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###### Department of Agriculture

###### Agricultural Marketing Service 

          - 7 CFR Part 948 
          - [Docket No. AMS-FV-06-0182; FV06-948-2 IFR] 

# AGENCY:

Agricultural Marketing Service, USDA. 

# ACTION:

Interim final rule with request for comments. 

# SUMMARY:

                        This rule modifies the grade and maturity requirements for potatoes handled under the Colorado potato marketing order, Area No. 2. The marketing order regulates the handling of Irish potatoes grown in Colorado and is administered locally by the Colorado Potato Administrative Committee, Area No. 2 (Committee). This rule relaxes the minimum grade requirement from U.S. No. 1 grade to U.S. Commercial grade for all Area No. 2 potato varieties, other than round, red-skinned varieties, measuring from 1                         1/2                        -inch minimum diameter to 2                         1/4                        -inch maximum diameter (size B), and 1-inch minimum diameter to 1                         3/4                        -inch maximum diameter. This rule also changes from August 25 to August 1 of each year the date minimum maturity requirements are implemented. These changes are intended to facilitate the handling and marketing of Colorado Area No. 2 potatoes.                     

# DATES:

Effective December 28, 2006; comments received by February 26, 2007 will be considered prior to issuance of a final rule. 

# ADDRESSES:

                        Interested persons are invited to submit written comments concerning this rule. Comments must be sent to the Docket Clerk, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250-0237;                         *Fax:*                         (202) 720-8938;                         *e-mail: moab.docketclerk@usda.gov*; or Internet:                         *http://www.regulations.gov*. All comments should reference the docket number and the date and page number of this issue of the                         **Federal Register**                         and will be made available for public inspection in the Office of the Docket Clerk during regular business hours, or can be viewed at:                         *http://www.ams.usda.gov/​fv/​moab.html*.                     

# FOR FURTHER INFORMATION CONTACT:

                        Teresa Hutchinson or Gary Olson, Northwest Marketing Field Office, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA;                         *Telephone:*                         (503) 326-2724,                         *Fax:*                         (503) 326-7440, or E-mail:                         *Teresa.Hutchinson@usda.gov*                         or                         *GaryD.Olson@usda.gov*.                     

                        Small businesses may request information on complying with this regulation by contacting Jay Guerber, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250-0237; Telephone: (202) 720-2491, Fax: (202) 720-8938, or E-mail:                         *Jay.Guerber@usda.gov*.                     

# SUPPLEMENTARY INFORMATION:

This rule is issued under Marketing Agreement No. 97 and Marketing Order No. 948, both as amended (7 CFR part 948), regulating the handling of Irish potatoes grown in Colorado, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.” 

The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866. 

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule. 

                    The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under § 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request                           ( print page 77584)                        a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.                 

                    This rule changes the minimum grade requirement for certain potatoes handled under the order and also changes the minimum maturity requirement implementation date. Specifically, this rule changes the minimum grade requirement from U.S. No. 1 grade to U.S. Commercial grade for all varieties of Area No. 2 potatoes, other than round, red-skinned potatoes, measuring from 1                     1/2                    -inch minimum diameter to 2                     1/4                    -inch maximum diameter (size B), and from 1-inch minimum diameter to 1                     3/4                    -inch maximum diameter. Furthermore, this rule changes the implementation date for the minimum maturity requirement from August 25 to August 1 of each year. These changes were recommended by the Committee at a meeting held on August 10, 2006.                 

Section 948.22 authorizes the issuance of grade, size, quality, maturity, pack, and container regulations for potatoes grown in the production area. Section 948.21 further authorizes the modification, suspension, or termination of regulations issued pursuant to § 948.22. 

Section 948.40 provides that whenever the handling of potatoes is regulated pursuant to §§ 948.20 through 948.24, such potatoes must be inspected by the Federal-State Inspection Service, and certified as meeting the applicable requirements of such regulations. 

