Tart Cherries Grown in the States of Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin; Recommended Decision and Opportunity To File Written Exceptions to the Proposed Marketing Agreement and Order

SUMMARY: This recommended decision proposes the issuance of a marketing

agreement and order (order) for tart cherries grown in certain

designated states. The proposed order and agreement would authorize

volume regulation, grade, size, and maturity regulations, and mandatory

inspection. The proposed order would also authorize production,

processing, and marketing research and promotion projects, including

paid advertising. The order would be administered by an 18 member

administrative board consisting of 17 growers and handlers and one

public member. The order would be financed through assessments on

handlers of tart cherries grown in the production area. A primary

objective of this program would be to improve grower returns by

strengthening consumer demand through volume control and quality

assurance mechanisms. Tart cherry producers and processors would vote

in a referendum to determine if they favor issuance of the proposed

marketing order.

DATES: Comments must be received by December 29, 1995.

ADDRESSES: Four copies of all comments should be sent to the Hearing

Clerk, United States Department of Agriculture, Room 1079, South

Building, Washington, DC 20250-9200. All written comments will be made

available for public inspection at the Office of the Hearing Clerk

during regular business hours.

FOR FURTHER INFORMATION CONTACT: (1) R. Charles Martin or Kenneth G.

Johnson, Marketing Order Administration Branch, Fruit and Vegetable

Division, Room 2523-S, AMS, USDA, PO Box 96456, Washington, DC 20090-

6456; telephone number (202) 720-5053, FAX: (202) 720-5698.

(2) Robert Curry, Northwest Marketing Field Office, Marketing Order

Administration Branch, Fruit and Vegetable Division, AMS, USDA, 1220 SW

Third Avenue, Room 369, Portland, Oregon 97204; telephone: (503) 326-

2725, FAX: (503) 326-7440.

SUPPLEMENTARY INFORMATION:

Prior Documents in This Proceeding

Notice of Hearing, issued on November 30, 1993, and published in

the Federal Register on November 30, December 23, 1993, and January 31,

1994 (58 FR 63108, 58 FR 68065, and 59 FR 4259, respectively). The

notice reopening the hearing was issued on December 5, 1994, and

published in the Federal Register on December 8, 1994 (59 FR 63273).

This action is governed by the provisions of sections 556 and 557

of title 5 of the United States Code and is therefore excluded from the

requirements of Executive Order 12866.

The marketing agreement and order proposed herein have been

reviewed under Executive Order 12778, Civil Justice Reform. They are

not intended to have retroactive effect. If adopted, the proposed

agreement and order would not preempt any State or local laws,

regulations, or policies, unless they present an irreconcilable

conflict with the proposal.

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 requesting 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.

Preliminary Statement

Notice is hereby given of the filing with the Hearing Clerk of this

recommended decision with respect to a proposed marketing agreement and

order regulating the handling of tart cherries grown in the States of

Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and

Wisconsin. This recommended decision is issued pursuant to the

provisions of the Agricultural Marketing Agreement Act of 1937, as

amended (7 U.S.C. 601-674), hereinafter referred to as the Act, and the

applicable rules of practice and procedure governing the formulation of

marketing agreements and marketing orders (7 CFR Part 900).

The proposed marketing agreement and order are based on the record

of a public hearing held December 15-17, 1993, in Grand Rapids,

Michigan; January 10-11, 1994, in Rochester, New York; January 13,

1994, in Provo, Utah; February 15-17, 1994, in Portland, Oregon;

January 9-10, 1995, in Grand Rapids, Michigan; and January 12-13, 1995,

in Portland, Oregon. These multiple hearing sessions were held to

receive evidence on marketing order proposals from growers, handlers,

processors and other interested parties located throughout the proposed

production area.

At the conclusion of the February 1994 hearing in Oregon, the

deadline for filing post-hearing briefs was set at April 29, 1994. The

deadline for filing post-hearing briefs was subsequently extended to

May 31, 1994. However, based on a review of the hearing evidence and

post hearing briefs, the Department of Agriculture (USDA) determined

that the hearing should be reopened to clarify some provisions. The

USDA wanted to obtain additional information and clarification on the

following: (1) The States that should be regulated under the order; (2)

the economic impact of the proposed order on small and large

businesses; (3) whether the expected program benefits would exceed

costs, especially for growers, handlers and consumers; and (4) how

certain provisions would be implemented under the proposed marketing

order. The hearing was reopened and held January 9-10, 1995, in Grand

Rapids, Michigan and January 12-13, 1995 in Portland, Oregon. At the

conclusion of the Oregon hearing, the deadline for filing post-hearing

briefs was set at March 17, 1995.

Ten briefs were filed following the first briefing period. These

briefs were from the U.S. Department of Justice, Anti-Trust Division

(DOJ), Ray Schultz of Schultz's Fruitland, Ridgecrest Fruit

Corporation, Smeltzer Orchard Co., Northwest Food Processors

Association, American Farm Bureau Federation, Laughlin Orchards, Inc.,

Oregon Tart Cherry Association, Fruithill Inc., and the Cherry

Marketing Institute.

Seven briefs were filed following the second briefing period. These

were filed by Knouse Foods Cooperative, Inc. (Knouse), Shoreline Fruit,

Inc., Oregon Tart Cherry Association, DeRuiter Farms, Inc., Milne Fruit

Products, Cherry Marketing Institute, and DOJ.

[[Page 61293]]

The briefs are discussed throughout the following document where

relevant.

The tart cherry industry's previous Federal Marketing Order began

in 1971. It covered the States of Michigan, New York, Wisconsin,

Pennsylvania, Ohio, Virginia, West Virginia, and Maryland. In a

continuance referendum conducted March 10-20, 1986, 64 percent of all

cherry producers and 83 percent of all cherry handlers voted. Of those

voting, 51 percent of the producers and 56 percent of the handlers

favored terminating the cherry marketing order. Producers favoring

termination represented 45 percent of the production volume represented

in the referendum, while handlers favoring termination represented 40

percent of the processed volume represented.

Given the lack of producer and handler support for that tart cherry

order, it was determined that it no longer fulfilled the Act's

objective, and was terminated April 30, 1987.

Small Business Consideration

In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et

seq.), the Administrator of the Agricultural Marketing Service has

considered the economic impact of this action on small entities. The

record indicates that there are approximately 1,600 growers of tart

cherries and 75 handlers who process cherries in the production area

proposed to be regulated. Small agricultural service firms have been

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

those whose annual receipts are less than $5,000,000, and small

agricultural producers as those having annual receipts of $500,000. The

majority of the tart cherry handlers and producers may be classified as

small entities.

For practical purposes, there is no fresh market for tart cherries.

Processors dry, freeze, can, juice, or puree pitted tart cherries.

Market use averages are: 56 percent of the product becomes industrial

grade frozen cherries; 16 percent goes into consumer-size cans of pie

filling; 8 percent is used for commercial pie filling; 10 percent

becomes juice concentrate; 2 percent is dried; and 8 percent goes into

water packs.

Since 1971, there has been a marked transformation in the

processing industry's structure. Currently, 75 percent of the crop is

processed by farmer-owned cooperatives or grower-owned processing

facilities; whereas in 1971, a substantial volume was processed by

independent handlers. Processors, through their sales agents, market in

all U.S. markets and export to Europe and Asia. There are no discrete

regional markets where cherries from a particular district could have a

particular advantage, beyond nominal differences in transportation

costs, which can often be overcome by price discounting.

The record evidence shows that economic adversity has caused more

than 21 percent of Michigan's growers to withdraw from tart cherry

farming. There were 1,183 Michigan commercial growers in 1986, compared

to 933 in 1992. In 1992, Michigan growers had an average production of

238,000 pounds with 19 percent of those growers averaging 800,000

pounds, accounting for 66 percent of the total Michigan production. In

states other than Michigan, there has also been a general decline in

the number of commercial growers since 1986. There are fewer growers in

other States besides Michigan, but the number of bearing acres has

increased from 4.5 million in 1986, to more than 5 million in 1990.

Record evidence indicates that the demand for red tart cherries is

inelastic at high and low levels of production, and relatively elastic

in the middle range. At the extremes, during times of very low and very

high production, different factors become operational. In very short

crop years, such as 1991, there is limited but sufficient exclusive

demand for cherries that can cause processor prices to double and

grower prices to triple. In the event of large crops, there seems to be

no price low enough to expand sales beyond about 275 million pounds of

raw fruit in a single year.

Since 1982, annual sales have averaged 230 million pounds. Under

the proposed order, total returns to growers could be increased by

restricting supplies of red tart cherries available for sale by

handlers during large crop years. Also, the alternate production

characteristics of the tart cherry industry provide an opportunity to

increase growers' total earnings by converting the excess production of

large crop years into storable products that could constitute reserve

pools. These pools would be liquidated in a year when the available

supplies are short.

One of the main concerns of this recommended order is the short

term annual variation in supply which is attributable to climatic

factors that neither growers nor processors can control, and which

leads to chaotic marketing conditions. Such climatic factors can result

in highly unpredictable annual crop sizes, causing gluts and shortages

of tart cherries. When gluts occur, large carryin inventories can

decrease processor and grower prices, regardless of the anticipated

size of the oncoming year's crop. Many sales are consummated with large

buyers well before the current crop year's supply and demand situation

is clear (based on what can best be described as ``Anticipated

Supply'', i.e., the sum of the carryin inventory and the United States

Department of Agriculture crop forecast, available usually late in

June, weeks before the actual crop harvest.)

These large, unrestricted carryin inventories and crop estimates

can play a dominant role in setting the tone of the market in a given

year. The proposed order is intended to lessen the impact of these

inventories and estimates by establishing an ``optimum supply,''

thereby reducing price swings to growers and buyers, and ultimately

resulting in a stabilization and enhancement of the market.

The order would impose some reporting and record keeping

requirements on handlers. Handler testimony indicated that the expected

burden that would be imposed with respect to these requirements would

be negligible. Most of the information that would be reported to the

Board is already compiled by handlers for other uses and is readily

available. Reporting and recordkeeping requirements issued under

comparable marketing order programs impose an average annual burden on

each regulated handler of about one hour. It is reasonable to expect

that a comparable burden may be imposed under this proposed marketing

order on the estimated 75 handlers of tart cherries. With respect to

growers, they testified at the hearing that information required to be

submitted to the Board for grower diversion is already collected and

available from growers.

The Act requires that, prior to the issuance of a marketing order

for tart cherries, a referendum be conducted among affected producers

and processors to determine if they favor issuance of the order. The

ballot material that would be used in conducting the referendum would

be submitted to and approved by OMB before it is used. It is estimated

that it would take an average of 10 minutes for each of the

approximately 1,600 tart cherry growers and 75 tart cherry processors

to complete the ballots. Additionally, it has been estimated that it

would take approximately ten minutes for each handler to complete the

marketing agreement.

Therefore, in compliance with Office of Management and Budget (OMB)

regulations (5 CFR part 1320) which implement the Paperwork Reduction

[[Page 61294]]

Act of 1995 (Pub. L. 104-13), the information collection and

recordkeeping requirements that may be imposed by this order would be

submitted to OMB for approval. Those requirements would not become

effective prior to OMB review. Any recordkeeping and reporting

requirements imposed would be evaluated against the potential benefits

to be derived and it is expected that any added burden resulting from

increased reporting and recordkeeping would not be significant when

compared to those anticipated benefits derived from administration of

the order.

The purpose of the RFA is to fit regulatory and informational

requirements to the size and scale of the business entities in a manner

that is consistent with the objectives of the rule and applicable

statutes. The proposed marketing order provisions have been carefully

reviewed and every effort has been made to eliminate any unnecessary

costs or requirements. As discussed in the RFA, Congress' intent, among

other objectives, was to direct agencies to identify the need for any

``special accommodation'' (e.g., exemption or relaxation) on regulated

small entities (i.e., handlers) because, in the past, some Federal

regulatory and reporting requirements imposed unnecessary and

disproportionately burdensome demands on small businesses. Thus, the

AMS closely reviewed the record evidence and could not find any

evidence to suggest that any direct or indirect costs imposed under the

marketing order regulation would be proportionately greater on small

handlers than on large handlers, or conversely, that any projected

order benefits would be proportionately smaller for small handlers than

for large handlers.

The record evidence indicated that the order may impose some

additional costs and requirements on handlers, but those costs are

insignificant and are directly proportional to the sizes of the

regulated handlers. The record evidence also indicated that, given the

severe economic conditions and unstable markets facing the majority of

the industry, the benefits to small (as well as large) handlers are

likely to be greater than would accrue under the alternatives to the

order proposed herein, namely no marketing order, or an order without

the proposed combination of volume controls and other order

authorities.

The record evidence indicates that the proposed order would be

instrumental in providing expanding markets and sales, and raising and

stabilizing prices of tart cherries, primarily for the primary benefit

of producers, but the evidence also indicates that, since handlers

(including cooperatives that market the crops of their producer

members) market the producers' crops, they would benefit as well. While

the level of such benefits to handlers is difficult to quantify, it is

also clear the provisions of the proposed order are designed to benefit

small entities. For example, the record evidence indicated that small

handlers (and small producers) are more likely to be minimally

capitalized than large entities, and are less likely to survive without

the stability the proposed order would provide.

Accordingly, based on the information discussed above and in the

following discussion, it is determined that the marketing order would

not have a significant economic impact on a substantial number of small

entities.

Material Issues

The material issues presented on the record of the hearing are as

follows:

1. Whether the handling of tart cherries grown in the proposed

production area is in the current of interstate or foreign commerce, or

directly burdens, obstructs, or affects such commerce;

2. Whether the economic and marketing conditions are such that they

justify a need for a Federal marketing agreement and order which would

tend to effectuate the declared policy of the Act;

3. What the definition of the production area and the commodity to

be covered by the order should be;

4. What the identity of the persons and the marketing transactions

to be regulated should be; and

5. What the specific terms and provisions of the order should be,

including:

(a) The definitions of terms used therein which are necessary and

incidental to attain the declared objectives and policy of the Act and

order;

(b) The establishment, composition, maintenance, procedures, powers

and duties of a Cherry Industry Administrative Board (Board) that would

be the local administrative agency for assisting the Secretary in the

administration of the order;

(c) The authority to incur expenses and the procedure to levy

assessments on handlers to obtain revenue for paying such expenses;

(d) The authority to establish or provide for the establishment of

production, processing and marketing research and market development

projects, including paid advertising;

(e) The authority to establish regulations that would require

minimum quality and inspection requirements;

(f) The authority to establish regulations that would provide for a

volume control program;

(g) The authority to establish other regulations and procedures

necessary and incidental to the administration of the order;

(h) The establishment of requirements for handler reporting and

recordkeeping;

(i) The requirement of compliance with all provisions of the order

and with any regulations issued under it; and

(j) Additional terms and conditions as set forth in Sec. 930.81

through Sec. 930.91 of the Notice of Hearing published in the Federal

Register of November 30, 1993, which are common to all marketing

agreements and orders, and other terms and conditions published at

Sec. 930.92 through Sec. 930.94 that are common to marketing agreements

only.

