Tart Cherries Grown in the States of Michigan, et al.; Temporary Suspension of Proviso for Exporting Juice and Juice Concentrate; Establishment of Regulations for Handler Diversion

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV97-930-4 IFR]

Tart Cherries Grown in the States of Michigan, et al.; Temporary

Suspension of Proviso for Exporting Juice and Juice Concentrate;

Establishment of Regulations for Handler Diversion

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Interim final rule and temporary suspension of order provisions

with request for comments.

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SUMMARY: This interim final rule implements 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 would result 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.

DATES: Effective January 7, 1998; comments received by February 5, 1998

will be considered prior to issuance of a final rule.

ADDRESSES: Interested persons are invited to submit written comments

concerning this rule. Comments must be sent in triplicate to the Docket

Clerk, Fruit and Vegetable Division, AMS, USDA, room 2525-S, P.O. Box

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

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

issue 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: Patricia A. Petrella or Kenneth G.

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

2530-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 Division,

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

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

SUPPLEMENTARY INFORMATION: This 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

section 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

[[Page 400]]

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 is to be paid by the

handler. USDA inspectors will supervise diversion of cherry products at

the current hourly rate of $41.00 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

(Sec. 930.100, 62 FR 44881, August 25, 1997). 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 (this date is extended by this action to February 5, 1998

for the 1997-98 crop year). Other reports detailing the inventory

reserve summary are 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 Sec. 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 section

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 is 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

[[Page 401]]

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 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 section 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 may

apply for an exemption through February 5, 1998 for the 1997 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 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 section 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

[[Page 402]]

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 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 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, 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 would 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

have not indicated any undue increase in competition. This is because

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

probably represent sales to new markets or expansion of existing

markets. Therefore, the Board has recommended that diversion credit be

granted this crop year only to those handlers exporting juice and juice

concentrate to eligible countries. This action is not intended to

establish a precedent for future seasons. It will 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. 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

initial regulatory flexibility analysis. The Regulatory Flexibility Act

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

significant economic impact on a substantial number of small entities.

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

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

perform regulatory flexibility analyses for any rulemaking that would

generate the interest of a significant number of small entities.

Performing such analyses shifts the Programs' efforts from determining

whether regulatory flexibility analyses are required to the

consideration of regulatory options and economic impacts.

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

business subject to such actions in order that 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

[[Page 403]]

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 under USDA's

inspection fee schedule (7 CFR 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 (Sec. 930.100, 62 FR 44881, August 25, 1997). 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

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 section 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

have not indicated any undue increase in competition this season. This

is because the bulk of the new export sales of juice and juice

concentrate probably 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

volume regulation is imposed this season and diversion credits are not

granted, handlers would have to divert cherries by other means or place

cherries in an inventory reserve, which may not be desirable for some

handlers since storage costs of the reserve are borne by the handler.

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

[[Page 404]]

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.

Paperwork Reduction

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 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 widely 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 are invited to submit information on the regulatory

and informational impacts of this action on small businesses.

Pursuant to section 930.50 of the order, the Board met on June 26-

27, 1997, to formulate a 1997-98 marketing policy using a USDA crop

estimate of 242 million pounds. The Board met on September 11-12, 1997,

and revised its marketing policy based on actual 1997-98 tart cherry

production of 284 million pounds.

After consideration of all relevant material presented, including

the Board'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.

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.

This rule invites comments on the establishment of rules and

regulations for handler diversion and granting exemptions from certain

order provisions, allowing diversion credit for exempt uses and

charitable donations, the suspension of an order provision in section

930.59(b), and the possible impacts of these actions on both small and

large entities.

Pursuant to 5 U.S.C. 553, it is 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) This is the first season the marketing order has been in

effect and regulations are needed to implement its authorities; (2)

these rules need to be in place this season since the industry is

marketing its crop currently and that the crop year began on July 1,

1997; (3) the Board unanimously recommended these changes at public

meetings and interested parties had an opportunity to provide input;

(4) handlers need to know the procedures in order to operate their

plants this season; and (5) this rule provides a 30-day comment period

and any comments received will be considered prior to finalization of

this rule.

List of Subjects in 7 CFR Part 930

Marketing agreements, Tart cherries, 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

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

follows:

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

Sec. 930.59 [Amended]

2. In Sec. 930.59, paragraph (b) the words, ``Provided, That

diversion may not be accomplished by converting cherries into juice or

juice concentrate'' are suspended through June 30, 1998.

