Tart Cherries Grown in the States of Michigan, et al.; Temporary Suspension of a Proviso for Exporting Juice and Juice Concentrate; Establishment of Rules and Regulations Concerning Exemptions From Certain Order Provisions; and Establishment of Regulations for Handler Diversion

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

final rule, with a change, the provisions of an interim final rule

implementing provisions of the Federal tart cherry marketing order

(order) by establishing regulations concerning handler diversion,

including diversion credit for exempt uses, and by defining certain

terms relating to exemptions. In addition, this rule temporarily

suspends language in a provision of the order which results in allowing

handlers to receive diversion credit for exporting juice and juice

concentrate to eligible countries for the 1997-98 crop year only.

Handlers handling cherries harvested in a regulated district may

fulfill any restricted percentage requirement when volume regulation is

in effect by diverting cherries or cherry products rather than by

placing them in an inventory reserve.

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)

720-5053, 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 order is effective under the Agricultural Marketing

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

referred to as the ``Act.''

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

conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil

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

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

policies, unless they present an irreconcilable conflict with this

rule.

The Act provides that administrative proceedings must be exhausted

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

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

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

obligation imposed in connection with the order is not in accordance

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

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

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

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

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

principal place of business, has jurisdiction 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.

The tart cherry marketing order was recently promulgated and the

Cherry Industry Administrative Board (Board) met March 12-13, June 26-

27, and September 11-12, 1997, to establish, and recommend to the

Secretary, rules and regulations to implement the order authorities,

and to consider volume regulation for this crop year. On or about July

1 of each crop year the Board is required 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 percentage. In the event that a

restricted percentage is recommended and imposed, handler diversion is

one method under the order that handlers can utilize to meet restricted

percentage requirements. 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 a 55 percent final free market tonnage

and a restricted percentage of 45 percent for this crop year.

All handlers were notified of this recommendation pursuant to

Sec. 930.50(h) of the order. Pursuant to Sec. 930.50, final percentages

for volume regulation are required to be recommended to the Secretary

by September 15. Whenever it is found by the Secretary that it would be

appropriate to set free market tonnage and restricted percentages for

cherries acquired by handlers, volume regulations would be issued

through informal rulemaking.

This rule establishes procedures for handler diversion. Handler

diversion is authorized under Sec. 930.59 of the order and, when volume

regulation is in effect, handlers may fulfill restricted percentage

requirements by diverting cherries or cherry products. Volume

regulation is intended to help the tart cherry industry stabilize

supplies and prices in years of excess production. The volume

regulation provisions of the order provide for a combination of

processor owned inventory reserves and grower or handler diversion of

excess tart cherries. Reserve cherries may be released for sale into

commercial outlets when the current crop is not expected to fill

demand. Under certain circumstances, such cherries may also be used for

charity, experimental purposes, nonhuman use, and other approved

purposes.

Section 930.59(b) of the order provides for the designation of

allowable forms of handler diversion. These include: uses exempt under

Sec. 930.62; contribution to a Board approved food bank or other

approved charitable organization; acquisition of grower diversion

certificates that have been issued in accordance with Sec. 930.58; or

other uses, including diversion by destruction of the cherries at the

handler's facilities.

A new Sec. 930.159 is added to the rules and regulations concerning

handler diversion. One method of diversion available to handlers is by

destruction of cherries at the handler's facility. Disposal at the

handler's facility will take place prior to placing the product into

the processing line. This is to ensure that the product diverted is not

simply an undesirable by-product of processing. Handlers electing to

divert cherries or cherry products must first notify the Board and

submit a plan for approval. Such notification and plan shall include an

agreement that diversion will take place under the supervision of the

USDA Processed Products Inspection Service or Board employee

inspectors, and that the costs of such supervision are to be paid by

the handler. USDA inspectors will

[[Page 20013]]

supervise diversion of cherry products at the current hourly rate of

$41.00, which is subject to change, under USDA's inspection fee

schedule (7 CFR Sec. 54.42). Board employees will supervise diversion

at the same rate. Diversion may also be accomplished by handlers

donating cherries to charitable organizations, utilizing cherries in

exempt outlets, or redeeming grower diversion certificates obtained

from growers who have diverted cherries by non-harvest, and who have

been issued diversion certificates by the Board in accordance with

rules and regulations governing the issuance of grower diversion

certificates in Sec. 930.100. Diversion by means other than destruction

of cherries at handlers' facilities would also be subject to

supervision as found necessary by the Board. Fees would be charged as

discussed above.

Once diversion is satisfactorily accomplished, handlers will

receive diversion certificates stating the weight of cherries diverted.

Such diversion certificates can be used to satisfy handlers' restricted

percentage obligations. Cherries and cherry products which have been

diverted shall not be subject to assessment.

