Contents

• Background: SNAP-Authorized Retailers and Related Data
• CurrentPrior SNAP Retailer Inventory and Sales Regulations
• 2014 Farm Bill (P.L. 113-79) Amendments to Retailer Inventory Requirements
• ProposedFinal Rule's Changes to SNAP Retailer Requirements
Standards
• Sales of Hot, Prepared Foods
• Definition of Staple Foods
• Multiple Ingredient Foods
• Accessory Foods
• Varieties
Inventory and Depth of Stock
• Access-Related Exceptions to the Rules
• Public Disclosure of Retailer Information
• Overview of USDA-FNSFinal Rule's Regulatory Impact Analysis
• Responses to the Proposed Rule
• Regulatory Comments from a Wide Range of Stakeholders
• Related Congressional Activity, Including FY2017 Appropriations Bills
• Next Steps
Conclusion

Summary

Summary

On December 15, 2016, USDA published in the Federal Register a final rule, "Enhancing Retailer Standards in the Supplemental Nutrition Assistance Program (SNAP)." This final rule follows USDA-FNS's proposed rule work earlier in the year:

On February 17, 2016, the U.S. Department of Agriculture's (USDA's) Food and Nutrition Service (USDA-FNS) published a proposed rule titled, "Enhancing Retailer Standards in the Supplemental Nutrition Assistance Program (SNAP)." the proposed rule. On April 5, 2016, USDA-FNS published a clarification of the proposed rule and extended the comment period to May 18, 2016.

SNAP, the largest of USDA's domestic food assistance programs, provides benefits to eligible participants; these benefits are redeemable for SNAP-eligible foods at SNAP-authorized retailers. SNAP-authorized retailers are stores and marketsother food sellers that are allowed to accept SNAP benefits.

In FY2015, the vast majority of benefits were redeemed at "super stores" and supermarkets. The final rule implements

The proposed rule would implement provisions of the Agriculture Act of 2014 ("2014 farm bill," P.L. 113-79) that made changes toincreases inventory requirements for SNAP-authorized retailers and, per USDA-FNS, would also address other also addresses other USDA-FNS policy objectives. ThisLike the proposed rule would make, the final rule makes changes to 7 C.F.R. Part 271 and Part 278 in five areas of retailer authorization policy: (1) sales of hot, prepared foods; (2) definition of staple foods; (3) inventory and depth of stock; (4) access-related exceptions to the rules; and (5) disclosures of retailer information.

The proposed rule hasfinal rule responds to many of the comments and concerns raised about the proposed rule. The proposed rule had been controversial, particularly the provisions not explicitly addressed by the farm bill. Driving the debate over these changes has been the potential impact on smaller retailers. Many Members of Congress have raised opposition to the proposed rule, and both the House- and the Senate-reported FY2017 Agriculture and Related Agencies appropriations bills include language to limit USDA's discretion in setting retailer standards.

---

Proposed Rule to Updaterequired by the farm bill and the potential impact on smaller retailers.

The effective date for the final rule is January 17, 2017, but some aspects of the rule take effect 120 days or 365 days later.

Updated Standards for SNAP-Authorized Retailers: In Brief

On February 17, 2016, the U.S. Department of Agriculture's (USDA's) Food and Nutrition Service (USDA-FNS) published a proposed rule titled, "Enhancing Retailer Standards in the Supplemental Nutrition Assistance Program (SNAP)." ¹ the proposed rule.² On April 5, 2016, USDA-FNS published a clarification of the proposed rule and extended the comment period to May 18, 2016.²

3SNAP, the largest of USDA's domestic food assistance programs, provides benefits to eligible participants; these benefits are redeemable for SNAP-eligible foods at SNAP-authorized retailers. In FY2015, SNAP had an average monthly participation of 45.8 million individuals, $74.0 billion was obligated for the program (most of the funding is for benefits themselves), and nearly 259,000 firms were authorized to accept benefits.³4 The proposed rule would implementfinal rule implements provisions of the Agriculture Act of 2014 ("2014 farm bill," P.L. 113-79) that made changes to inventory requirements for SNAP-authorized retailers and, per USDA-FNS, would also address other also addresses other USDA-FNS policy objectives. The proposed rule hashad been controversial, particularly the provisions not explicitly addressedrequired by the farm bill.

SNAP-authorized retailers are stores and marketsother food sellers that are allowed to accept SNAP benefits. Changes in retailer authorization policy can impact a range of SNAP program stakeholders—not only retailers, but also food manufacturers and program participants. Driving the debate over these changes has been the potential impact on smaller retailers. This report will present a brief background on SNAP retailer authorization and related administrative data, a summary of currentprior regulations, the statutory changes enacted in the 2014 farm bill, and the proposedfinal rule's changes to the current regulations. Finally, this report briefly discusses stakeholder reactions to the proposed rule and related congressional action (including comparisons to the proposed rule). The Appendix includes additional background on agency analysis of the proposed rule and stakeholders' reactions to the proposed rule.

Background: SNAP-Authorized Retailers and Related Data

SNAP benefits may be redeemed only for eligible foods at authorized retailers.⁴5 The SNAP program authorizes retailers based, in part, on the retailer's inventory or sales. In order to be authorized, a retailer is generally required to (1) apply for authorization, and (2) pass a USDA-FNS administered inspection and authorization process.⁵6 A wide range of retailers are authorized to accept SNAP, including supermarkets, farmers' markets, and convenience stores.

