Almonds Grown in California; Salable, Reserve, and Export Percentages for the 1994-95 Crop Year

DEPARTMENT OF AGRICULTURE

7 CFR Part 981

[FV94-981-3FR]

Almonds Grown in California; Salable, Reserve, and Export

Percentages for the 1994-95 Crop Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule establishes salable, reserve, and export

percentages for California almonds received by handlers during the

1994-95 almond crop year. Based on the recommendation of the Almond

Board of California (Board), the agency which locally administers the

almond marketing order, and other available information, this rule

establishes salable, reserve, and export percentages of 90 percent, 10

percent, and 0 percent, respectively. This rule is authorized under the

marketing order for almonds grown in California and is intended to

promote orderly marketing conditions and avoid unreasonable

fluctuations in supplies and prices.

EFFECTIVE DATE: This final rule becomes effective January 9, 1995, and

will apply to all almonds received by handlers during the 1994-95 crop

year, which began on July 1, 1994 and ends on June 30, 1995.

FOR FURTHER INFORMATION CONTACT: Kathleen M. Finn, Marketing

Specialist, Marketing Order Administration Branch, Fruit and Vegetable

Division, AMS, USDA, Room 2536-S, P.O. Box 96456, Washington, D.C.

20090-6456; telephone: (202) 720-1509, or fax (202) 720-5698; or Martin

Engeler, Assistant Officer-in-Charge, California Marketing Field

Office, Fruit and Vegetable Division, AMS, USDA, 2202 Monterey Street,

Suite 102-B, Fresno, Ca., 93721; telephone: (209) 487-5901, or fax

(209) 487-5906.

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing

Agreement and Order No. 981 [7 CFR Part 981], both as amended,

hereinafter referred to as the ``order,'' regulating the handling of

almonds grown in California. 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 (Department) is issuing this final

rule in accordance with Executive Order 12866.

This rule has been reviewed under Executive Order 12778, Civil

Justice Reform. Under the provisions of the marketing order now in

effect, California almonds are subject to reserve requirements. It is

intended that the salable and reserve percentages as issued herein will

be applicable to all almonds handled during the 1994-95 crop year. This

final 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 section 608c(15)(A) of the

Act, any handler subject to an order may file with the Secretary 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 a modification of the order or to be exempt

therefrom. A handler is afforded the opportunity for a hearing on the

petition. After a hearing the Secretary will 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 in equity to review the

Secretary's ruling on the petition, provided a bill in equity is filed

not later than 20 days after date of entry of the ruling.

Pursuant to requirements set forth in the Regulatory Flexibility

Act (RFA), the Administrator of the Agricultural Marketing Service

(AMS) has considered the economic impact of this action on small

entities.

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 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 115 handlers of almonds who are subject to

regulation under the marketing order and approximately 7,000 producers

in the regulated area. Small agricultural service firms have been

defined by the Small Business Administration [13 CFR 121.601] as those

having annual receipts less than $5,000,000, and small agricultural

producers are defined those whose annual receipts are less than

$500,000. The majority of handlers and producers of California almonds

may be classified as small entities.

The National Agricultural Statistics Service estimates 1994

California almond production at 640 million kernelweight pounds, 31

percent larger than last year. If realized, this could be one of the

largest crops on record.

In order to lessen the impact of this projected large almond supply

facing the industry, the Board, at its July 7, 1994, meeting in

Modesto, California, recommended establishing salable, reserve, and

export percentages for the 1994-95 crop year by a vote of seven to

three. The opposing votes are discussed later in this document. This

rule requires handlers of California almonds to withhold, as a reserve,

from normal domestic and export markets, 10 percent of the merchantable

almonds they receive from growers during the 1994-95 crop year. The

remaining 90 percent (the salable percentage) of the crop could be sold

by handlers in any market at any time. The last year salable and

reserve percentages were established was the 1991-92 crop year.

Almond production, like that of many agricultural commodities, can

vary significantly from season-to-season due to a variety of factors.