Under the order, the State of Colorado is divided into three areas of regulation for marketing order purposes. These include: Area 1, commonly known as the Western Slope and consisting of Routt, Eagle, Pitkin, Gunnison, Hinsdale, La Plata Counties, and all counties west thereof; Area 2, commonly known as San Luis Valley, consists of Sanguache, Huerfano, Las Animas, Mineral, Archuleta Counties, and all counties south thereof; and, Area 3, which consists of the remaining counties in the State of Colorado not included in Area 1 or 2. The order currently regulates production in Areas 2 and 3 only; regulation for Area 1 is currently not active. Grade, size, and maturity regulations specific to the handling of potatoes grown in Area No. 2 are contained in § 948.386 of the order. For many years, consumer demand for small fresh market potatoes was relatively soft in comparison to demand for larger size potatoes. Size B and smaller potatoes were often discarded or fed to livestock. Grade and size regulations were developed to keep lower quality small potatoes out of the fresh market. At that time, the Committee believed that small potatoes, sold at a great discount, eroded the price for large potatoes. By requiring small potatoes to grade U.S. No. 1 or better, the Committee believed that high quality small potatoes would not have an adverse affect on the market for larger potatoes. 

                    Recently, however, demand has increased for small potatoes, which often command premium prices compared to larger size A potatoes (1                     7/8                    -inch and larger). With the growing demand for small potatoes, producers and handlers are concerned that they will not be able to supply this market if only U.S. No. 1 or better grade can be shipped under the order. The Colorado Area No. 2 potato industry has received requests from customers for additional small potatoes that grade U.S. Commercial or better. This action would better assist Area No. 2 handlers in meeting their buyers' needs.                 

Committee statistics show that approximately 62 percent of the entire potato crop in Area No. 2 grades U.S. No. 1 or better. However, the percentage of Size B and smaller potatoes meeting U.S. No. 1 grade is only about 50 percent. The reason for the lower percentage of smaller potatoes is that potato defects are scored based on the percentage of surface area affected on the individual potato. Because Size B and smaller potatoes have less surface, any defect inspected comprises a larger part of the total surface being scored relative to larger sized potatoes. For example, a cut on a large potato may not affect a large enough surface area to be a scorable defect, but the same size cut would be scorable on a smaller potato. Under such circumstances, it would be much harder for a small potato to meet the U.S. No. 1 grade than it would for a large potato. The U.S. Commercial grade allows a slightly higher percentage of total defects than the U.S. No. 1 grade. 

                    By changing the grade requirement to allow size B potatoes and potatoes measuring from 1-inch minimum diameter to 1                     3/4                    -inch maximum diameter (commonly referred to as “creamers” by the potato industry) to meet U.S. Commercial grade or better, the Committee believes more small potatoes would be available to meet increasing demand, and thus help increase returns to producers. Not only would more small potatoes enter the market, small potatoes typically sell for a premium price in today's marketplace. This change would not affect round, red-skinned potato varieties in the size B and 1-inch minimum diameter to 1                     3/4                    -inch maximum diameter size, which would continue to meet U.S. No. 1 grade or better. The majority of round, red-skinned potato varieties produced in Area No. 2 supply the food service or restaurant market. This market demands high quality (U.S. No. 1 or better) round, red-skinned potatoes. Therefore, the Committee recommends that the grade requirement for varieties of round, red-skinned potatoes in these size categories remain U.S. No. 1 grade or better.                 

The Committee believes that by allowing small potatoes to meet the more relaxed U.S. Commercial grade instead of U.S. No. 1 grade, available volume for sale into the fresh market could increase by about 23 percent. 

Although facing an increasing demand, the market for small potatoes is a minor segment of the market served by the Area No. 2 production area. As a consequence, the Committee believes that the smaller potatoes do not compete directly with the predominant large potatoes produced in this area, and that the relaxation of the grade requirement would not adversely effect the overall Area No. 2 potato market. 

