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Pizza policy up in the air.

A modern day David has taken measure of Goliath again, this time with a courtroom victory in Michigan that could affect all supermarkets that prepare their own pizzas.

And Goliath--this time the Department of Agriculture--is pondering what the ramifications will be from the court decision D&W Food Centers Inc. of Grand Rapids, Mich., has won against it.

The department had attempted to force D&W to undergo federal inspection of its central kitchen, which prepares meattopped pizzas and some 50 other specialty foods for the company's 13 retail outlets.

USDA's unpublished policy requires establishments that prepare meat or poultry products for two or more company-owned stores to be subject to federal inspection. But Pat Quinn, executive vice president of D&W, says his firm was unaware of this requirement when it constructed a new commissary in the fall of 1982 and began supplying pizzas to its stores.

"We'd already been inspected by the local health department and the state agriculture department," he said. "It never occurred to us that federal inspection would be required."

Six months after the central kitchen began operating, USDA inspectors came calling. "They told us that we would either have to agree to regular federal inspections because we were using meats on our pizzas, or we would have to go back to making pizzas at one retail location for that store and one other," Quinn says. "This really took us by surprise, since the pizza meat we were using already had been federally inspected."

Complying with USDA's request, Quinn says, would have meant costly structural changes to the brand new central kitchen. "But the bigger problem was that we would have had to provide permanent office facilities for the inspector, along with 24-hour security."

Furthermore, he says, "once an inspector is on the premises, one can assume he'll be asking for reports. We felt that the time and paperwork that would be required was simply not necessary."

So D&W dug in, refusing USDA orders that pizzas prepared at the commissary be returned, and defying a subsequent "Notice of Warning" that urged the chain to voluntarily comply with the inspection order. When the USDA pressed the issue, D&W sued.

Last fall, D&W was granted a preliminary injunction against USDA's order. By the time the case was finally argued this summer, it had attracted considerable attention from manufacturers and grocers who felt it could open the door for more sophisticated meat processing at the retail level.

The National Frozen Pizza Institute of McLean, Va., sided with the USDA, filing a supporting brief to the case that outlined some of the ramifications the decision could have. The institute's statement argued that D&W was not entitled to the retail exemption from inspection provided under the Federal Meat Inspection Act because its commissary was not "a traditional and usual retail operation."

The institute said that if the court accepted D&W,s argument that the retail exemption applies to any firm connected to a retail store selling solely and directly to consumers, then "any currently inspected meat pizza manufacturer, or any meat processor (such as Safeway or Kroger), could avoid inspection by opening a retail store on their premises, (and) distributing their product to any retail store, whether such a store is affiliated with the manufacturer or not."

The institute also said that D&W's pepperoni and sausage pizzas do not measure up to federal standards. Independent tests showed that D&W's pizzas had less meat than required by federal law. The lack of inspections, the statement said, would allow that practice to continue.

The USDA is less worried about the competitive impact of the Michigan court ruling than with ensuring there are no end runs around the Federal Meat Inspection Act. Although one USDA attorney say "the court's decision applies only to the facts in this case," other sources say federal regulators are concerned that the decision may create a loophole that would permit all central kitchens associated with retail stores to operate without inspection.

Consequently, the USDA is considering appealing the decision or writing new rules to better define when retailers are exempt from the law. The judge in the D&W case told the department that its retail exemption policy was a regulation that should have been spelled out.

"If anything," the judge stated, "the confusion surrounding the rules underscores the need to precisely define and openly disseminate it." However, this may be easier said than done. Legal advisors to the USDA say amending the exempton provision could require an act of Congress.

"The Michigan case clarified the issue only for D&W," notes Thomas F. Wenning, executive vice president of the National Grocers Association. "Now we'll have to see what USDA does. The decision could be important to smaller chains, where it would make a difference if a central kitchen had to be federally inspected." Express Lane

* Despite the objections of alcoholic beverage sellers, the election-minded Congress has passed a law establishing 21 as the national drinking age. States now have two years to amend their own statutes or lose federal highway funds.

* It will take longer than expected to finalize rules permitting irradiation of foods. The Food and Drug Administration has received more than 4,000 comments on its proposal, the biggest public response on a rule since the approval of saccharin.
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Title Annotation:Inside Washington
Author:Densford, Lynn E.
Publication:Progressive Grocer
Date:Oct 1, 1984
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