Tart Cherries Grown in the States of Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin; Issuance of Grower Diversion Certificates

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV97-930-5 FIR]

Tart Cherries Grown in the States of Michigan, New York,

Pennsylvania, Oregon, Utah, Washington, and Wisconsin; Issuance of

Grower Diversion Certificates

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: The Department of Agriculture (Department) is adopting, as a

final rule, with an appropriate modification to reflect a change in a

certificate redemption date, an interim final rule establishing terms

and conditions for the issuance of grower diversion certificates by the

Cherry Industry Administrative Board (Board) under the marketing order

for tart cherries. Handlers may use such certificates in order to

satisfy their restricted percentage amounts when volume regulations are

issued by the Secretary. Tart cherry handlers in Oregon, Pennsylvania,

Washington and Wisconsin (Districts 5, 6, 8, and 9) are not subject to

volume regulation at this time because these districts do not currently

produce adequate tonnage to trigger such regulation under the order.

Effective Date: May 22, 1998.

FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Kenneth G.

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

2525-S, P.O. Box 96456, Washington, DC 20090-6456, telephone: (202)

720-2491, 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 Programs,

AMS, USDA, P.O. Box 96456, room 2525-S, Washington, DC 20090-6456;

telephone (202) 720-2491; Fax: (202) 720-5698.

SUPPLEMENTARY INFORMATION: This rule is issued under Marketing

Agreement and Order No. 930 (7 CFR Part 930), regulating the handling

of tart cherries grown in the States of Michigan, New York,

Pennsylvania, Oregon, Utah, Washington, and Wisconsin, hereinafter

referred to as the ``order.'' This 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 is issuing this rule in conformance with Executive

Order 12866.

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. Under the marketing order provisions now in effect,

preliminary free and restricted percentages for tart cherries acquired

by handlers during the 1997 crop year were established by the Board

during its June 26-27, 1997, meeting. Final free and restricted

percentages were recommended by the Board to the Secretary during its

September 11-12, 1997, meeting and a proposed rule setting the final

free and restricted percentages for the 1997-98 crop year at 55 percent

and 45 percent, respectively. Final action concerning the final free

and restricted percentages is being published separately in the Federal

Register. This finalization of an interim final rule provides for the

issuance of diversion certificates to growers for cherries diverted

during the 1997 crop year. This rule will not preempt any State or

local laws, regulations, or policies, unless they present an

irreconcilable conflict with this rule.

The Act provides that administrative proceedings must be exhausted

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

Act, any handler subject to an order may file

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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 will rule on

the petition. The Act provides that the district court of the United

States in any district in which the handler is an inhabitant, or has

his or her principal place of business, has jurisdiction to review the

Secretary's ruling on the petition, provided an action is filed not

later than 20 days after the date of the entry of the ruling.

This rule finalizes an interim final rule which provided for the

issuance of diversion certificates to growers in volume regulated

districts under the tart cherry marketing order for the 1997 crop year

(July 1997 through June 1998). The order became effective September 25,

1996, and the initial Board was appointed in December 1996. The Board

held meetings in January, February, March and June 1997, to consider

its start-up costs and establish rules and regulations to implement the

order authorities. At its meetings, the Board unanimously recommended

that the regulations be forwarded to the Department for appropriate

action.

In discussions, during its meetings, concerning volume regulation

for the 1997 crop year, the Board considered guidelines and procedures

for grower diversion. Growers in the States which would be subject to

volume regulation were sent information about the Board's discussions

and recommendations. A majority of the growers (approximately 700 out

of 1,220) indicated interest in the diversion program, and in the

districts which would be subject to volume regulation, a number of them

voluntarily chose to divert cherries based on information disseminated

by the Board concerning its deliberations and recommendations. The

Board, during its meetings, continued considering various provisions of

the order, such as those pertaining to optimum supply, and making

recommendations which included recommended guidelines for grower

diversion.

