Karnal Bunt; Compensation for Wheat Seed and Straw in the 1995- 1996 Crop Season

Federal RegisterJan 9, 1998

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DEPARTMENT OF AGRICULTURE

Animal and Plant Health Inspection Service

7 CFR Part 301

[Docket No. 96-016-25]

RIN 0579-AA83

Karnal Bunt; Compensation for Wheat Seed and Straw in the 1995-

1996 Crop Season

AGENCY: Animal and Plant Health Inspection Service, USDA.

ACTION: Final rule.

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SUMMARY: We are amending the Karnal bunt regulations by adding

compensation provisions for growers and seed companies for the loss in

value of wheat seed and straw in the 1995-1996 crop season. The payment

of compensation is necessary in order to reduce the economic impact of

the Karnal bunt regulations on affected wheat growers and other

individuals.

EFFECTIVE DATE: December 23, 1997.

FOR FURTHER INFORMATION CONTACT: Mr. Mike Stefan, Operations Officer,

Domestic and Emergency Operations, PPQ, APHIS, 4700 River Road Unit

134, Riverdale, MD 20737-1236, (301) 734-8247, or e-mail:

[email protected].

SUPPLEMENTARY INFORMATION:

Background

Karnal bunt is a fungal disease of wheat (Triticum aestivum), durum

wheat (Triticum durum), and triticale (Triticum aestivum X Secale

cereale), a hybrid of wheat and rye. Karnal bunt is caused by the smut

fungus Tilletia indica (Mitra) Mundkur and is spread by spores,

primarily through the movement of infected seed. In the absence of

measures taken by the U.S. Department of Agriculture (USDA) to prevent

its spread, the establishment of Karnal bunt in the United States could

have significant consequences with regard to the export of wheat to

international markets. The regulations regarding Karnal bunt are set

forth in 7 CFR 301.89-1 through 301.89-14. Among other things, the

regulations define areas regulated for Karnal bunt and restrict the

movement of certain regulated articles, including wheat seed and grain,

from the regulated areas.

On May 6, 1997, we published a document in the Federal Register (62

FR 24745-24753, Docket No. 96-016-17, effective April 30, 1997) making

final an interim rule that amended the regulations to provide

compensation for certain growers and handlers of wheat grain, owners of

grain storage facilities, and flour millers in order to mitigate losses

and expenses incurred in the 1995-1996 crop season because of actions

taken by the Secretary to prevent the spread of Karnal bunt. The final

rule also added compensation provisions for handlers of wheat grain

that was tested and found negative for Karnal bunt and participants in

the National Karnal Bunt Survey whose wheat grain tested positive for

Karnal bunt in the 1995-1996 crop season. These compensation

regulations are set forth at 7 CFR 301.89-14.

On July 30, 1997, we published in the Federal Register (62 FR

40756-40763, Docket No. 96-016-21) a proposal to amend the regulations

by adding compensation provisions for wheat seed growers and seed

companies for the loss in value of wheat seed in the 1995-1996 crop

season. We also proposed to add compensation provisions for the loss in

value of wheat straw in the 1995-1996 crop season.

We solicited comments concerning our proposal for 30 days ending

August 29, 1997. We received six comments by that date. They were from

wheat growers, plant breeders, seed companies, and seed industry

associations. All the comments recommended additions or revisions to

the compensation provisions. They are discussed below.

Comments Resulting in Changes to the Proposed Rule

Seed That Is Not Sold--Proposed Sec. 301.89-14(e)

With one exception, our proposed compensation for seed companies

addressed loss in value of wheat seed that was sold. As an exception,

we also proposed that a seed company that did not sell its wheat seed

could receive compensation at $7.00 per bushel for private variety seed

and $4.90 per bushel for public variety seed. We explained that these

amounts represent the seed margins of $4.50 for private variety seed

and $2.40 for public variety seed plus the maximum $2.50 per bushel

compensation for wheat grain provided in the regulations (see

Sec. 301.89-14(b) of the regulations). We stipulated that compensation

would only be paid if the seed company has destroyed the wheat by

burying it in a sanitary landfill or other site that has been approved

by the Animal and Plant Health Inspection Service (APHIS).

We explained in the preamble to the proposal that this compensation

would be necessary in a small number of cases where seed companies had

their seed treated with a fungicide and bagged. Most seed companies did

not treat their 1995-1996 crop season seed. Some seed companies,

however, had seed from past crop seasons on hand that had already been

treated in this manner. Treated seed cannot be used as grain, so if a

seed company was unable or chose not to market treated seed for

planting within the regulated areas, the only option for disposal of

the treated seed was burial.

Two commenters said that the compensation offered in this

circumstance should also include the cost of treating and bagging the

seed, as well as the cost of cleaning it to separate out broken kernels

and foreign matter prior to treating. These costs were incurred with

the expectation of being able to sell the seed at a price that would

allow the seed company to recover the costs. These costs are not

accounted for in the seed margin that we factored into the proposed

compensation amount.

In response to these comments, we are amending the compensation

amounts for seed companies that buried their seed instead of selling

it. We have determined that the average cost of cleaning, treating, and

bagging seed is $2.40 per bushel (based on $1.20 per bushel for

cleaning, $.60 per bushel for treating, and $.60 per bushel for

bagging). We are adding this amount to the proposed compensation

amounts, so that the compensation rates for seed companies that do not

sell their seed will equal $9.40 per bushel for private

[[Page 1322]]

variety seed and $7.30 per bushel for public variety seed.