A handler will have one crop year to fulfill the diversion plan

which was submitted and approved by the Board. The details of the plan

shall show, among other things, the name and address of the handler,

the total product processed at-plant, cherries diverted at-plant, in-

orchard diversion certificates redeemed, and anticipated donations to

charitable outlets. A handler will also have one crop year to dispose

of cherries or cherry products for exempt uses approved by the Board,

unless granted a renewal. By February 5, 1998, for the 1997 crop year

only, and November 1 for subsequent crop years, each handler must

submit on Board Form No. 4 the details of how such handler will satisfy

the restricted percentage obligation. The Board may extend this date in

individual cases pursuant to a written request showing good cause why

the plan cannot be provided by the due date. The November 1 date

corresponds with the date that grower diversion certificates are no

longer valid (for the 1997-98 crop year this date is February 5, 1998).

Other reports detailing the inventory reserve summary were also due by

February 5, 1998, for the 1997 crop year only, and November 1 for

subsequent crop years. Any information obtained by the Board which is

of a confidential and/or proprietary nature would be protected from

disclosure pursuant to section 930.73 of the order.

Section 930.59(b) which specifies the diversion options for

handlers, includes uses exempt under Sec. 930.62. Section 930.62

provides that the Board, with the approval of the Secretary, may exempt

from the provisions of Secs. 930.41, 930.44, 930.51, 930.53, and 930.55

through 930.57 cherries which are diverted in accordance with

Sec. 930.59, which are used for new product and new market development,

which are used for experimental purposes, or which are used for any

other purpose designated by the Board, including cherries processed

into products for markets for which less than 5 percent of the

preceding 5-year average production of cherries were utilized. One such

use which may be designated as an exempt use and granted diversion

credit is the exportation of cherries. Tart cherries used for exempt

purposes are not subject to certain marketing order provisions. These

provisions include assessment, quality control, volume regulation, and

reserve provisions.

For the purposes of the regulation concerning exempt uses, the

Board has recommended that certain terms be defined. Also, the Board

recommended that handlers who use cherries or cherry products for

approved exempt purposes receive diversion credit pursuant to section

930.59(b).

Thus, a new section 930.162 was added to the rules and regulations

defining exempt use terms and authorizing exemptions under the

marketing order. Terms defined include new product development, new

market development, development of export markets, and experimental

purposes.

The first term defined is ``new product development.'' New product

development includes the production or processing of a tart cherry

product using a technique not presently being utilized commercially in

the tart cherry industry. For example, a handler may ask for an

exemption for product such as ground meat in combination with raw tart

cherries to form a leaner meat product. The Board determined that when

a new product is commercially viable, which is defined as the time when

total industry utilization for the product exceeds 2 percent of the

five year average production of tart cherries, the exemption shall

terminate. Therefore, the Board has recommended that when the

utilization of the product exceeds 2 percent of the five year average

production, the product has received consumer acceptance and should no

longer be eligible for a new product development exemption.

The second term which is defined is ``new market development.''

Under the definition, new market development means the development of

markets for cherry products which are not commercially established

markets and which are not competitive with commercial outlets presently

utilized by the tart cherry industry. For example, a handler may seek

to establish sales of cherry preserves to India or China, currently

undeveloped markets. The Board determined that a new market becomes

commercially established when the total industry utilization in that

market exceeds 2 percent of the five year average production of tart

cherries.

The third term which is defined is ``development of export

markets.'' This is defined as exports to countries other than Canada,

Mexico and Japan, including the development of sales for new or

different tart cherry products or the expansion of sales for existing

tart cherry products. An example of development of sales for new or

different tart cherry products could be a handler seeking to establish

sales of dried cherries in Germany, which is primarily a hot pack

market. Board members and meeting participants discussed the favorable

export market this season. Handlers have exports to many countries,

including Italy, France, Belgium, Germany and the Netherlands and have

enjoyed a significant increase in volume of exports into these

countries. Handlers have indicated that exports of tart cherry products

have increased significantly over previous years' exports. Board

members indicated that last year's exports totaled about 10 million

pounds. This year, handlers are expected to experience the largest

volume of exports on record, estimated at up to 50 million pounds.

Handlers have been able to expand existing export markets and establish

new markets for the future. Board members also commented that hot pack

product (canned tart cherries) have been shipped to export markets that

have never received such product before. Contributing to their success

is the excellent quality of this year's crop. Growers and handlers have

experienced high quality fruit due to favorable growing conditions for

tart cherries this season. This high quality fruit has resulted in high

quality products which are very competitive in export markets. The

availability of such high quality cherry products increases the

likelihood of maintaining such markets in future seasons. Handlers also

have experienced a growth in IQF (Individually Quick Frozen) sales in

the export market this season. If handlers are not able to use this

option, more product might be destroyed to avoid the possibility of

processing and storage costs associated

[[Page 20014]]

with placing cherries into an inventory reserve. Exports to Mexico,

Canada, and Japan are not included in this exemption because, according

to the Board, tart cherry markets are well established in those

countries.