Inventory requirements for SNAP retailers are based on stock or sales of "staple foods," defined in statute as four categories: (1) meat, poultry, or fish; (2) bread or cereals; (3) vegetables or fruits; and (4) dairy products.⁶7 Although SNAP participants can buy foods that are not in staple food categories, required staple food inventory or sales is one of the bases for authorizing a retailer to accept SNAP benefits.

Though many different types of retailers are authorized to accept benefits, data show that the majority of SNAP benefits are redeemed at supermarkets and superstores. In FY2015, approximately 82% of benefits were redeemed in supermarkets and superstores.⁷8 Although convenience stores make up over 41% of SNAP-authorized retailers, they redeemed approximately 5% of SNAP benefits in FY2015.⁸9 Figure 1 displays the share of SNAP benefits redeemed by different categories of retailers, with further detail on authorizations and redemptions shown in Table 1. Retailer data also indicate that smaller retailers (convenience stores, small grocery stores, medium grocery stores) received the bulk of sanctions from USDA-FNS in FY2015; sanctions include time-limited or permanent disqualifications from SNAP.⁹

10

Figure 1. Share of SNAP Dollars Redeemed by Store Type, FY2015

Source: Prepared by CRS based on USDA-FNS, 2015 Retailer Management Year End Summaries, p. 2, http://www.fns.usda.gov/sites/default/files/snap/2015-SNAP-Retailer-Management-Year-End-Summary.pdf. Notes: In order to more clearly highlight small grocery stores and convenience stores, CRS collapsed categories of retailer types. See 2015 Retailer Management Year End Summaries for narrower category data.

CurrentPrior SNAP Retailer Inventory and Sales Regulations

Under current regulation, a SNAP-eligible retailer mustRegulations

This section summarizes standards for SNAP retailer authorization prior to the final rule ("prior regulations").

Under the prior regulations, a SNAP-eligible retailer had to meet one of two tests: criterion A (based on store inventory) or criterion B (based on store sales).¹⁰11 These rules are displayed in Table 2.

Specialty stores, such as fruit and vegetable or seafood markets, tend to apply under criterion B because they carry a limited number of staple food categories.

As noted above, SNAP's authorizing law defines "staple foods" as foods in the following categories: meat, poultry, or fish; bread or cereals; vegetables or fruits; and dairy products.¹¹12 The law further provides that staple foods "do not include accessory food items, such as coffee, tea, cocoa, carbonated and uncarbonated drinks, candy, condiments, and spices."¹²13 Under currentprior regulations, foods with multiple ingredients arewere counted in a staple food group based on the "main ingredient" as determined by USDA-FNS. For example, a box of macaroni and cheese might be classified onlyas a variety within a staple food category but in the bread or cereal category (despite containing dairy). Prior regulation also defined. Regulation also defines perishable staple food items as "items which are either frozen staple food items or fresh, unrefrigerated or refrigerated staple food items that will spoil or suffer significant deterioration in quality within 2-3 weeks."¹³14 Regulation specifiesspecified that a "variety" of qualifying foods in a particular category means different types of foods, not different brands, different nutrient values, different varieties of packaging, or different package sizes; the example iswas given that apples, cabbage, and tomatoes are varieties in the fruit or vegetable staple food category.¹⁴

15

Although retailers must offer these particular types of foods to qualify as a SNAP-eligible retailer, SNAP participants may redeem their benefits for generally any foods for home preparation and consumption whether they are staple foods or not. SNAP benefits may not be redeemed for alcohol; tobacco; or hot, prepared foods intended for immediate consumption (e.g., a rotisserie chicken). CurrentPrior regulations makealso made ineligible "firms that are considered to be restaurants, that is, firms that have more than 50 percent of their total gross retail sales in hot and/or cold prepared foods not intended for home preparation and consumption."¹⁵16 Restaurants authorized to participate under certain states' restaurant option (an option to assist homeless, elderly, and disabled individuals who may have difficulty preparing food) are an exception to this 50% rule.¹⁶

17

2014 Farm Bill (P.L. 113-79) Amendments to Retailer Inventory Requirements

The 2014 farm bill (enacted February 7, 2014) amended many different aspects of SNAP law, including changes to the authorization of SNAP retailers.¹⁷18 Section 4002 of P.L. 113-79 required that retailers seeking authorization based on inventory (i.e., criterion A) will have to increase their variety of stock. Namely, the law was amended to require stores to stock at least seven varieties of staple foods in each of the four staple food categories and to stock perishable foods in at least three categories. Section 4002, which includes other requirements for retailers, also amended the authorizing law to require a review of retailer applications to consider "whether the [retailer] applicant is located in an area with significantly limited access to food." The law's conference report included further information on the decision to craft this policy change.¹⁸19

In a March 2014 policy memorandum, USDA-FNS said that the 2014 farm bill changes to inventory requirements would require rulemaking to implement.¹⁹20

ProposedFinal Rule's Changes to SNAP Retailer Requirements

InStandards

This section summarizes the USDA-FNS final rule's changes to prior regulations and includes comparison to the proposed rule.

