Dried Prunes Produced in California; Undersized Regulation for the 1999-2000 Crop Year

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 993

[Docket No. FV99-993-2 FR]

Dried Prunes Produced in California; Undersized Regulation for

the 1999-2000 Crop Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule changes the undersized regulation for dried

prunes received by handlers from producers and dehydrators under

Marketing Order No. 993 for the 1999-2000 crop year. The marketing

order regulates the handling of dried prunes produced in California and

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

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

dried prunes produced in California from human consumption outlets, and

allows handlers to dispose of undersized prunes in such outlets as

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

excess of dried prunes expected at the end of the 1998-99 crop year by

approximately 6,700 tons, leaving sufficient prunes to fulfill foreign

and domestic trade demand.

EFFECTIVE DATE: August 1, 1999.

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

Specialist, California Marketing Field Office, Fruit and Vegetable

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

California 93721; telephone: (559) 487-5901, Fax: (559) 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)

720-5698. Small businesses may request information on compliance with

this regulation, or obtain a guide on complying with fruit, vegetable,

and specialty crop marketing agreements and orders 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) 720-5698, or E-mail:

Jay.G[email protected]. You may view the marketing agreement and order

small business compliance guide at the following web site: http://

www.ams.usda.gov/fv/moab.html.

[[Page 23760]]

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

policies, unless they present an irreconcilable conflict with this

rule.

The Act provides that administrative proceedings must be exhausted

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

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

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

obligation imposed in connection with the order is not in accordance

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

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

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

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

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

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

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

days after the date of the entry of the ruling.

This rule changes the undersized regulation in Sec. 993.49(c) of

the prune marketing order for the 1999-2000 crop year for volume

control purposes. The regulation removes prunes passing through

specified screen openings. For French prunes, the screen opening will

be increased from \23/32\ to \24/32\ of an inch in diameter, and for

non-French prunes, the opening will be increased from \28/32\ to \30/

32\ of an inch in diameter. This rule removes the smallest, least

desirable of the marketable size dried prunes produced in California

from human consumption outlets. The rule will be in effect from August

1, 1999, through July 31, 2000, and was unanimously recommended by the

Committee at a December 1, 1998, 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. Section 993.49(c) of the prune marketing order

establishes an undersized regulation of \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 for quality control purposes. Section

993.49(c) also provides that the Secretary, upon a recommendation of

the Committee, may establish larger openings for undersized dried

prunes whenever it is determined that supply conditions for a crop year

warrant such regulation. Section 993.50(g) states in part: ``No handler

shall ship or otherwise dispose of, for human consumption, the quantity

of prunes determined by the inspection service pursuant to

Sec. 993.49(c) to be undersized prunes * * *'' Pursuant to Sec. 993.52,

minimum standards, pack specifications, including the openings

prescribed in Sec. 993.49(c), may be modified by the Secretary, on the

basis of a recommendation of the Committee or other information.

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

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

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

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

prunes.

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

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

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

French prunes. These diameter openings were established in

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

1974; and 42 FR 49802, September 28, 1977). In addition, the Committee

recommended and the Department established volume regulation

percentages during the 1974-75 crop year with an undersized regulation

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

During the 1975-76 and 1976-77 crop years, the undersized prune

regulation was established at \24/32\ of an inch for French prunes, and

\30/32\ of an inch for non-French prunes. These diameter openings were

established in Secs. 993.402 and 993.403 respectively (40 FR 42530,

September 15, 1975 and 41 FR 37306, September 3, 1976). The prune

industry had an excess supply of prunes, particularly small sized

prunes. Rather than recommending volume regulation percentages for the

1975-76, 1976-77 and 1977-78 crop years, the Committee recommended the

establishment of an undersized prune regulation applicable to all

prunes received by handlers from producers and dehydrators during each

of those crop years.

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. During the

1998-99 crop year, 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 Sec. 993.405

(63 FR 20058, April 23, 1998). At its meeting on December 1, 1998, the

Committee recognized that the 1998-99 prune crop is about 50% of the

normal size; however, with the large inventories and anticipated large

1999-2000 prune crop, the Committee unanimously recommended continuing

with volume controls for the 1999-2000 crop year by proposing 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.

This regulation will be in effect from August 1, 1999, through July 31,

2000.

