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 IFR]

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

Limiting the Volume of Small 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 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 limits the volume of

size 48 and/or size 56 red seedless grapefruit handlers can ship during

the first 11 weeks of the 1998-1999 season beginning in September. The

weekly percentage for the first seven weeks (September 21 through

November 8) is 37 percent and for the final four weeks (November 9

through December 16) is 32 percent. 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 29, 1998. Comments received by October 8,

1998 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 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; or E-mail:

[email protected]. 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, Marketing

Specialist, 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-

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, P.O. Box 96456, Washington, DC 20090-6456; telephone:

(202) 720-2491, Fax: (202) 205-6632.

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

Justice Reform. 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 1998-99 season beginning in September. 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

[[Page 51512]]

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 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 21, 1998. 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 seven weeks (September 21 through November 8) at 37

percent and for the final four weeks (November 9 through December 6) at

32 percent. This is a change in the percentages 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 14 in

favor to 2 opposed at its meeting on May 22, 1998. The committee's

initial recommendation was issued as a proposed rule published on

August 11, 1998 (63 FR 42764). No comments were received during the

comment period which expired August 31, 1998. The committee

subsequently recommended adjusting the proposed percentages at its

meeting September 3, 1998, in a vote of 13 in favor to 1 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 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 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

[[Page 51513]]

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 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 believed that the

problems associated with an uncontrolled volume of small sizes entering

the market early in the season would 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 at its meeting on May 22, 1998. 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, then meet again 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

percentages established 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 would 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.

The committee met again on September 3, 1998, and revisited the

weekly percentage issue and reviewed the information it had acquired

since its May 22, 1998, meeting. At the meeting, the committee

recommended that the weekly percentages be changed from 25 percent for

each of the 11 regulated weeks to 37 percent for the first seven weeks

(September 21 through November 8), and 32 percent for the next four

weeks (November 9 through December 6).

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 this

review, the committee agreed that setting the weekly percentage at 25

percent would be too restrictive and that allowing 37 percent for the

first seven weeks and 32 percent for the final four weeks is more

appropriate.

In its deliberations, the committee agreed that the weekly

percentage of 35 percent that was in place for the majority of the

weeks regulated last season was effective. This percentage seemed to

have provided a sufficient volume of small sizes to service its

markets, while being restrictive enough to prevent over supply.

During deliberations last season on weekly percentages, the

committee considered how past shipments had affected the market. Based

on statistical information, 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 for this season, the committee 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.

However, during the 11 week period of weekly percentage regulation

last season, the committee recommended increasing the weekly

percentages to 35 percent for the majority of the 11 weeks, similar to

what is being recommended for this season. Even with the weekly

percentage at 35 percent, shipments of sizes 48 and 56 remained close

to the 250,000 carton mark during the 11 weeks. 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.

The committee recognized that since last season a number of

packinghouses have gone out of business, lowering the total allotment

available to the industry. The committee believes that by adjusting the

35 percent to 37 percent provides for the allotment lost and increases

the total allotment available to the industry for loan or transfer.

Therefore, the committee recommended relaxing the weekly percentage to

37

[[Page 51514]]

percent for the first seven weeks of the regulated period.

The committee further recommended that the weekly percentage for

the last four weeks of the 11 weeks be established at 32 percent. The

committee resolved that a lower percentage was desirable moving into

the last four weeks of regulation. The committee believes that 32

percent is a viable figure as the season progresses because the crop

has begun to size and there is a greater availability of larger sizes.

The committee believes that as the industry moves into the season and

shipments increase, that a weekly percentage of 32 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. After examining

the way the crop is sizing and maturing, the committee believes the

rule at 25 percent would have been too restrictive and that the change

to 37 percent for the first seven weeks and 32 percent for the last

four weeks is preferable. They decided that a loosening of the

regulated percentages could be done without adversely affecting the

marketable quantity and returns on these small sizes. This rule will

allow all packinghouses to take advantage of the increased percentages,

while not oversupplying the market.

While the official crop estimate will not be available until

October, there are indications that the grapefruit crop will not be as

large as in 1997-98. Also, grapefruit has been slow in maturing this

season due to scattered rains and hot summer temperatures. This is

causing the harvest season to start late and may mean a greater volume

of smaller sizes. Using this information on the 1998-99 crop, the

committee members believe that relaxing the weekly percentages as

recommended will provide enough small sizes to supply its markets

without disrupting the markets for larger sizes.

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

will be calculated using the recommended percentage of 37 or 32 percent

depending on the regulated week. 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 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 is the base for each handler

for each of the 11 weeks of the regulatory period. The weekly

percentage, in this case 37 or 32 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 rule, the calculated allotment is the amount of small

sized red seedless grapefruit a handler may ship. If the minimum size

established under Sec. 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

performs the specified calculations and provides 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 is then divided by 33 weeks to yield

an average week, in this case, 1,600 cartons. This is Handler A's base.

The weekly percentage of 37 percent is then applied to this amount.

This provides this handler with a weekly allotment of 592 cartons

(1,600 X .37) 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. Such new handlers can ship small sizes

equal to 37 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 rule establishes weekly percentage of 37 percent for the first

seven weeks (September 21 through November 8), and 32 percent for the

next four weeks (November 9 through December 6). The regulatory period

begins the third Monday in September. 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 could meet and recommend a

higher percentage for any given week or weeks of the regulatory period.

Any such recommendation would require approval of the Secretary.

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) is

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 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 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 could be made. In each case,

the committee confirms in writing all such transactions

[[Page 51515]]

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 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 could handle during a particular week, making

the necessary adjustments for overshipments and loan repayments.