The fourth term which is defined is ``experimental purposes.'' Uses

for experimental purposes include preliminary and/or developmental

activities, such as a handler working with cereal companies to develop

a cereal using dried cherries. Such experimental purposes should be

intended to result in new products, new applications and/or new markets

for existing tart cherry products. Any exemption for experimental

purposes shall be limited in scope, duration, and volume which the

applicant shall specify at the time a request for exemption is made. In

no case shall an exemption for experimental purposes last longer than

five years or exceed 100,000 pounds raw product equivalent per handler

of tart cherries during the duration of the experiment. The Board has

recommended that the five year or 100,000 pound raw product equivalent

per handler limits are sufficient to determine whether such cherries

for experimental purposes can be developed into new products or uses.

To qualify for an exemption under Sec. 930.62, a handler must apply

to the Board for a new exemption or for renewal of an existing

exemption by November 1 for the next succeeding year. Handlers should

have applied for an exemption through February 5, 1998, for the 1997

crop year only, and by November 1 for subsequent crop years. These

dates were changed from the Board's recommendation of June 1 in order

to provide handlers ample time to harvest and assess their crop each

year. When applying to the Board for an exemption, the handler must

detail the nature of the product or market, how it differs from

current, existing products and/or markets and the estimated short and

long term sales volume for the exemption. In addition, in order to

obtain diversion credit for cherries used for exempt purposes, the

application must also contain an agreement that the proposed exempt use

diversion is to be carried out under the supervision of the Board, and

that the cost of any such supervision that is needed is to be paid by

the applicant. The fees for such USDA or Board supervision, as

previously stated, will be the current hourly rate of $41.00, which is

subject to change, under USDA's inspection fee schedule (7 CFR 54.42).

The information which is provided will allow Board staff to assess the

request for exemption and render a determination concerning its

approval. Any information received by the Board which is of a

confidential and/or proprietary nature would be protected from

disclosure pursuant to Sec. 930.73 of the order.

The Board discussed providing assistance to its staff with

reviewing applications pertaining to exemptions. The Board recommended

that a subcommittee be formed to assist staff members to ensure that

exemptions are properly reviewed and granted. The Board suggested that

a subcommittee of three persons, which could include the manager, a

public member and one industry member who is not on the Board, be

established. Handlers whose requests for exemption or renewal of

exemption are denied would be able to appeal such denial to the Deputy

Administrator, Fruit and Vegetable Programs.

Each handler that is granted an exemption must submit to the Board

an annual progress report, due May 1 of each year. The progress report

shall include the results of the exemption activity (comparison of

intended activity with actual activity) for the year in its entirety,

the volume of exempted fruit, an analysis of the success of the

exemption program, and such other information the Board may request.

As previously discussed, the Board has recommended that exports to

countries other than Canada, Mexico, and Japan be exempted pursuant to

Sec. 930.62. The Board has also recommended that diversion credit be

granted for such exports. Handlers wishing to receive diversion credit

for exports must provide to the Board on-board bill of lading

documentation or other documentation to verify export before the Board

will issue diversion credit.

The Board will grant diversion credit for exempted products after

it has received the necessary information concerning the particular

exemption and when it is satisfied that the handler requesting the

diversion credit has satisfied all the requirements relevant to the

exemption. The Board recommended for the 1997 season (July 1, 1997

through June 30, 1998) only, that handlers receive diversion credit for

up to one million pounds of exempted products per handler for new

market development and new product development. The Board believes this

will provide adequate flexibility for individual handlers to obtain

diversion credit for exempt uses this season, but recommended providing

some restriction on the absolute volume of such allowable diversions

until more experience with the program has been obtained. However, the

one million pound limit for exempted products per handler does not

apply to handlers desiring to receive diversion credit for exports. As

stated previously, this is the first season this program is in effect

and handlers have exported or contracted to export tart cherry

products. Some of these handlers may have shipped in excess of the one

million pound limit. Allowing full diversion credit for the amount of

product shipped abroad, will prevent both growers and handlers from

incurring financial losses. The Board is continuing to review the issue

of what limits to impose on exempted products.

Handlers desiring to receive diversion credit for donations to

charitable organizations should follow the requirements specified in

the regulations. For contributions to qualify for diversion credit, the

contributed product should be marked clearly ``NOT FOR RESALE''. The

receiving organization must be approved by the Board as a qualified

recipient of contributions of tart cherry products. Such organizations

must be tax-exempt, must not sell the donated products and must be

noncompetitive with other tart cherry industry sales outlets. Once

products are donated to an organization, the Board must receive

satisfactory documentation of the transaction. Handlers should provide

the Board with information on how the product was used and the volume

of product used.