This in turn can cause wide fluctuations in prices. For example, the

Board has estimated grower prices increased from $1.26 per pound for

1992 crop almonds to nearly $2.00 per pound for 1993 crop almonds, when

the corresponding estimated shipments for those crop years were 535.9

million pounds and 497.7 million pounds, respectively. The large 1994

California almond crop estimate caused early speculation of grower

prices in the $1.15 per pound range. Such swings in supplies and price

levels can result in market instability and uncertainty for growers,

handlers, buyers, and consumers. The long term goal of the almond

industry is to increase almond consumption and demand, and the Board

believes this can be best achieved in the presence of stable and

orderly market conditions. The Board believes that the use of the

reserve provisions of the marketing order as a supply management tool,

in conjunction with other marketing tools available in the order, can

assist in accomplishing the industry's goals.

While this rule may restrict the amount of almonds which handlers

could sell in normal domestic and export markets in the short term, the

salable and reserve percentages are intended to promote orderly

marketing conditions by avoiding unreasonable fluctuations in supplies

and prices and improving grower returns. Further, this rule could help

provide market stability during the 1995-96 crop year by reserving

almonds for shipment during that season in the event 1995 production is

below trade demand needs.

Authority to establish salable and reserve percentages is provided

in section 981.47 of the order. Section 981.66 authorizes disposition

of reserve almonds to certain outlets, including export. Pursuant to

sections 981.47 and 981.49 of the order, the Board based its

recommendation for salable, reserve, and export percentages of 90

percent, 10 percent, and 0 percent, respectively, on estimates of

marketable supply and combined domestic and export trade demand for the

1994-95 crop year. The Board's 1994 marketable production estimate of

620.8 million kernelweight pounds is based on a 1994 crop estimate

issued by the National Agricultural Statistics Service of 640 million

kernelweight pounds, minus an estimated loss of 19.2 million

kernelweight pounds resulting from the removal of inedible kernels by

handlers and losses during manufacturing.

Trade demand is estimated at 556.4 million kernelweight pounds--175

million pounds for domestic needs and 381.4 million pounds for export

needs. An inventory adjustment is made to account for supplies of

salable almonds carried in from the 1993-94 crop year and for supplies

of salable almonds deemed desirable to be carried out on June 30, 1995,

for early season shipment during the 1995-96 crop year. After adjusting

for inventory, the trade demand is calculated at 556.8 million

kernelweight pounds. This is the quantity of almonds from the estimated

1994 marketable production deemed necessary to meet trade demand needs.

The salable percentage of 90 percent will meet those needs.

The remaining 10 percent (64 million kernelweight pounds) of the

1994 crop marketable production will be withheld by handlers to meet

their reserve obligations.

The percentage of reserve almonds available for export is

established at 0 percent. Although the order permits establishment of a

percentage of reserve almonds that can be exported, export is currently

the largest market for California almonds and is not considered a

secondary or noncompetitive outlet. Therefore, exports are included in

trade demand and the export market is not an authorized reserve outlet.

All or part of reserve almonds can be released to the salable

category if it is found that the supply made available by the salable

percentage is insufficient to satisfy 1994-95 trade demand needs,

including desirable carryover for use during the 1995-96 crop year. The

Board is required to make any recommendations to the Secretary to

increase the salable percentage prior to May 15, 1995, pursuant to

section 981.48 of the order. Alternatively, all or a portion of reserve

almonds can be sold by the Board, or by handlers under agreement with

the Board, to governmental agencies or charitable institutions or for

diversion into almond oil, almond butter, animal feed, or other outlets

which the Board finds are noncompetitive with existing normal markets

for almonds.

