Oranges, Grapefruit, Tangerines, and Tangelos Grown in Florida; and Fruits, Import Regulations (Grapefruit); Higher Grade Requirements for Florida-Grown and Imported Red and White Seedless Grapefruit

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 905 and 944

[Docket No. FV94-905-2-FR]

Oranges, Grapefruit, Tangerines, and Tangelos Grown in Florida;

and Fruits, Import Regulations (Grapefruit); Higher Grade Requirements

for Florida-Grown and Imported Red and White Seedless Grapefruit

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule increases the minimum grade requirements for

Florida-grown and imported fresh red and white seedless grapefruit to

U.S. No. 1, from the current minimum grade requirement of Improved No.

2 External--U.S. No. 1 Internal. This rule improves the quality of

fresh domestic, export, and import shipments of seedless grapefruit and

is in the interest of producers, handlers, and consumers of such fruit.

EFFECTIVE DATE: This final rule becomes effective November 25, 1994.

FOR FURTHER INFORMATION CONTACT: Mark Kreaggor, Marketing Order

Administration Branch, Fruit and Vegetable Division, AMS, USDA, P.O.

Box 96456, room 2523-S, Washington, DC 20090-6456; telephone: 202-720-

2431; or William G. Pimental, Southeast Marketing Field Office, USDA/

AMS, P.O. Box 2276, Winter Haven, Florida 33883; telephone: 813-299-

4770.

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing

Agreement and Marketing Order No. 905 [7 CFR Part 905] regulating the

handling of oranges, grapefruit, tangerines, and tangelos grown in

Florida, hereinafter referred to as the order. This order is effective

under the Agricultural Marketing Agreement Act of 1937, as amended [7

U.S.C 601-674], hereinafter referred to as the Act.

This final rule is also issued under section 8e [7 U.S.C. Section

608e-1] of the Act. Section 8e of the Act provides that whenever

specified commodities, including grapefruit, are regulated under a

Federal marketing order, imports of these commodities into the United

States are prohibited unless they meet the same or comparable grade,

size, quality, or maturity requirements as those in effect for the

domestically produced commodities. Section 8e also provides that

whenever two or more marketing orders regulate the same commodity

produced in different areas of the United States, the Secretary shall

determine which area the imported commodity is in most direct

competition with and apply regulations based on that area to the

imported commodity. The Secretary has determined that grapefruit

imported into the United States are in most direct competition with

grapefruit grown in Florida regulated under the order, and has found

that the minimum grade and size requirements for imported grapefruit

should be the same as those established for grapefruit under the order.

The Department of Agriculture (Department) is issuing this final

rule in conformance with Executive Order 12866.

This final rule has been reviewed under Executive Order 12778,

Civil Justice Reform. This rule is not intended to have retroactive

effect. This rule would 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 8c(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 requesting 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 in equity to review the

Secretary's ruling on the petition, provided a bill in equity is filed

not later than 20 days after the date of the entry of the ruling.

There are no administrative procedures which must be exhausted

prior to any judicial challenge to the provisions of import regulations

issued under section 8e of the Act.

Pursuant to the requirements set forth in the Regulatory

Flexibility Act (RFA), the Administrator of the Agricultural Marketing

Service (AMS) has considered the economic impact of this action on

small entities.

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. Import regulations issued under

the Act are based on those established under Federal marketing orders.

There are about 100 Florida citrus handlers subject to regulation

under the order covering oranges, grapefruit, tangerines, and tangelos

grown in Florida, about 11,970 producers of these citrus fruits in

Florida, and about 25 grapefruit importers. Small agricultural service

firms, which include grapefruit handlers and importers, have been

defined by the Small Business Administration [13 CFR 121.601] as those

having annual receipts less than $5,000,000, and small agricultural

producers are defined as those whose annual receipts are less than

$500,000. A minority of these handlers and a majority of these

producers and importers may be classified as small entities.

The Citrus Administrative Committee (committee) met on June 21,

1994, and recommended the regulatory changes for Florida citrus. The

committee meets prior to and during each season to review the handling

regulations effective on a continuous basis for each citrus fruit

regulated under the order. Committee meetings are open to the public,

and interested persons may express their views at these meetings. The

Department reviews committee recommendations and information, as well

as information from other sources, and determines whether modification,

suspension, or termination of the handling regulations would tend to

effectuate the declared policy of the Act.

