Dried Prunes Produced in California; Undersized Regulation for the 1998-99 Crop Year

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 993

[Docket No. FV98-993-1 FR]

Dried Prunes Produced in California; Undersized Regulation for

the 1998-99 Crop Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule changes the undersized regulation for dried

prunes received by handlers from producers and dehydrators under

Marketing Order No. 993 for the 1998-99 crop year. The marketing order

regulates the handling of dried prunes produced in California and is

administered locally by the Prune Marketing Committee (Committee). This

rule removes the smallest, least desirable of the marketable size dried

prunes produced in California from human consumption outlets, and

allows handlers to dispose of undersized prunes in such outlets as

livestock feed. The Committee estimated that this rule will reduce the

calculated excess of about 78,000 tons of dried prunes expected at the

end of the 1997-98 crop year by approximately 7,300 tons, leaving

sufficient prunes to fulfill foreign and domestic trade demand.

EFFECTIVE DATES: August 1, 1998, through July 31, 1999.

FOR FURTHER INFORMATION CONTACT: Richard P. Van Diest, Marketing

Specialist, California Marketing Field Office, Fruit and Vegetable

Programs, AMS, USDA, 2202 Monterey Street, suite 102B, Fresno,

California 93721; telephone: (209) 487-5901, Fax: (209) 487-5906; or

George Kelhart, Technical Advisor, Marketing Order Administration

Branch, Fruit and Vegetable Programs, AMS, USDA, room 2525-S, PO Box

96456, Washington, DC 20090-6456; telephone: (202) 720-2491, Fax: (202)

205-6632. Small businesses may request information on compliance with

this regulation by contacting Jay Guerber, Marketing Order

Administration Branch, Fruit and Vegetable Programs, AMS, USDA, room

2525-S, PO Box 96456, Washington, DC 20090-6456; telephone: (202) 720-

2491, Fax: (202) 205-6632.

SUPPLEMENTARY INFORMATION: This rule is issued under Marketing

Agreement and Order No. 993, both as amended (7 CFR part 993),

regulating the handling of dried prunes produced in California,

hereinafter referred to as the ``order.'' The marketing agreement and

order are

[[Page 20059]]

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 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 the date of the entry of the ruling.

This rule adds Sec. 993.405 to Subpart--Undersized Prune Regulation

(7 CFR part 993.400) to implement changes to the undersized regulation

currently in effect for French prunes which pass freely through a

screen opening from \23/32\ to \24/32\ of an inch in diameter and for

non-French prunes from \28/32\ to \30/32\ of an inch in diameter for

the 1998-99 crop year for volume control purposes. This rule removes

the smallest, least desirable of the marketable size dried prunes

produced in California from human consumption outlets. The rule will be

in effect from August 1, 1998, through July 31, 1999, and was

unanimously recommended by the Committee at a November 18, 1997,

meeting.

Section 993.19b of the prune marketing order defines undersized

prunes as prunes which pass freely through a round opening of a

specified diameter. Since August 1, 1982, the undersized dried prune

regulation specified in Sec. 993.49(c) of the prune marketing order has

been \23/32\ of an inch for French prunes and \28/32\ of an inch for

non-French prunes. These diameter openings have been in effect

continuously for quality control purposes. Section 993.49(c) also

provides that the Secretary, upon a recommendation of the Committee,

may establish larger openings for undersized dried prunes whenever it

is determined that supply conditions for a crop year warrant such

regulation.

Section 993.50(g) states in part: ``No handler shall ship or

otherwise dispose of, for human consumption, the quantity of prunes

determined by the inspection service pursuant to Sec. 993.49(c) to be

undersized prunes * * *'' Pursuant to Sec. 993.52, minimum standards,

pack specifications, including the openings prescribed in

Sec. 993.49(c), may be modified by the Secretary, on the basis of a

recommendation of the Committee or other information.

Pursuant to the authority in Sec. 993.52 of the order, Sec. 993.400

modifies the undersized openings prescribed in Sec. 993.49(c) to permit

undersized regulations using openings of \23/32\ or \24/32\ of an inch

for French prunes, and \28/32\ or \30/32\ of an inch for non-French

prunes.