The preamble to the proposed rule explained that this compensation

would apply to a small number of cases where seed companies had already

cleaned, treated with a fungicide, and bagged their seed. However, the

proposed rule did not limit the compensation to only those cases.

Section 301.89-14(e) of the proposed rule stated that ``Seed companies

are also eligible to receive compensation under the following

circumstance: If a seed company is not able to or elects not to sell

1995-1996 crop season wheat grown for propagative purposes or

propagative wheat inventories in their possession that were unsold as

of March 1, 1996, the compensation rate will equal * * *.'' Because the

compensation in this final rule has been increased to provide for the

cleaning, treating, and bagging of seed, the final rule limits

compensation to buried seed that has been cleaned, treated, and bagged.

We are not aware of any reason that a seed company would have been

compelled or would have considered it more profitable to bury its seed

rather than sell it in the 1995-1996 crop season, other than if the

seed was previously cleaned, treated, and bagged. In fact, one of the

comments on the proposed rule pointed out that a seed company trying to

mitigate its losses would not dispose of untreated seed by burying it

because the seed company would lose the salvage value. Therefore,

Sec. 301.89-14(e) of this final rule states that a seed company is

eligible for compensation if the seed company has wheat that cannot be

sold for use as grain or animal feed because it was previously cleaned,

treated, and bagged.

The same two comments also requested that compensation for cleaned,

treated, and bagged seed that was not sold include the cost of

disposing of the wheat. We are not making any changes to the proposal

in response to this request. Section 301.89-14(c) of the regulations

provides compensation for 1995-1996 crop season wheat grain that was

buried because it could not be sold, at the rate of $2.50 per bushel.

This rate does not include the cost of disposal. It would be

inconsistent to compensate seed companies for disposal costs for the

burial of wheat seed when we did not compensate owners of grain that

was buried for disposal.

Certified Seed

Several commenters said that we should specify that compensation

will be paid only on ``certified'' seed. Certified seed is wheat that

has been classified as ``certified'' by a State seed certification

agency. The seed production and certification process can vary. We have

attempted to provide a general description of the process below.

Certified seed is the final classification stage in the seed

production process. The other classification stages are breeder,

foundation, and registered seed. Breeder, foundation, and registered

seed inventories are often produced by the seed company and are

typically kept in relatively small quantities as stock for producing

more seed. Certified seed is the progeny of breeder, foundation, or

registered seed, and is the class of seed sold to farmers for growing

wheat grain. Typically, seed companies contract with growers to produce

certified seed. Before classifying seed as certified, the seed

certification agency considers several factors, including the class of

seed from which the seed to be certified will be grown and the

condition of the field in which the seed to be certified is planted.

The seed certification agency also analyzes the harvested seed for

genetic and mechanical factors relating to specific seed standards.

Several commenters said that compensating growers and seed

companies only for certified seed would ensure that wheat being

compensated was actually grown for use as seed, and not as grain. This

would help prevent false claims for compensation. The commenters said

that seed certification is the only clear establishment of intent to

produce wheat as a seed crop.

In the proposed rule, we specified that, to claim compensation for

wheat seed, a copy of the contract under which the wheat was grown must

be provided with each compensation claim. We believed that a contract

would show that the wheat for which compensation is being claimed was

intended to be sold as seed. Some commenters said, however, that seed

production contracts could be easily forged, resulting in illegitimate

claims.

We agree with commenters that requiring that seed be certified in

order to be eligible for compensation is the most reliable

establishment of intent to produce wheat as a seed crop. However, some

seed companies did not complete the seed certification process because

of the Karnal bunt quarantine. As explained above, the seed

certification process consists of several steps. The final step is

usually laboratory analysis of the harvested wheat for genetic and

mechanical factors relating to specific seed standards. Prior to

completion of this final step, the wheat is considered ``certifiable.''

However, seed that is grown with the intention of producing breeder,

foundation, or registered seed is also classified as ``certifiable'' up

to the point that it has completed the laboratory analysis step of the

seed certification process. The intent of the proposed rule was to

offer compensation only for seed in the final stage of seed production

(that is, commercially available seed). We did not intend to offer

compensation for seed still in non-final stages (that is, breeder,

foundation, or registered seed).

With all this in mind, and in response to commenters concerns, we

are amending the proposed rule to require that seed be either certified

or grown with the intention of producing certified seed in order to be

eligible for compensation. We will require this for both grower and

seed company compensation. Throughout the rule, we will insert language

indicating that compensation is for certified seed or seed grown with

the intention of producing certified seed only. This language will

replace proposed language referring to ``wheat grown for propagative

purposes.'' In addition, in order to claim compensation, we will

require that growers and seed companies submit documentation that

provides evidence that the wheat being considered for compensation is

classified as certified seed or is considered certifiable as certified

seed by a State seed certification agency. Seed certification agencies

usually require that applicants for seed certification keep records of

the amount of certifiable seed harvested. This documentation may

include one or more of the following types of documents: An application

to the State seed certification agency for field inspection (to show

that seed is eligible for certification); a bulk sale certificate;

certification tags or labels issued by the State seed certification

agency; or a document issued by the State seed certification agency

verifying that the wheat is certified seed. Growers who do not have

copies of such documentation can obtain it from the seed company or

from their State's seed certification agency.

Private Variety Seed

The proposed rule provided different compensation rates to seed

companies depending on whether their seed was private variety seed or

public variety seed. Specifically, the seed margin used in the

compensation calculations was set by the proposal at $4.50 for private

variety seed and $2.40 for public variety seed. We explained in the

preamble to the proposal that private variety seed is seed that has a

plant variety protection

[[Page 1323]]

patent. The seed margin for private variety seed was set higher than

the seed margin for public variety seed to reflect premiums paid by the

seed company to the private firm that owns the plant variety protection

patent.

