(April 11) Severe cutbacks are dead ahead for the Fresh Products Branch of the U.S. Department of Agriculture’s Agricultural Marketing Service.

Leanne Skelton, chief of the branch, sent a memo to branch personnel April 4, detailing what she called “ongoing branchwide restructuring efforts” that must permanently shave $5 million from the budget within a year.

In an internal presentation made in early April and shared anonymously with The Packer, Skelton said the current reserve balance for the Fresh Products Branch shows it will fall below the agency’s mandated four-month reserve balance in late fiscal year 2008 — August or September. If current projections hold, the Fresh Products Branch would by insolvent by fiscal year 2009, according to the presentation.

Skelton could not be reached for comment April 10. AMS spokesman Jimmie Turner said Robert Keeney, deputy administrator for the AMS fruit and vegetable programs, was out of the office and unavailable April 10.

In an interview with The Packer in early April, Keeney said the Fresh Products Branch was considering cutbacks at headquarters and among the field staff but declined to specifically outline what was being considered.

He said cutbacks would occur during the span of several years, however.

The branch has faced a long-term trend of dropping demand for destination inspection services, from nearly 210,000 inspections performed in 2001 to less than 160,000 performed in 2006.

Part of the reason for the decline, produce marketers have said, is more collaborative and less antagonistic buyer-seller relationships. Communications about quality problems are easier with digital photography. Another element, industry sources have said, is the rising cost of inspections.

In any case, 15% destination inspection fee increases in 2004, 2006, 2007 and another in March have not restored budget stability to the Fresh Products Branch.

An internal memo provided to The Packer anonymously earlier in the year estimated that revenue for fiscal year 2007 for the Fresh Products Branch — the largest part of the group’s budget — was about $15.7 million. On the other hand, obligations were $19.9 million, leaving a deficit of about $4.2 million on Sept. 30 — the end of fiscal year 2007.

The program’s remaining reserve at that time was a little more than six months, the budget document said. Federal programs are expected to have a minimum reserve of four months at any given time.

In 2000 and 2001 — after the 1999 Forbidden Fruit bribery scandal at New York’s Hunt’s Point Terminal, Congress appropriated $71 million to the USDA to, among other purposes, build an inspection training center and provide reserves to delay increased fees for inspections and Perishable Agricultural Commodities Act fees.

One anonymous source said the reserve fund for the Fresh Products Branch was about $40 million or more in 2002, and stands at about $7 million now.

Lisa Strube, a member of the USDA’s fruit and vegetable industry advisory committee, and director of finance and administration with Strube Celery and Vegetable Co., Chicago, said specific plans by the USDA to slash the Fresh Products Branch budget were not revealed at the mid-February meeting of the advisory committee. However, a subcommittee is expected to have a conference call about the issue later in April, she said.

In her April 4 memo, Skelton did not directly refer to closing offices but did say there would be reductions in force, early retirement, reduced overtime, reduced travel, decreased training and unpaid leave. Furloughs, or unpaid leave, could begin June 1, Skelton said.

According to Skelton’s presentation, 78% of the branch’s operating expenses are salaries and benefits, so that’s where most of the cuts are. The cuts will be both at headquarters and in the field offices, she said.

According to budget documents provided anonymously to The Packer earlier this year, only four of 36 federal markets — Philadelphia ($242,000); St. Louis ($40,000); Portland, Ore., ($34,000); and Hartford, Conn., ($4,718) — had revenues that exceeded obligations in fiscal year 2007.

Locations with the most red ink were the Bronx (-$396,000), Pittsburgh (-$313,000), Chicago (-$260,000), Dallas (-$218,000), San Francisco (-$180,000) and Los Angeles (-$174,000).

The federal cutbacks could strain relationship with state offices. Albert Louie, acting fresh fruits and vegetable inspection service specialist in Honolulu, said that beginning this fiscal year, the government no longer pays travel or hotel expenses for federally certified state inspectors to take refresher courses at the USDA training center in Fredericksburg, Va.