Raisins Produced From Grapes Grown In California; Increase in Desirable Carryout Used to Compute Trade Demand

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 989

[FV98-989-2 IFR]

Raisins Produced From Grapes Grown In California; Increase in

Desirable Carryout Used to Compute Trade Demand

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Interim final rule with request for comments.

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SUMMARY: This rule increases the desirable carryout used to compute the

yearly trade demand for raisins covered under the Federal marketing

order for California raisins. The order regulates the handling of

raisins produced from grapes grown in California and is administered

locally by the Raisin Administrative Committee (Committee). Trade

demand is computed based on a formula specified in the order, and is

used to determine volume regulation percentages for each crop year, if

necessary. Desirable carryout, one factor in this formula, is the

amount of tonnage from the prior crop year needed during the first part

of the next crop year to meet market needs, before new crop raisins are

available for shipment. This rule increases the desirable carryout from

2 to 2\1/2\ months of prior year's shipments. This increase allows for

a higher free tonnage percentage which makes more raisins available to

handlers for immediate use early in the season.

DATES: Effective August 1, 1998. Comments must be received by August 3,

1998.

ADDRESSES: Interested persons are invited to submit written comments

concerning this rule. Comments must be sent to the Docket Clerk, Fruit

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

Washington, DC 20090-6456; Fax: (202) 205-6632. All comments should

reference the docket number and the date and page number of this issue

of the Federal Register and will be made available for public

inspection in the Office of the Docket Clerk during regular business

hours.

FOR FURTHER INFORMATION CONTACT: Maureen T. Pello, Marketing

Specialist, California Marketing Field Office, Fruit and Vegetable

Programs, AMS, USDA, 2202 Monterey Street, suite 102B, Fresno,

California 93721; telephone: (209) 487-5901, Fax: (209) 487-5906; or

George Kelhart, Technical Advisor, 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, or 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 rule is issued under Marketing

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

regulating the handling of raisins produced from grapes grown in

California, hereinafter referred to as the ``order.'' The order is

effective under the Agricultural Marketing Agreement Act of 1937, as

[[Page 39700]]

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 in equity 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 increases the desirable carryout used to compute the

yearly trade demand for raisins regulated under the order. Trade demand

is computed based on a formula specified in the order, and is used to

determine volume regulation percentages for each crop year, if

necessary. This rule increases the desirable carryout, one factor in

this formula, from 2 to 2\1/2\ months of prior year's shipments. This

increase allows for a higher free tonnage percentage which makes more

raisins available to handlers for immediate use early in the season.

This rule was unanimously recommended by the Committee at a meeting on

June 11, 1998.

The order provides authority for volume regulation designed to

promote orderly marketing conditions, stabilize prices and supplies,

and improve producer returns. When volume regulation is in effect, a

certain percentage of the California raisin crop may be sold by

handlers to any market (free tonnage) while the remaining percentage

must be held by handlers in a reserve pool (or reserve) for the account

of the Committee. Reserve raisins are disposed of through certain

programs authorized under the order. For instance, reserve raisins may

be sold by the Committee to handlers for free use or to replace part of

the free tonnage raisins they exported; used in diversion programs;

carried over as a hedge against a short crop the following year; or

disposed of in other outlets not competitive with those for free

tonnage raisins, such as government purchase, distilleries, or animal

feed. Net proceeds from sales of reserve raisins are distributed to the

reserve pool's equity holders, primarily producers.

Section 989.54 of the order prescribes procedures to be followed in

establishing volume regulation and includes methodology used to

calculate percentages. Trade demand is based on a computed formula

specified in this section, and is used to determine volume regulation

percentages. Trade demand is equal to 90 percent of the prior year's

shipments, adjusted by the carryin and desirable carryout inventories.

At one time, Sec. 989.54(a) also specified actual tonnages for

desirable carryout for each varietal type regulated. However, in 1989,

these tonnages were suspended from the order, and flexibility was added

so that the Committee could adopt a formula for desirable carryout in

the order's rules and regulations. The formula has allowed the

Committee to periodically adjust the desirable carryout to better

reflect changes in each season's marketing conditions.

The formula for desirable carryout has been specified since 1989 in

Sec. 989.154. Initially, the formula was established so that desirable

carryout was based on shipments for the first 3 months of the prior

crop year--August, September, and October (the crop year runs from

August 1 through July 31). This amount was gradually reduced to 2\1/2\

months in 1991-92, 2\1/4\ months in 1995-96, and to its current level

of 2 months in 1996-97. The Committee reduced the desirable carryout

because it believed that an excessive supply of raisins was available

early in a new crop year creating unstable market conditions.

