated fat.
    (1) The saturated fat content of a competitive food must be less 
than 10 percent of total calories per portion, except as specified in 
paragraph (g)(2).
    (2) Reduced fat cheese is exempt from the total fat and saturated 
fat standards, but subject to the calorie, trans fat, sugar and sodium 
standards.
    (h) Trans fat. The trans fat content of a competitive food must be 
zero grams trans fat per portion as packaged (not more than 0.5 grams 
per portion).
    (i) Total sugars.
    (1) Alternatives.
    (i) Alternative C1: Total sugars contained in a competitive food 
item must be not more than 35 percent of calories per portion.
    (ii) Alternative C2: Total sugars contained in a competitive food 
item must be not more that 35 percent of weight per portion.
    (2) Exemptions to this requirement are:
    (i) Dried whole fruits or vegetables; dried whole fruit or 
vegetable pieces; and dried dehydrated fruits or vegetables with no 
added nutritive sweeteners are exempt from the sugar standard, but 
subject to the calorie, total fat, saturated fat, trans fat and sodium 
standards;
    (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 and sugar standards, but subject to the calorie, trans fat, 
saturated fat and sodium standards; and
    (iii) Flavored and unflavored nonfat and low-fat yogurt with no 
more than 30 grams of total sugars per 8 ounce serving is exempt from 
the sugar standard, but subject to the calorie, total fat, saturated 
fat, trans fat and sodium standards.
    (j) Calorie and sodium content for snack items and side dishes sold 
a la carte. Snack items and side dishes sold a la carte other than 
those exempt from the competitive food nutrition standards as provided 
in Sec.  210.11(c)(3) shall have not more than 200 calories and not 
more than 200 mg of sodium per portion as served, including the 
calories and sodium contained in any added accompaniments such as 
butter, cream cheese, salad dressing etc., and shall meet all of the 
other nutrient standards for non entr[eacute]e items.
    (k) Calorie and sodium content for entr[eacute]e items sold a la 
carte.
    (1) An entr[eacute]e item is defined as an item that is either:
    (i) A combination food of meat or meat alternate and whole grain-
rich/bread; 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.
    (2) Entr[eacute]e items sold a la carte other than those exempt 
from the competitive food nutrition standards as provided in Sec.  
210.11(c)(3) shall contain no more than 350 calories and 480 mg. of 
sodium per portion as served and meet all of the other nutrient 
standards in this section.
    (l) Caffeine. Foods and beverages available to elementary and 
middle school-aged students shall be caffeine-free, with the exception 
of trace amounts of naturally occurring caffeine substances.
    (m) Beverages.
    (1) Allowable beverages for elementary school-aged students shall 
be limited to:
    (i) Plain water (no size limit);
    (ii) Low fat milk, plain (no more than 8 fluid ounces);
    (iii) Non fat milk, plain or flavored (no more than 8 fluid 
ounces);
    (iv) Nutritionally equivalent milk alternatives as permitted in 
Sec.  210.10 and Sec.  220.8 (no more than 8 fluid ounces); and
    (v) 100 percent fruit/vegetable juice (no more than 8 fluid 
ounces).
    (2) Allowable beverages for middle school-aged students shall be 
limited to:
    (i) Plain water (no size limit);
    (ii) Low fat milk, plain (no more than 12 fluid ounces);
    (iii) Non fat milk, plain or flavored (no more than 12 fluid 
ounces);
    (iv) Nutritionally equivalent milk alternatives as permitted in 
Sec.  210.10 and Sec.  220.8 (no more than 12 fluid ounces); and
    (v) 100 percent fruit/vegetable juice (no more than 12 fluid 
ounces).
    (3) Allowable beverages for high school-aged students shall be 
limited to:
    (i) Plain water (no size limit);
    (ii) Low fat milk, plain (no more than 12 fluid ounces);
    (iii) Non fat milk, plain or flavored (no more than 12 fluid 
ounces);
    (iv) Nutritionally equivalent milk alternatives as permitted in 
Sec.  210.10 and Sec.  220.8 (no more than 12 fluid ounces);
    (v) 100 percent fruit/vegetable juice (no more than 12 fluid 
ounces);
    (vi) Calorie-free, flavored and/or carbonated water (no more than 
20 fluid ounces), except that such beverages shall not be available or 
served to students in the food service area during the meal service 
period;
    (vii) No more than 20 fluid ounce servings of other beverages that 
comply with the Food and Drug Administration requirement for bearing a 
``calorie free'' claim of less than 5 kcals/serving, except that such 
beverages shall not be available or served to students in the food 
service area during the meal service period; and
    (viii) Alternative D1: No more than 12 fluid ounce servings of 
other beverages that contain no more than 40 calories per 8 fluid ounce 
serving or 60 calories per 12 fluid ounce serving, except that such 
beverages shall not be available or served to students in the food 
service area during the meal service period; or
    (ix) Alternative D2: No more than 12 fluid ounce servings of other 
beverages that contain no more than 50 calories per 8 fluid ounce 
serving or 75 calories per 12 ounce serving, except that such beverages 
shall not be available or served to students in the food service area 
during the meal service period.
    (n) Accompaniments. The use of accompaniments shall be limited when 
competitive food is sold to students in school. All accompaniments to a 
competitive food item shall be pre-portioned and the ingredients of 
such accompaniments must be included in the nutrient profile as a part 
of the food item served and shall meet all of the nutritional standards 
for competitive food as required in this section.
0
5. In Sec.  210.18, a new paragraph (h)(7) is added to read as follows:


Sec.  210.18  Administrative reviews.

* * * * *

[[Page 9548]]

    (h) * * *
    (7) Compliance with competitive food standards. The State agency 
shall ensure that the local educational agency complies with the 
nutrition standards for competitive foods and retains documentation 
demonstrating compliance with the competitive food service and 
standards outlined in Sec.  210.11.
0
6. Appendix B to Part 210 is removed and reserved.

PART 220--SCHOOL BREAKFAST PROGRAM

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

    Authority: 42 U.S.C. 1773, 1779, unless otherwise noted.
0
2. In Sec.  220.2,
    (a) The definition of ``Foods of minimal nutritional value'' is 
removed; and
    (b) The definition of ``Competitive foods'' is removed.
0
3. Section 220.12 is revised as follows:


Sec.  220.12  Competitive food services.

    Competitive food services shall comply with the requirements 
specified in Sec.  210.11 of this chapter.
0
4. Appendix B to Part 220 is removed and reserved.

    Dated: February 1, 2013.
Kevin W. Concannon,
Under Secretary, Food, Nutrition, and Consumer Services.

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

Initial Regulatory Flexibility Analysis--Proposed Rule

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.
    Background: The Regulatory Flexibility Act (RFA) requires 
agencies to consider the impact of their rules on small entities and 
to evaluate alternatives that would accomplish the same objectives 
without undue burden when the rules impose a significant economic 
impact on a substantial number of small entities. Inherent in the 
RFA is the desire to remove barriers to competition and encourage 
consideration of ways to tailor regulations to the size of the 
regulated entities.
    The RFA does not require that agencies necessarily minimize a 
rule's impact on small entities if there are significant, legal, 
policy, factual, or other reasons for the rule's impacts. The RFA 
requires only that agencies determine, to the extent feasible, the 
rule's economic impact on small entities, explore regulatory 
alternatives for reducing any significant economic impact on a 
substantial number of such entities, and explain the reasons for 
their regulatory choices.
    Reasons That Action Is Being Considered: This rule sets forth 
proposed 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 and 
beverages 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.
    Objectives of, and Legal Basis for, the Proposed Rule: As stated 
above, the legal basis for the proposed rule are the amendments made 
to the CNA by HHFKA. The objectives of this rule are to establish 
nutrition standards for all foods 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.
    Number of Small Entities to Which the Proposed Rule Will Apply: 
This proposed rule directly regulates the 55 State education 
agencies and 2 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 districts, school food 
authorities, schools and others that prepare and sell foods other 
than those provided as reimbursable school lunches and breakfasts 
(such as [agrave] la carte food sales, vending machines, or other 
competitive food venues). 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:
     Nearly 101,000 schools and residential child care 
institutions (RCCIs) participate in NSLP. These include more than 
90,000 public schools, 6,000 private schools, and about 5,000 RCCIs. 
A majority of those institutions also provide competitive foods 
through [agrave] la carte menus, vending, school stores, snack bars, 
fundraisers, or some combination of venues. 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.
     School Food Authorities (SFAs) earn competitive food 
revenues primarily through [agrave] la carte sales, but may also 
earn revenues from vending machine sales, school stores, snack bars, 
and other outlets.
     Manufacturers, wholesalers, and distributors, including 
vending machine operators, are not regulated by the proposed rule, 
but are indirectly affected. Of this group, vending operators with 
machines in primary and secondary schools may be the most affected. 
Vending businesses tend to have few employees; 76 percent of 
companies that operated for the entire year in 2007 employed fewer 
than 10 people.\13\ Vending machines in primary and secondary 
schools make up just two percent of vending industry sales.\14\
---------------------------------------------------------------------------

