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

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 905

[Docket No. FV98-905-4 PR]

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

Limiting the Volume of Small Red Seedless Grapefruit

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposed rule invites comments on limiting the volume of

small red seedless grapefruit entering the fresh market under the

marketing order covering oranges, grapefruit, tangerines, and tangelos

grown in Florida. The marketing order is administered locally by the

Citrus Administrative Committee (committee). This rule would limit the

volume of size 48 and/or size 56 red seedless grapefruit handlers could

ship during the first 11 weeks of the 1998-1999 season beginning in

September. This rule would establish the base percentage for these

small sizes at 25 percent for the 11 week period. This proposal would

provide a sufficient supply of small sized red seedless grapefruit to

meet market demand, without saturating all markets with these small

sizes. This rule would help stabilize the market and improve grower

returns.

DATES: Comments must be received by August 31, 1998.

ADDRESSES: Interested persons are invited to submit written comments

concerning this proposal. Comments must be sent to the Docket Clerk,

Fruit and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 96456,

Washington, DC 20090-6456; Fax: (202) 205-6632. 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: William G. Pimental, Southeast

Marketing Field Office, F&V, AMS, USDA, P.O. Box 2276, Winter Haven,

Florida 33883-2276; telephone: (941) 299-4770, Fax: (941) 299-5169; or

George Kelhart, Technical Advisor, Marketing Order Administration

Branch, F&V, AMS, USDA, room 2522-S, P.O. Box 96456, Washington, DC

20090-6456; telephone: (202) 690-3919, 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, P.O. Box 96456,

Washington, DC 20090-6456; telephone (202) 720-2491, Fax: (202) 205-

6632.

SUPPLEMENTARY INFORMATION: This proposal 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 proposal has been reviewed under Executive Order 12988, Civil

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

This proposal 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\15/16\ inches in

diameter).

Section 905.52 of the 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

would be 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 regulations 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 sizes 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 regulation period is 11 weeks

long and 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 the previous five seasons, handlers can calculate the

[[Page 42765]]

volume of sizes 48 and/or 56 they may ship in a regulated week.

This proposed rule would limit the volume of small red seedless

grapefruit entering the fresh market for each week of the 11 week

period beginning the week of September 21. This rule would limit the

volume of sizes 48 and/or 56 red seedless grapefruit entering the fresh

market for each of the 11 weeks at 25 percent. This would allow the

committee to start the season at the most restrictive level allowed

under Sec. 905.153, and if conditions warrant, to release greater

quantities of size 48 and/or size 56 small red grapefruit as more

information becomes available. This action was recommended by the

committee at its meeting on May 22, 1998, by a vote of 14 in favor to 2

opposed.

For the seasons 1994-95, 1995-96, and 1996-97, returns on red

seedless grapefruit had been declining, often not returning the cost of

production. On tree prices for red seedless grapefruit had fallen

steadily from $9.60 per carton (\3/5\ bushel) during the 1989-90

season, to $3.45 per carton during the 1994-95 season, to a low of

$1.41 per carton during the 1996-97 season.

The committee determined that one problem contributing to the

market's condition was the excessive number of small sized grapefruit

shipped early in the marketing season. In the 1994-95, 1995-96, and

1996-97 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 higher prices

than smaller sizes. However, there is a push early in the season to get

fruit into the market to take advantage of the high 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, driving 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 covered in this

rule, the f.o.b. for large sizes dropped to within two dollars of the

f.o.b. for small sizes.

In the three seasons prior to 1997-98, prices of red seedless

grapefruit fell from a weighted average f.o.b. of $7.80 per carton to

an average f.o.b. of $5.50 per carton during the period covered by this

rule. Even though later in the season the crop sized to naturally limit

the amount of smaller sizes available for shipment, the price structure

in the market had already been negatively affected. During the three

seasons, the market did not recover, 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 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

had fallen from a high near $7.00 in 1991-92 to around $1.50 for the

1996-97 season. The study projected that if the industry elected to

make no changes, the on tree price would remain around $1.50. The study

also indicated that increasing minimum size restrictions could help

raise returns.