At its June 11, 1998, meeting, the Committee evaluated the 2-month

desirable carryout level and recommended adjusting the formula back up

to 2\1/2\ months of prior year's shipments (August, September, and one-

half of October). In its deliberations, the Committee considered the

impact of the reduction in desirable carryout over the past few years

along with a change to one of its export programs operated under the

order. Prior to 1995, the Committee administered an industry export

program whereby handlers who exported California raisins could

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

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

allowing handlers to be price competitive in export markets (prices in

export markets are generally lower than the domestic market). One

problem that the industry found with this ``raisin-back'' program was

that the reserve raisins which handlers received went back into free

tonnage outlets creating an excessive supply of raisins. To correct

this problem, the industry gradually switched to a program which

offered cash, rather than reserve raisins, to exporting handlers. The

desirable carryout was reduced down to 2 months to help decrease the

supply of raisins available early in a season and, thus, stabilize

market conditions.

The Committee now believes that not enough raisins are being made

available for growth. Increasing the desirable carryout allows for a

higher trade demand figure and, thus, a higher free tonnage percentage

which makes more raisins available to handlers for immediate use early

in the season. A higher free tonnage percentage may also improve early

season returns to producers (producers are paid an established field

price for their free tonnage).

At the meeting, the Committee also compared the average desirable

carryout for the past 7 years with the average, actual tonnage that all

handlers have in inventory at the end a crop year. Desirable carryout

has averaged 66,033 tons at 2\1/2\ months, 63,424 tons at 2\1/4\

months, and 63,364 tons at 2 months. For the past 7 years, an average

of 101,459 tons has been held in inventory by all handlers at the end

of a crop year. Increasing the desirable carryout to 2\1/2\ months

would allow this factor to move towards what handlers are actually

holding in inventory at the end of a crop year.

Much of the discussion at the Committee's meeting concerned the

desirable carryout of Natural (sun-dried) Seedless raisins (Naturals).

Naturals are the major commercial varietal type of raisin produced in

California. Volume regulation has been implemented for Naturals for the

past several seasons. However, the Committee also believes that the

increase in desirable carryout to 2\1/2\ months should apply to the

other varietal types of raisins covered under the order.

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.

[[Page 39701]]

Accordingly, AMS has prepared this initial regulatory flexibility

analysis.

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

business subject to such actions in order that small businesses will

not be unduly or disproportionately burdened. Marketing orders issued

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

they are brought about through group action of essentially small

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

entity orientation and compatibility.

There are approximately 20 handlers of California raisins who are

subject to regulation under the order and approximately 4,500 raisin

producers in the regulated area. Small agricultural service firms have

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

those having annual receipts of less than $5,000,000, and small

agricultural producers are defined as those having annual receipts of

less than $500,000. No more than 7 handlers, and a majority of

producers, of California raisins may be classified as small entities.

Thirteen of the 20 handlers subject to regulation have annual sales

estimated to be at least $5,000,000, and the remaining 7 handlers have

sales less than $5,000,000, excluding receipts from any other sources.

This rule increases the desirable carryout used to compute the

yearly trade demand for raisins regulated under the order. Trade demand

is computed based on a formula specified under Sec. 989.54(a) of the

order, and is used to determine volume regulation percentages for each

crop year, if necessary. Desirable carryout, one factor in this

formula, is the amount of tonnage from the prior crop year needed

during the first part of the succeeding crop year to meet market needs,

before new crop raisins are available for shipment. This rule increases

the desirable carryout specified in Sec. 989.154 from 2 to 2\1/2\

months of prior year's shipments.

The 2\1/2\ month desirable carryout level applies uniformly to all

handlers in the industry, whether small or large, and there are no

known additional costs incurred by small handlers. As previously

mentioned, increasing the desirable carryout increases trade demand and

the free tonnage percentage which makes more raisins available to

handlers early in the season. A higher free tonnage percentage may also

improve early season returns to producers (producers are paid an

established field price for their free tonnage).

The Committee considered a number of alternatives to the one-half

month increase in the desirable carryout level. The Committee has an

appointed subcommittee which periodically holds public meetings to

discuss changes to the order and other issues. The subcommittee met on

April 21 and June 9, 1998, and discussed desirable carryout. The

subcommittee considered establishing a set tonnage for desirable

carryout (i.e., 75,000 tons for Naturals). However, this alternative

would not allow the desirable carryout to fluctuate with changing

market conditions from year to year. The subcommittee considered

lowering the desirable carryout for Naturals by 15,000 tons to tighten

the supply of raisins early in the season even more. However, the

majority of subcommittee members believed that the early season supply

of raisins needed to be increased rather than decreased.

