Amendment to Egg Research and Promotion Order To Increase the Rate of Assessment

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1250

RIN 0581-AB32

[Docket No. PY-94-002]

Amendment to Egg Research and Promotion Order To Increase the

Rate of Assessment

AGENCY: Agricultural Marketing Service.

ACTION: Proposed Rule.

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SUMMARY: This proposed rule would amend the Egg Research and Promotion

Order to increase the assessment rate from 5 cents to 10 cents per 30-

dozen case of commercial eggs. The increase is authorized by amendments

to the Egg Research and Consumer Information Act must be approved by

egg producers voting in a referendum. This proposal would also make a

conforming amendment to regulations.

DATES: Comments must be received on or before August 16, 1994.

ADDRESSES: Written comments are to be mailed to Janice L. Lockard,

Chief, Standardization Branch, Poultry Division, AMS, USDA, Room 3944-

South, P.O. Box 96456, Washington, DC. 20090-6456. Comments received

may be inspected at this location between 8 a.m. and 4:30 p.m., Monday

through Friday, except holidays. State that your comments refer to

Docket No. PY-94-002.

FOR FURTHER INFORMATION CONTACT:

Janice L. Lockard, 202-720-3506.

SUPPLEMENTARY INFORMATION:

Executive Orders 12866 and 12778

This rule has been determined not-significant for purposes of

Executive Order 12866, and has been reviewed by the Office of

Management and Budget.

This proposed rule has been reviewed under Executive Order 12778,

Civil Justice Reform. It is not intended to have retroactive effect.

This rule would 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 section 14 of the Act, a

person subject to an order may file a petition with the Secretary

stating that such order, any provisions of such order or any

obligations imposed in connection with such order are not in accordance

with law; and requesting a modification of the order or an exemption

therefrom. Such person is afforded the opportunity for a hearing on the

petition. After a hearing, the Secretary would rule on the petition.

The Act provides that the district court of the United States in any

district in which such person is an inhabitant, or has his principal

place of business, has jurisdiction to review the Secretary's ruling on

the petition, if a complaint is filed within 20 days after date of the

entry of the ruling.

Effect on Small Entities

The Administrator of the Agricultural Marketing Service has

determined that this proposed rule will not have a significant economic

impact on a substantial number of small entities, as defined by the

Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

Currently, 618 egg producers pay assessments to the American Egg

Board (AEB). A proposed rule to increase the exemption level from

30,000 to 75,000 laying hens was published in the Federal Register on

March 22, 1994 (59 FR 13460). The increased exemption level would

exempt 253 small egg producers who represent 41 percent of the egg

producers currently paying assessments, but only 4 percent of AEB's

total assessment income. It is anticipated that the 75,000-hen

exemption level would be in place before the referendum on the

assessment rate increase. Therefore, a change in the assessment rate

would affect only egg producers owning more than 75,000 laying hens.

There are an estimated 365 producers who own more than 75,000 hens.

Currently, egg producers must pay a mandatory assessment of 5 cents per

30-dozen case of eggs marketed to fund the research and promotion

activities authorized by the Act. The present 5-cent assessment is

equivalent to approximately 0.231 percent of the wholesale price of a

1-dozen carton of Large eggs. An assessment rate of 10 cents per 30-

dozen case would be equivalent to approximately 0.463 percent of the

wholesale price of a1-dozen carton of Large eggs. This is based on the

Economic Research Service's 3-year average wholesale price for New York

City Grade A Large cartoned eggs (1991-93) of 72 cents per dozen. AEB

collects approximately $7.5 million annually from the 5-cent

assessment, and it is estimated that it would collect $14 million for a

10-cent assessment. It is estimated that any additional costs would be

offset by the benefits to be derived from strengthened research and

promotion programs.

Paperwork Reduction

Information collection requirements and recordkeeping provisions

contained in 7 CFR Part 1250 have been previously approved by the

Office of Management and Budget and assigned OMB Control No. 0581-0093

under the Paperwork Reduction Act of 1980.

No additional recordkeeping requirements would be imposed as a

result of this proposed rule.

Background and Proposed Changes

On December 14, 1993, the Egg Research and Consumer Information Act

(7 U.S.C. 2711) was amended (Pub. L. 103-188) to increase the maximum

rate of assessment, raise the exemption level, and provide for research

project funding.

Under the amended section 8 of the Act, the maximum rate of

assessment was raised from 10 cents to 20 cents per case of commercial

eggs. The actual assessment rate is prescribed by the Egg Research and

Promotion Order and is currently 5 cents per case. Producers owning

30,000 or fewer laying hens are exempt from paying assessments and

other provisions of the Act. Section 12 of the Act was amended to

increase the exemption level to 75,000 or fewer hens. A proposed rule

to raise the exemption level in the Order was published in the Federal

Register on March 22, 1994. The new exemption level will become

effective after publication of the final rule.

The Act amendments provide that AEB may recommend an increase in

the assessment rate to the Secretary. The recommendation must be based

on a scientific study, marketing analysis, or other evidence

demonstrating a need for the increase. Consequently, AEB conducted a

marketing analysis and evaluated the advertising and nutrition research

programs.

Advertising

AEB began its first advertising campaign in 1977. For the next 3

years, media expenditures averaged $3.5 million annually. In 1980, the

American Association of Advertising Agencies noted that, during that 3-

year period, per capita consumption of eggs had increased and consumer

attitudes toward eggs had improved.

Considering inflation, an estimated $9 million would be required

for AEB to conduct a media program in 1994 comparable to that in 1977.

Further, because consumers have grown more concerned with a variety of

issues affecting egg consumption, an even greater level of funding

would be needed to achieve the same results today.

