The Stockout: USDA issues new regulations on sugar in school meals for 1st time

New federal regulations for school meals

This week, the U.S. Department of Agriculture announced new regulations for school meals — both breakfast and lunch — set to begin for the 2024-25 academic year and tighten in the upcoming years. The new regulations will limit sugar and sodium while requiring greater use of whole grains. Previously, there were no regulations for sugar in school lunches on a national level, only fats (including trans fats). The previous focus on limiting fats in lunches was seemingly counterproductive, resulting in foodservice companies’ greater use of sugar to compensate for the lower fat content. 

The new regulations include: 

— New limits on sugar to represent no more than 10% of calories per meal starting in the 2025-26 school year. 

— A 10% reduction to current sodium limits for the ’25-26 school year with another 10% decline for the ’27-28 school year. 

— Eighty percent of grains will be required to be whole grains and remaining grains must be enriched. 

— New regulations on flavored milk are still under consideration. Proposed rules include not allowing flavored milk until either the fifth or eighth grades. 

As uncontroversial as regulations to improve school nutrition might sound to the average person, food industry trade groups are still pushing back. The School Nutrition Association, a trade group that represents foodservice companies, described the standards as unrealistic, citing supply chain challenges that limit sourcing sufficient volumes of whole grain foods to comply with the new standards. Trade groups also argue the meals children eat at school are, for many of them, the healthiest they get. They argue that if school meals are unappealing, children simply will not eat at all while in attendance or bring something even less healthy from home. 

I suspect the real reason for the pushback might be simply that the production of unhealthy foods is cheaper for foodservice companies than healthier alternatives and they are rightly concerned that their revenue may not rise commensurately. 

More evidence of CPGs and retailers at odds over prices 

As discussed in last week’s The Stockout newsletter, retailers and consumer packaged goods companies have different ideas about where retail prices should go from here. While commodity prices have come down from their highs, CPGs argue that most of their other costs are still rising and those should be reflected in still-rising prices. 

According to a survey of retailers and manufacturers by Advantage Solutions:

— Forty-six percent of CPG companies expect to increase their list prices in the first six months of 2023, with more than a quarter still undecided. 

— Eighty percent of grocery suppliers say they will not cut prices this year. 

— Forty-eight percent of CPGs have received at least one retailer request for a list price reduction. 

— Ninety percent of retailers expect fewer price increases than last year and nearly half expect “significantly fewer.” 

In addition to Mondelez management, which made it clear on its analyst call last week that it does not intend to cut prices in light of costs expected to rise at a double-digit percentage in 2023, Unilever and Nestle can also be counted among the CPGs that anticipate raising prices further this year. As reported in Food Processing, Unilever’s outgoing CEO said the rate of inflation might have peaked but probably not prices. Similarly, Nestle’s management said it still has “some catching up to do” in order for prices to fully reflect its recent cost increases. 

Oatly’s new climate labels may be part of new green-labeling (or greenwashing) trend

Starting with its new line of oat-based yogurt, dairy-alternative producer Oatly will be adding climate impact labels to its products. The units used in Oatly’s environmental calculation are kilograms of carbon dioxide equivalents (CO2e) per kilogram of packaged food product. Environmental friendliness is a major part of the image Oatly is trying to promote but, at times, those claims have opened it up to criticism, including getting its ads banned for being misleading and charges of greenwashing from the investment community. See the Just Food article here for more detail. 

Freight demand exceeded expectations in January, but capacity remains loose

While FreightWaves has highlighted how freight demand in January was above beaten-down expectations following weakness in November and December, tender rejection rates are still at roughly their lowest levels since the depths of the COVID-19 lockdown. The current dry van and refrigerated tender rejection rates are 3.3% and 5.0%, respectively. Therefore, CPGs and other shippers should expect compliance rates from their carriers in the high 90% range and should aim for meaningful cuts in contractual linehaul rates as contracts come up for renewal. 

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Editor: Michael Baudendistel