    \13\ Vending machine operators are described by ``NAICS'' code 
454210. The code does not account for all vending machine businesses 
and data is not available to assess the proportion of vending 
machine businesses in schools. The statistics by establishment size 
are from the U.S. Census Bureau, 2007 Economic Census. Table 2, 
``Employment Size of Establishments for the U.S.'' on http://www.census.gov/econ/industry/ec07/a454210.htm.
    \14\ The vending industry estimates that primary and secondary 
schools accounted for 2.2 percent ($1 billion out of $45.6 billion) 
of total vending machine sales in 2008. Census of the Industry 2009, 
Vending Times, http://www.vendingtimes.com/Media/Sites-AdministratorsSiteNavigation/VendingTimes_Census2009.pdf.
---------------------------------------------------------------------------

     Food service management companies (FSMCs) that prepare 
school meals or menus under contract to SFAs may be indirectly 
affected by the proposed rule in that they may also prepare foods 
for the [aacute] la carte menu. Thirteen percent of public school 
SFAs contracted with FSMCs in school year (SY) 2004-2005.\15\ Of 
23,000 food service contractors that operated for the full year in 
2007, 86 percent employed fewer than 100 workers.\16\
---------------------------------------------------------------------------

    \15\ U.S. Department of Agriculture, Food and Nutrition Service, 
Office of Research, Nutrition and Analysis, School Nutrition Dietary 
Assessment Study-III, Vol. I, 2007, p. 34 http://www.fns.usda.gov/ora/MENU/Published/CNP/FILES/SNDAIII-Vol1.pdf.
    \16\ Census Bureau, 2007 Economic Census, NAICS 72231. Table 2, 
``Employment Size of Establishments for the U.S.'' on http://www.census.gov/econ/industry/ec07/a72231.htm.
---------------------------------------------------------------------------

    Projected Reporting, Recordkeeping and Other Compliance 
Requirements: The analysis below covers only those organizations 
impacted by the proposed rule that were determined to be small 
entities.

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 proposed rule 
standards, then there may be no change in competitive food sales or 
competitive food revenue. And although the evidence base is limited, 
it suggests that many SFAs and other school groups have successfully 
introduced competitive food reforms with little or no loss of 
revenue, and in a few 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

[[Page 9549]]

a series of estimates that represent a range of plausible outcomes 
given the variety of experiences observed in several case studies. 
At one end of this range, we calculate that a four percent increase 
in competitive food revenues would result in a +0.4 percent increase 
in school food revenue over five years. At the other end of the 
range, we calculate that the standards in the proposed rule could 
reduce competitive food revenue by an estimated 4.8 percent, 
resulting in an overall decrease in school food revenues of -0.7 
percent over five years. (Additional detail is provided in the 
Regulatory Impact Analysis for this rule.)
    Case studies that consider the impacts of competitive food 
nutrition standards on SFA revenues find that reductions in 
competitive food revenue were often fully offset by increases in 
reimbursable meal revenue as students redirected 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 final regulations for 
Sections 205 and 206 of HHFKA. These provisions will ensure that the 
revenue from competitive food sales is aligned with their cost.\17\ 
The requirements of Section 206 are estimated to increase 
competitive food revenue by 35 percent, while the scenarios 
presented here anticipate a competitive food revenue loss of no more 
than 4.8 percent. The combined effect of both provisions remains a 
net increase in SFA competitive food revenue under all of these 
scenarios.\18\
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    \17\ Federal Register, Vol. 76, No. 117, pp. 35301-35318.
    \18\ 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.
---------------------------------------------------------------------------

    It is also worth noting that USDA estimates that just over 98 
percent of SFA competitive food revenue is generated by sales of 
[agrave] la carte foods and ``many foods are only offered [agrave] 
la carte when available as part of a reimbursable meal'' (SNDA-III, 
p. 119).\19\ Under regulations that took effect July 1, 2012, school 
meals are currently required to meet new nutrition standards. 
Because the school meal standards are similar to those proposed for 
competitive foods, many of the foods served [agrave] la carte will 
meet the standards in the final competitive food rule before it 
takes effect. For other entr[eacute]es and side dishes served as 
part of a reimbursable meal, the proposed rule would provide a 
limited exemption from competitive food requirements. In addition, 
the new school meal nutrition standards will provide an opportunity 
for schools and for industry to adjust to the new requirements 
before the competitive food standards take effect. In addition, at 
least 39 States currently have competitive food policies, the 
majority of which exceed existing Federal standards. In these 
States, industry may already have made a number adjustments to the 
products offered for sale.
---------------------------------------------------------------------------

    \19\ SNDA III: www.fns.usda.gov/Ora/menu/Published/CNP/FILES/SNDAIII-Vol1.pdf.
---------------------------------------------------------------------------

    Unlike SFAs other school groups cannot make up lost revenues 
through school meal sales. The proposed rule mitigates the impact of 
the proposed rule on such groups by providing an exception for 
occasional fundraisers that do not meet the proposed competitive 
food standards. Alternatively, these groups may explore fundraising 
options that include foods that do meet the proposed 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 proposed rule but may be affected 
indirectly in the sense that schools will need to purchase a 
different mix of foods to satisfy the requirements of the rule. 
However, many States have already adopted their own competitive food 
standards, and the food industry is already responding by producing 
a variety of products that meet current State as well as the 
proposed Federal standards. Consider, for example, that Wescott et 
al. (2012) 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.
    Consistent with SBA guidance, which notes that ``[t]he courts 
have held that the RFA requires an agency to perform a regulatory 
flexibility analysis of small entity impacts only when a rule 
directly regulates them'' (SBA, p. 20),\20\ we do not attempt to 
quantify the economic effect of the proposed rule on these industry 
groups. However, we briefly mention two industry groups that may be 
more directly affected by the rule than others.
---------------------------------------------------------------------------

    \20\ SBA, ``A Guide for Government Agencies''.
---------------------------------------------------------------------------

    (1) Vending.
    Vending machine operators served an estimated 19,000 primary and 
secondary schools in the U.S. in 2008.\21\ For 2008, the vending 
industry estimated that primary and secondary schools accounted for 
just two percent of total vending machine dollar sales. Both 
industry and U.S. Census 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 10 individuals according to the U.S. Economic 
Census.\22\ The same source also finds that 37 percent of vending 
machine operators that operated for all of 2007 generated less than 
$250,000 in receipts, although those operators accounted for less 
than 3 percent of total revenue from this industry group.\23\ 
Because of the relatively large number of small vending machine 
operators, some small vendors may be challenged by the changes 
contained in the proposed rule. Whether small or large, many vending 
machine operators will need to modify their product lines to meet 
the requirements of the rule.
---------------------------------------------------------------------------

    \21\ VendingTimes.com, Census of the Industry, 2009 Edition. 
Automatic Merchandiser magazine, June/July 2011.
    \22\ Data for NAICS code 454210, ``vending machine operators.'' 
U.S. Census Bureau, http://www.census.gov/econ/industry/ec07/a454210.htm (accessed 11/13/2011).
    \23\ 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.
---------------------------------------------------------------------------

    (2) Food Service Management Companies.
    FSMCs are potentially indirectly affected by the proposed rule. 
FSMCs that provide [agrave] la carte foods to schools under contract 
to SFAs will need to provide foods that conform to the changes in 
the proposed rule. As with the SFAs, we anticipate that many of 
those costs will have already been incurred through changes in the 
school meal requirements.

