Tart Cherries Grown in the States of Michigan, et al.; Final Free and Restricted Percentages for the 1998-99 Crop Year for Tart Cherries

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV98-930-1 PR]

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

and Restricted Percentages for the 1998-99 Crop Year for Tart Cherries

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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[[Page 64009]]

SUMMARY: This proposal invites comments on the establishment of final

free and restricted percentages for the 1998-99 crop year. The

percentages are 60 percent free and 40 percent restricted. The

percentages would establish the proportion of cherries from the 1998

crop which may be handled in normal commercial outlets and are intended

to stabilize supplies and prices, and strengthen market conditions. The

percentages were recommended by the Cherry Industry Administrative

Board (Board), the body which locally administers the marketing order.

The marketing order regulates the handling of tart cherries grown in

the States of Michigan, New York, Pennsylvania, Oregon, Utah,

Washington, and Wisconsin.

DATES: Comments must be received by December 3, 1998.

ADDRESSES: Interested persons are invited to submit written comments

concerning this action. 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) 720-5698 or E-mail:

[email protected]. 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, Fruit and Vegetable

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

6456; telephone: (202) 720-2491. Small businesses may request

information on complying with this regulation, or obtain a guide on

complying with fruit, vegetable, and specialty crop marketing

agreements and orders 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, or E-mail: Jay__N__G[email protected]. You

may also view the marketing agreements and orders small business

compliance guide at the following website:

http://www.ams.usda.gov/fv/moab.html.

SUPPLEMENTARY INFORMATION: This proposal is issued under marketing

agreement and Order No. 930 (7 CFR part 930), regulating the handling

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

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

referred to as the ``order.'' The 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 proposal has been reviewed under Executive Order 12988, Civil

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

final free and restricted percentages may be established for tart

cherries handled by handlers during the crop year. This rule would

establish final free and restricted percentages for tart cherries for

the 1998-99 crop year, beginning July 1, 1998, through June 30, 1999.

This rule would 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 requesting a modification of the order or to be exempt

therefrom. Such 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.

The order prescribes procedures for computing an optimum supply and

preliminary and final percentages that establish the amount of tart

cherries that can be marketed throughout the season. The regulations

apply to all handlers of tart cherries that are in the regulated

districts. Tart cherries in the free percentage category may be shipped

immediately to any market, while restricted percentage tart cherries

must be held by handlers in a primary or secondary reserve, or be

diverted in accordance with Sec. 930.59 of the order and Sec. 930.159

of the regulations, or used for exempt purposes (and obtaining

diversion credit) under Sec. 930.62 of the order and Sec. 930.162 of

the regulations. The regulated Districts for this season are: District

one--Northern Michigan; District two--Central Michigan; District

three--Southwest Michigan; District four--New York; and District

seven--Utah. Districts five, six, eight and nine (Oregon, Pennsylvania,

Washington, and Wisconsin, respectively) would not be regulated for the

1998-99 season.

The order prescribes under Sec. 930.52 that upon adoption of the

order, those districts to be regulated shall be those districts in

which the average annual production of cherries over the prior three

years has exceeded 15 million pounds. A district not meeting the 15

million pound requirement shall not be regulated in such crop year.

Therefore, for this season, handlers in the districts of Oregon,

Pennsylvania, Washington, and Wisconsin would not be subject to volume

regulation. They were also not subject to volume regulation during the

last season.

Section 930.50(a) of the order describes procedures for computing

an optimum supply for each crop year. The Board must meet on or about

July 1 of each crop year, to review sales data, inventory data, current

crop forecasts and market conditions. The optimum supply volume shall

be calculated as 100 percent of the average sales of the prior three

years to which is added a desirable carryout inventory not to exceed 20

million pounds or such other amount as may be established with the

approval of the Secretary. The optimum supply represents the desirable

volume of tart cherries that should be available for sale in the coming

crop year.

