Egg, Poultry, and Rabbit Grading Increase in Fees and Charges

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Parts 56 and 70

[Docket No. PY-98-002]

Egg, Poultry, and Rabbit Grading Increase in Fees and Charges

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

SUMMARY: The Agricultural Marketing Service (AMS) is increasing the

fees and charges for Federal voluntary egg, poultry, and rabbit

grading. These fees and charges are increased to cover the increase in

salaries of Federal employees, salary increases of State employees

cooperatively utilized in administering the programs, and other

increased Agency costs.

EFFECTIVE DATE: October 1, 1998.

FOR FURTHER INFORMATION CONTACT: Douglas C. Bailey, Chief,

Standardization Branch, (202) 720-3506.

SUPPLEMENTARY INFORMATION: The Department of Agriculture (Department)

is issuing this rule in conformance with Executive Order 12866. This

rule has been determined to be not significant for purposes of

Executive Order 12866, and therefore, has not been reviewed by the

Office of Management and Budget (OMB).

This rule has been reviewed under Executive Order 12988, Civil

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

This rule will not preempt any State or local laws, regulations, or

policies, unless they present an irreconcilable conflict with this

rule. There are no administrative procedures which must be exhausted

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

Pursuant to the requirements set forth in the Regulatory

Flexibility Act (RFA), the AMS has considered the economic impact of

this action on small entities.

There are about 400 users of Poultry Programs' grading services.

Many of these users are small entities under the criteria established

by the Small Business Administration (13 CFR 121.601). This rule raises

the fees charged to all businesses for voluntary grading services for

eggs, poultry, and rabbits. The AMS estimates that overall this rule

will yield an additional $1.5 million during FY 1999. The hourly

resident rate for grading services will increase by approximately 4.1

percent while the hourly nonresident rate for grading service will

increase by approximately 15 percent. The costs to entities will be

proportional to their use of service, so that costs are shared

equitably by all users. Furthermore, entities are under no obligation

to use grading services as authorized under the Agricultural Marketing

Act of 1946.

The AMS regularly reviews its user fee financed programs to

determine if the fees are adequate. The existing fee schedule will not

generate sufficient revenues to cover program costs while maintaining

an adequate reserve balance (four months of costs) as called for by

Agency policy (AMS Directive 408.1). The Agency has engaged in

streamlining efforts to reduce costs including staff and space

reductions or closing of field offices. However, overall, costs are

increasing despite these efforts.

Without a fee increase, revenue projections for FY 1999 would be

$19.8 million, with costs projected at $22.3 million. The shortfall, if

allowed to continue, would translate into an approximate 3.8 month

operating reserve at the end of FY 1999 or $7.1 million, which is less

than Agency policy requires. With the fee increase, FY 1999 revenue is

projected to be $21.3 million and costs are projected at $22.3 million.

Trust fund balances would be $8.5 million or 4.3 months.

The AMS has certified that this action will not have a significant

impact on a substantial number of small entities, as defined in the RFA

(5 U.S.C. 601).

The information collection requirements that appear in the sections

to be amended by this rule have been previously approved by OMB and

assigned OMB Control Numbers under the Paperwork Reduction Act (44

U.S.C. Chapter 35) as follows: Sec. 56.52(a)(4)--No. 0581-0128; and

Sec. 70.77(a)(4)--No. 0581-0127.

Background

The Agricultural Marketing Act (AMA) of 1946 authorizes official

grading and certification on a user-fee basis of eggs, poultry, and

rabbits. The AMA provides that reasonable fees be collected from users

of the program services to cover, as nearly as practicable, the costs

of services rendered. AMS regularly reviews these programs to determine

if fees are adequate and if costs are reasonable. This rule will amend

the schedule for fees and charges for grading services rendered to the

egg, poultry, and rabbit industries to reflect the costs currently

associated with the program.