Administrative Costs

    The proposed 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, 101,000 schools, and 
21,000 SFAs will total $124 million over five years (or about $245 
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.\24\ 
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.\25\ 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

[[Page 9550]]

mobility privileges increase with grade level.\26\ These factors are 
not necessarily associated with school or SFA size.
---------------------------------------------------------------------------

    \24\ 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), pp. 73-77, 86-89.
    \25\ Unpublished ERS analysis of SNDA-III data.
    \26\ Ibid., p. 78.
---------------------------------------------------------------------------

    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. That increases to 48 percent of schools with 500 to 1,000 
students and 78 percent of schools with more than 1,000 
students.\27\
---------------------------------------------------------------------------

    \27\ Ibid., p. 88.
---------------------------------------------------------------------------

    Federal Rules That May Duplicate, Overlap or Conflict with the 
Proposed Rule: FNS is unaware of any such Federal rules or laws.
    Significant Alternatives: HHFKA requires USDA to establish 
standards that are consistent with the most recent Dietary 
Guidelines for Americans (DGA) using ``authoritative scientific 
recommendations'' (HHFKA section 208). The proposed rule standards 
reflect nutrition guidelines set forth in the 2010 DGA, by the 
National Academies' Institute of Medicine in Nutrition Standards for 
Foods in Schools (2007), standards already adopted by States and 
localities, and standards identified by other organizations.
    The proposed rule reflects a considered balance among these 
guidelines. It is possible to derive an alternative, however, that 
would require fewer changes to allowed competitive foods. While 
different standards might reduce the cost of the rule for some 
regulated parties, there is little evidence that the economic costs 
of the rule fall disproportionately on the smallest SFAs, schools, 
or other school groups within these schools. A rule less closely 
aligned with DGA and other scientific recommendations would not 
provide particular relief to these small entities, but may result in 
fewer improvements to the school nutrition environment and 
children's health.
    USDA also considered a separate implementation schedule for 
small entities.\28\ This may offer smaller schools and businesses 
more time to adjust to the new requirements. But because the 
majority of competitive food revenues come from [agrave] la carte 
sales, and because [agrave] la carte foods will be subject to the 
new school meal pattern requirements, many [agrave] la carte foods 
will already meet healthier food standards when the proposed 
competitive food rule becomes effective. While vending machines are 
not subject to the meal pattern standards, they are more commonly 
found in large schools: over three quarters of schools with more 
than 1,000 students have vending machines as compared to a third of 
schools with fewer than 500 students.\29\ FNS determined, therefore, 
that the potential benefit of deferring implementation for smaller 
schools would not outweigh the potentially adverse impact of 
deferring important improvements to the school nutrition environment 
for all children.
---------------------------------------------------------------------------

    \28\ A more permissive compliance schedule for small entities is 
one of the alternative cited in SBA, ``A Guide for Government 
Agencies,'' p. 35.
    \29\ SNDA-III., p. 88.

Regulatory Impact Analysis

    Agency: Food and Nutrition Service, USDA.
    Title: Nutrition Standards for All Foods Sold In School.
    Nature of Action: Proposed 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. The standards proposed in this rule 
are 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 and best 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.
    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
HHFKA Healthy, Hunger-Free Kids Act
IOM Institute of Medicine
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
SY School Year
USDA United States Department of Agriculture

Contents

I. Introduction
    A. Overview
    B. Background
    C. Baseline
    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. Cost--Benefit Analysis
    A. Existing Research on Revenue Effects
    B. Estimating School Revenue Changes
    C. Impacts on Participating Children and Families
    D. Administrative Costs
    E. Industry Effects
    F. Distributional Effects
    1. Grade Level
    2. Low Income Students
    G. Benefits
    H. 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 the NSLP
    8. Food and Labor Costs
IV. Alternatives
    A. Full Implementation of IOM Recommendations
    B. Less Comprehensive Standards
    C. Exemption for Reimbursable Meal Entr[eacute]es and Side 
Dishes
    D. School-sponsored Fundraisers
    E. Total Sugar
    F. Naturally Occurring Ingredients and Fortification
    G. Allowable Beverage Sizes in High School
    H. Low Calorie Beverages
    I. Caffeinated Beverages
V. Accounting Statement
VI. 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 proposed here are 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 and best 
dietary recommendations.
    The proposed 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

[[Page 9551]]

Health Group and Robert Wood Johnson Foundation 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.
    Researchers for Healthy Eating Research and Bridging the Gap, 
Robert Wood Johnson Foundation-sponsored research programs examining 
environmental influences on youth diets and obesity, have 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.
    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.

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 
31.8 million children per day ate a reimbursable lunch in fiscal 
year (FY) 2011. 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).\30\
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    \30\ 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) 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 52 percent of all schools, and 26 percent of 
elementary schools, 87 percent of middle schools, and 98 percent of 
high schools (Gordon, et al., 2007; Volume 1, pp. 102-114).\31\ 
Revenues from competitive foods, however, are far smaller than 
revenues from USDA-funded school meals. In SY 2005-2006, 
approximately 84 percent of 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). 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 
excess of 110 to 165 calories per day may be responsible for rising 
rates of childhood obesity (Fox et al 2009, Wang et al 2006, cited 
in Pew Health Group, 2012).
---------------------------------------------------------------------------

    \31\ SNDA-III found the top five most commonly offered [agrave] 
la carte lunch items were milk, juice and water, snacks, baked 
goods, and mixed dishes (for example, salads, pizza, etc.). For 
vending machines, the top five most commonly offered items included 
juice and water, other beverages (for example, carbonated and energy 
drinks, coffee and tea, etc.) snacks, baked goods, and bread or 
grain products.
---------------------------------------------------------------------------

    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 36.32 33 34 More recently, the 
Centers for Disease Control and Prevention (CDC) reported that 39 
States had established competitive food policies as of October 2010; 
in two of those States, legislation had recently passed to require 
competitive food standards, but neither State had yet defined 
specific standards.\35\ A 2012 study conducted for FNS found that at 
least half of States had competitive food standards for foods sold 
in vending machines, [agrave] la carte, school stores, and snack 
bars, and almost half had nutrition standards for foods sold in bake 
sales (Westat, 2012, p., 5-25).
---------------------------------------------------------------------------

    \32\ 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.
    \33\ A recent study by Taber, et al. (2011), takes a broad look 
at State competitive food standards, utilizing CDC data to estimate 
effects of State policy changes between 2000 and 2006.
    \34\ 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.
    \35\ 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.\36\ 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:
---------------------------------------------------------------------------

    \36\ ``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. This variation is likely 
the result of a disparate patchwork of policies at the state and 
local levels. Fewer than 5 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.''
    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 $34 billion to $36 billion each fiscal year between 
2015 and 2018. Overall revenue includes the value of Federal 
reimbursements for NSLP and SBP meals,\37\ student payments, and 
State and local contributions. This estimate is derived from the 
relationship between Federal reimbursements and total SFA revenue 
estimated in the School Lunch and Breakfast Cost Study (SLBCS-II) 
(USDA 2008).
---------------------------------------------------------------------------

    \37\ an estimate prepared for the FY 2013 President's Budget.
---------------------------------------------------------------------------

    USDA's most recent budget projections forecasted a total of 
$16.0 billion in Federal meal reimbursements in FY 2014, exclusive 
of the effects of sections 205 and 206 of HHFKA on Federal 
reimbursements and competitive food revenue. We use findings from 
the SLBCS-II about the relationship between Federal meal 
reimbursements and overall SFA revenue to derive an estimate of 
$31.6 billion in SFA revenue in FY 2014, and then adjust this upward 
for HHFKA impacts \38\ to a total of $33.5 billion in SFA revenue in 
that year.
---------------------------------------------------------------------------

    \38\ 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

[[Page 9552]]

SLBCS-II,\39\ 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 $31.6 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 $5.0 billion.\40\ We add an estimated 
$1.3 billion increase in competitive food revenue from HHFKA Section 
206 to get an adjusted $6.3 billion in SFA competitive food revenue.
---------------------------------------------------------------------------

    \39\ 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 2010, 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 2013 
President's Budget.
    \40\ $31.6 billion x 15.8% = $5.0 billion.
---------------------------------------------------------------------------

    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.
    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.\41\ Our estimate of competitive food revenue 
generated by these groups in the last three months of FY 2014 is $40 
million.\42\ 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 in SY 2004-2005.
---------------------------------------------------------------------------

    \41\ ERS analysis of unpublished data from the third School 
Nutrition Dietary Assessment Study (SNDA-III). 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.
    \42\ 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: [($31.6 billion x 15.8 percent) / 0.95] x .05 = $263 
million. The part year effect for the last three months of FY 2014 
reduces that to $40 million.
---------------------------------------------------------------------------

    We inflate these full-year figures for 2015 through 2018 based 
on the assumptions in the President's Budget. Because this analysis 
assumes that 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 15 percent of the 
full-year figures.\43\
---------------------------------------------------------------------------

    \43\ The FY 2014 figures in Table 1 are just 15.1 percent of our 
full year FY 2014 estimates. 15.1 percent is the ratio of paid 
reimbursable lunches served from July through September 2011 to the 
number of paid reimbursable lunches served from October 2010 through 
September 2011. 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 first 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 $33.6 billion x 15.1 percent, or $5.1 
billion.