The order also provides that on or about July 1 of each crop year,

the Board is required to establish preliminary free and restricted

percentages. These percentages are computed by deducting the carryin

inventory from the optimum supply figure (adjusted to raw product

equivalent--the actual weight of cherries handled to process into

cherry products) and dividing that figure by the current year's USDA

crop forecast. The carryin inventory figure reflects the amount of

cherries that handlers actually have in inventory. If the resulting

quotient is 100 percent or more, the Board should establish a

preliminary free market tonnage percentage of 100 percent. If the

quotient is less than 100 percent, the Board should establish a

preliminary free market tonnage percentage equivalent to the quotient,

rounded to the nearest whole percent, with the complement being the

preliminary restricted percentage.

The Board met on June 18-19, 1998, and computed, for the 1998-99

crop year, an optimum supply of 287.4 million pounds. The Board

recommended that the carryout figure be zero pounds. Carryout is the

amount

[[Page 64010]]

of fruit required to be carried into the succeeding crop year and is

set by the Board after considering market circumstances and needs. This

figure can range from zero to a maximum of 20 million pounds. The Board

calculated preliminary free and restricted percentages as follows: The

USDA estimate of the crop was 292.5 million pounds; a 46 million pound

carryin added to that equaled a total available supply of 338.5 million

pounds. The carryin figure reflects the amount of cherries that

handlers actually have in inventory. The optimum supply was subtracted

from the total estimated available supply resulting in a surplus of

51.1 million pounds of tart cherries. An adjustment for changed

economic conditions of 37.0 million pounds was added to the surplus,

pursuant to section 930.50 of the order. This adjustment is discussed

later in this document. After the adjustment, the resulting total

surplus is 125.1 million pounds of tart cherries. The surplus was

divided by the production in the regulated districts (258 million

pounds) and resulted in 66 percent free and 34 percent restricted for

the 1998-99 crop year. The Board recommended these percentages by a 15

to 2 vote, with one abstention. Those Board members voting against the

recommendation disagreed with the computation of the carryin figure

because they thought that the figure should also include the amount in

the inventory reserve. Record evidence received during the promulgation

of the order indicated that the carryin figure reflects the amount of

cherries that handlers actually have in inventory (not in the primary

or secondary reserve). The Board recommended the percentages and

announced them to the industry as required by the order.

The preliminary percentages were based on the USDA production

estimate and the following supply and demand information for the 1998-

99 crop year:

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

In millions

of pounds

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

Optimum Supply Formula:

(1) Average sales of the prior three years.............. 287.4

(2) Less carryout....................................... 0

(3) Optimum Supply calculated by the Board at the June

meeting................................................ 287.4

Preliminary Percentages:

(4) Less carryin as of July 1, 1998..................... 46.0

(5) Tonnage requirement for current crop year........... 241.4

(6) USDA crop estimate.................................. 292.5

(7) Surplus (item 6 minus item 5)....................... 51.1

(8) Economic adjustment to surplus...................... 37.0

(9) Adjusted surplus (item 7 plus item 8)............... 88.1

(10) USDA crop estimate for regulated districts......... 258.0

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

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

Percentages Free Restricted

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

(11) Preliminary percentages (item 9 divided by item

10) x 100.......................................... 66 34

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

Between July 1 and September 15 of each crop year, the Board may

modify the preliminary free and restricted percentages by announcing

interim free and restricted percentages to adjust to the actual pack

occurring in the industry.

Section 930.50(d) of the order requires the Board to meet no later

than September 15 to recommend final free and restricted percentages to

the Secretary for approval. The Board met on September 10-11, 1998, and

recommended final free and restricted percentages of 60 and 40,

respectively. The Board recommended that the interim percentages and

final percentages be the same percentages. At that time, the Board had

available actual production amounts to review and made the necessary

adjustments to the percentages.

The Secretary establishes final free and restricted percentages

through an informal rulemaking process. These percentages would make

available the tart cherries necessary to achieve the optimum supply

figure calculated earlier by the industry. The difference between any

final free market tonnage percentage designated by the Secretary and

100 percent is the final restricted percentage.

