[Federal Register Volume 63, Number 154 (Tuesday, August 11, 1998)]
[Proposed Rules]
[Pages 42764-42770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21481]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 63, No. 154 / Tuesday, August 11, 1998 /
Proposed Rules
[[Page 42764]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 905
[Docket No. FV98-905-4 PR]
Oranges, Grapefruit, Tangerines, and Tangelos Grown in Florida;
Limiting the Volume of Small Red Seedless Grapefruit
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
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SUMMARY: This proposed rule invites comments on limiting the volume of
small red seedless grapefruit entering the fresh market under the
marketing order covering oranges, grapefruit, tangerines, and tangelos
grown in Florida. The marketing order is administered locally by the
Citrus Administrative Committee (committee). This rule would limit the
volume of size 48 and/or size 56 red seedless grapefruit handlers could
ship during the first 11 weeks of the 1998-1999 season beginning in
September. This rule would establish the base percentage for these
small sizes at 25 percent for the 11 week period. This proposal would
provide a sufficient supply of small sized red seedless grapefruit to
meet market demand, without saturating all markets with these small
sizes. This rule would help stabilize the market and improve grower
returns.
DATES: Comments must be received by August 31, 1998.
ADDRESSES: Interested persons are invited to submit written comments
concerning this proposal. Comments must be sent to the Docket Clerk,
Fruit and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 96456,
Washington, DC 20090-6456; Fax: (202) 205-6632. All comments should
reference the docket number and the date and page number of this issue
of the Federal Register and will be made available for public
inspection in the Office of the Docket Clerk during regular business
hours.
FOR FURTHER INFORMATION CONTACT: William G. Pimental, Southeast
Marketing Field Office, F&V, AMS, USDA, P.O. Box 2276, Winter Haven,
Florida 33883-2276; telephone: (941) 299-4770, Fax: (941) 299-5169; or
George Kelhart, Technical Advisor, Marketing Order Administration
Branch, F&V, AMS, USDA, room 2522-S, P.O. Box 96456, Washington, DC
20090-6456; telephone: (202) 690-3919, Fax: (202) 205-6632. Small
businesses may request information on compliance with this regulation
by contacting Jay Guerber, Marketing Order Administration Branch, Fruit
and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 96456,
Washington, DC 20090-6456; telephone (202) 720-2491, Fax: (202) 205-
6632.
SUPPLEMENTARY INFORMATION: This proposal is issued under Marketing
Agreement No. 84 and Marketing Order No. 905, both as amended (7 CFR
part 905), regulating the handling of oranges, grapefruit, tangerines,
and tangelos grown in Florida, hereinafter referred to as the
``order.'' The marketing agreement and order are effective under the
Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-
674), hereinafter referred to as the ``Act.''
The Department of Agriculture (Department) is issuing this rule in
conformance with Executive Order 12866.
This proposal has been reviewed under Executive Order 12988, Civil
Justice Reform. This rule is not intended to have retroactive effect.
This proposal will not preempt any State or local laws, regulations, or
policies, unless they present an irreconcilable conflict with this
rule.
The Act provides that administrative proceedings must be exhausted
before parties may file suit in court. Under section 608c(15)(A) of the
Act, any handler subject to an order may file with the Secretary a
petition stating that the order, any provision of the order, or any
obligation imposed in connection with the order is not in accordance
with law and request a modification of the order or to be exempted
therefrom. A handler is afforded the opportunity for a hearing on the
petition. After the hearing the Secretary would rule on the petition.
The Act provides that the district court of the United States in any
district in which the handler is an inhabitant, or has his or her
principal place of business, has jurisdiction to review the Secretary's
ruling on the petition, provided an action is filed not later than 20
days after date of the entry of the ruling.
The order provides for the establishment of grade and size
requirements for Florida citrus, with the concurrence of the Secretary.
These grade and size requirements are designed to provide fresh markets
with citrus fruit of acceptable quality and size. This helps create
buyer confidence and contributes to stable marketing conditions. This
is in the interest of growers, handlers, and consumers, and is designed
to increase returns to Florida citrus growers. The current minimum
grade standard for red seedless grapefruit is U.S. No. 1, and the
minimum size requirement is size 56 (at least 3\15/16\ inches in
diameter).
Section 905.52 of the order provides authority to limit shipments
of any grade or size, or both, of any variety of Florida citrus. Such
limitations may restrict the shipment of a portion of a specified grade
or size of a variety. Under such a limitation, the quantity of such
grade or size that may be shipped by a handler during a particular week
would be established as a percentage of the total shipments of such
variety by such handler in a prior period, established by the committee
and approved by the Secretary, in which the handler shipped such
variety.
Section 905.153 of the regulations provides procedures for limiting
the volume of small red seedless grapefruit entering the fresh market.