                                               Table 1--Baseline Competitive Food and Overall SFA Revenue
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Fiscal year (millions)
                                                         -----------------------------------------------------------------------------------------------
                                                               2014            2015            2016            2017            2018            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline SFA revenue (all sources)......................          $5,062         $34,045         $34,694         $35,350         $36,451        $145,601
Baseline competitive food revenue.......................             993           6,758           6,921           7,102           7,296          29,070
SFA revenue.............................................             954           6,492           6,651           6,828           7,013          27,938
    [agrave] la carte...................................             937           6,382           6,538           6,712           6,894          27,463
    vending and other sources...........................              16             110             113             116             119             475
Other school group revenue..............................              40             266             270             274             283           1,132
    [agrave] la carte...................................               0               0               0               0               0               0
    vending and other sources...........................              40             266             270             274             283           1,132
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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 highly uncertain. We encourage reviewers of this 
proposed rule to offer additional information that might improve 
these estimates through the regulatory comment process.

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 proposed 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 set 
forth its recommendations for nutrient and other standards. The 
committee first identified a set of guiding principles, recognizing 
that:
    a. The present and future health and well-being of school-age 
children are profoundly affected by dietary intake and the 
maintenance of a healthy weight.
    b. Schools contribute to current and lifelong health and dietary 
patterns and are uniquely positioned to model and reinforce 
healthful eating behaviors in partnership with parents, teachers, 
and the broader community.
    c. Because * * * foods and beverages available on the school 
campus represent significant caloric intake, they should be designed 
to meet nutrition standards.
    d. Foods and beverages have health effects beyond those related 
to vitamins, minerals, and other known individual components.
    e. Implementation of nutrition standards for foods and beverages 
offered in schools will likely require clear policies; technical and 
financial support; a monitoring, enforcement, and evaluation 
program; and new food and beverage products (IOM, 2007a, p. 3).
    The committee then identified its intentions:

[[Page 9553]]

     The federally reimbursable school nutrition programs 
will be the primary source of foods and beverages offered at school.
     All foods and beverages offered on the school campus 
will contribute to an overall healthful eating environment.
     Nutrition standards will be established for foods and 
beverages offered outside the federally reimbursable school 
nutrition programs.
     The recommended nutrition standards will be based on 
the Dietary Guidelines for Americans, with consideration given to 
other relevant science-based resources.
     The nutrition standards will apply to foods and 
beverages offered to all school-age children (generally ages 4 
through 18 years) with consideration given to the developmental 
differences between children in elementary, middle, and high schools 
(IOM, 2007a, p. 3).
    Finally, the Committee recommended a two-tier system: Tier 1 
consisting of foods and beverages to be encouraged and Tier 2 
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.
    Under the IOM recommendation, [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% of calories from total fat (excluding 
nuts, seeds, nut butters and reduced-fat cheese),
     Less than 0.5 grams (g) trans fats per serving,\44\
---------------------------------------------------------------------------

    \44\ 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% saturated fat (reduced-fat cheese is 
exempt),
     Total sugar must be at or below 35% 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 other competitive foods may not 
exceed 200 calories as packaged.
     Only low-fat or fat-free milk and USDA approved 
alternative dairy beverages may be offered,
     Milk serving size is limited to 8-fluid ounces,
     Fruit and vegetable juices must be 100% full strength 
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.
     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.
    As of January 2013, almost 5,000 schools in 49 States and the 
District of Columbia were certified HUSSC schools, and all of these 
schools, regardless of award level, have already moved at least part 
way to the proposed competitive food standards.\45\
---------------------------------------------------------------------------

    \45\ 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.
---------------------------------------------------------------------------

    Schools that are a part of the Alliance for a Healthier 
Generation's Healthy Schools Program voluntarily adopt competitive 
food standards that require:
     No more than 35 percent of calories from total fat,
     No more than 10 percent of calories from saturated fat,
     0 g trans fat, and
     No more than 480 mg sodium.
    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. The more than 
14,000 schools currently participating in the Alliance for a 
Healthier Generation Healthy Schools Program have also moved towards 
the standards in the proposed rule.\46\
---------------------------------------------------------------------------

    \46\ School participation numbers are from the Healthy School 
Program, Alliance for a Healthier Generation Web site. http://www.healthiergeneration.org/schools.aspx.
---------------------------------------------------------------------------

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 (18.7 million 
students). All five of these States have had school competitive food 
policies since 2004 or earlier. 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 any changes in overall revenues.
    In California, elementary children may purchase only milk (2% or 
less), 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, and 0 calories from 
trans fat, and no more than 35 percent sugar by weight. 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.
    Middle and high school children may purchase water, milk (2% or 
less), fruit and vegetable drinks that are at least 50 percent 
juice, and electrolyte replacement beverages with no more than 2.1 g 
of added sweetener per one fluid ounce. They may also purchase food 
items [agrave] la carte as long as the foods 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 (CSPI, 2007).
    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 if 100 percent fruit juices are also available 
where those beverages are sold (CSPI, 2007).
    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, 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 (CSPI, 2007).
    New York State broadly restricts the sales of FMNV and ``all 
other candy'' from the beginning of the school day through the end 
of the last scheduled meal period. 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

[[Page 9554]]

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, at 10 calories per eight 
ounces for elementary and middle schools and 25 calories per eight 
ounces in high schools. Lowfat (1%) and fat free milk are also 
allowed.
    Snack vending machines are not permitted in schools with 
students in pre-kindergarten through fifth grade. For students above 
grade five, competitive foods 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).\47\
---------------------------------------------------------------------------

    \47\ These city-level food standards became effective in 
February of 2010 and are different than the State-level standards 
considered in the State schools food report card (CSPI, 2007).
---------------------------------------------------------------------------

    Texas State policy does not allow the sale of FMNV or any food 
or beverage that is not provided by school food service on 
elementary school campuses until after the end of the last scheduled 
class period (CSPI, 2007). Allowed beverages include milk (2% or 
less), water, and 100 percent vegetable or fruit juices. For middle 
schools, FMNV, candy, and carbonated beverages sales are not 
permitted until the last scheduled class. Twelve ounce containers of 
beverages, other than milk and FMNV, with no more than 30 g sugar 
per eight ounces are allowed. These beverages might include sports 
and fruit drinks and sweetened ice teas.
    At the high school level, FMNV may be sold only after the last 
scheduled class. Sugared and carbonated beverages of no more than 12 
ounces may be offered, but only 15 percent of vending machine slots 
or service points may be devoted to these beverages. In all grades, 
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. Fruit 
and/or vegetables must be offered daily on all points of service 
(CSPI, 2007).
    While none of these States have policies that match all of the 
standards in the proposed rule, California, Illinois, and New York 
City meet several: California meets or exceeds the proposed 
standards for calories; total, saturated, and trans fats; and sugar. 
Illinois meets proposed standards for calories, total and saturated 
fat, and sugar. New York City meets proposed 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 proposed 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 in already in place. These 
include two voluntary programs: USDA's 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.\48\
---------------------------------------------------------------------------

    \48\ 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.
---------------------------------------------------------------------------

BILLING CODE 3410-30-P

[[Page 9555]]

[GRAPHIC] [TIFF OMITTED] TP08FE13.000

BILLING CODE 3410-30-C

II. Development of Federal Standards
---------------------------------------------------------------------------

    \49\ Many of the standards provide exemptions for nuts, nut 
butters, seeds, and fruits, etc. Those exemptions are not shown in 
the table.
---------------------------------------------------------------------------

    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. These standards must be consistent 
with the most recent DGA and authoritative scientific 
recommendations (HHFKA, 2010, p. 98). The proposed rule addresses 
all competitive foods and beverages sold on campuses throughout the 
school day. It is guided by the same principles that underlie the 
2007 IOM recommendations. 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.
    The proposed 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 proposed rule puts students in a position to 
make their own healthy choices, and encourages the development of 
healthy habits for life.
    The proposed 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. The school campus includes all areas under jurisdiction 
of the school that are accessible to students.

