Final Rule: Cold Treatment Regulations

Analysis in Support of Certification that the Rule will not have a Significant Economic Impact on a Substantial Number of Small Entities

Docket No. APHIS - 200 6 - 00 50

Ju ly 20 10

Policy Analysis & Development Policy & Program Development Animal & Plant Health Inspection Service U.S. Department of AgricultureCold Treatment Regulations: Analysis in Support of Certification that the Rule will

not have a Significant Economic Impac t on a Substantial Number of Small Entities Docket No. APHIS - 200 6 - 00 50 This analy sis examines the impact on U.S. small entities of a final rule following an interim rule that set s forth certain ph yt osanitary treatment amendments for fruit imports. Th e amendments include new requirements for cold treatment enclosures and procedures, including precooling

. Currently , 26 fruits and nuts are required to be cold treated to be eligible for import into the United States: apple, apricots, avocado, cape gooseberry , cherry , ethrog, grapes, grapefruit, kiwi, lemon, loquat, lychee, nectarine, oranges, ortanique, peach, pear, persimmon, plum, plumcot, pomegranate, quince, sand pear, tangerine, mandarin , and clementine. 1 Stakeholders and industry representatives have raised concerns about the presence of hot spots in large, tightly packed fruit shipments undergoing in

- transit cold treatment

. Research and industry

experience has established that fruit undergoing cold treatment can remain warmer than the target tre atment temperature for several day s due to natural fruit respiration . I f infested fruit is contained within a pallet group, natural respiration of the larval pests may also significantly raise temperatures in the shipment and reduce treatment effectivenes s .

1 USDA/APHI S/PPQ, Risk Management Document (http:// www.nabcblues.org/legislative/Uruguay%20pest%20risk%20anal ys is.pdf ) . As some of these commodities are crosses between others (for example, ortanique is a cros s between sweet orange and tangerine; plumcot a cross between plum and apricot, etc.) and are less significant in terms of volume, the focus of the analy sis is limited to selected commodities.3 Pre cooling of fruit prior to cold treatment has been shown to be effective in preventing the emergence of hot spots within shipments of fruit. 2 This rule imposes more stringent requirements for precooling fruit prior to cold treatment . In addition, it requires the use of measures approved by the Animal and Plant Health Inspection Service as adequate to ensure the security and integrit y of cold treatment temperature data , adds requirements to increase the effectiveness of cold treatment conducted in vessel holds and treatment enclosures , and p rovid es for officials authorized by APHIS to conduct audits of the cold treatment process

. The Regulatory

Flexibility

Act requires agencies to evaluate the potential effects of their proposed and final rules o n small businesses, small organizations , and small governmental jurisdictions. Section 604 of the Act requires an agency to prepare a final regulatory

flexibility

analy sis (FRFA) that describes the expected impact of the rule on small entities and the steps the agency has taken to minimize significant economic impacts on small entities. In place of the FRFA, the head of the agency may certify that a rule will not have a significant economic impact on a substantial number of small entities. This analy sis provides the factual basis for certification of this rule. This analy sis examines the p ossible effects on U.S. small entities of the new cold treatment regulations . As background, we provide a brief overview of U.S. fruit

2 Pre
- cooling of fruit also provides commercial benefits. Vari ous research shows that prompt pre
- cooling of fruits and vegetables immediately after harvesting maint ains the quality of fresh fruit for a longer period of time (inhibits growth of decay

- causing microorganisms, reduces respiratory activities, lessens mois ture loss and leads to longer shelf life). The suggested length of time varies from commodity to commodity . Michael T. Talbot and Khe V. Chau, Pre

- cooling Strawberries, Publication #CIR942 (http://eds.ifas.ufl .edu/AE136 ); and Mahesh Aswaney , Forced

- Air Pre

- cooling of Fruits and Vegetables, Air Conditioning and Refrigeration Journal , January
- March 2007. (www.chipl.com/pdf/AHRAE_Journal_Article. pdf ).4

production and trade. This is f ollowed by

a comparison of the costs of precooling to the value of the fruit imports. We then describe the expected impact on small entities. U.S. Fruit Production and Trade From 2003 to 2007, the United States produced an annual average of about 9 mill ion metric tons (MT) of the fruits mentioned above, valued at over $5.6 billion. Most U.S. production of fresh citrus occurs in California and Florida. Non
- citrus fruit production takes place in many States, with Washington being the main producer of app les. 3 Foreign markets are increasingl y important for U.S. fruit producers, accounting for approximately

27 percent of 2007 fresh fruit sales. As shown in table 1, the United States is a net exporter of fresh fruits, exporting an average of about 2.2 mil lion MT valued at $2.2 billion (2003

