Hazelnuts Grown in Oregon and Washington; Establishment of Interim and Final Free and Restricted Percentages for the 1997-98 Marketing Year

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 982

[Docket No. FV98-982-1 FIR]

Hazelnuts Grown in Oregon and Washington; Establishment of

Interim and Final Free and Restricted Percentages for the 1997-98

Marketing Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

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

final rule, without change, the provisions of an interim final rule

which established interim and final free and restricted percentages for

domestic inshell hazelnuts for the 1997-98 marketing year under the

Federal marketing order for hazelnuts grown in Oregon and Washington.

The percentages allocate the quantity of domestically produced

hazelnuts which may be marketed in the domestic inshell market. The

percentages are intended to stabilize the supply of domestic inshell

hazelnuts to meet the limited domestic demand for such hazelnuts and

provide reasonable returns to producers. This rule was recommended

unanimously by the Hazelnut Marketing Board (Board), which is the

agency responsible for local administration of the order.

EFFECTIVE DATE: June 22, 1998.

FOR FURTHER INFORMATION CONTACT: Teresa L. Hutchinson, Marketing

Specialist, Northwest Marketing Field Office, Fruit and Vegetable

Programs, Agricultural Marketing Service, USDA, 1220 SW Third Avenue,

Room 369, Portland, OR 97204; telephone: (503) 326-2724, Fax: (503)

326-7440 or George J. Kelhart, Marketing Order Administration Branch,

Fruit and Vegetable Programs, AMS, USDA, Room 2525-S, P.O. Box 96456,

Washington, DC 20090-6456; telephone: (202) 720-2491, Fax: (202) 205-

6632. 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) 205-6632.

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing

Agreement No. 115 and Order No. 982 (7 CFR Part 982), both as amended,

regulating the handling of hazelnuts grown in Oregon and Washington,

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 rule has been reviewed under Executive Order 12988, Civil

Justice Reform. It is intended that this action apply to all

merchantable hazelnuts handled during the 1997-98 marketing year (July

1, 1997, through June 30, 1998). 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 the date of the entry of the ruling.

This rule continues in effect marketing percentages which allocate

the quantity of inshell hazelnuts that may be marketed in domestic

markets. The Board is required to meet prior to September 20 of each

marketing year to compute its marketing policy for that year and

compute and announce an inshell trade demand if it determines that

volume regulations would tend to effectuate the declared policy of the

Act. The Board also computes and announces preliminary free and

restricted percentages for that year.

The inshell trade demand is the amount of inshell hazelnuts that

handlers may ship to the domestic market throughout the marketing

season. The order specifies that the inshell trade demand be computed

by averaging the preceding three ``normal'' years'' trade acquisitions

of inshell hazelnuts, rounded to the nearest whole number. The Board

may increase the three-year average by up to 25 percent, if market

conditions warrant an increase. The Board's authority to recommend

volume regulations and the computations used to determine released

percentages are specified in section 982.40 of the order.

The National Agricultural Statistics Service (NASS) estimated

hazelnut production at 40,000 tons for the Oregon and Washington area.

The majority of domestic inshell hazelnuts are marketed in October,

November, and December. By November, the marketing season is well under

way.

The quantity marketed is broken down into free and restricted

percentage portions to make available hazelnuts which may be marketed

in domestic inshell markets (free) and hazelnuts which must be

exported, shelled or otherwise disposed of (restricted). The

preliminary free percentage releases 80 percent of the adjusted inshell

trade demand. The preliminary free percentage is expressed as a

percentage of the total supply subject to regulation (supply) and is

based on the preliminary crop estimate.

At its August 28, 1997, meeting, the Board computed and announced

preliminary free and restricted percentages of 8 percent and 92

percent, respectively. The Board used the NASS crop estimate of 40,000

tons. The purpose of releasing only 80 percent of the inshell trade

demand under the preliminary percentage was to guard against an

underestimate of crop size.

[[Page 27816]]

The preliminary free percentage released 3,003 tons of hazelnuts from

the 1997 supply for domestic inshell use. The preliminary restricted

percentage portion of the 1997 supply for export and kernel markets

totaled 34,296 tons.

Under the order, the Board must meet a second time, on or before

November 15, to recommend interim final and final percentages. The

Board uses current crop estimates to calculate the interim final and

final percentages. The interim final percentages are calculated in the

same way as the preliminary percentages and release the remaining 20

percent (to total 100 percent of the inshell trade demand) previously

computed by the Board. Final free and restricted percentages may

release up to an additional 15 percent of the average of the preceding

three years' trade acquisitions to provide an adequate carryover into

the following season. The final free and restricted percentages must be

effective by June 1, at least 30 days prior to the end of the marketing

year, June 30. The final free and restricted percentages can be made

effective earlier, if recommended by the Board and approved by the

Secretary. Revisions in the marketing policy can be made until February

15 of each marketing year, but the inshell trade demand can only be

revised upward, consistent with section 982.40(e).