The procedures specify that the committee may recommend that only a
certain percentage of sizes 48 and/or 56 red seedless grapefruit be
made available for shipment into fresh market channels for any week or
weeks during the regulatory period. The regulation period is 11 weeks
long and begins the third Monday in September. Under such a limitation,
the quantity of sizes 48 and/or 56 red seedless grapefruit that may be
shipped by a handler during a regulated week is calculated using the
recommended percentage. By taking the recommended weekly percentage
times the average weekly volume of red grapefruit handled by such
handler in the previous five seasons, handlers can calculate the
[[Page 42765]]
volume of sizes 48 and/or 56 they may ship in a regulated week.
This proposed rule would limit the volume of small red seedless
grapefruit entering the fresh market for each week of the 11 week
period beginning the week of September 21. This rule would limit the
volume of sizes 48 and/or 56 red seedless grapefruit entering the fresh
market for each of the 11 weeks at 25 percent. This would allow the
committee to start the season at the most restrictive level allowed
under Sec. 905.153, and if conditions warrant, to release greater
quantities of size 48 and/or size 56 small red grapefruit as more
information becomes available. This action was recommended by the
committee at its meeting on May 22, 1998, by a vote of 14 in favor to 2
opposed.
For the seasons 1994-95, 1995-96, and 1996-97, returns on red
seedless grapefruit had been declining, often not returning the cost of
production. On tree prices for red seedless grapefruit had fallen
steadily from $9.60 per carton (\3/5\ bushel) during the 1989-90
season, to $3.45 per carton during the 1994-95 season, to a low of
$1.41 per carton during the 1996-97 season.
The committee determined that one problem contributing to the
market's condition was the excessive number of small sized grapefruit
shipped early in the marketing season. In the 1994-95, 1995-96, and
1996-97 seasons, sizes 48 and 56 accounted for 34 percent of total
shipments during the 11 week regulatory period, with the average weekly
percentage exceeding 40 percent of shipments. This contrasts with sizes
48 and 56 representing only 26 percent of total shipments for the
remainder of the season. While there is a market for early grapefruit,
the shipment of large quantities of small red seedless grapefruit in a
short period oversupplies the fresh market for these sizes and
negatively impacts the market for all sizes.
For the majority of the season, larger sizes return higher prices
than smaller sizes. However, there is a push early in the season to get
fruit into the market to take advantage of the high prices available at
the beginning of the season. The early season crop tends to have a
greater percentage of small sizes. This creates a glut of smaller,
lower priced fruit on the market, driving down the price for all sizes.
Early in the season, larger sized fruit commands a premium price. In
some cases, the f.o.b. is $4 to $6 a carton more than for the smaller
sizes. In early October, the f.o.b. for a size 27 averages around
$10.00 per carton. This compares to an average f.o.b. of $5.50 per
carton for size 56. By the end of the 11 week period covered in this
rule, the f.o.b. for large sizes dropped to within two dollars of the
f.o.b. for small sizes.
In the three seasons prior to 1997-98, prices of red seedless
grapefruit fell from a weighted average f.o.b. of $7.80 per carton to
an average f.o.b. of $5.50 per carton during the period covered by this
rule. Even though later in the season the crop sized to naturally limit
the amount of smaller sizes available for shipment, the price structure
in the market had already been negatively affected. During the three
seasons, the market did not recover, and the f.o.b. for all sizes fell
to around $5.00 to $6.00 per carton for most of the rest of the season.
The committee believes that the over shipment of smaller sized red
seedless grapefruit early in the season has contributed to below
production cost returns for growers and lower on tree values. An
economic study done by the University of Florida--Institute of Food and
Agricultural Sciences (UF-IFAS) in May 1997, found that on tree prices
had fallen from a high near $7.00 in 1991-92 to around $1.50 for the
1996-97 season. The study projected that if the industry elected to
make no changes, the on tree price would remain around $1.50. The study
also indicated that increasing minimum size restrictions could help
raise returns.
To address this issue, the committee voted to utilize the
provisions of Sec. 905.153, and establish weekly percentage of size
regulation during the first 11 weeks of the 1997-98 season. The initial
recommendation from the committee was to set the weekly percentage at
25 percent for each of the 11 weeks. As more information on the crop
became available, and as the season progressed, the committee met
several times and adjusted its recommendations for the weekly
percentages. The committee considered information from past seasons,
crop estimates, fruit size, and other information to make their
recommendations. Actual weekly percentages established during the 11
week period during the 1997-98 season were 50 percent for the first
three weeks, and 35 percent for the other eight weeks.
In making this recommendation, the committee reviewed its
experiences from the past season, and those of prior seasons. The
committee believes establishing weekly percentages last season was
successful. The committee examined shipment data covering the 11 week
regulatory period for the last season and the four prior seasons. The
information contained the amounts and percentages of sizes 48 and 56
shipped during each week and weekly f.o.b. figures. During the 11 week
period, the regulation was successful at helping maintain prices at a
higher level than the prior season, and sizes 48 and 56 by count and as
a percentage of total shipments were reduced.