The Board used a revised optimum supply figure for its final free

and restricted percentage calculations. The figure is 288.6 million

pounds instead of the 287.4 million pound figure used in June. This is

because the 3-year average sales figure used at the June meeting by

necessity required an estimate of June 1998 sales. The 3-year average

sales figure used in the final calculations reflects actual sales

through the 1997-98 crop year.

The optimum supply, therefore is 288.6 million pounds. The actual

production recorded by the Board was 339.9 million pounds, which is a

47.4 million pound increase from the USDA crop estimate of 292.5

million pounds. The increase in the crop is due to very favorable

growing conditions in portions of the State of Michigan this season.

For the current crop year, 305.3 million pounds of tart cherries were

produced in the regulated districts.

A 38.8 million pound carryin (actual carryin as opposed to the 46

million pounds originally estimated) was subtracted from the optimum

supply of 288.6 million pounds, which yields a tonnage requirement for

the current crop year of 249.8 million pounds. Subtracted from the

actual production in all districts of 339.9 million pounds reported by

the Board is the tonnage required for the current crop year (249.8

million pounds) which results in a 90.1 million pound surplus. An

adjustment for changed economic conditions of 31.4 million pounds was

added to the surplus, pursuant to section 930.50 of the order. This

adjustment is discussed later in this document. After the adjustment,

the resulting total surplus is 121.5 million pounds of tart cherries.

The total surplus of 121.5 million pounds is divided by the 305.3

million pound volume of tart cherries produced in the regulated

districts. This results in a 40 percent restricted percentage and a

corresponding 60 percent free percentage for the regulated districts.

The final percentages are based on the Board's reported production

figures and the following supply and demand information for the 1998-99

crop year:

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

In millions

of pounds

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

Optimum Supply Formula:

(1) Average sales of the prior three years.............. 288.6

(2) Less carryout....................................... 0

(3) Optimum Supply calculated by the Board at the

September meeting...................................... 288.6

Final Percentages:

(4) Less carryin as of July 1, 1998..................... 38.8

(5) Tonnage required current crop year.................. 249.8

(6) Board reported production........................... 339.9

(7) Surplus (item 6 minus item 5)....................... 90.1

(8) Economic adjustment to surplus...................... 31.4

(9) Adjusted surplus (item 7 plus item 8)............... 121.5

(10) Production in regulated districts.................. 305.3

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

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

Percentages Free Restricted

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

(11) Final Percentages (item 9 divided by item 10) x

100................................................ 60 40

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

As previously mentioned, the Board recommended an economic

adjustment be made in computing both the

[[Page 64011]]

preliminary and final percentages for the 1998-99 crop year. This is

authorized under Sec. 930.50. These subsections provide that in its

deliberations of volume regulation recommendations, the Board consider,

among other things, the expected demand conditions for cherries in

different market segments and an analysis of economic factors having

bearing on the marketing cherries. Based on these considerations, the

Board may modify its marketing policy calculations to reflect changes

in economic conditions.

The order provides that the 3-year average of all sales be used in

determining the optimum supply of cherries. In recent seasons, however,

sales to export markets have risen dramatically. In 1997, export sales

of 61.1 million pounds were 379 percent of 1994 sales (16.1 million

pounds). The increase in export sales to those destinations exempt from

volume regulation (countries other than Canada, Japan, and Mexico) was

even greater, rising from 12.2 million pounds to 48.7 million pounds.

Export sales to countries other than Canada, Japan and Mexico were

exempt from volume regulations as a way for the tart cherry industry to

find and expand new markets for their products. Including this volume

of sales in the optimum supply formula, however, results in an

overestimate of the volume of tart cherries that can be profitably

marketed in unrestricted markets. Thus, the Board recommended adjusting

its estimate of surplus cherries by adding exempt export sales.

By recommending this marketing policy modification, the Board

believes that it will provide stability to the marketplace and the

industry will be in a better situation for future years since new

markets will have been developed. Board members were of the opinion

that, if this adjustment is not made, growers could be paid less than

their production costs, because handlers would suffer financial losses

that would probably be passed on. Handlers would have to meet their

reserve obligations by other means. In addition, the value of cherries

already in inventory could be depressed due to the overabundant supply

of available cherries, a result inconsistent with the intent of the

order and the Act.