Section 905.306 [7 CFR 905.306] specifies minimum grade

requirements for different varieties of fresh Florida-grown grapefruit,

as authorized by Sec. 905.52 [7 CFR 905.52] of the order. Section

905.306 specifies such grade requirements in Table I of paragraph (a)

for domestic markets (fruit shipped from the production area to any

point outside thereof in the 48 contiguous States and the District of

Columbia of the United States), and in Table II of paragraph (b) for

export markets (fruit shipped from any point in the 48 contiguous

States and the District of Columbia of the United States to any

destination).

This rule amends Sec. 905.306 by revising the entries for

grapefruit in Table I and in Table II, effective September 1, 1994.

Under the final rule, the minimum grade requirements for domestic and

export shipments of Florida-grown red and white seedless grapefruit

will be increased to U.S. No. 1, from the current minimum grade

requirement of Improved No. 2 External--U.S. No. 1 Internal, beginning

with 1994-95 season shipments.

The current minimum size requirements for Florida-grown red and

white seedless grapefruit for both domestic and export shipments remain

unchanged under this rule. Also, the current minimum grade and size

requirements for Florida-grown red and white seeded grapefruit for both

domestic and export shipments remain unchanged.

This rule removes entries for seeded pink grapefruit and seedless

pink grapefruit in Table I and in Table II of Sec. 905.306. Such

removal is necessary because such pink grapefruit were reclassified as

red grapefruit and the entries in such Tables for pink grapefruit were

changed to red grapefruit by a final rule published in the Federal

Register [55 FR 41659, October 15, 1990], but such changes were not

incorporated in the Code of Federal Regulations.

The committee recommended that the minimum grade requirements for

domestic and export market shipments of fresh Florida-grown red and

white seedless grapefruit be increased, as specified. The committee

reports that it expects that the higher minimum grade requirements will

result in better quality Florida-grown red and white seedless

grapefruit being shipped to the fresh market, and that such fruit

should receive greater consumer support and increased consumer demand

resulting in improved grower returns. The consumer demand for such

grapefruit should be strengthened because consumers prefer the higher

quality grapefruit which this rule requires be shipped.

Minimum grade requirements under the order are designed to provide

fresh markets with fruit of accepTable grade and maturity, thereby

maintaining consumer confidence in fresh Florida-grown grapefruit. This

contributes to sTable marketing conditions.

The higher grade requirements for Florida-grown red and white

seedless grapefruit are based on the committee's assessment of the

prospective crop and market conditions for the 1994-95 season Florida-

grown seedless grapefruit crop. The requirements are designed to enable

Florida grapefruit shippers to ship red and white seedless grapefruit

to the domestic and export markets consistent with anticipated demand

in those markets.

Processing outlets are an important market for Florida-grown

seedless grapefruit, with nearly one-half of the seedless grapefruit

crop produced in Florida normally utilized in processing. Any

grapefruit which do not meet the proposed higher grade requirements

could be utilized in processing outlets.

The committee reports that it expects that more red and white

seedless grapefruit will be produced in Florida during the 1994-95

season than last season. The committee also expects that supplies of

fresh Florida-grown red and white seedless grapefruit meeting the

higher grade requirements will adequately meet consumer demand during

the entire 1994-95 season. The Florida seedless grapefruit shipping

season normally begins in September and continues until the following

July, but occasionally begins in late August.

This rule is designed to establish and maintain orderly marketing

conditions in the United States for fresh Florida-grown red and white

seedless grapefruit in the interest of producers, handlers, and

consumers, and is expected to increase returns to Florida grapefruit

producers.

Under the order, handlers may ship up to 15 standard packed cartons

(12 bushels) of fruit per day exempt from grade and size requirements.

Fruit shipped in gift packages which are individually addressed and not

for resale, and fruit shipped for animal feed are also exempt from

grade and size 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.

Minimum grade and size requirements for grapefruit imported into

the United States are currently in effect under Sec. 944.106 [7 CFR

944.106]. This rule amends Sec. 944.106 by revising paragraph (a) and

the Table in that section by modifying the entries for imported red and

white seedless grapefruit. This increases the minimum grade

requirements for such grapefruit to U.S. No. 1, from the current

minimum grade requirement of Improved No. 2 External--U.S. No. 1

Internal. The higher grade requirements for imported red and white

seedless grapefruit are the same as those in this rule under

Sec. 905.306 for red and white seedless grapefruit grown in Florida.

The current minimum size requirements for imported red and white

seedless grapefruit remains unchanged under this rule. Also, the

current minimum grade and size requirements for imported red and white

seeded grapefruit remain unchanged.