In comparison with f.o.b. prices from the 1996-97 season, for weeks
when pricing information was available (weeks 6 through 11), last
season's numbers were higher in five of the six weeks. The average
f.o.b. for these weeks was $6.28 for the 1996-97 season and $6.55 for
the 1997-98 season. Last season, sizes 48 and 56 represented only 31
percent of total shipments during the 11 week regulatory period as
compared to 38 percent during the previous season. There was also a 15
percent reduction in shipments of sizes 48 and 56 by count for the 11
weeks.
Other information also indicates the regulation was successful. In
past seasons, the on tree price had been dropping steadily. However, on
tree prices for the month following the 11 weeks of regulation indicate
that in December 1997 the on tree price for grapefruit was $2.26
compared to $1.55 for the previous season.
The committee was concerned that the glut of smaller, lower priced
fruit on the early market was driving down the price for all sizes.
There was a steep decline in prices for larger sizes in previous
seasons. During the six weeks for mid-October through November, prices
for sizes 23, 27, 32, and 36 fell by 28, 27, 21, and 20 percent,
respectively, during the 1996-97 season. Prices for the same sizes
during the same period fell only 5, 5, 2, and 7 percent, respectively,
last season with regulation. In fact, prices for all sizes were firmer
during this period for last season when compared to the previous year,
with the weighted average price dropping only 9 percent during this
period as compared to 22 percent for the previous season.
An economic study done by Florida Citrus Mutual (Lakeland, Florida)
in April 1998, found that the weekly percentage regulation had been
effective. The study stated that part of the strength in early season
pricing appeared to be due to the use of the weekly percentage rule to
limit the volume of sizes 48 and 56. It said that prices were generally
higher across the size spectrum with sizes 48 and 56 having the largest
gains, with larger sized grapefruit registering modest improvements.
The rule shifted the size distribution toward the higher priced, larger
sized grapefruit which helped raise weekly average f.o.b. prices. It
further stated that sizes 48 and 56
[[Page 42766]]
grapefruit accounted for around 27 percent of domestic shipments during
the same 11 weeks during the 1996-97 season. Comparatively, sizes 48
and 56 accounted for only 17 percent of domestic shipments during the
same period last season, as small sizes were used to supply export
customers with preferences for small sized grapefruit.
A subcommittee had been formed to examine how weekly percentage of
size regulation could best be used. The subcommittee recommended to the
full committee that the weekly percentage of size regulation should be
set at 25 percent for the 11 week period. Members believe that the
problems associated with an uncontrolled volume of small sizes entering
the market early in the season will continue. The subcommittee thought
that to provide the committee with the most flexibility, the weekly
percentage should be set at 25 percent for each of the 11 weeks in the
regulated period. The subcommittee believed it was best to set
regulation at the most restrictive level, and then relax the percentage
as warranted by conditions later in the season. The subcommittee also
recommended that the committee meet on a regular basis early in the
season to consider adjustments in the weekly percentage rates as was
done in the previous season.
The recommendations of the subcommittee were reviewed by the
committee. In its discussion, the committee recognized the need for and
the benefits of the weekly percentage regulation. The committee agreed
with the findings of the subcommittee, and recommended establishing the
base percentage at 25 percent for each of the regulation weeks. This is
as restrictive as Sec. 905.153 will allow.
In making this recommendation, the committee considered that by
establishing regulation at 25 percent, they could meet again in August
and the months following and use the best information available to help
the industry and the committee make the most informed decisions as to
whether the established percentage is appropriate.
Based on this information and the experiences from last season, the
committee agreed to establish the weekly percentage at the most
restrictive level. They can then meet in late August, and in September
and October as needed when additional information is available and
determine whether the set percentage level is appropriate. They said
this is essentially what was done the prior year, and it had been very
successful. The committee had met in May 1997, and recommended a weekly
percentage be established at 25 percent for each of the eleven weeks.
In August, the committee met again, and recommended that the weekly
percentage be relaxed. They met again in October, and recommended
further relaxations. Any changes to the weekly percentage proposed by
this rule would require additional rulemaking and the approval of the
Secretary.
The committee noted that more information helpful in determining
the appropriate weekly percentages will be available after August. At
the time of the May meeting, grapefruit had not yet begun to size,
giving little indication as to the distribution of sizes. Only the most
preliminary of crop estimates was available, with the official estimate
not to be issued until October.
While information concerning the coming season is limited prior to
September, there are indications that setting the weekly percentage at
25 percent is the appropriate level. During deliberations last season
as to weekly percentages, the committee considered how past shipments
had affected the market. Based on this statistical information, the
committee members believed there was an indication that once shipments
of sizes 48 and 56 reached levels above 250,000 cartons a week, prices
declined on those and most other sizes of red seedless grapefruit. The
committee believed that if shipments of small sizes could be maintained
at around 250,000 cartons a week, prices should stabilize and demand
for larger, more profitable sizes should increase.
