Raisins Produced From Grapes Grown in California; Suspension of Provisions Concerning Certain Offers of Reserve Raisins to Handlers for Free Use

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 989

[Docket No. FV-97-989-2 PR]

Raisins Produced From Grapes Grown in California; Suspension of

Provisions Concerning Certain Offers of Reserve Raisins to Handlers for

Free Use

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposal invites comments on the suspension of language

in provisions of the raisin marketing order concerning certain offers

of reserve raisins to handlers for free use. The marketing order

regulates the handling of raisins produced from grapes grown in

California, and is administered locally by the Raisin Administrative

Committee (Committee). This rule would indefinitely suspend certain

language to provide the Committee more flexibility in meeting its

marketing needs. This proposal was unanimously recommended by the

Committee.

DATES: Comments must be received by August 27, 1997.

ADDRESSES: Interested persons are invited to submit written comments

concerning this proposal. Comments must be sent in triplicate to the

Docket Clerk, Fruit and Vegetable Division, AMS, USDA, room 2525-S,

P.O. Box 96456, Washington, DC 20090-6456, Fax # (202) 720-5698. All

comments should reference the docket number and the date and page

number of this issue

[[Page 40313]]

of the Federal Register and will be made available for public

inspection in the Office of the Docket Clerk during regular business

hours.

FOR FURTHER INFORMATION CONTACT: Maureen Pello, California Marketing

Field Office, Marketing Order Administration Branch, F&V, AMS, USDA,

2202 Monterey Street, suite 102B, Fresno, California 93721; telephone:

(209) 487-5901, Fax # (209) 487-5906; or Mark A. Slupek, Marketing

Specialist, Marketing Order Administration Branch, F&V, AMS, USDA, room

2536-S, P.O. Box 96456, Washington, DC 20090-6456; telephone: (202)

205-2830, Fax # (202) 720-5698. Small businesses may request

information on compliance with this regulation by contacting: Jay

Guerber, Marketing Order Administration Branch, Fruit and Vegetable

Division, AMS, USDA, P.O. Box 96456, room 2525-S, Washington, DC 20090-

6456; telephone (202) 720-2491; Fax # (202) 720-5698.

SUPPLEMENTARY INFORMATION: This proposal is issued under Marketing

Agreement and Order No. 989 (7 CFR part 989), both as amended,

regulating the handling of raisins produced in California, hereinafter

referred to as the ``order.'' The marketing agreement and order are

effective under the Agricultural Marketing Agreement Act of 1937, as

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

The Department of Agriculture (Department) is issuing this rule in

conformance with Executive Order 12866.

This proposal has been reviewed under Executive Order 12988, Civil

Justice Reform. This rule is not intended to have retroactive effect.

This proposal will not preempt any State or local laws, regulations, or

policies, unless they present an irreconcilable conflict with this

rule.

The Act provides that administrative proceedings must be exhausted

before parties may file suit in court. Under section 608c(15)(A) of the

Act, any handler subject to an order may file with the Secretary a

petition stating that the order, any provision of the order, or any

obligation imposed in connection with the order is not in accordance

with law and request a modification of the order or to be exempted

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

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

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

district in which the handler is an inhabitant, or has his or her

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

ruling on the petition, provided an action is filed not later than 20

days after date of the entry of the ruling.

This proposal invites comments on the indefinite suspension of

language in sections 989.54(g) and 989.67(j) of the order. The proposed

suspension concerns certain offers of reserve raisins to handlers for

free use. The suspension was unanimously recommended by the Committee.

Section 989.54(g) of the order describes two annual offers of

reserve raisins to handlers for free use for each varietal type for

which preliminary volume control percentages have been computed and

announced. Each of these offers consists of 10 percent of the prior

year's shipments of free raisins and reserve raisins sold for free use.

These offers are known to the industry as the ``10 plus 10'' offers.

The order currently mandates that the 10 plus 10 offers must be made

simultaneously on or before November 15 of the crop year. The order

defines the crop year for raisins as the 12-month period beginning with

August 1 of any year and ending with July 31 of the following year.

Section 989.54(a) establishes that the trade demand for raisins

shall be 90 percent of the prior crop year's shipments with adjustments

for inventory, meaning that the trade demand excludes 10 percent of the

prior year's shipments. Preliminary volume control percentages, which

are computed and announced by October 5 of each crop year, make up to

85 percent of the trade demand available to handlers for disposal in

any marketing channel. The final free percentage, which is recommended

by the Committee by February 15 of each crop year, makes the remainder

of the trade demand available to handlers.

