[Federal Register: December 16, 2002 (Volume 67, Number 241)]
[Proposed Rules]
[Page 77002-77003]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16de02-15]
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[[Page 77002]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 46
[Docket No. FV02-369]
RIN 0581-AC21
Perishable Agricultural Commodities Act (PACA): Amending
Regulations To Extend PACA Coverage to Fresh and Frozen Fruits and
Vegetables That Are Coated or Battered
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
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SUMMARY: The Department of Agriculture (USDA) is proposing to amend the
regulations under the Perishable Agricultural Commodities Act (PACA or
Act) to extend PACA coverage to include fresh and frozen fruits and
vegetables that are coated or battered to maintain taste, color, and/or
texture prior to or after cooking. It is USDA's opinion that coated or
battered fruits and vegetables are covered under the PACA since the
process of coating or battering does not alter the character of the end
product. USDA seeks to codify its position so that all dealers of
perishable agricultural commodities are properly on notice as to the
scope of products covered by PACA regulations.
DATES: Comments must be received by January 15, 2003.
ADDRESSES: Interested persons are invited to submit written comments
concerning this proposed rule. Comments must be sent to Dexter Thomas,
Senior Marketing Specialist, PACA Branch, F & V Programs, AMS, USDA,
1400 Independence Avenue, SW., Room 2095-So. Bldg., Washington, DC
20250-0242. E-mail dexter.thomas@usda.gov. All comments should
reference the docket number and the date and page number of this issue
in the Federal Register and will be made available for public
inspection in the PACA Branch during regular business hours and posted
on the Internet at www.ams.usda.gov/fv/paca.htm.
FOR FURTHER INFORMATION CONTACT: James R. Frazier, Chief, PACA Branch,
Room 2095-So. Bldg., Fruit and Vegetable Programs, AMS, USDA,
Washington, DC 20250, Phone (202) 720-2272.
SUPPLEMENTARY INFORMATION: This proposal is issued under authority of
section 15 of the PACA (7 U.S.C. 499o).
The Perishable Agricultural Commodities Act (PACA or Act)
establishes a code of fair trade practices covering the marketing of
fresh and frozen fruits and vegetables in interstate and foreign
commerce. The PACA protects growers, shippers, distributors, and
retailers dealing in those commodities by prohibiting unfair and
fraudulent trade practices. In this way, the law fosters an efficient
nationwide distribution system for fresh and frozen fruits and
vegetables, benefiting the whole marketing chain from farmer to
consumer. USDA's Agricultural Marketing Service (AMS) administers and
enforces the PACA.
The PACA also imposes a statutory trust for the benefit of unpaid
sellers or suppliers on all perishable agricultural commodities
received by a commission merchant, dealer, or broker and all
inventories of food or other products derived from the sale of such
commodities or products. Sellers who preserve their trust rights are
entitled to payment ahead of other creditors, from trust assets, of
money owed on past due accounts.
In January 2000, the largest food service distributor in the United
States filed for chapter 11 bankruptcy protection. The company, which
listed over $30 million in produce debt, settled all PACA trust claims
except five that involved over $11 million in coated and battered
potato products. The firm contended that the coated and battered
potatoes were not covered under the PACA trust provisions (7 U.S.C. 499
(e) c). As a result of the disputed bankruptcy claims, the Frozen
Potato Products Institute (FPPI), a national trade association whose
members are frozen potato processors accounting for 95 percent of all
frozen potato products in the United States, in June 2000, asked AMS
for a written advisory opinion to clarify whether or not coated or
battered potato products are covered under the PACA.
The majority of FPPI's members coat or batter their potato products
to preserve their color and crispness while under heat lamps after
cooking. The operation involves dipping potato strips into a mixture of
water and natural vegetable starch (e.g., potato or rice).
Subsequently, a crisping agent such as dextrin and/or a chemical
leavening agent are added to the product. The product is then air blown
to remove all but a thin layer of coating, oil-blanched, and then
finally frozen.
Coated or battered products are in great demand by fast food
restaurants and consumers because the operation preserves the color and
crispness of potatoes held under heat lamps, a common practice in fast
food restaurants, although it does not alter the taste or texture of
the product. Frozen potato processors have seen dramatic growth in the
market for coated potatoes since the technology was first introduced in
the early 1990's, and FPPI states that it expects that trend to
continue. The food service distributor that filed for bankruptcy
protection supplied approximately 36,000 restaurants throughout the
United States.
According to FPPI, 8.2 billion pounds of frozen potato products
were produced in the United States from April 1999 to April 2000. Out
of that total, approximately 26 percent were coated or battered,
accounting for 2.1 billion pounds of potato products with a market
value exceeding $800 million.
