Regulations (Other Than Rules of Practice) Under the Perishable Agricultural Commodities Act, 1930 (PACA)

SUMMARY: The Department of Agriculture is revising the Regulations

(other than Rules of Practice) Under the Perishable Agricultural

Commodities Act (PACA) to include oil-blanched frozen fruits and

vegetables as a commodity covered under the PACA. This rule will grant

dealers in frozen oil-blanched products the same rights afforded

dealers whose frozen product is water-blanched.

EFFECTIVE DATE: April 26, 1996.

FOR FURTHER INFORMATION CONTACT: J.R. Frazier, Assistant Chief, PACA

Branch, Room 2095-So., Fruit and Vegetable Division, Agricultural

Marketing Service, U.S. Department of Agriculture, Washington, DC

20250, Phone (202) 720-4180.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This final rule is issued under the Perishable Agricultural

Commodities Act (7 U.S.C. 499 et. seq.), as amended, hereinafter

referred to as the ``PACA.'' The Department of Agriculture is issuing

this final rule in conformance with Executive Order 12866.

Executive Order 12778

This final rule has been reviewed under Executive Order 12778,

Civil Justice Reform. It is not intended to have retroactive effect.

This final rule will not preempt any State or local laws, regulation,

or policies, unless they present an irreconcilable conflict with this

rule. There are no administrative procedures which must be exhausted

prior to any judicial challenge to the provisions of this rule.

Regulatory Flexibility Act

Pursuant to requirements set forth in the Regulatory Flexibility

Act (RFA), (5 U.S.C. 601 et seq.), the Administrator of the

Agricultural Marketing Service (AMS) has certified that this action

will not have a significant economic impact on a substantial number of

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. This is an action that is

brought about at the request of the frozen fruit and vegetable industry

and would benefit producers and small businesses that process and

supply frozen fruits and vegetables by making available to them new

remedies under the PACA.

This rule extends PACA coverage to include frozen fruits and

vegetables that are oil-blanched, especially frozen french fried potato

products. Under previous regulations, suppliers of these commodities

suffered considerable financial losses because oil-blanched products

were excluded by regulation from PACA coverage. This rule grants

dealers in frozen oil-blanched products the same rights afforded

dealers whose frozen product is water- blanched.

It is therefore not unduly or disproportionately burdensome on

small businesses and in fact, rectifies the previous situation in which

processors and suppliers were closed out of remedies with respect to

oil-blanched product.

The PACA establishes a code of fair trading by prohibiting certain

unfair practices in the marketing of fresh or frozen fruits and

vegetables. The law requires that parties fulfill their contractual

obligations including prompt pay, and provides a forum wherein persons

who suffer damages can recover their losses.

The PACA also impresses a statutory trust for the benefit of unpaid

sellers or suppliers on all perishable agricultural commodities

received by a commission merchant, dealer or broker and all inventories

of food or other products derived from the sale of such commodities or

products. Sellers who preserve their eligibility are entitled to

payment ahead of other creditors, from trust assets, of money owed on

past due accounts.

Information submitted to this Agency by the Frozen Potato Products

Institute indicates that frozen potato products represent the largest

single frozen commodity shipped in the United States. This information

further indicates that potatoes cannot be economically frozen and

shipped long distances unless they first undergo oil blanching. As

pointed out by the American Frozen Food Institute, oil blanching, like

water and steam blanching inactivates enzymes without cooking the

product. Water and steam blanched frozen fruits and vegetables are

covered under the current regulations, oil-blanched frozen fruits and

vegetables are not. To exclude such a substantial portion of the frozen

food industry is inconsistent with the intent of the PACA to protect

dealers in fresh or frozen fruits and vegetables.

Retailers who buy in interstate or foreign commerce must obtain a

PACA license if they buy more than $230,000 of fruits and vegetables

during a calendar year. Including oil-blanched product in the

calculation of the $230,000 exemption may result in a marginal increase

in retailers becoming subject to PACA, requiring them to purchase a

PACA license at an annual cost of $400. However, the license fee for

retailers is being phased out under the provisions of the Perishable

Agricultural Commodities Act Amendments of 1995. By calendar year 1999,

retailers will no longer be obligated to pay license fees though they

must still be licensed. A marginal increase in the number of retailers

subject to the PACA, is not significant compared to the benefits

derived in the industry by including these commodities under the PACA.

The proposed rule was published in the Federal Register (59 FR

35487) on July 12, 1994. On September 12, 1994, Notice was given in the

Federal Register (59 FR 46772) re-opening the comment period. That

notice provided another comment period which ended October 12, 1994.