This rule also changes the minimum maturity requirement implementation date from August 25 to August 1. The specified ending date of October 31 for the minimum maturity requirement remains unchanged, as do the actual minimum maturity requirements that U.S. No. 2 grade potatoes are not more than “moderately skinned” and that all other grades are not more than “slightly skinned” (as defined in the U.S. Standards for Potatoes). 

The Committee recommended that the implementation date be moved to August 1 due to the increased use of early maturing potato varieties in this area of Colorado and earlier harvest requirements. Since the skin on most potato varieties has not substantially “set”, or toughened, early in the season, potato skins have a tendency to more easily scrape off during harvest and the subsequent handling and packing process. By having the maturity requirements in place at the beginning of harvest, there is added assurance that a quality product will reach the consumer. 

## Initial Regulatory Flexibility Analysis 

                    Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the                           ( print page 77585)                        Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.                 

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility. 

There are approximately 80 handlers of Colorado Area No. 2 potatoes subject to regulation under the order and approximately 200 producers in the regulated production area. Small agricultural service firms are defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts of less than $6,500,000, and small agricultural producers are defined as those having annual receipts of less than $750,000. 

During the 2005-2006 marketing year, 17,213,202 hundredweight of Colorado Area No. 2 potatoes were inspected under the order and sold into the fresh market. Based on an estimated average f.o.b. price of $11.45 per hundredweight, the Committee estimates that 73 Area No. 2 handlers, or about 91 percent, had annual receipts of less than $6,500,000. In view of the foregoing, the majority of Colorado Area No. 2 potato handlers may be classified as small entities. 

In addition, based on information provided by the National Agricultural Statistics Service, the average producer price for Colorado fall potatoes for 2005 was $9.25 per hundredweight. The average annual fresh potato revenue for each of the 200 Colorado Area No. 2 potato producers is therefore calculated to be approximately $796,112. Consequently, on average, the majority of the Area No. 2 Colorado potato producers may not be classified as small entities. 

                    Excluding round, red-skinned potato varieties, this rule relaxes the minimum grade requirement from U.S. No. 1 grade to U.S. Commercial grade for Area No. 2 potatoes measuring from 1                     1/2                    -inch minimum diameter to 2                     1/4                    -inch maximum diameter (size B), and 1-inch minimum diameter to 1                     3/4                    -inch maximum diameter. This rule also changes from August 25 to August 1 of each year the date minimum maturity requirements are implemented. Authority for this action is contained in §§ 948.21, 948.22, 948.40, and 948.386.                 

Since the grade relaxation is expected to benefit producers, handlers and consumers, any potential impact from this action would be positive. By allowing these small potatoes to meet U.S. Commercial grade or better, a potentially greater quantity of potatoes will meet the order's handling regulation. This is expected to translate into an increased market for small potatoes and thus greater returns for handlers and producers and more product choice for consumers. Further, small potatoes are a minor segment of the potato market served by the Area No. 2 production area. As such, the Committee believes that small potatoes do not compete directly with most of the potatoes produced in this area and that the grade requirement relaxation will not adversely effect the overall Area No. 2 potato market. 

Based on Committee records, roughly half of Area No. 2 handlers ship size B and smaller potatoes. Committee records also indicate that during the 2004-2005 fiscal period approximately 165,000 hundredweight (less than 1 percent of the total shipments) of size B and smaller were inspected and shipped. As a result of this rule, the Committee estimates that the marketable supply of size B and smaller potatoes will increase by 23 percent and add 37,950 hundredweight to the marketable supply of Area No. 2 potatoes. 

As previously noted, this relaxation does not affect round, red-skinned potatoes in the same size categories. These potatoes will continue to pack-out as U.S. No. 1 grade or better to satisfy the quality conscious food service and restaurant markets. 