As a basis for rulemaking, in the February 2016 proposed rule, USDA-FNS explainsexplained that the proposal "is proposed rule was "the result of two separate developments": (1) the 2014 farm bill's statutory changes, and (2) "the effort initiated by FNS in 2013 to look at enhancing the eligibility standards for SNAP retailers to better enforce the intent of the [Food and Nutrition Act of 2008] to permit low-income individuals to purchase more nutritious foods for home preparation and consumption." Related to the latter development, USDA-FNS citescited findings from an August 2013 Request for Information (RFI), which posed 14 questions to the public on SNAP retailer eligibility and authorization. ²⁰21 USDA-FNS statesstated that they received from the RFI over 200 comments "from a diverse group, including retailers, academics, trade associations, policy advocates, professional associations, government entities, and the general public." The agency also cites related listening sessions.

The proposed rule would make changes to 7 C.F.R. Part 271 and Part 278 in five areas of retailer authorization policy: (1) sales of hot, prepared foods; (2) definition of staple foods; (3) inventory and depth of stock; (4) access-related exceptions to the rules; and (5) disclosures of retailer information. These areas are briefly discussed in the sections below, including the implementation timeframe associated with each. The proposed rule's changes to current regulation are presented "at-a-glance" in Table 4 at the end of this section.

Throughout the proposed rule, USDA-FNS expresses the objectives to improve access to healthy foods and to preserve the integrity of the program. As discussed in "Responses to the Proposed Rule," some have criticized the proposed rule for potentially exceeding the 2014 farm bill provisions' authority. The amended statute explicitly requires:

• an increase in the minimum number of food varieties and perishable varieties for retailers authorized under criteria A (discussed further below in "Inventory and Depth of Stock"); and
• access-related exceptions to retailer authorization (discussed further below in "Access-Related Exceptions to the Rules").

The effective date for the final rule is January 17, 2017, but most aspects of the rule take effect 120 days or 365 days later. Unless otherwise indicated in the sections to follow, the final rule takes effect

• 120 days after January 17, 2017 for new retailers applying for authorization or retailers applying to reinstate their authorization, and
• 365 days after January 17, 2017, for existing SNAP-authorized retailers.

Sales of Hot, Prepared Foods HotSales of Hot, Prepared Foods²¹

Recalling that hot, prepared foods are not eligible for purchase with SNAP benefits, the proposed rule would require that at least 85% of an authorized entity's total food sales must be for items that are not cooked or heated onsite before or after purchase. (In other words, no more than 15% of total food sales may be from these foods cooked or heated on-site.) This is in addition to the current regulatory requirement that no more than 50% of sales be hot or cold prepared foods. Retailers applying under either criterion A or criterion B would be required to meet this threshold.

USDA-FNS proposes this change because some retailers have been selling uncooked foods for SNAP purchase and then offering to heat or cook those foods for customers for free or for cash. The agency says "nothing in current regulations specifically prohibits items sold for SNAP benefits to be sold cold at the point-of-sale and heated or cooked in the store after purchase." The agency "thinks it is important to maintain the intent of Congress's restriction on hot food purchases" and bases the 85% threshold on a review of related retailer data.

In addition, the proposed rule would add, prepared foods are not eligible for purchase with SNAP benefits, and prior regulations required Criteria A and B retailers to have no more than 50% of their sales in hot or cold prepared foods. Ultimately, the final rule kept this 50% threshold in place but specified that it applies to "foods cooked or heated on-site by the retailer before or after purchase."²³ Under prior regulations, there had been a loophole apparently exploited by some retailers who sell uncooked foods for SNAP purchase and then offer to heat or cook those foods for customers (for free or for a small fee).²⁴

The final rule does not adopt the proposed rule's proposal to require that at least 85% of an authorized entity's total food sales must be for items that are not cooked or heated onsite before or after purchase. (In other words, the proposed rule would have required that no more than 15% of total food sales may be from these foods cooked or heated on-site.) In the final rule's preamble, USDA-FNS expressed particular concern that comments and data subsequently reviewed showed that the 85/15% threshold would make most convenience stores ineligible for SNAP authorization.²⁵

The proposed rule also would have added measures aimed at preventing one business from splitting into two to circumvent these restaurant-related SNAP rules.

USDA-FNS proposes that the changes described here would take effect for all new applicants and all currently authorized retailers within 120 days of the effective date of the final rule.

Definition of Staple Foods²²

The proposedIn the final rule, USDA-FNS clarified that it will consider separate businesses to be one if the co-located businesses share ownership, sale of similar or same food products, and inventory.²⁶

The final rule's hot, prepared foods provisions will take effect for all retailers 120 days after January 17, 2017.

Definition of Staple Foods The final rule would change the regulatory definition of staple foods with regard to multi-ingredient and accessory foods in the evaluation of a retailer application.

Under currentin several respects. Ultimately, the final rule did not change multi-ingredient rules, but it did change policy around what foods count as separate varieties. Multiple Ingredient Foods Under prior regulation, foods with multiple ingredients arewere only counted in one staple food category based on the item's main ingredient. For example, aas mentioned above, the box of macaroni and cheese mightwould be counted as a "bread or cereal" for retailer authorization purposes. In the final rule, USDA-FNS maintained this multiple ingredient policy, taking into account many related comments on the proposed rule.²⁷ The final rule rejected the proposed rule's policy that for retailer authorization purposes. USDA-FNS says that the current policy can be confusing and requires close examination of product labels. In the preamble, the agency mentioned that one company's frozen chicken pot pie may have the main ingredient of chicken, while another company's may have the main ingredient of bread.