The Department's ``Guidelines for Fruit, Vegetable, and Specialty

Crop Marketing Orders'' specify that 110 percent of recent years' sales

should be made available to primary markets each season before

recommendations for volume regulation are approved. This goal would be

met by the establishment of a preliminary percentage which releases 100

percent of the optimum supply and the additional release of tart

cherries provided under Sec. 930.50(g). This release of tonnage, equal

to 10 percent of the average sales of the prior three years sales, is

made available to handlers each season. The Board recommended that such

release shall be made available to handlers the first week of December

and the first week of May. Handlers can decide how much of the 10

percent release they would like to receive during the December and May

release dates. Once released, such cherries are released for free use

by such handler. Approximately 29 million pounds would be made

available to handlers this season in accordance with Department

Guidelines. This release would be made available to every handler and

released to such handler in proportion to its percentage of the total

regulated crop handled. If such handler does not take such handler's

proportionate amount, such amount shall remain in the inventory

reserve.

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 or regulatory 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 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 40 handlers of tart cherries who are

subject to regulation under the tart cherry marketing order and

approximately 1,400 producers of tart cherries in the regulated area.

Small agricultural service firms, which includes 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.

Board and subcommittee meetings are widely publicized in advance

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

are open to all industry members (including small business entities)

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.

The principal demand for tart cherries is in the form of processed

products. Tart cherries are dried, frozen, canned, juiced and pureed.

During the period 1993/94 through 1997/98, approximately 89 percent of

the U.S. tart cherry crop, or 281.1 million pounds, was processed

annually. Of the 281.1 million pounds of tart cherries processed, 63

percent was frozen, 25 percent canned and 4 percent utilized for juice.

The remaining 8 percent was dried or assembled into juice packs.

Based on National Agricultural Statistics Service data, acreage in

the United States devoted to tart cherry production has been trending

downward. In the ten-year period, 1987/88 through 1997/98, tart cherry

area decreased from 50,050 acres, to less than 40,000 acres. In 1997/

98, approximately 88 percent of domestic tart cherry acreage is located

in four States: Michigan, New York, Utah and Wisconsin. Michigan leads

the nation in tart cherry acreage with 67 percent of the total.

Michigan produces about 78 percent of the U.S. tart cherry crop each

year. In 1997/98, tart cherry acreage in Michigan decreased to 26,800

from 27,300 in the previous year.

In crop years 1987/88 through 1997/98, tart cherry production

ranged from a high of 359 million pounds in 1987/88 to a low of 189.9

million pounds in 1991/92. The price per pound to tart cherry growers

ranged from a low of 7.3 cents in 1987 to a high of 46.4 cents in 1991.

These problems of wide supply and price fluctuation in the tart cherry

industry are national in scope and impact. Growers testified during the

order promulgation process that the prices which they received often

did not come close to covering the costs of production. They also

testified that production costs for most growers range

[[Page 64012]]

between 20 and 22 cents per pound, which is well above average prices

received during 1993-1995.

The industry has demonstrated a need for an order during the

promulgation process of the marketing order because large variations in

annual tart cherry supplies tend to lead to fluctuations in prices and

disorderly marketing. As a result of these fluctuations in supply and

price, growers realize less income. The industry chose a volume control

marketing order to even out these wide variations in supply and improve

returns to growers. During the promulgation process, proponents

testified that small growers and processors would have the most to gain

from implementation of a marketing order because many such growers and

handlers had been going out of business due to low tart cherry prices.

They also testified that, since an order would help increase grower

returns, this should increase the buffer between business success and

failure because small growers and handlers tend to be less capitalized

than larger growers and handlers.