To address this issue, the committee voted to utilize the

provisions of Sec. 905.153, and establish weekly percentage of size

regulation during the first 11 weeks of the 1997-98 season. The initial

recommendation from the committee was to set the weekly percentage at

25 percent for each of the 11 weeks. As more information on the crop

became available, and as the season progressed, the committee met

several times and adjusted its recommendations for the weekly

percentages. The committee considered information from past seasons,

crop estimates, fruit size, and other information to make their

recommendations. Actual weekly percentages established during the 11

week period during the 1997-98 season were 50 percent for the first

three weeks, and 35 percent for the other eight weeks.

In making this recommendation, the committee reviewed its

experiences from the past season, and those of prior seasons. The

committee believes establishing weekly percentages last season was

successful. The committee examined shipment data covering the 11 week

regulatory period for the last season and the four prior seasons. The

information contained the amounts and percentages of sizes 48 and 56

shipped during each week and weekly f.o.b. figures. During the 11 week

period, the regulation was successful at helping maintain prices at a

higher level than the prior season, and sizes 48 and 56 by count and as

a percentage of total shipments were reduced.

In comparison with f.o.b. prices from the 1996-97 season, for weeks

when pricing information was available (weeks 6 through 11), last

season's numbers were higher in five of the six weeks. The average

f.o.b. for these weeks was $6.28 for the 1996-97 season and $6.55 for

the 1997-98 season. Last season, sizes 48 and 56 represented only 31

percent of total shipments during the 11 week regulatory period as

compared to 38 percent during the previous season. There was also a 15

percent reduction in shipments of sizes 48 and 56 by count for the 11

weeks.

Other information also indicates the regulation was successful. In

past seasons, the on tree price had been dropping steadily. However, on

tree prices for the month following the 11 weeks of regulation indicate

that in December 1997 the on tree price for grapefruit was $2.26

compared to $1.55 for the previous season.

The committee was concerned that the glut of smaller, lower priced

fruit on the early market was driving down the price for all sizes.

There was a steep decline in prices for larger sizes in previous

seasons. During the six weeks for mid-October through November, prices

for sizes 23, 27, 32, and 36 fell by 28, 27, 21, and 20 percent,

respectively, during the 1996-97 season. Prices for the same sizes

during the same period fell only 5, 5, 2, and 7 percent, respectively,

last season with regulation. In fact, prices for all sizes were firmer

during this period for last season when compared to the previous year,

with the weighted average price dropping only 9 percent during this

period as compared to 22 percent for the previous season.

An economic study done by Florida Citrus Mutual (Lakeland, Florida)

in April 1998, found that the weekly percentage regulation had been

effective. The study stated that part of the strength in early season

pricing appeared to be due to the use of the weekly percentage rule to

limit the volume of sizes 48 and 56. It said that prices were generally

higher across the size spectrum with sizes 48 and 56 having the largest

gains, with larger sized grapefruit registering modest improvements.

The rule shifted the size distribution toward the higher priced, larger

sized grapefruit which helped raise weekly average f.o.b. prices. It

further stated that sizes 48 and 56

[[Page 42766]]

grapefruit accounted for around 27 percent of domestic shipments during

the same 11 weeks during the 1996-97 season. Comparatively, sizes 48

and 56 accounted for only 17 percent of domestic shipments during the

same period last season, as small sizes were used to supply export

customers with preferences for small sized grapefruit.