Several streamlining actions to be completed in FY 1998 will result

in cost savings. They include staff and space reductions or closing of

field offices. However, overall, costs are increasing despite these

efforts.

Employee salaries and benefits account for approximately 82 percent

of the total operating budget. A general and locality salary increase

for Federal employees, ranging from 2.57 to 6.52 percent, depending on

locality, became effective in January 1998 and has materially affected

program costs. Another general and locality salary increase estimated

at 3.0 percent is expected in January 1999. Also, from October 1997

through September 1999, salaries and fringe benefits of federally

licensed State employees will have increased by about 6 percent. As a

result, the hourly resident rate for grading services will increase by

approximately 4.1 percent. The hourly resident rate covers graders'

salaries, fringe benefits, and related costs.

Another factor affecting the current fee structure is the increased

demand for grading services on a fee basis. Resident grading service is

provided by a grader with a regular tour of duty in a plant, while fee

grading service is provided by a grader on an intermittent, as-needed

basis. Historically, the majority of shell egg and poultry grading has

been done on a resident basis according to the official U.S. quality

grade standards. In recent years, however, there has been an increase

in the volume of shell eggs and poultry being traded according to

product-specific purchase requirements where USDA certification is

required, and this

[[Page 52132]]

work is done predominantly on a fee basis. Fee services for many plants

require more supervisory time and travel to staff, train, and supervise

graders. As a result, a greater proportion of overhead costs for

supervision and support staff must be charged to fee services. Rates to

cover these costs were only minimally raised in years prior to the last

fee increase effective May 1, 1997. Current analysis shows that these

rates need to be increased an additional 15 percent to totally support

their fair share of the program's overhead costs.

Additionally, rates for appeal grading and review of a grader's

decision are only occasionally used, currently accounting for less than

$5,000 revenue annually. A separate rate for this service would be

discontinued and these services would be charged using fee service

rates for the time required to perform such service. This amendment

would simplify the rate structure and any change in revenue would be

negligible.

A recent review of the current fee schedule, effective May 1, 1997,

revealed that anticipated revenue will not adequately cover increasing

program costs. Without a fee increase, projected FY 1999 revenues for

grading services are $19.8 million, with costs projected at $22.3

million, and trust fund balances would be $7.1 million, below

appropriate levels. With a fee increase, projected FY 1999 revenues

would be $21.3 million and costs are projected at $22.3 million. Trust

fund balances would be $8.5 million or 4.3 months of operating costs.

The following table compares current fees and charges with proposed

fees and charges for egg, poultry, and rabbit grading as found in 7 CFR

Parts 56 and 70:

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

Service Current Proposed

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

Resident Service:

Inauguration of service............. 310 310

Hourly charges

Regular hours................... 26.56 27.64

Administrative charges--Poultry

grading

Per pound of poultry............ .00033 .00034

Minimum per month............... 225 225

Maximum per month............... 2,250 2,500

Administrative charges--Shell egg

grading

Per 30-dozen case of shell eggs. .038 .040

Minimum per month............... 225 225

Maximum per month............... 2,250 2,500

Administrative charges--Rabbit

grading

Based on 25% of grader's salary,

Minimum per month.............. 225 250

Nonresident Service: \1\

Hourly charges

Regular hours................... 26.56 27.64

Administrative charges

Based on 25% of grader's salary,

Minimum per month.............. 225 250

Fee and Appeal Service:

Hourly charges

Regular hours................... 38.96 44.80

Weekend and holiday hours....... 43.24 51.60

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

\1\ For poultry and shell egg grading.

Comments

Based on an analysis of costs to provide these services, a proposed

rule to increase the fees for these services was published in the

Federal Register (63 FR 31362) on June 9, 1998. Comments on the

proposed rule were solicited from interested parties until August 10,

1998.

During the 60-day comment period, the Agency received two comments,

one from a State commissioner of agriculture and one from a poultry

processor. Both were in opposition to the proposal, expressing a

general concern about the cost of the grading program in light of

financial difficulties faced by the industry.