A tabulation of the estimates and calculations used by the Board in

arriving at its recommendations follows:

Marketing Policy Estimates--1994 Crop

[Kernelweight basis]

------------------------------------------------------------------------

Million

pounds Percent

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Estimated production:

1. 1994 Production................................ 640.0

2. Loss and Exempt--3.0%.......................... 19.2

3. Marketable Production.......................... 620.8

Estimated trade demand:

4. Domestic....................................... 175.0

5. Export......................................... 381.4

6. Total.......................................... 556.4

Inventory adjustment:

7. Carryin 7/1/94................................. 99.6

8. Desirable Carryover 6/30/95.................... 100.0

9. Adjustment (Item 8 minus item 7)............... 0.4

Salable/reserve:

10. Adjusted Trade Demand (Item 6 plus item 9).... 556.8

11. Reserve (Item 3 minus item 10)................ 64.0

12. Salable % (Item 10 divided by item 3 x 100)... ........ 90

13. Reserve % (100% minus item 12)................ ........ 10

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The ``Guidelines for Fruit, Vegetable, and Specialty Crop Marketing

Orders'' (Guidelines) issued by the Department in 1982 specify that 110

percent of recent years' sales be made available to primary markets

each season. This rule provides an estimated 656.4 million kernelweight

pounds of California almonds for unrestricted sales (1994 crop salable

production plus carryin from the 1993 crop) to meet increasing domestic

and world almond consumption demands. This amount exceeds the actual

1991-92 record for delivered sales of California almonds by 18 percent.

Thus, the Guidelines' goals are met.

The members of the Board that opposed the establishment of salable

and reserve percentages believe that free competition is best for the

industry and that the industry should concentrate on building demand

for almonds rather than imposing a reserve. One member was also

concerned that enforcement procedures will be difficult as many

handlers are reluctant to cooperate with a mandated reserve.

The general consensus of the Board is that the establishment of

salable and reserve percentages will reduce market volatility and

enhance returns to growers, while stabilizing supplies to customers and

encouraging customer confidence in the industry.

A proposed rule concerning this action was published in the

September 7, 1994, Federal Register [59 FR 46203], with a 15-day

comment period. Three comments were received, one in favor and two

opposed to the proposed rule.

One comment in opposition to the proposed rule was submitted by Mr.

Ross Blackburn, President and CEO of Panoche Creek Packing, an almond

handler. Mr. Blackburn contends that a reserve will not benefit the

industry and does not protect small entities. He also refers to

statistics which indicate that the average price levels were lower in

years when reserves were implemented in the past. Mr. Blackburn also

states that market prices of almonds have dropped since the Almond

Board recommended a reserve, that reserves are controversial and

difficult to enforce, and the facts don't support use of reserves.

Statistics referred to in the comment indicate that in past years

(1980-1993) when reserves were implemented, average grower returns were

$.965 per pound, which is 31 percent less than non-reserve years when

the average return was $1.39 per pound. However, in order to make

assumptions regarding potential losses (or benefits), it is necessary

to also consider the supply side of the equation. In the reserve years

referred to in the comment, average salable supplies were about 607

million pounds compared to 539 million pounds in non-reserve years, or

approximately 13 percent higher. The greater percentage difference in

price than supply illustrates the inelastic market for almonds.

Statistics indicate a similar relationship exists between actual

shipments and prices.

If there had been no reserves in these years, supplies would have

averaged approximately 666 million pounds, or 22 percent more that the

539 million pounds available as a result of reserves. Because of the

inelastic demand referenced above, prices would likely have decreased

proportionately more, resulting in lower grower returns. In addition,

the Department recognizes there are a multitude of factors affecting

almond prices, and any potential effects of a reserve must be evaluated

over an entire season. It would not be appropriate to evaluate the

potential effects of a reserve based on one market occurrence.

Mr. Blackburn further commented that the reserve does not protect

small entities. Regulations promulgated under the AMAA and marketing

orders are required, under the Regulatory Flexibility Act, to consider,

among other things, the impact of regulations on businesses both large

and small, and also to consider the benefits and costs of proposed

regulations on businesses. The Administrator of AMS has made a

determination which is set forth in this final rule.

In regard to enforcement, the Department recognizes that for a

regulatory program to function properly, it must be administered in an

effective and equitable manner. We are confident that the compliance

program developed and administered by the Board and Department will

provide for an effective enforcement mechanism.