Findings and Conclusions

The following proposed findings and conclusions on the material

issues are based on the record of the hearing.

1. The record indicates that the handling of tart cherries grown in

the States of Michigan, New York, Pennsylvania, Oregon, Utah,

Washington, and Wisconsin is in the current of interstate or foreign

commerce or directly burdens, obstructs or affects such commerce. The

proposed production area is discussed in material issue no. 3.

Red tart cherries, also known as red sour cherries, are grown in

commercially significant amounts in these seven states: Michigan, New

York, Utah, Pennsylvania, Oregon, Washington, and Wisconsin. Between

1988 and 1992, Michigan, New York, and Utah accounted for 90 percent of

the United States' production, with Michigan producing 71 percent of

the total industry product. Pennsylvania, Oregon, Washington, and

Wisconsin's current tart cherry production averages 9 percent of the

total. One handler handles all of Pennsylvania's production, while a

substantial portion of Oregon and Washington's production is marketed

almost entirely in those states as cherry juice concentrate. Colorado,

which is excluded from the proposed marketing order because of its

consistently small production, has averaged only 1.3 million pounds of

cherries annually since 1986.

Handlers, through their sales agents, market in all U.S. markets

and in exports to Europe and Asia. For example, Michigan cherries are

sold in

[[Page 61295]]

every State except Maine, Idaho, and Alaska, as well as in Asia,

Australia, and Europe.

Record evidence shows that any handling of tart cherries in market

channels, including intrastate shipments, exerts an influence on all

other handling of such cherries and vice versa. Therefore, because such

handling directly burden, obstruct, or affect such commerce, all

handling of tart cherries grown in the proposed production area should

be covered by the order, and an order for tart cherries is supported by

evidence in the record of hearing.

2. The proponents have demonstrated that there is a need for a

marketing order for tart cherries. The proponents testified that the

following conditions currently exist in the industry: (1) Large

variations in annual supplies of tart cherries; (2) significant

fluctuations in prices to farmers with gross receipts being below the

industry's costs in seven of the last eight years; (3) disruptive

variations in the price of cherries to food manufacturers; and (4)

concomitant difficulties in developing both domestic and export

markets.

Large variations in annual supply tend to lead to disorderly

marketing. The proponents testified that a recent study at Michigan

State University of annual variation in production of major

horticultural crops indicates that the average production of tart

cherries fluctuated to a greater extent than any other crop, including

almonds, hazelnuts, and raisins. These are other storable commodities

that have Federal marketing order programs. The fluctuations in

production are due mainly to climatic factors over which neither

growers nor processors have any control. In recent history, tart cherry

production increased by 63 percent from 1986 to 1987 and by 82 percent

from 1991 to 1992. These surges in production are far beyond the

capability of the market to absorb. The result is not only the

production year impact of depressed grower prices during the production

year, but large carryover inventories which can depress prices for the

next three to five years. The proponents provided an example as

follows: Production averaged about 242 million pounds in 1988 and 1989

following the 1987 surge in production of 359 million pounds, yet

grower prices only averaged 16.7 cents per pound during the period,

which is well below the estimated cost of production of 20 cents per

pound. The inventory carryin did not reach tolerable levels until July

1, 1991. The mere presence of these large carryin inventories had a

depressing effect on processor and grower prices.

As a result of these fluctuations in price, growers receive less

income for their tart cherries. Several growers testified that they

are, in most years, unable to recoup their production costs of tart

cherries. Also, very few new growers have entered the tart cherry

industry because the initial investment in an orchard is substantial

and yields little or no income for the first five years. In addition,

cherry trees have a commercially productive life of 15 to 20 years,

which means they are treated as a long term investment. Thus, it is not

economically sound to plant and/or uproot cherry trees in response to

changing supply or demand conditions. Further, while some growers have

diversified their holdings to include other crops, record evidence

shows that most growers do not have other viable economic alternatives

for their land, due to the unsuitability of the land for crops for

which additional demand exists. This most often results in the

continued maintenance of and/or replanting of tart cherry trees.

In the crop years 1986 through 1993, tart cherry production ranged

from a high of 359 million pounds in 1987 to a low of 189.9 million

pounds in 1991. The price per pound to tart cherry growers ranged from

a low of 7.3 cents in 1987 to a high of 46.4 cents in 1991. These

problems of wide supply and price fluctuation in the tart cherry

industry are national in scope and impact. Tart cherry growers

testified about the hardships they have endured over the seven years

since the demise of the prior Federal tart cherry marketing order.

Growers testified that the average prices of 12 to 17 cents per pound

which they received do not come close to covering the costs of

production for the vast majority of tart cherry growers. There was

testimony that production costs for most growers range between 20 to 22

cents per pound, which is well above average prices received.

Proponents testified that small growers and processors would have

the most to gain from implementation of a marketing order because such

growers and handlers have been going out of business over most of the

last eight years due to low tart cherry prices. They also testified

that, since an order would help increase grower returns, this should

increase the buffer between success and failure because small growers

and handlers tend to be less capitalized than larger ones. One Michigan

grower testified that his family operates a 184 acre fruit farm and

about one-half of their annual farm production comes from tart

cherries. While the value of the farm is $450,000 (includes value of

land, $15 per fruit tree, and $55,000 for depreciated equipment), their

tart cherry crop has returned a negative $1,240 per year, on average,

over the past seven years. There are no funds left for the grower's

labor and no return on the grower's investment. This grower has only

been able to stay in business because of the income from other crops

such grower produces and off-farm income.

Another grower testified that some growers do not own harvesting

equipment. In most years, all the money such growers earn from their

cherries is spent on hiring someone else to harvest their cherries. To

further demonstrate economic difficulties faced by the tart cherry

industry, a representative from a cooperative testified that, in 1994,

the cooperative was unable to make a monthly payment to growers because

of the large crop and the necessary storage and interest costs that the

cooperative incurred. One Michigan grower testified that in 1985, there

were 2,000 tart cherry growers; today (1995), due to the economic

hardships, there are 1,190 growers.

The prior order had a grower owned reserve pool that was controlled

by the Board. The Board had the authority to establish prices for sales

of reserve pool cherries to handlers. There were often disagreements on

the Board as to what price should be established for reserve pool

cherries. One reason for the demise of the order was that the price the

Board established for reserve pool cherries was often higher than

cherries being sold into the marketplace. Therefore, the reserve was

not disposed of and continued to grow into a large, high priced

surplus. Proponents testified that the proposed order should have a

limit on the volume of cherries which could be stored in the inventory

reserve. They also testified that handlers, and not the Board, should

be responsible for pricing and selling the reserve once it is released.

This would provide an incentive to handlers to place good quality

cherries into the reserve, avoiding a previous problem of some handlers

placing low quality cherries into the reserve--cherries which handlers

did not have to repurchase when reserve cherries were offered for sale.

Based on such considerations, the proponents believe that the proposed

order would work significantly better than the previous order.

An economist for the proponents testified that tart cherry growers

and handlers would benefit from the proposed order and that consumers

would benefit from the order's stabilization of supplies and prices.

When supplies and prices are stabilized, manufacturers should more

readily

[[Page 61296]]

develop new tart cherry containing products, thereby increasing the

availability of new products and permitting retailers to introduce new

and increased numbers of tart cherry products as part of their regular

year-round product lines. Consumers would not be expected to have to

pay more for tart cherry products because much of the anticipated

favorable impact on grower returns would be absorbed by tart cherry

processors and others in the manufacturing and distribution channels.

The USDA's evaluation of the record shows that fluctuating tart

cherry prices are inherently harmful to growers and consumers. If the

peaks of grower prices were lowered and the production troughs reduced

slightly through the operation of the order, consumer prices over a

period of years could actually be slightly lower, and additional cherry

supplies and products could be made available.

The proponents testified that tart cherry growers could anticipate

an average return of ten cents more per pound under the proposed

marketing order. An economist for the proponents testified that had the

order been in effect for the years 1974 through 1991, grower prices

would have increased by an average of ten cents per pound with the

year-to-year price variation decreased by 33 cents. If handlers had

passed on the cost of the proposed assessment for order operation

(approximately .75 cents per pound) to growers, growers would still

have received an increase of at least an additional nine cents per

pound. Thus, the proponents testified that the beneficial effects of

the proposed order would outweigh any related costs.

An economist for the proponents testified that the benefit/cost

ratio for handlers and processors is also favorable, although less so

than for tart cherry growers. The witness testified that their prices

would increase, but less in percentage terms than grower prices. Also,

volatility in prices and supplies would be significantly reduced. For

the period analyzed by the proponent's witness (1974 through 1991), the

handler/processor price would have been expected to have increased an

average of four cents per pound and the price variation from year to

year would have been reduced by approximately ten percent. It was

argued that, if the price is increased, handlers/processors would have

additional financial resources to develop and expand markets, thereby

increasing the demand for tart cherries and tart cherry products.

The proponents testified that the benefit/cost ratio for consumers

under the proposed order would be slightly positive and, to the extent

that market supplies and prices are more stable and product development

occurs, consumers should benefit. This is because most increases in

grower prices would not be likely to be passed on to the consumer, and

consumers would benefit with more stable tart cherry prices and

supplies. Even if handlers and processors were to pass on some

percentage of increased grower prices, consumers would not be likely to

notice major differences in the prices that they would have to pay for

products that contain tart cherries compared to what they might have

paid if an order had not been functional. As in most processed consumer

food products, the cost of the primary food commodity ingredient

represents a relatively small portion of the consumer price. The

proponents estimated the cost of tart cherries in a cherry pie

represented about nine percent of the total cost. Therefore, if the

presence of an order increased grower prices by ten cents, this could

result in a one cent increase in the cost of the ingredient at the

retail level. The potential retail price impact of the order would

represent a very minor change compared to the wide year to year

fluctuations in grower and processor prices. It is, therefore, unlikely

that the operation of an order would have much, if any, impact on the

pricing strategies of retail operators or the average retail price.

Furthermore, most of the evidence of how grocery stores and food

service establishments price their products implies that they do not

tie the retail price to the cost of the basic raw food ingredient. Two

economists that testified at the hearing agreed with an analysis

prepared by Mr. Bruce Marion (The Organization and Performance of the

U.S. Food System) that states ``consumer prices in grocery stores and

particularly in food service markets largely do not reflect

fluctuations in cherry supplies.'' Thus, just because there is a price

increase to the grower, that increase would not necessarily be passed

on to the consumer that buys the cherry pie.

The proponents testified that large swings in prices to food

manufacturers inhibit the industry's ability to expand the usage of

tart cherries. Manufacturers are reluctant to make product development

or marketing investments in products whose supply and price are

capricious. The record evidence shows that a major national fast food

retailer discontinued making cherry pies for its fast food restaurants

because it could not be guaranteed a consistent supply of and stable

price for tart cherries.

In its brief, DOJ indicated that growers and handlers can hedge

against fluctuating prices by using the free market mechanisms

available. For example, handlers may store low-priced tart cherries for

sale in the future when prices are higher, diversify crops, enter into

long-term contracts with buyers, or make more extensive use of frost

control systems. The Department stated that the proponents ignored

these options and never explained why they cannot thus protect

themselves from fluctuating prices. However, the evidence showed that

some handlers have already tried withholding product from the market.

Persons at the hearing testified that this is a regular practice among

some handlers, although it has not proven to be beneficial, since

handlers acting alone or in small numbers cannot successfully

ameliorate the current production variability problem. Growers

testified that they have diversified somewhat, but tart cherries

require specific growing conditions and substantial investment, so it

is difficult for growers to further diversify. Land currently devoted

to tart cherry production may be suitable for other tree crops such as

apples and pears. However, there is little to no demand for additional

supplies of these commodities and costs to convert to such crops are

substantial. As there are often no profitable alternative uses for

their land resources, Michigan, Utah, and Wisconsin growers' principal

crop is often tart cherries. Some growers in other States have been

able to diversify their crops and regard tart cherries as a minor crop,

or have additional alternative uses for their land. However, the bulk

of the production is not in these States.

DOJ took the position that the proposed marketing order should be

rejected because the order would increase consumer prices, artificially

limit supplies, and result in the destruction of substantial portions

of the tart cherry crop. Instead, growers, processors, buyers, and

consumers should continue to participate in a free market for tart

cherries. Free markets best determine optimal production and price

levels and are often the most efficient way to supply all types of

goods and services. Regulation should be substituted for a free market

only where exceptional circumstances exist. It was further argued by

DOJ in its brief that the record established that the tart cherry

industry is a competitive marketplace. Every year hundreds of growers

sell their crop to numerous processors who sell processed cherry

products to many buyers. The Department stated that entry to the

industry is easy and market information

[[Page 61297]]

is readily available. It was the Department's position that the

proponents did not offer any facts that there is market failure in the

tart cherry industry that might be addressed through government

regulation. Instead, they merely complained about fluctuating tart

cherry prices while proposing that the order would stabilize tart

cherry prices by restricting supply. With respect to the proponents'

claim that fluctuations are inherently harmful to growers and

consumers, DOJ argued that fluctuating prices provide growers and

consumers with valuable signals which reflect changes in the market

over time. Responses by growers and consumers to these signals assure

resources are allocated efficiently in the tart cherry industry. The

Department opined that volume control regulations would distort these

signals and result in inefficient production and lost consumption

opportunities of cherries for consumers.

It was DOJ's position that the proponents' economic model presented

at the hearing ignores the basic laws of supply and demand and that the

model fails to incorporate the effect of increased plantings induced by

the higher prices which would be brought on by volume controls.

According to DOJ, the proponents' model rendered simulated results that

are unreliable because the methodology ignores the supply decisions of

growers and the demand decisions of consumers that determine prices and

price variability in the real world.

The market signals discussed by DOJ are available now to growers

and handlers. However, they have been unable to effectively respond to

them because of the large fluctuations in production. If prices

received were to encourage additional production, record evidence shows

that there is limited land available to effectuate such increases.

Also, growers cannot immediately respond to increased prices. Record

evidence shows that it takes approximately five years to receive a

commercial cherry crop from newly planted trees. New trees are also a

large financial investment for growers, an additional disincentive to

increased plantings.

