Raisins Produced From Grapes Grown in California; Change of Desirable Carryout Used in Computing Trade Demand

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 989

[Docket No. FV95-989-3FR]

Raisins Produced From Grapes Grown in California; Change of

Desirable Carryout Used in Computing Trade Demand

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule changes the desirable carryout levels which

are used in computing the yearly trade demand for California raisins.

The trade demand is used to help determine the volume regulation

percentages for each crop year, if necessary. The desirable carryout is

being reduced from the current two and one-half months of shipments to

two and one-fourth months of shipments during the 1995-96 crop year and

to two months of shipments in subsequent crop years. The Raisin

Administrative Committee (Committee), which is responsible for local

administration of the Federal marketing order, believes that the

current desirable carryout level has contributed to excessive supplies

of marketable tonnage early in the crop year. This rule is expected to

moderate the oversupply of California raisins early in the crop year,

thus stabilizing the market conditions for producers and handlers.

EFFECTIVE DATE: August 4, 1995.

FOR FURTHER INFORMATION CONTACT: Mark Hessel, Marketing Specialist,

California Marketing Field Office, Fruit and Vegetable Division, AMS,

USDA, 2202 Monterey Street, suite 102B, Fresno, California 93721;

telephone: (209) 487-5901, or fax (209) 487-5906; or Valerie L. Emmer,

Marketing Specialist, Marketing Order Administration Branch, Fruit and

Vegetable Division, AMS, USDA, room 2523-S, P.O. Box 96456, Washington,

DC 20090-6456; telephone: (202) 205-2829, or fax (202) 720-5698.

[[Page 39838]]

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing

Agreement and Order No. 989 (7 CFR Part 989), as amended, regulating

the handling of raisins produced from grapes grown in California,

hereinafter referred to as the ``order.'' This 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 rule in

conformance with Executive Order 12866.

This final rule has been reviewed under Executive Order 12778,

Civil Justice Reform. This rule will reduce the desirable carryout for

the 1995-96 crop year, beginning August 1, 1995, through July 31, 1996,

and for subsequent crop years. 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 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 exempted

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

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

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

not later than 20 days after the date of the 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 20 handlers of California raisins who are

subject to regulation under the marketing order and approximately 4,500

producers in the regulated area. Small agricultural service firms have

been defined by the Small Business Administration (13 CFR 121.601) as

those whose annual receipts (from all sources) are less than

$5,000,000, and small agricultural producers are defined as those

having annual receipts of less than $500,000. No more than eight

handlers and a majority of producers of California raisins may be

classified as small entities. Twelve of the 20 handlers subject to

regulation have annual sales estimated to be at least $5,000,000, and

the remaining eight handlers have sales less than $5,000,000, excluding

receipts from any other sources.

This final rule changes section 989.154 of the administrative rules

and regulations of the raisin marketing order. The Committee

recommended by a vote of 31 to 15 at its April 28, 1995, meeting, to

adjust the desirable carryout level in section 989.154 from the current

two and one-half months of shipments to two and one-fourth months of

shipments during the 1995-96 crop year and to two months of shipments

in subsequent crop years. The crop year includes the 12-month period

August 1 through July 31.

The desirable carryout level is the amount of tonnage from the

prior crop year needed during the first part of the succeeding crop

year to meet market needs, before new crop raisins are harvested and

available for market. Currently, section 989.154 provides that the

desirable carryout levels shall be equal to the shipments of free

tonnage to all outlets for each varietal type during the months of

August, September, and one-half of the total shipments for the month of

October of the prior crop year.

The desirable carryout figure is used in marketing policy

calculations to determine trade demand. The trade demand is 90 percent

of prior year's shipments, adjusted by the carryin and desirable

carryout. The trade demand is then used to help determine the volume

regulation percentages for each crop year, if necessary.

Beginning in the 1991-92 crop year the desirable carryout was

reduced from three months of shipments to two and one-half months of

shipments. It was determined that the use of the three month desirable

carryout level resulted in excessive supplies of marketable tonnage

early in the season.

The Committee has used the two and one-half month desirable

carryout figure for four crop years and has determined that the use of

this figure has also contributed to an excessive supply of free tonnage

at the beginning of the marketing season. A majority of the Committee

members believe that this causes unstable market conditions during the

early part of the crop year.

To moderate the oversupply of marketable raisin tonnage early in

the season, the Committee recommended that the desirable carryout

levels be revised from two and one-half months of the prior year's

shipments to two and one-fourth months of the prior year's shipments

for the 1995-96 crop year and to two months of the prior year's

shipments for subsequent crop years.

The change in the desirable carryout levels reduces the trade

demand and the free tonnage percentage, and makes less free tonnage

available to handlers for immediate use. However, handlers will still

be provided an opportunity to increase their inventories, if necessary,

by purchasing raisins from the reserve pool under order-mandated 10

plus 10 offers during November and other releases of reserve pool

raisins available under the marketing order. The 10 plus 10 offers are

two simultaneous offers of reserve pool raisins which are made

available to handlers each season. For each such offer, a quantity of

raisins equal to 10 percent of the prior year's shipments is made

available for free use. Although this final rule tends to tighten the

supply of raisins early in the season, handlers will still have the

opportunity to obtain additional supplies to increase their carryouts

from the 10 plus 10 offers.