Handlers desiring to receive diversion credit for cherries diverted

under Sec. 930.59, including uses exempt under Sec. 930.62, but who

fail to meet the terms and conditions in the regulation for such

diversion would not receive diversion credit for the cherries or cherry

products. Any cherries not properly diverted in accordance with Board

Form No. 4 must be placed into the handler's secondary reserve if one

has been established or the primary reserve if a secondary reserve has

not been established. The primary reserve is the first reserve where

handlers in volume regulated districts can place tart cherries or tart

cherry products to hold from primary markets in order to meet

restricted percentage obligations. The primary reserve is limited to a

capacity of 50 million pounds. A secondary reserve is established only

after the primary reserve has been filled to the 50 million pound

capacity. The secondary reserve is where the balance of reserve

cherries or cherry products are held. There is no maximum capacity for

the secondary reserve. Both primary and secondary reserves are operated

at the handler's expense and no cherries can be removed from the

secondary reserve until the primary reserve has been depleted. Upon

termination of an

[[Page 20015]]

exemption, any volume of tart cherry products that were exempted from

order requirements but which were not utilized should be placed into

the secondary inventory reserve if one has been established, or into

the primary reserve. It is the handler's responsibility to fulfill the

restricted percentage obligations established by volume regulation. A

handler may fulfill the restricted percentage obligation by either

transferring cherries from his/her own inventory, purchasing additional

cherries or cherry products or obtaining diversion certificates from

other handlers to meet such obligation.

In addition to the recommendation already discussed, the Board, at

its March 1997 meeting, also recommended that the Department modify the

optimum supply formula by deducting exports from the calculation. The

Department is not proceeding with this recommendation since the order

promulgation record indicates that average sales should include sales

to all markets, including exports.

At its meeting in March 1997, when discussing exports, the Board

also recommended that juice and juice concentrate, to countries other

than Canada, Mexico, and Japan, receive diversion credit. During the

production and processing of the crop, handlers have exported, or have

contracted to export, tart cherry juice or juice concentrate for this

season. Many of these exports were for the purpose of expanding

existing markets or developing new markets. According to the Board, if

diversion credit is not allowed for export juice or juice concentrate,

some of these handlers could suffer substantial financial losses since

they would have to pack or purchase additional cherries to place in

their inventory reserves or default on contracts. These costs would

likely be passed on to growers. Therefore, the Board recommended at its

September 11-12, 1997, meeting that the proviso in Sec. 930.59(b) of

the order be suspended for this year only and that diversion credit for

exports of juice and juice concentrate be allowed for the 1997-1998

crop year. The temporary suspension of the proviso for the 1997-98 crop

year will allow handlers to receive diversion credit for juice and

juice concentrate exported to countries other than Canada, Mexico and

Japan.

New export sales of juice and juice concentrate this crop year are

estimated to be in the range of 4-7 million pounds. While significant

to the handlers making such sales, traditional sellers of juice and

juice concentrate products in established domestic and export markets

should not experience any undue increase in competition. This is

because indications are that the bulk of the new export sales of juice

and juice concentrate represent sales to new markets or expansion of

existing markets. This suspension action is not intended to establish a

precedent for future seasons. Its purpose is to correct any

misunderstandings that have occurred in the industry about order

operations concerning juice and juice concentrate, to prevent

disorderly marketing conditions and unnecessary financial losses by

handlers. Not proceeding with the suspension this season could result

in disorderly marketing in the domestic market, since, in addition to

the problems already mentioned, juice and juice concentrate intended

for export would likely have to be sold domestically. This situation

will be avoided in subsequent seasons since handlers should be fully

aware of the order's restrictions.

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) will 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 small businesses will

not be unduly or disproportionately burdened. Marketing orders issued

pursuant to the Act, and rules 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 40 handlers of tart cherries who are

subject to regulation under the order and approximately 1,220 producers

of tart cherries in the regulated area. Small agricultural service

firms, which include 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. The majority of handlers

and producers of tart cherries may be classified as small entities.