If volume control regulations were established, the regulations

would set forth the quantity of cherries that could be marketed.

Opportunities for reserve releases would allow the industry to deal

with demand increases and ensure a stabilized supply to the

marketplace. The order would not establish prices.

In years of excessive production, growers would have additional

options to control their costs and income. There would be less of an

incentive to deliver poor quality cherries simply to obtain some return

on their investment and, given reduced pressures to deliver cherries at

all costs, decisions concerning retiring marginal producing acreage,

replanting, or economic abandonment of poor quality production could be

made on sounder economic terms. Keeping such poor quality cherries off

the market should also improve returns for all growers.

If a marketing order were established, cultural practices currently

available to growers would remain and growers would be expected to

utilize them through market based decisions. For example, orchard

planning, which includes removing old trees and replanting new trees,

would need to continue to ensure continued viability of commercially

significant acreage. However, if growers discover a substitutable crop,

the order would not prevent them from converting tart cherry acreage to

that crop.

With regard to forward contracting, as mentioned by DOJ, handlers

testified that this type of mechanism could possibly decrease the wide

swings in prices and has been utilized to some extent. Forward

contracting would not be prohibited under the proposed marketing order.

However, record evidence indicates that forward contracting, in and of

itself, has been ineffective as a tool to manage supplies or

significantly reduce the price variability experienced in the industry.

The proposed order is designed to bring supplies in line with

demand, thereby increasing grower returns. It is a tool the industry

could use to alleviate a widespread problem in the industry, one which

has not been effectively dealt with by the economic mechanisms DOJ has

identified. The ``real world'' has resulted in significant losses to

tart cherry growers in seven of the last eight years.

In a brief submitted on behalf of the Oregon Tart Cherry

Association, Mr. Lee Schrepel contended that the proponents failed to

offer convincing evidence that the benefits derived from the proposed

order would exceed the costs for participants in an equitable manner.

Mr. Schrepel stated that the record shows that Oregon growers are

likely to bear comparatively greater costs than other districts

proposed to be regulated under the order. Any potential increase in

grower prices would be tempered by inventory reserves which would tend

to depress the market. There is no evidence to support Mr. Schrepel's

contention that Oregon would bear greater costs than the other

districts. Inventory reserves would be held off the market and slowly

released when needed. Order imposed mechanisms would prevent their

release until they are needed in the market, preventing the exact type

of market depression unregulated carryovers now cause. Mr. Schrepel's

other concerns have been addressed under material issue number 5(c).

The preponderance of the evidence presented at the hearing supports

a Federal marketing order for tart cherries. The proponents have

demonstrated that there is need for regulation in order to bring

supplies in line with demand. The use of a marketing order could

increase demand for tart cherries through price stability, market

research and new market development opportunities. Also, the proposed

order could increase returns to growers which is one of the objectives

of the Act.

In view of the foregoing, and based on the record of the

proceeding, it is concluded that current economic and marketing

conditions justify a need for a marketing order for tart cherries grown

in Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and

Wisconsin. The order would meet many needs of the industry and would

tend to effectuate the declared policy of the Act.

3. A definition of the term ``production area'' should be included

in the order to delineate the area proposed to be regulated. Such

definition should include the States of Michigan, New York,

Pennsylvania, Oregon, Utah, Washington, and Wisconsin.

The area defined in the proposed order comprises what is generally

recognized as the major tart cherry producing States within the United

States. The States included are not, to the most part, contiguous, and

therefore do not generally share the same climatic conditions. However,

the defined production area does generally share the same cultural,

production, processing, and distribution characteristics with respect

to tart cherries, although differences in technology and transportation

costs are evident. The State of Michigan leads in volume produced with

approximately 68 percent of the 48,454 bearing U.S. acres of tart

cherries reported in 1993, as well as approximately 60 percent of all

known producers. During the same year, Utah was reported as having the

second highest production with approximately eight percent of the

bearing acreage and 12 percent of the producers. New York had seven

percent of the bearing acreage and 13 percent of the producers,

Wisconsin had six percent of both the acreage and the producers, Oregon

had four percent of the acreage and three

[[Page 61298]]

percent of the producers, Washington also had four percent of the

nation's acreage but less than one percent of the producers, and

Pennsylvania had three percent of both the bearing acreage and the

producers.

During the hearing process, considerable testimony was received

pertaining to the proposed scope of the production area under the

order. Most of the testimony was centered around the question of

whether the States of Washington and Oregon should be included in the

definition of the production area. The subject of removing any or all

of the States of Michigan, New York, Pennsylvania, Utah, and Wisconsin

from the proposed order was not broached during the hearing process,

other than in testimony made against issuance of any marketing order

for tart cherries.

Hearing evidence indicates that the primary issues encompassing the

question of whether Oregon and Washington should be included within the

proposed marketing order pertain to prices received by producers, the

geographic scope of markets as they relate to particular forms of

processed tart cherries, and whether competition is international,

national, or regional in scope. The issue of regional responsibility

for the current surplus of bearing tart cherry acreage was also raised

during the hearing.

Lee Schrepel, representing the Oregon Tart Cherry Growers

Association, testified that there is no meaningful relationship between

the small tart cherry crop in Oregon and nationwide producer prices. He

also stated that the market for processed tart cherries in the States

of Oregon and Washington is substantially different from the rest of

the U.S. market. The different processed forms of tart cherries

generally include frozen, canned, brined, dehydrated, pureed, and juice

concentrated products. Mr. Schrepel, as well as other producers and

processors from Oregon and Washington testified that, whereas the

majority of U.S. tart cherries are processed into frozen and canned

forms, a significant proportion of Pacific Northwest cherries are

processed into what is generally termed as secondary market forms, such

as brined, dehydrated, juice concentrate, and pureed cherries.

Testimony was received that these secondary, and in some cases,

specialized, forms are marketed to a large extent in ``niche'' markets

that have little or no relation to the national market for frozen and

canned cherries. Some examples of ``niche'' markets provided during the

hearing included wine, dried specialty fruit, and specialty juices.

Moreover, opponents to inclusion of Oregon and Washington in the

proposed order testified that a majority of their frozen and canned

product is marketed on the West Coast or into export markets,

specifically Japan, rather than to markets east of the Rocky Mountains.

Further testimony indicated that Pacific Northwest tart cherries are

often higher in color and Brix, or sugar content, than cherries from

other producing States. While purportedly not of great importance in

the freezing and canning of tart cherries, these characteristics are

valued in the concentrate business. As a consequence of these

differences, it was argued that competition between the Pacific

Northwest and other tart cherry producing regions has not been, nor

will be, significant.

While it is true that a notable portion of the Pacific Northwest

crop is marketed in secondary forms, a viable argument was not

presented that demonstrated that this isolates the majority of such

crop from other markets, either nationally or internationally. To the

contrary, evidence presented during the hearing by Dr. Olan Forker of

Cornell University shows that, nationally, producer prices move in the

same direction and in similar amounts. This analysis, based upon

statistical information presented throughout the hearing process, shows

a definite national correlation or link in the prices received by all

tart cherry producers. This correlation further indicates that the

markets available to producers for fresh tart cherries grown for

processing are national in scope.

In partial response to testimony that the Pacific Northwest States

largely produce tart cherries for markets other than the primary frozen

packed market, such as the juice concentrate market, proponents of the

proposed order testified that increasing supplies of juice concentrate

from Michigan and from Eastern Europe would, in time, undermine that

market. Proponents testified that the resulting price erosion in the

juice concentrate market would force both Oregon and Washington to move

increasingly into the primary freezing and canning market. Indeed,

record testimony suggests that marketing trends in the State of

Washington are already moving in this direction.

Hearing evidence further indicates that the end-use, or consumer

market, is also national in scope. For example, consumers in any

location are not likely to differentiate between a can of pie cherries

grown and processed in the Pacific Northwest and one originating from

the Midwest or East.

Pacific Northwest producers and processors advocating exclusion

from the proposed order contended that their regions have not

contributed to the tart cherry over-supply situation, and therefore

should not be held responsible for alleviating the problem. This

testimony indicated that the Oregon and Washington industries have

managed to consistently market all tart cherries produced. Moreover, it

was testified that statistical evidence shows that Oregon has

experienced a reduction in tart cherry acreage in recent years, thus

reflecting a form of independent supply control without the use of

complex federal regulations. Opponents to the inclusion of Oregon and

Washington specifically, and the proposed order generally, insisted

that the national over-supply problem is largely caused by the Michigan

industry and therefore should be borne by it alone. Opponents testified

that both Oregon and Washington together annually contribute an amount

equal to seven percent of the nation's tart cherry stocks and are thus

too small to have a significant impact on national supply.

Nonetheless, evidence supports the position that the over-supply

situation in the U.S. is a national problem. Since the tart cherry

industry is national in scope, evidence indicates that the entire

industry should work together to alleviate the problem, regardless of

any current localized over-planting of tart cherry trees. Although it

is acknowledged that the Pacific Northwest has not contributed

significantly to the over-supply problem, this area has the potential

in the future to expand its production, notwithstanding inclusion or

exclusion from the proposed order. Regardless of the question of

supply, any region capable of significantly increasing bearing acreage,

such as Oregon and Washington, would benefit from the provisions of the

proposed order and thus should be included in the program. Testimony

supports the proponents' opinion that, if excluded, the Oregon and

Washington tart cherry industries could be characterized as ``free-

rider'' States and could thus contribute to inequities within the

national tart cherry industry rather than to a national solution. The

majority of testimony from individuals from States other than Oregon,

including producers and processors representing approximately half of

the production from the State of Washington, overwhelmingly supported

inclusion of all seven states within the defined production area.

It was testified at the hearing that the proposed order ignores the

fact that both Montana and Colorado produce tart

[[Page 61299]]

cherries. It was contended that if States such as Oregon and Washington

must be included in the proposed order, then Montana and Colorado

should be as well. Evidence presented at the hearing showed, however,

that bearing acreage and production in Montana and Colorado is

insignificant and will likely remain insignificant. Therefore, Montana

and Colorado should be excluded from the production area at this time.

Opponents to the proposed inclusion of the Pacific Northwest in the

order asserted that climatic and general production characteristic

differences in the various tart cherry producing areas are significant

enough to warrant exclusion of Oregon and Washington from the order. It

is true that climatic differences in the various regions can be quite

significant--they are even quite different between the producing

regions in Oregon and Washington. However, there is insufficient

evidence to show that climate, or cultural practices for that matter,

have a significant effect on the various regions with respect to

pricing or markets.

To create orderly marketing conditions through volume regulations

with the goal of achieving parity prices should require that all

significant tart cherry producing areas in the United States be

included under the proposed order, since all would be competing in the

same market. To exclude any portion of the proposed production area, as

defined, would tend to defeat the purpose of the proposed order and

could result in depressed prices of the regulated tart cherries. All

territory included within the boundaries of the production area

constitutes the smallest regional production area that is practicable,

and thus consistent with carrying out the declared policy of the Act.

The production area, therefore, should be defined as hereinafter set

forth.

4. The term ``handler'' should be defined to identify the persons

who would be subject to regulation under the order. Such term should

apply to any person who handles cherries or causes cherries to be

handled for his or her own account. The term is also used to identify

those persons who are eligible to vote for, and serve as, handler

members and alternate handler members on the Board. Such term should

apply to any person who first performs any of the activities within the

scope of the term ``handle'' as hereinafter defined. Record evidence

indicates that the term should also include growers that deliver

cherries to a handler but keep title of the cherries and pay to have

them processed. This is referred to in the industry as custom

processing. Evidence supports the position that the grower would be

performing a handler function by retaining the right to sell the

product and should therefore be covered under the definition of

handler. The definition of the term ``Handler'' identifies persons who

would be responsible for meeting the requirements of the order,

including paying assessments and submitting reports and maintaining

inventory reserves.

The term ``handle'' should be defined in the order to establish the

specific functions that would place tart cherries in the current of

commerce within the production area or between the production area and

any point outside thereof, and to provide a basis for determining which

functions are subject to regulation under authority of the marketing

order.

The record indicates that the term ``handle'' should include the

acts of processing cherries by brining, canning, concentrating,

freezing, dehydrating, pitting, pressing or pureeing cherries, or in

any other way, converting cherries commercially into a processed

product. The definition also includes diverting cherries at the

handler's plant and acquiring grower diversion certificates under the

marketing order. Diversion will be discussed in material issue 5(f).

However, the term ``handle'' shall not include the brining, canning,

concentrating, freezing, dehydrating, pitting, pressing or the

converting, in any other way, of cherries into a processed product for

home use and not for resale. The term also does not include: (1) The

transportation within the production area of cherries from the orchard

where grown to a processing facility located within such area for

preparation for market; (2) the delivery of cherries to a processing

facility for such preparation; (3) the sale or transportation of

cherries by a producer to a handler of record within the production

area; and (4) the sale of cherries in the fresh market in an unpitted

condition. In the first three cases, the tart cherries have not been

prepared for market nor are they in their existing condition being

transported to market. The sale of fresh unpitted cherries should not

be regulated because there are very few sales into this market.

Testimony presented at the hearing by Mr. Schrepel stated that the

terms hot pack, pie filling and culls should be added to the definition

of handle. The term ``handle'' as proposed includes these terms since

hot pack and pie filling are canned products. Mr. Schrepel stated that

he wanted these terms added to make the definition more explicit.

However, it would be redundant to include these terms in the

definition.

5. (a) Certain terms should be defined for the purpose of

specifically designating their applicability and limitations whenever

they are used in the order. The definition of terms discussed below is

necessary and incidental to attain the declared policy and objectives

of the order and Act.

``Secretary'' should be defined to mean the Secretary of

Agriculture of the United States, or any officer, or employee of the

United States Department of Agriculture who has been or who may be

delegated the authority to act for the Secretary.

``Act'' should be defined to mean the Agricultural Marketing

Agreement Act of 1937, as amended (7 U.S.C. 601-674). This is the

statute under which the proposed regulatory program would be operative,

and this definition avoids the need to refer to the citation throughout

the order.

``Board'' should be defined to mean the administrative agency known

as the Cherry Industry Administrative Board established under the

provisions of the marketing order. Such a board is authorized by the

Act, and this definition is merely to avoid the necessity of repeating

the full name each time it is used. The Board is discussed in detail in

material issue 5(b).

``Crop Year'' should be defined to mean the annual period that tart

cherries are harvested and marketed. Record evidence indicated that the

harvesting and marketing cycle for tart cherries begins in July.