The Committee estimated that there will be an excess of about

18,700 natural condition tons of dried prunes as of July 31, 1999. This

rule will continue to remove primarily small sized prunes from human

consumption channels, consistent with the undersized regulation that

was implemented for the 1998-99 crop year. It is estimated that

approximately 6,700 natural condition tons of small prunes will be

removed from human consumption channels during the 1999-2000 crop year.

This will leave sufficient prunes to fill domestic and foreign trade

demand during the 1999-2000 crop year, and provide an adequate carryout

on July 31, 2000, 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 about 38,000 natural condition tons.

In its deliberations, the Committee reviewed statistics reflecting:

(1) A

[[Page 23761]]

worldwide prune demand which has been relatively stable at about

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

growing into the next century (estimated at 350,845 natural condition

tons by the year 2003); (3) a continuing oversupply situation in

California caused by increased production from increased plantings and

higher yields per acre (between the 1990-91 and 1997-98 crop years, the

yield ranged from 1.5 to 2.8 versus a 10 year average of 2.2 tons per

acre); and (4) California's continued excess supply situation. The

production of these small sizes ranged from 2,575 to 8,778 natural

condition tons during the 1990-91 through the 1997-98 crop years. The

Committee concluded that it had to continue utilizing supply management

techniques to accelerate the return to a balanced supply/demand

situation in the interest of the California dried prune industry. The

changes to the undersized regulation for the 1999-2000 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 (1994-95

through 1997-98) of over 180,000 natural condition tons. Further

burdening this oversupply situation will be large California prune

crops over the next few years caused by the new prune plantings in

recent years and higher yields per acre. During the 1990-91 crop year,

the non-bearing acreage totaled 5,900 acres, but by 1995-96, the non-

bearing acreage had quadrupled to more than 23,000 acres. Yields have

ranged from 2.3 to 2.8 tons per acre over a three-year period from the

1995-96 through the 1997-98 crop years, compared to a 10-year average

of 2.2 tons to the acre. The 1998-99 crop prune is exceptionally light,

about 50% of normal size (103,000 tons), due to the unusually cool and

wet weather conditions caused by the weather phenomenon known as El

Nino. Even though this year's small prune crop and the 1998-99

undersized prune regulation will help reduce the existing oversupply,

the prune supply has been outstripping demand over the past nine years.

Another large crop of about 200,000 natural condition tons is expected

for the 1999-2000 crop year, partly because of an anticipated increase

in bearing acreage, and this will add to the continuing oversupply.

Because of the oversupply situation during the 1997-98 crop year,

producer prices for the \24/32\ of an inch in diameter French prunes

declined to $40-50 per ton. Consequently, producers lost about $260-270

per ton on every ton they delivered to handlers during 1997-98. The

lower pricing of the smaller prunes continued in 1998-99, and is

expected to continue as an incentive in future crop years to convince

producers to produce the larger sizes needed to help the industry

better meet the increasing market demand for larger size prunes used

for pitted prunes.

The 1998-99 undersized prune rule of \24/32\ of an inch for French

prunes and \30/32\ of an inch for non-French prunes has expedited the

reduction of small prune inventories, but more needs to be done to

bring supplies into balance with market demand. The excess inventory on

July 31, 1998, was 88,840 natural condition tons, and only about 2,400

natural condition tons of dried prunes are expected to be removed from

the 1998-99 marketable supply by the current undersized regulation. The

Committee believes that the same undersized regulation also should be

implemented during the 1999-2000 crop year to continue reducing the

inventories of small prunes, to help reduce the expected large 1999-

2000 prune crop, and more quickly bring supplies in line with demand.

Attainment of this goal will benefit all of the producers and handlers

of California prunes.

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

undersized prunes states that the undersized prune regulation at the

\23/32\ and \28/32\ inch diameter size openings will 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 will not be for the purpose of establishing a new quality-

related minimum. Larger openings will only be applicable when supply

conditions warrant 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. The season average price

received by prune growers averaged about 54 percent of parity during

the 1992 through 1997 seasons, and is in a downward trend. As discussed

later, the average grower price for prunes during the 1999-2000 crop

year is not expected to be above parity, and implementation of this

more restrictive undersized regulation will be appropriate in reference

to parity.