The order in section 930.50 provides the method of establishing an

optimum supply level of cherries for the crop year. The optimum supply

consists of a free percentage amount which a handler may sell and a

restricted percentage amount, when warranted, which will have to be

withheld from the market. Based on the optimum supply level, the Board

establishes preliminary free and restricted percentages. Preliminary

percentages were established by the Board on July 2, 1997, pursuant to

Section 930.50(b) of the order, using Department estimates of the

upcoming crop. Preliminary free and restricted percentages of 66 and 34

percent, respectively, were announced to the industry in accordance

with section 930.50(h) of the order. No later than September 15, after

harvest and processing of the crop have been completed, the Board is

required to compute, and recommend to the Secretary, final free and

restricted percentages based on actual crop amounts. After receiving

the Board's recommendation, the Secretary designates the final free and

restricted percentages through the informal rulemaking process if the

Secretary finds that designating such percentages would tend to

effectuate the declared policy of the Act. For this season, the

proposed free and restricted percentages are 55 percent and 45 percent,

respectively, as published in the January 21, 1998, Federal Register

(63 FR 3048). A final action concerning the final free and restricted

percentages is being published separately in the Federal Register. The

difference between any final free market tonnage percentage designated

by the Secretary and 100 percent would be the final restricted

percentage. A handler can satisfy restricted percentage obligations

established by regulation by holding restricted percentage cherries in

an inventory reserve that the handler maintains, by redeeming grower

diversion certificates, or by diverting cherries.

Section 930.58 of the tart cherry marketing order provides

authority for voluntary grower diversion. Growers can divert all or a

portion of their cherries which otherwise, upon delivery to a handler,

would become restricted percentage cherries. Growers may be issued

diversion certificates by the Board stating the weight of cherries

diverted. The grower may then present the certificate to a handler in

lieu of actual cherries. The handler can apply the weight of cherries

represented by the certificate against the handler's restricted

percentage amount.

The Board recommended rules and regulations specifying the

guidelines for the grower diversion program. First, the Board

recommended that any grower desiring to divert in the orchard would

first need to apply to the Board. The application would include the

name, address, phone number and a statement signed by the grower

agreeing to abide by all the rules and regulations for diversion. In

addition, the grower would be required to provide maps of such grower's

orchard.

The Board recommended two types of in-orchard diversion for the

1997-98 crop year. These are random row diversion, in which orchard

rows are randomly chosen by the Board, using a computer program, to be

left unharvested, and whole block diversion, in which a whole definable

orchard block is left unharvested. Trees below a certain age (in this

rule, six years or less) would not qualify for diversion, since these

trees are not yet in full production.

The Board recommended that all grower diversion certificates must

be redeemed with handlers by November 1. After November 1, grower

diversion certificates would not be valid. It was intended that

diversion certificates be used within the same crop year that they were

issued, as if a crop had been produced. The November 1 date would allow

handlers adequate time to meet their restricted percentage amounts

after final percentages had been established. However, due to the fact

this is a new program in its first year of operation, the November 1

deadline was extended to February 5, 1998 (See the handler diversion

regulation published January 6, 1998, 63 FR 399). A conforming

modification is made in this rule by removing the reference to the

November 1 deadline.

The Board also recommended guidelines concerning random row and

whole block diversion and compliance procedures for growers to follow

under the grower diversion program.

This crop year a number of growers voluntarily diverted cherries

based on preliminary free and restricted percentages which had been

announced by the Board and on recommendations concerning diversion

which the Board made to the Secretary. One hundred twenty of them

received diversion certificates. The interim rule and this finalization

provides for the issuance of grower diversion certificates by the Board

subject to certain specified terms and conditions. In order to receive

a certificate, a grower must show, to the satisfaction of the Board,

that cherries were in fact diverted. This may be accomplished in a

number of ways. Information about the grower's production must be

submitted to the Board. In addition, the grower must agree to allow the

Board to confirm reported diversion figures by allowing a Board

compliance officer to visit the grower's orchard.

After obtaining the necessary information concerning diversion by a

grower, the Board would issue a diversion certificate. The diversion

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certificate would be issued for an amount equal to the estimated volume

of cherries diverted by the grower.

For random row diversion, such estimated volume is calculated by

applying the percentage of the grower's production diverted to the

actual average volume per acre of cherries produced and harvested. For

example, Grower A farms 1,000 acres and elects to divert 20 percent of

the harvestable acreage (200 acres). The grower harvests the remaining

800 acres and obtains 6,400,000 pounds of cherries, which represents a

yield per acre of 8,000 pounds. Such grower would receive a diversion

certificate for 1,600,000 pounds of cherries (8,000 lbs multiplied by

the 20 percent of the total acreage diverted; in this instance, 200

acres).

