[Federal Register: May 2, 2003 (Volume 68, Number 85)]
[Rules and Regulations]
[Page 23377-23378]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02my03-1]
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Rules and Regulations
Federal Register
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[[Page 23377]]
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: Final rule.
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SUMMARY: The Department of Agriculture (USDA) is amending 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.
EFFECTIVE DATE: June 2, 2003.
FOR FURTHER INFORMATION CONTACT: James R. Frazier, Chief, PACA Branch,
Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue, SW.,
Room 2095-So. Bldg., Washington, DC 20250, Phone (202) 720-2272.
SUPPLEMENTARY INFORMATION: This regulation 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, a large food service distributor in the United
States with annual net sales of approximately $8.9 million 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. 499e(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 7 CFR 46.2(u), such as chopping, oil blanching,
and adding sugar or other sweetening agents.
Although the PACA regulations previously did not specify that
coated and battered perishable agricultural commodities were covered
under the PACA, it has always been AMS' policy to recognize that the
PACA covered such commodities since the coating or battering operation
had no impact on the texture or essential character of the end product.
The regulatory amendment herein codifies USDA's policy by amending the
current PACA regulations' definition of ``fresh fruits and fresh
vegetables'' [7 CFR 42(u)] to expressly extend PACA coverage to
perishable agricultural commodities that have been coated or battered.
Comments
A proposed rule to amend the PACA regulations was published in the
Federal Register on December 16, 2002 (67 FR 77002). The proposal
sought to amend Title 7, part 46, to expressly extend PACA coverage to
perishable agricultural commodities that have been coated or battered.
Before the comment period ended on January 15, 2003, we
[[Page 23378]]
received timely comments from Curt Maberry of Curt Maberry Farm, Inc.,
Lynden, Washington; and Frozen Potato Products Institute (FPPI),
McLean, Virginia.
Mr. Maberry and FPPI strongly support AMS' proposal to extend the
coverage of the PACA to include fresh and frozen fruits and vegetables
that are coated or battered.
In his favorable comment, Mr. Maberry stated that he unequivocally
recommends expanding the coverage of the PACA given that markets are
ever-evolving, and AMS' proposal to allow fresh and frozen fruits to be
coated or battered and still remain covered under the PACA is the
correct and proper thing to do. Mr. Maberry applauded AMS for
progressively taking care of the farmer.
FPPI fully supports the proposed changes, which grants the request
made by FPPI in its petition seeking precisely that AMS codify its
existing agency policy that the coating or battering of fruits and
vegetables are not processes that are considered to change a perishable
agricultural commodity into a food of a different kind or character. In
its comment, FPPI requested that AMS include in the preamble to the
final rule a statement that it is amending the list of processes in the
regulations to codify AMS' historical opinion that coated or battered
frozen potato products are perishable agricultural commodities.
AMS received no comments opposing the proposed regulation, and
therefore is making no changes to the final rule.
Executive Orders 12866 and 12988
This final 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 final 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 final 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 will 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, however, is inconsistent with the intent of
Congress in enacting the PACA to protect producers and dealers of fresh
and frozen fruits and vegetables.
This final rule is being issued in response to the frozen food
industry's request that AMS codify its opinion that the coating or
battering of fruits and vegetables is an operation that does not change
a perishable agricultural commodity into a food of a different kind or
character. Producers and distributors of coated and battered produce
will benefit since they will have the same rights as those afforded
other processors and suppliers whose products may be indistinguishable
in appearance or texture, but not coated or battered. AMS believes that
this final rule 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 determined that the
provisions of this final rule will 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 final rule were
approved under OMB number 0581-0031 on September 30, 2001, and expire
on September 30, 2004.
List of Subjects in 7 CFR Part 46
Agricultural commodities, Brokers, Penalties, Reporting and
recordkeeping requirements.
0
For the reasons set forth in the preamble, 7 CFR part 46 is amended as
follows:
PART 46--[AMENDED]
0
1. The authority citation for part 46 continues to read as follows:
Authority: Sec. 15, 46 Stat. 537; 7 U.S.C. 499o
0
2. In Sec. 46.2, paragraph (u) is 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: April 28, 2003.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 03-10819 Filed 5-1-03; 8:45 am]
BILLING CODE 3410-02-P