Section 930.59 of the tart cherry marketing order provides

authority for handler diversion. Handlers handling cherries harvested

in a regulated district may fulfill any restricted percentage

requirements which may be in effect in full or in part through

diversion of cherries or cherry products in a program approved by the

Board, rather than placing cherries in an inventory reserve. Handlers

can divert by destruction of the cherries at the handler's facility,

making charitable donations, and using cherries or cherry products for

exempt purposes, or by redeeming grower diversion certificates obtained

from growers who have diverted cherries by non-harvest, and who have

been issued diversion certificates by the Board. Once diversion is

satisfactorily accomplished, handlers will receive a diversion

certificate stating the weight of cherries diverted. Such diversion

certificates can be used to satisfy the handler's restricted percentage

obligation. This enables handlers to either place cherries into an

inventory reserve or select the diversion option most advantageous to

their particular business operation. Costs for supervision of such

actions will take place under the supervision of the USDA Processed

Products Inspection Service or Board employee inspectors, and that the

costs of such supervision is to be paid by the handler. USDA inspectors

will supervise diversion of cherry products at the current hourly rate

of $41.00, which is subject to change, under USDA's inspection fee

schedule (7 CFR Sec. 54.42). Board employees will supervise diversion

at the same rate. Diversion may also be accomplished by handlers

donating cherries to charitable organizations, utilizing cherries in

exempt outlets, or redeeming grower diversion certificates obtained

from growers who have diverted cherries by non-harvest, and who have

been issued diversion certificates by the Board in accordance with

rules and regulations governing the issuance of grower diversion

certificates in Sec. 930.100. Diversion by means other than destruction

of cherries at handlers' facilities would also be subject to

supervision as found necessary by the Board. Fees would be charged as

discussed above. Providing such options allows handlers to minimize

processing and storage costs associated with

[[Page 20016]]

meeting restricted percentage obligations. Such cost savings may also

be passed on to growers and consumers. Thus, providing these options

accomplishes the purposes of the order and the Act.

The Board also recommended granting handlers diversion credit for

cherries used for exempt purposes under Sec. 930.62. Those purposes

include cherries used for new product development, for the development

of export markets, for experimental purposes, and the export of

cherries and cherry products, including juice or juice concentrate, to

approved countries.

In order to provide for juice and juice concentrate as a diversion

outlet, the Board recommended that the proviso under Sec. 930.59(b) of

the order be suspended. Therefore, this rule temporarily suspends

language in the proviso under Sec. 930.59(b) of the order. The

suspension would temporarily remove a prohibition against allowing

diversion credit for juice and juice concentrate for this crop year

only. However, the Board would only grant diversion credit for juice or

juice concentrate exported to eligible countries. The Board recommended

this suspension be used to correct any misunderstandings that have

occurred in the industry about order operations concerning juice and

juice concentrate, to prevent disorderly marketing conditions and

unnecessary financial losses by handlers.

The temporary suspension of the juice and juice concentrate proviso

was discussed at the most recent Board meeting. It was the Board's view

that if the proviso is not suspended, affected handlers will have to

expend additional funds to meet their restricted obligations by placing

products that they could have sold in export markets into an inventory

reserve or at-plant divert. The costs of these actions would likely be

passed on to growers.

New export sales of juice and juice concentrate this crop year are

estimated to be in the range of 4-7 million pounds. While significant

to the handlers making such sales, traditional sellers of juice and

juice concentrate products in established domestic and export markets

should not experience any undue increase in competition this season.

This is because indications are that the bulk of the new export sales

of juice and juice concentrate represent sales to new markets or

expansion of existing markets, rather than an increase in competition

among sellers for previously developed markets. As previously stated,

handlers have indicated that exports of tart cherry products have

increased significantly over previous years' exports. Board members

indicated that last year's exports totaled about 10 million pounds.

This year, handlers are expected to experience the largest volume of

exports on record, estimated at up to 50 million pounds. Handlers have

been able to expand existing export markets and establish new markets

for the future. Board members also commented that hot pack product

(canned tart cherries) have been shipped to export markets that have

never received such product before. Contributing to their success is

the excellent quality of this year's crop. Growers and handlers have

experienced high quality fruit due to favorable growing conditions for

tart cherries this season. This high quality fruit has resulted in high

quality products which are very competitive in export markets. The

availability of such high quality cherry products increases the

likelihood of maintaining such markets in future seasons. Not

proceeding with the suspension this season could result in disorderly

marketing in the domestic market.

The impact of this rule would be beneficial to growers and

handlers. Authorizing various diversion outlets and allowing diversion

credit for exempt uses means handlers will not be required to divert

excess cherries at their plants. Instead, fruit can be processed into a

usable form, thereby promoting the development of new products and the

expansion of new markets for tart cherries. Authorizing exemptions for

various uses of tart cherries should also promote such market

development and expansion, as well as making cherries available for

charitable purposes. Suspending an order provision for this season only

will allow handlers to take advantage of export markets and obtain

diversion credit for such exports, increasing the utilization of this

season's crop and grower and handler returns.

The Board considered alternatives to these recommendations. With

respect to handler diversion and diversion credit for exempt uses, if

handlers who are subject to volume regulation are unable to receive

diversion credit, they would have to divert cherries by other means or

place cherries in an inventory reserve which may not be desirable

because of storage costs. For example, the Board discussed not granting

handlers diversion credit for at-plant diversion. However, the Board

felt that providing such a diversion option increased handler

flexibility to process and pack the best cherries available during a

year when volume regulation is in effect and to reduce the costs of

processing and storing reserve cherries.