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. The smaller diameter openings of

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

in diameter for non-French prunes were implemented to improve 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 will not be applied to imported prunes.

Pursuant to requirements set forth in the Regulatory Flexibility

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

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

prepared this final regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of

business subject to such actions in order that small businesses will

not be unduly or disproportionately burdened. Marketing orders issued

pursuant to the Act, and the rules issued thereunder, are unique in

that they are brought about through group action of essentially small

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

entity orientation and compatibility.

There are approximately 1,250 producers of dried prunes in the

production area and approximately 20 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.

An updated industry profile shows that 8 out of 20 handlers (40%)

shipped over $5,000,000 worth of dried prunes and could be considered

large handlers by the Small Business Administration. Twelve of the 20

handlers (60%) shipped under $5,000,000 worth of prunes and could be

considered small handlers. An estimated 90 producers, or about 7% of

the 1,250 total producers, could be considered large growers with

annual income over $500,000. The majority of handlers and producers of

California dried prunes may be classified as small entities.

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

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

diameter for non-French prunes for the 1999-2000 crop year for

[[Page 23762]]

volume control purposes. This change in regulation will result in more

of the smaller sized prunes being classified as undersized prunes, and

is expected to benefit producers, handlers, and consumers. Since prune

handlers already use \24/32\ and \30/32\ grader screens, small and

large producers and handlers will not incur extra costs to purchase new

screen sizes. Moreover, because the quality related undersized

regulation has been in place continuously since the early 1980's, the

only additional cost resulting from the increased openings will be the

disposal of additional undersized prune tonnage (about 6,700 natural

condition tons) to nonhuman consumption outlets as required by the

order. With the less restrictive openings, only 5,635 natural condition

tons or 3.3 percent of the marketable production has been removed on

average over the past eight crop years since 1990-91. The more

restrictive openings currently in place for 1998-99 are expected to

remove only 2,400 tons of dried prunes from the excess marketable

supply. The Committee estimated that there will be an excess of about

18,700 natural condition tons of dried prunes on July 31, 1999.

Implementation of the more restrictive openings in 1999-2000 is

expected to reduce the surplus by about 6,700 tons.

Because the benefits and costs of the action will be directly

proportional to the quantity of \24/32\ screen French prunes and \30/

32\ screen non-French prunes produced or handled, small businesses

should not be disproportionately affected by the action. While

variation in sugar content, prune density and dry-away ratio vary from

county to county, they also vary from orchard to orchard and season to

season. In the major producing areas of the Sacramento and San Joaquin

Valleys, which account for over 99 percent of the State's production,

the prunes produced are homogeneous enough that this action will not be

viewed as inequitable by large and small producers in any area of the

State.

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

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

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

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

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

disproportionately greater or lesser for small handlers or producers

than for larger entities. The only additional costs on producers and

handlers expected from the increased openings will be the disposal of

additional tonnage (now estimated to be about 6,700 tons) to nonhuman

consumption outlets. These costs are expected to be minimal, and will

be offset by the benefits derived by the elimination of some of the

excess supply of small sized prunes.

At the December 1, 1998, meeting, the Committee discussed the

financial impact of this change on handlers and producers. Handlers and

producers receive higher returns for the larger size prunes. Prunes

eliminated through the implementation of this rule have very little

value. As mentioned earlier, the current situation for these small

sizes is quite bleak with producers losing about $260-270 on every ton

they deliver to handlers. The 1998-99 grower field price for \24/32\

screen French prunes is ranging between $40 and $50 per ton, just like

last crop year. The cost of drying a ton of such prunes is $260 per ton

at a 4 to 1 dry-away ratio, transportation is at least $20 per ton, and

the producer assessment paid to the California Prune Board (a body

which administers the State marketing order for promotion and research)

is $30 per ton. The total cost is about $310 per ton which equates to a

loss of about $260-270 per ton for every ton of \24/32\ screen French

prunes produced and delivered to handlers.