The Board met on November 13, 1997, and reviewed and approved an

amended marketing policy. The Board recommended that the three-year

average trade acquisition figure of 4,279 tons be increased by 214 tons

for market expansion. The Board also recommended the establishment of

interim final and final free and restricted percentages. Interim final

percentages were recommended at 10 percent free and 90 percent

restricted. The interim final percentage made an additional 965 tons of

inshell hazelnuts available for the domestic inshell market, including

product for market expansion. The interim final marketing percentages

were based on the Board's final production estimate (42,000 tons) and

released 3,968 tons to the domestic inshell market from the 1997 supply

subject to regulation. The interim final restricted percentage resulted

in a restricted obligation of 35,173 tons.

The final free and restricted percentages were recommended at 12

percent and 88 percent, respectively. The Board also recommended that

the final percentages be effective on April 30, 1997. The established

final marketing percentages release for domestic inshell use an

additional 642 tons from the supply subject to regulation. Thus, a

total of 4,610 tons of inshell hazelnuts will be released from the 1997

supply for domestic inshell use. The final restricted percentage

resulted in a restricted obligation of 34,531 tons.

The marketing percentages are based on the Board's production

estimates and the following supply and demand information for the 1997-

98 marketing year:

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

Tons

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

Inshell Supply Tons

(1) Total production (Board's 42,000

estimate).

(2) Less substandard, farm use 2,860

(disappearance).

(3) Merchantable production 39,140

(Board's adjusted crop

estimate).

(4) Plus undeclared carryin as of 1

July 1, 1997, subject to

regulation.

(5) Supply subject to regulation 39,141

(Item 3 plus Item 4).

Inshell Trade Demand

(6) Average trade acquisitions of 4,279

inshell hazelnuts for three

prior years.

(7) Increase to encourage increased 214

sales (5 percent of Item 6).

(8) Less declared carryin as of 525

July 1, 1996, not subject to

regulation.

(9) Adjusted Inshell Trade Demand.. 3,968

(10) 15 percent of the average trade 642

acquisitions of inshell

hazelnuts for three prior

years (Item 6).

(11) Adjusted Inshell Trade Demand 4,610

plus 15 percent for carryout

(Item 9 plus Item 10).

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

Percentages

Free Restricte

d

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

(12) Interim final percentages (Item 10 90

9 divided by Item 5) x 100.

(13) Final percentages (Item 11 12 88

divided by Item 5) x 100.

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

In addition to complying with the provisions of the order, the

Board also considered the Department's 1982 ``Guidelines for Fruit,

Vegetable, and Specialty Crop Marketing Orders'' (Guidelines) when

making its computations in the marketing policy. This volume control

regulation provides a method to collectively limit the supply of

inshell hazelnuts available for sale in domestic markets. The

Guidelines provide that the domestic inshell market has available a

quantity equal to 110 percent of prior years' shipments before

secondary market allocations are approved. This provides for plentiful

supplies for consumers and for market expansion, while retaining the

mechanism for dealing with oversupply situations. At its November 13,

1997, meeting, the Board recommended that an increase of 5 percent (214

tons) for market expansion be included in the inshell trade demand

which was used to compute the interim percentages. The established

final percentages are based on the final inshell trade demand, and will

make available an additional 642 tons for desirable carryout. The total

free supply for the 1997-98 marketing year is 5,135 tons of hazelnuts,

which is the final trade demand of 4,610 tons plus the declared carryin

of 525 tons. This amount is 120 percent of prior years' sales and

exceeds the goal of the Guidelines.

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 final 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

[[Page 27817]]

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

small entity orientation and compatibility.

There are approximately 1,000 producers of hazelnuts in the

production area and approximately 23 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 of less than $500,000, and small agricultural

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

$5,000,000. Using these criteria, virtually all of the producers are

small agricultural producers and an estimated 20 of the 23 handlers are

small agricultural service firms. Thus, the great majority of hazelnut

producers and handlers may be classified as small entities.

Board meetings are widely publicized in advance of the meetings and

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

open to all industry members and other interested persons who are

encouraged to participate in the deliberations and voice their opinions

on topics under discussion. Thus, Board recommendations can be

considered to represent the interests of small business entities in the

industry.