Standard raisins are raisins which meet the minimum grade and

condition standards for natural condition raisins. Handlers are

required to place the reserve percentage of their standard raisin

acquisitions in the reserve pool. One of the 10 plus 10 offers makes

available, from the reserve pool, the 10 percent of the prior year's

shipments which the final free percentage does not make available. This

offer, then, equates the current year's supply with the prior year's

shipments. Because the free percentage and this 10 plus 10 offer only

make available the tonnage shipped during the prior year (with the

appropriate inventory adjustments), the other 10+10 offer, intended for

market expansion, makes an additional 10 percent available to handlers

from the reserve pool. Acceptance of the 10 plus 10 offers is

voluntary; handlers are not required to purchase any reserve raisins.

The Committee believes that changes in the raisin industry,

particularly changes to export programs administered under the

marketing order, have made the 10 plus 10 offers a more important

source of raisins for many handlers. The Committee's export programs in

the early 1990's allowed handlers who exported California raisins to

purchase, at a reduced rate, reserve raisins for free use. This

effectively blended down the cost of the raisins which were exported,

allowing handlers to be price competitive in export markets, which

generally feature lower prices than the domestic market. One effect of

this program was that handlers would continuously purchase reserve

raisins for free use throughout the crop year. Handlers who knew they

would be exporting raisins did not need to purchase enough raisins to

meet their needs for the entire year early in the season.

The current export program, which is in its second year of

operation, offers cash, rather than reserve raisins, to exporting

handlers. This has caused handlers to make larger purchases of 10 plus

10 raisins to replace the raisins formerly acquired through the export

program. When handlers make large 10 plus 10 purchases early in the

season, rather than small reserve purchases throughout the season,

however, they are committing themselves to raisins before they have a

firm estimate of their needs for the year. Handlers are forced to guess

at the demand for the remainder of the crop year. If this guess is too

high, prices will fall and there may be excess free tonnage inventory

at the end of the crop year, resulting in market instability and a

lower free percentage for the following year. If the guess is too low,

market needs may not be met and the Committee may be forced to dispose

of the excess reserve raisins in low income outlets.

Most raisin deliveries, and most of the associated costs, are

concentrated between September and November, so handlers must establish

large lines of credit at this time during each crop year. Because the

Committee is required to make the 10 plus 10 offers concurrently on or

before November 15 of the crop year, handlers must arrange for

additional credit to make their 10 plus 10 purchases. The Committee

believes that the inflexibility of the November 15 deadline and the

requirement of simultaneous offers creates unnecessary financial stress

on handlers.

Section 987.67(j) of the order lists other circumstances, including

national emergency, crop failure, changing

[[Page 40314]]

economic or marketing conditions, fire or other disasters, or to

supplement an inadequate inventory to carryover to the next crop year,

under which the Committee can sell reserve raisins for free use. The

Committee also can offer reserve raisins for free use if raisin

shipments during the first 10 months of the current crop year exceed

105 percent of shipments during the comparable period of the prior crop

year. This type of offer is limited to the amount exceeding 105 percent

of the prior year's shipments. Thus, if the market for raisins expands

rapidly during any crop year, this provision allows the Committee to

make more raisins available to handlers to supply the increased market

needs. The 105 percent limit was established to safeguard against

depressing raisin prices by expanding the free supply by too large a

quantity. Like the 10 plus 10 offers, handler acceptance of this type

of offer is voluntary.

During the past two seasons, the Committee has reduced its

desirable carryout inventory level by about 20 percent, meaning that

the free percentage provides for fewer raisins to remain at the end of

a crop year for use in the following crop year. Reduction of the

desirable carryout, coupled with the elimination of the export program

which offered reserve raisins for free use, has increased the

likelihood that the raisin industry might have an inadequate supply of

raisins late in a crop year which featured an increase in shipments. If

handlers, when making acquisition decisions early in the season,

underestimate their needs for the crop year, they could be forced to

either lose current sales or ship raisins which were intended to be

carried over, which could prevent the industry from meeting its market

needs early in the next crop year.

As an example, if the raisin industry were to experience 6 percent

growth over the first 10 months of a given crop year, the Committee

could offer reserve raisins for free use up to 1 percent of the

previous year's shipments. With the tightening of the desirable

carryout and the absence of reserve raisins offered under the export

program, the industry could face a short supply of free raisins while

an adequate supply of reserve raisins sat unused.

At its meeting on April 10, 1997, the Committee recommended

suspending language in both Secs. 989.54(g) and 989.67(j). In the

former, the suspension would eliminate both the simultaneous

requirement and the November 15 deadline for the 10 plus 10 offers. In

the latter, the 105 percent requirement would be removed from the

required level of shipments and the size of the reserve offer for free

use.

