Oranges, Grapefruit, Tangerines, and Tangelos Grown in Florida; Limiting the Volume of Small Florida Red Seedless Grapefruit

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.

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

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