3. A new Sec. 930.159 is added to read as follows:

Sec. 930.159 Handler diversion.

(a) Methods of diversion. Handlers may divert cherries by redeeming

grower diversion certificates, by destroying cherries at handlers'

facilities (at-plant), by donating cherries or cherry products to Board

approved charitable organizations, or by using cherries or cherry

products for exempt purposes

[[Page 405]]

under Sec. 930.162, including export to countries other than Canada,

Mexico and Japan. Once diversion is satisfactorily accomplished,

handlers will receive diversion certificates stating the weight of

cherries diverted. Diversion credit may be used to fulfill any

restricted percentage requirement in full or in part. Any information

received of a confidential and/or proprietary nature pursuant to this

section will be protected from disclosure pursuant to Sec. 930.73 of

the order.

(b) Board notification and handler plan. Any handler intending to

divert cherries or cherry products pursuant to Sec. 930.59 of the order

(except through exempt uses under Sec. 930.62 of the order) must notify

the Board of such intent and provide a plan by November 1 which shows

how the handler intends to meet the restricted percentage obligation,

except that, for the 1997-98 season only, the deadline is February 5,

1998. 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. A handler will have one year to fulfill such plan. The

details of the plan shall include, but not be limited to, the name and

address of the handler, the total product processed at-plant, product

diverted at-plant, in-orchard diversion certificates redeemed,

anticipated donations to charitable outlets, disposition to exempt

outlets or uses and detailed plans for how and where such disposition

will be made, and inventory reserve amount. It shall also contain an

agreement that the proposed diversion is to be carried out under the

supervision of the Board and that the cost of such supervision is to be

paid by the handler. Supervision of diversion by means other than

destruction of the cherries at a handler's facility will be subject to

supervision as found necessary by the Board. USDA inspectors or Board

employees will supervise diversion of cherry products at the current

hourly rate under USDA's inspection fee schedule (7 CFR 52.42). Any

cherries not diverted in accordance with the handler's plan will be

placed into the secondary inventory reserve or the primary inventory

reserve if a secondary inventory reserve has not been established.

(c) At-plant diversion. Diversion by disposal at-plant will take

place prior to placing the cherries into the processing line. Such

diversion will take place under the supervision of USDA Inspection

Service or Board employee inspectors. USDA inspectors or Board

employees will supervise diversion of cherry products at-plant at the

current hourly rate under USDA's inspection fee schedule (7 CFR 52.42).

(d) Contributions to approved charitable organizations. When

diverting by donating cherries or cherry products to charitable

organizations, handlers should follow the requirements specified

herein. 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.

(e) Grower diversion certificates. To satisfy restricted percentage

obligations by redeeming grower diversion certificates handlers must

present to the Board 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 the

applicable rules and regulations governing the issuance of grower

diversion certificates. For this crop year July 1, 1997, through June

30, 1998, grower diversion certificates will be valid until February 5,

1998.

(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 juice or

juice concentrate.

4. A new Sec. 930.162 is added to read as follows:

Sec. 930.162 Exemptions.

(a) General. Tart cherries which are used for the purpose of new

product development, for new market development, for development of

export markets, for experimental purposes, for export (including juice,

juice concentrate or puree, for the 1997-98 crop year only) to

countries other than Canada, Mexico and Japan, or which are donated to

charitable organizations may be granted an exemption by the Board and

will be exempt from Secs. 930.41, 930.44, 930.51, 930.53, and

Secs. 930.55 through 930.57, subject to the following terms and

conditions. Any information received of a confidential and/or

proprietary nature included in this application will be protected from

disclosure pursuant to Sec. 930.73 of the order.

(b) Definitions. The terms in paragraph (a) of this section shall

have the following meaning:

(1) New product development. The development of new tart cherry

products or of foods or other products in which tart cherries or tart

cherry products are incorporated which are not presently being produced

on a commercial basis. New product development can also include the

production or processing of a tart cherry product using a technique not

presently being utilized commercially in the tart cherry industry. Once

total industry utilization for a new product exceeds 2 percent of the

five year average production of tart cherries, the product shall no

longer be considered under development and not eligible for a new

product development exemption.

(2) New market development. The development of markets for tart

cherry products which are not commercially established markets and

which are not competitive with commercial outlets presently utilized by

the tart cherry industry (including the development of new export

markets). A new market becomes commercially established, when total

industry utilization in the market exceeds 2 percent of the five year

average production of tart cherries.