As is the case for this season, they wanted to recommend a weekly
percentage that would provide a sufficient volume of small sizes
without adversely impacting the markets for larger sizes. They also
originally recommended that the percentage for each of the 11 weeks be
established at the 25 percent level. This percentage, when combined
with the average weekly shipments for the total industry, provided a
total industry allotment of approximately 244,000 cartons of sizes 48
and/or 56 red seedless grapefruit per regulated week. The total
shipments of small red seedless grapefruit would approach the 250,000
carton mark during regulated weeks without exceeding it.
While the committee did eventually vote last season to increase the
weekly percentages, shipments of sizes 48 and 56 during the 11 weeks
regulated during the 1997-98 season remained close to the 250,000
carton mark. In only 3 of the 11 weeks did the volume of sizes 48 and
56 exceed 250,000 cartons, and even then, by not more than 35,000
cartons. This may have contributed to the success of the regulation.
Based on the shipments from last year, a weekly percentage of 25
percent would not have been that much more restrictive on shipments
than the percentages established, reducing in most cases just the
excess available allotment. In setting the weekly percentage for each
week at 25 percent this season, the total available allotment would
closely approximate the 250,000 carton level.
In addition, the production area suffered through a period of
insufficient rainfall during the spring. While the actual effects are
not currently known, it is possible that this may affect the sizing of
the crop as well as maturity. This could mean a larger volume of small
sized red seedless grapefruit, further exacerbating the problem with
small sizes early in the season.
The situation is also complicated by the ongoing economic problems
affecting the Asian markets. In past seasons, the Asian markets have
shown a strong demand for the smaller sized red seedless grapefruit.
The reduction in shipments to that area experienced during the later
season last year is expected to continue during the coming season. This
reduction in demand could result in a greater amount of small sizes for
the existing markets to absorb. These factors increase the need for
restrictions to prevent the volume of small sizes from overwhelming all
markets. Therefore, based on the information currently available,
setting the weekly percentages at 25 percent may be the most
appropriate level.
Therefore, this rule would establish the weekly percentage at 25
percent for each of the 11 weeks. The committee plans to meet in late
August, and as needed during the remainder of the 11 week period to
work to ensure that the set weekly percentages are at the appropriate
levels.
Under Sec. 905.153, the quantity of sizes 48 and/or 56 red seedless
grapefruit that may be shipped by a handler during a regulated week
would be calculated using the recommended percentage of 25 percent. By
taking the weekly percentage times the average weekly volume of red
grapefruit handled by such handler in the previous five seasons,
handlers can calculate the volume of sizes 48 and/or 56 they may ship
in a regulated week.
An average week has been calculated by the committee for each
handler using the following formula. The total red seedless grapefruit
shipments by a handler during the 33 week period beginning the third
Monday in September and ending the first Sunday
[[Page 42767]]
in May during the previous five seasons are added and divided by five
to establish an average season. This average season is then divided by
the 33 weeks to derive the average week. This average week would be the
base for each handler for each of the 11 weeks of the regulatory
period. The weekly percentage, in this case 25 percent, is multiplied
by a handler's average week. The product is that handler's allotment of
sizes 48 and/or 56 red seedless grapefruit for the given week.
Under this proposed rule, the calculated allotment is the amount of
small sized red seedless grapefruit a handler could ship. If the
minimum size established under Sec. 905.52 remains at size 56, handlers
could fill their allotment with size 56, size 48, or a combination of
the two sizes such that the total of these shipments are within the
established limits. If the minimum size under the order is 48, handlers
could fill their allotment with size 48 fruit such that the total of
these shipments are within the established limits. The committee staff
would perform the specified calculations and provide them to each
handler on or before August 15 each year.
To illustrate, suppose Handler A shipped a total of 50,000 cartons,
64,600 cartons, 45,000 cartons, 79,500 cartons, and 24,900 cartons of
red seedless grapefruit in the last five seasons, respectively. Adding
these season totals and dividing by five yields an average season of
52,800 cartons. The average season would then be divided by 33 weeks to
yield an average week, in this case, 1,600 cartons. This would be
Handler A's base. The weekly percentage of 25 percent would then be
applied to this amount. This would provide this handler with a weekly
allotment of 400 cartons (1,600 x .25) of size 48 and/or 56.
The average week for handlers with less than five previous seasons
of shipments would be calculated by the committee by averaging the
total shipments for the seasons they did ship red seedless grapefruit
during the immediately preceding five years and dividing that average
by 33. New handlers with no record of shipments would have no prior
period on which to base their average week. Therefore, under this
proposal, a new handler could ship small sizes equal to 25 percent of
their total volume of shipments during their first shipping week. Once
a new handler has established shipments, their average week will be
calculated as an average of the weeks they have shipped during the
current season.