Therefore, ``Crop Year'' should be defined as the 12-month period

beginning on July 1 and ending on June 30 of each year. Volume control

regulations are implemented based on upcoming crop year forecasts and

reports of final crop delivered to handlers. With the approval of the

Secretary, the Board also has the authority to change the crop year if

another period is found to be more appropriate. The proponents

testified that a change would be necessary if a new variety of tart

cherry was developed that would have an earlier harvest cycle.

The term ``Cherries'' should be defined to specify the commodity

covered by the proposed order and to which the terms and provisions of

the marketing order would be applicable. The record indicates that

``Cherries'' means all tart/sour cherry varieties grown in the

production area classified as Prunus cerasus, Prunus cerasus by Prunus

avium, or Prunus cerasus by Prunus fruticosa. Record evidence

[[Page 61300]]

indicated that the definition should not include Prunus avium, which is

the sweet cherry variety. The proponents testified that in order to

embrace the activities that are taking place in plant breeding

programs, the definition should include all the varieties as proposed

under the ``Cherries'' definition. These varieties are grown throughout

the proposed production area.

``Department'' or ``USDA'' should be defined to mean the United

States Department of Agriculture which is the governmental body

responsible for oversight of Federal marketing orders and agreements.

``District'' should be defined to mean each subdivision of the

production area described in the marketing order. The district

delineations defined would be important for the purposes of Board

nominations and implementation of volume control provisions. Testimony

indicated that authority should be provided to allow the Board to

recommend to the Secretary the establishment of other districts or

addition of other districts, as may be necessary, through informal

rulemaking procedures. Therefore the definition of ``district''

contains such authority. This term is further discussed under material

issue no. 3.

The term ``Fiscal period'' should be defined to mean the 12-month

period for which the Board would plan the use of its funds. This period

should be established to allow sufficient time prior to the time tart

cherries are first marketed for the Board to organize and develop its

budget for the ensuing season. However, it should also be set to

minimize the incurring of expenses during a fiscal period prior to the

time assessment income is available to defray such expense.

The Notice of Hearing proposed that ``fiscal period'' mean the 12-

month period beginning on July 1 and ending on June 30 of the following

year. Record evidence indicates that the harvesting and marketing cycle

for tart cherries grown in the production area begins in July and ends

in August. The fiscal period should coincide with the tart cherry crop

year, because the industry typically plans its operation on this basis.

Hearing testimony supported the fiscal period being established for a

12-month period beginning on July 1 and ending on June 30 of the

following year.

However, based on future experience, it may be desirable to

establish a fiscal period other than one ending on June 30. Thus,

authority should be included in the order to provide for the

establishment of a different fiscal period if recommended by the Board

and approved by the Secretary through informal rulemaking procedures.

In any event, the beginning date of any new fiscal period should be

sufficiently in advance of the harvesting season to permit the

committee to formulate its marketing policy and perform other

administrative functions. Also, it should be recognized that if at some

future date there is a change in the fiscal period, such change would

result in a transition period being more or less than 12 months. For

example, the Board may decide to change the fiscal period from

beginning on July 1 through June 30 to August 1 through July 31. If

that occurred, the fiscal period would be longer in one year running

from July 1 through July 31 of the following year, to incorporate the

new fiscal period.

The term ``Free market tonnage percentage cherries'' should be

defined to mean that portion of cherries handled in a crop year which

are free to be marketed in commercial outlets under any volume

regulation established under the order. Testimony indicated that the

definition was taken from volume control formulas under other

established marketing order programs.

The term ``grower'' should be synonymous with ``producer'' and

should be defined to identify those persons who are eligible to vote

for, and serve as, grower members and alternate grower members on the

Board and those who may vote in any referendum. The term should mean

any person engaged in a proprietary capacity in the production of tart

cherries for market within the production area. The term ``grower''

should not include a person who produces cherries to be marketed

exclusively for the fresh market in an unpitted condition. Each

business unit (such as a corporation or partnership) should be

considered a single grower and should have a single vote in nomination

proceedings and referenda. The term ``grower'' should include any

person who owns or shares in the ownership of tart cherries such as a

landowner landlord, tenant, or sharecropper. A person who rents and

produces tart cherries resulting in that person's ownership of all or

part of the tart cherries produced in that land should also be

considered a grower.

Also, any person who owns land which that person does not farm, but

as rental for such land obtains ownership of a portion of the tart

cherries produced thereon, should be regarded as a grower for that

portion of the tart cherries received as rent. The tenant on such land

should be regarded as a grower for the remaining portion produced on

such land.

A joint venture is one whereby several persons contribute resources

to a single endeavor to produce and market a tart cherry crop. In such

venture, one party may be the farmer who contributes one or more

factors such as labor, time, production facilities or cultural skills,

and the other party may be a handler who contributes money and

cultural, harvesting, and marketing supervision. Normally, a husband

and wife operation would be considered a partnership. Any individual,

partnership, family enterprise, organization, estate, or other business

unit currently engaged in the production of tart cherries for market

would be considered a grower under the marketing order, and would be

entitled to vote in referenda and Board nominations. Each party would

have to have title to at least part of the crop produced, electing its

disposition, and receiving the proceeds therefrom. This control would

come from owning and farming land producing tart cherries, payment for

farming services performed, or a landlord's share of the crop for the

use of the producing land. A landlord who only receives cash for the

land would not be eligible to vote. A business unit would be able to

cast only one vote regardless of the number and location of its farms,

but each legal entity would be entitled to vote.

``Person'' should be defined to mean an individual, partnership,

corporation, association, or any other business unit. This definition

is the same as that contained in the Act.

``Primary inventory reserve'' should be defined to mean that

portion of handled cherries that are placed into inventory in

accordance with any restricted percentage established under the volume

control provisions of the marketing order. Testimony indicated that

handlers would be responsible for maintaining the reserve and selling

the reserve once it is released by the Board into certain outlets. The

Board would reimburse handlers for the inspection of the primary

inventory reserve. The Board could also establish quality requirements

that cherries may need to meet before they are placed in an inventory

reserve. Testimony supported that handlers could place tart cherries in

the primary inventory reserve in any processed form.

``Secondary inventory reserve'' should be defined to mean any

portion of handled cherries voluntarily placed into inventory by a

handler under the volume control provisions of the order. This

definition is used to define the additional option handlers may use in

the event free and restricted percentages are announced by the Board.

The secondary inventory reserve is a handler

[[Page 61301]]

selected option and all expenses of such reserve are borne by the

handler.

The term ``Restricted percentage cherries'' should be defined to

mean that proportion of cherries handled in a crop year which must be

withheld from marketing in normal commercial outlets in that crop year

under a volume regulation established under the marketing order. Such

cherries would be either placed into a primary or secondary inventory

reserve or diverted in accordance with the diversion provisions of the

marketing order. Testimony indicated that the Board would be

responsible for evaluating supply and demand conditions and

recommending to the Secretary, if necessary, the implementation of

volume control percentages.

The term ``sales constituency'' should be defined to mean a common

marketing organization or brokerage firm or individual representing a

group of handlers or growers. The record indicates, that in this case,

the largest single sales constituency currently in the industry is

Cherry Central, Inc.

(b) Pursuant to the Act, it is desirable to establish an agency to

administer the order locally as an aid to the Secretary in carrying out

the declared policy of the Act and to provide for effective and

efficient operation of the order. The establishment and membership of a

Board is addressed in Sec. 930.20 of the proposed order. The record

shows that the Board should consist of 18 members, including one public

member. Seventeen members should be growers or handlers of tart

cherries, or individuals involved in both the growing and handling of

tart cherries. One member should be selected from the general public.

Each member should have an alternate possessing the same qualifications

as the member.

For the purpose of Board representation, the order should provide

that the production area be divided into nine districts. The record

indicates that the 17 industry members of the Board should be composed

of growers and handles from within each district as follows: (1) Two

grower members and two handler members from District 1, which would

consist of that portion of the State of Michigan that is North of a

line drawn along the northern boundary of Mason County and extended

east to Lake Huron; (2) Three grower and handler members from District

2, which would consist of that portion of the State of Michigan that is

South of District 1 and North of a line drawn along the southern

boundary of Allegan County and extended east to Lake St. Clair. The

number of grower and handler representatives in District 2 would

alternate each full term of the Board. For example, evidence indicated

that during the initial three-year term of the proposed Board, District

2 would be represented by two handler members and one grower member.

During the second three-year term, District 2 would be represented by

two grower members and one handler member. This would thus alternate

for each succeeding term of office; (3) One grower member and one

handler member from District 3, which would consist of that portion of

the State of Michigan not included in Districts 1 and 2; (4) One grower

member and one handler member from each of Districts 4 and 7, which

would consist of the states of New York and Utah, respectively; and (5)

One grower member or handler member from each of Districts 5, 6, 8, and

9, which would consist of the states of Oregon, Pennsylvania,

Washington, and Wisconsin, respectively. The districts were developed

based on the actual cherry production in those areas.

The order should provide that the Board positions for Districts 5,

6, 8, and 9 could be filled by individuals who are either growers or

handlers of tart cherries, or by individuals involved in both the

growing and handling of tart cherries. Furthermore, should any one of

Districts 5, 6, 8, and 9 become subject to volume regulation under

Sec. 930.52(a), the Board should be realigned by the Secretary to

provide that such district be represented by at least one grower member

and one handler member rather than just one or the other.

The order should provide that, within any district represented by

multiple seats, not more than one Board member may be elected from a

single sales constituency. As addressed earlier, sales constituency is

defined in Sec. 930.16 to mean ``a common marketing organization or

brokerage firm or individual representing a group of handlers or

growers.'' However, there should be no prohibition on the number of

Board representatives from differing districts that may be elected from

a single sales constituency which may have operations in more than one

district.

The proponents testified that a limit to the total number of Board

members from a single sales constituency should not be warranted, with

the condition that there is no more than one such member from each

district. The proponents suggested that it would be desirable to have

Board membership reflect any potential industry affiliation with a

single sales constituency. The proponents also testified that the

single largest sales constituency in the tart cherry industry, Cherry

Central, Inc., could possibly gain up to five seats on the Board under

current industry conditions, but was doubtful that Board domination by

such sales constituency would ever occur.

Testimony was received that the order should prohibit any sales

constituency from gaining a majority of the seats on the Board. The

record indicates that the order, as currently proposed, would prevent

any single sales constituency from gaining a majority of the Board

positions. With nine districts, any single sales constituency would

have the maximum potential of nine members on the Board.

The Board should elect a chairperson, vice-chairperson, and any

other officers it may find appropriate from among its members at its

first meeting and annually thereafter. Testimony supports the position

that all such officers should be voting members of the Board.

Upon recommendation of the Board and approval of the Secretary,

reestablishment of districts or subdivisions of districts, and the

distribution of grower and handler representation within any district

or subdivisions thereof, is provided for in proposed Sec. 930.21. Any

such recommended change is subject to the provisions of Sec. 930.23, as

well as to consideration by the Board of the relative levels of

production of tart cherries within each district, and the relative

importance of new concentrations of tart cherry production within the

overall production area. Prior to any such recommendation, the Board

should also consider how the efficiency of marketing order

administration is effected by geographic location of areas of

production, as well as whether shifts in cherry production within the

production area have occurred. The Board should also take into

consideration any changing of the roles, or functions, of growers and

handlers as it pertains to the production and handling of tart

cherries. Any changes in the proportion of growers to handlers that may

occur, as well as any other relevant factors, should also be considered

by the Board before making any recommendations for redistribution or

reestablishment.

Proposed Sec. 930.22 provides that the term of office of Board

members and their respective alternates should be three fiscal years.

Approximately one-third of the Board terms should end each year. As

defined earlier, fiscal year should mean the period beginning on July 1

and ending on June 30, or such other period as the Board may recommend

and the Secretary approve. The record indicates that the term of office

should begin on July 1, the

[[Page 61302]]

beginning of the marketing year for the tart cherry crop.

The length of the terms of those initial industry Board members who

represent districts with more than one seat would be staggered so that

all of the members' terms would not expire at the same time. The

initial term of offices for the nine members and their respective

alternates from Districts 1, 2, and 3 should be established so that

one-third of such initial members and alternates would serve for a one

year term, one-third would serve for a two year term, and one-third

would serve for a three year term. It is also provided that one-half of

the initial four members and respective alternates from Districts 4 and

7 would serve for one year, and one-half would serve for two years.

Under the terms of the proposed order, the initial four members and

four alternates from Districts 5, 6, 8, and 9 would all serve their

full three year terms. Determination of which of the initial members

and alternate members from Districts 1, 2, 3, 4, and 7 would serve for

one year, two years, or three years would be by lot.

It was proposed by the proponents that the term of office of the

public member and alternate public member should be for one fiscal year

only. The proponents testified that to limit the term of the public

member and alternate public member to one fiscal year would provide the

industry members of the Board with the ability to quickly and easily

replace such public members should Board expectations not be met.

An alternative proposal received during testimony favored a two-

year term of office for all Board members and alternate members,

inclusive of the public member and alternate public member. The

justification provided in support of a two-year term of office was that

Board members would gain sufficient experience within a two year time

period and that a third year would not add significant benefit to

either the members or the Board.

The preponderance of evidence, however, supports a three-year term

because it would give members sufficient time to become familiar with

Board operations and enable them to make meaningful contributions at

Board meetings. Furthermore, a three-year term would enable

establishment of a rotation so that approximately one-third of the

Board membership would terminate each year. Such staggered terms would

lend continuity to the Board by insuring that some experienced members

would be on the Board at all times.

Insufficient supporting evidence was provided for the proposition

that, while industry members and alternate members should serve three-

year terms, the public member and alternate public member should be

limited to a one-year term. To maintain the continuity that is afforded

the Board by industry members serving for three years, it logically

follows that the public member should also serve for three years. If

the public member and alternate would only serve one-year terms that

are dependent on the Board's annual review, and nomination to the Board

requires a \2/3\ majority vote, the public member and alternate could

feel pressured to always vote with the majority of the Board members.

Record evidence supports public representation on the Board, and just

as three-year grower and handler member terms offer many advantages to

the Board, the tart cherry industry, and the members themselves, so

would three-year public member terms. Therefore, the order should

provide that the terms for all members be three years in duration.

Approximately one-third of the total Board membership should terminate

each year. The public member and alternate public member would both

serve their full three-year terms initially and thereafter.

To prevent unnecessary vacancies from occurring on the Board, the

order should provide that members and alternates shall serve in such

capacity for the term of office, or portion thereof, for which they are

selected and have qualified, and until their respective successors are

selected and have qualified. However, so that there is continual

turnover in membership and infusion of new ideas, the order should

provide that the grower and handler members, and their respective

alternates, may not serve more than two consecutive three-year terms on

the Board.

