[Federal Register Volume 62, Number 177 (Friday, September 12, 1997)]
[Rules and Regulations]
[Pages 47913-47923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24307]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 62, No. 177 / Friday, September 12, 1997 /
Rules and Regulations
[[Page 47913]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 905
[Docket No. FV97-905-1 IFR]
Oranges, Grapefruit, Tangerines, and Tangelos Grown in Florida;
Limiting the Volume of Small Florida Red Seedless Grapefruit
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Interim final rule with request for comments.
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SUMMARY: This interim final rule limits the volume of small red
seedless grapefruit entering the fresh market under the Florida citrus
marketing order. The marketing order regulates the handling of oranges,
grapefruit, tangerines, and tangelos grown in Florida and is
administered locally by the Citrus Administrative Committee
(committee). This rule limits the volume of size 48 and/or size 56 red
seedless grapefruit handlers can ship during the first 11 weeks of the
1997-1998 season that begins in September. This limitation provides a
sufficient supply of small sized red seedless grapefruit to meet market
demand, without saturating all markets with these small sizes. This
rule is necessary to help stabilize the market and improve grower
returns.
DATES: Effective September 15, 1997, through November 30, 1997.
Comments received by September 22, 1997 will be considered prior to
issuance of a final rule.
ADDRESSES: Interested persons are invited to submit written comments
concerning this rule. Comments must be sent in triplicate to the Docket
Clerk, Fruit and Vegetable Division, AMS, USDA, room 2525-S, P.O. Box
96456, Washington, DC 20090-6456; Fax: (202) 720-5698. 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: Christian D. Nissen, Southeast
Marketing Field Office, Marketing Order Administration Branch, F&V,
AMS, USDA, P.O. Box 2276, Winter Haven, Florida 33883; telephone: (941)
299-4770, Fax: (941) 299-5169; or Anne Dec, Marketing Order
Administration Branch, F&V, AMS, USDA, room 2522-S, P.O. Box 96456,
Washington, DC 20090-6456; telephone: (202) 720-5053, Fax: (202) 720-
5698. Small businesses may request information on compliance with this
regulation by contacting Jay Guerber, Marketing Order Administration
Branch, F&V, AMS, USDA, room 2525-S, P.O. Box 96456, Washington, DC
20090-6456; telephone (202) 720-2491, Fax: (202) 720-5698.
SUPPLEMENTARY INFORMATION: This interim final rule 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 interim final rule has been reviewed under Executive Order
12988, Civil Justice Reform. This rule is not intended to have
retroactive effect. This rule 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\5/16\ inches in
diameter).
Section 905.52 of the citrus marketing 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 is 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 order 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 size 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 11 week period 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
[[Page 47914]]
the previous five seasons, handlers can calculate the volume of sizes
48 and/or 56 they may ship in a regulated week.
This rule limits the volume of small red seedless grapefruit
entering the fresh market for each week of an 11 week period beginning
the week of September 15. The rule limits the volume of sizes 48 and/or
56 red seedless grapefruit by establishing a weekly percentage for each
of the 11 weeks. This rule establishes the weekly percentage for the
first three weeks (September 15 through October 5) at 50 percent, for
the next three weeks (October 6 through October 26) at 35 percent, and
at 30 percent for the remainder of the 11 weeks. This is a change in
the percentage originally recommended by the committee. The committee
had voted to establish a weekly percentage of 25 percent for each of
the 11 weeks in a vote of 10 in favor to 7 opposed at its meeting on
May 28, 1997. The committee recommended adjusting the percentages at
its meeting August 26, 1997, in a vote of 14 in favor to 3 opposed.
For the past few seasons, returns on red seedless grapefruit have
been at all time lows, often not returning the cost of production. On
tree prices for red seedless grapefruit have declined steadily from
$9.60 per box (1\3/5\ bushel) during the 1989-90 season, to $3.11 per
box during the 1992-93 season, to $1.82 per box during the 1994-95
season, to $1.55 per box during the 1996-97 season. The committee
believes that to stabilize the market and improve returns to growers,
demand for fresh red seedless grapefruit must be stabilized and
increased.
One problem contributing to the current state of the market is the
excessive number of small sized grapefruit shipped early in the
marketing season. During the past three 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 better prices
than smaller sizes. However, there is a push early in the season to get
fruit into the market to take advantage of the higher 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 that drives 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 (\4/5\ bushel)
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 outlined in this rule, the f.o.b. for large sizes has dropped to
within two dollars of the f.o.b. for small sizes.
In the past three seasons, during the period covered by this rule,
prices of red seedless grapefruit have fallen from a weighted average
f.o.b. of $7.80 per carton to an average f.o.b. of $5.50 per carton.
Even though later in the season the crop has sized to naturally limit
the amount of smaller sizes available for shipment, the price structure
in the market has already been negatively affected. In the past three
years, the market has not recovered, 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 discussed this issue at length at several meetings.
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
have fallen from a high near $7.00 in 1991-92 to around $1.50 for this
past season. The study projects that if the industry elects to make no
changes, the on tree price will remain around $1.50. The study also
indicates that increasing minimum size restrictions could help to raise
returns.
The committee examined shipment data covering the 11 week
regulatory period for the last four seasons. The information contained
the amounts and percentages of sizes 48 and 56 shipped during each
week. They compared this information with tables outlining weekly
f.o.b. figures for each size. Based on this statistical information
from past seasons, the committee members believe there is an indication
that once shipments of sizes 48 and 56 reach levels above 250,000
cartons a week, prices decline on those and most other sizes of red
seedless grapefruit. Without volume regulation, the industry has been
unable to limit the shipments of small sizes. The committee believes
that if shipments of small sizes can be maintained at around 250,000
cartons a week, prices should stabilize and demand for larger, more
profitable sizes should increase.
The committee has had considerable discussion regarding at what
level to establish the weekly percentages. They wanted to recommend
weekly percentages that would provide a sufficient volume of small
sizes without adversely impacting the markets for larger sizes. At its
May 28, 1997, meeting, the committee recommended that the percentage
for each of the 11 weeks be established at the 25 percent level. Their
reasoning was that this percentage, when combined with the average
weekly shipments for the total industry, provided a total industry
allotment of 244,195 cartons of sizes 48 and/or 56 red seedless
grapefruit per regulated week. This percentage would have allowed total
shipments of small red seedless grapefruit to approach the 250,000
carton mark during regulated weeks without exceeding it.
The committee met again August 26, 1997, and revisited the weekly
percentage issue. At the meeting, the committee recommended that the
weekly percentages be changed from 25 percent for each of the 11
regulated weeks to 50 percent for the first three weeks (September 15
through October 5), 35 percent for the next three weeks (October 6
through October 26), and 30 percent for the remainder of the 11 weeks.