This rule reflects the committee's and the Department's appraisal

of the need to increase the minimum grade requirements for fresh

Florida-grown red and white seedless grapefruit, as specified. The

Department's view is that this rule will have a beneficial impact on

Florida producers and handlers of fresh seedless grapefruit, since it

enables such producers and handlers to make available those grades of

grapefruit needed to meet consumer needs consistent with 1994-95 season

crop and market conditions.

The proposed rule concerning this action was published in the

September 9, 1994, Federal Register [59 FR 46361], with a 15-day

comment period ending September 23,1994. Nine comments were received,

five in support and four in opposition to the proposed rule.

The comments in favor of implementing the higher grade as set forth

in the proposed rule were submitted by Mr. W. Cody Estes of the Indian

River Citrus League, Mr. Bobby F. McKown of Florida Citrus Mutual, Mr.

Gregory P. Nelson of DNE World Fruit Sales, Mr. Bernard A. Egan of

Bernard Egan and Company, and Mr. David Milwood of Golden River Fruit

Co. Their comments reiterated the arguments made in the proposed rule.

Mr. Estes stated in his comment that the presence on the market of

Improved No. 2 External grade grapefruit during times of abundant

supplies of grapefruit does not result in greater volumes of fresh

fruit movement. He sees its presence dragging down the price and

movement of better quality fruit to the point that very little price

differential exists between the price for U.S. No. 1 and Improved No. 2

External. Mr. Estes further stated that better quality grapefruit will

stimulate demand, and that increasing production levels will ensure

ample supplies for consumers. Mr. McKown stated he favored the higher

grade requirement because it will improve the quality and strengthen

demand for fresh domestic and export shipments of seedless grapefruit

and benefit citrus growers, packers and the industry as a whole.

Both Mr. Nelson and Mr. Egan expressed strong support for

increasing the grade requirements. They believe that higher minimum

grade requirements will prevent unsightly and misshapen fruit from

entering the fresh market and depressing demand and prices for Florida

grapefruit.

Mr. Milwood stated that higher grade requirements will result in

marketing and packing the best fruit available. This will benefit

Florida growers by enhancing the image of Florida grapefruit in the

domestic market. His position is that the industry must improve its

image in order to compete with other fruit available to the consumer.

He states that having No. 2's in the market place will only reduce the

price for U.S. No. 1's and bring down prices to unacceptable levels for

all Florida growers. Mr. Milwood also stated that throughout the

1980's, there was a need for U.S. No. 2 grapefruit due to devastating

freezes and limited crop sizes. Mr. Milwood's impression is that the

situation has changed. With the forecast for larger crops, he believes

the industry must improve its image in order to be competitive in the

market place.

Comments in opposition to implementing the higher grades as set

forth in the proposed rule were submitted by Mr. J. Richard Graves,

Jr., of Graves Brothers Company, Mr. Theodore R. Bolema of the United

States Department of Justice (DOJ) and Mr. James Crockett of United

Citrus Marketing.

Mr. Graves commented that in his view the rule which changes grade

standards will prove economically disastrous for Indian River area

grapefruit growers. In his opinion, it will result in limiting the

shipment of Improved No. 2 External Florida seedless grapefruit and

prevent certain customers and consumers from buying Florida grapefruit.

He states that there is a fresh fruit market for these grades of

grapefruit.

In actuality, the average quality of grapefruit is rising and the

higher minimum grade requirement is an attempt to keep up with the

quality change. Although interseasonal variations in quality make it

difficult to estimate the effect of the higher minimum grade

requirement, the total quantity of grapefruit that could meet the new

grade is approximately 94 percent. With the expectation of a grapefruit

crop 8 percent larger than last year, consumers will not be noticeably

affected, and supplies might even be larger than in the 1993/94 season.

Thus, consumers will not find shortages or high prices for Florida

grapefruit as a result of this action.

In addition, it is the view of a majority of committee members,

which is made up of growers, that shipments of lower grade grapefruit

have been poorly received by consumers. The committee contends there is

a need for premium quality grapefruit in the market place. They pointed

out that some customers prefer and will purchase only high quality

produce. This group stated that having U.S. No. 2's in the market will

only reduce the price of U.S. No. 1 grapefruit. In recent seasons,

prices for Florida grapefruit marketed fresh have been depressed,

falling from a season average of over $8.50 per box in 1990 and 1991 to

less than $5.00 per box in 1992, the lowest since the early 1980's.