The proponents proposed that there should be no limit on the number

of consecutive terms the public member and alternate public member

could serve on the Board. Just as testimony offered by the proponents

indicated that a one-year term of office for the public member and

alternate public member would provide the Board with the flexibility to

quickly replace such members should they prove inadequate, the

proponents also argued that unlimited tenure would provide the Board

with the flexibility of maintaining the public member and alternate

public member indefinitely should such be desired.

However, there was insufficient evidence offered during the hearing

process to support a Board membership with differing tenure

requirements. A two-term tenure requirement for the public member and

alternate public member would offer the Board the same infusion of new

ideas from the public perspective that is provided from the industry

perspective by continual turnover in grower and handler membership. The

order, therefore, should provide that all members of the Board be

restricted to serving no more that two consecutive three-year terms.

Any initial term lasting less than three years should not be counted

towards this six-year tenure limitation.

After serving two consecutive terms, Board members should be

eligible to serve as alternates, but should be ineligible to serve as

members for a period of at least one year. Conversely, alternate

members should be eligible to serve as Board members after serving two

consecutive terms as alternate members, but should be ineligible to

again serve as alternate members for a period of at least one year. The

alternate member's term of office should coincide with that of the

position's member.

The effective date of the order, if issued, may not coincide with

the specified beginning date of the terms of office of Board members

and alternates. Therefore, a provision is necessary to adjust the

initial terms of office. To accomplish this, the order should provide

that if the initial fiscal period is less than six months in duration,

that is beginning after January 1, then the tolling of time for the

initial term of office would not begin until the following July 1.

Similarly, if the initial fiscal period is for a duration of between 6

and 12 months, then the tolling of time for the initial term of office

would begin on the prior July 1.

As an example, if an order were promulgated in May of 1996, and in

the event that the initial members are selected prior to July 1, 1996,

the initial terms of office could be adjusted as follows: the initial

one-year term would not end on June 30, 1996, but would continue until

June 30, 1997. The two-year and three-year terms would end on June 30,

1998, and June 30, 1999, respectively. However, if the initial members

should start their terms of office between July 1, 1995, and February

1, 1996, the initial one-year term would end on June 30, 1996. The two-

year and three-year terms would end on June 30, 1997 and June 30, 1998,

respectively.

For the proposed Board to function, a mechanism is required by

which members and alternate members may be nominated, elected, and

appointed by the Secretary. Section 930.23 of the proposed order

provides for a nomination and election procedure using petition forms

and election ballots

[[Page 61303]]

and utilizing the U.S. Postal Service, or such other means as the

Secretary may determine.

Proposed Sec. 930.29 establishes the eligibility criteria for

membership on the Board. Each of the grower members and alternate

grower members of the Board should be tart cherry growers or officers

or employees of tart cherry growers. Likewise, each of the handler

members and alternate handler members of the Board should be tart

cherry handlers or officers or employees of tart cherry handlers. The

proposed order further maintains that, to be eligible to serve on the

Board, each of these handlers, or officers or employees of handlers,

must own or lease, and operate a tart cherry processing facility in the

district for which nominated to serve. A person who is a grower and

handler in the industry (grower/handler) could serve as either a grower

or handler member or alternate grower or handler member on the Board.

To be eligible to participate in the nomination and election

process, the order should provide that an individual be a grower or a

handler of tart cherries or a duly authorized officer or employee of a

tart cherry grower or handler. To discourage potential duplication,

eligible growers and handlers would only participate in the nomination

and election process in the district where they produce or handle tart

cherries. Since it is possible for a tart cherry grower to have

production in more than one district and a handler to have handling

facilities in more than one district, the proposed order provides that

such growers and handlers must choose which district they wish to

participate in. The record indicates that neither growers nor handlers

would be allowed to participate in the nomination and election process

in more than one district during a single fiscal period.

Furthermore, the order should restrict growers and handlers from

participating in the nomination process in one district and the

election process in a second district during the same election cycle.

However, if growers or handlers with operations in more than one

district do not participate in the nomination process but do

participate in the election process, they should be authorized to

select the district in which they wish to vote. To help ensure that

proper administration of the nomination and election process is

maintained, it is reasonable for the order to require such growers and

handlers to notify the Secretary or the Board of their choice of

districts prior to participation in the process.

In order that a grower's name appear on an election ballot, the

individual's name must first be submitted to the Board on a nomination

petition form. Such petition form would contain the signatures of at

least five eligible growers other than the nominee in order to be

accepted. The order should provide that petitions for Board membership

by growers from District 8 (Washington State) must be signed by two

eligible growers other than the nominee. This differs from the

procedure used in other districts because there are relatively few tart

cherry growers in Washington. It would be reasonable to conclude that

should the number of tart cherry growers in Washington significantly

increase in the future, this provision could be revised, through

informal rulemaking, to more closely approximate requirements in the

other districts.

Similarly, in order that a handler's name appear on an election

ballot in any district, the nominee's name should be submitted on a

petition form signed by at least one other eligible handler. In

districts where either a grower or a handler may be elected to the

single position (initially Districts 5, 6, 8, and 9), both growers and

handlers may be nominated for the single seat.

Testimony supported the inclusion of an order provision that would

restrict individuals who are growers, but who may be regulated as

handlers while having some or all of their tart cherries custom packed,

to participating in the nomination and election process as growers

rather than as handlers. Hearing evidence supports the provision that,

for purposes of nominations and elections, such grower-handlers not

owning or leasing and operating their own packing facilities be

identified as growers.

At the hearing, witnesses supported adding a public member to the

Board. While the influence of consumers would be implicitly present in

the deliberations of the grower and handler Board members, and all

meetings would be public, the appointment of a public member would

offer many advantages. One such advantage would afford the industry an

opportunity to discuss its problems and concerns with someone without

an economic interest in the tart cherry industry.

The public member and alternate public member should not be

permitted to have a direct financial interest in the production,

processing, financing, buying, packing, or marketing of tart cherries

except as a consumer; nor be a director, officer, or employee of any

firm so engaged. Such public members should be willing to devote

sufficient time to regularly attend Board activities and to familiarize

themselves with the background and economics of the industry, as well

as with the provisions of the proposed order. Testimony indicated that

the public member and alternate public member could, for example, be

individuals who are retired food industry executives or are associated

with an academic institution. The Board, once formed, could decide what

further qualifications, if any, the public member and alternate public

member should possess.

During the nomination process, tart cherry growers and handlers in

each district would have an opportunity to nominate eligible

individuals for the public member and alternate public member positions

on the Board. Record evidence indicates that this would be accomplished

in the same manner that grower and handler members are nominated. All

eligible growers and handlers in each district would have the

opportunity to submit the name of a nominee for both the public member

and the alternate public member on a petition form provided by the

Board or the Secretary. At one of its first meetings following initial

appointment and every three years thereafter, Board members would

elect, by at least a two-thirds majority of the entire Board, the

public member and alternate public member. The Board members would vote

for the public member and alternate public member from the list of

nominees received from tart cherry growers and handlers. If such

nominations are not made, the Board should have the authority to

nominate qualified individuals for subsequent election. The persons

elected by the Board to fill the public member and alternate public

member positions would then be subject to appointment by the Secretary.

A procedure should be in place that provides adequate time for the

nomination and election process to be completed and appointments made

by the Secretary prior to the beginning of the next term of office.

Thus it is reasonable that the Board should announce and solicit

nominations at least 180 days before the expiration of the current term

of office. Furthermore, a requirement that the nomination petition form

be returned to the Board not less than 120 days prior to the then

current term's expiration would provide adequate time to complete the

election of industry members. Such a procedure would help ensure that

appointments by the Secretary are made in time to seat the new Board by

the beginning of the next term.

Once the completed petition forms are returned, the Board would

distribute ballots containing the names of all eligible grower and

handler nominees by district via the U.S. Postal Service, or

[[Page 61304]]

such other means as the Board may recommend and the Secretary approve,

to all eligible growers and handlers. Hearing evidence indicates that,

in Districts 1, 2, 3, 4, and 7, growers would be permitted to vote only

for grower members and alternate grower members, and handlers would be

permitted to vote only for handler members and alternate handler

members. In Districts 5, 6, 8, and 9, where the single seat on the

Board may be either a handler or a grower, both growers and handlers

may vote regardless of whether the nominees are producers or handlers

of tart cherries. In this situation, the member could be a grower and

the alternate member could be a handler or vice versa or both.

The Board should have the ability to modify these provisions of the

proposed order, or to specify more detailed nomination and election

procedures. Consequently, the order should contain provision for the

Board, with the approval of the Secretary, to establish rules and

regulations necessary and incidental to the administration of the

nomination and election process. The order should further provide that

the Secretary or the Board may administer the nomination and election

process as outlined herein.

Once affirmed, the nomination and election results should be

presented to the Secretary for appointment pursuant to Sec. 930.24.

Following the Board's submission of the nomination and election results

to the Secretary, the Secretary would appoint the grower and handler

members and alternate members on the basis of representation provided

for in Sec. 930.20. The order should also authorize the Secretary to

appoint the public member and alternate public member once elected by

the newly appointed Board.

In the case of the initial Board, the Secretary would conduct

meetings to nominate initial Board members. All producers of record in

the production area would receive notice of the meetings in sufficient

time to enable them to attend. Nominations should be received and voted

upon at these meetings. Handlers nominations would be accomplished in

the same way.

The order should provide for appointment by the Secretary of

members and alternates of the Board. The tart cherry growers and

handlers should have the responsibility for recommending nominees to

the Secretary for appointment. The nomination and election procedure

outlined in the order would provide a means of making available to the

Secretary the names of prospective members and alternates selected by

the industry under the order to serve on the Board. The Secretary

should have the authority to appoint the industry and public members

and alternate members to the Board, notwithstanding the list of

nominees submitted.

In the event the nomination and election process has not been

completed within the time and in the manner specified in the order, the

Secretary should have the authority to appoint members and alternates

without regard to nominations, in accordance with proposed Sec. 930.25.

Such appointment should be from qualified persons as provided in the

order.

Each person to be appointed by the Secretary as a member or as an

alternate member of the Board should, prior to appointment, qualify by

advising the Secretary on a form provided by the Board or the Secretary

that such person agrees to serve in the position for which nominated.

The information requested on the form would be incidental to the

qualifications of each position and would thus provide the Secretary

with the information required to complete the appointment process.

Proposed Sec. 930.27 states that the order should provide a method

for promptly filling any vacancies on the Board for unexpired terms of

office. There may be vacancies caused by the death, removal,

resignation, or disqualification of a member or alternate. The order

should provide that the Secretary shall be authorized to name a

successor to fill an unexpired term from the most recent list of

nominations for the Board, from a nomination and election process

specifically held to fill the vacancy and made in the same manner as

provided for in Sec. 930.23, or from other qualified individuals.

Qualification and appointment should be made on the basis of

Sec. 930.20 or any redistribution or reestablishment made pursuant to

Sec. 930.21.

Proposed Sec. 930.28 states that an alternate member of the Board

should act in the place and stead of the regular member during the

absence of such member. It continues by adding that an alternate member

would not be eligible to serve at a meeting of the Board if the member

is in attendance. In the event of the death, removal, resignation, or

disqualification of a member, an alternate member would act for the

regular member until a successor of such member is appointed. This

would ensure that all portions of the production area are adequately

represented in the conduct of the Board's business and that the

continuity of Board operation is not interrupted. In the event both a

member and the respective alternate member are unable to attend a

meeting of the Board, no other member or alternate member would be

eligible to serve in that position. Witnesses testified that a member

and alternate member are nominated and elected to represent a specific

constituency, and that an arrangement that allows another member, even

if from the same district, to sit in such position would not best serve

the industry. The order should also provide that alternate members have

the same qualifications as their respective members.

The Board, under proposed Sec. 930.30, should be given those

specific powers that are set forth in section 608c(7)(C) of the Act.

Such powers are necessary for an administrative agency, such as the

Board, to carry out its proper functions. The Board would administer

the order in accordance with its terms and provisions and would

recommend rules and regulations necessary to effectuate the terms and

provisions thereof. The Board should also have the power to investigate

complaints of violations to the order and forward such information to

the Secretary, and to recommend to the Secretary appropriate amendments

to this part.

The Board's duties as set forth in Sec. 930.31 of the proposed

order are necessary for the discharge of its responsibilities. These

duties are similar to those typically specified for administrative

agencies under other programs of this nature. They pertain to specific

activities authorized under the order, such as investigating and

compiling information regarding tart cherry marketing conditions, and

to the general operation of the order including hiring employees,

appointing officers, and keeping records of all Board transactions. The

order should delineate Board duties as follows:

(1) The Board should select any officers, including a chairperson

and vice-chairperson, necessary for its proper function, and should

define the duties of such officers. Other officers might include

secretary, treasurer, parliamentarian, or such other officers deemed

helpful to the efficient operation of the Board.

(2) The Board should employ or contract with such persons or agents

as it finds necessary, and should determine the duties and compensation

of such persons or agents. This provides the Board with the ability to

organize for the purpose of conducting its day-to-day business. A

typical staffing arrangement could include a general manager who

reports directly to the Board, and field and office support staff

deemed necessary for efficient operation. In some cases, additional

staff dedicated to

[[Page 61305]]

order compliance would be useful to the Board.

(3) Whenever committees or subcommittees are deemed necessary or

advisable, the Board should appoint members or other industry

representatives to serve on such committees or subcommittees. These may

be producers, handlers, consultants, or other persons who are not

members of the Board but who possess some knowledge or could serve the

Board in some unique way. Thus, the provisions authorizing the board to

appoint subcommittees should include authority for the Board to appoint

persons to serve on special subcommittees or as consultants to regular

subcommittees, even though they are not members of the Board. Actions

recommended by any subcommittee should be subject to the approval of

the Board.

(4) The Board should adopt bylaws and establish other rules,

including rules of conduct and administration, which are necessary to

carry out its duties and responsibilities. These could include rules

relating to parliamentary procedures for the conduct of meetings and

rules governing Board member and staff compensation for expenses

incurred while performing their normal duties.

(5) Prior to the beginning of each fiscal period, the Board should

submit a budget of such fiscal period to the Secretary. Each such

budget should be accompanied by a report explaining the items appearing

therein, as well as a recommendation for an assessment rate for the

forthcoming fiscal period.

(6) The Board should keep minutes, books, and records which clearly

reflect all of its meetings, acts and transactions. These minutes,

books, and records would be subject to examination at any time by the

Secretary or an authorized agent or representative of the Secretary.