In its discussion of this change, the committee reviewed the
initial percentages recommended and the current state of the crop. The
committee also reexamined shipping information from past seasons,
looking particularly at volume across the 11 weeks. Based on shipments
from the past four seasons, available allotment under a 25 percent
restriction would have exceeded actual shipments for each of the first
three weeks that are regulated under this rule.
The committee recognized that in terms of available allotment,
establishing a weekly percentage of 25 percent for the first three
regulated weeks would not be restrictive. However, they said that this
was based on total available allotment, not on data for each individual
handler. The committee determined that if available allotment would
exceed shipments for the first three weeks even when establishing a
percentage of 25 percent, it would give individual handlers greater
flexibility during these three weeks to establish the percentage at 50
percent. They argued that this would provide each handler with
additional allotment during these three weeks, reducing the number of
loans and transfers needed to utilize the available
[[Page 47915]]
allotment, yet having little or no affect on the volume of small sizes.
The committee also agreed that setting the percentage at 50 percent
rather than 100 percent would still provide some restriction should
shipments for September 15 through October 5 for this season exceed
past quantities.
For the remainder of the 11 weeks, the committee believed that the
weekly percentage needed to be less than 50 percent (which would have
resulted in virtually no limitation on shipments of small sizes) but
greater than 25 percent. The committee held that it is important to
control small sizes, but it is also important to be able to service the
markets that demand small sizes. The issue was raised regarding the
possible market impact when small sizes exceed 250,000 cartons in a
week. The committee recognized that ideally, 244,195 cartons of red
seedless grapefruit would be available to the industry for each of the
11 weeks if the percentage was set at 25 percent. However, the
committee was concerned that the true amount available would be lower.
Several members stated that setting a weekly percentage at 25
percent to approximate the 250,000 cartons was based on total
utilization of allotment, and that assumption was unreasonable. The
committee agreed that loans and transfers are beneficial, but that even
with their availability a percentage of allotment would most likely not
be used.
Several other members raised concerns about focusing too much on
total allotment available, rather than on allotment available to
individual handlers. The committee stated that the way a handler's base
is calculated using an average week is probably the most equitable way
to do so. However, they acknowledged that it did present some problems.
Members concurred that the season for red seedless grapefruit is
approximately 33 weeks. However, the members agreed that this did not
mean that every handler was shipping during all 33 weeks. They
discussed how a handler's average weekly shipments are calculated by
averaging their shipments from the past five seasons, and then dividing
this number by the 33 weeks to establish an average week. Members
stated that the calculated average week was often lower than their
actual weekly shipments during the periods they were shipping because
they were not shipping during all 33 weeks. They also stated that
applying a weekly percentage of 25 percent to their average week would
have resulted in limiting their shipments to a level closer to 15
percent of their actual shipments during this period.
Based on this discussion, the committee thought a weekly percentage
of 25 percent would be overly restrictive. The committee believed that
since total available allotment most probably will not be fully
utilized, and how individual handlers are affected, establishing a
weekly percentage of 35 percent for the regulation weeks October 6
through October 26 would be more appropriate. They believe this level
will provide a sufficient supply of small sizes without exceeding
amounts that would negatively affect other markets.
The committee further recommended that the weekly percentage for
the remainder of the 11 weeks be established at 30 percent. The
committee resolved that a lower percentage was desirable moving into
the last five weeks of regulation. The committee believed that as
industry moves into the season and shipments increase, that a weekly
percentage of 30 percent will provide the best balance between supply
and demand for small sized red seedless grapefruit.
The committee again included in its deliberations that if crop and
market conditions should change, the committee could recommend that the
percentages be increased or eliminated to provide for the shipment of
more small sizes in any one, or all of the 11 weeks. While the official
crop estimate will not be available until October, information in the
UF-IFAS study and committee discussions indicate that the 1997-98
season production will be near or greater than the 1996-97 estimate of
30.8 million boxes of red seedless grapefruit. Committee members also
stated that the crop is sizing well and should produce a greater number
of larger sizes than the past season. Using this information on the
1997-98 crop, the committee members believe that establishing the
weekly percentages as recommended will provide enough small sizes to
supply those markets without disrupting the markets for larger sizes.
Under the procedures in section 905.153, 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
for that week. By taking the established 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 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 in
a season to derive the average week. This average week is the base for
each handler for each of the 11 weeks contained in the regulation
period. The applicable weekly percentage is then multiplied by a
handler's average week. The total is that handler's allotment of sizes
48 and/or 56 red seedless grapefruit for the given week.
Under this interim final rule, the calculated allotment is the
amount of small sized red seedless grapefruit a handler can ship. If
the minimum size established under section 905.52 remains at 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 limits. If the minimum size under the order is
48, handlers can fill their allotment with size 48 fruit such that the
total of these shipments are within the established limits. The
committee staff will perform the specified calculations and provide
them to each handler.
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 is then divided by 33 weeks to yield
an average week, in this case, 1,600 cartons. This is handler A's base.
Assuming the weekly percentage is 50 percent, this percentage is then
applied to the handler's base. This provides this handler with a weekly
allotment of 800 cartons (1,600 x .50) of size 48 and/or 56.
The average week for handlers with less than five previous seasons
of shipments is 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 have no prior period on which
to base their average week. Therefore, a new handler can ship small
sizes up to the established weekly percentage as a percentage of their
total volume of shipments during their first shipping week. Once a new
handler has established shipments, their average
[[Page 47916]]
week is calculated as an average of the weeks they have shipped during
the current season.
This interim final rule establishes a weekly percentage of 50
percent for the first three weeks (September 15 through October 5), 35
percent for the next three weeks (October 6 through October 26), and 30
percent for the remainder of the 11 weeks to be regulated. The
regulatory period runs from the first Monday in September (September
15, 1997) through the last Sunday in November (November 30, 1997). Each
regulation week begins Monday at 12:00 a.m. and ends 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 can
meet and recommend changes in the percentages 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 can 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) will be
deducted from the handler's allotment for the following week.
Overshipments are not allowed during week 11 because there are 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 will not be carried forward to the following
week. However, a handler to whom an allotment has been issued can lend
or transfer all or part of such allotment (excluding the overshipment
allowance) to another handler. In the event of a loan, each party will,
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 will promptly notify the committee so that proper
adjustments of the records can be made. In each case, the committee
will confirm in writing all such transactions prior to the following
week. The committee can also act on behalf of handlers wanting to
arrange allotment loans or participate in the transfer of allotment.
Repayment of an allotment loan is at the discretion of the handlers
party to the loan.
