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November 17, 1999
Via Messenger
Mr. Robert C. Keeney
Deputy Administrator, Fruit and Vegetable Programs
Agricultural Marketing Service
U.S. Department of Agriculture
1400 Independence Avenue
Room 2049-South
Washington, DC 20090-6456
RE: Fees for Destination Market Inspections of Fresh Fruits, Vegetables, and Other Products (Docket No. FV-99-302)
Dear Mr. Keeney:
On behalf of the North American Perishable Agricultural Receivers (NAPAR), we are pleased to provide you with the following comments regarding the Agricultural Marketing Service’s (AMS’s) proposal to increase the fees for destination market inspections of fresh fruits, vegetables, and other products. 64 Fed. Reg. 50774 (September 20, 1999). Please consider our comments favorably and include them in the formal record of the proceeding.
As discussed more fully below, the AMS inspection process needs improvement in a number of areas that should be addressed before the Agency considers increasing inspection fees. We recommend that the Agency hold a public meeting on the matter to air the concerns of the regulated community regarding the system in general rather than simply hiking fees without considering any of the attendant issues. Indeed, in this regard, we urge the Agency to consider administering a privatized destination market inspection system.
As a separate matter, we note that the Agency has not properly fulfilled its obligations under the Regulatory Flexibility Act. Specifically, as AMS has proposed to increase fees by 14 percent, the proposed AMS action will, in fact, have a significant impact on small businesses. AMS has not adequately considered the effects of its actions on small entities, nor has the Agency considered alternatives that might provide appropriate relief to them.
NAPAR is a nonprofit association founded in 1989 to serve the special needs of produce wholesaler/receivers in the United States and Canada. The membership includes ninety corporate members with a combined annual sales volume of $4.5 billion. As a whole, NAPAR’s members employ 23,000 employees. On an annual basis, NAPAR members handle 165,000 trailer loads and 4,500 rail car loads of fresh produce. NAPAR formed an alliance with the Food Marketing Institute in May, 1999.
AMS has proposed to increase fees charged for inspecting fresh produce at destination markets. The Agency asserts that additional revenues are required to cover the costs of operating the program, hiring additional staff, and purchasing new equipment, including safety shoes for inspection personnel. However, before AMS decides to hike fees, we recommend that the Agency consider whether the current system is performing efficiently. In this regard, AMS should consider the satisfaction and concerns of the produce receivers who pay for the services provided, as well as the concerns expressed by the produce shipping community.
Specifically, our members have advised that they face significant difficulties in obtaining timely inspections of produce received at destination markets. As you know, timely inspection of fresh fruits and vegetables is critical to the proper functioning of the produce market, since delays of even one or two days will have a substantial impact on the quality of the produce to be inspected.
Produce receivers are also concerned about the quality of some of the inspections performed. For example, inspectors use widely varying methodology, so that the results of inspections can be unpredictable. Inspectors who have been transferred from one location to another for poor performance have suspect qualifications. Inspectors at the destination markets often seem unwilling to contradict inspections performed at the point of shipment, thereby rendering the results of their inspection dependent on agency politics rather than the quality of the produce. Receivers are reluctant to complain about poor performance, however, for fear of retaliation. Thus, AMS has proposed to increase the costs for destination inspections at a time at which customer satisfaction with the service provided is declining.
The concerns discussed above are highlighted by the arrests that took place at the Hunts Point, NY market on October 27, 1999. As you know, eight USDA inspectors and thirteen wholesaler employees were arrested on charges that racketeering and bribery had been taking place at the market for nearly twenty years. These allegations coupled with the issues identified above mitigate in favor of conducting public meetings on the inspection system as a whole so that concerns can be aired and the system can be considered in its entirety before inspection fee increases are implemented.
In reviewing the system as a whole, we recommend that the Agency consider administering a privatized destination inspection program for produce. Private, third-party certification bodies are used in a variety of business settings, in which they efficiently perform the certification functions comparable to those provided by AMS. By opening the system up to multiple certification bodies, privatization would introduce an element of competition that might keep costs lower and, thus, obviate the need to increase inspection costs at all. In this regard, we recommend that AMS seek qualified vendors through a competitive bidding process to assume the duties currently performed by the AMS destination market inspectors.
The Regulatory Flexibility Act (RFA) requires federal agencies to analyze the impact of their regulations on small businesses. Under the RFA, agencies are required to consider alternatives to their actions that would allow the agency to achieve its regulatory objectives without burdening small businesses unnecessarily. Toward this end, the RFA requires each federal agency "to prepare and make available for public comment an initial regulatory flexibility analysis" (or IRFA) whenever the agency is required to publish a general notice of proposed rulemaking for a proposed rule. 5 U.S.C. § 603(a).
The IRFA must include a description of the reasons why the agency’s action is being considered; a statement of the objectives of and legal basis for the proposal; a description and estimate of the number of small entities to which the proposed rule will apply; a description of the projected reporting, recordkeeping and other compliance requirements of the proposed rule; and identification of all relevant Federal rules that may duplicate, overlap or conflict with the proposed rule. 5 U.S.C. § 603(c).
In this case, AMS has prepared an IRFA, although it is incomplete in several important respects. 64 Fed. Reg. at 50774-75. First, AMS has not described the small entities to be affected, nor has the Agency estimated their number beyond stating that "a small portion" of the 2,000 estimated users are small entities. 64 Fed. Reg. at 50775. Nearly 95 percent of NAPAR’s members are small family businesses.
Second, AMS has underestimated the impact of the fee increase on produce receivers and has not provided any rationale for its evaluation of the effect. Although the preamble notes that the fee increase would be approximately 14 percent, AMS states – without rationale or justification – that this "would not be excessive . . . and should not significantly affect those entities." 64 Fed. Reg. at 50775. We strongly disagree with the Agency’s conclusion. A 14 percent price hike in an essential service is a substantial increase that will, in fact, have a significant impact on produce receivers and, ultimately, on consumers.
Third, the Agency attempts to mitigate the effect that the increase in cost will have by stating that the inspections are voluntary and that most businesses are under no obligation to use the inspection services. 64 Fed. Reg. at 50775. The Agency’s statement is disingenuous. AMS destination inspections are a daily business necessity for both produce shippers and receivers. In the absence of any other certifying bodies, produce receivers cannot simply decide to take their business elsewhere if they feel that the price of the service is increasing despite concommitant declines in service quality.
Fourth, given the significant impact that the proposal would have on small entities if finalized as proposed, AMS was required to consider alternatives to its action that would be less burdensome to small businesses. For example, the Agency should have at least considered the use of exemptions for small businesses. See, e.g., 5 U.S.C. § 603(c). If the number of small entities is the small proportion alleged by AMS, then the impact on revenues of exempting these businesses would be minimal. AMS is required to consider these and other alternative means of reducing the impact of its actions on small businesses.
Finally, when a proposed rule will have a significant economic impact on small entities, the Agency must implement procedures to "assure that small entities have been given an opportunity to participate in the rulemaking." 5 U.S.C. § 609. The Regulatory Flexibility Act sets forth several means by which an agency may achieve this goal, including holding a public hearing at which small entities would have an opportunity to present their views. Accordingly, the public meeting recommended above as a means to discuss the destination inspection system as a whole would also help AMS to fulfill its RFA obligations toward small businesses.
* * *
We appreciate the opportunity to provide you with our comments on AMS’s proposal to increase fees for destination market inspections of fresh produce, and would welcome the opportunity to discuss the matter with you further.
Sincerely yours,
J. Gary
Lee,
Patrick Davis,
President
Executive
Director
cc: NAPAR Executive Committee