Grower prices for 1993/94 averaged slightly more than $6.00 per box in

1993.

Mr. Graves forwarded a memorandum from Mr. Robert E. Barber, Jr.,

on the ``Estimated Impact of Proposed Changes in U.S. Grade Standards

for Fresh Grapefruit''. In his memorandum, Mr. Barber analyzes the

economic impact of raising minimum grades for Florida grapefruit to

U.S. No. 1.

Mr. Barber argues that the higher minimum grade standards are

economically risky because of the impact upon the overall revenues

generated by Florida's grapefruit crop. His theory is that shipping

point revenues for Florida grapefruit would increase due to the

restriction in volume of shipments that would occur under higher grade

requirements.

Mr. Barber postulates that the gains in fresh market value could be

more than offset by an anticipated drop in revenues for processed

grapefruit resulting from the reallocation of fruit from the fresh

market to the processed market.

Mr. Barber's conclusions are not in line with current Florida

Citrus Commission projections. In fact, this season's volume of

grapefruit is expected to be 8 percent larger than in the 1993-94

season. In recent seasons, more than 30 percent of the Florida

grapefruit crop was exported, with Western Europe and Japan being key

markets. However, export demand has been weak because of economic

recessions in these markets. It is not expected that this situation

will change appreciably in the 1994/95 season. The soft export demand

coupled with the larger crop mean that higher minimum grade

requirements will not have an impact on domestic availability of

grapefruit compared to last season.

Mr. Graves states that the higher grade requirements will make

Florida grapefruit shippers noncompetitive with Texas grapefruit

shippers. However, Texas grapefruit shippers have also proposed to

increase the minimum quality requirements for Texas grapefruit. The

increase would be from the current minimum grade requirement of U.S.

No. 2 to Texas Choice.

Mr. Bolema of the DOJ contends that the restriction on grapefruit

shipments offers no long term benefits to consumers or producers. Mr.

Bolema also contends that the higher minimum grade requirements will

artificially restrict the supply of fresh grapefruit.

Based on current crop forecast, the Department believes that there

will be more than enough U.S. No. 1 fruit to meet consumer demand.

Additionally, Mr. Bolema asserts that the increased grower profits

will not be sustainable in the long run, because any artificially

raised returns to producers will provide incentives for inefficient new

grapefruit production. Mr. Bolema argues further that this new

inefficient production will increase producer costs and erode grower

profits until producer returns revert to the pre-restriction level.

According to National Agricultural Statistics Service forecasts,

the production of grapefruit will increase in the 1994-95 and

subsequent seasons and because of this, there is a need to increase the

demand for Florida fresh market grapefruit. An increase in the general

level of quality is associated with an increase in demand; increased

sales at higher prices would mean greater returns to growers.

The Department's position is that higher minimum grade requirements

will have the effect of stabilizing prices for grapefruit by providing

consistent quality to consumers. In addition, a survey conducted by

``The Packer,'' a trade newspaper, demonstrated that higher quality

leads to larger purchases of fruit by consumers. Also, Dr. Robert Behr,

Economic and Market Research Director of the Florida Department of

Citrus is preparing a report on grapefruit quality; this study, which

is expected to be completed in the Spring of 1995, will provide the

committee additional information it can use to modify the quality

requirements under the Federal marketing order, so the preferences of

consumers can be better served.

Mr. Crockett stated that while well intended, higher minimum grade

requirements for Florida grapefruit will be a blatant restraint on free

trade. He stated that it is the customer or ``market'' that sets the

price for grapefruit.

This rule is an attempt to increase the demand for Florida

grapefruit. There is the potential to raise returns to growers; based

on the supposition that higher grade requirements mean better looking

fruit that can be sold at higher prices.

This rule reflects the Department's appraisal of the need to

increase the grade requirements for imported red and white seedless

grapefruit, to ensure that such fruit meets the same higher grade

requirements for Florida-grown red and white seedless grapefruit,

consistent with the Act.

After thoroughly analyzing the comments received and other

available information, the Department has concluded that this final

rule is appropriate.

In accordance with section 8e of the Act, the United States Trade

Representative has concurred with the issuance of this final rule.

Based on the above, the Administrator of the AMS has determined

that this rule will not have a significant economic impact on a

substantial number of small entities.

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 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. 533] because this rule should be implemented

as soon as possible since the shipping season began in early September.

Further, handlers are aware of this rule which was recommended at

public meetings. Also, a 15-comment period was provided in the proposed

rule.