The committee computes each handler's allotment by multiplying the
handler's average week by the percentage established by regulation for
that week. The committee will notify each handler prior to that
particular week of the quantity of sizes 48 and 56 red seedless
grapefruit such handler can handle during a particular week, making the
necessary adjustments for overshipments and loan repayments.
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.
During committee deliberations at the May 28, 1997, meeting,
several concerns were raised regarding this regulation. One area of
concern was the possible impact this regulation may have on exports.
Several members stated that there is a strong demand in some export
markets for small sizes. Other members responded that the percentages
set allow handlers enough volume of small sizes to meet the demand in
these markets. It was also stated that any shortfall an individual
handler might have can be filled by loan or transfer. There was also
some discussion that markets that normally demand small sizes have
shown a willingness to purchase larger sizes. In addition, committee
data indicate that the majority of export shipments occur after the 11
week period when there are no restrictions on small sizes.
Another concern raised was the effect this rule will have on
packouts. It was stated that this rule can reduce the volume packed,
resulting in higher packinghouse costs. The purpose of this rule is to
limit the volume of small sizes marketed early in the season. Larger
sizes can be substituted for smaller sizes with a minimum effect on
overall shipments. This rule may require more selective picking of only
the sizes desired, something that many growers are doing already. The
UF-IFAS study presented indicated that it would increase returns if
growers would harvest selectively and return to repick groves as the
grapefruit sized. This also would allow growers to maximize returns on
fresh grapefruit by not picking unprofitable grades and sizes of red
grapefruit that will be sent to the less profitable processing market.
The study also indicated that selective harvesting can reduce the
f.o.b. cost per carton. Therefore, this action should have a positive
impact on grower returns.
Several members were concerned about what would happen if market
conditions were to change. Other committee members responded that if
industry conditions were to change (for example, if there was a freeze,
or if the grapefruit was not sizing), the committee can meet and
recommend that the percentage be raised to allow for more small sizes,
or that the limits be removed all together.
Another concern raised was that market share could be lost to
Texas. According to the Economic Analysis Branch (EAB), of the Fruit
and Vegetable Division, of the Agricultural Marketing Service (AMS),
limiting shipments of small Florida grapefruit will probably not result
in a major shift to Texas grapefruit because the Texas industry is much
smaller and has higher freight costs to some markets supplied by
Florida. The UF-IFAS study made similar findings. Texas production is
much smaller and has been susceptible to freezes that take it out of
the market. This has lessened its impact on the overall grapefruit
market.
One handler expressed that they ship early in the season and this
action could be very restrictive. Members responded that the
availability of loans and transfers address these concerns. There was
also discussion of how restrictive this rule actually is. Based on
shipments from the past four seasons, available allotment would have
exceeded actual shipments for each of the first three weeks that are
regulated under this rule even if the weekly percentage was set at 25
percent. In the three seasons prior to last season, if a 25 percent
restriction on small sizes had been applied during the 11 week period,
only an average of 4.2 percent of overall shipments during that period
would have been affected. This rule affects even fewer shipments by
establishing less restrictive weekly percentages. In addition, a large
percentage of this volume most likely could have been replaced by
larger sizes. A sufficient volume of small sized red grapefruit is
still allowed into all channels of trade, and allowances are in
[[Page 47917]]
place to help handlers address any market shortfall.
At the August 26, 1997, meeting, the concern was raised that the
weekly percentages recommended were not restrictive enough. Committee
members responded that not all available allotment would be utilized,
and that the recommended percentages would still restrict shipments of
small sizes, while providing handlers with flexibility to supply those
markets that demand small sizes.
After considering the concerns expressed, and the available
information, the committee determined that this rule was needed to
regulate shipments of small sized red seedless grapefruit.
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), the Agricultural Marketing Service (AMS) has considered the
economic impact of this action on small entities. Accordingly, AMS has
prepared this 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 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) (13 CFR 121.601) 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.
Based on the Florida Agricultural Statistics Service and committee
data for the 1995-96 season, the average annual f.o.b. price for fresh
Florida red grapefruit during the 1995-96 season was $5.00 per 4/5
bushel cartons for all grapefruit shipments, and the total shipments
for the 1995-96 season were 23 million cartons of 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.
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. For the
past few seasons, returns on red seedless grapefruit have been at all
time lows, often not returning the cost of production. On tree prices
for red seedless grapefruit have declined steadily from $9.60 per box
during the 1989-90 season, to $3.11 per box during the 1992-93 season,
to $1.82 per box during the 1994-95 season, to $1.55 per box during the
1996-97 season. The committee believes that to stabilize the market and
improve returns to growers, demand for fresh red seedless grapefruit
must be stabilized and increased.
Under the authority of section 905.52 of the order, this rule
limits the volume of small red seedless grapefruit entering the fresh
market for each week of the 11 week period beginning the week of
September 15. The rule limits the volume of sizes 48 and/or 56 red
seedless grapefruit by establishing the weekly percentages at 50
percent for the first three weeks (September 15 through October 5), 35
percent for the next three weeks (October 6 through October 26), and 30
percent for the remainder of the 11 weeks. 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 calculates a handler's weekly
allotment of small sizes. This rule provides a supply of small sized
red seedless grapefruit sufficient to meet market demand, without
saturating all markets with these small sizes. This rule is necessary
to help stabilize the market and improve grower returns.
At the May 28, 1997, meeting, the committee recommended that the
percentage for each of the 11 weeks be established at the 25 percent
level. They reasoned that this percentage, when combined with the
average weekly shipments for the total industry, would provide a total
industry allotment of 244,195 cartons of sizes 48 and/or 56 red
seedless grapefruit per regulated week. This percentage would have
allowed total shipments of small red seedless grapefruit to approach
the 250,000 carton mark during regulated weeks without exceeding it.
The committee met again August 26, 1997, and revisited the weekly
percentage issue. The committee recommended that the weekly percentages
be set to 50 percent for the first three weeks (September 15 through
October 5), 35 percent for the next three weeks (October 6 through
October 26), and 30 percent for the remainder of the 11 weeks.
In the discussion of this change, the committee reviewed the
initial percentages recommended, the current state of the crop, and
shipping information from past seasons. The committee recognized that
in terms of available allotment, even establishing a weekly percentage
of 25 percent for the first three regulated weeks would not be
restrictive. Shipment data from the past four seasons indicate that
available allotment under a 25 percent restriction would exceeded
actual shipments for each of the first three weeks that are regulated
under this rule.
The committee determined that if available allotment would exceed
shipments for the first three weeks even when establishing a percentage
of 25 percent, it would give individual handlers greater flexibility
during these three weeks to establish the percentage at 50 percent.