Several of the commenters pointed out to us that not all private

variety seed is patented. Usually, private varieties are protected by a

patent. However, there are some private varieties that do not have

patent protection. For example, some varieties are developed to be so

specific to the needs of a particular customer that a patent is not

deemed necessary. Another example is that a private individual (such as

someone doing research at a university) may develop a variety that they

do not wish to patent. The individual may sell the rights to this

variety to a seed company. Such varieties may be recognized within the

industry as being ``owned'' by a seed company, even though they are not

protected by a patent. Commenters said that, among seed industry

groups, private variety seed is defined simply as a variety owned by a

private individual or company.

We agree with commenters that our description of private variety

seed was incomplete. Public varieties of seed are usually developed by

State or Federal government researchers, or by a university. Public

variety seed is considered to be owned by the public and is available

to anyone for planting and production. Because it is owned by the

public, no private individual must be reimbursed for the development

costs. In contrast, private varieties of seed are usually developed by

a private individual or company. Seed margins for private variety seed

are intended to reimburse the individual or company for the costs of

developing the seed variety. In the case of patented varieties, the

higher seed margin reflects premiums paid by the seed company to the

developer who owns the patent. In other cases (as described above), the

seed company may have purchased the rights to the variety from a

developer. In such cases, the higher seed margin reflects the up front

costs of the seed company for purchasing the seed variety.

Our explanation of private variety seed was in the preamble to the

proposed rule. Because the actual rule did not define private variety

seed, it is not necessary for us to make any changes to the rule in

response to this comment. However, in implementing this final rule, we

will consider any variety that is owned by a private individual or

company to be a private variety. USDA's Farm Service Agency (FSA) will

be processing compensation claims under this rule. The State FSA

offices will make the determination as to what varieties are private

and what varieties are public.

Seed Premium Not Specified in Contract

For compensation for growers, we proposed that ``the seed premium

specified in the contract'' is to be used for certain compensation

calculations. For example, compensation for growers under proposed

Sec. 301.89-14(d)(1)(i) would equal the contract price (CP) including

the seed premium specified in the contract (SP)(contract) minus the

higher of either the salvage value (SV) plus the actual seed premium

received by the grower (SP)(actual), or the actual price received by

the grower (AP) plus the actual seed premium received by the grower

(SP)(actual). The equation for this compensation would be: Compensation

rate = [CP + SP(contract)]--higher of [SV + SP(actual)] or [AP +

SP(actual)].

One commenter said that this would be a problem because not all

seed production contracts specify a seed premium separately. In these

cases, the seed premium is included in the contract price. In response

to the comment, we are making several changes to the proposed rule to

accommodate these cases. Section 301.89-1 of the Karnal bunt

regulations already defines ``contract price'' to mean the net price

after adjustment for any premiums or discounts stated in the contract.

Under this definition, seed premiums are considered part of the

contract price. In the calculations, we will continue to mention the

seed premium to make it clear that the seed premium must always be

included in the contract price, even if it is specified in the contract

separately. However, we are amending the proposed rule so that

calculations will use only the contract price, with a phrase explaining

that the contract price must include the seed premium if one is

specified in the contract. Similarly, because the actual seed premium

received by the grower may not always be specified on the receipt for

the final sale of the wheat, we would make similar changes to the

calculations that use ``actual price received.'' In addition, some

calculations require use of either the seed premium specified in the

contract or the actual seed premium received by the grower, separately

from the contract price or the actual price received. In cases where

there is no seed premium specified, we will use $.30 in the

calculation. This represents the average seed premium received by

growers in the regulated area.

For example, proposed Sec. 301.89-14(d)(1)(i), cited above, will

read as follows in this final rule: The compensation rate will equal

the contract price (CP), including the seed premium if specified in the

contract, minus the higher of either the salvage value (SV) plus the

actual seed premium received by the grower (SP)(actual), or the actual

price received by the grower (AP), including any seed premium specified

on the receipt for the final sale of the wheat. If the actual seed

premium received by the grower is not specified on the receipt for the

final sale of the wheat, the seed premium will be set at $.30 for the

compensation calculation. The equation for this compensation will be:

Compensation rate = CP - higher of [SV + (SP(actual) or $.30)] or [AP].

In addition, we are making a change to the compensation provisions

for seed companies. Under proposed Sec. 301.89-14(d)(3)(i), a seed

company would be eligible for compensation if the seed company honored

the contract with the grower by paying the grower the full contract

price, including the seed premium. For the same reasons discussed

above, this final rule will state that a seed company is eligible for

compensation if the seed company paid the grower the full contract

price, ``including the seed premium if a seed premium is specified in

the contract.''

Binned Seed Inventories

One commenter requested that we remove the requirement in proposed

Sec. 301.89-14(d)(7) that, to claim compensation, seed companies must

provide a copy of the contract under which the wheat was grown. The

commenter said that a common practice of seed companies is to ``bin''

bulk seed inventories, meaning that harvested seed from multiple

growers (and contracts) is combined together in the same storage bin.

This would make it impossible for seed companies to specifically

associate a particular grower contract with a specific volume of seed.

The commenter said that the requirement that seed companies must

``certify to FSA that the propagative wheat was in the seed company's

possession as of March 1, 1996'' should be adequate.

