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

Federal RegisterFeb 24, 1998

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 993

[Docket No. FV98-993-1 PR]

Dried Prunes Produced in California; Undersized Regulation for

the 1998-99 Crop Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule invites comments on changes to the undersized prune

regulation for dried prunes received by handlers from producers and

dehydrators under Marketing Order No. 993 for the 1998-99 crop year.

The marketing order regulates the handling of dried prunes produced in

California and is administered locally by the Prune Marketing Committee

(Committee). This rule would remove the smallest, least desirable of

the marketable size dried prunes produced in California from human

consumption outlets, and allow handlers to dispose of the undersized

prunes in such outlets as livestock feed. The Committee estimated that

this rule would reduce the calculated excess of about 78,000 tons of

dried prunes expected at the end of the 1997-98 crop year, by

approximately 7,300 tons, leaving sufficient prunes to fulfill foreign

and domestic trade demand.

DATES: Comments received by March 26, 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 in triplicate 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. Comments should

reference the docket number and the date and page number of this issue

of the Federal Register and will be available for public inspection in

the Office of the Docket Clerk during regular business hours.

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

Specialist, California Marketing Field Office, Fruit and Vegetable

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

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

George Kelhart, Technical Advisor, Marketing Order Administration

Branch, Fruit and Vegetable Programs, AMS, USDA, room 2525-S, 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 and Order No. 993, both as amended (7 CFR part 993),

regulating the handling of dried prunes produced in California,

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

order are effective under the Agricultural Marketing Agreement Act of

1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the

``Act.''

The Department of Agriculture (Department) is issuing this rule in

conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil

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

This proposal would not preempt any State or local laws, regulations,

or policies, unless they present an irreconcilable conflict with this

rule.

The Act provides that administrative proceedings must be exhausted

before parties may file suit in court. Under section 608c(15)(A) of the

Act, any handler subject to an order may file with the Secretary a

petition stating that the order, any provision of the order, or any

obligation imposed in connection with the order is not in accordance

with law and request a modification of the order or to be exempted

therefrom. A handler is afforded the opportunity for a hearing on the

petition. After the hearing the Secretary would rule on the petition.

The Act provides that the district court of the United States in any

district in which the handler is an inhabitant, or has his or her

principal place of business, has jurisdiction to review the Secretary's

ruling on the petition, provided an action is filed not later than 20

days after the date of the entry of the ruling.

This proposal invites comments on changes to the undersized

regulation currently in effect for French prunes which pass freely

through a screen opening from 23/32 to 24/32 in diameter and for non-

French prunes from 28/32 to 30/32 of an inch in diameter for the 1998-

99 crop year for volume control purposes. This rule would remove the

smallest, least desirable of the marketable size dried prunes produced

in California from human consumption outlets. The rule would be in

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

recommended by the Committee at a November 18, 1997, meeting.

Section 993.19b of the prune marketing order defines undersized

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

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

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

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

French prunes. These diameter openings have been in effect continuously

for quality control purposes. Section 993.49(c) also provides that the

Secretary upon a recommendation of the Committee may establish larger

openings for undersized dried prunes whenever it is determined that

supply conditions for a crop year warrant such regulation. Section

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

of, for human consumption, the quantity of prunes determined by the

inspection service pursuant to Sec. 993.49(c) to be undersized prunes *

* *.'' Pursuant to Sec. 993.52, minimum standards, pack specifications,

including the openings prescribed in Sec. 993.49(c), may be modified by

the Secretary, on the basis of a recommendation of the Committee or

other information.

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

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

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

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

[[Page 9161]]

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

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

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

French prunes. These diameter openings were established in

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

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

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

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

prunes. These diameter openings were established in Secs. 993.402 and

993.403, respectively (40 FR 42530; September 15, 1975; and 41 FR

37306; September 3, 1976). The prune industry had an excess supply of

prunes, particularly small size prunes. Rather than recommending volume

regulation percentages for the 1975-76, 1976-77, and 1977-78 crop

years, the Committee recommended the establishment of an undersized

prune regulation applicable to all prunes received by handlers from

producers and dehydrators during each of those crop years. For the

1994-95 crop year, the Committee recommended and the Department

established volume regulation percentages and an undersized regulation

at the aforementioned 23/32 and 28/32 inch diameter screen sizes.

The objective of the undersized regulations during each of those

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

prune products, such as juice and concentrate. Handlers could not

market undersized prunes for human consumption, but could dispose of

them in nonhuman outlets such as livestock feed.

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

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

regulation for undersized French and non-French prunes under

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

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

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

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

meeting on November 18, 1997, the Committee unanimously recommended

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

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

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

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

The Committee estimated that this rule would reduce the calculated

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

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

leaving sufficient prunes to fill domestic and foreign trade demand

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

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

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

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

almost 41,000 natural condition tons.

In its deliberations, the Committee reviewed statistics reflecting:

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

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

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

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

California caused by increased production from increased plantings and

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

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

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

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

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

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

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

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

sizes ranged from 2,575 to 8,778 natural condition tons during that

period. The Committee concluded that it had to utilize supply

management techniques to accelerate the return to a balanced supply/

demand situation in the interest of California dried prune producers

and handlers. The proposed changes to the undersized regulation for the

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

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

The current oversupply situation facing the California prune

industry has been caused by four consecutive large crops of over

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

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

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

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

season crop could be larger.

Because of the oversupply situation, producer prices for undersized

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

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

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

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

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

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

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

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

producers and handlers of California prunes.