(3) Development of export markets. The sale of cherries or cherry

products, including the development of sales for new or different tart

cherry products or the expansion of sales for existing tart cherry

products, to countries other than Canada, Mexico, and Japan: Provided,

That such cherry products cannot include juice or juice concentrate:

Provided further, That the exclusion of juice or juice concentrate

shall not apply for the 1997 season only (through June 30, 1998).

(4) Experimental purposes. The use of cherries or cherry products

in preliminary and/or developmental activities intended to result in

new products, new applications and/or new markets for tart cherry

products. Any exemption for experimental work shall be limited in

scope, duration and volume based on information supplied by the

applicant at the time a request for exemption is made. In no case shall

an individual exemption for experimental purposes last longer than five

years or exceed 100,000 pounds raw product equivalent of tart cherries.

[[Page 406]]

(c) Obtaining approval for exempt uses. In order to receive

exemptions for cherries or cherry products utilized for exempt

purposes, handlers must apply to the Board for a new exemption or for

renewal of an existing exemption by November 1 for the next succeeding

year, except for the 1997 year only, handlers may apply through

February 5, 1998. A handler shall have one crop year to dispose of

cherries or cherry products to exempt outlets approved by the Board,

unless granted a renewal. Handlers applying to the Board for a new

exemption or for renewal of an existing exemption are subject to the

following conditions:

(1) When applying to the Board for an exemption for new product

development, handlers must detail the nature of their new product, how

it differs from current, existing products and the anticipated short

and long term sales volume for the exemption. It will be the Board

staff's responsibility to analyze and investigate any request and upon

completion of that analysis authorize or deny the exemption.

(2) When applying to the Board for an exemption for new market

development, handlers must detail the nature of their new market, how

it differs from current, existing markets and the anticipated short and

long term sales volume for the exemption. It will be the Board staff's

responsibility to analyze and investigate any request and upon

completion of that analysis authorize or deny the exemption.

(3) When applying to the Board for an exemption for the development

of export markets for tart cherries or cherry products (including juice

and juice concentrate through June 30, 1998 only) in countries other

than Canada, Mexico and Japan, including the expansion of sales in

existing export markets, handlers must detail the nature of their

product, specify whether such product differs from current products

being sold in export markets, and estimate the anticipated short and

long term sales volumes for the requested exemption.

(4) When applying to the Board for an exemption for experimental

purposes, handlers must indicate the preliminary and/or developmental

experimental activity. 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 work

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

party 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.

(d) Review of applications. A Board appointed subcommittee of three

persons which shall include the manager (or a Board member acting in

the Manager's stead), the public member and one industry person who is

not on the Board, shall review applications for exemption or renewal of

exemption and either approve or deny the exemption. Any denial of an

application for exemption or renewal of an existing exemption shall be

served on the applicant by certified mail and shall state the reasons

for the denial. Within 10 days after the receipt of a denial, the

applicant may file an appeal, in writing, with the Deputy

Administrator, Fruit and Vegetable Programs, supported by any arguments

and evidence the applicant may wish to offer as to why the application

for exemption or renewal of exemption should have been approved. The

Deputy Administrator upon consideration of such appeal will take such

action as deemed appropriate with respect to the application for

exemption or renewal of exemption.

(e) Progress report. Each handler that is granted an exemption must

submit to the Board an annual progress report, due May 1 of each crop

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 as the

Board may request.

(f) Diversion credit; failure to meet terms and conditions of

exemption. Handler diversion certificates for exempt uses shall be

issued to handlers provided that terms and conditions applicable to

exempt uses are satisfied. Diversion certificates will not be issued to

handlers for any volume of tart cherry products for which such terms

and conditions are not satisfied and such cherries would be subject to

all of the terms and conditions of Secs. 930.41, 930.44, 930.51,

930.53, and Secs. 930.55 through 930.57.

(g) Failure to meet terms and conditions for exemption. Upon

termination of an exemption, any volume of tart cherry products that

were granted an exemption but were not utilized for the authorized

exempt purpose would be subject to all of the terms and conditions of

Secs. 930.41, 930.44, 930.51, 930.53, and Secs. 930.55 through 930.57.

Dated: December 30, 1997.

Enrique E. Figueroa,

Acting Administrator, Agricultural Marketing Service.

[FR Doc. 98-283 Filed 1-5-98; 8:45 am]

BILLING CODE 3410-02-U