Another almond grower and handler, Mr. Brent Zehrung of Almond

Valley Nut Co., submitted a comment in opposition to the proposed

reserve for the 1994-95 crop year. Mr. Zehrung stated that the Almond

Board is made up of large businesses and large growers. He also stated

that small handlers would be required to rent storage facilities from

large handlers if a reserve is implemented, thus imposing an increased

cost on small handlers. Furthermore, Almond Board statistics show

inventory levels that exceed the 60 million pound reserve being

proposed, thus the reserve will have no effect. Also, the commenter

claims that recent sales declines are a result of unwarranted

restriction of supply and individuals' right to advertise. Inventories

have declined from 250 million pounds in 1990 to 100 million pounds in

1994. Mr. Zehrung also objects to restricting sales to export at a time

the U.S. is trying to reduce the trade deficit. He also claims that

almonds handled by handlers such as Almond Valley that are sold out of

inventory should be exempt. This commenter further states that

dissenting voters on the Board believe future production increases

should cause the industry to focus on marketing, rather than limiting

sales. In closing, Mr. Zehrung requests consideration of exempting from

reserve requirements handlers with sales under $5,000,000 annually.

The Department recognizes the Almond Board as the legally

constituted body under the marketing order charged with administering

the provisions of the order. It is elected by growers and handlers in

the industry which is comprised of both small and large businesses, and

is considered to represent the industry as a whole.

While handlers with no storage facilities may need to rent such

facilities in order to hold reserve almonds, the costs of holding

almonds in reserve will be borne proportionately throughout the

industry. All handlers will be required to store reserve almonds in

varying quantities, dependent upon the total amount of almonds handled.

Those with existing facilities will also incur storage costs, although

those costs may be fixed costs spread over a longer period of time. In

any event, costs associated with storing reserve product are expected

to be more than offset by the benefits of orderly marketing.

In response to Mr. Zehrung's request for exemption for handlers

with sales less than $5,000,000, there currently is no authority in the

marketing order to exempt handlers based on the volume of sales. In

addition, we reiterate that regulations issued under the Act and order

must be applied equitably among all handlers.

Almond Board statistics show that inventory levels in recent years

have been above the approximate 60 million pound reserve established.

However, statistics provided in justification of implementing a reserve

allow for 100 million pounds of carryout at the end of the 1994-95 crop

year, in addition to the 64 million pounds of reserve product. The

figures also provide for 556 million pounds available to sell with no

restriction, which is equal to the highest shipment level experienced

by the California almond industry, in the 1991-92 crop year. The 64

million pounds proposed for reserve is above and beyond expected market

needs and desirable carryout.

In regard to Mr. Zehrung's comment that restriction of supply

(reserves) is in part responsible for a recent decline in sales,

statistics do not bear that out. Almond shipments reached an all time

high in the 1991-92 crop year, a year in which a reserve was

implemented. Shipments then declined to 535.9 million in the 1992 crop

year and 497.7 million pounds in the 1993 crop year. In neither of the

latter two years was a reserve recommended or implemented.

The imposition of a reserve will not necessarily result in

restricting sales to the export or domestic markets in the long term.

Under the rule, some 656 million pounds of almonds will be available

for sale and shipment to markets (556 million lbs. trade demand, plus

100 million lbs. available carryout). This is over 100 million pounds

greater than the record year of 1991. The purpose of the reserve is not

to restrict sales. Rather, it is intended to temporarily remove excess

supply from the markets to avoid unnecessary price declines, promote

market stability, augment supply in the event of a short crop next

season, or if necessary, remove almonds from the normal market channels

permanently in the event of continued large supplies.

In response to Mr. Zehrung's request for an exemption for handlers

such as Almond Valley that might sell out of almonds, we note that

section 981.56 of the order provides that the Board, on written

request, may aid any handler in acquiring any almonds to meet any

deficiency in their reserve.

In response to the comment that dissenting Board members believe

that in view of increased future production, efforts should concentrate

on marketing rather than limiting ability to sell, we reiterate that

this reserve does not intend to limit handler's sales. Rather, it is a

marketing tool to be used as outlined in preceding paragraphs.