A subcommittee had been formed to examine how weekly percentage of

size regulation could best be used. The subcommittee recommended to the

full committee that the weekly percentage of size regulation should be

set at 25 percent for the 11 week period. Members believe that the

problems associated with an uncontrolled volume of small sizes entering

the market early in the season will continue. The subcommittee thought

that to provide the committee with the most flexibility, the weekly

percentage should be set at 25 percent for each of the 11 weeks in the

regulated period. The subcommittee believed it was best to set

regulation at the most restrictive level, and then relax the percentage

as warranted by conditions later in the season. The subcommittee also

recommended that the committee meet on a regular basis early in the

season to consider adjustments in the weekly percentage rates as was

done in the previous season.

The recommendations of the subcommittee were reviewed by the

committee. In its discussion, the committee recognized the need for and

the benefits of the weekly percentage regulation. The committee agreed

with the findings of the subcommittee, and recommended establishing the

base percentage at 25 percent for each of the regulation weeks. This is

as restrictive as Sec. 905.153 will allow.

In making this recommendation, the committee considered that by

establishing regulation at 25 percent, they could meet again in August

and the months following and use the best information available to help

the industry and the committee make the most informed decisions as to

whether the established percentage is appropriate.

Based on this information and the experiences from last season, the

committee agreed to establish the weekly percentage at the most

restrictive level. They can then meet in late August, and in September

and October as needed when additional information is available and

determine whether the set percentage level is appropriate. They said

this is essentially what was done the prior year, and it had been very

successful. The committee had met in May 1997, and recommended a weekly

percentage be established at 25 percent for each of the eleven weeks.

In August, the committee met again, and recommended that the weekly

percentage be relaxed. They met again in October, and recommended

further relaxations. Any changes to the weekly percentage proposed by

this rule would require additional rulemaking and the approval of the

Secretary.

The committee noted that more information helpful in determining

the appropriate weekly percentages will be available after August. At

the time of the May meeting, grapefruit had not yet begun to size,

giving little indication as to the distribution of sizes. Only the most

preliminary of crop estimates was available, with the official estimate

not to be issued until October.

While information concerning the coming season is limited prior to

September, there are indications that setting the weekly percentage at

25 percent is the appropriate level. During deliberations last season

as to weekly percentages, the committee considered how past shipments

had affected the market. Based on this statistical information, the

committee members believed there was an indication that once shipments

of sizes 48 and 56 reached levels above 250,000 cartons a week, prices

declined on those and most other sizes of red seedless grapefruit. The

committee believed that if shipments of small sizes could be maintained

at around 250,000 cartons a week, prices should stabilize and demand

for larger, more profitable sizes should increase.

As is the case for this season, they wanted to recommend a weekly

percentage that would provide a sufficient volume of small sizes

without adversely impacting the markets for larger sizes. They also

originally recommended that the percentage for each of the 11 weeks be

established at the 25 percent level. This percentage, when combined

with the average weekly shipments for the total industry, provided a

total industry allotment of approximately 244,000 cartons of sizes 48

and/or 56 red seedless grapefruit per regulated week. The total

shipments of small red seedless grapefruit would approach the 250,000

carton mark during regulated weeks without exceeding it.

While the committee did eventually vote last season to increase the

weekly percentages, shipments of sizes 48 and 56 during the 11 weeks

regulated during the 1997-98 season remained close to the 250,000

carton mark. In only 3 of the 11 weeks did the volume of sizes 48 and

56 exceed 250,000 cartons, and even then, by not more than 35,000

cartons. This may have contributed to the success of the regulation.

Based on the shipments from last year, a weekly percentage of 25

percent would not have been that much more restrictive on shipments

than the percentages established, reducing in most cases just the

excess available allotment. In setting the weekly percentage for each

week at 25 percent this season, the total available allotment would

closely approximate the 250,000 carton level.

In addition, the production area suffered through a period of

insufficient rainfall during the spring. While the actual effects are

not currently known, it is possible that this may affect the sizing of

the crop as well as maturity. This could mean a larger volume of small

sized red seedless grapefruit, further exacerbating the problem with

small sizes early in the season.

The situation is also complicated by the ongoing economic problems

affecting the Asian markets. In past seasons, the Asian markets have

shown a strong demand for the smaller sized red seedless grapefruit.