The action changing the minimum maturity requirement implementation date to August 1 merely updates the regulations so that they are in-line with current cultural practices. Thus, any impact from this change on the producers, handlers, and consumers of Colorado potatoes is expected to be positive since assurance is being added that quality product—a product without undue skinning—will be packed and shipped into the market. The Committee supports the concept that a quality product promotes consumer confidence, thereby helping to protect producer returns. 

After discussing possible alternatives to this rule, the Committee determined that a relaxation in the grade requirement to U.S. Commercial grade or better for certain small potatoes would sufficiently meet the industry's current needs. The relaxation in the grade requirement for the affected small potatoes is expected to provide the greatest benefit to the industry by augmenting the developing market for these potatoes and thereby increasing producer returns. During its deliberations, the Committee also considered relaxing the grade requirement for small, round, red-skinned potato varieties. However, food service and restaurant market segments have a preference for round, red-skinned potatoes and demand high quality potatoes (U.S. No. 1 grade or better). The Committee, therefore, found that there were no other viable alternatives for the grade change except as recommended. Lastly, the maturity requirement implementation date change merely brings the regulations in-line with current cultural practices, and therefore, the Committee did not consider further alternatives to this recommended change. 

This rule will not impose any additional reporting or recordkeeping requirements on either small or large potato handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. In addition, USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule. 

AMS is committed to complying with the E-government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes. 

Further, the Committee's meeting was widely publicized throughout the Colorado potato industry and all interested persons were invited to attend the meeting and participate in Committee deliberations. Like all Committee meetings, the August 10, 2006, meeting was a public meeting and all entities, both large and small, were able to express their views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

                    A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at:                     *http://www.ams.usda.gov/​fv/​moab.html.*                     Any questions about the compliance guide should be sent to Jay Guerber at the previously mentioned address in the                     **FOR FURTHER INFORMATION CONTACT**                     section.                 

                    This rule invites comments on a modification of the grade and maturity requirement prescribed under the Colorado potato marketing order. Any comments received will be considered prior to the finalization of this rule.                           ( print page 77586)    

After consideration of all relevant material presented, including the Committee's recommendation, and other information, it is hereby found that this interim final rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act. 

                    Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the                     **Federal Register**                     because: (1) Handlers are already shipping potatoes from the 2006-2007 crop and want to take advantage of the grade relaxation aspect of this rule as soon as possible; (2) handlers are aware of this rule, which was recommended at a public meeting; and (3) this rule provides a 60-day comment period and any additional comments received will be considered prior to finalization of this rule.                 

# List of Subjects in 7 CFR Part 948

      - Marketing agreements
      - Potatoes
      - Reporting and recordkeeping requirements

For the reasons set forth in the preamble, 7 CFR part 948 is amended as follows:

# PART 948—IRISH POTATOES GROWN IN COLORADO

1. The authority citation for 7 CFR part 948 continues to read as follows: 

Authority:7 U.S.C. 601-674. 

2. In § 948.386, paragraphs (a)(3) and (a)(4), and the introductory text of paragraph (b) are revised to read as follows: 

§ 948.386 

* * * * *

(a) * * * 

                            (3)                             *1                                 1/2                                -inch minimum to 2                                 1/4                                -inch maximum diameter (Size B).*                             U.S. Commercial grade or better:                             *Provided*, That round, red-skinned varieties shall grade U.S. No. 1 or better.                         

                            (4)                             *1-inch minimum diameter to 1                                 3/4                                -inch maximum diameter.*                             U.S. Commercial grade or better:                             *Provided*, That round, red-skinned varieties shall grade U.S. No. 1 or better.                         

* * * * *

                            (b)                             *Maturity (skinning) requirements.*                             From August 1 through October 31 shall be:                         

* * * * *

Dated: December 21, 2006. 

Lloyd C. Day, 

Administrator, Agricultural Marketing Service. 

[FR Doc. 06-9897 Filed 12-21-06; 4:59 pm] 

BILLING CODE 3410-02-P