For the reasons stated, we are not making any changes to this final

rule based on the above comments.

The comment in support of implementing the salable and reserve

percentages set forth in the proposed rule was submitted by Mr. Steven

W. Easter, Vice President/Secretary of Blue Diamond Growers, a

cooperative association of almond growers and a handler regulated under

the order. In addition to reiterating arguments in the proposed rule

favoring a reserve, Mr. Easter stated that requiring handlers to hold

10% of the crop in reserve will preclude product from falling into the

hands of speculative interests that could use it to manipulate the

almond market. Also, because of the relatively small 1993 almond crop,

some consumption has been lost to the industry. By using the reserve to

manage supplies, the industry may gradually build consumption so larger

crops in the future may be sold without utilizing reserves.

In addition to the comments received in response to the proposed

rule, the Department received three letters prior to issuance of the

proposed rule. Two of these letters were from almond growers; one was

from a grower/handler. All three were opposed to implementation of a

reserve for the 1994-95 season.

Mr. Brent Zehrung of Almond Valley Nut Co. wrote a letter raising

essentially the same issues as those in his official comment.

Mr. Ramzi Khachadourian, General Manager of AICO Madera Limited, an

almond grower, stated that his company has seen little benefit from

reserves in the past and in some instances they have been

counterproductive. Mr. Khachadourian also expressed that free trade is

the most beneficial trade system, and that efforts in marketing should

be improved.

Another letter, from Mr. Joseph P. Silveira, President of Pacific

Coast Farms, an almond grower, stated opposition to a reserve. Mr.

Silveira expressed support for a free market, and stated that efforts

should be concentrated on expanding markets in view of the projected

future increased almond production.

The issues raised in Mr. Zehrung's letter have been addressed

previously in this rule.

In response to the concerns expressed in the other two letters, the

Department concurs with the concepts of free trade and expanding

markets. The purpose of implementing a reserve is to promote market

stability and orderly market conditions, thus enhancing grower returns.

The long term goal of increasing almond consumption can be best

achieved with stable market conditions in conjunction with promotional

efforts. Imposition of this reserve is not intended to restrict the

quantity of product going to market in the long term, but rather to

help promote conditions that will result in increased consumption and

sales in the future.

Establishment of salable and reserve percentages are often

contentious and controversial in the almond industry. Those opposed to

reserves generally have philosophical differences with supporters,

favoring a market situation not affected by supply controls as

reflected in the Board discussion and vote. However, a majority of the

Board favored the recommendation, and all Board members (even those

opposed) have indicated they will support the majority Board

recommendation and work to ensure fair and equitable administration of

the reserve, if established.

After thoroughly analyzing the comments received and all other

available information, the Department has concluded that issuing this

rule is appropriate.

Based on the above, the Administrator of the AMS has determined

that the issuance of this final rule will not have a significant

economic effect on a substantial number of small entities.

After consideration of all relevant material presented, including

the Board's recommendation, the comments received, and other available

information, it is found that this regulation, as hereinafter set

forth, will tend to effectuate the declared policy of the Act.

List of Subjects in 7 CFR Part 981

Almonds, Marketing agreements, Nuts, Reporting and recordkeeping

requirements.

For the reasons set forth in the preamble, 7 CFR Part 981 is

amended as follows:

PART 981--ALMONDS GROWN IN CALIFORNIA

1. The authority citation for 7 CFR Part 981 continues to read as

follows:

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

Note: This section will not appear in the Code of Federal

Regulations.

Subpart--Salable, Reserve, and Export Percentages

2. Section 981.239 is added to read as follows:

Sec. 981.239 Salable, reserve, and export percentages for almonds

during the crop year beginning on July 1, 1994.

The salable, reserve, and export percentages during the crop year

beginning on July 1, 1994, shall be 90 percent, 10 percent, and 0

percent, respectively.

Dated: December 2, 1994.

Eric M. Forman,

Deputy Director, Fruit and Vegetable Division.

[FR Doc. 94-30370 Filed 12-8-94; 8:45 am]

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