We believe that the commenter is referring to seed inventories from

past crop seasons that have been binned. Compensation provisions for

seed companies for seed inventories from past crop seasons appear in

proposed Sec. 301.89-14(d)(3)(ii), (d)(4), (d)(5), and (e). To claim

compensation for seed inventories, the proposed rule stated that seed

companies must certify to FSA that the wheat was in the seed

[[Page 1324]]

company's possession as of March 1, 1996. The proposed rule also

requires that the seed company provide a contract under which the wheat

was grown. We understand that this may be difficult if seed inventories

have been binned, because seed companies may not be able to tell which

grower's seed was sold the previous year and which grower's seed was

kept in inventory.

We have reviewed the proposed rule, and have determined that a copy

of the contract under which the wheat was grown is not necessary to

process compensation claims for seed inventories from past crop

seasons. However, our review of the proposed rule also revealed an

oversight in regard to compensation for seed companies for 1995-1996

crop season seed. Section 301.89-14(d)(3)(i) of the proposal stated

that the seed company must have paid the grower the full contract price

for the wheat. In this case, a copy of the contract is necessary to

verify the full contract price. Proposed Sec. 301.89-14(d)(4) (``Seed

companies that sold propagative wheat for nonpropagative purposes and

that have claimed compensation'') and (d)(5) (``Seed companies that

sold propagative wheat for propagative purposes'') should have also

contained the requirement that the seed company must have paid the

grower the full contract price on the wheat seed in order to claim

compensation. This requirement is necessary because if a seed company

did not pay the grower the full contract price, the seed company would

in effect have already been compensated for the loss in value of the

wheat seed.

The failure to include this requirement in proposed Sec. 301.89-

14(d)(4) and (d)(5) was an oversight. This final rule, therefore,

requires that, to claim compensation for 1995-1996 crop season wheat

seed under Sec. 301.89-14(d)(4) and (d)(5), the seed company must have

paid the grower the full contract price, and must provide a copy of the

contract under which the wheat was grown. For seed inventories from

past crop seasons, seed companies would have already paid growers of

the seed in the year it was harvested (prior to the discovery of Karnal

bunt). Any variation in payment from the contract price on the

inventories would not, therefore, have been related to Karnal bunt,

making it unnecessary for FSA to verify the contract price. For this

reason, we are removing the requirement that seed companies claiming

compensation for seed inventories from past crop seasons provide a copy

of the contract under which the wheat was grown.

Karnal Bunt Certificate

The proposed rule also required that claimants provide a copy of

the Karnal bunt certificate issued by APHIS showing whether the wheat

tested positive or negative for Karnal bunt. The salvage values used in

the proposed compensation calculations vary depending on whether the

wheat tested positive or negative for Karnal bunt. A Karnal bunt

certificate is the most reliable documentation of the Karnal bunt test

results.

One commenter said that binning (as described previously in this

document) will make it difficult to associate Karnal bunt certificates

with a particular volume of seed inventory. Further, the commenter said

that seed inventories on hand as of March 1, 1996, were selectively

sampled by APHIS for Karnal bunt testing. Therefore, not all

inventories have a corresponding Karnal bunt certificate. The commenter

also said this same requirement caused several weeks of delays in

processing claims for 1995-1996 crop season wheat grain and that,

ultimately, it will only prove what is already known, that only wheat

that tested negative for Karnal bunt was allowed to be saved as seed.

This commenter addresses several issues. First, the commenter's

assertion that only wheat that tested negative for Karnal bunt was

allowed to be saved as seed is true. However, the proposed rule

included compensation for wheat that was grown with the intention of

producing certified seed, whether it tested positive or negative for

Karnal bunt. If it tested positive for Karnal bunt, it was likely sold

for use as animal feed, and would be compensated under proposed

Sec. 301.89-14(d)(2) for growers or Sec. 301.89-14(d)(3) or (d)(4) for

seed companies. Regardless, to determine the correct compensation

amount, we would need to know whether the seed tested positive or

negative for Karnal bunt.

Second, selective sampling of seed inventories was done by APHIS;

however, a positive or negative status for Karnal bunt was determined

for all seed inventories. For example, a lot of seed may have been

composed of 2000 bags of seed. By March 1996, these bags of seed from a

single lot could have potentially been held in inventory in several

different locations. APHIS would have selectively sampled a number of

bags of seed from the lot, in the same or in different locations. Based

on the results of those samples, the entire lot would have been

considered positive or negative for Karnal bunt.

Third, the commenter is correct that some delays were experienced

when processing compensation for a small amount of 1995-1996 crop

season wheat grain because a Karnal bunt certificate was never issued

for this wheat. In the 1995-1996 crop season, a Karnal bunt certificate

was issued only on wheat that was tested for movement outside of the

regulated area. In a few cases in the 1995-1996 crop season, wheat

grain that was considered negative based on a field test was sold

within the regulated area, and so no Karnal bunt certificate was issued

for it. Those cases were few, and we were able to handle them on a

case-by-case basis to determine what other documentation was available

to verify the Karnal bunt status of the wheat.

We agree with the commenter that a similar situation may occur when

we process seed compensation claims. As described previously in regard

to grain, any wheat that was intended for movement outside of the

regulated area was tested for Karnal bunt and issued a Karnal bunt

certificate at the time of movement. However, there are several

circumstances under which wheat grown with the intention of producing

certified seed would not have been issued a Karnal bunt certificate.