The Board also discussed not granting exemptions, and diversion

credit for such exemptions, for exports to eligible countries

(including juice and juice concentrate), other exempt uses, and

charitable donations. However, the Board felt this would not be in the

best interest of the industry or the public. As previously discussed,

the Board expressed that not allowing the export and other exemptions

would have a detrimental effect on the market this season if free and

restricted percentages are imposed. Without such exemptions and

diversion credits for export sales, new market development and other

specified uses, about 50 million pounds of cherries would not be

removed from the domestic market this season, depressing grower returns

for all cherries. The marketing order was designed to increase grower

returns by stabilizing supplies with demand as well as stabilizing

prices and creating a more orderly and predictable marketing

environment. Expanding markets and developing new products is key to

meeting this marketing order's goals.

Not granting exemptions and diversion credit for exports to

countries other than Canada, Mexico, and Japan was also discussed at

Board meetings. However, the Board expressed that this recommendation

is very important to creating stable conditions in the export

marketplace this season and would encourage future market growth. The

Board further stated that such action will improve returns to growers

because of the tremendous growth in the export market this season.

This rule imposes certain reporting and recordkeeping requirements

on tart cherry handlers. As with all Federal marketing order programs,

reports and forms are periodically reviewed to reduce information

requirements and duplication by industry and public sectors. In

addition, the Department has not identified any relevant Federal rules

which duplicate, overlap or conflict with this rule.

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 imposed by the order have been previously

approved by OMB and assigned OMB Number 0581-0177. This includes the

requirements contained in this regulation (i.e. progress reports,

applications).

The components of the Handler Reserve Plan and Final Pack Report

[[Page 20017]]

which handlers must submit to utilize at-plant and exempt use diversion

and the requirements for other reports related to handler diversion and

handlers meeting their restricted percentage obligations (i.e.,

Inventory Reserve Summary, Cherries Acquired from Producers, Handler

Reserve Plan and Final Pack Report, and Inventory Location Report) have

received approval by OMB. It was anticipated that as many as 45

handlers might be regulated if volume regulations are established. Many

reports are submitted a single time each season, while some are

submitted more frequently. In addition, the bulk of the information

handlers must report is obtained during the normal course of their

business operations. It would take handlers approximately 15 minutes

per report to complete for a total of 60 minutes per handler and

approximately 2,700 minutes annually for the estimated 45 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 Board's meetings were publicized throughout the tart cherry

industry and all interested persons were invited to attend them and

participate in Board deliberations. Like all Board meetings, the March,

June, and September 1997, meetings were public meetings 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. The Board's Diversion Subcommittee met on

March 12, 1997, and discussed handler diversion in detail. That meeting

was also a public meeting and both large and small entities were able

to participate and express their views. A majority of these entities

expressed that, in their opinion, the recommendations made by the Board

would have a positive impact on both small and large entities. Finally,

interested persons were invited to submit information on the regulatory

and informational impacts of the action on small businesses.

The following discussion concerns comments raised about the initial

regulatory flexibility analysis and statements made therein. A comment

received from a tart cherry handler stated that the text of the interim

final rule exhibits no detail of any analysis as required by the RFA.

The commenter asserts that such analyses are required and that this

industry includes both large and small entities. The commenter also

states that this interim final rule should not be advanced as final

until such analysis is completed, documented and published for comment.

We disagree with this comment. Both the initial regulatory flexibility

analysis published in the January 6, 1998, Federal Register (63 FR 399)

and this final regulatory flexibility analysis are consistent with the

provisions of the RFA. Accordingly, we are of the view that the

Department has met the requirements of the RFA. Further, the comment

offered no further explanation for this assertion but did go on to

discuss part of the initial regulatory flexibility analysis as it

relates to both large and small entities.

Second, the commenter stated that the regulatory flexibility

analysis lacked an understanding that tart cherries produced in, for

instance, Oregon and Washington are handled in a manner that they

become a high quality puree or juice concentrate by intent. Tart

cherries produced in other parts of the production area under the order

enter the stream of commerce generally in another form. The commenter

contends that it is the sort outs or culls from these other products

that become puree and juice concentrate and that these products, puree

and juice concentrate made with these sort outs or culls, are not

equivalent commodities. The commenter believes that allowing a one-year

period where these sort outs or culls can receive diversion credit will

unfairly compete with someone else's primary market product. The

commenter went on to state that prevention of this inequity was part of

the reason the order was written as it was.

The Board made the recommendation to suspend the juice and juice

concentrate provisions for one year only. The Department allowed the

suspension of the juice and juice concentrate provisions on the basis

that the bulk of the new export sales of juice and juice concentrate

would probably represent sales to new markets or expansion of existing

markets. It was expected that such shipments would not be in direct

competition with juice and juice concentrate markets established by

Oregon and Washington handlers. Present indications are that the bulk

of sales of juice and juice concentrate are going to new export markets

or are being used for the expansion of existing export markets and are

thus not in direct competition with existing markets for juice and

juice concentrate.