The reduction in shipments to that area experienced during the later

season last year is expected to continue during the coming season. This

reduction in demand could result in a greater amount of small sizes for

the existing markets to absorb. These factors increase the need for

restrictions to prevent the volume of small sizes from overwhelming all

markets. Therefore, based on the information currently available,

setting the weekly percentages at 25 percent may be the most

appropriate level.

Therefore, this rule would establish the weekly percentage at 25

percent for each of the 11 weeks. The committee plans to meet in late

August, and as needed during the remainder of the 11 week period to

work to ensure that the set weekly percentages are at the appropriate

levels.

Under Sec. 905.153, the quantity of sizes 48 and/or 56 red seedless

grapefruit that may be shipped by a handler during a regulated week

would be calculated using the recommended percentage of 25 percent. By

taking the 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

[[Page 42767]]

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 to derive the average week. This average week would be the

base for each handler for each of the 11 weeks of the regulatory

period. The weekly percentage, in this case 25 percent, is multiplied

by a handler's average week. The product is that handler's allotment of

sizes 48 and/or 56 red seedless grapefruit for the given week.

Under this proposed rule, the calculated allotment is the amount of

small sized red seedless grapefruit a handler could ship. If the

minimum size established under Sec. 905.52 remains at size 56, handlers

could 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

could fill their allotment with size 48 fruit such that the total of

these shipments are within the established limits. The committee staff

would perform the specified calculations and provide them to each

handler on or before August 15 each year.

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 would then be divided by 33 weeks to

yield an average week, in this case, 1,600 cartons. This would be

Handler A's base. The weekly percentage of 25 percent would then be

applied to this amount. This would provide this handler with a weekly

allotment of 400 cartons (1,600 x .25) of size 48 and/or 56.

The average week for handlers with less than five previous seasons

of shipments would be 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 would have no prior

period on which to base their average week. Therefore, under this

proposal, a new handler could ship small sizes equal to 25 percent of

their total volume of shipments during their first shipping week. Once

a new handler has established shipments, their average week will be

calculated as an average of the weeks they have shipped during the

current season.

This proposed rule would establish a weekly percentage of 25

percent for each of the 11 weeks to be regulated. The regulatory period

begins the third Monday in September. Each regulation week would begin

Monday at 12:00 a.m. and end 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 could meet and recommend a

percentage above 25 percent 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 could 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) would be

deducted from the handler's allotment for the following week.

Overshipments would not be allowed during week 11 because there would

be 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 would not be carried forward to the following

week. However, a handler to whom an allotment has been issued could

lend or transfer all or part of such allotment (excluding the

overshipment allowance) to another handler. In the event of a loan,

each party would, 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 would promptly notify the committee

so that proper adjustments of the records could be made. In each case,

the committee would confirm in writing all such transactions prior to

the following week. The committee could also act on behalf of handlers

wanting to arrange allotment loans or participate in the transfer of

allotment. Repayment of an allotment loan would be at the discretion of

the handlers party to the loan.

The committee would compute each handler's allotment by multiplying

the handler's average week by the percentage established by regulation

for that week. The committee would notify each handler prior to that

particular week of the quantity of sizes 48 and 56 red seedless

grapefruit such handler could handle during a particular week, making

the necessary adjustments for overshipments and loan repayments.

During committee deliberations, several concerns were raised

regarding this proposed regulation. One area of concern was the way

allotment base is calculated. Two members commented that the rule was

not fair to those handlers that shipped the majority of their

grapefruit shipments during the 11 week period. They said that using a

33 week season as the basis for allotment was not reflective of their

shipments during the regulated period, and that their allotment was not

enough to cover their customer base.