During the 1974-75 and 1977-78 crop years, the undersized prune

regulation was established by the Department at \23/32\ of an inch in

diameter for French prunes and \28/32\ of an inch in diameter for non-

French prunes. These diameter openings were established in

Secs. 993.401 and 993.404, respectively (39 FR 32733, September 11,

1974; and 42 FR 49802, September 28, 1977). During the 1975-76 and

1976-77 crop years, the undersized prune regulation was established at

\24/32\ of an inch for French prunes, and \30/32\ of an inch for non-

French prunes. These diameter openings were established in

Secs. 993.402 and 993.403 respectively (40 FR 42530, September 15,

1975; and 41 FR 37306, September 3, 1976). The prune industry had an

excess supply of prunes, particularly small-sized prunes. Rather than

recommending volume regulation percentages for the 1975-76, 1976-77 and

1977-78 crop years, the Committee recommended the establishment of an

undersized prune regulation applicable to all prunes received by

handlers from producers and dehydrators during each of those crop

years. For the 1974-75 crop year, the Committee recommended and the

Department established volume regulation percentages and an undersized

regulation at the aforementioned \23/32\ and \28/32\ inch diameter

screen sizes.

The objective of the undersized regulations during each of those

crop years was to preclude the use of these small prunes in

manufactured prune products, such as juice and concentrate. Handlers

could not market undersized prunes for human consumption, but could

dispose of them in nonhuman outlets such as livestock feed.

With these experiences as a basis, the marketing order was amended

on August 1, 1982, establishing the continuing quality-related

regulation for undersized French and non-French prunes under

Sec. 993.49(c). That regulation has removed from the marketable supply

those prunes which are not desirable for use in prune products.

As in the 1970's, the prune industry is currently experiencing an

excess supply of prunes, particularly in the smaller sizes. At its

meeting on November 18, 1997, the Committee unanimously recommended

establishing an undersized prune regulation at \24/32\ of an inch in

diameter for French prunes and \30/32\ of an inch in diameter for non-

French prunes for volume control purposes for the 1998-99 crop year.

That crop year begins August 1, 1998, and ends July 31, 1999.

The Committee estimated that this rule will reduce the calculated

excess of about 78,000 natural condition tons of dried prunes as of

July 31, 1998, by approximately 7,300 natural condition tons, still

leaving sufficient prunes to fill domestic and foreign trade demand

during the 1998-99 crop year, and provide an adequate carry-out on July

31, 1999, for early season shipments until the new crop is available

for shipment. According to the Committee, the desired inventory level

to keep trade distribution channels full while awaiting the new crop is

almost 41,000 natural condition tons.

In its deliberations, the Committee reviewed statistics reflecting:

(1) A worldwide prune demand which has been relatively stable at about

260,000 tons; (2) a worldwide oversupply that is expected to continue

growing into the next century (estimated at 387,170 natural condition

tons by the year 2001); (3) a continuing oversupply situation in

California caused by increased production from additional plantings and

higher yields per acre (between the 1993-94 and 1996-97 crop years, the

yield ranged from 2.3 to 2.8 versus a 10 year average of 2.2 tons per

acre); and (4) a worsening of California's excess supply situation,

even though dried prune shipments in 1996-97 reached a near-record high

of 183,252 packed tons. The Committee also considered the quantity of

``D'' screen (\24/32\ of an inch in diameter for French prunes and \30/

32\ of an inch in diameter for non-French prunes) prunes produced

during the 1990-91 through 1996-97 crop years. The production of these

small sizes ranged from 2,575 to 8,778 natural

[[Page 20060]]

condition tons during that period. The Committee concluded that it had

to utilize supply management techniques to accelerate the return to a

balanced supply/demand situation in the interest of California dried

prune producers and handlers. The changes to the undersized regulation

for the 1998-99 crop year are the result of these deliberations, and

the Committee's desire to bring supplies more in line with market

needs.

The current oversupply situation facing the California prune

industry has been caused by four consecutive large crops of over

180,000 natural condition tons. Another large crop of 215,000 natural

condition tons is forecast for the 1997-98 crop year, which will add to

the existing oversupply. The yield per acre is forecast at 2.6 tons per

acre. With an anticipated increase in bearing acreage, the 1998-99

season crop could be larger.

Because of the oversupply situation, producer prices for undersized

prunes during the 1997-98 crop year have declined to $40-50 per ton.