[[Page 9556]]

     Schools may allow the sale of food that does not meet 
proposed rule standards for school-sponsored fundraisers at a 
frequency to be determined with the help of public comments on the 
proposed rule. Exempted fundraiser foods may not be sold in 
competition with school meals.
     NSLP/SBP entr[eacute]es and side dishes sold [agrave] 
la carte, with the exception of grain-based desserts which must 
always meet all nutrition standards, will be exempt from proposed 
rule standards subject to one of two alternatives. Alternative A1 
would allow NSLP/SBP menu items that meet the proposed fat and sugar 
standards to be sold [agrave] la carte at any time. Alternative A2 
would exempt NSLP/SBP entr[eacute]es and side dishes from all 
standards if sold during menu cycles, with two alternate limitations 
(B1-B2)--that they can only be sold 1) on the day that they are 
served as part of a meal, or 2) within four operating days of the 
day they are served. USDA invites comments on these alternative 
standards.
    Competitive foods must meet all the proposed nutrient standards, 
and must:
     Contain 50 percent or more whole grains or have whole 
grains as the first ingredient or be one of the non-grain main food 
groups as defined by the 2010 DGA: Fruit, vegetable, dairy product, 
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 (e.g., 
calcium, potassium, vitamin D or dietary fiber), or
     Be a combination food that contains a half serving (\1/
4\ cup) of a fruit or vegetable.
    If water is the food's first ingredient, the second ingredient 
must satisfy the standard 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 or extra light syrup, are exempt from the proposed 
rule's nutrient standards.
     Competitive foods must contain 35 percent or less of 
total calories from fat per portion as packaged. Exceptions from 
these fat standards are granted for reduced fat 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, seafood 
with no added fat.
     Competitive foods must contain no more than 10 percent 
of total calories from saturated fat, with the exception of reduced 
fat cheese.
     Competitive foods must have 0 g of trans fat.
     Sodium content in snacks is limited to 200 mg per 
portion as packaged for non-NSLP/SBP snack items. Non-NSLP/SBP 
entr[eacute]e items must have no more than 480 mg of sodium per 
portion.
     Two alternative sugar standards are provided for 
comment. The first would limit total sugar to 35 percent of 
calories. The second would limit total sugar to 35 percent of 
weight. Under both alternatives, exceptions are provided for fresh, 
frozen, and canned fruits or vegetables with no added sweeteners 
except for fruits packed in 100 percent juice or extra light syrup, 
and dried whole fruits or vegetables, dried whole fruit or vegetable 
pieces, and dried dehydrated fruits or vegetables with no added 
nutritive sweeteners. Lowfat or nonfat yogurt with less than 30 g of 
sugar for eight ounces is also permitted.
     In general, competitive foods shall have no more than 
200 calories per portion as packaged including accompaniments such 
as butter, cream cheese, salad dressing, etc. for snack items and 
side dishes sold [agrave] la carte. Entr[eacute]e items sold 
[agrave] la carte shall contain no more than 350 calories.
     Accompaniments should be pre-portioned and must be 
included in the nutrient profile as a part of the item served and 
meet all the proposed standards.
     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, low fat milk, nonfat milk (including flavored), 
nutritionally equivalent milk alternatives (as permitted by the 
school meal requirements), and 100 percent fruit or vegetable 
juices. 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, low fat milk, nonfat milk (including 
flavored), nutritionally equivalent milk alternatives (as permitted 
by the school meal requirements), and 100 percent fruit or vegetable 
juice. 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, lowfat milk, nonfat milk (including 
flavored), nutritionally equivalent milk alternatives (as permitted 
by the school meal requirements), and 100 percent fruit or vegetable 
juice. Milk and milk equivalent alternatives and fruit or vegetable 
juice must be no more than 12 ounces. Calorie-free, flavored and/or 
unflavored carbonated water and other calorie free beverages that 
comply with the FDA standard of less than five calories per serving 
must be no more than 20 ounces.
     Two alternative standards for low calorie beverages for 
high school students are provided for comment. The first alternative 
would allow beverages of up to 40 calories per 8 fl oz serving (or 
60 calories per 12 fl oz). The second would allow up to 50 calories 
per 8 fl oz (or 75 calories per 12 fl oz). Both alternatives limit 
serving sizes to 12 fluid ounces or less. Beverages containing 
caffeine are permitted at times other than at meal service. There is 
no ounce restriction on water.

III. Cost-Benefit Analysis

    The proposed 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. 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 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. 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 net revenues. Our analysis illustrates a 
range of possible revenue impacts, all of which are relatively small 
(+0.4 percent to -0.7 percent). 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.\50\ The 
combined effect of that rule and this proposal is a net increase in 
SFA revenue.
---------------------------------------------------------------------------

    \50\ http://www.fns.usda.gov/cnd/Governance/regulations/2011-06-17.pdf.
---------------------------------------------------------------------------

    The key benefit sought through this proposed 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 and best dietary recommendations, the rule 
should also improve the mix of foods that students purchase and 
consume at school.
    In turn, though 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 proposed in 
the rule will positively influence--and perhaps directly improve--
eating patterns that contribute to students' long-term health and 
well-being, and reduce their risk for obesity.

A. Existing Research on Revenue Effects

    If the proposed standards are finalized and implemented, 
students who currently purchase competitive foods will adjust their 
behaviors in a number of ways in response. 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 
proposed rule, they offer the best available insight into the likely 
consequences of the proposed 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:

[[Page 9557]]

     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 
(Center for Weight and Health, 2005).
     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 provide 
data for non-food service sales of competitive foods and beverages, 
four experienced a decrease in revenue of more than five percent and 
one experience 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 ``junk 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:
    [W]hen schools and districts adopted strong nutrition standards 
for snack and a 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 HIA, 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).
    While the existing research suggests that any 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. These experiences vary so 
widely that they do not support a meaningful quantitative national 
estimate of the proposal's net impact on program costs and revenues.

B. Estimating School Revenue Changes

    To assess the impacts of the proposed rule on school revenue, we 
reviewed the evidence summarized above and identified three 
scenarios for student behavior and estimated the revenue changes 
that could result:
     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.\51\ 
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). [Delta]L is then 
the product of [Delta]CF and the competitive foods availability 
effect (CFAE) divided by the baseline NSLP participation rate 
(PR):\52\
---------------------------------------------------------------------------

    \51\ This is in contrast to the possibility that all students 
reduce their purchases by the same percentage.
    \52\ 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 CFAE/PR

    The value for CFAE is assumed to be -4.6 percentage points, 
based on the finding by Gordon, et al. (SNDA III, vol. 2, p. 117) 
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. The national average participation rate 
measured in SNDA-III was 61.7 percent. 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.
    We assume in our estimates that other school groups incur the 
same percentage change in competitive food revenue as SFAs. This 
assumption may not be realistic given the difference in the nature 
of the foods sold in occasional fundraisers, in vending machines, in 
snack bars, and in [agrave] la carte lines. However, given the 
importance of this revenue source for its sponsors, we expect that 
small or independent school groups will adapt in a manner that 
result in a revenue impact comparable to that experienced by the 
SFAs.