They argued that this would provide each handler with additional
allotment during these three weeks, reducing the number of loans and
transfers needed to utilize the available allotment, yet having little
or no affect on the volume of small sizes. The committee also agreed
that setting the percentage at 50 percent would still provide some
restriction should shipments for this period this season exceed past
quantities.
For the remainder of the 11 weeks, the committee believed that the
weekly percentage needed to be tighter than 50 percent which would
impose nearly no restriction but greater than 25 percent. The issue was
raised regarding the possible market impact when small sizes exceed
250,000 cartons in a week. The committee recognized that ideally,
244,195 cartons of red seedless
[[Page 47918]]
grapefruit would be available to the industry for each of the 11 weeks
if the percentage was set at 25 percent. However, the committee was
concerned that the true amount available would be lower. Several
members stated that setting a weekly percentage at 25 percent to
approximate the 250,000 cartons was based on total utilization of
allotment, and that assumption was unreasonable. The committee agreed
that loans and transfers are beneficial, but that even with their
availability a percentage of allotment would most likely not be used.
Several other members raised concerns about focusing too much on
total allotment available, rather than on allotment per handler.
Members concurred that the season for red seedless grapefruit is
approximately 33 weeks. However, this did not mean that every handler
was shipping during all 33 weeks. Using 33 weeks to divide an average
season to calculate an average week often resulted in amounts lower
than their actual weekly shipments because they were not shipping
during all 33 weeks. They stated that applying a 25 percent restriction
regulated them at a level closer to 15 percent of their actual
shipments during the regulation period.
Based on this discussion, the committee thought a weekly percentage
of 35 percent for the regulation weeks October 6 through October 26
would be a more appropriate level. They believe that because total
allotment will not be fully utilized and the way individual handlers
are affected, this level would provide a sufficient supply of small
sizes without overly exceeding amounts that would negatively affect
other markets.
The committee further recommended that the weekly percentage for
the remainder of the 11 weeks be established at 30 percent. The
committee resolved that moving into the last five weeks of regulation
that a tighter percentage was desirable. The committee believed that as
industry moves into the season and shipments increase, that a weekly
percentage of 30 percent provides the best balance between supply and
demand for small sized red seedless grapefruit.
At the May 28, 1997, meeting, there was discussion regarding the
expected impact of this change on handlers and growers in terms of
cost. Discussion focused on the possibility that market share could be
lost to Texas and that this rule could increase packinghouse costs.
According to EAB, limiting shipments of small Florida grapefruit
probably will not result in a major shift to Texas grapefruit because
the Texas industry is much smaller and has higher freight costs to some
markets supplied by Florida. The UF-IFAS study made similar findings.
Texas production is much smaller and has been susceptible to freezes
that take it out of the market. This has lessened its impact on the
overall grapefruit market.
The concern about packinghouse costs was that this action means
lower packouts which may increase cost. However, the availability of
loans and transfers provides some flexibility. Also, this rule only
affects small sizes and only during the 11 week period. By substituting
larger sizes and using loans and transfers, packouts should approach
the weekly volume of seasons prior to this rule.
A weekly percentage of 25 percent, when combined with the average
weekly shipments for the total industry, would provide a total industry
allotment of 244,195 cartons of sizes 48 and/or 56 red seedless
grapefruit. Based on shipments from the past four seasons, a total
available allotment of 244,195 cartons would exceed actual shipments
for each of the first three weeks 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 last
season, an average of 4.2 percent of overall shipments during that
period would have been affected. This rule affects even fewer shipments
by establishing less restrictive weekly percentages. In addition, a
large percentage of this volume most likely could have been replaced by
larger sizes. Under this rule a sufficient volume of small sized red
grapefruit is still allowed into all channels of trade, and allowances
are 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 committee also discussed the state of the market and the cost
of doing nothing. During the past three 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. For the remainder of the season, sizes 48 and 56
represent only 26 percent of total shipments. 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.
The early season crop tends to have a greater percentage of small
sizes. The large volume of smaller, lower priced fruit drives 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
outlined in this rule, the f.o.b. for large sizes has dropped to within
two dollars of the price for small sizes.
In the past three seasons, during the period covered by this rule,
prices of red seedless grapefruit have fallen from a weighted average
f.o.b. of $7.80 per carton to an average f.o.b. of $5.50 per carton.
Even though later in the season the crop has sized to naturally limit
the amount of smaller sizes available for shipment, the price structure
in the market has already been negatively affected. This leaves the
f.o.b. for all sizes around $5.00 to $6.00 per carton for the rest of
the season.
As previously stated, the on tree price of red seedless grapefruit
has also been falling. On tree prices for fresh red seedless grapefruit
have declined steadily from $9.60 per box during the 1989-90 season, to
$3.11 per box during the 1992-93 season, to $1.82 per box during the
1994-95 season, to $1.55 per box during the 1996-97 season. In many
cases, prices during the past two seasons have provided returns less
than production costs. This price reduction could force many small
growers out of business. If no action is taken, the UF-IFAS study
indicates that on tree returns will remain at levels around $1.50.
This rule provides a supply of small sized red seedless grapefruit
to meet market demand, without saturating all markets with these small
sizes. The committee believes that if the supply of small sizes were
limited early in the season, prices can be stabilized at a higher
level. This provides increased returns for growers. In addition, if
more small grapefruit were allowed to remain on the tree to increase in
size and maturity, it could provide greater returns to growers.
The committee surveyed shipment data covering the 11 week
regulatory period for the last four seasons and examined tables
outlining weekly f.o.b. figures for each size. The committee believes
that if shipments of small sizes can be maintained at around 250,000
cartons a week, prices should stabilize and demand for larger, more
profitable sizes should increase. The established weekly percentages,
when combined with the average weekly shipments for the total industry,
should help maintain industry shipments of sizes 48 and/or 56 red
seedless grapefruit at quantities
[[Page 47919]]
close to the 250,000 carton level per regulated week. A stabilized
price that returns a fair market value benefits both small and large
growers and handlers.
This rule may require more selective picking of only the sizes
desired, something that many growers are doing already. The UF-IFAS
study indicated that returns could increase if growers harvest
selectively and return to repick groves as the grapefruit sized. This
also allows growers to maximize returns on fresh grapefruit by not
picking unprofitable grades and sizes of red grapefruit that are sent
to the less profitable processing market. The study indicated that
selective harvesting can reduce the f.o.b. cost per carton. The study
also indicates that increasing minimum size restrictions could help to
raise returns.