Another alternative raised at the Committee meeting was to make

more raisins available to handlers at the end of a crop year through

the industry's ``10 plus 10'' offers. The ``10 plus 10'' offers are two

offers of reserve pool raisins which are made available to handlers

during each season. Handlers may sell their ``10 plus 10'' raisins as

free tonnage to any market. For each such offer, a quantity of reserve

raisins equal to 10 percent of the prior year's shipments is made

available for free use. The Committee considered offering for sale to

handlers as free use an additional quantity of reserve raisins equal to

5 percent of the prior year's shipments. Such an additional offer could

generate revenue that could be used to sustain the Committee's ``cash-

back'' export program. As previously explained, under this program,

handlers who export raisins to certain markets may receive cash from

the reserve pool. This effectively blends down the cost of the raisins

which were exported, allowing handlers to be price competitive in

export markets (prices in export markets are generally lower than the

domestic market). However, there is currently no provision in the order

for this additional 5 percent offer.

Another alternative that was raised at the Committee's meeting was

to include a policy statement concerning reserve pool equity along with

the recommendation to increase the desirable carryout. Some industry

members are concerned that increasing desirable carryout, thereby

increasing the free tonnage percentage, may reduce handler purchases of

``10 plus 10'' raisins and, thus, impact pool revenue. As previously

mentioned, net proceeds from sales of reserve raisins are distributed

to reserve pool equity holders, primarily small producers. After much

discussion, the majority of Committee members agreed that reserve pool

equity was a separate issue from desirable carryout and would be

addressed by the Committee's Audit Subcommittee.

This rule will not impose any additional reporting or recordkeeping

requirements on either small or large raisin handlers. As with all

Federal marketing order programs, reports and forms are periodically

reviewed to reduce information requirements and duplication by industry

and public sector agencies. Finally, the Department has not identified

any relevant Federal rules that duplicate, overlap or conflict with

this rule.

In addition, the Committee's subcommittee meetings on April 21 and

June 9, 1998, and the Committee meeting on June 11, 1998, where this

action was deliberated were public meetings widely publicized

throughout the raisin industry. All interested persons were invited to

attend the meetings and participate in the industry's deliberations.

Finally, all interested persons are invited to submit information on

the regulatory and informational impacts of this action on small

businesses.

After consideration of all relevant material presented, including

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

this interim final rule, as hereinafter set forth, will tend to

effectuate the declared policy of the Act.

This rule invites comments on increasing the desirable carryout

level currently specified under the California raisin order. A 10-day

comment period is deemed appropriate because the order provides that

the Committee meet to compute and announce the trade demand for any

varietal type for which volume regulation may be recommended for the

1998-99 crop year on or before August 15, and desirable carryout is a

necessary factor in that calculation. Any comments received will be

considered prior to finalization of this rule.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good

cause that it is impracticable, unnecessary, and contrary to the public

interest to give preliminary notice prior to putting this rule into

effect and that good cause exists for not postponing the effective date

of this rule until 30 days after publication in the Federal Register

because: (1) The 1998-99 crop year begins on August 1, 1998, and this

rule should be effective promptly because the order provides that the

Committee meet on or before August 15 to compute and announce the trade

demand, and

[[Page 39702]]

the desirable carryout level is a necessary item in that calculation;

(2) this action is a relaxation in that increasing the desirable

carryout increases the trade demand and free tonnage percentage making

more raisins available to handlers for immediate use early in the

season; (3) producers and handlers are aware of this action which was

unanimously recommended by the Committee at a public meeting; and (4)

this rule provides a 10-day comment period and any comments received

will be considered prior to finalization of this rule.

List of Subjects in 7 CFR Part 989

Grapes, Marketing agreements, Raisins, Reporting and recordkeeping

requirements.

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

amended as follows:

PART 989--RAISINS PRODUCED FROM GRAPES GROWN IN CALIFORNIA

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

follows:

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

2. Section 989.154 is revised to read as follows:

Sec. 989.154 Desirable carryout levels.

The desirable carryout levels to be used in computing and

announcing a crop year's marketing policy shall be equal to the total

shipments of free tonnage of the prior crop year during August,

September, and one-half of October, for each varietal type, converted

to a natural condition basis: Provided, That should the prior year's

shipments be limited because of crop conditions, the Committee may

select the total shipments during the months of August, September, and

one-half of October during one of the three crop years preceding the

prior crop year.

Dated: July 21, 1998.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 98-19874 Filed 7-22-98; 10:03 am]

BILLING CODE 3410-02-P