This represents a loss to the producer of about $260-270 per ton. The

lower pricing of the smaller prunes is expected to provide producers an

incentive to produce larger sizes which the industry needs to meet the

increasing market demand for pitted prunes. However, the Committee felt

that the undersized rule change was needed to expedite the reduction of

the inventories of small prunes, and more quickly bring supplies in

line with needs. Attainment of this goal will benefit all of the

producers and handlers of California prunes.

The recommended decision of June 1, 1981 (46 FR 29271) regarding

undersized prunes states that the undersized prune regulation at the

\23/32\ and \28/32\ inch diameter size openings would be continuous for

the purposes of quality control even in above parity situations. It

further states that any change (i.e., increase) in the size of those

openings would not be for the purpose of establishing a new quality-

related minimum. Larger openings would only be applicable when supply

conditions warranted the regulation of a larger quantity of prunes as

undersized prunes. Thus, any regulation prescribing openings larger

than those in Sec. 993.49(c) should not be implemented when the grower

average price is expected to be above parity. As discussed later, the

average grower price for prunes during the 1998-99 crop year is not

expected to be above parity, and implementation of this more

restrictive undersized regulation will be appropriate as far as parity

is concerned.

Section 8e of the Act requires that when certain domestically

produced commodities, including prunes, are regulated under a Federal

marketing order, imports of that commodity must meet the same or

comparable grade, size, quality, or maturity requirements for the

domestically produced commodity. This action does not impact the dried

prune import regulation because the action to be implemented is for

volume control, not quality control, purposes. The smaller diameter

openings of \23/32\ of an inch for French prunes and \28/32\ of an inch

for non-French prunes were implemented for the purpose of improving

product quality. The increases to \24/32\ of an inch in diameter for

French prunes and \30/32\ of an inch in diameter for non-French prunes

are for purposes of volume control. Therefore, the increased diameters

will not be applied to imported prunes.

Pursuant to requirements set forth in the Regulatory Flexibility

Act (RFA), the Agricultural Marketing Service (AMS) has considered the

economic impact of this rule on small entities. Accordingly, AMS has

prepared this final 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 the 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 1,400 producers of dried prunes in the

production area and approximately 21 handlers subject to regulation

under the marketing order. Small agricultural producers have been

defined by the Small Business Administration (13 CFR 121.601) as those

having annual receipts less than $500,000, and small agricultural

service firms are defined as those whose annual receipts are less than

$5,000,000.

Last year, as a percentage, about 34 percent of the handlers

shipped over $5,000,000 worth of dried prunes and 66 percent of the

handlers shipped under $5,000,000 worth of prunes. In addition, based

on production, producer prices, and the total number of dried prune

producers provided by the Committee, the average annual producer

revenue is approximately $136,000. The majority of handlers and

producers of California dried prunes may be classified as small

entities.

This rule will establish an undersized prune regulation of \24/32\

of an inch in diameter for French prunes and \30/32\ of an inch in

diameter for non-French prunes for the 1998-99 crop year for volume

control purposes. This change in regulation will result in more of the

smaller sized prunes being classified as undersized prunes, and is

expected to benefit producers, handlers, and consumers. The prune

industry currently uses a ``D'' screen (\24/32\ of an inch in diameter

for French prunes and \30/32\ of an inch in diameter for non-French

prunes) for separating small prunes from the larger sizes. Thus

producers and handlers, both small and large, will not incur extra

costs from having to purchase new screen sizes. Moreover, because the

quality related undersized regulation has been in place continuously

since the early 1980's, the only additional cost resulting from the

increased openings will be the disposal of additional undersized prune

tonnage (about 7,300 natural condition tons, based on a 3-year average)

to nonhuman consumption outlets as required by the order. This will be

in addition to the 5,019 natural condition tons (or 2.86 percent of the

marketable production) that has been removed on average over the past

seven crop years since 1990-91. Since the benefits and costs of this

action will be directly proportional to the quantity of ``D'' screen

prunes produced or handled, small businesses should not be

disproportionately affected by the action. Sugar content, prune

density, and dry-away ratio vary from county to county, from orchard to

orchard, and from season to season in the major producing areas of the

Sacramento and San Joaquin Valleys. These areas account for over 99

percent of the State's production, and the prunes produced are

homogeneous enough so that this rule will not be inequitable to

producers, both large and small, in any area of the State.