Fifty-nine percent of red seedless grapefruit is shipped to fresh
market channels. There is a processing outlet for grapefruit not sold
into the fresh market. However, the vast majority of processing is
squeezing the grapefruit for juice. Because of the properties of the
juice of red seedless grapefruit, including problems with color, the
processing outlet is limited, and not currently profitable. Therefore,
it is essential that the market for fresh red grapefruit be fostered
and maintained. Any costs associated with this action are only for the
11 week regulatory period. However, benefits from this action could
stretch throughout the entire 33 week season. Even if this action was
successful only in raising returns a few pennies a carton, when applied
to 34 million cartons of red seedless grapefruit shipped to the fresh
market, the benefits should more than outweigh the costs.
The limits established under this action are based on percentages
applied to a handler's average week. This process was established by
the committee because it was the most equitable. All handlers have
access to loans and transfers. Handlers and growers both will benefit
from increased returns. The costs or benefits of this rule are not
expected to be disproportionately more or less for small handlers or
growers than for larger entities.
The committee discussed alternatives to this action. The committee
discussed eliminating shipments of size 56 grapefruit all together.
Several members expressed that there is a market for size 56
grapefruit. Members favored the percentage rule recommended because it
supplies a sufficient quantity of small sizes should there be a demand
for size 56. Therefore, the motion to eliminate size 56 was rejected.
Another alternative discussed was to do nothing. However, the committee
rejected this option, taking in account that returns would remain
stagnant without action. Thus, the majority of committee members agreed
that weekly percentages should be established as recommended for the
shipment of small sized red seedless grapefruit for the 11 week period
beginning September 15, 1997.
This rule changes the requirements under the Florida citrus
marketing order. Handlers utilizing the flexibility of the loan and
transfer aspects of this action are required to submit a form to the
committee. The rule increases the reporting burden on approximately 80
handlers of red seedless grapefruit who will 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 (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 sector
agencies.
As noted in the initial regulatory flexibility analysis, the
Department has not identified any relevant Federal rules that
duplicate, overlap or conflict with this 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). Further, the public comments received concerning
the proposal did not address the initial regulatory flexibility
analysis.
In addition, the committee meetings were 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 28, 1997, meeting and the
August 26, 1997, meeting were public meetings and all entities, both
large and small, were able to express views on this issue.
A proposed rule concerning this action was published in the Federal
Register on Tuesday, July 29, 1997 (62 FR 40482). Copies of the rule
were mailed or sent via facsimile to all committee members and to
grapefruit growers and handlers. The rule was also made available
through the Internet by the Office of the Federal Register.
A 15-day comment period was provided to allow interested persons to
respond to the proposal. Fifteen days was deemed appropriate because
this rule needs to be in place as soon as possible since handlers begin
shipping grapefruit in September and handlers need time to consider
their allotment and how best to service their customers. The comment
period ended August 13, 1997. Thirty five comments were received.
As previously stated, subsequent to the end of the comment period,
the committee met and recommended modifying its original
recommendation. The committee recommended that the weekly percentages
be changed from 25 percent for each of the 11 regulated weeks to 50
percent for the first three weeks (September 15 through October 5), 35
percent for the next three weeks (October 6 through October 26), and 30
percent for the remainder of the 11 weeks. Because of this
recommendation, the Department has determined that interested parties
should be provided the opportunity to comment on the changes to the
original recommendation. However, the Department has further determined
that extending the comment period with no percentages in effect
limiting the shipments of small red seedless grapefruit when the period
of regulation begins would be detrimental to the industry. Therefore,
the Department is instituting the regulations on small red seedless
grapefruit through this interim final rule which will allow 10
additional days to comment. The discussion on the comments to the
proposed rule follow.
Thirty-five comments were received, twenty-four in favor and eleven
in opposition to the proposed rule. Three additional comments in favor
of the proposed rule were received after the closing date for comments.
The vast majority of the points made by the commenters were thoroughly
discussed prior to the committee vote.
The manager of the committee submitted a comment to the proposed
rule. It stated that the committee went to great lengths to ensure that
the entire Florida citrus industry had an opportunity to discuss or
comment on this rule. The committee met three times in a sixty day
period to review and consider this rule. This included a meeting where
an economic study on the grapefruit industry prepared by UF-IFAS was
presented. The comment stated that after these meetings and discussion
the committee voted to implement a weekly percentage for each week in
the regulatory period. The comment further stated that this action was
considered and recommended by the Florida Citrus Commission and its
[[Page 47920]]
appointed subcommittee the Grapefruit Advisory Council. The comment
also affirmed that prior to the May 28, 1997, committee meeting, all
Florida fresh citrus fruit shippers were notified of their average
weekly base.
In their comments, most of the producers and handlers supporting
the rule confirmed their support for the need to regulate the volume of
small sizes this season. Many referenced the procedures established to
regulate the small sizes in their comments, indicating that they
contributed to the support of this regulation.
Fifteen commenters stated specifically that the over shipment of
small sizes early in the season has resulted in reduced prices. Eleven
comments expressed that this regulation brings the early volume of
small size red grapefruit to levels similar to weekly shipments during
most of the season. Nine commenters wrote that total industry shipments
average around one million cartons per week, and that during the
regular part of the season, small sizes account for around 25 percent
of shipments or 250,000 cartons. This regulation limits early shipments
of small sized red seedless grapefruit to levels close to this amount.
Six commenters further stated that the regulatory period was the
appropriate length, ending as shipments begin to adjust naturally due
to the fruit sizing.
Many commenters discussed the market stabilizing benefits they
expect from of this regulation. Five comments stated that this action
will dampen spikes in the levels of shipments that lead to predatory
pricing. Five also stated that this action will provide steadier, more
balanced marketing that is less disruptive to markets. Four commenters
expressed that with the regulation in place, there will be a good flow
of all sizes to market.
The comments also discussed the fairness of the rule. Seven
commenters contended that this action is fair to all growing areas and
shippers. Several of the commenters favoring this action stated they
had groves in more than one growing region. They said they did not
believe this action benefited one area at the expense of another.
Another commenter stated that the regulation affects part and only part
of everyone's shipments. Ten referenced the use of an average week as
promoting fairness. They stated that this provided allotment to all
shippers, not just those who had shipped early in the past, thus giving
everyone allotment to service the early markets. Seven expressed that
the availability of transfers will also help spread allotment to those
who need it. Seven comments also asserted that this action will not be
unfair to consumers.
Several comments inferred that this regulation actually promotes
fairness. Five commenters believe this regulation will prevent the
oversupply of small sizes early that negatively affects prices before
the majority of growers are in the market. Two comments said the rule
will help address to beat the crowd mentality of pushing fruit on to
the market. This regulation may help stabilize prices, providing better
returns throughout the season, and benefiting all growers, not just
those in the market early.