Under the proposed rule, commercially processed foods and prepared mixtures would not behave been counted in any staple food category, and thus, would not be considered in a retailer's application for authorization. for retailer authorization.²⁸ For example, inventory of TV dinners, macaroni and cheese, and canned soups would not counthave counted toward a store's inventory (or sales) requirements for authorization. (Such foods would remainhave remained eligible for SNAP purchase.)

UnderAccessory Foods Under prior regulation, accessory foods arewere not counted as staple foods. Currently, regulations defineThis is maintained and expanded in the final rule. Prior regulations defined "accessory foods" as the specific foods listed in the statute: "coffee, tea, cocoa, carbonated and un-carbonated drinks, candy, condiments, and spices."²³

The proposed rule would expand the list of accessory food items to include "foods that are generally consumed between meals and/or are generally considered snacks or desserts ... such as ... chips, dips ... cupcakes ... candy, or food items that complement or supplement meals, such as ... coffee, tea, carbonated and uncarbonated drinks." USDA-FNS states that "counting such foods as accessory items will ultimately encourage stores to offer more nutritious options and provide SNAP recipients access to a larger selection of healthy foods."²⁴

USDA proposes that these requirements would take effect for all new applicants within 120 days of the effective date of the final rule. Retailers already authorized to participate in the program would have 365 days from the effective date of the final rule to comply.

Inventory and Depth of Stock²⁵

The proposed rule would codify the 2014 farm bill's mandatory changes for retailers applying for authorization under criterion A (inventory-based):

• 29

  The final rule expands this regulatory definition, but in a way that is more narrowly tailored than the proposed rule's approach.³⁰ The final rule expands the list of accessory food items as follows:

  Accessory food items include foods that are generally considered snacks or desserts such as, but not limited to, chips, ice cream, crackers, cupcakes, cookies, popcorn, pastries, and candy, and food items that complement or supplement meals such as, but not limited to, coffee, tea, cocoa, carbonated and uncarbonated drinks, condiments, spices, salt, and sugar.³¹

  The final rule also establishes that "[i]tems shall not be classified as accessory food exclusively based on packaging size," and "[a] food product containing an accessory food item as its main ingredient shall be considered an accessory food item."³²

  Varieties

  Criterion A authorization is based, in part, on a retailer's stocking a certain number of varieties in each staple food category. The 2014 farm bill requires an increase in varieties offered (implementation discussed in "Inventory and Depth of Stock"). The final rule includes increased flexibility to help stock the required number of varieties. In particular, the regulations are amended to count plant-based sources as varieties for the "meat, poultry, or fish" and "dairy products" staple food groups.³³ For instance, nuts, seeds, and beans can now be varieties of "meat, poultry, and fish." In addition, the final rule's preamble, as guidance, includes a list of examples of varieties in each staple food category.³⁴

  Inventory and Depth of Stock³⁵

  The final rule codifies the 2014 farm bill's mandatory changes for retailers applying for authorization under criterion A (inventory-based) by

  increasing the required minimum variety of foods in each staple food category from three to seven varieties, and
• increasing the perishable foods requirement from two staple food categories to three staple food categories.

The proposedfinal rule also would addadds specifications on the depth of stock; that is, how many of each item are for sale. Under currentprior regulations, a retailer maycould be authorized with a minimum stock of at least 12 food items (one item each of three varieties in each of the four categories, including perishable requirements); proposed and final rules sought to change that. The final.

The proposed rule would not only implement the farm bill's staple food changes to 28 varieties (seven varieties in each of the four categories, including perishable requirements), but it would add a numeric depth of stock requirement of sixthree stocking units per variety.²⁶ Under the proposed rule's requirement for a six-item depth of stock, a store would be required to keep in stock a minimum of 168 staple food items36 Under this requirement, a store is required to keep in stock a minimum of 84 staple food items. In the final rule, USDA-FNS halved the proposed rule's depth of stock policy, which would have required six-item depth of stock, requiring a minimum of 168 items. The final rule also added some language to specify that documentation may be provided in cases where it is not clear that the sufficient stocking requirement has been met.

Table 3 summarizes the inventory requirements for criterion A retailers under current regulations and the proposed ruleprior, proposed, and final regulations.

USDA-FNS proposes that these requirements would take effect for all new applicants within 120 days of the effective date of the final rule. Retailers already authorized to participate in the program would have 365 days from the effective date of the final rule to comply.

unamended 7 C.F.R. 278.1, the proposed rule, clarification of proposed rule, and final rule.

Access-Related Exceptions to the Rules²⁷

Prior to the 2014 farm bill, communitya community's access to a SNAP-authorized retailer was not a consideration in granting or denying a retailer's application for authorization. Implementing the 2014 farm bill language, the proposed rule, as described in its preamble, would allowhave allowed USDA-FNS to consider need for access "when a retailer does not meet all of the requirements for SNAP authorization." USDA-FNS proposesproposed a list of factors that they "will consider factors such as distance from the nearest SNAP authorized retailer, transportation options to other SNAP authorized retailer locations, the gap between a store's stock and SNAP required stock for authorized eligibility, and whether the store furthers the purpose of the [p]rogram."