This proposed rule would establish a weekly percentage of 25
percent for each of the 11 weeks to be regulated. The regulatory period
begins the third Monday in September. Each regulation week would begin
Monday at 12:00 a.m. and end at 11:59 p.m. the following Sunday, since
most handlers keep records based on Monday being the beginning of the
work week. If necessary, the committee could meet and recommend a
percentage above 25 percent to the Secretary at any time during the
regulatory period.
The rules and regulations contain a variety of provisions designed
to provide handlers with some marketing flexibility. When regulation is
established by the Secretary for a given week, the committee calculates
the quantity of small red seedless grapefruit which may be handled by
each handler. Section 905.153(d) provides allowances for overshipments,
loans, and transfers of allotment. These allowances should allow
handlers the opportunity to supply their markets while limiting the
impact of small sizes on a weekly basis.
During any week for which the Secretary has fixed the percentage of
sizes 48 and/or 56 red seedless grapefruit, any handler could handle an
amount of sizes 48 and/or 56 red seedless grapefruit not to exceed 110
percent of their allotment for that week. The quantity of overshipments
(the amount shipped in excess of a handler's weekly allotment) would be
deducted from the handler's allotment for the following week.
Overshipments would not be allowed during week 11 because there would
be no allotments the following week from which to deduct the
overshipments.
If handlers fail to use their entire allotments in a given week,
the amounts undershipped would not be carried forward to the following
week. However, a handler to whom an allotment has been issued could
lend or transfer all or part of such allotment (excluding the
overshipment allowance) to another handler. In the event of a loan,
each party would, prior to the completion of the loan agreement, notify
the committee of the proposed loan and date of repayment. If a transfer
of allotment is desired, each party would promptly notify the committee
so that proper adjustments of the records could be made. In each case,
the committee would confirm in writing all such transactions prior to
the following week. The committee could also act on behalf of handlers
wanting to arrange allotment loans or participate in the transfer of
allotment. Repayment of an allotment loan would be at the discretion of
the handlers party to the loan.
The committee would compute each handler's allotment by multiplying
the handler's average week by the percentage established by regulation
for that week. The committee would notify each handler prior to that
particular week of the quantity of sizes 48 and 56 red seedless
grapefruit such handler could handle during a particular week, making
the necessary adjustments for overshipments and loan repayments.
During committee deliberations, several concerns were raised
regarding this proposed regulation. One area of concern was the way
allotment base is calculated. Two members commented that the rule was
not fair to those handlers that shipped the majority of their
grapefruit shipments during the 11 week period. They said that using a
33 week season as the basis for allotment was not reflective of their
shipments during the regulated period, and that their allotment was not
enough to cover their customer base.
The committee chose to use the past five seasons to provide the
most accurate picture of an average season. When recommending
procedures for establishing weekly percentage of size regulation for
red seedless grapefruit, the committee discussed several methods of
measuring a handler's volume to determine this base. It was decided
that shipments for the five previous years and for the 33 weeks
beginning the third Monday in September to the first Sunday the
following May should be used for calculation purposes.
This bases allotment on a 33 week period of shipments, not just a
handler's early shipments. This was done specifically to accommodate
small shippers or light volume shippers, who may not have shipped much
grapefruit in the early season. The use of an average week based on 33
weeks also helps adjust for variations in growing conditions that may
affect when fruit matures in different seasons and growing areas. After
considering different ways to calculate the average week, the committee
settled on this method as the definition of prior period that would
provide each handler with an equitable base from which to establish
shipments.
In its discussion, the committee recognized that there were
concerns regarding the way base is calculated. However, committee
members also stated that this type of regulation is intended to be
somewhat restrictive, and providing a system that satisfies everyone is
difficult, if not impossible, to achieve. There was general agreement
that this method was the best option considered thus far. Another
member
[[Page 42768]]
commented that this option also provides a larger industry base than an
11 week calculation, supplying a greater amount of available base
overall.
In regards to whether their allotment would be enough to cover
their customer base, the procedures under which this rule is
recommended provide flexibility through several different options.
Handlers can transfer, borrow or loan allotment based on their needs in
a given week. Handlers also have the option of over shipping their
allotment by 10 percent in a week, as long as the overshipment is
deducted from the following week's shipments. Statistics show that in
none of the regulated weeks was the total available allotment used. The
closest it came was 83 percent of available base used. However, this
still left an available allotment for loan or transfer of over 57,000
cartons. Approximately 190 loans and transfers were utilized last
season. To facilitate this process, the committee staff provides a list
of handler names and telephone numbers to help handlers find possible
sources of allotment if needed for loan or trade. Also, this regulation
only restricts shipments of small sized red grapefruit. There are no
volume restrictions on larger sizes.