Third, the commenter disagreed with a statement in the regulatory

flexibility analysis and was of the view that meetings are not widely

publicized in advance and are not held in a location central to the

production area. Meetings have been central only to those producers and

handlers in the Michigan districts. The commenter stated that the Board

does a poor job of publicizing Board meetings.

In regard to the commenter's statement, the Board also has to

consider the cost of travel for all Board members since the Board pays

travel expenses for all of its members. The first meetings held in

December of 1996 and throughout 1997 were attended by all members and

their alternates. A Board recommendation was passed that the start-up

meetings be attended by the alternates so they would be involved and

aware of Board activities. It would have resulted in considerable

expense to the Board to hold the meetings outside of Michigan since 16

members and alternates are from the State of Michigan. The Board

realizes the time spent in travel and has made a commitment to hold the

June marketing policy meeting in Michigan and the September marketing

policy meeting in a district outside of Michigan. The Board is also

committed to holding meetings outside the Michigan districts to allow

producers and handlers to attend the meetings and cut down on travel

time for those not located in Michigan. In regard to the commenter's

contention that the Board does a poor job of publicizing Board and

subcommittee meetings, we disagree. The Board has and will continue to

take appropriate action to provide the widest possible notice of

upcoming meetings to all handlers and Board members and alternate Board

members. The Board sends meeting notices to all Board members and

several tart cherry industry organizations. In fact, the Board is

currently developing a newsletter which will be distributed to all

growers and handlers of record to further publicize upcoming Board

meetings.

An interim final rule concerning this action was published in the

Federal Register on January 6, 1998. Copies of the rule were mailed by

the Board's staff to all Board members and cherry handlers. In

addition, the rule was made available through the Internet by the

Office of the Federal Register. That rule provided for a 30-day comment

period which ended February 5, 1998. Two comments were received. One

comment was received from a tart cherry association representing tart

cherry growers and processors in the State of Oregon and the other from

a handler.

[[Page 20018]]

The first commenter representing the tart cherry association also

commented on the proposed rule published on January 21, 1998, in the

Federal Register (63 FR 3048) that proposed final free and restricted

percentages for the 1997-98 crop year. To the extent that the comment

addressed or identified issues relating to the January 21, 1998,

publication, that portion of the comment will be discussed, as

appropriate, in the final action concerning that document which will be

published separately from this action.

The first commenter stated that they objected to the use of export

markets for disposal of tart cherries for exempt or diversion purposes.

The commenter stated that the use of exports in this manner will create

a two-tiered pricing system. Some exports have been cheaply priced even

though domestic prices warrant a stronger approach. The commenter

states further that this will draw down the domestic price, as well as

the export price for those cherries not receiving diversion credit. The

commenter believes that if the domestic market strengthens as a result

of these activities, the industry may become over enthusiastic and

begin planting and create a worse oversupply in the future. There must

be well maintained compliance to ensure that tart cherry products

exported and receive diversion credit are not returned to the domestic

market.

In response to the commenter's statements, the Board has

recommended that exports to certain countries receive diversion credit.

The Board has indicated exports have increased due to the diversion

credit option and short supplies in other countries. The Board will be

able to analyze results of this year's activity to determine if such

program worked. The Board will continue to monitor activities to ensure

that exported cherries are not reexported into the domestic market.

The first commenter also commented that the Department rule soon on

the identity and nature of CherrCo, Inc., a new entity in the tart

cherry industry, as it relates to the marketing order. The Department

is continuing to work with the Board on this issue. This issue will be

addressed separately.

Finally, the first commenter noted that there is reference made to

a limit for diversion credit of 1 million pounds of product per year.

The commenter further states that in the interim final rule, the

Board's intent that there be no limit on export credits at all needs to

be properly reflected. The regulatory text inadvertently states that

under Sec. 930.159(f) that the one million pound exemption limitation

for diversion credit does not apply to handlers exporting juice or

juice concentrate. The one million pound limitation does not apply to

any exports, not just juice and juice concentrate. The supplementary

information of the interim final rule explains this limitation

correctly. Therefore, this final rule corrects this error in the

amendatory language as suggested by the commenter. Additionally, this

commenter stated that they agree with the comments submitted by the

second commenter discussed below.

The second commenter raised ten points in his comment, three of

which related to the initial regulatory flexibility analysis and have

been discussed previously in this document. First, the commenter stated

that it is not equitable that cherries which have been authorized for

diversion or exemption from restrictions are excused from assessment.

All tonnage produced should be subject to assessment. A majority of the

Board's budget is earmarked for compliance expenses. The compliance

costs are generated in districts with the bulk of the diversions and

exemptions. Handlers and producers in districts which are not subject

to tonnage restrictions should not be penalized for maintaining

production at moderate levels.