First, because the Karnal bunt regulations prohibited the movement of

wheat outside the regulated area if it was to be used as seed for

planting, no Karnal bunt certificates were issued on wheat that was

tested as seed. Most such seed that tested positive was sold within the

regulated area for use as animal feed; the balance of positive testing

seed was buried or kept in inventory. Some seed that tested negative

for Karnal bunt was sold for planting within the regulated area; some

was sold as grain for milling within the regulated area (if it could

not be marketed as seed); some was kept in inventory. A Karnal bunt

certificate would not have been issued on such seed.

We are adding several sentences to the regulations to accommodate

claimants who do not have Karnal bunt certificates for their wheat. All

wheat that tested positive for Karnal bunt in the 1995-1996 crop season

was moved under a limited permit, even within the regulated area. The

limited permits stated whether the wheat being moved was positive for

Karnal bunt. We are adding a sentence to Sec. 301.89-14(d)(7) (``To

claim compensation'') to state that if the grower or seed company moved

its wheat only within the regulated area, and therefore, does not have

a corresponding Karnal bunt certificate for the wheat for which

compensation is being claimed, a limited permit stating that the wheat

was positive for Karnal bunt will be accepted in lieu of a Karnal

[[Page 1325]]

bunt certificate. Any wheat that was moved only within the regulated

area and that was not moved under a limited permit will be considered

negative for Karnal bunt.

Claims Deadline

In the proposed rule, we set the deadline for claiming compensation

at on or before 60 days after the effective date of the final rule. We

also said that the Administrator could extend the deadline, upon

request in specific cases, when unusual or unforeseen circumstances

occur which prevent or hinder a claimant from requesting compensation

prior to that date.

Several commenters requested that we extend the deadline in the

final rule to on or before 120 days after the effective date of the

final rule. This would give growers and seed companies more time to

collect the required paperwork and submit their claims to FSA. Based on

our past experience in receiving compensation claims, we believe that

extending the deadline would be helpful to affected growers and seed

companies. It would also give the FSA offices more time to familiarize

themselves with the compensation regulations for seed and straw

following the effective date of the final rule. Therefore, we are

extending the deadline for claiming compensation to on or before 120

calendar days after the effective date of the final rule. We will

retain the option for the Administrator to extend the deadline, upon

request in specific cases, when unusual or unforeseen circumstances

occur which prevent or hinder a claimant from requesting compensation

prior to that date.

Comments Not Resulting in Changes to the Proposed Rule

We received numerous comments requesting compensation for losses

not addressed in the proposed rule, as well as requests for changes in

the compensation amounts offered in the proposal. We recognize that the

compensation we have offered for wheat seed and straw does not fully

account for every loss or expense due to Karnal bunt in the 1995-1996

crop season. We regret that we cannot offer compensation for every loss

experienced by growers and seed companies resulting from Karnal bunt.

However, we believe the compensation provisions in this final rule do

significantly mitigate losses due to the actions taken by USDA to

control Karnal bunt. Before addressing each of the remaining comments

specifically, we offer a general description of the rationale behind

the Karnal bunt compensation program to date.

In the absence of measures taken by USDA to prevent the spread of

Karnal bunt, the establishment of Karnal bunt in the United States

would have significant consequences with regard to marketing wheat in

the United States and with regard to the export of U.S. wheat to

international markets. Approximately 50 percent of U.S. wheat exports

are to countries that maintain restrictions against wheat imports from

countries where Karnal bunt is known to occur. Upon discovering Karnal

bunt in Arizona in March 1996, quarantine of affected areas and

emergency actions were necessary to maintain the integrity of the wheat

industry in the United States in order to preserve international

markets, both for wheat within the regulated areas and for wheat

produced in other parts of the country. The Karnal bunt regulations

that were initially established were necessarily broad due to the lack

of data available at the time as to the extent of the infestation. The

discovery of Karnal bunt and subsequent quarantine and emergency

actions occurred after production and marketing decisions had been

made. Producers and other affected individuals had little time or

ability to avoid the unexpected costs or pass those costs on to others

in the marketing chain.

In previous Karnal bunt compensation rules, we have explained that

compensation to mitigate certain losses has been offered to affected

parties in the regulated areas in order to alleviate some of these

hardships and to ensure full and effective compliance with the Karnal

bunt regulatory program. The payment of compensation is in recognition

of the fact that while benefits from regulation accrue to a large

portion of the wheat industry outside the regulated areas, the

regulatory burden falls predominantly on a small segment of the

affected wheat industry within the regulated area.

APHIS identified three principles for deciding whether to provide

compensation. First, compensation may be appropriate where quarantine

and emergency actions cause losses over and above those that would

result from the normal operation of market forces. Payment of

compensation would reflect the incremental burdens of complying with

regulatory requirements insofar as market forces would not otherwise

impose similar or analogous costs. Second, compensation may be

appropriate where parties undertake actions that confer significant

benefits on others. Under this principle, payment of compensation would

be intended to overcome the usual disincentives to produce such

benefits. Third, compensation may be appropriate where a small number

of parties necessarily bear a disproportionate share of the burden of

providing such benefits. This principle rests on the widely shared

belief that burden-sharing is a fundamental principle of equity.

Individual decisions regarding what specific losses to compensate

and how much compensation to offer in each case were made in line with

the above basic principles, which describe the goals of compensation. A

top equity priority was compensation for wheat and other articles the

Agency ordered destroyed or prohibited movement. Compensation amounts

took into account the need to mitigate real losses caused by the

regulations, so that regulated parties would not have a strong economic

incentive to avoid compliance. At the same time, amounts were not set

at a high enough rate to establish a ``bounty'' that would encourage

fraudulent claims or behavior that would result in increases in

contaminated wheat or other articles eligible for compensation.