Minutes of all Board meetings, as well as all subcommittee meetings,

should be recorded in a minutes book, or similar record. Minutes would

assist in answering questions at a later date, and avoid confusion as

to what transpired at a given meeting. In order for the record to be

complete, minutes should include motions, whether passing or failing,

votes, important points of discussion, and all resolutions. Copies of

the minutes should be furnished to the Secretary and to all members and

alternate members as early as possible following each meeting.

(7) The Board should prepare periodic statements of its financial

operations and ensure that copies of each financial statement are made

available to growers and handlers for examination at the office of the

Board. Copies of such statements should also be provided to the

Secretary.

(8) The Board should have its books audited by a certified public

accountant at least once each fiscal period, and at such other times as

the Board may find necessary or as the Secretary may request. This

audit would normally follow the conclusion of each marketing year. The

audit report should show the receipt and expenditures of funds

collected pursuant to this part. A copy of this report should be made

available to the Secretary, as well as at the principal office of the

Board for inspection by handlers and growers. Confidential or

proprietary information should be removed from the audit report before

making it available to handlers and growers.

(9) Should it be necessary, the Board should act as an intermediary

between the Secretary and any grower or handler. This provides that any

problems arising at either level can be dealt with in an efficient and

orderly manner.

(10) The Board should have the duty to investigate and assemble

data on the growing, handling, and marketing of tart cherries. Such

data would provide information necessary for the Board to make proper

recommendations and to otherwise perform its duties. During the

investigation and assembly of data, the Board should acquire

information concerning producing acreage and the estimated production

of tart cherries on an ongoing basis. Thorough knowledge of growing and

harvesting conditions in each of the districts, including information

on weather, problems with pests, and new and innovative cultural

practices, would be helpful to the Board when making decisions

pertaining to quality and volume regulations. Information should be

obtained pertaining to the volume of fresh and processed tart cherries

in the possession of producers and handlers. With such growing,

harvesting, and supply information and knowledge of past, current and

projected demand patterns, the Board would be better equipped to make

regulatory recommendations to the Secretary.

(11) Whenever the Board provides notice of meetings to its members,

the same notice should be provided to the Secretary. This would apply

to all meetings of the Board and any of its designated subcommittees.

The Secretary should have ample notice of these meetings in order to

exercise the supervisory responsibilities provided by law. With the

exception of certain meetings held for personnel or compliance

purposes, all such meetings are open to the public. Therefore, all

meeting notices should receive widespread distribution. In order for

the Secretary to properly exercise oversight authority over the order

and its administration, all information relating to the marketing of

cherries and the various activities of the Board must be made

available.

(12) The Board should submit such available information as the

Secretary may request.

(13) The Board should investigate compliance with the provisions of

this part. This would include development of a comprehensive plan, to

be reviewed and approved by the Board and the Secretary on an annual

basis, that contains sound and effective methods for preventing and

detecting violations of the order and assurances that responsible staff

are following the prescribed procedures.

(14) The Board should be responsible for developing and submitting

an annual marketing policy to the Secretary for approval. The marketing

policy should contain the optimum supply of tart cherries for the crop

year established pursuant to Sec. 930.50 and recommend any such action

necessary to achieve such optimum supply. The marketing policy should

include an explanation of the marketing problems expected to exist

during the season, as well as an explanation of how the regulations

recommended by the Board, if any, would be used in an effort to correct

or change marketing conditions.

(15) The Board should implement such quantity regulations as are

called for by the marketing policy and approved by the Secretary,

including the release of any inventory reserve.

(16) The Board should provide thorough communications to growers

and handlers regarding its activities and respond to any industry

inquiries about its activities.

(17) The Board should oversee the collection of assessments levied

under this part.

(18) For the development and conduct of activities, including

research and promotion activities, the Board should have the authority

to enter into contracts or agreements. Such contracts or agreements

would pertain to the rendering of services required by the order and

for the payment of the cost of such services with funds collected under

the authority of this part. Any contracts or agreements entered into

pursuant to this paragraph should provide that contractors submit to

the Board a plan and a budget, that the plan or project be submitted to

the Secretary for approval, and that the contractor shall maintain

accurate records of all

[[Page 61306]]

transactions. Such an agreement should also specify that the contractor

make periodic reports to the Board of its activities and funds received

and expended or any other reports required by the Board or the

Secretary. It should also clearly indicate that the Board or the

Secretary may periodically audit the records of the contracting party

as they pertain to the agreement.

(19) Pending the expenditure of funds as set forth in the annual

budget, the Board should have the authority to invest funds collected

through assessments as well as income generated by such assessments.

Any investments made should be in accordance with applicable

Departmental policies. The Board should maximize income opportunities

while not putting the funds at risk.

(20) The Board, with the Secretary's approval, may establish

standards and grade requirements for cherries produced for frozen and

canned cherry products. Prior to making such recommendations, the Board

should poll all handlers that would be affected by such regulations to

obtain a consensus as to if, when, and how standards and grade

requirements might be implemented. The Board, with the Secretary's

approval, could establish a requirement for mandatory inspection

pursuant to Sec. 930.44.

After review of the requirement for the Board to poll handlers on

how the standards and grade requirements might be implemented, the USDA

is deleting such requirement from the proposed order. The Board, which

is comprised of grower and handler members, has the responsibility of

representing the growers or handlers from the district in which such

member was represented to serve. It is the Board's responsibility to

develop recommendations and/or rules and regulations to implement the

sections in the proposed marketing order. Therefore, it is not

necessary for the Board to poll handlers on this issue since handlers

are represented by members on the Board.

An opponent to this provision testified that this section should be

deleted from the proposed order. It was the opponent's position that

the market should be allowed to function on utilization of

relationships between handlers and buyers and use of the current USDA

standards and specifications. However, the preponderance of the

testimony supports the authority to authorize the Board to recommend to

the Secretary standards or grade requirements in order to provide a

consistent quality cherries to be processed into cherry products.

(21) The Board should be able to borrow funds necessary to

administer its responsibilities and obligations under this part. Any

such transaction should be subject to the Secretary's approval and

should not exceed one fiscal period's budget. The Board should normally

be required to pay any borrowed funds back within the same fiscal

period.

(22) With the Secretary's approval, the Board should establish

rules and procedures relative to the administration of this order. Such

rules and procedures should be consistent with the provisions of this

subpart and necessary for efficient operation of the order and to

accomplish the purposes of the Act.

The duties listed in proposed Sec. 930.31 are reasonable and

necessary if the Board is to function in the manner prescribed under

the Act and the order. It should be recognized that the duties

specified are not necessarily all-inclusive, and it may develop that

there are other duties that the Board may need to perform which are

incidental to, and not inconsistent with, these specified duties.

As set forth in proposed Sec. 930.32, the order should specify a

procedure for the Board to conduct its meetings. Conflicting testimony

was received during the hearing process pertaining to the number of

Board members that should constitute a quorum, as well as to the number

of favorable votes required of Board members to pass any

recommendations by the Board. The proponents proposed that 12 members,

or their alternates acting in their stead, should constitute a quorum.

Further, the proponents proposed that for any action of the Board to

pass, a simple majority of those present should concur. For example, if

the minimum number of 12 Board members, the proposed quorum, were

present at a meeting, seven members could conceivably carry a

recommendation for regulatory action. The proponent argued that a

general voting procedure requiring a higher degree of support for

regulatory and administrative Board actions would potentially allow

minority district representatives to boycott meetings and thereby

disrupt the Board's ability to recommend rules and regulations to the

Secretary. This proposal excluded Board action taken to elect the

public member and alternate public member, however, in which case

affirmation by at least two-thirds of the entire Board was proposed.

During the hearing process, an amendment to Sec. 930.32 was offered

by Mr. Lee Schrepel proposing that (1) a quorum consist of at least 14

members, (2) any action approved by the Board would not be effective

upon any district affected by such action unless a simple majority of

the Board members from such district also approved the action, and (3)

actions involving enactment of volume control, implementation of

assessments, inspection, grading, procedural considerations and

district representation should require a two-thirds affirmative vote of

the entire Board.

In support of his proposed amendments, Mr. Schrepel testified that

a quorum requirement of less than 14 Board members could potentially

allow a single sales constituency to dominate the Board. He also

indicated that the rights and responsibilities of all participants

should be protected and that any regulations recommended by the Board

not be imposed on a segment of the industry that objects to such

regulations.

As indicated earlier, a single sales constituency would have a

maximum potential representation on the Board of nine members.

Therefore no such sales constituency could dominate the Board if the

quorum requirement is less than 14 members, because, as discussed

hereinafter the voting requirement for an action to pass should be two-

thirds of the entire board. The proponents testified that they

anticipate that most of the members would be present for full Board

meetings. The proposal that each district must ratify any action by the

Board should also not be adopted. Such a proposal is synonymous with

requiring Board unanimity on any action and could cripple the

effectiveness of the order.

However, Mr. Schrepel's third recommendation is a sound one.

Therefore, the order should provide that 12 members of the Board,

including alternates acting for absent members, should constitute a

quorum and any action by the Board should require that two-thirds of

the entire Board support such action. A voting procedure requiring the

consensus of at least a two-thirds majority of the entire Board is

similar to many of the other fruit, vegetable and specialty crop

marketing orders now in effect. Such a voting procedure helps ensure

that the industry majority supports any action of the Board and that

minority interests are addressed.

If Board membership is increased in the future due to Districts 5,

6, 8, or 9 becoming permanently regulated as proposed in

Sec. 930.20(e), the order should authorize a like increase of the

quorum requirement through implementing regulations. For example, if

District 5 picked up one seat on the

[[Page 61307]]

Board in the future, the Board would increase to 19 members. The quorum

requirement, in this example, would subsequently be increased from 12

to 13. The quorum would be maintained at a level equal to two-thirds of

the total Board membership.

Since the production area encompasses several states and spans the

entire width of the country, it is reasonable that the Board be

provided with the authority to recommend to the Secretary rules and

regulations pertaining to the conduct of simultaneous meetings of

groups of its members assembled at different locations. There may be

times, due to inclement weather or similar situations, when the Board

is unable to assemble at one location. Therefore, the proposed order

should also provide for Board meetings conducted via telephone or some

other means of communications. To eliminate potential confusion or

misunderstanding that may arise when the Board meets at multiple

locations, all such votes cast by the Board should be promptly

confirmed in writing.

All meetings of the Board should be open to the public with the

exception of special meetings held in executive session for

consideration of personnel or certain compliance matters, or such other

matters that the Secretary may approve. The Board should establish a

means of providing advanced notice of meetings to tart cherry growers

and handlers as well as other interested parties.

Board members and alternates will necessarily incur some expense

while on Board business. Reasonable expenses, which may include those

associated with travel, meals, and lodging, should be reimbursed to

members while attending Board meetings or performing other duties under

the order, in accordance with proposed Sec. 930.33. It is also

reasonable that the public member and alternate public member, in

addition to reimbursement for incurred expenses, should receive

compensation for time served at meetings and while performing other

Board authorized duties. The public members and alternate members

should be compensated while performing Board authorized duties because

attending Board meetings may take them from their normal place of

employment, one not associated with the tart cherry industry.

Therefore, the order should provide that, except for the public member

and alternate public member who shall receive such compensation as the

Board may establish and the Secretary may approve, the members of the

Board, and alternates when acting as members, shall serve without

compensation but shall be reimbursed for necessary and reasonable

expenses as authorized by the Board. The Board at its discretion may

request the attendance of one or more alternates at any or all

meetings, notwithstanding the expected or actual presence of the

respective member(s), and may pay their expenses as aforesaid. The

Board may also request nonmembers to attend Board or subcommittee

meetings to present an issue of interest to the Board or subcommittee.

In this case, the Board should be authorized to pay such individuals'

expenses for attending such meetings.

(c) As noted under Sec. 930.31(e), the Board should be required to

prepare a budget showing estimates of income and expenditures necessary

for the administration of the marketing order during each fiscal year.

The budget, including an analysis of its component parts, should be

submitted to the Secretary sufficiently in advance of each fiscal

period to provide for the Secretary's review and approval. The

submitted budget should include a recommendation to the Secretary of a

rate of assessment designed to secure all or part of the income

required for such fiscal year.

The Board should be authorized under Sec. 930.40 of the proposed

order to incur such expenses as the Secretary finds are reasonable and

likely to be incurred during each fiscal year. Such a provision is

necessary to assure the maintenance and functioning of the Board, and

to enable the Board to perform its duties in accordance with the

provisions of the order. Necessary expenses would include, but would

not be limited to, such administrative items as employee salaries and

benefits; establishment of an office and equipping such office;

telephone and mail services; and such business and travel related costs

for the Board staff as transportation, lodging, and food. As discussed

previously, expenses incurred by Board members in attending Board

meetings should be a reimbursable expense as well. Other administrative

expenses would include those related to inspection and marketing order

compliance.

In addition, the order should authorize the Board to incur expenses

related to production and processing research, market research and

development, and promotional activities, including paid advertising,

designed to assist, improve, or promote the efficient production,

processing, marketing, distribution, and consumption of cherries.

The proponents testified it would be unlikely, in the foreseeable

future, that any activity under Sec. 930.48 would be initiated by the

Board unless the current high level of research and promotion activity

sponsored by the Cherry Marketing Institute and the New York Cherry

Board tapers off. The proponents estimated that producers representing

approximately 94 percent of tart cherry production on a national scale

are currently financing various production research, development and

promotional projects through assessments to these two organizations.

The proponents thus testified that it would be unnecessary and

redundant for the Board to finance similar activities while such a

relatively high level of activity exists, but recommended including the

authority for such future activity in the order.

The proposed order should state that expenses incurred due to any

approved administrative costs and authorized research, development, and

promotion projects could occur on an ongoing basis throughout the

fiscal period.

With the Secretary's approval, the Board, under proposed

Sec. 930.41, should be authorized to levy annual assessments upon

handlers to cover administrative costs and the costs of any research,

development and promotion activities undertaken pursuant to Sec. 930.48

that the Board recommends and the Secretary approves. However, as noted

earlier, the proponents indicated that it would be highly unlikely that

the Board would initiate recommendations for research, development, or

promotion related assessments while a high percentage of tart cherry

producers are financing such activities through other organizations. It

would be reasonable to expect the Board to ensure that handlers in each

district are well informed of the assessment rate and how such

assessment rate would be allocated among the various approved expenses.

