[Federal Register Volume 68, Number 85 (Friday, May 2, 2003)]
[Rules and Regulations]
[Pages 23377-23378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10819]



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  Federal Register / Vol. 68, No. 85 / Friday, May 2, 2003 / Rules and 
Regulations  

[[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.

-----------------------------------------------------------------------

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