Another concern expressed was that the rule only covers red
seedless grapefruit. One member wanted the committee to consider adding
white grapefruit to the regulation. The member also asked that the
committee continue to consider other possibilities on which to base
regulation. The committee agreed that the provisions by which this
regulation is recommended should be reviewed on a continuous base. It
was also stated that should the committee want to change Sec. 905.153,
the section outlining the procedures for setting weekly percentage of
size regulation, they could consider it as part of the current meeting.
No motions for change were received.
Another concern expressed was that the committee was considering
meeting too often during the regulatory period to consider changing the
weekly percentages. The member said that marketing plans are made
further in advance than two to three weeks. The committee responded
that information that is valuable in considering the appropriate
percentage levels are not available until the regulatory period begins.
Members agreed that it was important to meet and adjust percentages as
necessary as seasonal information becomes available.
After considering the concerns expressed, and the available
information, the committee determined that this rule is needed to
regulate shipments of small sized red seedless grapefruit.
This rule does not affect the provision that handlers may ship up
to 15 standard packed cartons (12 bushels) of fruit per day exempt from
regulatory requirements. Fruit shipped in gift packages that are
individually addressed and not for resale, and fruit shipped for animal
feed are also exempt from handling requirements under specific
conditions. Also, fruit shipped to commercial processors for conversion
into canned or frozen products or into a beverage base are not subject
to the handling requirements under the order.
Section 8(e) of the Act requires that whenever grade, size, quality
or maturity requirements are in effect for certain commodities under a
domestic marketing order, including grapefruit, imports of that
commodity must meet the same or comparable requirements. This rule does
not change the minimum grade and size requirements under the order,
only the percentages of sizes 48 and/or 56 red grapefruit that may be
handled. Therefore, no change is necessary in the grapefruit import
regulations as a result of this action.
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA), AMS has considered the economic impact of this action on
small entities. Accordingly, AMS has prepared this initial regulatory
flexibility analysis.
The purpose of the RFA is to fit regulatory actions to the scale of
business subject to such actions in order that small businesses will
not be unduly or disproportionately burdened. Marketing orders issued
pursuant to the Act, and rules issued thereunder, are unique in that
they are brought about through group action of essentially small
entities acting on their own behalf. Thus, both statutes have small
entity orientation and compatibility.
There are approximately 80 grapefruit handlers subject to
regulation under the order and approximately 11,000 growers of citrus
in the regulated area. Small agricultural service firms, which includes
handlers, have been defined by the Small Business Administration (SBA)
as those having annual receipts of less than $5,000,000, and small
agricultural producers are defined as those having annual receipts of
less than $500,000 (13 CFR 121.601).
Based on the industry and committee data for the 1997-98 season,
the average annual f.o.b. price for fresh Florida red grapefruit during
the 1997-98 season was around $6.30 per \4/5\ bushel cartons, and total
fresh shipments for the 1997-98 season are estimated at 15.5 million
cartons of red grapefruit. Approximately 20 percent of all handlers
handled 60 percent of Florida grapefruit shipments. In addition, many
of these handlers ship other citrus fruit and products which are not
included in committee data but would contribute further to handler
receipts. Using the average f.o.b. price, about 80 percent of
grapefruit handlers could be considered small businesses under SBA's
definition and about 20 percent of the handlers could be considered
large businesses. The majority of Florida grapefruit handlers, and
growers may be classified as small entities.
Under the authority of Sec. 905.52 of the order, this proposed rule
would limit the volume of small red seedless grapefruit entering the
fresh market during the 11 weeks beginning the third Monday in
September for the 1998-99 season. This rule utilizes the provisions of
Sec. 905.153. The proposal would limit the volume of sizes 48 and/or 56
red seedless grapefruit by setting the weekly percentage for each of
the 11 weeks at 25 percent. Under such a limitation, the quantity of
sizes 48 and/or 56 red seedless grapefruit that may be shipped by a
handler during a particular week is calculated using the recommended
percentage.
By taking the recommended percentage times the average weekly
volume of red grapefruit handled by such handler in the previous five
seasons, the committee would calculate a handler's weekly allotment of
small sizes. The rule would set the weekly percentage at 25 percent for
the 11 week period. This proposal would provide a supply of small sized
red seedless grapefruit sufficient to meet market demand, without
saturating all markets with these small sizes. This rule would help
stabilize the market and improve grower returns during the early part
of the season.
The weekly percentage of 25 percent, when combined with the average
weekly shipments for the total industry, would provide a total industry
allotment of nearly 250,000 cartons of sizes 48 and/or 56 red seedless
grapefruit per regulated week. Based on shipments from seasons 1993-97,
a total available weekly allotment of 250,000 cartons would exceed
actual shipments for each of the first three weeks that would be
regulated under this rule. In addition, if a 25 percent restriction on
small sizes had been applied during the 11 week period in the three
seasons prior to the 1996-97 season, an average of 4.2 percent of
overall shipments during that period would have been affected. A large
percentage of this volume most likely could have been replaced by
larger sizes. Under this
[[Page 42769]]
proposal a sufficient volume of small sized red grapefruit would still
be allowed into all channels of trade, and allowances would be in place
to help handlers address any market shortfall. Therefore, the overall
impact on total seasonal shipments and on industry cost should be
minimal.