During each fiscal period, the Board would assess each handler on

all cherries handled, unless subject to certain authorized exemptions,

that handler's pro rata share of the administrative expenses, as well

as any research, development and promotion expenses. Assessments should

be calculated on the basis of pounds of cherries handled. However, the

order should provide that the formula adopted by the Board and approved

by the Secretary for determining the rate of assessment should

compensate for differences in the number of pounds of cherries utilized

for various cherry products. For example, the proponents testified that

high value products such as frozen, canned or dried cherries would be

assessed one amount and the

[[Page 61308]]

low value products such as juice concentrate and puree would be

assessed one half of the assessed amount of the high value product.

Testimony supported exempting any handler from paying assessments

on cherries diverted as provided in Sec. 930.59. This exemption from

assessment would also include cherries represented by grower diversion

certificates issued pursuant to Sec. 930.58(b)(2) and acquired by

handlers, and those cherries devoted to exempt uses under Sec. 930.62.

In addition to administrative, research, development and promotion

expenses, the proponents proposed that assessments be collected from

all handlers in all districts to cover the costs of storing the primary

inventory reserve. The proponents recommended that all handlers,

whether regulated or non-regulated, pay storage cost assessments.

Alternative proposals were also received into evidence recommending

that such storage cost assessments not be levied. Considerable

testimony was received throughout the hearing process concerning this

issue.

The proponents testified that the entire industry would benefit

from increased cherry prices during periods when a volume regulation is

in effect, and not just the handlers and growers in the regulated

districts. The proponents emphasized that non-regulated districts would

be able to market one hundred percent of their marketable crop while

the regulated districts would be required to withhold a determined

amount of their marketable cherries from the market. The proponents

argued that to excuse the non-regulated districts from paying for a

portion of the regulated district's storage expenses would burden

regulated handlers not only with such tangible costs, but also with the

intangible cost of withholding product from the market. Therefore, in

order to thus distribute the costs associated with the potential

increase in the grower price of cherries, the proponents proposed that

all districts, regulated or not, be assessed for annual storage costs.

However, opponents to the establishment of a storage cost

assessment noted that, while the non-regulated districts do indeed have

the opportunity to market one hundred percent of their crop, they enjoy

such benefit primarily because they are producing less than the amount

that would trigger volume regulation in their district, are not

contributing to the oversupply situation, and have demonstrated the

ability to market all of their crop. Opponents to the proposed storage

assessment argued that such a proposal merely provides a subsidy for

those districts responsible for the oversupply situation.

Testimony received during the hearing process indicated that the

cost of storage varies with different processed cherry products. For

example, the costs associated with the storage of frozen product would

generally run higher than the costs associated with the storage of

canned, pureed, concentrated and dried product. Testimony also

indicated that the cost differential between freezer storage and dry

storage is considerable, with the cost of storing frozen product

approximately twice that of storing non-frozen product. However, to

effectuate the proponent's provision, storage assessments would have to

be levied on all handlers such that the full cost of storage would be

covered. Thus, under a storage assessment as proposed, handlers putting

product into the lower cost, non-frozen storage packs would, to some

degree, also be subsidizing handlers packing for freezer storage.

The preponderance of testimony supports the levying of assessments

for administrative, research, development and promotion purposes on all

handlers, but does not adequately justify the additional burden of an

assessment designed to distribute individually assumed costs of storage

to the entire cherry industry. Each regulated handler utilizing storage

because of an established primary reserve should be independently

responsible for any costs associated with such storage. Such an

arrangement should also have the effect of increasing the efficiency of

storing product since each handler, responsible for carrying the entire

cost associated with storing their own product, would seek the most

cost-effective storage facilities, would pack the cherry product in a

form, frozen or non-frozen, that best matches his or her own individual

economic situation, or could choose to divert the cherries into an

approved exempt channel.

The proponents did not adequately show why it would be equitable

for all handlers to share the cost of storing product when only a

portion of them would be utilizing storage, how each producer or

handler would benefit economically or practically from such an

arrangement, nor why it would be cost effective for the Board or the

assessed handlers to be burdened with the costs of administering such

an assessment.

Sufficient evidence was not received to indicate that handlers

would not be unduly burdened with the increased costs of reporting and

record keeping that are directly attributable to a storage assessment,

nor that the Board should sustain expenses associated with the

administration of a storage assessment.

The marketing order should contain the authority for the Board to

incur administrative expenses and such expenses related to approved

research, development, and promotion activities, as well as the

authority for the Board to levy assessments on all handlers to cover

such expenses. The order should not, however, authorize the Board to

incur expenses nor levy assessments for any costs associated with the

storage of reserve cherries. The Board should be authorized to pay

inspection costs for reserve cherries from assessments collected from

all handlers for the administration of the order.

The rate of assessment should be established by the Secretary on

the basis of the Board's recommendation and other available

information. However, in the event that an assessment rate is

established which does not generate sufficient income to pay for the

approved expenses, the Board should be authorized to recommend to the

Secretary an increase in the rate of assessment in order to secure

sufficient funds. The Secretary may approve an assessment rate

increase, and such increase should be applicable to all tart cherries

handled during the fiscal year to which that assessment rate applies.

The Board should be authorized to accept advance payment of

assessments so that it may pay expenses which become due before

assessment income is normally received. This would give the Board more

flexibility in paying obligated expenses, particularly in the first

part of a fiscal year before assessment funds are received.

The Board should also be able to borrow money to meet

administrative expenses that would be incurred before assessment income

is sufficient to defray such expenses. However, the Board should not

borrow money to pay obligations if sufficient funds already exist in

the Board's reserve fund or in other Board accounts.

If a handler does not pay any assessment by the date it is due, the

order should provide that the late assessment may be subject to a late

payment charge or an interest charge, or both, at rates set by the

Board with the Secretary's approval. Such charges should be set at

rates established to cover additional costs that may be incurred by the

Board in attempting to collect overdue assessments, and should

encourage timely payments. The period in which payments would be

considered late, and late payment or interest charges incurred, should

be recommended by the Board and approved by the Secretary.

[[Page 61309]]

If, at the end of a fiscal period, the assessments collected are in

excess of expenses incurred, such excess should be established as a

reserve or refunded pro rata to the handlers, under proposed

Sec. 956.42. The Board should be authorized to carry over excess

assessment income into the following fiscal period as a reserve. If

such excess income is not carried over as a reserve, handlers should be

entitled to a refund proportionate to the assessments each handler

paid. The proposed order should indicate that the amount held in

reserve for administrative, research, development and promotion

expenses should be held at or below an amount equal to approximately

one year's operational expenses.

One purpose of the reserve fund would be to provide stability in

the administration of the order in the case of a short crop. Also,

establishing a reserve should minimize the necessity of the Board

borrowing money at the beginning of a fiscal year or raising an

assessment rate during a season of less than anticipated production.

Reserve funds could also be used to cover necessary liquidation

expenses in the event the order is terminated. Upon such termination,

any funds not needed to defray liquidation expenses should be disposed

of as determined by the Secretary. To the extent possible, however,

these funds should be returned pro rata to the handlers from whom they

were collected.

All funds collected by the Board through assessments or any other

provision of the order should be used only for the purposes set forth

in the order. The Secretary should at all times have authority to

require the Board, its members and alternates, and its employees and

agents to account for all receipts, disbursements, and property and

records of the Board. Likewise, when any of the above individuals

ceases to act in his or her official position, that person should

account for all receipts, disbursements, property or records of the

Board for which such person has been responsible. In the event the

order is terminated or becomes inoperative, the Board should appoint,

with the approval of the Secretary, one or more trustees for holding

records, funds or other property of the Board.

(d) Under proposed Sec. 930.48, the order should authorize the

Board to establish and provide for the establishment of production

research, marketing research and development, and marketing promotion

projects, including paid advertising, designed to assist, improve, or

promote the marketing, distribution, consumption, or efficient

production and processing of tart cherries. Funding for these programs

should come from any authorized receipts of the Board including

assessment income, voluntary contributions and miscellaneous income

such as interest.

The Board should have the authority to initiate new production and

marketing research projects, as well as to contribute to research which

may currently be taking place.

As discussed previously, marketing order proponents testified that

this authority would not be used unless existing State programs for

these purposes were terminated or their operations suspended.

Currently, Michigan, Utah, Wisconsin, and New York have assessment

programs of $10 to $15 per ton that are paid by growers to support the

Cherry Marketing Institute (CMI) and the New York Cherry Board. The CMI

represents growers in Michigan, Utah, and Wisconsin. Both the New York

Cherry Board and CMI conduct substantial domestic generic promotion

programs for tart cherries. At this time the tart cherry industry does

not support any brand advertising. These activities are supported only

by the various finished product manufacturers.

The States of Washington, Oregon, and Pennsylvania have no state

programs at this time to authorize assessments for this purpose. The

proponents testified that about 94 percent of the tart cherry industry

is now supporting marketing and production research and development,

and promotion under the various state organizations.

The record indicates that some of the primary responsibilities of

the CMI are to fund projects relating to: short-term production

research directed at improving current horticultural practices; long-

term research directed at developing new varieties of cherries with

increased market appeal and greater resistance to pests and climate

factors; domestic promotion activities covering food service and

consumer markets; export development in Japan, Korea, and Taiwan; new

product applications; and nutritional evaluations. These are also

examples of the types of programs that could be implemented under the

marketing order. When this authority is utilized the assessments would

be collected, pursuant to Sec. 930.41(a).

The record does not indicate the amount of assessment funds that

may be allotted for research and promotion programs. The Board should

have the responsibility to determine the amount of funds spent on each

program each year. Such determination should be based on the needs of

the industry each year. The amount of funds to be spent on research and

promotion programs would be included in the annual budget required to

be submitted to the Secretary for review and approval.

All research and promotion projects to be conducted under the order

in a given fiscal period should be required to be submitted by the

Board to the Secretary for approval prior to being undertaken. Further,

the Board should be required to report at least annually on the

progress of each project and at the conclusion of each project. Such

reports should be made to the Secretary.

The proponents did not provide specific testimony on paid

advertising authority. However, the record supports the proposition

that such authority should be added to allow the Board to implement

such a program in the future, if necessary. Therefore, the authority is

proposed to be contained in the order.

(e) In accordance with proposed Sec. 930.44, the Board should have

the authority to recommend regulations to the Secretary regarding

minimum quality and inspection requirements. Also, the Board should be

authorized to recommend to the Secretary the amendment, modification,

termination, or suspension of any regulation issued under this part,

when deemed necessary.

Recent technological improvements in the industry have enabled

processors to install sophisticated equipment to reduce pit counts and

improve color sorting. As the technology improves further, the Board

should have the authority to respond by adopting additional quality

standards for cherries, especially as to pit count. The proponents

testified that any regulation that could be implemented to cause a

reduction of the pit counts in cherries consumed by the public would be

beneficial to growers and consumers. The proponents further testified

that the sale of poor quality cherries creates image and marketing

problems for the entire tart cherry industry, both domestically and

internationally. Therefore, the Board should have the authority to

implement quality regulations so that the industry can provide a

consistent, quality product to consumers.

Marketing order proponents proposed that when quality control

regulations are implemented, no handler should be allowed to process

cherries into manufactured products or sell manufactured products in

the current of commerce unless the cherries used in such products meet

the applicable requirements. The inspection and

[[Page 61310]]

certification of tart cherries would be carried out by USDA. The

proponents testified that cherries should be required to be inspected

again if they are regraded, resorted, repackaged or in any way further

prepared for market. This would be done to cover those situations where

a handler may need to repackage or resort a product that was already

packaged and inspected for a client. This provision is a safety valve

designed to prevent poor quality product from entering the channels of

commerce.

The Board should also have the authority to recommend to the

Secretary such standards of grade, quality or condition of cherries to

be placed in the inventory reserve. This would insure the quality of

the inventory reserve once it is released to the handlers and sold in

the marketplace.

After obtaining inspection and certification of tart cherries, a

handler would be required to submit a copy of the inspection

certificate to the Board. The Board, with the approval of the

Secretary, should have the authority to establish rules and regulations

to implement the provisions of this section.

An opponent offered testimony concerning Sec. 930.44 providing

exemptions for very small handlers and specialty packs for which

grading may be inappropriate. The Board should establish a fixed cost

per pound that small handlers would pay for inspection. The opponent

testified that handlers that handle less than one million pounds of

cherries per year should be exempt from the proposed order regulations,

if implemented. One million pounds was chosen because these handlers

would be severely burdened with providing personnel to comply with

reporting requirements under a marketing order.

The preponderance of the testimony supports providing authority for

minimum quality and inspection regulations. Also, several witnesses

testified that the burden for handlers would not be severe. The

information required to be submitted to the Board under a marketing

order would be similar to information already available to handlers.

Therefore, this provision would remain as proposed.

(f) In accordance with proposed section 930.50, whenever the Board

believes that regulations issued pursuant to section 930.51 regarding

free and restricted percentages would be appropriate, it should have

the authority to recommend such regulations to the Secretary. The

proponents have testified that the proposed volume control regulations

would result in a supply management program which would compensate for

the extremely erratic natural production cycles of tart cherries and

which would provide the market with a more stable supply of tart

cherries. Record evidence shows that a major flaw in the previous tart

cherry order was that the process used to establish the marketing

policy was prone to too much subjective decision-making by the Board

which led to non-uniform policies and political skirmishes. The

proponents therefore sought to develop a more objective system that is

less subject to outside influences and is more market driven.

Marketing Policy

Record evidence indicates that a volume control program should

entail several steps. Section 930.50 of the proposed marketing order

states that the Board would meet on or before July 1 of each crop year.

At this meeting, the Board would review sales data, inventory data,

current crop forecasts and market conditions in order to establish an

``optimum supply'' level for the crop year. The proponents testified

that the USDA forecast is the most accurate estimate available at that

time to use in the marketing policy calculations. The optimum supply

represents the desirable volume of tart cherries that should be

available for sale in the coming crop year for both buyers and sellers.

The optimum supply would be calculated as 100 percent of the average

sales of the prior three years, plus a desirable carryout inventory

that would not exceed 20 million pounds. In addition, there should be

authority, through informal rulemaking, to adjust the 20 million pound

desirable carryout figure upward, if necessary. Record evidence shows

that the 20 million pound figure is based on a historical pattern of

the amount needed in inventory for the industry to operate. Once the

optimum supply is calculated, it would be announced to the industry by

the Board. Testimony showed that this could be done as early as May or

June but definitely by July 1.