Elimination of the simultaneous requirement and the November 15

deadline from the first sentence of Sec. 989.54(g) would leave the

following sentence, ``the Committee shall make two offers of reserve

tonnage to sell to handlers to sell as free tonnage for each varietal

type for which preliminary percentages have been computed and

announced.'' This means that if preliminary percentages have been

established, the Committee would still be required to make two 10 plus

10 offers, but these offers could take place independently at any time

during the crop year.

The Committee expects that these changes would solve some of the

planning and credit problems which handlers currently face. If one or

both of the offers were moved to later in the crop year, handlers would

be able to make better informed acquisition decisions. At the same

time, a change in the offer date would ease the autumn credit burden

for many handlers.

The Committee's proposal to suspend language in Sec. 989.67(j)

would leave the following as one of the circumstances which allows the

Committee to offer reserve tonnage to handlers for free use: ``free

tonnage shipments during the then current crop year exceeding shipments

of a comparable period of the prior crop year: Provided, that, such

sale of reserve tonnage shall be limited to the quantity exceeding

shipments for the first ten months of the prior crop year''. Thus, if

free tonnage shipments were up during the first ten months of a crop

year, the Committee could offer reserve raisins to handlers for free

use in any amount exceeding the prior year's shipments.

Following the earlier example, if the raisin industry were to

experience 6 percent growth over the first ten months of a given crop

year, the Committee could offer reserve raisins for free use up to 6

percent of the previous year's shipments. In fact, if the growth was

only 4 percent, the Committee could offer up to 4 percent of the

previous year's shipments. Under the current provisions, the Committee

could make no offer at 4 percent growth because the year's growth did

not meet the 5 percent threshold. The Committee believes that the

current inflexibility could become problematic in the future,

particularly if the industry was unable to take advantage of a growth

opportunity in what has, in recent years, become a relatively stagnant

market.

Pursuant to requirements set forth in the Regulatory Flexibility

Act (RFA), the Agricultural Marketing Service (AMS) has considered the

economic impact of this action on small entities. Accordingly, AMS has

prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of

business subject to such actions in order that small businesses will

not be unduly or disproportionately burdened. Marketing orders issued

pursuant to the Act, and rules issued thereunder, are unique in that

they are brought about through group action of essentially small

entities acting on their own behalf. Thus, both statutes have small

entity orientation and compatibility.

There are approximately 20 handlers of California raisins who are

subject to regulation under the raisin marketing order and

approximately 4,500 producers of raisins in the regulated area. Small

agricultural service firms, which includes handlers, have been defined

by the Small Business Administration (13 CFR 121.601) as those having

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

producers are defined as those having annual receipts of less than

$500,000. No more than 8 handlers, and a majority of producers, of

California raisins may be classified as small entities. Twelve of the

20 handlers subject to regulation have annual sales estimated to be at

least $5,000,000, and the remaining 8 handlers have sales less than

$5,000,000, excluding receipts from any other sources.

This proposal would suspend provisions concerning certain offers of

reserve raisins to handlers for free use under Secs. 989.54(g) and

989.67(j) of the raisin marketing order. The current provisions in

Sec. 989.54(g) require that the Committee make two simultaneous offers

of reserve raisins for free use, each equal to 10 percent of the prior

year's free shipments, on or before November 15 of each crop year for

each variety for which preliminary volume control percentages have been

computed and announced. These ``10 plus 10'' offers are intended to

ensure that the establishment of volume control regulations will not

prevent the industry from having enough raisins to meet the prior

year's shipments plus some raisins for market expansion.

Changes in the Committee's export programs have caused many

handlers to greatly increase their 10 plus 10 purchases. During the 5

years prior to the change to the export programs, handler purchases of

raisins from 10 plus 10 offers averaged 10,355 tons. In the 2 seasons

since the program was modified, the purchases increased to an average

of 61,033 tons, a 489 percent increase. The requirement that the offers

be made simultaneously on or before

[[Page 40315]]

November 15 of each crop year does not allow the Committee the

flexibility that it now believes is necessary for handlers to meet

their market needs. Because these offers must take place so early in

the season, handlers have to guess at the level of raisins they will

need for the year.

Raisin handlers, because most raisin deliveries to handlers are

concentrated between September and November, must establish credit

lines totaling between $250-270 million each autumn. Because of the

increase in 10 plus 10 purchases, handlers have had to establish an

additional $75-80 million in credit during their most financially

burdened period of the year. The Committee believes that the

inflexibility of the November 15 deadline and the requirement of

simultaneous offers creates unnecessary financial stress on handlers,

and that the proposed suspension would alleviate that stress and allow

the handlers to better plan to meet their market needs.