For whole block diversion, the weight of a harvested sample of 5

percent of each block, provided by the grower, is used to calculate the

total volume of diverted cherries to be credited on the diversion

certificate. For example, Grower B farms 1,000 acres and elects to

whole block divert a 200 acre block. If the 5 percent of the harvested

trees in the block diverted yield 80,000 pounds of cherries, the grower

receives a diversion certificate for 1,600,000 pounds (80,000 pounds

divided by 5 percent (.05) yields 1,600,000 pounds). The rest of the

block is unharvested.

After receiving a certificate from the Board, the grower may offer

the certificate to a handler to be redeemed. Based upon the

recommendations of the Board, guidelines and procedures for grower

diversion for 1998 and subsequent seasons will be established through

another rulemaking action.

The Regulatory Flexibility Act and Effects on Small Businesses

The Agricultural Marketing Service (AMS) has considered the

economic impact of this action on small entities and has prepared this

final regulatory flexibility analysis. The Regulatory Flexibility Act

(RFA) would allow AMS to certify that regulations do not have a

significant economic impact on a substantial number of small entities.

However, as a matter of general policy, AMS' Fruit and Vegetable

Programs (Programs) no longer opt for such certification, but rather

perform regulatory flexibility analyses for any rulemaking that would

generate the interest of a significant number of small entities.

Performing such analyses shifts the Programs' efforts from determining

whether regulatory flexibility analyses are required to the

consideration of regulatory options and economic impacts.

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

business subject to such actions in order that the small businesses

will not be unduly or disproportionately burdened. Marketing orders

issued pursuant to the Act, and the 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 1,220 producers of tart cherries in the

production area and approximately 40 handlers subject to regulation

under the marketing order. Small agricultural producers have been

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

having annual receipts less than $500,000, and small agricultural

service firms are defined as those whose annual receipts are less than

$5,000,000. The majority of tart cherry producers and handlers may be

classified as small entities.

One comment was received concerning the regulatory flexibility

analysis. The commenter argued that AMS has provided no economic

analysis concerning the interim rule, did not consider any

alternatives, and did not provide a pre-rule opportunity to comment. We

disagree. An initial regulatory flexibility analysis was performed in

the interim rule and alternatives considered were discussed. It was

also explained why the rule was issued as an interim final.

Section 930.58(b) authorizes the Board to issue diversion

certificates to growers in volume regulated districts under the tart

cherry marketing order if cherries are diverted according to terms and

conditions specified in the order, or according to such other terms and

conditions that the Board, with the approval of the Secretary, may

establish. The tart cherry marketing order was promulgated on September

25, 1996, and the Board met several times in 1997 to recommend rules

and regulations to implement the order authorities. The Board is

required under the order to review its marketing policy on or before

July 1 and then make recommendations to the Secretary for volume

regulation, if such regulation is deemed necessary. The Board met June

26-27, 1997, to review sales data, inventory data, crop forecasts and

market conditions in order to establish an optimum supply volume which

is then used in calculating a preliminary free market tonnage. The

Board established and announced the optimum supply level and

preliminary free and restricted percentages for the 1997-98 crop year

as required by the order. On September 11-12, 1997, the Board reviewed

its marketing policy and previous recommendations and recommended final

free market tonnage and restricted tonnage percentages of 55 and 45

percent, respectively. A proposed rule setting these percentages for

the 1997-98 crop year was published in the Federal Register on January

21, 1998, (63 FR 3048). Final action concerning the final free and

restricted percentage is being published separately in the Federal

Register.

The impact of this rule is beneficial to growers. Grower diversion

is one of the methods under the order that a handler can utilize to

meet any such handler's restricted percentage. Growers may voluntarily

choose to divert because they have cherries that do not meet expected

quality standards, or because they are unable to find a processor

willing to process some or all of their cherries. Before choosing to

divert, the grower will most likely evaluate the harvesting and other

cultural costs that will be saved by diverting and locate a handler

that will be willing to redeem such grower's diversion certificate.

The Board discussed alternatives to its recommendation to issue

grower diversion certificates for the 1997 crop year. The Board

considered not issuing grower diversion certificates for the 1997 crop

year but believed this action would serve the economic interests of

both growers and handlers.

