This isn't just any old deep-fat-fried potato. This french fry, because of a recent federal ruling defining it as a fresh vegetable, is an object lesson on the power of special interest lobbying and the cause of a court case and some regulatory indigestion.
In June, the media had a fine time poking fun at what seemed like an inconsequential ruling by the Department of Agriculture that lumped the battered and coated potato with other vegetables that had undergone some transformation, such as cutting, dicing, peeling, waxing or husking. A federal judge in Sherman, Tex., ruled that the USDA went by the book when it categorized french fries as a fresh vegetable for purposes of its Perishable Agricultural Commodities Act (PACA).
The story seemed to fit in the annals of bizarre bureaucratic decisions made in Washington, right up there with the 1981 Agriculture Department classification of ketchup as a vegetable in the school lunch program -- a designation that ultimately was revoked.
The rule change and court decision outraged health advocates who consider french fries a processed food, no matter how the USDA slices it. Said Michael F. Jacobsen, executive director of the Center for Science in the Public Interest, a nonprofit health advocacy group: "It makes a travesty of the intent of the law."
The rule had immediate consequences for the regulated entities that had to live with it. For example, Fleming Companies Inc., a bankrupt food distributor in Texas, sued the USDA over its "batter and coating" decision. In the Fleming case, creditors have filed claims under the "perishable agricultural commodities" law worth $3.2 million -- about $1 million of that for potato products. Under the law, sellers of fresh vegetables get paid before other creditors.
A deeper look into the fryer -- particularly the court papers filed in the case -- shows how a little lobbying can go a long way in persuading regulators to change a long-standing rule in short order.
The 1930 Perishable Agricultural Commodities Act, it turns out, has nothing to do with nutrition or food safety. It's all about business. It was passed in the Depression years to provide a financial settlement process for growers, buyers and sellers of perishable agricultural commodities who might otherwise get stiffed for payment if buyers go out of business or if perishables arrive perished. The ultimate beneficiary is supposed to be the farmer who doesn't get paid if the middlemen aren't paid higher up the food chain.
In 2003, the USDA supervised about $37 million in payments under the terms of the law, and that's not counting informal phone conversations in which the dispute was settled on the spot or claims that go to bankruptcy court.
Being considered a fresh fruit or vegetable can be worth big money. The key to being covered by PACA is to be considered a perishable agricultural commodity, which, the law says, constitutes "fresh fruits and vegetables of every kind and character." The USDA interprets the law to include commodities that are in "fresh form" and are not manufactured into "articles of food of a different kind or character."
The USDA ruled that it is acceptable to steam, oil blanch, chop, fumigate, add ascorbic acid or perform many other processes without changing the character of the product. "This is completely consistent with the law and previous regulations in the area," said Eric Forman, associate deputy administrator for fruit and vegetable programs. "Perishable has gradually evolved to include processes that weren't available at one time."
The frozen potato processors wanted to add batter and coating to that list of processes. In 2000, the Frozen Potato Products Institute in McLean, whose members account for 95 percent of processed potato products, asked the USDA for a written opinion on the subject after claims were refused in another bankruptcy case.
The Agriculture Department ruled that coating and battering should be included. When the trade association asked for a formal rule to memorialize the finding, the department proposed one in late 2002. There were two comments, both supporting it. The institute, which is so low-profile that it doesn't even have a Web site, was one of the supporters. The final rule was issued in May last year.
Fleming couldn't swallow the reclassification, which covers the most valuable frozen food commodity in the country, with a market value of $800 million. It sued in fall 2003, hoping to overturn the new rule.
In its arguments to the court, Fleming's attorneys railed that batter-coated french fries are far from fresh and that the UDSA did not do its homework before it changed the rule. "This is the classic example of an interest group on one side of the issue," said Timothy D. Elliott, an attorney with Kirkland & Ellis in Chicago, representing Fleming. "The only opposition on the other side is the companies going bankrupt."
In its complaint, Fleming tried to show that french fries are highly processed -- nothing like a raw potato. It provided an expert witness who walked through the many stages of making a battered and coated french fry, sharing the patents that companies secured for batter-coating processes, and revealing the multiple ingredients that go into the average fast-food fry. Fleming said this changes the chemical composition of the potato.
It lost the case last month, and Fleming is appealing.
Michael J. Keaton, an attorney in Chicago who specializes in PACA claims and has a Web site called www.pacatrust.com, said Fleming had an opportunity to speak up and oppose the change when the rule was proposed. Instead, it chose to sue.
"They lost in a court of their own choosing and turned it into a nutrition argument," Keaton said. "That wasn't it at all. The court didn't rule whether this was a good or bad thing. They said it's a valid regulation."
Keaton, who represents Cavendish Farms and H.J. Heinz Co., which owns Ore-Ida, filed PACA claims against Fleming. He also filed another claim on behalf of Dole Food Co. and Del Monte Corp. for products they make that are then put in cans, jars and air-tight plastic containers.
The Agriculture Department does not feel like it's in hot oil over this one.
"It was proposed in the Federal Register, there was a normal comment period, two comments were filed and both were in favor of it," said Jerry Redding, a USDA spokesman. "We went ahead with the rulemaking."
Now go eat your fresh vegetables.