USDA-FNS proposes that these changes would go into effect upon the effective date of the final rule.

Public Disclosure of Retailer Information²⁸

The proposed rule would allowmay consider in making this access determination.³⁷

The final rule implements the access-related exceptions with some additional details. It includes a more inclusive list of factors to be considered: "access factors such as, but not limited to, the distance from the applicant firm to the nearest currently SNAP authorized firm and transportation options ... FNS will also consider factors such as, but not limited to, the extent of the applicant firm's stocking deficiencies in meeting Criterion A and Criterion B and whether the store furthers the purposes of the Program." The final rule also clarifies that FNS's considerations will occur during the application process.³⁸

Public Disclosure of Retailer Information The final rule allows USDA-FNS to disclose to the public specific information about retailers that have been disqualified or otherwise sanctioned for SNAP violations. The agency arguesargued, in the proposed rule, that this information would assist in the agency's efforts "to combat SNAP fraud by providing an additional deterrent" and would "provide the public with valuable information about the integrity of these businesses and individuals for future dealings."

USDA-FNS proposes that these changes would go into effect upon the effective date of the final rule39 The final rule clarifies that disclosure of these sanctions will only be for the duration of the sanction. This policy will take effect on January 17, 2017.

c. Based on USDA Food and Nutrition Service, "Enhancing Retailer Standards in the Supplemental Nutrition Assistance Program (SNAP)," 81 Federal Register 90675-90699, December 15, 2016. Overview of Final Rule's Regulatory Impact Analysis⁴⁰

As with the proposed rule, within the final rule's preamble, USDA-FNS included a summary of its Regulatory Impact Analysis (RIA).⁴¹ The RIA included qualitative benefits of the final rule such as improving SNAP recipients' access to a variety of healthy food options and authorizing retailers in a way that is consistent with the purposes of SNAP. The analysis estimated that the total cost to the federal government for the agency's increased store inspections would be approximately $3.7 million in FY2018 and $15 million over five years.

Under the agency's Regulatory Flexibility Act (RFA) analysis, also referenced in the RIA, USDA-FNS focused on the impacts for small businesses.⁴² As discussed in the Appendix, and as USDA-FNS acknowledges in the final rule's preamble, some of the opposition to the proposed rule criticized the agency's analysis, arguing that the analysis had underestimated the financial impact on small retailers. The final rule's RIA and RFA analysis reflect a revised methodology (that now includes opportunity costs and administrative costs) and the final rule's differing policy.

The analysis estimated that the inventory changes in the final rule would impact approximately 187,000 smaller retailers (this is 70% of all SNAP-authorized retailers in July 2016).⁴³ Based on a sample of small SNAP retailers' inventory checklists, USDA-FNS estimated an average cost per retailer of $245 in the first year and about $620 over five years.⁴⁴ The analysis estimated that over 87% of the currently participating small retailers would not meet the increased variety requirements, but that most would meet the new perishable requirements.⁴⁵

See the Appendix for an overview of the proposed rule's RIA and RFA analysis. Conclusion

The effective dates for the updated SNAP retailer standards occur during the 115^th Congress. USDA-FNS will be administering the new standards for retailers at a time of presidential and policy-official transition. New SNAP retailers will be applying for authorization under the new rules, and existing authorized retailers may be revising their inventory to meet the new rules. The perceived benefits and costs in implementing the updated standards may impact subsequent rulemaking. Also, because much of the updated standards originate from a 2014 change in authorizing law, Congress may have interest in changing the law again, and related issues may come up in the formulation of the next farm bill.

Appendix. Analysis of and Response to the February 2016 Proposed Rule

More details on the proposed rule and stakeholders' response are included in this Appendix.

Overview of USDA-FNS's Regulatory Impact Analysis for the Proposed Rule⁴⁶

Overview of USDA-FNS's Regulatory Impact Analysis²⁹

Within the proposed rule, USDA-FNS has included a summary of its Regulatory Impact Analysis (RIA).³⁰47 The RIA included qualitative benefits of the proposed rule such as improving SNAP recipients' access to a variety of healthy food options and authorizing retailers that are consistent with the purposes of SNAP. The analysis quantified minor costs to the federal government, finding that existing administrative funds would be used to enforce the proposed rule but that there may be an initial increase in requests for administrative reviews (a retailer-initiated appeals process), increasing costs by less than $150,000.

Under the agency's Regulatory Flexibility Act analysis, USDA-FNS quantified the costs for smaller retailers.³¹48 USDA-FNS estimated costs to those establishments that are minimally stocked and to those that are primarily restaurants. Based on a sample of small SNAP retailers' inventory checklists, USDA-FNS estimated an average cost per retailer of $140 to meet the new requirements. The sample-based estimates found that nearly 89% of the currently participating small retailers would not meet the increased variety requirements but that just over 1% would not meet the increased perishable requirements.³²49 The USDA-FNS analysis found that the rule would impact nearly 195,000 small businesses.

Responses to the Proposed Rule

This section provides an overview of reactions to the proposed rule. The rule received formal comments from a wide range of stakeholders. There haswas also been a range of congressional114^th Congress activity around the rule, including related provisions in committee-reported FY2017 appropriations bills.