The Board also discussed limiting the blocks to be diverted to no

less than 5 acre blocks, but felt that this would have an adverse

impact on small growers that produce on less than 5 acre blocks.

Therefore, the Board recommended not restricting the size of orchard

blocks which could be diverted.

This rule does not contain any reporting or recordkeeping

requirements in addition to those already considered or approved during

the order promulgation proceeding. The only written information

requested from a grower choosing to divert cherries for 1997 is an

orchard map and the grower's final production volume. Since growers

maintain this information as part of their normal farming operations,

it takes approximately 10 minutes to prepare a map and less than a

minute to total the final production volume.

In compliance with Office of Management and Budget (OMB)

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

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

recordkeeping requirements have been previously approved by OMB and

assigned OMB Number 0581-0177.

As with all Federal marketing order programs, reports and forms are

[[Page 20022]]

periodically reviewed to reduce information requirements and

duplication by industry and public sectors. In addition, the Department

has not identified any relevant Federal rules that duplicate, overlap

or conflict with this rule.

The Board's meetings were widely publicized throughout the tart

cherry industry and all interested persons were invited to attend the

meetings and participate in Board deliberations. All Board meetings

were open to the public and all entities, both large and small, were

able to express their views on these issues. The Board itself is

composed of 18 members, of which 17 members are growers and handlers

and one represents the public. Also, the Board has a number of

appointed committees to review certain issues and make recommendations

to the Board.

An interim final rule concerning this action was issued by the

Department on August 18, 1997, and published in the Federal Register

(62 FR 44881) on August 25, 1997. Copies of the rule were mailed by the

Board's staff to all Board members, and tart cherry handlers. Finally,

the rule was made available through the Internet by the Office of the

Federal Register.

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

respond to the interim final rule. One comment from a person

representing an industry organization was received during the comment

period in response to the rule.

In addition to that portion of the comment concerning the

regulatory flexibility analysis, the commenter raised a variety of

issues concerning and complaining about this rulemaking and the tart

cherry program. We disagree with this comment. This rulemaking action

is consistent with the Agricultural Marketing Agreement Act of 1937 and

the tart cherry marketing order and other applicable law.

First, the commenter stated that the interim final rule violates

the Administrative Procedure Act. The commenter stated that the Board

recommended the proposal several months prior to the issuance of the

rule, and the issuance is well after harvest. The commenter further

stated that the Agricultural Marketing Service (AMS) based its decision

making on this rule on additional information that AMS has kept secret,

and that AMS has not demonstrated ``good cause'' for its failure to

provide a 30 day delayed effective date.

The Board has worked diligently along with USDA in discussing and

formulating rules and regulations to implement authorities under this

new marketing order. It met January, February, March, June, and

September of 1997, and recommended rulemaking actions at various

meetings. However, since this is a new program, these recommendations

needed to be discussed at more than one meeting, and in some instances,

modified. Growers were aware of the procedures being recommended for

participation in a grower diversion program. As a result, many of them

were voluntarily diverting cherries with the anticipation that rules

would be forthcoming and that they would be able to obtain diversion

certificates. An interim final rule with an opportunity for comment

(30-day comment period) was issued. The comments have been reviewed and

are addressed in this rulemaking. With regard to the comment regarding

``secret'' information, there is no basis for such statement. AMS has,

and will continue to conduct the tart cherry program as it does for all

other marketing order programs with required and appropriate public

promulgation. AMS considers all relevant information which may have a

bearing on the tart cherry marketing order program conducted under the

authority of the Agricultural Marketing Agreement Act of 1937.

Second, the commenter objected to the November 1, 1997, deadline

for providing diversion certificates to the Board in order to meet

reserve obligations. The commenter also stated that USDA has not acted

on any of the percentage recommendations made at the June and September

meetings. Final free and restricted percentages were proposed by the

Secretary on January 21, 1998 (63 FR 3048). Final action concerning the

final free and restricted percentage is being published separately in

the Federal Register. Also, the November 1 deadline for handlers to

redeem grower diversion certificates was extended to February 5, 1998,

by the handler diversion regulation published on January 6, 1998 (63 FR

399).

Third, the commenter stated that growers were sent information, the

content of which was not specified, about the 1997 diversion program.