Several comments on the proposed rule requested compensation for

losses not addressed in the proposed rule, including demurrage charges

on railcars, the cost of cleaning and sanitizing railcars prior to

loading, declines in transporter operations due to delays caused by the

Karnal bunt regulations, and extra storage costs due to the shipping

delays. Commenters also requested compensation for losses incurred at

various stages of seed production, including losses caused by

interruption of seed increase programs, destruction and/or fumigation

of research nurseries and resulting loss of germplasm, and loss of

future royalties from destroyed seed varieties still in the development

stages. Commenters further requested compensation for loss of the

ability to ``conduct business as usual'' outside the regulated area.

One commenter requested compensation for loss of export seed markets.

We have considered all of these comments very carefully, but we are

not making any changes to the compensation regulations in response to

these comments. Again, we recognize that the compensation we have

offered does not fully account for every loss or expense due to Karnal

bunt. However, we believe the compensation provisions in this final

rule do significantly mitigate losses due to the actions taken by USDA

to control Karnal bunt.

In regard to the request for compensation for demurrage charges on

[[Page 1326]]

railcars, cleaning of railcars, declines in transporter operations, and

extra storage, we did not offer compensation for similar costs and

losses related to wheat grain. In regard to requests for compensation

for losses incurred at various stages of seed production, the loss in

value of certified, market ready seed is the most quantifiable and

direct loss associated with the actions taken by the Department to

prevent the spread of Karnal bunt. For this reason, this rule provides

compensation for loss in value of wheat seed that was intended to be

sold in the 1995-1996 crop season. Many losses connected with seed in

other stages of production are less quantifiable and may have been

otherwise imposed by market forces, such as market demand and prices

over the long term. Further, the eventual impact of these types of

losses will likely be alleviated by reductions in the restrictions on

the movement of seed from areas regulated for Karnal bunt.

One commenter said that the Regulatory Flexibility Analysis in the

proposed rule did not include a discussion of numerous impacts on the

wheat seed industry that resulted from Karnal bunt. Losses specifically

referred to by the commenter are destruction of research nurseries,

costs of additional required treatments, nursery seed losses of

research and development companies, lost cleaning revenues of seed

companies due to reduced seed sales, and carry costs paid to maintain

seed inventories.

The Regulatory Flexibility Analysis that appeared in the proposed

rule referenced a more detailed analysis that was published in the

Federal Register on May 6, 1997 (62 FR 24753-24765, Docket No. 96-016-

20). However, as the commenter says, neither of these analyses provides

a detailed discussion of losses for which we did not intend to provide

compensation. The intent of this rule is to compensate for the loss in

market value of wheat seed and straw in the 1995-1996 crop season. The

decision of intent was made in line with several criteria for

compensation, which have been discussed earlier in this document. For

this reason, the discussion of losses to the seed industry as a result

of Karnal bunt were limited, both in the proposed rule and in the

Regulatory Flexibility Analysis published on May 6, to losses in market

value of 1995-1996 crop season wheat seed. We stated in the analysis

published on May 6 that other economic losses were suffered by the seed

industry due to Karnal bunt. These are mainly long-term losses,

including costs to relocate wheat breeding operations outside the

regulated areas and loss of breeding stock under development. The costs

mentioned by the commenter would also be long term losses potentially

suffered by the seed industry in the regulated area. As discussed

previously in this document, the Karnal bunt compensation program for

seed is intended to cover only for the loss in value of market-ready

seed.

One commenter requested compensation for barley seed. The commenter

said that types of planting seed other than wheat, most notably barley,

were affected by the regulations for Karnal bunt; the commenter further

stated that he has not been able to sell barley seed outside the

regulated area since the original Karnal bunt quarantine was issued,

and that his barley seed inventories had to be sold as grain.

Barley is not a regulated article under the Karnal bunt

regulations. Therefore, the Karnal bunt regulations place no

restrictions on the movement of barley from the regulated area. We are

aware that, primarily early in the 1996 harvest, some countries (for

example, Canada) prohibited the importation of anything from the

regulated area that would fall under the category of small grains.

Wheat, barley, and oats are small grains. These importing countries

were fearful that Karnal bunt could infect or be spread by means of any

small grain. However, the Karnal bunt fungus only affects wheat and

wheat hybrids. Barley, oats, and other small grains are not affected by

Karnal bunt. In general, importers from other countries recognized

this, and growers and seed companies in the regulated area experienced

little difficulty in exporting their barley and oat seed. Because the

Karnal bunt regulations placed no restrictions on the movement of

barley from the regulated area, we will not offer compensation for this

loss.

Another commenter requested compensation for winter seed increases

of wheat, barley, oats, and triticale that could not be shipped outside

the regulated area. Winter seed increases are often grown in Arizona

and other parts of the regulated area for seed companies in northern

climates (such as Minnesota or Canada). These companies contract with

growers in southern climates to grow seed during the winter months in

order to increase their seed stock. Typically, winter seed increases

are not certified, commercially available seed; winter seed increase

programs are more likely used to increase foundation or registered seed

stock.

After the 1996 harvest, some crops of winter seed increases could

not be moved out of the regulated area. Because winter seed increases

were not intended for sale as certified seed during the 1995-1996 crop

season, we are not compensating for most of these situations. However,

if the winter seed increase was for certified seed, the grower who was

unable to move the seed out of the regulated area would be eligible for

compensation. In regard to barley and oat seed increases, the Karnal

bunt regulations did not place restrictions on the movement of such

seed. For this reason, we are not offering compensation. In regard to

triticale (which is a regulated article), we are not aware of any

attempts to move triticale from the regulated area in the 1995-1996

crop season. Even so, winter seed increases of triticale were most

likely not intended for sale as certified seed during the 1995-1996

crop season, and would therefore not be eligible for compensation.