The quantity of small prunes in a lot is not dependent on whether a

producer or handler is small or large, but is primarily dependant on

cultural practices, soil composition, and water costs. The cost to

minimize the quantity of small prunes is similar for small and large

entities. The anticipated benefits of this rule are not expected to be

disproportionately greater or lesser for small handlers or producers

than for larger entities. While this rule may initially impose some

additional costs on producers and handlers, the costs are expected to

be minimal, and will be offset by the benefits derived by the

elimination of some of the excess supply of small-sized prunes.

[[Page 20061]]

At the November 18, 1997, meeting, the Committee discussed the

impact of this change on handlers and producers in terms of cost.

Handlers and producers receive higher returns for the larger size

prunes. According to industry members, the small-sized prunes being

eliminated through this rule have very little value. As mentioned

earlier, the current situation for these small sizes is quite bleak, as

producers lose money on every ton delivered to handlers. The 1997

grower field price for ``D'' screen prunes ranges between $40 and $50

per ton. The cost of drying a ton of such prunes is $260 per ton at a 4

to 1 dry-away ratio, the cost to haul these prunes is at least $20 per

ton, and the producer assessment that must be paid to the California

Prune Board (a body which administers the State marketing order for

promotion and research) is $30 per ton. The total cost is about $310

per ton which equates to a loss of about $260 per ton for every ton of

``D'' screen prunes produced and delivered to handlers.

The rule is expected to benefit all producers and handlers by

eliminating the smallest, least valuable prunes from the crop. This is

expected to help reduce the oversupply situation and lessen the

downward pressure on small prune prices to producers. Further,

producers may alter their cultural practices to grow the larger sizes

needed by the industry to meet the market demand for pitted prunes.

Utilizing data provided by the Committee, the Department has

evaluated the impact of the undersized regulation change upon producers

and handlers in the industry. The analysis shows that a reduction in

the marketable production and carryin inventory will result in higher

season-average prices which will benefit all producers. The removal of

the smallest, least desirable of the marketable dried prunes produced

in California from human consumption outlets will eliminate an

estimated 7,300 tons of small-sized dried prunes during the 1998-99

crop year from the marketplace. This will help lessen the negative

marketing and pricing effects resulting from the excess supply

situation facing the industry. California prune handlers reported that

they held 102,386 tons of natural condition prunes on July 31, 1997,

the end of the 1996-97 crop year. This was the largest year-end

inventory reported since the Committee began collecting such statistics

in 1949. The desired inventory level, which is based on an average 12-

week supply deemed desirable to keep trade distribution channels full

while awaiting new crop, is 40,991 natural condition tons. This leaves

an inventory surplus of over 61,000 tons which will likely take the

industry several years to market.

Further burdening this oversupply situation will be larger

California prune crops over the next few years caused by the new prune

plantings of recent years and higher yields per acre. During the 1990-

91 crop year, the non-bearing acreage totaled 5,900 acres; but by 1996-

97, the non-bearing acreage had quadrupled to more than 23,000 acres.

Yields have ranged from 2.3 to 2.8 tons per acre over the most recent

3-year period, compared to a 10-year average of 2.2 tons to the acre.

The 1997-98 crop is expected to be 215,000 natural condition tons which

will add to the existing oversupply. Barring unforeseen circumstances,

the 1998-99 crop may be larger which will further worsen the industry's

oversupply problems.

As the marketable dried prune production and surplus prune

inventories are reduced through this action, the trade may begin taking

a position early in the season for its dried prune needs, which will

help firm up market prices and eventually reflect a higher overall

price to the producers. In addition, as producers implement improved

cultural and thinning practices, the overall size of the prunes will

get larger. As a result, producer returns will increase because

producers will no longer be receiving $40-50 per ton for the small-

sized fruit at a $260-270 per ton loss, but will receive the higher

prices paid for the larger sizes.

For the 1992-93 through the 1996-97 crop years, the season-average

price received by the producers ranged from a high of $1,121 per ton to

a low of $838 per ton during the 1996-97 crop year. The season-average

price received by producers averaged about 60 percent of parity during

the 1992-93 through 1996-97 crop years. Based on available data and

estimates of prices, production, and other economic factors, the

season-average producer price for the 1997-98 and 1998-99 seasons is

expected to be below $800 per ton, or about 40 percent of parity.