Regulatory Comments from a Wide Range of Stakeholders

The proposed rule's comment period closed on May 18, 2016. The docket for the rule shows the agency has received over 1,2601,266 submissions/comments.³³50 Comments were submitted by anti-hunger advocacy groups, food suppliers, other retailer organizations, local governments, and many other organizations and private individuals (many of whom are operators of small stores). This section discusses some of the comments submitted; CRS has not reviewed all comments.

Those critical of the proposed rule includeincluded, in particular, the National Association of Convenience Stores (NACS), whose members would be affected by it. NACS submitted 67 pages of comments and encouraged its members to respond.³⁴51 In addition to concerns with implementation of most aspects of the proposed rule, the organization commissioned an alternative analysis of the impact and argues that the USDA-FNS regulatory analysis underestimates costs.³⁵52 The association argues, in its comments and related documents, for USDA-FNS to withdraw the proposed rule. In response to requests from convenience store operators and their food suppliers, the U.S. Small Business Administration's Office of Advocacy also submitted comments critical of the proposed rule, though it did not request a withdrawal of the rule.³⁶53

Stakeholders from the public health community voiced qualified support for the rule. As an example, the American Public Health Association (APHA) supported the rule but cautioned against unintended access-related consequences.³⁷54 APHA cautioned that improving stocking standards alone was not enough to improve healthy eating.³⁸55

Related Congressional Activity, Including FY2017 Appropriations Bills

Prior to the close of the comment period and in actions subsequent to it, some Members of Congress have expressed their concerns, and those of other stakeholders, with the proposed rule.

The House Committee on Agriculture's leadership, Chairman Conaway and Ranking Member Peterson, submitted a bipartisan letter to USDA with 161 House Member signatures.³⁹56 Among other concerns, the letter arguesargued that "the proposed rule ... contained several provisions that went beyond Congressional intent and what was set forth in the statutory language [of the 2014 farm bill]." A letter to USDA was also submitted by the Congressional Black Caucus, emphasizing access related concerns in "food desert" communities.⁴⁰57 The Senate Committee on Agriculture, Nutrition, and Forestry's leadership, Chairman Roberts and Ranking Member Stabenow, sent to the USDA Secretary a bipartisan letter signed by 47 Senators; this letter emphasizes concerns with access and that in the 2014 farm bill "Congress specifically acknowledged the importance of preserving food access and deliberately chose not to make modifications related to percentages of sales of hot foods."⁴¹

58

The proposed rule also came up during multiple congressional hearings in the 114^th Congress. Undersecretary Kevin Concannon was asked about it during hearings on the USDA-FNS FY2017 budget; in one House hearing, he responded by discussing concerns with current retailers skirting the hot foods prohibition, an interest in improving participants' access to healthy foods, and reasons to ask small stores to offer more than they currently do.⁴²59 Ultimately, both the House- and the Senate-reported FY2017 Agriculture and Related Agencies appropriations bills includeincluded language to limitthat would have limited USDA's discretion in setting retailer standards. The House-reported bill (H.R. 5054, Section 763) and the Senate-reported bill (S. 2956, Section 752) would limithave limited the scope of an interim final or final rule to the 2014 farm bill's specific changes, though each bill's exact language varies.

Among other SNAP retailer and integrity topics, the proposed rule was discussed during much of a May 11, 2016, House Committee on Agriculture SNAP hearing⁴³60 and, in questions from the chairman, during a June 9, 2016, House Committee on Oversight hearing.⁴⁴

Next Steps

Many constituencies are interested in USDA's next steps on promulgating SNAP retailer standards. The agency remains obligated to implement Congress's changes to SNAP law made by the 2014 farm bill, but it remains to be seen how it chooses to address the findings from its RFI that may not be explicitly required by the farm bill's changes. For instance, how will future rulemaking address hot food sales and multiple ingredient foods? Also affecting future rulemaking may be any terms included in FY2017 appropriations law. Many stakeholders raise access-related issues, expressing concerns that the inability of smaller retailers and retailers that sell hot foods to be authorized could leave communities without SNAP retailers. While the proposed rule does include an access-related exception, it is not clear how it would be exercised or enforced; future rulemaking may address this.

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Author Contact Information

Footnotes

USDA Food and Nutrition Service, "Enhancing Retailer Standards in the Supplemental Nutrition Assistance Program (SNAP)," 81 Federal Register8015-8021, February 17, 2016. ("Proposed Rule")

24. 29. 35. 46.

