New FDA Regulations: Good or Bad for Food Stocks?

With the Senate's passing of an FDA food safety bill
By Andrea Tse ,

(Food safety story updated with more analyst views)
NEW YORK (TheStreet) -- On the heels of several recent nationwide food recalls, the Senate today passed a bipartisan food safety bill. And passage of the bill poses the inevitable question for investors: How will this affect the stocks of food producers?

According to analysts, the bill becoming law should have little impact on the major food companies, like

Kellogg

(K) - Get Report

,

General Mills

(GIS) - Get Report

,

Kraft

( KFT),

Sysco

(SYY) - Get Report

and

Unilever

(UL) - Get Report

. "Most large industrial food operations have programs in place for safe operations -- and if this means a little more money spent, it won't be a material change," says Stephanie Link, director of research and vice president of strategy for

TheStreet.

"These are huge organizations -- which make 99% of the food -- that have ample cash flow to use if more money, metrics or steps" are asked of them, Link said.

Likewise, Moody's senior credit officer Brian Weddington sees little impact from the bill on the larger food producers if it were to become law.

"In general, any new regulatory requirements tend to favor larger producers who are better able to absorb the cost of compliance," says Weddington. He noted that most of the food quality problems leading to the recent food recalls are found at smaller food processors -- a "fragmented group that is not inspected often." Weddington's colleague, Moody's senior vice president Christina Padgett, agrees that the smaller food processors would be disproportionately impacted by the change. "That being said, violations at competitors sometimes impact the whole sector as consumers temporarily change their purchasing."

The $1.4 billion bill, which received bipartisan support in the Senate, passing 73-25, would give the Food and Drug Administration (FDA) much more power to oversee food safety and prevent food outbreaks before they can occur. Currently, U.S. food safety is overseen by a handful of disparate government agencies, inevitably leading to many inefficiencies.

Link said that 20% of food consumed by Americans currently gets inspected by the Department of Agriculture, and 80% by the FDA. Overall, ten different agencies are responsible for food regulation. "So to the extent the industry has one, unified agency or regulator -- that will certainly help," she said, citing, by way of explaining the problems with the current system, that frozen pizzas with meat are currently inspected by Department of Agriculture, while plain cheese frozen pizzas are inspected by FDA.

The bill would also come down harder on food imports.

In light of all this, will the new FDA law -- and its more stringent regulations -- make you more or less likely to invest in foodmaker stock? Take our poll below to see what your fellow investors think....

-- Written by Andrea Tse in New York.

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