In its response to FPPI, dated August 16, 2000, AMS concluded that
coating or battering does not alter the essential character of the
potato products because the operation leaves them virtually
indistinguishable in appearance and texture from those that have not
been coated or battered. The operation, AMS stated, is directly
analogous to those described in 7 CFR 46.2(u) that may be performed on
a perishable agricultural commodity without changing the commodity into
a food of a different kind or character. In addition, the use of
starches in the operation likely has less of an impact on the texture
or essential character of the potato than other processes already
expressly accepted in CFR 46.2(u), such as chopping, oil blanching, and
adding sugar or other sweetening agents.
FPPI is now asking that USDA amend the PACA regulations' definition
of
[[Page 77003]]
``fresh fruits and fresh vegetables'' (7 CFR 42 (u), to expressly
extend PACA coverage to perishable agricultural commodities that have
been coated or battered. In its petition of June 21, 2001, FPPI
requested that AMS codify its August 2000 opinion to ensure that all
dealers of perishable agricultural commodities are properly on notice
as to the scope of products covered by PACA regulations.
Executive Orders 12866 and 12988
This proposed rule, issued under the Perishable Agricultural
Commodities Act (7 U.S.C. 499 et. seq.), has been determined to be not
significant for the purposes of Executive Order 12866, and therefore,
has not been reviewed by the Office of Management and Budget (OMB).
This proposed rule has been reviewed under Executive Order 12988,
Civil Justice Reform, and is not intended to have retroactive effect.
This final 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 that must be exhausted
prior to any judicial challenge to the provisions of this rule.
Effects on Small Businesses
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA) (5 U.S.C. 601 et seq.), AMS has considered the economic
impact of this proposed rule on small entities. The purpose of the RFA
is to fit regulatory actions to the scale of businesses subject to such
actions in order that small businesses will not be unduly or
disproportionately burdened. Small agricultural service firms have been
defined by the Small Business Administration (SBA) (13 CFR 121.601) as
those whose annual receipts are less than $5,000,000. There are
approximately 15,700 firms licensed under the PACA, many of which could
be classified as small entities.
AMS recognizes that frozen potato products represent the largest
single frozen commodity in the United States. PACA coverage of such
commodities would affect countless growers, shippers, processors, and
distributors who deal in the commodities, most of which are small
businesses. To exclude over 26 percent of frozen potato products from
coverage of the PACA is inconsistent with the intent of Congress in
enacting the PACA to protect producers and dealers of fresh and frozen
fruits and vegetables.
This regulatory amendment is being proposed in response to the
petition of the frozen food industry to codify USDA's opinion that the
coating or battering of fruits and vegetables is an operation that is
not considered as changing a commodity into a food of a different kind
or character. Producers and distributors of coated and battered product
would benefit since they would have the same rights as those afforded
other processors and suppliers whose product may be indistinguishable
in appearance or texture, but not coated or battered. AMS believes that
codifying this opinion will help reduce litigation time and expenses
for small produce businesses that seek to enforce their trust rights in
federal district courts.
Given the preceding discussion, AMS has made an initial
determination that the provisions of this proposed rule would not have
a significant economic impact on a substantial number of small
entities.
Paperwork Reduction Act
In compliance with Office of Management and Budget (OMB)
regulations (5 CFR part 1320) which implement the Paperwork Reduction
Act of 1995 (Pub. L. 104-13), the information collection and
recordkeeping requirements that are covered by this proposed rule were
approved under OMB number 0581-0031 on September 30, 2001, and expire
on September 30, 2004.
List of Subjects in 7CFR Part 46
Agricultural commodities, Brokers, Penalties, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, 7 CFR part 46 is
proposed to be amended as follows:
PART 46--[AMENDED]
1. The authority citation for part 46 continues to read as follows:
Authority: Sec. 15, 46 Stat. 537; 7 U.S.C. 499o.
2. In Sec. 46.2, paragraph (u) would be revised to read as
follows:
Sec. 46.2 Definitions.
* * * * *
(u) Fresh fruits and fresh vegetables include all produce in fresh
form generally considered as perishable fruits and vegetables, whether
or not packed in ice or held in common or cold storage, but does not
include those perishable fruits and vegetables which have been
manufactured into articles of food of a different kind or character.
The effects of the following operations shall not be considered as
changing a commodity into a food of a different kind or character:
Water, steam, or oil blanching, battering, coating, chopping, color
adding, curing, cutting, dicing, drying for the removal of surface
moisture; fumigating, gassing, heating for insect control, ripening and
coloring; removal of seed, pits, stems, calyx, husk, pods rind, skin,
peel, et cetera; polishing, precooling, refrigerating, shredding,
slicing, trimming, washing with or without chemicals; waxing, adding of
sugar or other sweetening agents; adding ascorbic acid or other agents
to retard oxidation; mixing of several kinds of sliced, chopped, or
diced fruit or vegetables for packaging in any type of containers; or
comparable methods of preparation.
* * * * *
Dated: December 9, 2002.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 02-31583 Filed 12-13-02; 8:45 am]
BILLING CODE 3410-02-P
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