The early season crop tends to have a greater percentage of small
sizes. This creates a glut of smaller, lower priced fruit, driving down
the price for all sizes. Early in the season, larger sized fruit
commands a premium price. In some cases, the f.o.b. is $4 to $6 a
carton more than for the smaller sizes. In early October, the f.o.b.
for a size 27 averages around $10.00 per carton. This compares to an
average f.o.b. of $5.50 per carton for size 56. By the end of the 11
week period covered in this rule, the f.o.b. for large sizes has
dropped to within two dollars of the f.o.b. for small sizes.
The over shipment of smaller sized red seedless grapefruit early in
the season has contributed to below production cost returns for growers
and lower on tree values. An economic study done by the University of
Florida--Institute of Food and Agricultural Sciences (UF-IFAS) in May
1997, found that on tree prices had fallen from a high near $7.00 in
1991-92 to around $1.50 for the 1996-97 season. The study projected
that if the industry elected to make no changes, the on tree price
would remain around $1.50. The study also indicated that increasing
minimum size restrictions could help raise returns.
This regulation would have a positive impact on affected entities.
The purpose of this rule would be to help stabilize the market and
improve grower returns by limiting the volume of small sizes marketed
early in the season. There are no volume restrictions on larger sizes.
Therefore, larger sizes could be substituted for smaller sizes with a
minimum effect on overall shipments. While this rule may necessitate
spot picking, which may entail slightly higher harvesting costs, many
in the industry are already using the practice, and because this
regulation is only in effect for part of the season, the overall effect
on costs is minimal. This rule is not expected to appreciably increase
costs to producers.
This rule would help limit the effects of an over supply of small
sizes early in the season. A similar rule was enacted successfully last
season. During the 11 week period, the regulation was successful at
helping maintain prices at a higher level than the prior season, and
sizes 48 and 56 by count and as a percentage of total shipments were
reduced. Therefore, this action should have a positive impact on grower
returns.
For the weeks when pricing information was available, last season's
prices were higher in five of the six weeks when compared with f.o.b.
prices from the 1996-97 season. The average f.o.b. for these weeks was
$6.28 for the 1996-97 season and $6.55 for the 1997-98 season. It also
reduced sizes 48 and 56 as a percentage of the crop. Last season sizes
48 and 56 represented 31 percent of shipments during the 11 week
regulatory period, compared to 38 percent during the previous season.
There was also a 15 percent reduction in shipments of sizes 48 and 56
by count. Numbers from the month following the 11 weeks of regulation
also indicate that in December 1997 the on tree price for grapefruit
was $2.26 compared to $1.55 for the previous season.
The rule was also successful in reducing the steep drop in prices
for larger sizes that had occurred in previous seasons. During the six
weeks from mid-October through November, prices for sizes 23, 27, 32,
and 36 fell by 28, 27, 21, and 20 percent, respectively, during the
1996-97 season. Prices for the same sizes during the same period last
season only fell by 5, 5, 2, and 7 percent, respectively, under
regulation. Prices for all sizes were firmer during this period last
season when compared to the previous year, with the weighted average
price dropping only 9 percent during this period last season as
compared to 22 percent for the previous season.
An economic study done by Florida Citrus Mutual (Lakeland, Florida)
in April 1998, found that the weekly percentage regulation had been
effective. The study indicated that part of the strength in early
season pricing appeared to be due to the use of the weekly percentage
rule to limit the volume of sizes 48 and 56. Prices were generally
higher across the size spectrum with sizes 48 and 56 having the largest
gains, with larger sized grapefruit registering modest improvements. It
also stated that sizes 48 and 56 grapefruit accounted for around 27
percent of domestic shipments during the 11 weeks during the 1996-97
season, compared to only 17 percent during the same period last season,
as small sizes were used to supply export customers with preferences
for small sized grapefruit.
Even with restrictions in place, total shipments during the 11 week
period last season were higher than the previous season. There was also
no noticeable drop in exports. Therefore, shipments remained strong and
prices were stabilized during the regulated period.
Over 50 percent of red seedless grapefruit is shipped to the fresh
market. Because of reduced demand and an oversupply, the processing
outlet is not currently profitable. Consequently, it is essential that
the market for fresh red grapefruit be fostered and maintained. Any
costs associated with this action would only be for the 11 week
regulatory period. However, benefits from this action could stretch
throughout the entire 33 week season.
This rule is intended to stabilize the market during the early
season and increase grower returns. Information available from last
season suggests the regulation could do both. A stabilized price that
returns a fair market value would be beneficial to both small and large
growers and handlers. The opportunities and benefits of this rule are
expected to be available to all red seedless grapefruit handlers and
growers regardless of their size of operation.