Utilizing data provided by the Committee, the Department has

evaluated the impact of the undersized regulation change upon producers

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

the marketable production and handler inventories will result in higher

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

the smallest, least desirable of the marketable dried prunes produced

in California from human consumption outlets will eliminate an

estimated 6,700 tons of small-sized dried prunes during the 1999-2000

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

marketing and pricing effects resulting from the excess supply

situation facing the industry. California prune handlers reported that

they held 126,485 tons of natural condition prunes on July 31, 1998,

the end of the 1997-98 crop year. This was the largest year-end

inventory reported since the Committee began collecting such statistics

in 1949. The desired industry inventory level is based on an average

12-week supply to keep trade distribution channels full while awaiting

new crop. Currently, it is about 38,000 natural condition tons. This

leaves an inventory surplus of over 88,000 tons which will likely take

the industry several years to market. The small 1998-99 prune crop and

undersized regulation will help reduce the surplus, but the anticipated

large 1999-2000 prune crop is expected to bring supplies further out-

of-balance with demand.

Further burdening this oversupply situation will be large

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 1995-

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

Yields have ranged from 2.3 to 2.8 tons per acre over a three-year

period from the 1995-96 through the 1997-98 crop year, compared to a

10-year average of 2.2 tons to the acre. The 1998-99 prune crop is

expected to be about 50% of normal size (103,000 natural condition

tons). Even though this year's small prune crop and the 1998-99

undersized prune regulation will help reduce the existing oversupply,

the prune supply has been outstripping demand over the past nine years.

In addition, the 1999-2000 prune crop is expected to be about 200,000

tons, further increasing the industry's oversupply problems.

As the marketable dried prune production and surplus prune

inventories are reduced through this action, the trade should begin

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

will help firm up market prices and eventually reflect a higher overall

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

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

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

producers will be producing less tonnage of small sized fruit at a

$260-270 per ton loss. Instead producers will be receiving the higher

prices paid for the larger sizes.

For the 1993-94 through the 1997-98 crop years, the season average

price received by the producers ranged from a high of $1,120 per ton to

a low of $827 per ton during the 1997-98 crop year. The season average

price received by producers averaged about 54 percent of parity. Based

on available data and estimates of prices, production, and other

economic factors, the season average producer price for the 1998-99

season is expected to be about $790 per ton, or about 41 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

[[Page 23763]]

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

this rule.

Section 8e of the Act requires that when certain domestically

produced commodities, including prunes, are regulated under a Federal

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

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

domestically produced commodity. This action does not impact the dried

prune import regulation because the action to be implemented is for

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

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

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

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

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

are for purposes of volume control.

Therefore, the increased diameters will not be applied to imported

prunes.

This action will not impose any additional reporting or

recordkeeping requirements on either small or large California dried

prune handlers. As with all Federal marketing order programs, reports

and forms are periodically reviewed to reduce information requirements

and duplication by industry and public sector agencies. In addition, as

noted in the initial regulatory flexibility analysis, the Department

has not identified any relevant Federal rules that duplicate, overlap,

or conflict with this rule.

In addition, the Committee's meeting was widely publicized

throughout the prune industry and all interested persons were invited

to attend the meeting and participate in Committee deliberations on all

issues. Like all Committee meetings, the December 1, 1998, meeting was

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

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

twenty-two members, of which seven are handlers, fourteen are

producers, and one is a public member. Moreover, the Committee and its

Supply Management Subcommittee have been reviewing this supply

management problem for the second year, and this rule reflects their

deliberations completely.

A proposed rule concerning this action was published in the Federal

Register on January 25, 1999 (64 FR 3660). Copies of this rule were

mailed or sent via facsimile to all Committee members, alternates and

dried prune handlers. Finally, the rule was made available through the

Internet by the U.S. Government Printing Office. The rule provided a

comment period which ended April 15, 1999. No comments were received.

After consideration of all relevant material presented, including

the information and recommendation 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.

List of Subjects in 7 CFR Part 993

Marketing agreements, Plums, Prunes, Reporting and recordkeeping

requirements.

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

amended as follows:

PART 993--DRIED PRUNES PRODUCED IN CALIFORNIA

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

follows:

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

2. A new Sec. 993.406 is added to read as follows:

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

Regulations.

Sec. 993.406 Undersized prune regulation for the 1999-2000 crop year.

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

regulation for the 1999-2000 crop year is hereby established.

Undersized prunes are prunes which pass through openings as follows:

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

prunes, \30/32\ of an inch in diameter.

Dated: April 27, 1999.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 99-11078 Filed 5-3-99; 8:45 am]

BILLING CODE 3410-02-P