Section 989.67(j) of the order authorizes the Committee to offer

reserve raisins for free use if raisin shipments during the first 10

months of the current crop year exceed shipments during the comparable

period of the prior crop year. Thus, if the market for raisins expands

rapidly during any crop year, this provision allows the Committee to

make more raisins available to handlers to supply the increased market

needs. Any such offer is limited, however, to the amount of raisins

exceeding 105 percent of the prior year's shipments.

As described above, handlers are now making their acquisition

decisions earlier in the season than in previous years. In addition,

the Committee has tightened its supply situation during the last 2

seasons by reducing its desirable inventory level and eliminating the

feature of its export program which made reserve tonnage available to

handlers for free use. The Committee believes that these factors leave

the industry with little room for error; if handlers underestimate the

tonnage that is needed to meet the market needs, there are too few

avenues for acquiring raisins for free use later in the season. In a

growth year, a poor estimate could result in customers with unmet

needs.

The earlier example discussed years in which the industry

experienced 4 and 6 percent growth, and that the Committee now believes

that the inflexibility of Sec. 989.67(j) could prevent the industry

from taking advantage of growth opportunities in what has become a

relatively stagnant market. According to the Committee's 1996-97

marketing policy, during the last 10 crop years free shipments have

ranged between 290,646 (in 1986-87) and 338,881 tons (1990-91). The

most recent complete crop year's shipments (1995-96) were the lowest,

315,170 tons, since 1986-87. The Committee calculates that the loss of

just 1 percent of annual shipments due to the inability to supply the

late season market would cost about $3 million in grower revenue.

The Committee also considered the following situation. If free

shipments during 10 months of a crop year were 275,000 tons, and

shipments grew by 4 percent (11,000 tons) during the same time period

during the following crop year, the current provision would allow for

no reserve offer due to growth. Under the proposed suspension, however,

the Committee could offer up to 11,000 tons of reserve raisins for free

use. Assuming a profit to handlers of 1 cent per pound, the Committee

calculates that operating under the current provision would cost

handlers $220,000 in profit and growers $11 million in revenue. The

benefits generated by this rule are not expected to be

disproportionately greater or less for small handlers or producers than

for large entities.

The Committee discussed alternatives to this change, including not

suspending any language in either section of the order. Suspending the

provisions discussed herein provides the Committee with flexibility,

including the option of operating exactly as it does now. If the

Committee were to find any change was not beneficial, the suspension

would not prevent the Committee from returning to its current

procedures for the next year. Leaving the sections as they currently

stand, however, offers the Committee no marketing flexibility. The

Committee also recognized that reserve raisins can be offered for free

use to supplement an inadequate carryover inventory, but thought that

this option could be too late to prevent lost sales. Also, this

proposed suspension would not prevent the Committee from selecting such

a course.

This proposed rule would suspend language concerning offers of

reserve tonnage raisins under the raisin marketing order. The order

currently authorizes such offers and would continue to do so.

Accordingly, this action would not impose any additional reporting or

recordkeeping requirements on either small or large raisin handlers. As

with all Federal marketing order programs, reports and forms are

periodically reviewed to reduce information requirements and

duplication by industry and public sector agencies.

The Department has not identified any relevant Federal rules that

duplicate, overlap or conflict with this proposed rule.

Committee and subcommittee meetings are widely publicized in

advance and are held in a location central to the production area. The

meetings are open to all industry members (including small business

entities) and other interested persons--who are encouraged to

participate in the deliberations and voice their opinions on topics

under discussion. Thus, Committee recommendations can be considered to

represent the interests of small business entities in the industry.

Finally, interested persons are invited to submit information on the

regulatory and informational impacts of this action on small

businesses.

A 30-day comment period is provided to allow interested persons to

respond to this proposal. All written comments timely received will be

considered before a final determination is made on this matter.

List of Subjects in 7 CFR Part 989

Grapes, Marketing agreements, Raisins, Reporting and recordkeeping

requirements.

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

proposed to be amended as follows:

PART 989--RAISINS PRODUCED FROM GRAPES GROWN IN CALIFORNIA

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

follows:

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

Sec. 989.54 [Amended]

2. In Sec. 989.54, paragraph (g) the words, ``On or before November

15 of the crop year,'' and ``simultaneous'', are suspended indefinitely

from the first sentence.

Sec. 989.67 [Amended]

3. In Sec. 989.67, paragraph (j) the words, ``by more than 5

percent'' and ``105 percent of'', are suspended indefinitely from the

first sentence.

Dated: July 22, 1997.

Lon Hatamiya,

Administrator, Agricultural Marketing Service.

[FR Doc. 97-19798 Filed 7-25-97; 8:45 am]

BILLING CODE 3410-02-P