[[Page 9558]]

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 complete prior to the publication 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 increase (five percent 
in SY 2015-2016 following no change in the first year of 
implementation) in competitive food revenue during 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).
    We then account for the costs incurred by schools that have 
already adopted competitive food standards. 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 a lower bound 
adjustment: 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).
    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,\53\ based on unpublished results showing that 64 percent of 
competitive food purchases were made by students not eligible for 
free or reduced-price meals.\54\ Our analysis also utilizes the 
proportions of free, reduced-price, and paid lunches served 
projected by USDA for the FY 2013 President's Budget. For FY 2011, 
the observed proportions were 58, 8, and 33 percent for free, 
reduced price, and paid meals.
---------------------------------------------------------------------------

    \53\ Paid, reduced price, and free NSLP meals each have some 
level of government subsidy, therefore even lunches that are ``full 
price'' are subsidized.
    \54\ Unpublished ERS analysis of SNDA-III data.
---------------------------------------------------------------------------

    Using our estimate of a 0.3 percent decrease in NSLP 
participation, we estimate effects on school meal participation, SFA 
revenues from reimbursable meals, and Federal reimbursement 
costs.\55\ 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.\56\ The net 
impact in schools whose experiences align with this estimate is an 
overall school food revenue increase of roughly 0.4 percent.
---------------------------------------------------------------------------

    \55\ Our baseline number of NSLP meals, like our baseline NSLP 
revenue, begins with FNS program projections prepared for the 2013 
President's Budget. These are adjusted for the changes in lunches 
served as a result of the recently published rule to implement 
Sections 205 and 206 of the HHFKA. See rule and RIA in Federal 
Register, Vol. 76, No. 117, pp. 35301-35318.
    \56\ FNS projections of Federal reimbursements for free, reduced 
price, and paid lunches are those used to prepare the FY 2013 
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

    Evidence of the effects of nutrition standards on revenues from 
competitive foods and beverages for this estimate is drawn from a 
case study of Texas schools (Cullen and Watson, 2009).\57\ USDA's 
analysis of the Texas data concluded that overall competitive food 
purchases declined by six percent. Assuming each purchase 
contributes roughly equivalently to revenues, this would suggest a 
six percent decline in revenue from competitive food sales. 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 six percent competitive food revenue loss to 4.8 percent 
([Delta]CF = -4.8)
---------------------------------------------------------------------------

    \57\ The analysis that follows reflects the work of both the 
USDA's ERS and the FNS.
---------------------------------------------------------------------------

    In this scenario, we model the effects of moderately high 
acceptance of competitive foods that meet proposed rule standards. 
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 ([Delta]L 
= 2.0). The net impact in schools whose experiences align with this 
scenario is a small decrease in overall school food revenue of 
roughly -0.03 percent.
    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 comparably healthy 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.

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

    We illustrated above what could happen if competitive food 
revenue falls by 4.8 percent ([Delta]CF = -4.8) and schools 
experience a fully offsetting increase in school lunch 
participation. It is possible, however, that fewer students will opt 
for school meals, preferring to bring lunch from home or perhaps 
purchase foods from outside vendors. For Scenario 3 we maintain the 
reduction in competitive food revenue but suggest a lower increase 
in NSLP participation. If NSLP participation increases 0.36 percent 
([Delta]L = 0.36), the net impact in schools whose experiences align 
with this estimate is a small decrease in overall school food 
revenue of roughly -0.7 percent.

C. Impacts on Participating Children and Families

    Beyond revenue impacts to SFAs and other school groups, changes 
in food purchasing choices caused by the proposed 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; students at schools with closed 
campuses will have fewer options, but may benefit by choosing 
healthier foods as a result.

D. Administrative Costs

    Under the proposed rule, local educational agencies (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

[[Page 9559]]

food standards. Thus, there will be recordkeeping costs associated 
with the proposed 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 926,935 hours, divided among the State agencies 
(1,040 hours), LEAs and SFAs (417,160 hours), and schools (508,735) 
hours. 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 2013 President's Budget.\58\ Note that 
there are no new reporting requirements in the proposed rule.
---------------------------------------------------------------------------

    \58\ 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 2013 President's 
Budget.

                  Table 3--Estimate of Administrative Costs for Recordkeeping for Proposed Rule
----------------------------------------------------------------------------------------------------------------
                                                               Fiscal year (millions)
           Recordkeeping           -----------------------------------------------------------------------------
                                        2014         2015         2016         2017         2018        Total
----------------------------------------------------------------------------------------------------------------
State Agencies....................        $0.03        $0.03        $0.03        $0.03        $0.03        $0.14
SFAs and LEAs.....................         10.8         11.1         11.5         11.9         12.2         57.4
Schools...........................         13.1         13.5         14.0         14.5         14.9         70.0
                                   -----------------------------------------------------------------------------
    Total.........................         23.9         24.7         25.5         26.3         27.2        127.6
----------------------------------------------------------------------------------------------------------------

    It is also possible that some schools and LEAs may have 
additional costs due to the proposed 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 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.

E. 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 proposed 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.\59\ That represents only about 1.3 percent of the $644 
billion worth of shipments from U.S. food manufacturers in 2010.\60\ 
FNS estimates that SFA revenue from competitive food equals about 20 
percent of overall SFA revenue (see Table 1). 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.
---------------------------------------------------------------------------

    \59\ USDA School Food Purchase Study III, 2012.
    \60\ 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.\61\ 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.
---------------------------------------------------------------------------

    \61\ 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,\62\ 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.
---------------------------------------------------------------------------

    \62\ 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 proposed 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. Therefore, at least with respect to 
these products, many of the changes required by the proposed rule 
have already taken place under existing self-regulation and State 
and local standards, reducing the net impact of Federal standards 
relative to current conditions.
    Local vending machine operators may also face some changes to 
their current business model. Although the effect of the proposed 
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 52 percent of schools 
in SY 2004-2005 (Gordon, et al., 2007, vol. 1, pp. 96-100)) they are 
not the only alternate source. About 26 percent of schools offered 
competitive food in school stores, snack bars, food carts, and 
occasional fundraisers (Gordon, et al., 2007, vol. 1, p. 101).
    Vending and manual foodservice operators served 19,000 primary 
and secondary schools in 2008, which was down about 14 percent from 
2006 (VendingTimes.com, p. 3).\63\ Primary and secondary schools 
accounted for just 2.2 percent ($1 billion out of $45.6 billion) of 
total vending machine sales in 2008 (VendingTimes.com, p. 3).
---------------------------------------------------------------------------

    \63\ This figure is much smaller than the 52 percent of schools 
figure from SNDA-III. The vending 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 proposed 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 2004-
2005 were also likely

[[Page 9560]]

compliant or near-compliant with the proposed rule.\64\
---------------------------------------------------------------------------

    \64\ The SNDA-III data do not allow us to identify which other 
products in school vending machines are compliant with the proposed 
rule standards. Nor does 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 proposed 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 
Gordon, et al., 2007, pp. 104-105.
---------------------------------------------------------------------------

    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.\65\ 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.\66\ Some small vendors may be challenged by the changes 
contained in the proposed rule. Whether small or large, many vending 
machine operators will need to modify their product lines to meet 
the requirements of the rule.
---------------------------------------------------------------------------

    \65\ Data for NAICS code 454210, ``vending machine operators.'' 
U.S. Census Bureau, http://www.census.gov/econ/industry/ec07/a454210.htm (accessed 11/13/2011).
    \66\ 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).

F. 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-III, high schools obtain almost three times as 
much revenue from competitive foods as do elementary schools; 
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.\67\ 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.\68\ This 
difference is mirrored in the behavior of low 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.
---------------------------------------------------------------------------

    \67\ Unpublished ERS analysis of SNDA-III data.
    \68\ 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.
    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.

G. Benefits

    The proposed 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 and best 
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.\69\ 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).
---------------------------------------------------------------------------

    \69\ ``Food Labeling: Calorie Labeling of Articles of Food in 
Vending Machines.'' NPRM. 2011.
---------------------------------------------------------------------------

    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).
    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

[[Page 9561]]

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) \70\ and annual prescription drug, 
emergency room, and outpatient costs of $14.1 billion (Cawley, 
2004).
---------------------------------------------------------------------------

    \70\ 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).
    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:
    [T]here 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 proposed 
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.

H. 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. The published summaries of 
the pilot outcomes attribute all of the loss to reduced competitive 
food revenue and increases in the cost to schools of acquiring foods 
(NC GA 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 (NC GA 2011, p. 2 Atkinson letter).