- 2007) and importing about 1.4 million MT valued at $1.8 billion (2003

- 2007). 4 Ten countries (Argentina, Australia, Brazil, Canada, Chile, Ital y, Mexico, New Zealand, South Africa, and Spain) supplied 95 percent of U.S. fresh fruit imports. 5

3 USDA/NASS, Citrus Fruit 2008 Summary , September 2008; Non

- citrus Fruits and Nuts: 2008 Preliminary

Summary , January

2009. 4 Although the United States is a net aggregate exporter of the above fresh fruits, it is a net importer of grapes, blueber ries, kiwi fruit, and tangerines (including clementine and mandarin). 5 Global Trade Information Services, Inc., the Global Trade Atlas , Country Edition, April 2009
. (http.www.gtis.com/gta/)

.5

Table 1

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U.S. f ruit p roduction, c onsumption, e xports and i mports, 2003

- 2007
Year Production

( in 1,000 m etric t ons ) Consumption

( in 1,000 m etric t ons ) Exports ( in

1 ,000 m etric t ons ) Imports ( in

1,000 m etric t ons ) 2003 9,311 8,2 31 2,316 1,236 2004 9,032 8,045 2,180 1,193 2005 9,119 8,213 2,291 1,385 2006 8,420 7,593 2,178 1,351 2007 8,904 8,444 2,133 1,673 5
- Year Average (2003

- 2007) 8,957 8,104 2,220 1,367 Sources: Production, consumption, export , and import data are from USDA/NASS, Citrus Fruit 2008 Summary , September 2008; Non

- citrus Fruits and Nuts: 2008 Preliminary

Summary , January

2009. Export and import data are from Global Trade In formation Services, Inc., Country Edition, April 2009. Note: Production, export , and import quantities are summations for apples, apricots, avocados, blueberries, cherries, grapes, grapefruits, kiwifruits, lemons, oranges, peaches and nectarines, pears, plums , and tangerines. Consumption is calculated as production + imports

- exp orts. As shown in table 1, U.S. fresh fruit production has declined slightl y in recent ye ars. Production totaled 9.3 million MT in 2003 and declined to 8.9 million MT in 2007, an annual decline of about 0.9 percent. Consumption increased over this same period from 8.2 million MT to 8.4 million MT, and U.S. imports increased from 1.2 million MT to 1.7 million MT. Imports represented 17 percent of consumption. Economic Impact of the New Cold Treatment Regulations The new cold treatment regulations r equire that fruit intended for in

- transit cold treatment must first undergo precooling until the temperature of the entire shipment reaches the highest allowable temperature in the treatment schedule under which the fruit will be treated

. In
- transit treatment enclosures such as ship holds and containers may not be used for precooling unless an official authorized b y AP HI S approves the loading of the fruit in6

the enclosure as adequate to allow for fruit pulp temperatures to be taken manually prior to beginning treatment. Although in

- transit precooling is an available option, p recooling in a refrigerated warehouse or similar approved facility is considerabl y more cost
- effective. O n - board precooling requires prolonged shipment times of a day or more while the fruit is being precooled to the required temperature, resulting in higher shipping costs. In theory , an y increase in treatment costs resulting from the new precooling regulations could reduce the quantity of fresh fruit supplied by exporters to the Uni ted States and increase the price, adversel y affecting U.S. consumers of imported fresh fruit. In addition, U.S. fresh fruit producers who compete with the foreign suppliers could benefit. However , the price effects attributable to the new cold treatment regulations are expected to be negligible, and impacts for U.S. producers and consumers insignificant. For the 10 countries that account for 95 percent of U.S. fresh fruit imports, less than 10 percent of their exports in 2007 were to the United States. 6 These countries are major suppliers of fresh fruit worldwide, accounting for over 55 percent of 2007 world exports of the various fruits included in t able 1. 7 Since the U.S. market represents a relatively small share of these countries’ total fresh fru it exports, prices and supplies are not expected to be much affected b y an y increase in treatment costs. 8 M any of these major fruit

- exporting countries already have refrigerated warehouses and similar facilities available for precooling.