One commenter requested that we consider compensation for losses

caused by the delay in paying compensation until almost a year and a

half after the losses were incurred.

Karnal bunt was first discovered in the United States in Arizona on

March 8, 1996, and a quarantine and regulations were promulgated soon

after. On July 5, 1996, we published an interim rule in the Federal

compensation to certain wheat grain growers and handlers, owners of

grain storage facilities, and flour millers. Because the seed industry

is complex, we needed more time to develop a compensation plan for seed

growers and seed companies. Some growers and seed companies may have

experienced certain kinds of losses due to uncertainty over what losses

they would eventually be compensated for. We regret that such losses

occurred as a result of the delay in compensation for 1995-1996 crop

season seed. However, the intent of the Karnal bunt compensation

program for seed is to compensate for the loss in value of seed that

was intended for sale in the 1995-1996 crop season. We are not making

any changes to the proposed rule based on this comment.

One commenter noted that the proposed rule estimated that the loss

in seed value in the 1995-1996 crop season was between $5 and $6

million. The commenter said they have also heard USDA estimates of

$10.8 million. The commenter said they would like us to clarify whether

these levels are considered caps or estimates.

We stated in the preamble to the proposed rule that an estimated

1.5 million bushels of wheat seed grown in the regulated areas

sustained a loss in value of between $5 and $6 million in

[[Page 1327]]

the 1995-1996 crop season. In the Regulatory Flexibility Act portion of

the proposed rule, we said that $10.8 million has been apportioned for

compensation to seed producers and companies for the loss in value of

their seed. The $5 to $6 million figure is, therefore, an estimate. The

$10.8 million figure is the maximum amount currently available to USDA

for payments on seed compensation claims. Considering that we estimate

the loss in value to be between $5 and $6 million, we anticipate that

the $10.8 million apportionment will be adequate to fulfill all

eligible claims for compensation.

One commenter said that growers and seed companies should not have

to provide copies of Karnal bunt certificates, and also asked that we

remove the requirement that growers and seed companies provide copies

of Emergency Action Notifications (EANs) for wheat grown in an area

that was not regulated for Karnal bunt but for which an EAN had been

issued. The commenter's reason was that Karnal bunt certificates and

EANs were issued by USDA, and so should not have to be provided back to

USDA to claim compensation.

We are making no changes to the proposed rule based on this

comment. Claims for 1995-1996 crop season wheat seed and straw will be

processed by FSA. While FSA and APHIS are both a part of USDA, they do

not share offices, computer systems, or recordkeeping systems. We

understand that filing claims for compensation does require claimants

to provide a number of documents, and collecting these requirements may

seem cumbersome. However, affected entities were provided with copies

of EANs and Karnal bunt certificates, and claimants should, therefore,

not have difficulty in collecting these documents. At this time, the

most efficient way for FSA to process compensation claims is for the

claimant to provide the documents to FSA. As discussed previously in

this document, this final rule will accommodate situations where a

Karnal bunt certificate is not available.

One commenter said that our proposed seed margins and maximum

compensation amounts are too low, and, further, that the proposed rule

did not give enough information about how APHIS calculated these

figures. Another commenter asked us to add a $.90 cleaning margin to

the proposed seed margin amount.

We are not making any changes to the proposed rule in response to

these comments. Seed margins were used in the proposed rule to

calculate compensation for seed companies. We set seed margins at $4.50

for private variety seed and $2.40 for public variety seed because,

according to our information, these were the average seed margins that

seed companies in the regulated areas expected to receive in the 1995-

1996 crop season. We set maximum compensation amounts for seed

companies at $7.00 per bushel for private variety seed and $4.90 per

bushel for public variety seed. We stated in the preamble to the

proposed rule that these maximum compensation amounts represent the

seed margins (described above) plus the maximum $2.50 compensation for

nonpropagative wheat provided in the regulations. We believe that these

amounts will provide reasonable compensation for losses sustained by

seed companies.

Another commenter also said that the maximum compensation amount is

too low. Some seed companies held on to their 1995-1996 crop season

seed while awaiting publication of regulations on seed compensation.

The commenter stated that, for this reason, these seed companies have

been unable to sell their seed in 1997 at the market highs that existed

during the summer of 1996. As a result, the commenter said that losses

exceeded $7.00 per bushel (the proposed maximum compensation amount for

private variety seed). The commenter recommends that the maximum

compensation amounts should be revised to $14.00 per bushel for

``bagged treated seed'' and $8.00 per bushel for ``bulk non-treated

seed.''

We are making no changes to the proposed rule based on this

comment. As discussed previously in response to other comments, we

based the proposed maximum compensation rates for seed companies on the

seed margins plus the maximum $2.50 compensation for nonpropagative

wheat provided in the regulations. The seed margins were determined in

accordance with information we received from a variety of individuals

operating in the regulated area. We believe the proposed maximum

compensation amounts of $7.00 per bushel for private variety seed and

$4.90 per bushel for public variety seed are appropriate for the losses

that occurred in the 1995-1996 crop season, and will significantly

mitigate the effects of those losses for seed companies.

One commenter cited the estimation in the proposal that 1.5 million

bushels of wheat seed grown in the regulated areas sustained a loss in

value of between $5 and 6 million dollars in the 1995-1996 crop season.