One alternative to the actions approved was considered by the
committee prior to making the recommendations. The alternative
discussed was whether to amend Sec. 905.153 in conjunction with setting
a weekly percentage. Two members suggested that the calculation used to
determine a handler's allotment base should be changed from 33 weeks to
a calculation that used the 11 weeks regulated by the rule. In its
discussion, the committee recognized that there were concerns regarding
the way base is calculated. However, committee members also stated that
this type of regulation is intended to be somewhat restrictive, and
providing a system that satisfies everyone is difficult, if not
impossible, to achieve. There was general agreement that though this
method had its concerns, it was the best option considered thus far.
Therefore, the committee rejected this alternative, concluding the
recommendations previously discussed were appropriate for the industry.
Handlers utilizing the flexibility of the loan and transfer aspects
of this action would be required to submit a form to the committee. The
rule would increase the reporting burden on approximately 80 handlers
of red seedless grapefruit who would be taking about 0.03 hour to
complete each report regarding allotment loans or transfers. The
information collection requirements contained in this section have been
approved by the Office of Management and Budget (OMB) under the
provisions of the Paperwork Reduction Act of 1995
[[Page 42770]]
(Pub. L. 104-13) and assigned OMB number 0581-0094. As with all Federal
marketing order programs, reports and forms are periodically reviewed
to reduce information requirements and duplication by industry and
public sectors.
The Department has not identified any relevant Federal rules that
duplicate, overlap or conflict with this proposed rule. However, red
seedless grapefruit must meet the requirements as specified in the U.S.
Standards for Grades of Florida Grapefruit (7 CFR 51.760 through
51.784) issued under the Agricultural Marketing Act of 1946 (7 U.S.C.
1621 through 1627).
The committee's meeting was widely publicized throughout the citrus
industry and all interested persons were invited to attend the meeting
and participate in committee deliberations on all issues. Like all
committee meetings, the May 22, 1998, meeting was a public meeting and
all entities, both large and small, were able to express views on this
issue. Interested persons are invited to submit information on the
regulatory and informational impacts of this action on small
businesses.
A 20-day comment period is provided to allow interested persons to
respond to this proposal. Twenty days is deemed appropriate because
this rule would need to be in place as soon as possible since handlers
will begin shipping grapefruit in September. In addition, because of
the nature of this rule, handlers need time to consider their allotment
and how best to service their customers. Also, the industry has been
discussing this issue for some time, and the committee has kept the
industry well informed. It has also been widely discussed at various
industry and association meetings. Interested persons have had time to
determine and express their positions. All written comments timely
received will be considered before a final determination is made on
this matter.
List of Subjects in 7 CFR Part 905
Grapefruit, Marketing agreements, Oranges, Reporting and
recordkeeping requirements, Tangelos, Tangerines.
For the reasons set forth in the preamble, 7 CFR part 905 is
proposed to be amended as follows:
PART 905--ORANGES, GRAPEFRUIT, TANGERINES, AND TANGELOS GROWN IN
FLORIDA
1. The authority citation for 7 CFR Part 905 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
2. A new Sec. 905.350 is added to read as follows:
Sec. 905.350 Red seedless grapefruit regulation.
This section establishes the weekly percentages to be used to
calculate each handler's weekly allotment of small sizes. If the
minimum size in effect under Sec. 905.306 for red seedless grapefruit
is size 56, handlers can fill their allotment with size 56, size 48, or
a combination of the two sizes such that the total of these shipments
are within the established weekly limits. If the minimum size in effect
under Sec. 905.306 for red seedless grapefruit is 48, handlers can fill
their allotment with size 48 red seedless grapefruit such that the
total of these shipments are within the established weekly limits. The
weekly percentages for sizes 48 and/or 56 red seedless grapefruit grown
in Florida, which may be handled during the specified weeks are as
follows:
------------------------------------------------------------------------
Weekly
Week percentage
------------------------------------------------------------------------
(a) 9/21/98 through 9/27/98................................ 25
(b) 9/28/98 through 10/4/98................................ 25
(c) 10/5/98 through 10/11/98............................... 25
(d) 10/12/98 through 10/18/98.............................. 25
(e) 10/19/98 through 10/25/98.............................. 25
(f) 10/26/98 through 11/1/98............................... 25
(g) 11/2/98 through 11/8/98................................ 25
(h) 11/9/98 through 11/15/98............................... 25
(i) 11/16/98 through 11/22/98.............................. 25
(j) 11/23/98 through 11/29/98.............................. 25
(k) 11/30/98 through 12/6/98............................... 25
------------------------------------------------------------------------
Dated: August 5, 1998.
Robert C. Keeney,
Deputy Administrator, Fruit and Vegetable Programs.
[FR Doc. 98-21481 Filed 8-10-98; 8:45 am]
BILLING CODE 3410-02-P