After the calculation of the optimum supply, the Board would

establish preliminary free and restricted percentages. This would be

done on or about July 1 of each crop year. Subsequently, as discussed

below, the Board may also establish interim percentages and recommend

final percentages to the Secretary. Evidence indicates that when the

Board computes preliminary and interim percentages, or when it

determines final percentages for recommendation to the Secretary, it

should also consider the following factors: (1) The estimated total

production of tart cherries; (2) the estimated size of the crop to be

handled; (3) the expected general quality of such cherry production;

(4) the expected carryover as of July 1 of canned and frozen cherries

and other cherry products; (5) the expected demand conditions for

cherries in different market segments; (6) supplies of competing

commodities; (7) an analysis of economic factors having a bearing on

the marketing of cherries; (8) the estimated tonnage held by handlers

in primary or secondary inventory reserves; and (9) any estimated

release of primary or secondary inventory reserve cherries during the

crop year.

Record evidence indicates that preliminary free and restricted

percentages should then be calculated in the following manner. The

Board would deduct the carryin inventory from the optimum supply figure

(adjusted to raw fruit equivalent) and divide that figure by the

current year's USDA crop forecast. The carryin inventory figure

reflects the amount of cherries that handlers actually have in

inventory. If the resulting quotient is 100 percent or more, the Board

should establish a preliminary free market tonnage percentage of 100

percent. If the quotient is less than 100 percent, the Board should

establish a preliminary free market tonnage percentage equivalent to

the quotient, rounded to the nearest whole percent, with the complement

being the preliminary restricted percentage. The Board would be

responsible for announcing these percentages to the industry in an

expedited manner. If a restricted percentage is announced, each handler

would be responsible for setting aside a portion of tart cherries which

that particular handler handled.

If necessary, the Board should be able to modify the preliminary

free and restricted percentages to adjust to the actual pack occurring

in the industry. The Board may adjust the percentages between July 1

and September 15 of the crop year. However, the optimum supply could

not be adjusted. Record evidence shows that the Board would review

weekly production reports to determine if it is necessary to adjust the

preliminary percentages. If interim percentages are established, the

Board would be responsible for announcing them quickly to the industry.

Timely announcement would be crucial since the proponents testified

that these percentages could be adjusted as often as once per week.

Finally, no later than September 15 of each crop year, the Board

would recommend the establishment of final free and restricted

percentages to the Secretary. At this time, the Board would

[[Page 61311]]

have available actual production and delivery figures to review to make

any needed adjustments to the percentages. The Secretary would

establish the final free and restricted percentages through the

informal rulemaking process. These percentages would release the tart

cherries necessary to achieve the optimum supply figure calculated

earlier. The difference between any final free market tonnage

percentage designated by the Secretary and 100 percent would be the

final restricted percentage.

An example of the marketing policy calculations is discussed below.

The USDA crop forecast for the example is 256 million pounds and the

optimum supply is 263 million pounds. The total industry carryin is 40

million pounds. The total production in the regulated districts is 233

million pounds. For this example, the average sales of the prior three

years is 243 million pounds, and added to it is a 20 million pound

desirable carryout, which equals an optimum supply of 263 million

pounds. The preliminary percentages would then be calculated by

deducting the carryin from the optimum supply to equal a free tonnage

of 223 million pounds. The free tonnage would then be deducted from the

USDA crop forecast. This would result in a requirement for a 33 million

pound inventory reserve. The free and restricted percentages would only

apply to those handlers in the regulated districts. Therefore, the

percentages would be calculated by dividing the restricted tonnage

volume by the regulated district production (233 million pounds would

be divided into 33 million pounds to obtain the restricted percentage).

This would result in a preliminary free percentage of 86 percent and a

restricted percentage of 14 percent for those districts that are being

regulated.

Illustration

1. Average movement is based on a three year rolling average of

sales and movement, plus a desirable carryout of up to 20 million

pounds. For example, if tart cherry sales for 1992-1994 had been,

respectively:

1992--243 million pounds

1993--245 million pounds

1994--241 million pounds

The average movement for the 1992-94 three year period would have

been 243 million pounds. Adding a carryout of 20 million pounds

produces an Optimum Supply Formula (OSF) of 263 million pounds.

2. Annually, deduct the free carryin inventory from the optimum

supply. This would provide the tonnage requirement from current year

production to meet market needs. In this illustration, if OSF is 263

million pounds and the carryin inventory is 40 million pounds, the free

tonnage requirement for this year's crop would be 223 million pounds

(263 million - 40 million).

3. Thus, using an initial estimated production of 256 million

pounds, with 223 million pounds required, processors in the regulated

districts would have to set-aside or divert 33 million pounds. Assuming

for this illustration that the regulated districts produced 233 million

of the industry's total of 256 million pounds, handlers would have a

restricted tonnage set-aside of 14 percent (33 million/233 million).

This would result in a preliminary free percentage of 86 percent.

Once harvest begins in late August or early September, the Board

would be able to obtain better information on the final volume of

product being packaged and adjust the percentages using actual figures.

The Board could calculate and announce interim free and restricted

percentages between July 1 and September 15 based on this new

information.

No later than September 15, the Board would compute the final free

and restricted percentages. At that time, the Board would recommend the

percentages to the Secretary to establish them through the informal

rulemaking process. For this example, we would use the crop year free

tonnage of 223 million pounds calculated from the previous example. If

the final crop year estimate is 296 million pounds and the final

production for the regulated States is 256 million pounds, the final

percentages would be calculated by deducting the current crop year free

tonnage from the 296 million pound final crop estimate to equal a 73

million pound inventory reserve. The 73 million pound inventory reserve

would be divided by the Regulated districts final production of 256

million pounds. This would equate to a 33 percent restricted percentage

and a 66 percent free tonnage. Since 73 million pounds is above the 50

million pound maximum allowable in the inventory reserve, handlers

would have to divert 23 million pounds or establish a secondary

reserve.

The proponents testified that the Board should be able to modify

its marketing policy in the event of a national emergency, crop

failure, or other major change in economic conditions. This would

provide a type of ``escape hatch'' should market conditions change so

drastically from what Board projections or from historical patterns on

which the marketing policy outlined in this order is based. The

Department agrees with this recommendation. The Board would be required

to hold a meeting, and file a report with the Secretary within 5 days

which shall show such modification and the basis therefor. For example,

the Board could file a report with the Secretary that would request

that the Board be allowed to release more or all the cherries, from any

established inventory reserve, than what was established under the

marketing policy formula. This could be done if a weather disaster was

experienced during the harvest season in one of the production

districts under the marketing order. The Board could therefore

recommend that the free and restricted percentages not apply for that

current crop year, lower the restricted percentage, or release more

reserve cherries to the industry.

The proponents testified that the Board should recognize growers

that cooperatively form a national bargaining agency in order to

enhance their chances for a higher price for their cherries. In

recognition of such organization, the Board should be able to release

less than 100 percent of the free market tonnage for sale if a grower

price had not been set. However, it would be required to release at

least 65 percent of the total free market tonnage by September 1. This

would allow handlers to make marketing plans, sales, and contractual

agreements in order to market the new crop in a timely fashion. If no

grower price is established by September 1, the Board must thereafter

release all of the free market tonnage. However, after further review

of this issue, the USDA has determined that such a provision should not

be contained in the marketing order. Record evidence does not

adequately explain how such a provision would work or what the benefits

to growers would be. Also, the record does not contain adequate

information relating to the composition, function, or the limits and

bounds of a bargaining agency. Therefore, this provision should not be

adopted in the proposed marketing order.

Inventory Reserve

The proposed order provides that if restricted percentages are

established, handlers would be required to set aside a portion of

cherries handled. Testimony at the hearing indicated that a handler

could fulfill such restricted percentage amount by either establishing

an inventory reserve or by diversion of product. There would be two

types of inventory reserve--a

[[Page 61312]]

primary and secondary inventory reserve. The inventory reserve would be

the sole property of the handlers who place products into the reserve.

The proponents testified that this represents a significant improvement

over ownership of the reserve by growers under the previous order. It

is the proponent's view that handler ownership should help market

forces determine the sales of released reserve cherries. Record

evidence shows that handlers should be able to place cherries in their

inventory reserve in any processed form. This would include

individually quick frozen (IQF), canned product, frozen 5 plus 1 (25

pounds of cherries to 5 pounds of sugar), concentrated juice, dried

product, etc. It was explained at the hearing that handlers would make

individual business decisions as to the processed form in which they

would wish to store their inventory reserve. This would allow maximum

flexibility for handlers in meeting their restricted percentage

requirements and storing inventory reserve cherries.

The proponents testified that, at the end of the processing season

during which there is volume control, a regulated handler would be

required to have an established inventory reserve and/or have proof of

diversion of that handler's total restricted percentage requirement. It

would not matter whether that handler actually processed and packed

such inventory reserve cherries, or whether the handler purchased the

cherries from a different handler within the regulated area and stored

them at that location, as long as proper documentation is provided to

the Board.

The proponents also testified that authority should be added to the

order to allow a grace period for handlers to set up their inventory

reserves after the processing season. This would allow handlers to

appropriately document cherries that are being placed in the inventory

reserve and to compile any applicable diversion certificates. In the

proponents brief, a grace period of 30 days was specified. The Board,

with the approval of the Secretary, would be able to establish rules

and regulations to provide guidelines for handlers in complying with

any restricted tonnage requirements. In view of the foregoing, these

proposals relative to the industry reserve should be adopted and are

included in this decision as proposed.

In addition, the record supports order authority for a handler

bonding requirement. This would be another mechanism by which handlers

would be able to comply with the restricted tonnage percentage, if

established. The Board would establish a date by which the inventory

reserve must be established by each regulated handler. A bonding

requirement would allow that date to be deferred if the handler obtains

a bond equivalent to the value of the cherries such handler would have

placed in the inventory reserve. Testimony did not provide details as

to how this particular provision would be applied. However, the USDA is

including the provision in the proposed language. The bonding

requirement is similar to authority under other marketing order

programs. The Board, with the approval of the Secretary, could develop

rules and regulations which provide guidelines to implement the bonding

authority.

The proposed order should require that the maximum percentage of

restricted cherries which may be established as a primary inventory

reserve not exceed 50 million pounds. Handlers should also be

authorized to establish individual inventory reserves in excess of the

50 million pounds that would be classified as a secondary reserve. The

proponents testified that the 50 million pound cap would help prevent

an exceedingly large reserve from having a dampening effect on the

market for tart cherries. Also, a very large inventory reserve would

cost more to store over an extended period of time. A larger reserve

may not be sold in time to offset the high investment of storing the

reserve.

A witness testified and offered an alternative of 75 million pounds

as the inventory reserve cap instead of the proposed 50 million pound

cap. The witness testified that 75 million pounds would work better.

Because of lack of testimony to support this alternative, the 50

million pound cap would remain as proposed by the proponents.

Inventory Reserve--General

Once a restricted percentage is established, each handler could

establish an inventory reserve to meet such handler's restricted

percentage. As previously discussed, handlers would be able to place

cherries in any form in the reserve. Each handler's reserve portion

would be computed by taking the sum of the multiplication of the

weights of cherries in each lot of cherries the handler handled during

the fiscal period by the restricted percentage. Rules and regulations

would establish the manner in which processed products would be

converted to raw fruit equivalents for each type of storable product.

The record indicates that a handler's equity in the primary

inventory reserve could be transferred to another person. A handler

could elect to do this if such handler has no storage area remaining to

store a primary inventory reserve. A handler would have to notify the

Board if this authority is to be utilized. In addition, handlers would

be encouraged to have written agreements with growers who deliver

cherries to them. Such agreements could include provisions describing

how the restricted percentage cherries delivered to the handler would

be handled and what share, if any, the grower would have in the

eventual sale of any inventory reserve cherries. Such agreements could

also cover grower reimbursement for the sale of primary inventory

reserve cherries.

Testimony at the hearing indicated that the Board could require

reserve cherries to meet certain standards of grade, quality, or

condition. All unprocessed cherries would be inspected by the USDA

prior to placing them in an inventory reserve. A certificate of such

inspection would show the name and address of the handler, the number

and type of containers in the lot, the grade of the product, the

location where the lot is stored, identification marks, and a

certification that the cherries meet the prescribed standard.

All inspection costs of inventory reserve cherries would be paid by

the Board. The USDA considered modifying this provision to provide that

inspection costs be paid by the individual handler placing cherries in

the inventory reserve. This would then be similar to the modification

to the proposed order regarding storage costs to be paid by the

regulated handler rather than by a separate storage assessment on all

handlers. However, after further examination of the record, the USDA

has determined that the industry as a whole would benefit by providing

quality standards for cherries to be placed in the inventory reserve

and later released to be sold in the marketplace. The proponents

offered testimony that setting quality standards for inventory reserve

cherries would be a benefit to the entire industry. Therefore, it would

be appropriate for the Board to pay for inspection. The inspection

costs would be paid from the administrative assessment fund.

The record does not indicate any specific quality standard for the

inventory reserve. Thus, it should be the Board's responsibility to

establish, with the approval of the Secretary, such quality standards.

Promptly after inspection and certification, each handler would submit

a copy of the certificate of inspection to the Board.

A witness testified that inspection on the inventory reserve should

not be

[[Page 61313]]

required. The witness stated that tentative industry committees made up

of pie fill, juice and IQF processors could propose different

regulations to ascertain the quality of the product in the inventory

reserve without requiring inspection. The preponderance of the

testimony supports inspection of cherries placed in the inventory

reserve, if recommended by the Board and approved by the Secretary.

Inspection of the inventory reserve would ensure good quality product

is placed into the reserve and is still of good quality when released

and sold from the reserve. Therefore, the witness's proposal is not

included in the proposed order.

Record evidence indicates that it would be the individual handler's

responsibility to rotate cherries placed in the inventory reserves by

putting new cherries in and taking old cherries out. Rotating cherries

in the inventory reserve is not a requirement under the order. However,

it would benefit the industry if it is done. This would insure that

good quality cherries are being released when inventory reserve

cherries are sold. Handlers would be required to notify the Board of

any changes in lot numbers, etc., when inventory is rotated and provide

proof of inspection of cherries used to produce the storable product.

Since rotation is voluntary by each handler, the type of storage chosen

would impact on how frequently rotation is required. Generally, the

cost of inspecting cherries to be rotated into reserve inventories

should be borne by the Board. However, the Board should have the

authority, subject to the approval of the Secretary, to limit the

number of inspections of cherries to be rotated into inventory reserves

for which the Board would be financially liable.

Handlers would be responsible for holding inventory reserve

cherries until released by the Board. So that such release is equitably

apportioned, the Board would set the quantity to be taken out of each

particular handler's reserve. Handlers would not be required to market

such cherries immediately upon release from the reserve. Once released,

the cherries could be marketed at appropriate times depending on each

handler's marketing plan. Handlers would not be allowed to forward

contract or, in any other way, market reserve cherries before receiving

an official release from the Board.

The proponents testified that if a secondary reserve is

established, all cost

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