The Committee discussed alternatives to this change, including

making no changes to the undersized prune regulation and allowing

market dynamics to foster prune inventory adjustments through lower

prices on the smaller prunes. While reduced grower prices for small

prunes are expected to contribute toward a slow reduction in dried

prune inventories, the Committee believed that the undersized rule

change was needed to expedite that reduction. With the excess tonnage

of dried prunes, the Committee also considered establishing a reserve

pool and diversion program to reduce the oversupply situation. These

initiatives were not supported because they would not specifically

eliminate the smallest, least valuable prunes which are in oversupply.

Instead the reserve pool and diversion program would eliminate larger

size prunes from human consumption outlets. Reserve pools for prunes

have historically been implemented on dried prunes regardless of the

size of the prunes. While the marketing order also allows handlers to

remove the larger prunes from the pool by replacing them with small

prunes and cash to reflect the difference in value, this exchange would

be cumbersome and expensive to administer compared to this rule.

Section 8e of the Act requires that when certain domestically

produced commodities, including prunes, are regulated under a Federal

marketing order, imports of that commodity must meet the same or

comparable grade, size, quality, or maturity requirements for the

domestically produced commodity. This action does not impact the dried

prune import regulation because the action to be implemented is for

volume control, not quality control, purposes. The smaller diameter

openings of 23/32 of an inch for French prunes and 28/32 of an inch for

non-French prunes were implemented for the purpose of improving product

quality. The increases to 24/32 of an inch in diameter for French

prunes and 30/32 of an inch in diameter for non-French prunes are for

purposes of volume control. Therefore, the increased diameters will not

be applied to imported prunes.

This action will not impose any additional reporting or

recordkeeping requirements on either small or large California dried

prune handlers. 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.

The Department has not identified any relevant Federal rules that

duplicate, overlap, or conflict with this rule.

In addition, the Committee's meeting was widely publicized

throughout the prune industry and all interested persons were invited

to attend the meeting and participate in Committee deliberations on all

issues. Like all Committee meetings, the November 18, 1997, meeting was

a public meeting and all entities, both large and small, were able to

express views on this issue. The Committee itself is composed of 22

[[Page 20062]]

members, of which 7 are handlers, 14 are producers, and 1 is a public

member. The majority of the producer and handler members are small

entities. Moreover, the Committee and its Supply Management

Subcommittee have been reviewing this supply management problem for

almost a year, and this rule reflects their deliberations completely.

Finally, interested persons were invited to submit information on the

regulatory and informational impacts of this action on small

businesses.

A proposed rule concerning this action was published in the Federal

Register on February 24, 1998 (63 FR 9160). Copies of this rule were

mailed or sent via facsimile to all Committee members and dried prune

handlers. Finally, the rule was made available through the Internet by

the U.S. Government Printing Office. That rule provided for a 30-day

comment period which ended March 26, 1998. No comments were received.

Accordingly, no changes are made to the proposed rule.

After consideration of all relevant material presented, including

the Committee's recommendation, and other information, it is hereby

found that this rule, as hereinafter set forth, will tend to effectuate

the declared policy of the Act.

List of Subjects in 7 CFR Part 993

Marketing agreements, Plums, Prunes, Reporting and recordkeeping

requirements.

For the reasons set forth in the preamble, 7 CFR part 993 is

amended as follows:

PART 993--DRIED PRUNES PRODUCED IN CALIFORNIA

1. The authority citation for 7 CFR part 993 continues to read as

follows:

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

2. A new Sec. 993.405 is added to read as follows:

Note: This section will not appear in the Code of Federal

Regulations.

Sec. 993.405 Undersized prune regulation for the 1998-99 crop year.

Pursuant to Secs. 993.49(c) and 993.52, an undersized prune

regulation for the 1998-99 crop year is hereby established. Undersized

prunes are prunes which pass through openings as follows: for French

prunes, 24/32 of an inch in diameter; for non-French prunes, 30/32 of

an inch in diameter.

Dated: April 9, 1998.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 98-10771 Filed 4-22-98; 8:45 am]

BILLING CODE 3410-02-P