The State commissioner of agriculture went on to suggest that the

Agency give each State more supervisory grading authority and decrease

the number of federal supervisors. The commissioner also suggested that

the Agency promote greater consumer demand for graded product as an

incentive for industry's continued use of grading services.

A cornerstone of the grading program is the uniform interpretation

and application of the official USDA grade standards and grades

nationwide. This uniformity enables buyers and sellers to trade graded

products sight-unseen in domestic and international marketing channels

with confidence. The current supervisory network starts at headquarters

and reaches through regional and Federal-State offices to the

individual graders. State supervisors are used in conjunction with, but

not in lieu of Federal supervisors. The Federal supervisory chain

ensures that the training of both Federal and State graders and their

application of grade standards and grades is impartial and consistent

nationwide. Delegating Federal supervisory functions to State employees

would weaken existing supervisory accountability and program

uniformity, which over time would likely erode user confidence in the

programs.

The issue of explaining the value of grading to consumers has been

raised over the years by the Agency and by members of the food

industry. In 1996, the Agency conducted focus groups to better

understand the issue. Using the focus group findings, the Agency

developed new educational materials and strategies targeted at

consumers and volume buyers. Although these efforts are expected to

provide long-term benefits to users of the grading programs, they do

not provide an alternative to a fee increase.

Although the Agency seeks to minimize or negate any fee increases

for the poultry, rabbit, and egg grading programs, it must also operate

these programs on a sound financial basis. Accordingly, the Agency is

implementing the proposed increases to ensure the financial stability

of these grading programs.

[[Page 52133]]

During the review of the comments and proposal, one error was

discovered. In the proposed rule, Sec. 70.72 refers to a fee for

laboratory analysis that is no longer performed by this program.

References to this service were deleted from Sec. 70.72 in April 1997,

but were inadvertently reinserted into the proposed rule. Therefore,

the text of the final rule has been corrected by removing the phrase

``laboratory analysis,'' each time it appears in the heading and

regulatory text of Sec. 70.72 of the proposed rule.

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

cause exists for not postponing the effective date of the action until

30 days after publication in the Federal Register, because the proposed

fees need to be implemented on an expedited basis in order to avoid

financial losses in the grading program this fiscal year. Also, the

effective date of the fee increase will be set to coincide with the

next billing cycle.

List of Subjects

7 CFR Part 56

Eggs and egg products, Food grades and standards, Food labeling,

Reporting and recordkeeping requirements.

7 CFR Part 70

Food grades and standards, Food labeling, Poultry and poultry

products, Rabbits and rabbit products, Reporting and recordkeeping

requirements.

For reasons set forth in the preamble, Title 7, Code of Federal

Regulations, parts 56 and 70 are amended as follows:

PART 56--GRADING OF SHELL EGGS

1. The authority citation for part 56 continues to read as follows:

Authority: 7 U.S.C. 1621-1627.

2. Section 56.46 is revised to read as follows:

Sec. 56.46 On a fee basis.

(a) Unless otherwise provided in this part, the fees to be charged

and collected for any service performed, in accordance with this part,

on a fee basis shall be based on the applicable rates specified in this

section.

(b) Fees for grading services will be based on the time required to

perform the services. The hourly charge shall be $44.80 and shall

include the time actually required to perform the grading, waiting

time, travel time, and any clerical costs involved in issuing a

certificate.

(c) Grading services rendered on Saturdays, Sundays, or legal

holidays shall be charged for at the rate of $51.60 per hour.

Information on legal holidays is available from the Supervisor.

3. Section 56.47 is revised to read as follows:

Sec. 56.47 Fees for appeal grading or review of a grader's decision.

The cost of an appeal grading or review of a grader's decision

shall be borne by the appellant on a fee basis at rates set forth in

Sec. 56.46, plus any travel and additional expenses. If the appeal

grading or review of a grader's decision discloses that a material

error was made in the original determination, no fee or expenses will

be charged.