The committee chose to use the past five seasons to provide the

most accurate picture of an average season. When recommending

procedures for establishing weekly percentage of size regulation for

red seedless grapefruit, the committee discussed several methods of

measuring a handler's volume to determine this base. It was decided

that shipments for the five previous years and for the 33 weeks

beginning the third Monday in September to the first Sunday the

following May should be used for calculation purposes.

This bases allotment on a 33 week period of shipments, not just a

handler's early shipments. This was done specifically to accommodate

small shippers or light volume shippers, who may not have shipped much

grapefruit in the early season. The use of an average week based on 33

weeks also helps adjust for variations in growing conditions that may

affect when fruit matures in different seasons and growing areas. After

considering different ways to calculate the average week, the committee

settled on this method as the definition of prior period that would

provide each handler with an equitable base from which to establish

shipments.

In its discussion, the committee recognized that there were

concerns regarding the way base is calculated. However, committee

members also stated that this type of regulation is intended to be

somewhat restrictive, and providing a system that satisfies everyone is

difficult, if not impossible, to achieve. There was general agreement

that this method was the best option considered thus far. Another

member

[[Page 42768]]

commented that this option also provides a larger industry base than an

11 week calculation, supplying a greater amount of available base

overall.

In regards to whether their allotment would be enough to cover

their customer base, the procedures under which this rule is

recommended provide flexibility through several different options.

Handlers can transfer, borrow or loan allotment based on their needs in

a given week. Handlers also have the option of over shipping their

allotment by 10 percent in a week, as long as the overshipment is

deducted from the following week's shipments. Statistics show that in

none of the regulated weeks was the total available allotment used. The

closest it came was 83 percent of available base used. However, this

still left an available allotment for loan or transfer of over 57,000

cartons. Approximately 190 loans and transfers were utilized last

season. To facilitate this process, the committee staff provides a list

of handler names and telephone numbers to help handlers find possible

sources of allotment if needed for loan or trade. Also, this regulation

only restricts shipments of small sized red grapefruit. There are no

volume restrictions on larger sizes.

Another concern expressed was that the rule only covers red

seedless grapefruit. One member wanted the committee to consider adding

white grapefruit to the regulation. The member also asked that the

committee continue to consider other possibilities on which to base

regulation. The committee agreed that the provisions by which this

regulation is recommended should be reviewed on a continuous base. It

was also stated that should the committee want to change Sec. 905.153,

the section outlining the procedures for setting weekly percentage of

size regulation, they could consider it as part of the current meeting.

No motions for change were received.

Another concern expressed was that the committee was considering

meeting too often during the regulatory period to consider changing the

weekly percentages. The member said that marketing plans are made

further in advance than two to three weeks. The committee responded

that information that is valuable in considering the appropriate

percentage levels are not available until the regulatory period begins.

Members agreed that it was important to meet and adjust percentages as

necessary as seasonal information becomes available.

After considering the concerns expressed, and the available

information, the committee determined that this rule is needed to

regulate shipments of small sized red seedless grapefruit.

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.

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), AMS has considered the economic impact of this action on

small entities. Accordingly, AMS has prepared this initial 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 grapefruit 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)

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 (13 CFR 121.601).

Based on the industry and committee data for the 1997-98 season,

the average annual f.o.b. price for fresh Florida red grapefruit during

the 1997-98 season was around $6.30 per \4/5\ bushel cartons, and total

fresh shipments for the 1997-98 season are estimated at 15.5 million

cartons of red 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.

Under the authority of Sec. 905.52 of the order, this proposed rule

would limit the volume of small red seedless grapefruit entering the

fresh market during the 11 weeks beginning the third Monday in

September for the 1998-99 season. This rule utilizes the provisions of

Sec. 905.153. The proposal would limit the volume of sizes 48 and/or 56

red seedless grapefruit by setting the weekly percentage for each of

the 11 weeks at 25 percent. 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 would calculate a handler's weekly allotment of

small sizes. The rule would set the weekly percentage at 25 percent for

the 11 week period. This proposal would provide a supply of small sized

red seedless grapefruit sufficient to meet market demand, without

saturating all markets with these small sizes. This rule would help

stabilize the market and improve grower returns during the early part

of the season.