This rule is intended to stabilize the early season raisin market.

Bringing early season supplies more in line with market needs is

expected to stabilize market prices. This price stabilization should

make raisin buyers less likely to postpone their purchases. Thus,

decreasing the desirable carryout could strengthen the market and

increase shipments, which would benefit raisin producers and handlers.

One alternative that was discussed by the Committee prior to

recommending the change was to immediately set the desirable carryout

level at two months of the prior year's shipments. It was determined

that this was too rapid an adjustment and that first setting the

desirable carryout levels at two and one-quarter months for the 1995-96

season and two months in subsequent crop years would be a more prudent

approach.

Another alternative considered was setting the desirable carryout

at a fixed tonnage. However, this alternative does not allow the

desirable carryout to fluctuate with changing market conditions from

year to year.

Those voting in opposition to the recommendation to reduce the

desirable

[[Page 39839]]

carryout level believed that the marketing order should not further

restrict supplies during the early part of the crop year. However, the

following table shows that adequate supplies of Natural (sun-dried)

Seedless raisins have been available early in the crop year to meet

demand. Natural (sun-dried) Seedless raisins represent about 90 percent

of all raisins produced in California. The other two varieties which

had reserve pools for the 1994-95 crop year, Zante Currant raisins and

Other Seedless raisins, had carryins far exceeding the annual trade

demand. ``Carryin'' is synonymous with the ``carryout'' of the

preceding crop year. All figures are in natural condition tons.

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

Desirable

carryin

(Aug, Sept Physical Aug/Sept

Crop year & \1/2\ carryin shipments

Oct

shipments)

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

1994-95................................ 84,671 92,248 64,374

1993-94................................ 81,867 93,752 67,784

1992-93................................ 82,591 115,440 65,495

1991-92................................ 84,541 109,306 65,613

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

The desirable carryin is set to meet the demand for the early part

of the crop year (August and September) before the new crop becomes

available. The actual physical carryin has far exceeded the desirable

carryin and has resulted in an oversupply of free tonnage during the

early part of the crop year. The reduction in desirable carryout

contributes to correcting the problem by adjusting the free tonnage

market supply, which brings it more in line with demand.

The desirable carryout levels that are established by this rule

apply uniformly to all handlers in the industry, whether small or

large, and there will be no known additional costs incurred by small

handlers. The stabilizing effects of the revised desirable carryout

levels impact both small and large handlers positively by helping them

maintain and expand markets.

In the event that the prior year's shipments are limited because of

crop conditions, a proviso in section 989.154 allows the committee to

select the total shipments during the months of August, September and

one-half of the total shipments for October during one of the three

years preceding the prior crop year. Consistent with the need to reduce

early season supplies, this rule makes a corresponding revision to this

proviso, by changing the total shipments from August, September, and

one-half of the total shipments for October to the total shipments from

August and September only.

The proposed rule concerning this action was published in the June

21, 1995, Federal Register (60 FR 32280), with a 15-day comment period

ending July 6, 1995. Four comments were received, three in favor and

the other in opposition to the proposed rule.

The three comments in favor of the proposed rule were submitted by

Mr. Vaughn Koligian, General Manager of the Raisin Bargaining

Association (RBA) and a raisin grower; Mr. Gerald Chooljian of Del Rey

Packing, a raisin handler and grower; and Mr. Ernest A. Bedrosian of

National Raisin Company and EKK Bedrosian Farms, a raisin handler and

grower. The RBA represents approximately 2,000 raisin growers. Mr.

Koligian further stated that 15 raisin packers, including Mr. Chooljian

and Mr. Bedrosian, support the change in the desirable carryout level

as set forth in the proposed rule. The three comments in favor of

implementing the change set forth in the proposed rule reiterate the

justification specified in the proposed rule.

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

Barry F. Kriebel, President of Sun-Maid Growers of California (Sun-

Maid), an agricultural marketing cooperative comprised of approximately

1,300 growers.

Mr. Kriebel claims that the reduction of the desirable carryout

levels would create an artificial shortage and drive up consumer

prices. He presents as evidence, a table showing that the field prices

for Natural (sun-dried) Seedless raisins increased dramatically from

1984 until the desirable carryout level was changed from 60,000 tons

for Natural (sun-dried) Seedless raisins to three months of shipments

(103,090 tons) beginning in the 1989-90 crop year. Mr. Kriebel contends

that this increase in field prices should not have occurred from 1984

to 1989 because there was a consistent oversupply of raisins.