Ten comments were received,

[[Page 13386]]

six in favor and four opposed to the proposed rule.

Three commentors representing retailers and wholesale grocers

opposed the rule claiming that it would expand the PACA program.

It is true that the rule does expand the PACA program to a product

line that is not currently covered, but only because the current

regulations restrict the application of the meaning of ``perishable

agricultural commodity'' as provided in the Act. Oil-blanched product

is well within the definition of a perishable agricultural commodity as

defined by the statute and is consistent with the industry view of the

scope of the Act and the nature of the product. Including oil-blanched

frozen fruits and vegetables does not unduly or disproportionately

burden retailers. With this final rule, all sales of potato products,

whether to wholesale distributors, or retailers, would be covered by

the term ``perishable agricultural commodity.'' Further, retailers

would be less likely than other dealers to be affected by the rule

because frozen oil-blanched product would be a small portion of their

total business. However, continuing to exclude (frozen french fried

potatoes) the largest single frozen commodity in the United States

poses substantial risk to farmers, shippers, and processors who are

extending credit without the trust protection the Act affords to other

dealers.

Another commentor representing a major restaurant chain opposed the

proposed rule because he thought the change might bring restaurants

under the jurisdiction of the PACA, and argued that therefore, the

economic impact of the rule has been underestimated. Restaurants

traditionally have not been considered subject to the PACA by USDA or

Congress unless the buying arm of the restaurant is a separate legal

entity, and is buying for and/or reselling the product to another

entity. Since restaurants are not subject to the PACA, this change in

the regulation will not impact restaurants.

For the reasons stated, we are not making any changes to this final

rule based on the above comments.

The commentors in favor of the proposal claimed that frozen

potatoes cannot be shipped practically and commercially without being

oil-blanched and that extending PACA to cover these products would

protect processors and shippers and enhance the protection to farmers.

They also pointed out that incorporating oil-blanched products into the

regulations was consistent with the current policy of including water-

blanched and steam-blanched product and would streamline the

administration of PACA because it would no longer be necessary to

distinguish oil-blanched from water or steam-blanched products. They

also claimed that the proposed rule would improve marketing efficiency,

thereby benefitting consumers and the potato industry.

After thoroughly analyzing the comments received and all other

available information, the Department has concluded that issuing this

rule is appropriate.

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

that the issuance of this final rule will not have a significant

economic effect on a substantial number of small entities.

After consideration of all relevant material presented, the

comments received, and other available information, it is found that

this regulation, as hereinafter set forth, will tend to effectuate the

declared policy of the Act.

List of Subjects in 7 CFR Part 46

Agricultural commodities, Brokers, Penalties, Reporting and

recordkeeping requirements.

For the reasons set forth in the preamble, 7 CFR Part 46 of the

Code of Federal Regulations is amended as follows:

PART 46--REGULATIONS (OTHER THAN RULES OF PRACTICE) UNDER THE

PERISHABLE AGRICULTURAL COMMODITIES ACT, 1930

1. The authority citation for part 46 continues to read as follows:

Authority: Sec. 15, 46 Stat. 537; 7 U.S.C. 499o.

2. In section 46.2, paragraph (u) is revised to read as follows:

Sec. 46.2 Definitions.

* * * * *

(u) Fresh fruits and fresh vegetables include all produce in fresh

form generally considered as perishable fruits and vegetables, whether

or not packed in ice or held in common or cold storage, but do not

include those perishable fruits and vegetables which have been

manufactured into articles of food of a different kind or character.

The effects of the following operations shall not be considered as

changing a commodity into a food of a different kind or character:

Water, steam, or oil blanching, chopping, color adding, curing,

cutting, dicing, drying for the removal of surface moisture;

fumigating, gassing, heating for insect control, ripening and coloring;

removal of seeds, pits, stems, calyx, husk, pods, rind, skin, peel, et

cetera; polishing, precooling, refrigerating, shredding, slicing,

trimming, washing with or without chemicals; waxing, adding of sugar or

other sweetening agents; adding ascorbic acid or other agents used to

retard oxidation; mixing of several kinds of sliced, chopped, or diced

fruits or vegetables for packaging in any type of containers; or

comparable methods of preparation.

* * * * *

Dated: March 20, 1996.

Lon Hatamiya,

Administrator.

[FR Doc. 96-7437 Filed 3-26-96; 8:45 am]

BILLING CODE 3410-02-P