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 proposed 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, if for no other reason than the new items do 
not have the same market share. However, to meet calorie or fat 
standards, manufacturers may simply reduce package sizes, e.g., 
replacing 16 ounce 100 percent juice drinks with four or eight ounce 
bottles. In those cases, there is little 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

[[Page 9562]]

costs of producing meals, SFAs would likely make lunch pricing 
decisions with a view toward optimizing their levels of Federal, 
State, and local subsidies.

4. Student Response to New Standards

    Only a few limited case studies assess possible behavior change 
that may occur in response to the proposed rule. Even these limited 
studies are based on standards that are not exactly the same as the 
proposed 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 proposed 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). 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 
proposed 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 12-oz containers could be sold in 
8-oz or 4-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). Food service staff in California, 
however, also reported that more products are needed and that the 
costs of such products are frequently higher than those they replace 
(Woodward-Lopez, et al., 2005b).
    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. 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 proposed rule. 
The pressures on school revenue from high costs and limited 
availability could ease in the period between publication of 
proposed rule standards and the effective date of a final rule.

6. SFA and School Compliance

    Early studies on competitive food revenues indicate that not all 
schools have complied with existing State competitive food 
standards.\71\ 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 proposed rule, the revenue impact 
of the rule will be lower. Each of our estimates assumes full 
compliance with the proposed rule.
---------------------------------------------------------------------------

    \71\ 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 Federal Meal Programs

    It is possible that some schools could choose to leave NSLP and 
SBP to avoid the new competitive food standards. Although some 
schools may realize significant losses in revenue from competitive 
foods, especially in the short term, we believe it is unlikely that 
many, if any, will choose to do so. On average, SFAs receive just 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).

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 proposed 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 will take effect 
prior to this competitive foods rule.\72\ 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.
---------------------------------------------------------------------------

    \72\ 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.

IV. Alternatives

A. Full Implementation of IOM Recommendations

    We first consider a rule that adopts all of the IOM standards 
without change. The standards in the proposed rule were guided in 
large part by the IOM standards, but were also informed by other 
considerations. Thus, for example, the proposed rule allows a 
broader array of products in high schools than are included in the 
IOM standards. In addition, some of the IOM standards are more 
restrictive than those contained in the proposed rule, and it is 
possible that fewer currently available food products meet the 
standards.
    The overall revenue effect on SFAs that lose competitive food 
sales depends on the extent to which students replace consumption of 
competitive foods with increased participation in the NSLP, an 
unknown that may vary according to characteristics of the student 
population (such as percent of children eligible for free or reduced 
price meals) or school policy (allowing students to leave campus at 
lunch time). Strong growth in NSLP participation, reported by some 
schools, would fully offset the reduction in competitive food 
receipts. However, lesser growth in NSLP participation allows for 
the possibility of substantial overall revenue losses.

B. Less Comprehensive Standards

    A second alternative considered would place fewer restrictions 
on the types of competitive foods and beverages available to 
students. Under this scenario, students would likely have a wider 
range of options and, potentially, the choices available to students 
would contain more of the foods that they are already familiar with. 
This alternative increases the likelihood that there will be no net 
loss in competitive food revenue.

[[Page 9563]]

    Less comprehensive competitive food standards could also have 
implications for children's health. The competitive food standards 
are crafted specifically because of concern about children's health 
and especially childhood obesity. Thus adopting less comprehensive 
standards could reduce the positive impact of the proposed standards 
on children's health.

C. Exemption for Reimbursable Meal Entr[eacute]es and Side Dishes

    As noted previously, many of the food items sold [agrave] la 
carte are entr[eacute]es or snacks that are also served as part of a 
reimbursable meal. The proposed rule provides three alternative 
standards for NSLP menu items sold [agrave] la carte. The first 
would allow NSLP entr[eacute]es and snacks to be sold any time as an 
[agrave] la carte food as long as they meet the fat and sugar 
standards in the proposed rule. The other two alternatives have to 
do with the menu cycle; providing NSLP entr[eacute]e and snack items 
to be sold (1) on the same day they were served as part of a 
reimbursable meal, or (2) within four days of being served as part 
of a reimbursable meal.
    The primary benefit of an exemption that is limited 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. This more limited exemption would also 
encourage students to consume a greater variety of foods, even if 
they choose foods consistently from the [agrave] la carte line. 
However, an exemption that is limited to entr[eacute]es and side 
dishes on the current day's menu could complicate meal planning and 
preparation by denying schools the ability to serve leftover items 
on the next school day.
    The primary benefit of an exemption within four operating days 
of its offering in an NSLP or SBP menu is that it would ease school 
planning and increase efficiency by allowing the service of leftover 
items more flexibly. However, it could discourage variety in student 
consumption, and may tend to increase consumption of entrees higher 
than average in calories, fat, and sodium that in the school meals 
programs are balanced by other offerings during the week.

D. School-Sponsored Fundraisers

    The proposed rule offers two alternatives on exempt fundraisers. 
The first alternative is to allow State agencies to set the 
frequency of exempt fund raisers and the second is similar; State 
agencies would still set the frequency of exempt fund raisers, but 
subject to USDA approval. The proposed rule complements the Federal 
nutrition standards for reimbursable meals that take effect at the 
start of SY 2012-2013. Together, these reforms are designed to 
create the all-venue, day-long healthy school food environment 
recommended by IOM.\73\ The consistency of the message on healthy 
eating conveyed to students through these measures is diminished by 
frequent exemptions for fundraisers. If a consistent message is more 
effective in influencing eating habits than an inconsistent message, 
then frequent fundraiser exemptions may reduce long-term student 
adherence to a diet consistent with the Dietary Guidelines. It is 
also important to note that current practice in many schools is 
quite limited. More than half of all schools, and 39 percent of high 
schools, never sold sweet or salty snacks as fundraisers in SY 2004-
2005.
---------------------------------------------------------------------------

    \73\ For schools to ``take full advantage of their unique 
position to model and reinforce healthy eating behaviors'' 
competitive food policies must ``consider foods and beverages 
offered in all venues and throughout the school day'' (IOM 2007a, 
pp. 25-26).
---------------------------------------------------------------------------

    The benefits of partial or full State discretion derive from 
State administrators' knowledge of what will prove most effective in 
their schools. State discretion may, for example, give rise to 
creative policies that encourage districts to move away from food-
based fundraisers while allowing for a short transition period that 
recognizes individual districts' dependence on such revenue. Through 
this type of flexibility, it is possible that State discretion would 
ultimately result in fewer exempt fundraisers than would be the case 
under a uniform national standard.\74\ However, the option that 
would give States full discretion over exempt fundraisers 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. A policy that does not limit 
the frequency of exempt fundraisers risks undermining the goals of 
Federal competitive food and reimbursable meal regulations.
---------------------------------------------------------------------------

    \74\ States and local districts would be free, as well, to set 
policies that allowed fewer exempt fundraisers than a uniform 
national standard. However, only a policy of State discretion would 
allow relatively permissive local standards for a short transition 
period.
---------------------------------------------------------------------------

    Providing States with partial discretion over the frequency of 
exempt fundraisers could also potentially result in a modest 
increase in administrative costs at both the State and Federal 
levels. That option will require the development of policies on the 
acceptability of State standards, and procedures to administer the 
application and approval process.

