[Federal Register Volume 67, Number 241 (Monday, December 16, 2002)]
[Proposed Rules]
[Pages 77002-77003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31583]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 67, No. 241 / Monday, December 16, 2002 / 
Proposed Rules  

[[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 [email protected]. 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