The weekly percentage of 25 percent, when combined with the average

weekly shipments for the total industry, would provide a total industry

allotment of nearly 250,000 cartons of sizes 48 and/or 56 red seedless

grapefruit per regulated week. Based on shipments from seasons 1993-97,

a total available weekly allotment of 250,000 cartons would exceed

actual shipments for each of the first three weeks that would be

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 the 1996-97 season, an average of 4.2 percent of

overall shipments during that period would have been affected. A large

percentage of this volume most likely could have been replaced by

larger sizes. Under this

[[Page 42769]]

proposal a sufficient volume of small sized red grapefruit would still

be allowed into all channels of trade, and allowances would be 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 early season crop tends to have a greater percentage of small

sizes. This creates a glut of smaller, lower priced fruit, driving 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 covered in this rule, the f.o.b. for large sizes has

dropped to within two dollars of the f.o.b. for small sizes.

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 had fallen from a high near $7.00 in

1991-92 to around $1.50 for the 1996-97 season. The study projected

that if the industry elected to make no changes, the on tree price

would remain around $1.50. The study also indicated that increasing

minimum size restrictions could help raise returns.

This regulation would have a positive impact on affected entities.

The purpose of this rule would be to help stabilize the market and

improve grower returns by limiting the volume of small sizes marketed

early in the season. There are no volume restrictions on larger sizes.

Therefore, larger sizes could be substituted for smaller sizes with a

minimum effect on overall shipments. While this rule may necessitate

spot picking, which may entail slightly higher harvesting costs, many

in the industry are already using the practice, and because this

regulation is only in effect for part of the season, the overall effect

on costs is minimal. This rule is not expected to appreciably increase

costs to producers.

This rule would help limit the effects of an over supply of small

sizes early in the season. A similar rule was enacted successfully last

season. During the 11 week period, the regulation was successful at

helping maintain prices at a higher level than the prior season, and

sizes 48 and 56 by count and as a percentage of total shipments were

reduced. Therefore, this action should have a positive impact on grower

returns.

For the weeks when pricing information was available, last season's

prices were higher in five of the six weeks when compared with f.o.b.

prices from the 1996-97 season. The average f.o.b. for these weeks was

$6.28 for the 1996-97 season and $6.55 for the 1997-98 season. It also

reduced sizes 48 and 56 as a percentage of the crop. Last season sizes

48 and 56 represented 31 percent of shipments during the 11 week

regulatory period, compared to 38 percent during the previous season.

There was also a 15 percent reduction in shipments of sizes 48 and 56

by count. Numbers from the month following the 11 weeks of regulation

also indicate that in December 1997 the on tree price for grapefruit

was $2.26 compared to $1.55 for the previous season.

The rule was also successful in reducing the steep drop in prices

for larger sizes that had occurred in previous seasons. During the six

weeks from mid-October through November, prices for sizes 23, 27, 32,

and 36 fell by 28, 27, 21, and 20 percent, respectively, during the

1996-97 season. Prices for the same sizes during the same period last

season only fell by 5, 5, 2, and 7 percent, respectively, under

regulation. Prices for all sizes were firmer during this period last

season when compared to the previous year, with the weighted average

price dropping only 9 percent during this period last season as

compared to 22 percent for the previous season.

An economic study done by Florida Citrus Mutual (Lakeland, Florida)

in April 1998, found that the weekly percentage regulation had been

effective. The study indicated that part of the strength in early

season pricing appeared to be due to the use of the weekly percentage

rule to limit the volume of sizes 48 and 56. Prices were generally

higher across the size spectrum with sizes 48 and 56 having the largest

gains, with larger sized grapefruit registering modest improvements. It

also stated that sizes 48 and 56 grapefruit accounted for around 27

percent of domestic shipments during the 11 weeks during the 1996-97

season, compared to only 17 percent during the same period last season,

as small sizes were used to supply export customers with preferences

for small sized grapefruit.