For example, Mr. Kriebel points out that the field price for

Natural (sun-dried) Seedless raisins was $1,300 per ton during the

1983-84 crop year, even though only 37.5 percent of the crop was

declared ``free.'' Although this price was historically high, it was

caused for the most part by factors other than the desirable carryout

level for Natural (sun-dried) Seedless raisins. In the 1983-84 crop

year, the industry attempted to market the large raisin supply without

decreasing the field price from the prior year. The raisin industry

managed to moderately increase shipments over the prior year's

shipments, but not in sufficient quantities to account for the drastic

increase in raisin supply. An oversupply situation occurred in the

1983-84 crop year partly because the amount of raisin-variety grapes

purchased by wineries decreased 57 percent from 1982 to 1983 resulting

in unusually high Natural (sun-dried) Seedless raisin inventories at

the end of the 1983-84 crop year. The Natural (sun-dried) Seedless

raisin field price cannot be adjusted to react to such changes in

market conditions because it is established early in the crop year

(normally on or before October 5). It was not until the beginning of

the 1984-85 crop year that the industry drastically lowered the field

price to $700 per ton.

Mr. Kriebel does not provide sufficient evidence that desirable

carryout levels are solely responsible for the increase in field

prices. The lowering of the desirable carryout levels has its greatest

impact on supply during the early part of the crop year, before the new

crop is harvested. As stated earlier, the decrease in the desirable

carryout levels from two and one-half months to two months adjusts the

free market supply during the early part of the crop year and brings it

more in line with demand. As for the remaining part of the crop year,

handlers are still provided an opportunity to increase their

inventories, if necessary, by purchasing raisins from the reserve pool

under order-mandated 10 plus 10 offers and other releases of reserve

pool raisins available under the marketing order.

The desirable carryout was reduced from three months to two and

one-half months of shipments beginning in the 1991-92 crop year.

However, the field price has only risen 4 percent from $1115/ton in the

1990-91 crop year to $1160/ton in 1994-95 crop year. In comparison, the

consumer price index for food products increased 14.4 percent from 1990

to 1994.

Mr. Kriebel also implies that the reduction in the desirable

carryout will result in a greater amount of raisins being ``aborted''

through the Raisin Diversion Program (RDP). The order allows raisin

growers to participate in the RDP by not growing their grape crop when

a surplus of raisins exists in the market. Mr. Kriebel does not provide

evidence of a correlation between the use of the RDP and the desirable

carryout levels. It may be the case that it is more likely consistent

surpluses, and thus a need for the RDP, have been caused by the

downward trend in sales of raisin-variety grapes, particularly Thompson

Seedless, to wineries. This is because wineries have been receiving a

greater percentage of their distillation materials from wine-variety

grapes or from other sugar sources, such as apples. This may also

partially explain

[[Page 39840]]

why field prices for Natural (sun-dried) Seedless raisins have

increased less during the 1990's. Since competition from wineries for

raisin-variety grapes has decreased, there has been less pressure to

increase field prices.

The Department does not find evidence that this rule will cause

more raisins to be ``aborted'' in the RDP or that raisin prices will

increase significantly. Instead, this rule seems to provide the

industry with the means of mitigating the oversupply of raisins early

in the crop year, and help stabilize market conditions for producers

and handlers. Thus, no change is being made in response to the above

comment.

After thoroughly analyzing the comments received and other

available information, the Department has concluded that this final

rule is an appropriate means of solving the marketing problems

discussed herein.

Based on available information, the Administrator of the AMS has

determined that this action will not have a significant economic impact

on a substantial number of small entities.

After consideration of all available information, it is found that

the action, 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 that good

cause exists for not postponing the effective date of this action until

30 days after publication in the Federal Register because: (1) The

1995-96 crop year begins August 1, 1995, and this rule should be

effective promptly because the order requires that the committee meet

on or before August 15 to compute and announce the trade demand, and

the desirable carryout level is a necessary item in that calculation;

and (2) growers and handlers are aware of this rule which was discussed

and recommended at a public meeting.

List of Subjects in 7 CFR Part 989

Grapes, Marketing agreements, Raisins, Reporting and recordkeeping

requirements.

For the reasons set forth in the preamble, 7 CFR part 989 is

amended as follows:

PART 989--RAISINS PRODUCED FROM GRAPES GROWN IN CALIFORNIA

1. The authority citation for 7 CFR part 989 continues to read as

follows:

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

2. Section 989.154 is revised to read as follows:

Sec. 989.154 Desirable carryout levels.

The desirable carryout levels to be used in computing and

announcing a crop year's marketing policy shall be equal to the total

shipments of free tonnage of the prior crop year during the months of

August and September, for each varietal type, converted to a natural

condition basis: Provided, That the desirable carryout levels to be

used in computing and announcing the 1995-96 crop year's marketing

policy shall be equal to the total 1994 shipments of free tonnage for

the months of August and September, and one-fourth of the total

shipments for the month of October: Provided further, That should the

prior year's shipments be limited because of crop conditions, the

Committee may select the total shipments during the months of August

and September during one of the three crop years preceding the prior

crop year.

Dated: July 31, 1995.

Martha B. Ransom,

Acting Deputy Director, Fruit and Vegetable Division.

[FR Doc. 95-19323 Filed 8-3-95; 8:45 am]

BILLING CODE 3410-02-P