AEB's analysis establishes that egg consumption has been steadily

declining over many years. In fact, USDA statistics show that per

capita consumption dropped from 402 in 1945 to 234 in 1993. In general,

the decline is attributed to fewer egg-consuming households and less

frequent egg consumption.

Eggs face certain barriers in the marketplace which have

contributed to the declining consumption. Considered by consumers to be

primarily a breakfast food, eggs must compete with a variety of

breakfast alternatives: cold cereal; pancakes and waffles; rolls,

muffins, and toast; and hot cereal. The total measured media spending

for the breakfast food category was $937 million in 1993. Egg industry

advertising-including that funded by AEB, State and regional

associations, and companies promoting name brands-represents only 0.7

percent of that amount.

In addition, consumer concerns with fat and cholesterol have

significantly affected consumer eating habits. The judgment that eggs

are high in cholesterol has further contributed to consumers using

fewer eggs. Overcoming negative consumer attitudes is even more

difficult when other breakfast foods are more heavily promoted.

AEB's current advertising strategy is three-fold: (1) Educate

consumers about eggs and cholesterol by providing facts on egg

cholesterol in a healthy diet; (2) remind consumers how much they love

the great taste of eggs; and (3) connect eggs with the rich,

pleasurable associations people have with eggs and egg-eating

occasions.

The current ``I Love Eggs'' advertising campaign based on this

strategy proved effective in consumer testing. Prior to being exposed

to the advertising, 43 percent of consumers tested had extremely

positive or very positive attitudes about eggs. This number increased

by 13 percent after consumers were exposed to the advertising. Further,

almost half of the consumers tested reported an increased likelihood of

eating and serving eggs more often.

With current funding, AEB has earmarked about $2.8 million for this

campaign in 1995. This budget supports 15-second television commercials

and 30-second radio spots. A 5-cent increase in the assessment rate

would allow for an advertising budget of $7.5 million. This budget

would enable the use of more effective 30-second television spots;

allow advertising to be aired almost every other week, as opposed to

the 10 weeks per year now; and provide for over 1,000 additional

commercial announcements. Most significantly, an additional one million

target households would be reached by AEB advertising each week.

Nutrition Research

The nutrition portion of AEB's budget encompasses two programs of

importance both for the egg industry and the consuming public-nutrition

research and nutrition education.

In recent years, an increased amount of the AEB budget has been

used for research to evaluate the effects of dietary cholesterol on

plasma lipids. Since 1991, $1.3 million has funded research projects at

various universities, all of which have focused on this issue. For

example, a recently completed study was published in the April issue of

the American Heart Association's ``Arteriosclerosis and Thrombosis''

journal. The results of this study found that blood cholesterol levels

in young healthy men did not significantly increase when they were fed

1 or 2 eggs per day. Additional funding would allow the egg industry to

study the same effects across other population groups.

Increased funding also would allow AEB to expand its contacts with

scientists, health professionals, and the media in developing nutrition

materials, sponsoring scientific symposiums and related forums, and

compiling research data.

AEB Recommendation

At the March 17, 1994, Board meeting in Chicago, Illinois, AEB

members voted unanimously to recommend that the assessment rate be

increased from 5 cents to 10 cents per 30-dozen case of commercial

eggs. Their decision was based on the marketing analysis as well as an

overall sense from producers nationwide that more funds are necessary

to help improve the position of the industry's products in the

marketplace through strengthened advertising and research programs. AEB

further requested that a referendum on this increase be held as soon as

possible.

Referendum

After an opportunity for public comment, a referendum will be held

among egg producers not exempt from the Act. Producers engaged in the

production of commercial eggs during a representative period determined

by the Secretary will be eligible to vote on the assessment rate change

proposed by AEB.

All known eligible egg producers will receive information in the

mail regarding the referendum. It is anticipated that the 75,000-hen

exemption level will be in place before the referendum.

The increase in the assessment rate shall become effective if the

change is approved or favored by not less than two-thirds of the

producers voting in the referendum, or a majority of such producers if

they represent not less than two-thirds of the commercial eggs produced

by those voting.

List of Subjects in 7 CFR Part 1250

Administrative practice and procedure, Advertising, Agricultural

research, Eggs and egg products, Reporting and recordkeeping

requirements.

For the reasons set forth in the preamble 7 CFR Part 1250 is

proposed to be amended as follows:

PART 1250--EGG RESEARCH AND PROMOTION

1. The authority citation of Part 1250 is revised to read as

follows:

Authority: 7 U.S.C. 2701-2718.

2. Section 1250.347 is revised to read as follows:

Sec. 1250.347 Assessments.

Each handler designated in Sec. 1250.349 and pursuant to

regulations issued by the Board shall collect from each producer,

except for those producers specifically exempted in Sec. 1250.348, and

shall pay to the Board at such times and in such manner as prescribed

by regulations issued by the Board an assessment at a rate of not to

exceed 10 cents per 30-dozen case of eggs, or the equivalent thereof,

for such expenses and expenditures, including provisions for a

reasonable reserve and those administrative costs incurred by the

Department of Agriculture after this subpart is effective, as the

Secretary finds are reasonable and likely to be incurred by the Board

and the Secretary under this subpart, except that no more than one such

assessment shall be made on any case of eggs.

3. In section 1250.514, the first sentence is revised to read as

follows:

Sec. 1250.514 Levy of assessments.

An assessment rate of 10 cents per case of commercial eggs is

levied on each case of commercial eggs handled for the account of each

producer. * * *

Dated: June 9, 1994.

L. P. Massaro,

Acting Administrator, Agricultural Marketing Service.

[FR Doc. 94-14741 Filed 6-16-94; 8:45 am]

BILLING CODE 3410-02-P