4. In Sec. 56.52, paragraph (a)(4) is revised to read as follows:

Sec. 56.52 Continuous grading performed on resident basis.

* * * * *

(a) * * *

(4) An administrative service charge based upon the aggregate

number of 30-dozen cases of all shell eggs handled in the plant per

billing period multiplied by $0.040, except that the minimum charge per

billing period shall be $225 and the maximum charge shall be $2,500.

The minimum charge also applies where an approved application is in

effect and no product is handled.

* * * * *

5. In Sec. 56.54, paragraph (a)(2) is revised to read as follows:

Sec. 56.54 Charges for continuous grading performed on a nonresident

basis.

* * * * *

(a) * * *

(2) An administrative service charge equal to 25 percent of the

grader's total salary costs. A minimum charge of $250 will be made each

billing period. The minimum charge also applies where an approved

application is in effect and no product is handled.

* * * * *

PART 70--VOLUNTARY GRADING OF POULTRY PRODUCTS AND RABBIT PRODUCTS

6. The authority citation for part 70 continues to read as follows:

Authority: 7 U.S.C. 1621-1627.

7. Section 70.71 is revised to read as follows:

Sec. 70.71 On a fee basis.

(a) Unless otherwise provided in this part, the fees to be charged

and collected for any service performed, in accordance with this part,

on a fee basis shall be based on the applicable rates specified in this

section.

(b) Fees for grading services will be based on the time required to

perform such services for class, quality, quantity (weight test), or

condition, whether ready-to-cook poultry, ready-to-cook rabbits, or

specified poultry food products are involved. The hourly charge shall

be $44.80 and shall include the time actually required to perform the

work, waiting time, travel time, and any clerical costs involved in

issuing a certificate.

(c) Grading services rendered on Saturdays, Sundays, or legal

holidays shall be charged for at the rate of $51.60 per hour.

Information on legal holidays is available from the Supervisor.

8. Section 70.72 is revised to read as follows:

Sec. 70.72 Fees for appeal grading, or examination or review of a

grader's decision.

The costs of an appeal grading, or examination or review of a

grader's decision, will be borne by the appellant on a fee basis at

rates set forth in Sec. 70.71, plus any travel and additional expenses.

If the appeal grading, or examination or review of a grader's decision

discloses that a material error was made in the original determination,

no fee or expenses will be charged.

9. In Sec. 70.76, paragraph (a)(2) is revised to read as follows:

Sec. 70.76 Charges for continuous poultry grading performed on a

nonresident basis.

* * * * *

(a) * * *

(2) An administrative service charge equal to 25 percent of the

grader's total salary costs. A minimum charge of $250 will be made each

billing period. The minimum charge also applies where an approved

application is in effect and no product is handled.

* * * * *

10. In Sec. 70.77, paragraphs (a)(4) and (a)(5) are revised to read

as follows:

Sec. 70.77 Charges for continuous poultry or rabbit grading performed

on a resident basis.

* * * * *

(a) * * *

(4) For poultry grading: An administrative service charge based

upon the aggregate weight of the total volume of all live and ready-to-

cook poultry handled in the plant per billing period computed in

accordance with the following: Total pounds per billing period

multiplied by $0.00034, except that the minimum charge per billing

period shall be $225 and the maximum charge shall be $2,500. The

minimum charge also applies where an approved application is in effect

and no product is handled.

(5) For rabbit grading: An administrative service charge equal to

[[Page 52134]]

25 percent of the grader's total salary costs. A minimum charge of $250

will be made each billing period. The minimum charge also applies where

an approved application is in effect and no product is handled.

* * * * *

Dated: September 25, 1998.

Thomas O'Brien,

Acting Administrator, Agricultural Marketing Service.

[FR Doc. 98-26222 Filed 9-29-98; 8:45 am]

BILLING CODE 3410-02-P