6 Calculated b y dividing U.S. imports from the 10 countries b y their exports worldwide (see table 2): 1,461,030 MT / 15,249,658 MT = 9.6 percent. 7 Calculated b y dividing world exports by the 10 countries by total world exports (see table 2): 15,249,658 MT / 27,531,836 MT = 55.4 percent. 8 Global Trade Informatio n Services, Inc., the Global Trade Atlas, Country Edition, April 2009. (http.www.gtis.com/gta/).7 Of the countrie s that supply the remaining five percent of U.S. fresh fruit imports, 28 of them shipped fruits that combined totaled only a little over 1.5 bulk shipments (12,000 MT). Because most of these countries send very small shipments of fresh fruit, it may not b e economical for them to construct refrigerated warehouses for precooling. Based on U.S. construction costs, a medium

- sized refrigerated warehouse (between 60,000 and 100,000 square feet) may cost between $7 million and $10 million. 9 Exporters of fresh fr

uit to the United States, particularly those located in major exporting countries, are more likely to acquire needed space in existing refrigerated warehouses. The cost of renting precooling space in refrigerated facilities is not expected to be significant. In table 2, we compare precooling costs to the value of the fruit imported, and show that precooling is relatively inexpensive. These precooling costs are borne regardless of whether the treatment takes place on land or on a vessel. We base our calculations on cold treatment costs reported in an anal ys is concerning Spanish clementine imports. 10

9 The Port of Corpus Christi completed in July 2000 a new 99,520 square foot refrigerated warehouse at a total cost of $9.2 million ( about $92.5 per sq. ft. ( $9,200,000/99,520)) for importing and exporting fruits, vegetables, meats, and other commodities (http://www.portofcorpuschristi.com/pdfs/Channels8

- 99.pdf ). As another example, the Port of Wilmington, Delaware, completed construction of a new 60,000 square feet refrigerated warehouse at a total cost of $7.5 million (about $125/sq. ft. ($7,500,000/60,000)). The facility will be used primarily for fresh fruit. (http://www.drba.net/press/releases/files/20040615drbarowanuniversity.pdf ). 10 We use 1,984 pounds as the weight of one pallet. Source: USDA/APHIS/PPD/PAD, Amending Import Rules for Cleme ntines from Spain: Final Regulatory Impact Analy sis, October 2002.8

Table 2

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U.S. f ruit i mports and p re - cooling treatment c osts as a p ercentage of the v alue of i mports

U.S. i mports Exports by the 10 m ajor f ruit e xportin g c ountries to the United States World

e xports by a ll c ountries Cost of treatment

(in dollars) Cost of treatment as a

p ercentage of the v alue of U.S. i mports One d ay Three

d ay s One

d ay Three

d ay s A ( in thousands of dollars ) B ( MT ) C (MT) D (MT) E F G H Apples 144,493 176,005 2,639,019 7,116,322 109,522 328,566 0.076% 0
. 227% Apricots 4,315 1,969 90,797 195,572 1,225 3,675 0.028% 0.085% Avocados 290,171 218,440 561,122 664,635 135,928 407,783 0.047% 0.141% Blueberries 114,454 23,681 91,543 154,28 6 14,480 43,439 0.013% 0.038% Cherries 30,670 9,846 55,330 249,930 6,236 18,709 0.020% 0.061% Grapes 847,144 567,850 1,999,329 3,322,321 353,354 1,060,061 0.042% 0.125% Grapefruit 1,990 17,624 351,524 1,136,818 10,967 32,900 0.551% 1.653% Kiwi 39,778 4 0,952 251,437 1,058,286 25,483 76,449 0.064% 0.192% Lemons 21,760 45,189 1,549,540 2,188,628 28,120 84,359 0.129% 0.388% Oranges 75,855 75,354 3,257,648 4,306,934 47,020 141,061 0.062% 0.186% Peach es and Nectarines 60,372 66,271 1,046,685 1,342,126 41,2 38 123,715 0.068% 0.205% Pear s and Quinces 92,025 85,372 1,036,235 2,419,269 53,124 159,372 0.058% 0.173% Plums 36,969 34,386 296,365 468,291 21,397 64,192 0.058% 0.174% Tangerines 1,398,15 98,091 2,023,084 3,066,053 61,039 183,116 0.044% 0.131%

1,899 ,811 1 ,461,030 15,249,658 27,531,836 909,149 2,727,448 0.048% 0.144% Note: Import values and quantities in columns A and B are five

- year averages (2003

- 2007); world export quantities in column D are for 2007; E=(B*2,204.6*$0.56/1,984), the cost of one day treatment; F=(B*2,204.6*$1.68/1,984), the cost of three day s treatment; G = (E/[A*1,000])*100; H = (F/[A*1,000])*100; 2,204.6 is the weight, in pounds of a metric ton, 1,984 pounds is the assumed weight of a pallet , and $0.56 and $1.68 are the costs of pre - cooling a pallet for one and three day s, respectivel y.9 In table 2, the import values and quantities in columns A and B, respectively , are five

- ye ar averages (2003

- 2007). Column C quantities are global exports by the top 10 suppliers of these commoditi es and Column D shows global exports of these fruits by all countries. Columns E and F are precooling costs, calculated as described in the note to the table. Column E shows the one