Many years of marketing experience led to the development of the

current volume control procedures. These procedures have helped the

industry solve its marketing problems by keeping inshell supplies in

balance with domestic needs. The current volume control procedures

fully supply the domestic inshell market, provide for market expansion,

and help prevent oversupplies in that market.

Inshell hazelnuts sold to the domestic market provide higher

returns to the industry than are obtained from shelling. The inshell

market is inelastic and is characterized as having limited demand and

being prone to oversupply.

Industry statistics show that total hazelnut production has varied

widely over the last 10 years, from a low of 13,000 tons in 1989 to a

high of 41,000 tons in 1993, with another record crop of 42,000 tons in

1997. Average production has been around 24,000 tons. While crop size

has fluctuated, the volume regulations contribute toward orderly

marketing and market stability, and help moderate the variation in

returns for all growers and handlers, both large and small. For

instance, production in the shortest crop year (1989) was 53 percent of

the 10-year average (1987-1996). Production in the biggest crop year

(1996) was 170 percent of the 10-year average. The percentage releases

provide all handlers with the opportunity to benefit from the most

profitable domestic inshell market. That market is available to all

handlers, regardless of handler size.

NASS statistics show that the grower price per pound has increased

steadily over the last 4 years, from $.28 in 1992 to $.43 in 1996.

The Board discussed the only alternative to this rule which was not

to regulate. Without any regulations in effect, the Board believed that

the industry would oversupply the inshell domestic market. With the

1997 hazelnut crop the largest in history, the release of 42,000 tons

on the domestic inshell market would cause grower returns to decrease

drastically, and completely disrupt the market.

While the level of benefits of this rulemaking are difficult to

quantify, the stabilizing effects of the volume regulations impact both

small and large handlers positively by helping them maintain and expand

markets even though hazelnut supplies fluctuate widely from season to

season.

Hazelnuts produced under the order comprise virtually all of the

hazelnuts produced in the U.S. This production represents, on average,

approximately 3 percent of total U.S. tree nut production and

approximately 3 percent of the world's hazelnut production.

This volume control regulation provides a method for the U.S.

hazelnut industry to limit the supply of domestic inshell hazelnuts

available for sale in the U.S. Section 982.40 of the order establishes

a procedure and computations for the Board to follow in recommending to

the Secretary release of preliminary, interim final, and final

quantities of hazelnuts to be released to the free and restricted

markets each marketing year. The program results in plentiful supplies

for consumers and for market expansion while retaining the mechanism

for dealing with oversupply situations.

Currently, U.S. hazelnut production can be successfully allocated

between the inshell domestic and secondary markets. One of the best

secondary markets for hazelnuts is the export market. Inshell hazelnuts

produced under the marketing order compete well in export markets

because of quality. Europe, and Germany in particular, is historically

the primary world market for U.S. produced inshell hazelnuts, although

China was the largest importer in 1996-97. A third market is for

shelled hazelnuts sold domestically. Domestically produced kernels

generally command a higher price in the domestic market than imported

kernels. The industry is continuing its efforts to develop and expand

secondary markets, especially the domestic kernel market. Small

business entities, both producers and handlers, benefit from the

expansion efforts resulting from this program.

There are some reporting, recordkeeping, and other compliance

requirements under the order. The reporting and recordkeeping burdens

have been accepted by the handlers as necessary for compliance purposes

and for developing statistical data for maintenance of the program. The

forms require information which is readily available from handler

records and which can be provided without data processing equipment or

trained statistical staff. As with other marketing order programs,

reports and forms are periodically studied to reduce or eliminate

duplicate information collection burdens by industry and public sector

agencies. This final rule does not change those requirements.

The Department has not identified any relevant Federal rules that

duplicate, overlap, or conflict with this regulation.

The interim final rule was published in the Federal Register on

January 22, 1998 (63 FR 3251). The Board manager mailed information

concerning that action to all known industry members, and it was also

made available through the Internet by the Office of the Federal

Register. That rule provided a 60-day comment period which ended March

23, 1998. No comments were 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, without change, as published in the

Federal Register (63 FR 3251, January 22, 1998), will tend to

effectuate the declared policy of the Act.

List of Subjects in 7 CFR Part 982

Filberts, Hazelnuts, Marketing agreements, Nuts, Reporting and

recordkeeping requirements.

PART 982--HAZELNUTS GROWN IN OREGON AND WASHINGTON

Accordingly, the interim final rule amending 7 CFR part 982 which

was published at 63 FR 3251 on January 22, 1998, is adopted as a final

rule without change.

Dated: May 14, 1998.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 98-13524 Filed 5-20-98; 8:45 am]

BILLING CODE 3410-02-P