Several comments indicated that this regulation will make growers
plan ahead on what is harvested. Three comments stated they have
already been holding back on picking sizes 48 and 56, allowing them to
size. They said this has enabled them to provide larger, higher quality
fruit to their customers. Two of the three stated specifically that
selective picking has resulted in better returns. Two additional
commenters also stated that they have been using spot picking
effectively.
The remaining eleven commenters raised several issues opposing the
limitation of small sizes. Many commenters who raised objections to
this action posed concerns regarding the possible loss of markets and
the impact the rule will have on different regions of the production
area. Each issue raised is addressed herein.
Eight of the comments received opposing this action stated that
there are strong markets for small sizes, particularly in the export
markets. Many of these commenters believe that this rule will keep
Florida from being able to service these markets and that they will be
lost to Texas and foreign competitors. These concerns were raised and
discussed at the committee meeting.
As stated above, the purpose of this regulation is not to eliminate
the marketing of sizes 48 and 56, but rather to prevent the
overshipment of such sizes from saturating all markets. In making its
recommendations, the committee recognized that markets exist for small
sizes. That is why they recommended limiting the volume of small sizes
instead of eliminating them. In making its recommendation for a weekly
percentage of size, the committee considered the markets available for
small sizes and set a weekly percentage sufficient to address these
markets. They also considered what percentage of the volume did small
sizes represent during most of the season. They used this information
to recommend a weekly percentage for each of the regulated weeks.
Sales of smaller sizes continue throughout the season, with certain
markets preferring the small sizes. Examining the demand for small
sizes across the season gives a picture of the level of that demand.
During most of the season, sizes 48 and 56 represent only 26 percent of
total shipments. Comments received stated that total industry shipments
average around one million cartons per week, and that during most of
the season, small sizes account for around 25 percent of shipments or
250,000 cartons. However, sizes 48 and 56 accounted for 34 percent of
total shipments during the 11 week regulatory period the past three
seasons, with the average weekly percentage exceeding 40 percent of
shipments.
The weekly percentages, when combined with the average weekly
shipments for the total industry, provide for a total weekly industry
allotment of sizes 48 and/or 56 red seedless grapefruit per regulated
week. A weekly percentage of 26 percent, the percentage of small sizes
to total shipments during most of the season, would provide a weekly
allotment of about 254,000 cartons. The established percentages provide
additional cartons above this amount, allowing the industry to service
the markets for small sizes while providing restrictions to prevent
total saturation of all markets with these sizes. The established
percentages will help bring the early volume of small size red
grapefruit to levels similar to weekly shipments during most of the
season.
In terms of exports of red seedless grapefruit, volume has averaged
around 3,779,650 cartons from September through November. Based on
information available on sizes exported, on average 43 percent of the
exports from the Interior region are larger than size 48, and 61
percent of the exports from the Indian River region are larger than
size 48. Total allotment available during the 11 weeks as established
by the percentages in this rule exceed the average volume of exports
during the regulation period. Considering the export data from these
two regions, and the fact that the Indian River region accounted for 74
percent of exports during the 11 week period this past season, the
allotment of small sizes provided under this rule should be sufficient
to service export demand for small sizes.
In addition, in the three seasons prior to last season, if a 25
percent restriction on small sizes had been applied during the 11 week
period, only an average of 4.2 percent of overall shipments during that
period would have been affected. This rule establishes less restrictive
[[Page 47921]]
weekly percentages and will affect even fewer shipments. In addition, a
large percentage of this volume most likely could have been replaced by
larger sizes. Thus, the available allotment should be sufficient to
address the demand for small sizes, allowing Florida to maintain those
markets.
The provisions of this rule also provide for overshipments, loans
and transfers. These allowances are provided to move allotment to those
who have markets for smaller grapefruit. Any shortage an individual
handler might have in allotment may be filled by loan or transfer. The
committee discussion also indicated that markets that normally demand
small sizes have shown a willingness to purchase larger sizes.
Therefore, a sufficient volume of small sized red grapefruit should be
available for all channels of trade, and allowances are in place to
help handlers address their specific market needs.
In regards to Texas or foreign competitors taking markets from
Florida, available information indicates that this should not be a
significant problem. As mentioned earlier, according to EAB, limiting
shipments of small Florida grapefruit would probably not result in a
major shift to Texas grapefruit because the Texas industry is much
smaller and would have higher freight costs to some markets supplied by
Florida. The UF-IFAS study made similar findings. Texas production is
much smaller and has been susceptible to freezes that take it out of
the market. This has lessened its impact on the overall grapefruit
market. In terms of foreign competition, the UF-IFAS study determined
that current foreign competition is minimal. It also infers that even
in cases of tightened standards, foreign competitors are not likely to
take market share from Florida.
Four comments asserted that the market forces of supply and demand
should be relied upon to regulate the market. The declaration of policy
in the Act includes a provision concerning establishing and maintaining
such orderly marketing conditions as will provide, in the interests of
producers and consumers, an orderly flow of the supply of a commodity
throughout the normal marketing season to avoid unreasonable
fluctuations in supplies and prices. As previously stated, during the
11 week period of regulation, prices have dropped considerably. This is
thought to stem from an oversupply of small sizes early in the season.
Limiting the quantity of small red seedless grapefruit that
handlers may handle early in the season is expected to contribute to
the Act's objectives of orderly marketing and improving producers'
returns. This regulation provides a practical system to control the
volume of small red seedless grapefruit early in the season, reducing
gluts of small sizes, enhancing producer returns and stabilizing the
markets for all sizes. Thus, the rule promotes orderly marketing by
avoiding price-depressing oversupplies of small sizes during the first
few months of the season when supplies are heaviest.
Four comments stated that the benefits of this rule are regional.
Two comments alleged that this rule benefits one growing area at the
expense of another. They state that fruit grown in the Gulf region
reaches maturity before other areas in the State. One comment attested
that past seasonal data indicates that in some years, the Gulf area
represents 90 percent of shipments during the first week of the
regulation period, and 50 percent of shipments during the first three
weeks. The commenter stated further that cutting three-quarters of
their shipping volume will significantly reduce their returns.
As previously stated, this rule limits the volume of small sizes
that can be shipped during the first 11 weeks of a season. The rule
only affects sizes 48 and/or 56, there are no restrictions on large
sizes. Because of the way allotment is calculated, shipments from past
seasons indicate that there will be more allotment available during the
first three weeks of the regulation period than there are shipments of
small sizes. Therefore, regardless of a handler's location, with the
availability of loans and transfers, their shipments should not be
restricted during these first three weeks, even if their entire supply
consists of small sizes.