1.	USDA Food and Nutrition Service, "Enhancing Retailer Standards in the Supplemental Nutrition Assistance Program (SNAP)," 81 Federal Register 90675-90699, December 15, 2016. ("Final Rule")	2.
23.	USDA Food and Nutrition Service, "Enhancing Retailer Standards in the Supplemental Nutrition Assistance Program (SNAP) Clarification of Proposed Rule and Extension of Comment Period," 81 Federal Register 19500-19502, April 5, 2016. ("Clarification of Proposed Rule")
34.	USDA-FNS SNAP participation and cost data available at http://www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap. Authorized retailers available in 2015 Retailer Management Year End Summaries, p. 2, http://www.fns.usda.gov/sites/default/files/snap/2015-SNAP-Retailer-Management-Year-End-Summary.pdf.
45.	For more information, see CRS Report R42505, Supplemental Nutrition Assistance Program (SNAP): A Primer on Eligibility and Benefits, by [author name scrubbed].
56.	USDA-FNS website, http://www.fns.usda.gov/snap/retailers/application-process.htm.
67.	7 U.S.C. 2012(q).
78.	USDA-FNS, 2015 Retailer Management Year End Summaries, p. 2, available at http://www.fns.usda.gov/sites/default/files/snap/2015-SNAP-Retailer-Management-Year-End-Summary.pdf. Note: USDA-FNS categorizes retailer types according to definitions in an internal agency document.
89.	Ibid.
910.	Ibid., p. 12. Dividing number of sanctions by number of authorized retailers also shows that these categories also have the highest rates of sanctions.
1011.	7 C.F.R. 278.1(a), available at http://www.fns.usda.gov/snap/retailers/store-eligibility.htm (prior to final rule).
1112.	7 U.S.C. 2012(q).
1213.	Ibid.
1314.	7 C.F.R. 278.1(b)(1)(ii) (prior to final rule).
1415.	Ibid.
1516.	7 C.F.R. 278.1(b)(1)(iv) (prior to final rule).
1617.	This option is authorized at 7 U.S.C. 2018(h). See also relevant section of CRS Report R42505, Supplemental Nutrition Assistance Program (SNAP): A Primer on Eligibility and Benefits, by [author name scrubbed].
1718.	All SNAP changes are discussed in CRS Report R43332, SNAP and Related Nutrition Provisions of the 2014 Farm Bill (P.L. 113-79), by [author name scrubbed].
1819.	H.Rept. 113-333, p. 433: "The Conference substitute adopts the Senate provision with an amendment. The amendment strikes the language providing USDA authority to consider a store's depth of stock, variety of staple food items, and the sale of excepted items when approving a retailer. The amendment requires that retailers offer for sale on a continuous basis a variety of at least seven foods in each of the four categories of staple foods categories.... The conference substitute reduces fraud at retail stores by requiring a more rigorous standard for stores to become eligible to process SNAP benefits. Section 4002 requires participating retailers to stock perishable items in at least three of the four staple food categories: dairy products; meat, poultry, or fish; fruits or vegetables; and bread or cereals. Currently, a store stocking as few as twelve food items, many of which have limited nutritional value, could be eligible to be a SNAP retailer. To address this, the conference substitute requires retailers to stock, at a minimum, seven food items in each of the staple food categories to be eligible. The Managers intend for this requirement to serve as a minimum requirement and do not intend in any way to discourage or prevent more robust depth of stock. The Managers remain concerned with retailers that meet the minimum of the existing regulations as a way to gain entry into SNAP for the sole purpose of expanding sales of excepted items, including liquor and tobacco, which is decidedly contrary to the intent of the program."
1920.	Jessica Shahin, Supplemental Nutrition Assistance Program Provisions of the Agricultural Act of 2014 - Implementing Memorandum, USDA-FNS, March 21, 2014, http://www.fns.usda.gov/sites/default/files/SNAP%20Provisions%20of%20the%20Agricultural%20Act%20of%202014%20-%20Implementing%20Memo.pdf.
2021.	USDA Food and Nutrition Service, "Request for Information: Supplemental Nutrition Assistance Program (SNAP) Enhancing Retail Food Store Eligibility," 78 Federal Register 51136-51138, August 20, 2013.
2122.	See the final rule preamble (pp. 90677-90697) for analysis of comments and how they informed decisionmaking.
23.	Final rule preamble, p. 90861.
Proposed rule preamble, ppp. 8016-8017.
22.	Proposed rule preamble, pp. 8017-8018.
23. In the proposed rule's preamble, USDA-FNS agency said "nothing in current regulations specifically prohibits items sold for SNAP benefits to be sold cold at the point-of-sale and heated or cooked in the store after purchase." The agency "[thought] it is important to maintain the intent of Congress's restriction on hot food purchases."
25.	Final rule preamble, p. 90683.
26.	Final rule preamble, p. 90684.
27.	Final rule preamble, p. 90678.
28.	USDA-FNS had argued that the prior regulations' policy could be confusing and required close examination of product labels. In the proposed rule preamble, the agency mentioned that one company's frozen chicken pot pie may have the main ingredient of chicken, while another company's may have the main ingredient of bread.
Section 3(q)(2) of the Food and Nutrition Act of 2008, codified at 7 U.S.C. 2012(q)(2).
2430.	Proposed rule preamble, pp. 8017-8018.