During committee deliberations at the May 22, 1998, meeting,

several concerns were raised regarding regulation. One area of concern

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

the rule would not be 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 provides

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 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 is 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 last year 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 basis. 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.

At the September 3, 1998, meeting, the concern was raised that the

weekly percentages recommended were not high enough. One member

expressed that they had routinely shipped all their allotment and that

the weekly percentages should be higher. The committee responded that

the provisions for loans, transfers, and overshipment were available to

offset such problems. With the weekly percentages established, total

industry allotment should exceed shipments for the majority of the 11

weeks, so that some allotment should be available for loan or transfer.

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), the Agricultural Marketing Service (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 the rules issued thereunder, are unique in

that they are brought about

[[Page 51516]]

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 rule limits

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. This

rule limits the volume of sizes 48 and/or 56 red seedless grapefruit by

setting the weekly percentage at 37 percent for the first seven weeks

of the regulatory period (September 21 through November 8), and 32

percent for the next four weeks (November 9 through December 6). This

is a change from the committees original recommendation of a 25 percent

weekly percentage for each of the 11 weeks. Under this 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

established percentage.

By taking the established 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 sets the weekly percentage at 37 percent for the first

seven weeks (September 21 through November 8), and 32 percent for the

next four weeks (November 9 through December 6) of the 11 week period.

This rule should provide 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 during the early part

of the season.

At the May 22, 1998, 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 239,243 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 September 3, 1998, and revisited the weekly

percentage issue. The committee recommended that the weekly percentages

be set at 37 percent for the first seven weeks (September 21 through

November 8), and 32 percent for the next four weeks (November 9 through

December 6).

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

weekly shipments for the total industry, would have provided 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

have exceeded actual shipments for each of the first three weeks that

will 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. This rule will affect 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 will still

be allowed into all channels of trade, and allowances will be in place

to help handlers address any market shortfall. Therefore, the overall

impact on total seasonal shipments and on industry costs 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 will have a positive impact on affected entities.

The purpose of this rule is 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 helps 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

[[Page 51517]]

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

the 1997-98 season. Last year's regulation 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.

This rule increases the weekly percentages over the percentages

originally recommended at the May 22, 1998, meeting. The changes

recommended by the committee at its September 3, 1998, meeting set the

percentages at higher levels, and at levels comparable to last season.

These percentages should allow the utilization of more small sized

fruit without oversupplying the market with such fruit. During the 11

week period of weekly percentage regulation last season, the committee

recommended increasing the weekly percentages to 35 percent for the

majority of the 11 weeks, similar to what is being recommended for this

season. Even with the weekly percentage at 35 percent, shipments of

sizes 48 and 56 remained close to the 250,000 carton mark during the 11

weeks. 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.

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 will 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 benefits 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 at the May 22, 1998,

meeting. 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.

Another alternative action was considered at the September 3, 1998,

meeting. Rather than changing all the weekly percentages, it was

suggested that the committee only consider three weeks at a time in

making its recommendations for change. The committee would then meet

before each three week period began to consider the appropriate weekly

percentages for those three weeks. The committee agreed that it was

important to meet on a regular basis during the regulation period to

help ensure that the weekly percentages are at the appropriate levels.

However, the committee also recognized that marketing plans are made

more than three weeks in advance, and that it was important to try to

provide handlers with as much advance notice of their allotment of

small sizes as possible. Therefore, the committee rejected this

alternative.

Handlers utilizing the flexibility of the loan and transfer aspects

of this action will be 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.

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).

In addition, the committee's 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 22, 1998, meeting, and the

September 3, 1998, meeting were public meetings and all entities, both

large and small, were able to express views on this issue. Interested

persons are invited to submit

[[Page 51518]]

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 Tuesday, August 11, 1998 (63 FR 42764). 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 20-day comment period was provided to allow interested persons to

respond to the proposal. The comment period ended August 31, 1998. No

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 37

percent for the first seven weeks (September 21 through November 8),

and 32 percent for the next four weeks (November 9 through December 6).

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.

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.

A 10-day comment period is provided to allow interested persons to

respond to this interim final rule. Ten days is deemed appropriate

because the regulation period begins on September 21, 1998, 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.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good

cause that it is impracticable, unnecessary, and contrary to the public

interest 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

because this rule needs to be in place when the regulatory period

begins on the week of September 21, 1998, and handlers begin shipping

grapefruit. The committee has kept the industry well informed on this

issue. It has also been widely discussed at various industry and

association meetings. Interested persons have had time to determine and

express their positions. In addition, these size small red grapefruit

are already being harvested and handlers need to know the amount they

will be allowed to ship, in order to determine harvesting quantities

that will allow these increased amounts to be shipped. 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 20-day comment period was provided for in the

proposed rule and a 10-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. 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................................ 37

(b) 9/28/98 through 10/4/98................................ 37

(c) 10/5/98 through 10/11/98............................... 37

(d) 10/12/98 through 10/18/98.............................. 37

(e) 10/19/98 through 10/25/98.............................. 37

(f) 10/26/98 through 11/1/98............................... 37

(g) 11/2/98 through 11/8/98................................ 37

(h) 11/9/98 through 11/15/98............................... 32

(i) 11/16/98 through 11/22/98.............................. 32

(j) 11/23/98 through 11/29/98.............................. 32

(k) 11/30/98 through 12/6/98............................... 32

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

Dated: September 22, 1998.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 98-25847 Filed 9-25-98; 8:45 am]

BILLING CODE 3410-02-U