Even with restrictions in place, total shipments during the 11 week

period last season were higher than the previous season. There was also

no noticeable drop in exports. Therefore, shipments remained strong and

prices were stabilized during the regulated period.

Over 50 percent of red seedless grapefruit is shipped to the fresh

market. Because of reduced demand and an oversupply, the processing

outlet is not currently profitable. Consequently, it is essential that

the market for fresh red grapefruit be fostered and maintained. Any

costs associated with this action would only be for the 11 week

regulatory period. However, benefits from this action could stretch

throughout the entire 33 week season.

This rule is intended to stabilize the market during the early

season and increase grower returns. Information available from last

season suggests the regulation could do both. A stabilized price that

returns a fair market value would be beneficial to both small and large

growers and handlers. The opportunities and benefits of this rule are

expected to be available to all red seedless grapefruit handlers and

growers regardless of their size of operation.

One alternative to the actions approved was considered by the

committee prior to making the recommendations. The alternative

discussed was whether to amend Sec. 905.153 in conjunction with setting

a weekly percentage. Two members suggested that the calculation used to

determine a handler's allotment base should be changed from 33 weeks to

a calculation that used the 11 weeks regulated by the rule. In its

discussion, the committee recognized that there were concerns regarding

the way base is calculated. However, committee members also stated that

this type of regulation is intended to be somewhat restrictive, and

providing a system that satisfies everyone is difficult, if not

impossible, to achieve. There was general agreement that though this

method had its concerns, it was the best option considered thus far.

Therefore, the committee rejected this alternative, concluding the

recommendations previously discussed were appropriate for the industry.

Handlers utilizing the flexibility of the loan and transfer aspects

of this action would be required to submit a form to the committee. The

rule would increase the reporting burden on approximately 80 handlers

of red seedless grapefruit who would 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

[[Page 42770]]

(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 sectors.

The Department has not identified any relevant Federal rules that

duplicate, overlap or conflict with this proposed 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).

The committee's meeting was 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 22, 1998, meeting was a public meeting and

all entities, both large and small, were able to express views on this

issue. Interested persons are invited to submit information on the

regulatory and informational impacts of this action on small

businesses.

A 20-day comment period is provided to allow interested persons to

respond to this proposal. Twenty days is deemed appropriate because

this rule would need to be in place as soon as possible since handlers

will begin shipping grapefruit in September. In addition, because of

the nature of this rule, handlers need time to consider their allotment

and how best to service their customers. Also, the industry has been

discussing this issue for some time, and the committee has kept the

industry well informed. It has also been widely discussed at various

industry and association meetings. Interested persons have had time to

determine and express their positions. All written comments timely

received will be considered before a final determination is made on

this matter.

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

proposed to be 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. A new Sec. 905.350 is added to read as follows:

Sec. 905.350 Red seedless grapefruit regulation.

This section establishes the weekly percentages to be used to

calculate each handler's weekly allotment of small sizes. If the

minimum size in effect under Sec. 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 Sec. 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) 9/21/98 through 9/27/98................................ 25

(b) 9/28/98 through 10/4/98................................ 25

(c) 10/5/98 through 10/11/98............................... 25

(d) 10/12/98 through 10/18/98.............................. 25

(e) 10/19/98 through 10/25/98.............................. 25

(f) 10/26/98 through 11/1/98............................... 25

(g) 11/2/98 through 11/8/98................................ 25

(h) 11/9/98 through 11/15/98............................... 25

(i) 11/16/98 through 11/22/98.............................. 25

(j) 11/23/98 through 11/29/98.............................. 25

(k) 11/30/98 through 12/6/98............................... 25

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

Dated: August 5, 1998.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 98-21481 Filed 8-10-98; 8:45 am]

BILLING CODE 3410-02-P