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Click here to read the USDA National Policy on Commodity Substitution.
Recipient Agencies (RAs), aka school districts, qualify to receive various commodities, including cheddar barrels, from the USDA as part of the federal reimbursement for the school lunch program.
- Commodities are procured using Entitlement dollars.
- Cash reimbursement rates are based on a variety of factors, including the income category of the individual children receiving the meals.
- Commodity reimbursement is set at 18.75 cents per meal through June 30th 2008. This amount is adjusted annually.
- Commodity reimbursement plays a significant role in subsidizing school lunch costs, making up approximately 15-20% of overall product cost.
There are well over 100 commodity products from which RAs can choose - everything from ground beef to canned peaches to cheddar barrels.
- Some of these commodities take the form of finished products and are delivered directly to the RA or state warehouse.
- Bulk or unfinished commodities, like cheddar barrels, are usually delivered to manufacturers for further processing. This is coordinated through the United States Department of Agriculture's (USDA) ECOS system.
- The manufacturer will "reprocess" the cheese and sell value-added products to the RA under a fee-for-service contract or other type of discount system that accounts for the value of the USDA commodity.
- The price is essentially the regular commercial price less the value of the commodity cheese contained in the product.
- The manufacturer tracks the inbound and outbound commodity credit, by RA, and is obligated to provide accurate and current accounting of the commodity balance(s).
- For many items, finished case yields are higher when bulk commodities are used. For example, one truckload of commodity Slice American Cheese is 1,320 cases. One truckload of cheddar barrels yields over 1,800 cases of Land O'Lakes Slice American.
The USDA allows for substitution of the bulk cheese received from the RA, provided the cheese actually used in the RA's finished products is of 100% domestic origin and equal or greater value.
Why does this matter to my school?
RAs do not have to wait for delivery of USDA barrel cheese before placing their orders. Since manufacturers can use existing inventory to fill those orders, assuming a positive commodity balance, RAs can order anytime during the year for prompt delivery. In cases where the cheese is substituted the cheese ingredient quality is equal to or greater than that of the cheddar barrels
Historically cheddar cheese could only be substituted for cheddar cheese. However, on November 4th, 2005, the USDA sent out a memorandum entitled "Commodity Cheese Substitution" that outlined changes to commodity cheese processing policy for school year 06/07 and beyond.
The notice stated that, effective July 1st 2006, specific commodity cheeses can be substituted for other cheese varieties.
Why does this matter to my school?
As of July 1, 2006, school customers who divert barrel cheddar to Land O'Lakes will receive barrel credit for ALL cheese content of the finished product, not just the cheddar component. This means that RAs can increase the varieties of cheese they serve, including reduced fat cheeses, and still receive commodity credit thus reducing out-of-pocket expenses
The substitution rate is 1:1 on most varieties, however, specific substitution rates were provided for identified specialty cheeses including, for example, skim milk cheese and cream cheese.
This policy change means that RAs can now enjoy a much wider choice of affordable cheese-based products.
- Now you can substitute cheddar barrels for skim milk cheese, and purchase healthier reduced-fat products at an affordable fee-for-service price.
- With the increased ethnic diversity seen at schools across the country this also allows for the subsidized purchase of specialty cheeses to be used in school lunches.
- Manufacturers can significantly broaden available products for schools by providing new product varieties and flavors at an affordable price.
Why does this matter to my school?
Commodity processing is a great way to stretch dollars and maximize affordable product varieties
The commodity credit associated with each of the qualifying finished products of a manufacturer is captured on a Summary End Product Data Schedule. These SEPDS documents are managed by USDA and are readily available from all participating manufacturers.
For more information, or to get started processing with Land O'Lakes, please contact your sales representative or call 1-800-898-8113.
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