E. Total Sugar

    The proposed rule's alternative sugar standards for competitive 
foods would limit total sugar content to either 35 percent of 
calories or 35 percent of weight. Both standards would place a 
meaningful check on the amount of sugar allowed in competitive foods 
while providing exceptions for certain fruit and vegetable snacks 
and yogurt.
    The calorie-based standard would be more restrictive than the 
weight-based standard for sugar-sweetened foods with high moisture 
content, such as ice cream and other frozen desserts.\75\ The 
proposed rule's calorie-based standard would not disallow those 
foods, but for some individual products, the calorie-based standard 
would require that they contain less sugar than the weight-based 
standard for an identically sized serving.\76\
---------------------------------------------------------------------------

    \75\ Flavored milk is not subject to the proposed rule's total 
sugar standard.
    \76\ For example, 100 grams of ready-to-eat chocolate pudding 
(ID 19183 in the USDA National Nutrient Database for Standard 
Reference, release 24) contains 142 calories and 17.17 grams of 
total sugar. By weight, this product is 17.17 percent sugar, well 
under the proposed rule's 35 percent by weight standard. But 17.17 
grams of sugar have 65 calories (at 3.8 calories per gram). That is 
46 percent of the 142 total calories in this product, a figure that 
exceeds the proposed rule's 35 percent of calories standard (http://ndb.nal.usda.gov/).
---------------------------------------------------------------------------

    For products with low moisture content the ratio of fat to sugar 
is more critical. 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 disallowed under the proposed rule's weight-based sugar 
standard while meeting its calorie-based standard.\77\
---------------------------------------------------------------------------

    \77\ 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).
---------------------------------------------------------------------------

F. Naturally Occurring Ingredients and Fortification

    Competitive foods that do not satisfy one of the proposed rule's 
food group requirements may still be sold to students if they 
provide at least 10 percent of the daily value of a ``naturally 
occurring'' nutrient of concern: Calcium, potassium, vitamin D, or 
dietary fiber. Naturally occurring nutrients are those found in non-
fortified foods. As an example, the preamble to the rule lists dry 
milk solids, cheese, or rhubarb as naturally occurring sources of 
calcium. Processed foods that use these naturally calcium-rich foods 
as ingredients can meet the proposed rule's calcium standard. 
Processed foods that are only able to reach the 10 percent daily 
value for calcium through fortification with a non-food source would 
not meet the standard. The primary alternative to this provision is 
to allow fortification with non-food ingredients.
    The Department believes that recognizing only naturally 
occurring nutrient sources is more consistent with the 
recommendation of the Dietary Guidelines that ``nutrients should 
come primarily from foods'' (USDA-HHS 2010, p. 49). A rule that does 
not credit the contribution of non-food sources to meeting the 
rule's ten percent standard for DGA nutrients of concern is also 
better aligned with IOM recommendations. IOM cites ``[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).
    Despite these benefits of a food-based approach, the Department 
recognizes that schools may be unable to distinguish products that 
satisfy the ``naturally occurring'' requirement from products that 
do not. At present, the contribution of food-based and non-food 
sources to the nutrient values on processed food nutrition labels 
are not shown separately. The practical effect of

[[Page 9564]]

this limitation may be that schools will approve few competitive 
foods for sale on the basis of their calcium, potassium, vitamin D, 
or dietary fiber content alone. In an effort to exclude items that 
achieve targeted levels of these nutrients through non-food 
fortification, schools may disallow any item with non-food sources 
of these nutrients unless they also satisfy one of the proposed 
rule's food group requirements or other exemptions. A possible 
consequence is that the proposed rule will not contribute as 
effectively as intended to increasing student intake of these 
nutrients of concern.
    It is unclear how cost might impact the mix of competitive foods 
offered for sale under these alternate provisions. If fortification 
with non-food sources of calcium, potassium, vitamin D, or dietary 
fiber is an inexpensive way for manufacturers to gain access to the 
school competitive food market, then a rule that allows non-food 
fortification may increase the variety and lower the cost of 
competitive food products available to students. At the same time, 
inexpensive fortified snacks and beverages may crowd out whole 
grains, fruits, vegetables, and dairy products.

G. Allowable Beverage Sizes in High Schools

    The proposed rule would allow plain water, milk, nutritionally 
equivalent milk alternatives, and 100 percent fruit or vegetable 
juice to be sold to elementary, middle, and high school students 
outside of the meal service area. In addition to these, the proposed 
rule would allow schools to make certain calorie free and low 
calorie beverages available to high school students. (``Calorie 
free'' and ``low calorie'' are FDA standards.\78\) At the high 
school level, the proposed rule would limit all calorie free 
beverages to 20 fluid ounces and low calorie beverages to 12 fluid 
ounce containers. The proposed rule places no size limit on 
containers of plain water.
---------------------------------------------------------------------------

    \78\ ``Calorie free'' may be used on a label for foods with 
fewer than 5 calories per ``reference amount customarily consumed.'' 
Foods may be labeled ``low calorie'' if they contain no more than 40 
calories per reference amount customarily consumed (21 CFR 
101.60(b)).
---------------------------------------------------------------------------

H. Low Calorie Beverages

    The proposed rule's alternative calorie limit for beverages for 
high school students would permit up to either 40 calories per 8 fl 
oz serving (and 60 calories per 12 fl oz) or 50 calories per 8 fl oz 
serving (and 75 calories per 12 fl oz). The higher 50 calorie limit 
would permit the sale of some national brand sports drinks in their 
standard formulas.\79\ The lower 40 calorie limit would only allow 
the sale of reduced-calorie versions of those drinks. The 50 calorie 
alternative would open the door to a class of competitive beverages 
with great market strength and consumer appeal. Such a change might 
generate significant revenue for schools and student groups.
---------------------------------------------------------------------------

    \79\ Nutrition labels on product Web sites for both Gatorade and 
Powerade show 50 calories per 8 fl oz serving.
---------------------------------------------------------------------------

    IOM specifically excludes sports drinks from both its Tier 1 and 
Tier 2 lists of beverages. However, IOM does recognize their value 
for student athletes engaged in prolonged physical activity for 
``facilitating hydration, providing energy, and replacing 
electrolytes'' (IOM, 2007a, p. 11). In these limited circumstances, 
IOM would endorse the decision of an athletic coach to make such 
drinks available.

I. Caffeinated Beverages

    Consistent with IOM recommendations, the proposed rule requires 
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, does not restrict caffeinated 
products for high school students, which is a departure from the IOM 
guidelines. The Department invites comments on providing the 
exception for high school students.

V. 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.\80\ 
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.
---------------------------------------------------------------------------

    \80\ 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:

----------------------------------------------------------------------------------------------------------------
                                                           Fiscal year ($ millions)
                             -----------------------------------------------------------------------------------
                                  2014          2015          2016          2017          2018          Total
----------------------------------------------------------------------------------------------------------------
Total projected nominal cost        $23.9         $24.7         $25.5         $26.3         $27.2        $127.6
 of final rule..............
----------------------------------------------------------------------------------------------------------------

    Applying 7 and 3 percent discount rates to this nominal cost 
stream gives present values (in 2012 dollars):

----------------------------------------------------------------------------------------------------------------
                                                                    ($ millions)
                                   -----------------------------------------------------------------------------
                                        2014         2015         2016         2017         2018        Total
----------------------------------------------------------------------------------------------------------------
Total cost (present value, 7%             $20.9        $20.1        $19.5        $18.8        $18.1        $97.4
 discount rate)...................
Total cost (present value, 3%              22.5         22.6         22.7         22.7         22.8        113.3
 discount rate)...................
----------------------------------------------------------------------------------------------------------------


[[Page 9565]]

    The annualized values in FY 2012 dollars of these discounted 
cost streams are computed with the following formula, where PV is 
the discounted present value of the cost stream ($97.4 in the 
illustration), i is the discount rate (7 percent), and n is the 
number of years beyond FY 2012 (6).\81\
---------------------------------------------------------------------------

    \81\ The Excel formula for this is PMT(rate,  periods, 
PV, 0, 1).
[GRAPHIC] [TIFF OMITTED] TP08FE13.001


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Outcome
                  Benefits                       scenario        Estimate       Year dollar    Discount rate                Period covered
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/year).......            n.a.            n.a.            n.a.            n.a.  FY 2014-2017.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Qualitative: The rule will ensure that all foods sold to children in school during the school day will meet macronutrient and food group standards that
 are consistent with a healthy diet and are based on current nutrition science. The proposed rule will encourage the consumption of foods such as whole
 grains, fruit, vegetables, and dairy products that are low in fat and added sugar. By allowing only the sale of competitive foods that comply with
 Dietary Guidelines recommendations, this proposed rule aims to promote healthy eating habits.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quantitative: SFA and State educational agency administrative expenses to comply with the rule's reporting and recordkeeping requirements.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/year).......             1-4           $19.1            2012              7%  FY 2014-2017.
                                                                       $20.3            2012              3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
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 (+0.4 percent to -0.7 percent). The data are insufficient to assess the
 frequency or probability of schools experiencing any specific level of impact.
--------------------------------------------------------------------------------------------------------------------------------------------------------

VI. References

Alliance for a Healthier Generation. Available at: http://www.healthiergeneration.org/companies.aspx?ID=3306.
Alliance for a Healthier Generation. Competitive Food Success 
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[FR Doc. 2013-02584 Filed 2-7-13; 8:45 am]
BILLING CODE 3410-30-P