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

undersized prunes states that the undersized prune regulation at the

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

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

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

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

minimum. Larger openings would only be applicable when supply

conditions warranted the regulation of a larger quantity of prunes as

undersized prunes. Thus, any regulation prescribing openings larger

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

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

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

expected to be above parity, and implementation of this more

restrictive undersized regulation would be appropriate as far as parity

is concerned.

Section 8e of the Act requires that when certain domestically

produced commodities, including prunes, are regulated under a Federal

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

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

domestically produced commodity. This action does not impact the dried

prune import regulation because the action to be implemented is for

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

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

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

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

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

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

would not be applied to imported prunes.

Pursuant to requirements set forth in the Regulatory Flexibility

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

economic impact of

[[Page 9162]]

this rule 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 through group action of essentially small

entities acting on their own behalf. Thus, both statutes have small

entity orientation and compatibility.

There are approximately 1,400 producers of dried prunes in the

production area and approximately 21 handlers subject to regulation

under the marketing order. Small agricultural producers have been

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

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

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

$5,000,000.

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

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

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

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

producers provided by the Committee, the average annual producer

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

producers of California dried prunes may be classified as small

entities.

This proposed rule would establish an undersized prune regulation

of 24/32 of an inch in diameter for French prunes and 30/32 of an inch

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

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

smaller sized prunes being classified as undersized prunes, and is

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

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

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

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

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

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

quality related undersized regulation has been in place continuously

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

increased openings would be the disposal of additional undersized prune

tonnage (about 1,600 natural condition tons) to nonhuman consumption

outlets as required by the order. With the less restrictive openings,

only 5,686 natural condition tons or 3.4 percent of the marketable

production has been removed on average over the past seven crop years

since 1990-91. Since the benefits and costs of the proposed action

would be directly proportional to the quantity of ``D'' screen prunes

produced or handled, small businesses should not be disproportionately

affected by the proposal. Sugar content, prune density, and dry-away

ratio vary from county-to-county, from orchard-to-orchard, and from

season-to-season in the major producing areas of the Sacramento and San

Joaquin Valleys. These areas account for over 99 percent of the State's

production, and the prunes produced are homogeneous enough so that the

proposal would not be inequitable to producers, both large and small,

in any area of the State.

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

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

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

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

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

disproportionately greater or lesser for small handlers or producers

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

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

to be minimal, and would be offset by the benefits derived by the

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

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

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

Handlers and producers receive higher returns for the larger size

prunes. According to industry members, the small size prunes being

eliminated through this rule have very little value. As mentioned

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

with producers losing money on every ton they deliver to handlers. The

1997 grower field price for ``D'' screen prunes is ranging between $40

and $50 per ton. The cost of drying a ton of such prunes is $260 per

ton at a 4 to 1 dry-away ratio, the cost to haul these prunes is at

least $20 per ton, and the producer assessment that must be paid to the

California Prune Board (a body which administers the State marketing

order for promotion) is $30 per ton. The total cost is about $310 per

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

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

The proposed rule is expected to benefit all producers and handlers

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

is expected to help reduce the oversupply situation and lessen the

downward pressure on small prune prices to producers. Further,

producers may alter their cultural practices to grow the larger sizes

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

Utilizing data provided by the Committee, the Department has

evaluated the impact of the proposed undersized regulation change upon

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

reduction in the marketable production and handler inventories would

result in higher season-average prices which would benefit all

producers. The removal of the smallest least desirable of the

marketable dried prunes produced in California from human consumption

outlets would eliminate an estimated 7,300 tons of small-sized dried

prunes during the 1998-99 crop year from the marketplace. This would

help lessen the negative marketing and pricing effects resulting from

the excess supply situation facing the industry. California prune

handlers reported that they held 102,386 tons of natural condition

prunes on July 31, 1997, the end of the 1996-97 crop year. This was the

largest year-end inventory reported since the Committee began

collecting such statistics in 1949. The desired inventory level, which

is based on an average 12-week supply deemed desirable to keep trade

distribution channels full while awaiting new crop, is 40,991 natural

condition tons. This leaves an inventory surplus of over 61,000 tons

which will likely take the industry several years to market.

Further burdening this oversupply situation will be larger

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

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

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

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

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

recent three-year period, compared to a 10-year average of 2.2 tons to

the acre. The 1997-98 crop is expected to be 215,000 natural condition

tons which will add to the existing oversupply. Barring unforeseen

circumstances, the 1998-99 crop may be larger further worsening the

industry's oversupply problems.

As the marketable dried prune production and surplus prune

inventories are reduced through this proposal, the trade should begin

taking a position early in the season for their dried prune needs,

which would help firm up market prices and eventually reflect a higher

overall price to the

[[Page 9163]]

producers. In addition, as producers implement improved cultural and

thinning practices, the overall size of the prunes will get larger. As

a result, producer returns would increase because producers will no

longer be receiving $40-50 per ton for the small-sized fruit at a $260-

270 per ton loss, but be receiving the higher prices paid for the

larger sizes.

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

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

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

price received by producers averaged about 60 percent of parity during

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

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

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

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

The Committee discussed alternatives to this change, including

making no changes to the undersized prune regulation and allowing

market dynamics to foster prune inventory adjustments through lower

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

prunes are expected to contribute toward a slow reduction in dried

prune inventories, the Committee believed that the undersized rule

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

of dried prunes, the Committee also considered establishing a reserve

pool and diversion program to reduce the oversupply situation. These

initiatives were not supported because they would not specifically

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

Instead the reserve pool and diversion program would eliminate larger

size prunes from human consumption outlets. Reserve pools for prunes

have historically been implemented on dried prunes regardless of the

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

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

prunes and the value difference in cash, this exchange would be

cumbersome and expensive to administer compared to the proposal.