- day treatment cost and Column F, the three

- day treatment cost. Columns G and H show the significance of these costs relative to import values. Onl y in the case of grapefruit is the three

- day treatment cost greater than one percent of the value of the fruit; grapefruit had the smallest import value of the listed fruit, averag ing $2 million per year. Overall, the costs of precooling totaled less than 0.15 percent of the value of the fruit imports, assuming a three

- day precooling period throughout. In man y cases, the shipment will reach the required precooling temperature in less time. In dollar terms, these precooling costs totaled less than $3 million per year. These costs are a fraction of potential losses that may

result, for example, from Medfly infestations. A Medfly infestation that occurred in California during 1980

– 1982, according to public comments received on the proposed rule for Spanish clementines, cost $100 million to eradicate and $100 million in lost export revenues. 11 Potentially

Affected Entities and Expected Impact of the Rule The Small Business Adminis tration (SBA) has established guidelines for determining which firms are to be considered small under the Regulatory Flexibility

Act. U.S. entities that may

be affected include producers of Medfl y host crops (many of which are categorized within the follo wing North American Industry Classification Sy stem

11 USDA/APHI S/PPD/PAD, Amending Import Rules for Clementines from Spain: Final Regulatory

Impact Analysis, October 2002.10

subsectors: NAICS 111310 Orange Groves, NAICS 111320 Citrus (except Orange) Groves, NAI CS 111331 Apple Orchards, NAI CS 111332 Grape Vineyards, NAI CS 111334 Berry

(except Strawberry) Farming, NAI CS 111335 T ree Nut Farming, NAI CS 111336 Fruit and Tree Nut Combination Farming, and NAICS Other Non

- citrus Fruit Farming), Fruit and Vegetables Merchant Wholesalers (NAICS 422480), Supermarkets and other Grocery

Stores (NAICS 445110), and Fruit and Vegetable Markets (NAICS 445230). The vast majority of the businesses that comprise these industries are small entities. The Small Business Administration (SBA) classifies fruit fl y host crop operations as small entities if their annual receipts are not more than $750,00 0. 12 According to the 2007 Census of Agriculture, there were over 127,895 operations engaged in the production of citrus and non

- citrus fruits. Over 98 percent of these entities were designated as small entities. The SBA classifies fresh fruit and vegeta ble merchant wholesalers (NAICS code 422480) as small if they employ 100 or fewer employees. According to the 2002 Economic Census, there were 4,644 of these entities, with 484 (or 10.4 percent) of them considered to be large. 13 SBA classifies supermarket s and other grocery stores as small entities if their annual receipts are not more than $23 million. There were 56,577 supermarkets and other groceries in 2002. Of these, only 3477 or 6.1 percent are considered to be large. Fruit and vegetable markets (NAI CS code 445230) are considered small if their annual sales are less than $6.5 million. 14 In 2002, the most

12 SBA, Small business Size Standards matched to North American In dustry Classification Sy stem 2002, Effective January 2006 (www.sba.gov/size/sizetable2002 .html). 13 The 2007 Wholesale Trade/Establishment and Firm Size data release date is November 2010. 14 The 2007 Retail Trade/Establishment and Firm Size data release date is October 2010.11

recent ye ar for which data are available, there were 2,257 fruit and vegetable markets. 15 Approximately

96 percent of these are considered to be sm all entities under the SBA’s standards. The rule has no mandatory reporting, recordkeeping, or other compliance requirements. U.S. entities that may be affected by

the rule voluntaril y engage in trade transactions. An y reporting or other requirements w ill be those normally associated with the regular transactions involved in doing business. Clearly , a majorit y of the entities that comprise these U.S. industries are small , b ut any impacts on these industries due to the new cold treatment regulations wil l be insignificant. The rule will not have a significant economic impact on a substantial number of small entities. Summary It is unlikel y that U.S. entities will be directly affected b y the new cold treatment requirements; compliance will be the respon sibility of the exporting entity. Any reporting or recordkeeping requirements for U.S. entities will be those normally associated with importing fruit from abroad. In theory , if foreign exporters do experience a cost increase because of this amendment, th e quantity

of fruit supplied may

decrease. This decrease could result in an increase in the price of fruit, costing U.S. consumers and benefiting U.S. producers and suppliers. However, any

additional costs because of this amendment will represent onl y
a small fraction of the price of the fruit.

15 U.S. Census Bureau, 2002 Economic Census Geographic Area Series: Manufacturing and Wholesale Trade, Revised January 2006 ( www.census .gov/econ/census02/ guide/geosumm.htm ).12 The number of U.S. industries that could be potentially affected by

this amendment are small , and any impacts on these industries due to these changes in the cold treatment regulations will be insignificant. Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities

.