One of the comments alleges that growers in other regions,
particularly the Indian River area, realize that there is a market for
small sizes, and the 11 week period was established to prevent Gulf
growers from selling their small sizes early in the season. The
commenter contends the other areas support this rule because they want
the opportunity to sell these sizes when their fruit matures.
Again, this regulation only limits the volume of small sizes, it
does not eliminate them. There are no restrictions on large sizes. With
their allotment, and the availability of loans and transfers, handlers
should be able to address the markets demanding small sizes.
In terms of maturity, the Gulf area is normally the first region to
begin shipping. During the weeks in September, they do represent the
majority of domestic shipments. However, when total shipments, domestic
and export are considered, the Indian River area has averaged similar
or higher shipments than the Gulf in September the past three seasons.
In October and November, both of which are included in this regulation,
the shipping totals from the Indian River area substantially exceed the
totals from other regions. The shipment figures do not support the
claims of regional inequity.
Several comments expressed how profitable the early markets are due
to the high prices available during the early season. This regulation
is not an attempt to keep individuals from taking advantage of these
markets. The goal of this rule is to control the volume of small sizes
to keep them from saturating all markets and dragging down prices. By
doing so, this action may buoy prices providing better returns
throughout the season, not just during the first three weeks.
Granted, there is a profitable market for small sizes early in the
season. However, there is an opportunity for those that do not market
responsibly to dump small sizes on the market, early in the season.
This appears to be occurring presently. The red seedless grapefruit
season is longer than a few weeks. Taking profits early in the season
at the expense of far lower returns for the remainder of the season
does not provide for orderly marketing or reasonable returns to
growers. The Department must consider the situation of all growers
covered under the order. It is in the interest of all areas that
adequate funds are returned to the grower throughout the season. This
is best accomplished by providing stable, reasonable returns throughout
the season.
Another comment argued that the vote of the committee signals a
lack of consensus on this issue and the industry is not united in its
support. In the marketing order, the voting requirements necessary to
recommend regulation are clearly stated. The order states that for any
decision or recommendation of the committee to be valid, ten concurring
votes, five of which must be grower votes, shall be necessary. The
committee vote supporting this regulation met these requirements. In
terms of industry support, all industry members had ample opportunity
to express their opinions on this issue. The Department considered all
views expressed prior to instituting this interim final rule.
One commenter stated that there are seasons when there are no large
sizes available during the early season. The committee meets each
season to consider implementing the procedures
[[Page 47922]]
to control the volume of small sizes early in the season. One of the
things the committee considers, is the status of the crop in terms of
size. In seasons where fruit is running small, the committee could
establish a higher percentage to allow for more small sizes or choose
not to establish regulation. In the case of this season, the committee
indicated that fruit was sizing well. However, if there is a change in
the status of the fruit or the market, the committee could meet and
vote to increase the percentage to allow for more small sizes, or
eliminate the regulation altogether.
This same commenter also asserts that enforcing this rule will
create an administrative problem and will create a market for
allotment. The committee staff has already calculated and distributed
the allotment for each handler. Information supplied by the Federal
State Inspection Service will be used to determine compliance with this
rule. Violators will be subject to the penalties provided for under the
Act. The committee staff will also collect information regarding loans
and transfers. It is expected that allotment itself should not have a
monetary value, although it certainly may be transferred and loaned
between handlers.
In another comment, a handler stated that they have a
responsibility to their stockholders, and that running its facility at
maximum volume provides them a higher return on their dollar. A handler
that charges growers per field box does increase its revenue by
handling the greatest number of boxes it can. The Department takes into
account all those affected by a particular action. However, the order
benefits growers through orderly marketing and improved returns. This
rule is an attempt to do both. The purpose of this rule is to limit the
volume of small sizes marketed early in the season. In the three
seasons prior to last season, if a 25 percent restriction on small
sizes had been applied during the 11 week period, only an average of
4.2 percent of overall shipments during that period would have been
affected. This rule establishes less restrictive weekly percentages and
will affect even fewer shipments. In addition, a large percentage of
this volume most likely could have been replaced by larger sizes. A
sufficient volume of small sized red grapefruit is still allowed into
all channels of trade, and allowances are in place to help handlers
address any market shortfall.
Several comments said that increasing standards will raise the
amount of fruit that does not meet the requirements to be packed fresh,
thereby increasing eliminations going to the processor and lowering
grower returns. This rule controls the volume of small sizes. It is
only in effect during the first 11 weeks of the season. As some
comments to this rule stated, it may cause growers to plan their
harvest. If a grove has a significant amount of small sizes, it may
benefit the grower to delay harvesting until the fruit sizes. Several
comments stated that they had used this selective picking successfully
in the past.
Another option considered by the commenter would be to spot pick,
but he stated that was expensive. However, two comments received on
this rule were from growers who are using spot picking effectively.
Also, information provided by the UF-IFAS study indicated that it would
increase returns if growers would harvest selectively and return to
repick groves as the grapefruit sized. Growers could maximize returns
on fresh grapefruit by not picking unprofitable grades and sizes of red
grapefruit that will be sent to the less profitable processing market.
The study also indicated that selective harvesting can reduce the
f.o.b. cost per carton, and increase packout rates over clean
harvesting.
Another comment stated that this rule will make the current
problems with grapefruit worse. It said the rule will decrease the
market window, further depressing prices. It also said that this action
will increase the total volume by people picking large sizes and
allowing small fruit to size, thereby increasing the total number of
boxes available later in the season when prices barely cover costs.
This regulation does not shorten the marketing window. The rule
provides for a sufficient amount of small sizes and places no
restrictions on larger sizes. This action should improve returns on all
sizes. In addition, allowing the fruit to size, could increase returns
as larger sizes can yield higher returns.
One comment expressed that a restriction of shipments of sizes 48
and 56 will put an upward pressure on price. The comment said this
would be bad for the consumer. The EAB reviewed this comment and
determined that it is true that retail prices tend to track f.o.b.
prices. However, variations do appear where there are other factors
that influence retail prices including transportation and marketing
costs, the price situation with competitive fruits, changes in consumer
preferences, and marketing strategies of individual retail operations.
No undue price enhancement is expected as a result of this rule.
Consumers will benefit from the rule because fewer small fruits will be
shipped, resulting in larger, more mature fruit available to the
consumer. Additionally, the profitability of grower operations will be
improved, helping to maintain a competitive environment for marketing,
to the benefit of consumers.