In discussing the possibility of marketing percentages for the

1998-99 crop year, the Board considered the following factors contained

in the marketing policy: (1) The estimated total production of tart

cherries; (2) the estimated size of the crop to be handled; (3) the

expected general quality of such cherry production; (4) the expected

carryover as of July 1 of canned and frozen cherries and other cherry

products; (5) the expected demand conditions for cherries in different

market segments; (6) supplies of competing commodities; (7) an analysis

of economic factors having a bearing on the marketing of cherries; (8)

the estimated tonnage held by handlers in primary or secondary

inventory reserves; and (9) any estimated release of primary or

secondary inventory reserve cherries during the crop year.

The Board's review of the factors resulted in the computation and

announcement in June 1998 of preliminary free and restricted

percentages and in the final and free and restricted percentages

proposed in this rule (60 percent free and 40 percent restricted).

The Board discussed the demand for tart cherries is inelastic at

high and low levels of production. At the extremes, different factors

become operational. The order's promulgation record stated that in very

short crops there is limited but sufficient exclusive demand for

cherries that can cause processor prices to double and grower prices to

triple. In the event of large crops, there seems to be no price low

enough to expand tart cherry sales in the marketplace sufficient to

market the crops.

In considering alternatives, the Board discussed not having volume

regulation this season. Board members stated that no volume regulation

would be detrimental to the tart cherry industry. Returns to growers

would not even cover their production costs for this season. Growers

would continue to go out of business since many would not receive any

money for their crop.

The Board discussed the fact that the general quality of the crop

for this season is fair to good. Alternative products used by food

processing and preparation establishments instead of cherries are

apples and blueberries which can be substituted for cherries if

cherries cannot be sold at consistent prices.

As mentioned earlier, the Department's ``Guidelines for Fruit,

Vegetable, and Specialty Crop Marketing Orders'' specify that 110

percent of recent years' sales should be made available to primary

markets each season before recommendations for volume regulation are

approved. The quantity available under this rule is 110 percent of the

quantity shipped in the prior three years.

The free and restricted percentages proposed to be established by

this rule release the optimum supply and apply uniformly to all

regulated handlers in the industry, regardless of size. There are no

known additional costs incurred by small handlers that are not incurred

by large handlers. The stabilizing effects of the percentages impact

all handlers positively by helping them maintain and expand markets,

despite seasonal supply fluctuations. Likewise, price stability

positively impacts all producers by allowing them to better anticipate

the revenues their tart cherries will generate.

The Department has not identified any relevant Federal rules that

duplicate, overlap, or conflict with this regulation.

While the level of benefits of this rulemaking is difficult to

quantify, the stabilizing effects of the volume regulations impact both

small and large handlers positively by helping them maintain markets

even though tart cherry supplies fluctuate widely from season to

season.

In compliance with Office of Management and Budget (OMB)

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

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

recordkeeping requirements have been previously approved by OMB and

assigned OMB Number 0581-0177.

There are some reporting, recordkeeping and other compliance

requirements under the marketing order. The reporting and recordkeeping

burdens are 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, similar marketing order programs,

reports and forms are periodically studied to reduce or eliminate

duplicate information collection burdens by industry and public sector

agencies. This rule does not change those requirements.

A 15-day comment period is provided to allow interested persons to

respond to this proposal. Fifteen days is deemed appropriate because

this rule needs to be in place as soon as possible to achieve its

intended purpose of making the optimum supply quantity computed by the

Board available to handlers marketing 1998-99 crop year cherries. All

written comments timely received will be considered before a final

determination is made on this matter.

List of Subjects in 7 CFR Part 930

Marketing agreements, Reporting and recordkeeping requirements,

Tart cherries.

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

proposed to be 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.

2. Subpart--Supplementary Regulations is added, consisting of

Sec. 930.251, to read as follows:

Subpart--Supplementary Regulations

Note: This section will not appear in the annual Code of Federal

Regulations.

Sec. 930.251 Final free and restricted percentages for the 1998-99

crop year.

The final percentages for tart cherries handled by handlers during

the crop year beginning on July 1, 1998, which shall be free and

restricted, respectively, are designated as follows: Free percentage,

60 percent and restricted percentage, 40 percent.

[[Page 64013]]

Dated: November 9, 1998.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 98-30672 Filed 11-17-98; 8:45 am]

BILLING CODE 3410-02-P