25The proposed rule would have expanded the list of accessory food items to include "foods that are generally consumed between meals and/or are generally considered snacks or desserts ... such as ... chips, dips ... cupcakes ... candy, or food items that complement or supplement meals, such as ... coffee, tea, carbonated and uncarbonated drinks." USDA-FNS stated that "counting such foods as accessory items will ultimately encourage stores to offer more nutritious options and provide SNAP recipients access to a larger selection of healthy foods." Proposed rule preamble, pp. 8017-8018.
31.	Final rule preamble, p. 90680.
32.	Ibid. The final rule preamble discusses that this change prevents potato chips from being counted as a staple food in the fruits and vegetables category.
33.	See final rule preamble, pp. 90689-90691.
34.	Final rule preamble, pp. 90692-90694.
Proposed rule, p. 8018. This section also refers to Clarification of Proposed Rule, 19500-19502.
2636.	In its April 5, 2016, clarification, USDA-FNS indicates that the stocking unit is the unit of household purchase; for example, one can of tuna, one banana, or one jar of applesauce is a stocking unit. Clarification of Proposed Rule, 19500-19502, April 5, 2016.
2737.	Proposed rule, p. 8018.
2838.	IbidFinal rule, p. 90699.
2939.	Proposed rule, p. 8018.
40.	This section draws from final rule preamble, pp. 90696-90697.
41.	The final rule's full RIA is available at https://www.regulations.gov/document?D=FNS-2016-0018-1267 (Hereinafter cited as "Final full RIA").
42.	The Regulatory Flexibility Act (5 U.S.C. §§601-612) requires agencies to estimate economic and other effects of rules on "small entities," including small businesses. See CRS Report RL34355, The Regulatory Flexibility Act: Implementation Issues and Proposed Reforms, coordinated by [author name scrubbed].
43.	These retailers are those categorized as combination stores, convenience stores, or small grocery stores. Final full RIA, pp. 4, 8 (Final full RFA available at https://www.regulations.gov/document?D=FNS-2016-0018-1266.)
44.	Final full RIA, p. 2.
45.	Final full RFA, p. 3.
This section draws on the proposed rule, pp. 8018-8020. For background on the analysis required in federal rulemaking, see CRS Report R41974, Cost-Benefit and Other Analysis Requirements in the Rulemaking Process, coordinated by [author name scrubbed].
3047.	The summary included in the proposed rule is available at USDA Food and Nutrition Service, "Enhancing Retailer Standards in the Supplemental Nutrition Assistance Program (SNAP)," 81 Federal Register 8018-8021, February 17, 2016. The full RIA is available at https://www.regulations.gov/document?D=FNS-2016-0018-0006 (Hereinafter cited as "Full RIA").
3148.	The Regulatory Flexibility Act (5 U.S.C. §§601-612) requires agencies to estimate economic and other effects of rules on "small entities," including small businesses. See CRS Report RL34355, The Regulatory Flexibility Act: Implementation Issues and Proposed Reforms, coordinated by [author name scrubbed].
3249.	Full RIA, p. 3.
3350.	Available at https://www.regulations.gov/docket?D=FNS-2016-0018.
3451.	Submission includes 40 pages containing a critique of the agency's regulatory impact analysis and an alternative analysis. A press release on the submission and comments submitted are available at the NACS website, http://www.nacsonline.com/Media/Daily/Pages/ND0519165.aspx#.V6kQ7FJ0fCQ.
3552.	See pp. 16-17 of the NACS comments for its cost estimates and related arguments.
3653.	Comments available at https://www.sba.gov/advocacy/5-17-2016-enhancing-retailer-standards-supplemental-nutrition-assistance-program-snap.
3754.	Comments available at https://www.apha.org/~/media/files/pdf/advocacy/testimonyandcomments/160518_apha_snapretail.ashx.
3855.	Citing related work from the Robert Wood Johnson Foundation, concerning the value of improving stocking requirements but also the value in supporting those requirements with marketing other strategies. Robert Wood Johnson Foundation, Healthy Eating Research, Minimum Stocking Levels and Marketing Strategies of Healthful Foods for Small Retail Stores, Princeton, NJ, 2016, http://healthyeatingresearch.org/research/minimum-stocking-levels/.
3956.	House Committee on Agriculture, "House Agriculture Committee Leaders Raise Concerns over FNS Retailer Proposed Rule," press release, May 17, 2016, http://agriculture.house.gov/news/documentsingle.aspx?DocumentID=3358.
4057.	Helena Bottemiller Evich and Ian Kullgren, "Congressional Black Caucus asks USDA to scrap SNAP stocking rule," Politico, May 16, 2016, http://www.politico.com/tipsheets/morning-agriculture/2016/05/congressional-black-caucus-asks-usda-to-scrap-snap-stocking-rule-epa-launches-billboard-probe-this-week-ag-approps-214311.
4158.	Senate Committee on Agriculture, Nutrition, and Forestry, "Bipartisan Senators Urge USDA to Revise SNAP Rule," press release, August 2, 2016, http://www.agriculture.senate.gov/newsroom/rep/press/release/bipartisan-senators-urge-usda-to-revise-snap-rule.
4259.	"House Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration Holds Hearing on President Obama's Fiscal 2017 Budget Proposal for USDA Food and Nutrition Service," CQ (Congressional Transcripts), February 24, 2016, http://www.cq.com/doc/congressionaltranscripts-4843447?0&search=4Qq2c1q4.
4360.	U.S. Congress, House Committee on Agriculture, The Past, Present, and Future of SNAP: The Retailer Perspective, 114th Cong., 2nd sess., May 12, 2016, http://agriculture.house.gov/calendar/eventsingle.aspx?EventID=3334.
4461.	U.S. Congress, House Committee on Oversight and Government Reform, Subcommittee on the Interior, SNAP: Examining Efforts to Combat Fraud and Improve Program Integrity, 114th Cong., 2nd sess., June 9, 2016, https://oversight.house.gov/hearing/snap-examining-efforts-to-combat-fraud-and-improve-program-integrity/.