The commenter further stated that any such advance information

highlights AMS's failure to follow the APA's mandatory procedures for

reasoned decision making. Information pertaining to the grower

diversion program being recommended by the Board was distributed by the

Board. This was discussed in the interim final rule that was published

concerning grower diversion. Further, the grower diversion program is

voluntary. A number of growers chose to divert cherries in anticipation

of receiving diversion certificates. Regulations concerning the program

were adopted and issued as an interim final rule and are being made

final in this action.

Fourth, the commenter stated that the rule disallowing cherries

from trees six years or younger from the diversion program is entirely

arbitrary; that the concept behind diversion is keeping pounds of

marketable cherries off the market, and has nothing to do with trees.

Allowing the use of trees which are not yet bearing cherries or which

are just beginning to bear cherries in calculating diversion amounts

would result in figures which are not representative of a grower's true

production. Information used to arrive at the age of trees eligible for

diversion came from record testimony and from the National Agricultural

Statistics Service (NASS), which only counts trees in its statistical

reports that are six years and older.

Fifth, the commenter stated that a key component of the Final Order

implementing the marketing order was that the order not be used as a

form of ``crop insurance'' for cherries which are not marketable, and

that the interim rule contains no assurance that diverted cherries are

marketable. The diversion program should not be and is not a crop

insurance program for unmarketable cherries. The diversion program for

the 1997-98 crop year provides that growers can divert all or a portion

of their cherries which otherwise, upon delivery to a handler, would

become restricted percentage cherries. To receive grower diversion

certificates, growers must also agree to allow the Board to confirm

that diversion of such cherries has actually taken place. Diverted

production is measured based on the amount equal to the estimated

volume of cherries diverted by the grower. The grower must agree to

allow a Board compliance officer to visit the grower's orchard to

ensure that diversion requirements are satisfied. The issue of

unmarketable cherries will be further considered when diversion rules

for the 1998-99 and the following crop years are drafted.

Sixth, the commenter stated that there is no sufficient guarantee

of compliance and that the Board has not adopted a compliance plan as

part of its annual marketing policy. The commenter also stated that the

5 percent sample size provided by the grower could be weighted with

``lead'' cherries therefore abusing the system. Grower diversion for

the 1997-98 crop year was sampled and measured under the supervision of

Board compliance staff. Therefore, before issuing certificates, the

Board

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should know whether diversion requirements are met. The Board has

recommended an improved sampling method to be in place for the 1998-99

crop year and subsequent seasons. The Department is also continuing to

work with the Board to further develop and refine the compliance plan

for the tart cherry marketing order for future seasons.

Finally, the commenter questioned the composition of the Board and

whether some members should be disqualified. The Board was properly

nominated in accordance with USDA and order procedures, and selected on

December 20, 1996. Concerns that have been raised about the composition

of the Board and questions about the eligibility of certain members to

serve on the Board are being reviewed by the Department and will be

addressed separately.

Accordingly, no changes are made to the rule as drafted in the

interim final rule, based on the comment received. However, as

discussed, this rule does delete the certificate redemption date in

Sec. 930.100(a).

After consideration of all relevant material presented, including

the Board's recommendation, and other information, it is found that

this final rule as hereinafter set forth, will tend to effectuate the

declared policy of the Act.

List of Subjects in 7 CFR Part 930

Cherries, Marketing agreements, Reporting and recordkeeping

requirements.

Accordingly, the interim final rule amending 7 CFR 930 which was

published at 62 FR 44881 on August 25, 1997, is adopted as a final rule

with the following changes:

PART 930--TART CHERRIES GROWN IN THE STATES OF MICHIGAN, NEW YORK,

PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN

1. The authority citation for 7 CFR part 930 continues to read as

follows:

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

2. In Sec. 930.100, paragraph (a) is revised to read as follows:

Sec. 930.100 Grower diversion certificates.

(a) In accordance with paragraph (b) of this section, the Board

may, for the 1997 crop year, issue diversion certificates to growers,

in districts subject to volume regulation (Northwest Michigan, Central

Michigan, New York, and Utah) who have voluntarily elected to divert in

the orchard all or a portion of their 1997 tart cherry production which

otherwise, upon delivery to handlers, would become restricted

percentage cherries. Growers may offer the diversion certificate to

handlers in lieu of delivering cherries.

* * * * *

Dated: April 16, 1998.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 98-10658 Filed 4-21-98; 8:45 am]

BILLING CODE 3410-02-P