Also, the f.o.b. price would need to rise considerably to have a
significant impact on the consumer. Even if this regulation was
successful in maintaining the f.o.b. price at one dollar above the
average f.o.b. price from this past season, such an increase would
translate into an increase of a few cents per fruit. However, this same
increase would provide an additional return of a dollar per carton to
the grower. This increase could be the difference between profit and
loss.
The comment also states that restrictions should not be applied
when prices are above parity. Parity, as calculated by the National
Agricultural Statistics Service, was $12.03 for the 1996-97 season. The
preliminary calculation of parity for the 1997-98 season is $10.43. At
the beginning of the season, high prices are available. However, the
prices quickly drop as the volume of shipments increase. The purpose of
this rule is to stabilize prices, so that the price, even though it
declines, will be maintained at a higher level. This rule should not
elevate prices to levels above parity. If it were to maintain prices at
a level greater than parity, the Department would review the situation
and revise or modify the regulation.
One comment questioned the accuracy of references made in the rule
in terms of on tree prices. The commenter stated that on tree returns
should have been used. The comment also stated that it was not clear
whether the figures were stated in boxes (1\3/5\ bushels) or cartons
(\4/5\ bushels). It also stated that the 1989-90 numbers were unusually
high due to a freeze, and that numbers were missing for the 1995-96
season.
The on tree prices referenced in the rule are from the Florida
Agricultural Statistics Service. The prices were attributed to cartons
in the proposed rule. The prices should have been attributed to boxes.
This has been corrected, and the figures updated. These figures were
chosen to demonstrate the current status of the industry. A similar
portrait could have been painted using on tree returns as suggested by
the comment. On tree returns were $6.87 per box in 1991-92, $3.38 per
box in 1993-94, and were $1.21 per box for the 1995-96 season. The on
tree price information for the 1995-96 season is $1.71 per box.
This same comment stated that the cause of the decrease in price
throughout the season is a result of total
[[Page 47923]]
volume, not the amount of small sizes shipped early in the season. The
Department recognizes that there are several factors contributing to
the current problems facing the grapefruit industry. However, this rule
is not an attempt to fix every potential problem. Rather, this rule
seeks to slow the drastic price decline that occurs during the 11 weeks
regulated hereunder. The early season crop tends to have a greater
percentage of small sizes. The large volume of smaller, lower priced
fruit drives down the price for all sizes.
Larger sized fruit commands a premium price early in the season.
The f.o.b. for these sizes can be $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, compared to an average f.o.b. of $5.50 per
carton for size 56. By the end of the 11 week period in this rule, the
f.o.b. for large sizes has dropped to within two dollars of the price
for small sizes. In addition, during the 11 week period, prices of red
seedless grapefruit have fallen from a weighted average f.o.b. of $7.80
per carton to an average f.o.b. of $5.50 per carton, the f.o.b. for
size 56, for the past three seasons.
Later in the season the crop tends to naturally limit the amount of
smaller sizes available for shipment. However, the price structure in
the market has already been negatively affected, and the f.o.b. price
for all sizes remains around $5.00 to $6.00 per carton for the rest of
the season.
In addition, the committee examined shipment information detailing
the amounts and percentages of sizes 48 and 56 shipped during the 11
week regulatory period for the last four seasons. They compared this
information with tables outlining weekly f.o.b. figures for each size.
Based on this statistical information from past seasons, the committee
members believe there is an indication that once shipments of sizes 48
and 56 reach levels above 250,000 cartons a week, prices decline on
those and most other sizes of red seedless grapefruit. The committee
believes that if shipments of small sizes can be maintained at around
250,000 cartons a week, prices should stabilize and demand for larger,
more profitable sizes should increase.
Utilizing these procedures contributes to the Act's objectives of
orderly marketing and improving producers' returns. According to EAB,
since sizes 48 and 56 red grapefruit are a small part of the total
supply of Florida red grapefruit, limiting shipments of these sizes
will have a moderate effect on the total quantity shipped. It may,
however, help to prevent the average price for all Florida red
grapefruit from being reduced to below the cost of production. This
rule limitation provides a sufficient supply of small sized red
seedless grapefruit to meet market demand, without saturating all
markets with these small sizes. This should help stabilize prices for
all sizes.
After thoroughly analyzing the comments received and other
available information, including the additional recommendation by the
committee, the Department has concluded that this interim final rule is
appropriate.
A 10-day comment period is provided to allow interested persons to
respond to this proposal. Ten days is deemed appropriate because the
regulation period begins on September 15, 1997, and continues for 11
weeks. Adequate time will be necessary so that any changes made to the
regulations based on comments filed could be made effective during the
11-week period. All written comments timely received will be considered
before a final determination is made on this matter.
After consideration of all relevant matter presented, including the
information and recommendations submitted by the committee and other
available information, it is hereby found that this rule, as
hereinafter set forth, will tend to effectuate the declared policy of
the Act.
It is further found and determined upon good cause that it is
impracticable, unnecessary, and contrary to the public intent to give
preliminary notice prior to putting this rule into effect and that good
cause exists for not postponing the effective date of this rule until
30 days after publication in the Federal Register (5 U.S.C. 553)
because this rule needs to be in place when handlers begin shipping
grapefruit in September. This rule is necessary to help stabilize the
market and to improve grower returns. Further, handlers are aware of
this rule, which was recommended at public meetings. Also, a 15-day
comment period was provided for in the proposed rule and a 10-day
comment period is provided in this rule.
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
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. In Sec. 905.306, paragraphs (a) and (b), the word ``During'' is
removed and the words ``Except as otherwise provided in Sec. 905.601,
during'' are added in its place.
3. A new Sec. 905.601 is added to read as follows:
Note: The following section will not appear in the Code of
Federal Regulations.
Sec. 905.601 Red seedless grapefruit regulation 101.
The schedule below establishes the weekly percentages to be used to
calculate each handler's weekly allotment of small sizes. If the
minimum size in effect under section 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 section 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) 9/15/97 through 9/21/97................................. 50
(b) 9/22/97 through 9/28/97................................. 50
(c) 9/29/97 through 10/5/97................................. 50
(d) 10/6/97 through 10/12/97................................ 35
(e) 10/13/97 through 10/19/97............................... 35
(f) 10/20/97 through 10/26/97............................... 35
(g) 10/27/97 through 11/2/97................................ 30
(h) 11/3/97 through 11/9/97................................. 30
(i) 11/10/97 through 11/16/97............................... 30
(j) 11/17/97 through 11/23/97............................... 30
(k) 11/24/97 through 11/30/97............................... 30
------------------------------------------------------------------------
Dated: September 9, 1997.
Robert C. Keeney,
Director, Fruit and Vegetable Division.
[FR Doc. 97-24307 Filed 9-11-97; 8:45 am]
BILLING CODE 3410-02-U