The Board, after its initial 1997-98 crop year, is reviewing the

order and considering several amendment proposals to assist the order

to operate more efficiently in future crop years. One proposal the

Board is considering is that any cherries produced, which would be

those diverted or exempted, be subject to assessments. Only those

cherries that are diverted at the orchard would not be subject to

assessments.

Secondly, the commenter stated that it is not equitable that

diversion credits are issued in situations involving exemption. Based

on its category of use, destruction or reserve, a cherry product should

qualify either as a diversion or an exemption. The commenter asserted

the two terms are not synonymous and stated that this confusion should

be clarified with a re-publication for subsequent comment prior to the

interim final rule becoming truly final. We disagree.

The terms used in this rule are not used synonymously. These terms

are different because diversion credit is provided to growers who

voluntarily divert their crop if such crop is of poor quality due to

hail damage or some other climatic condition. Diversion credit is

provided to handlers if such handlers, in order to meet their

restricted percentage obligations, when volume regulations are

implemented, by placing cherries in a primary inventory reserve or

diverting cherries, or a combination of both. Whereas, tart cherries

can be exempted from certain order provisions if they are diverted in

accordance with the order by being used for new products or new market

development or for experimental purposes or other uses designated by

the Board. The Board has the authority to grant diversion credit under

Sec. 930.59 for products that are exempted under Sec. 930.62. There is

no reason to clarify this authority under the order, since the

recommendations made by the Board are clearly authorized under

marketing order provisions.

Thirdly, the commenter stated that the Board should not be allowed

to deviate from the marketing order authorities, even for a season,

because some participants in the industry did not clearly understand

what they could and could not utilize as either diversionary or

exempted products. The commenter further stated that it was clear

during the promulgation that the order was to be very specific in the

authorities that would be granted to the Board.

The Board may recommend suspensions of the order or provisions

thereof. The Board felt that it would be in the best interests of the

industry to suspend the order language with regard to juice and juice

concentrate. This is a new order and difficult to administer in its

first year of operation. The Board's recommendation will be used to

correct any misunderstandings that have occurred in the industry about

order operations concerning juice and juice concentrate and allow the

industry to expand the export market for this season. As explained in

the rule this suspension is for one year only. Accordingly, no change

is made to the temporary suspension as a result of this comment.

Fourth, the commenter stated that it is simply untrue that

interested parties have an opportunity to provide input concerning the

recommendations of the Board to the Secretary. The commenter further

stated that the record of Board meetings will also show that not all

these recommendations were made unanimously as stated in the rule.

Since the meetings are public, interested persons have an

opportunity to provide input on these actions. Also, during this

informal rulemaking process, comments are solicited. Most of the

actions discussed herein were recommended unanimously by the Board.

Fifth, the commenter stated that the Board needs to have an

approved compliance plan prior to issuing supply

[[Page 20019]]

control regulations. The Board has approved a compliance plan at its

January 29-30, 1998, meeting.

Sixth, the commenter believes it is a particularly serious matter

that the Board appears to be functioning under the control of CherrCo,

Inc., a new entity in the tart cherry industry. The Department is

continuing to work with the Board on this issue. This issue will be

addressed separately.

Finally, the commenter urges the Department to insist that the

Board randomly conduct unannounced compliance inspections prior to next

harvest to insure that reserves are maintained as certified and that

required documentation is maintained properly by handlers.

The Board has the authority to inspect reserves and audit handlers

as required. The Board will audit handlers, as appropriate, to ensure

that proper inventory reserves are being maintained.

Accordingly, one change will be made to the rule as proposed, based

on the comments received.

After consideration of all relevant material presented, including

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

finalizing the interim final rule, with a change, as published in the

Federal Register (63 FR 399, January 6, 1998), will tend to effectuate

the declared policy of the Act.

It is also found that, for the 1997-98 crop year only, the proviso

under Sec. 930.59(b), which prohibits handlers from receiving diversion

credit for juice and juice concentrate, should be suspended since such

proviso does not tend to effectuate the declared policy of the Act.

List of Subjects in 7 CFR Part 930

Cherries, Marketing agreements, Reporting and recordkeeping

requirements.

For the reasons set forth in the preamble, 7 CFR part 930 is

amended as follows:

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

PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN

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

was published at 63 FR 399 on January 6, 1998, is adopted as a final

rule with the following change:

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

PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN

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

follows:

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

2. Paragraph (f) of Sec. 930.159 is revised to read as follows:

Sec. 930.159 Handler diversion.

* * * * *

(f) Exempt uses. To receive diversion credit for cherries used for

exempt purposes, handlers must meet the terms and conditions specified

in Sec. 930.162. Each handler may receive diversion credit for up to

one million pounds of exempted products each crop year, except that,

for the 1997 season only, the one million pound exemption limitation

for diversion credit does not apply to handlers exporting tart cherry

products.

Dated: April 16, 1998.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 98-10659 Filed 4-21-98; 8:45 am]

BILLING CODE 3410-02-P