List of Subjects

7 CFR Part 905

Grapefruit, Marketing agreements, Oranges, Reporting and

recordkeeping requirements, Tangelos, Tangerines.

7 CFR Part 944

Avocados, Food grades and standards, Grapefruit, Grapes, Imports,

Kiwifruit, Limes, Olives, Oranges.

For the reasons set forth in the preamble, 7 CFR Parts 905 and 944

are amended as follows:

PART 905--ORANGES, GRAPEFRUIT, TANGERINES, AND TANGELOS GROWN IN

FLORIDA

1. The authority citation for 7 CFR Parts 905 and 944 continues to

read as follows:

Authority: 7 U.S.C. 601-674.

2. Section 905.306 is amended by revising the entries in Table I of

paragraph (a) and in Table II of paragraph (b) for ``seeded, except

red'' grapefruit, ``seeded, red'' grapefruit, ``seedless, except red''

grapefruit, and ``seedless, red'' grapefruit; and by removing the

entries for ``seeded, except pink'' grapefruit, ``seeded, pink''

grapefruit, ``seedless, except pink'' grapefruit, and ``seedless,

pink'' grapefruit to read as follows:

Sec. 905.306 Orange, grapefruit, tangerine and tangelo regulation.

(a) * * *

Table I

------------------------------------------------------------------------

Minimum

Minimum grade diameter

Variety (1) Regulation period(2) (3) (inches)

(4)

------------------------------------------------------------------------

* * * * * * *

GRAPEFRUIT

* * * * * * *

Seeded, except red... On and after 09/01/ U.S. No. 1...... 3\12/16\

94.

Seeded, red.......... On and after 09/01/ U.S. No. 1...... 3\12/16\

94.

Seedless, red........ 11/07/94-11/23/94... Improved No. 2 3\5/16\

External, U.S.

No. 1 Internal.

11/24/94-11/12/95... U.S. No. 1...... 3\5/16\

On and after 11/13/ U.S. No. 1...... 3\9/16\

95.

Seedless, except red. On and after 09/01/ U.S. No. 1...... 3\9/16\

94.

* * * * * * *

------------------------------------------------------------------------

(b) * * *

Table II

------------------------------------------------------------------------

Minimum

Regulation period Minimum grade diameter

Variety (1) (2) (3) (inches)

(4)

------------------------------------------------------------------------

* * * * * * *

GRAPEFRUIT

* * * * * * *

Seeded, except red... On and after 09/01/ U.S. No. 1...... 3\9/16\

94.

Seeded, red.......... On and after 09/01/ U.S. No. 1...... 3\9/16\

94.

Seedless, except red. On and after 09/01/ U.S. No. 1...... 3\5/16\

94.

Seedless, red........ On and after 09/01/ U.S. No. 1...... 3\5/16\

94.

* * * * * * *

------------------------------------------------------------------------

* * * * *

PART 944--FRUITS; IMPORT REGULATIONS

3. Section 944.106 is amended by revising paragraph (a), and by

redesignating the second appearing paragraph (h) as paragraph (i) to

read as follows:

Sec. 944.106 Grapefruit import regulation.

(a) Pursuant to Section 8e [7 U.S.C. 608e-1] of the Agricultural

Marketing Agreement Act of 1937, as amended [7 U.S.C. 601-674], and

Part 944--Fruits; Import Regulations, the importation into the United

States of any grapefruit is prohibited unless such grapefruit meet the

following minimum grade and size requirements for each specified

grapefruit classification:

----------------------------------------------------------------------------------------------------------------

Minimum

Grapefruit classification Regulation period Minimum grade diameter

(inches)

----------------------------------------------------------------------------------------------------------------

Seeded.............................. On and after 09/01/94............... U.S. No. 1.......... 3\12/16\

Seedless, red....................... 11/07/94-11/23/94................... Improved No. 2 3\5/16\

External, U.S. No.

1 Internal.

11/24/94-11/12/95................... U.S. No. 1.......... 3\5/16\

On and after 11/13/95............... U.S. No. 1.......... 3\9/16\

Seedless, except red................ On and after 09/01/94............... U.S. No. 1.......... 3\9/16\

----------------------------------------------------------------------------------------------------------------

* * * * *

Dated: November 8, 1994.

Martha B. Ransom,

Acting Deputy Director, Fruit and Vegetable Division.

[FR Doc. 94-28113 Filed 11-9-94; 11:20 am]

BILLING CODE 3410-02-P