The commenter stated that, calculated on a per bushel basis, the

proposed maximum compensation of $2.50 per bushel is inadequate (i.e.,

1.5 million multiplied by $2.50 only equals $3.75 million). The

commenter says that to cover estimated losses, the maximum compensation

amount should be raised to at least $3.00 per bushel.

This comment implies a misunderstanding of the proposed rule, and

we are making no changes to the proposed rule based on this comment.

The maximum compensation amount for wheat grain is $2.50 in the 1995-

1996 crop season; this amount appears in the current regulations. The

maximum compensation amounts we proposed for wheat seed in the 1995-

1996 crop season are higher than for grain. For growers, the maximum

compensation amount is $2.80 per bushel, which consists of $2.50 grain

compensation plus an additional $.30 seed premium. For seed companies,

the maximum compensation amounts are $7.00 per bushel for private

variety seed and $4.90 per bushel of public variety seed. These amounts

represent the $2.50 grain compensation plus seed margins of $4.50 per

bushel for private variety seed and $2.40 per bushel for public variety

seed.

We received one comment concerning the proposed compensation for

loss in value of 1995-1996 straw. The commenter said that, though he

normally bales and sells wheat straw, he did not bale straw after the

1996 harvest because of the Karnal bunt quarantine. The commenter

requests compensation for this loss, even though in this case there are

no bales of straw to weigh or count.

The proposed rule offered compensation to wheat straw producers at

the rate of $1.00 per 80-pound bale or $1.25 per hundredweight. We

proposed that producers would be eligible for compensation regardless

of whether or not the straw is sold, but the straw must have been

produced under contract. Thus, the criteria for compensation

eligibility under the proposed rule requires that the straw must have

been baled or weighed, and that there must be a contract for

production. It would be impossible for us verify a grower's intent to

produce straw if no straw was actually harvested and baled or weighed.

Further, a significant portion of the proposed compensation amount for

straw was intended to reimburse straw producers for the costs of

harvesting and baling the straw, and moving the straw to the intended

destination. If the straw was not actually harvested and baled or

weighed, the grower incurred no production costs. For these reasons, we

[[Page 1328]]

are not making any changes to the proposed rule based on this comment.

Miscellaneous

Throughout the proposed rule, we specified maximum compensation

amounts. For growers who sold wheat seed under contract, the maximum

compensation amount that appears in Sec. 301.89-14(d)(1) is $2.80 per

bushel. We neglected to add the same maximum compensation amount to

paragraph (d)(2) for growers who sold wheat seed for nonpropagative

purposes. To correct this oversight, we are adding a sentence to

paragraph (d)(2) to state that compensation will not exceed $2.80 per

bushel under any circumstances.

Therefore, based on the rationale set forth in the proposed rule

and in this document, we are adopting the provisions of the proposal as

a final rule with the changes discussed in this document.

Effective Date

Pursuant to the administrative procedure provisions in 5 U.S.C.

553, we find good cause for making this rule effective less than 30

days after publication in the Federal Register. This rule provides

compensation to individuals who experienced economic losses because of

the quarantine for Karnal bunt. Immediate action is necessary to

compensate these losses. Therefore, the Administrator of the Animal and

Plant Health Inspection Service has determined that this rule should be

effective upon signature.

Executive Order 12866 and Regulatory Flexibility Act

This rule has been reviewed under Executive Order 12866. The rule

has been determined to be economically significant for the purposes of

Executive Order 12866 and, therefore, has been reviewed by the Office

of Management and Budget (OMB).

The quarantine and regulations for Karnal bunt were established by

a series of interim rules and a final rule published in the Federal

and published in the Federal Register on May 6, 1997, amended the

regulations to provide compensation for certain wheat grain growers and

handlers, owners of grain storage facilities, flour millers, and

participants in the National Karnal Bunt Survey in order to mitigate

losses and expenses incurred in the 1995-1996 crop season because of

actions taken by the Secretary of Agriculture to prevent the spread of

Karnal bunt. The economic impact of the series of interim rules and the

October 1996 final rule establishing the Karnal bunt quarantine and

regulations, and the May 1997 final rule on compensation, was discussed

in a regulatory flexibility analysis and regulatory impact analysis

also published in the Federal Register on May 6, 1997 (62 FR 24753-

24765, Docket No. 96-016-20). The analyses estimate that losses due to

the discovery of Karnal bunt and the subsequent emergency regulatory

actions amounted to $44 million (see table below). These losses were

associated with the plowdown of fields in New Mexico and Texas that

were known to be planted with Karnal bunt-infected seed,

decontamination of grain storage facilities, the decline in market

value of wheat grain testing either positive or negative for Karnal

bunt, treatment of millfeed required by the regulations, the decline in

market value of wheat seed and straw, and damages to combine harvesters

due to required disinfection treatment.

In order to alleviate some of the economic hardships caused by the

Karnal bunt regulations, and to ensure full and effective compliance

with the regulatory program, compensation to mitigate certain losses

was offered to affected parties in the regulated areas. A discussion of

losses and the rationale for compensation can be found in the

regulatory flexibility analysis and regulatory impact analysis cited

above. Funding for compensation in the amount of $39 million has been

made available through apportionment action (transfers from the

Commodity Credit Corporation). Of the $39 million, $26.5 million has

been allocated specifically for compensation for plowdown,

decontaminating grain storage facilities, loss in value of grain, and

millfeed treatment.

This final rule amends the Karnal bunt regulations by adding

compensation provisions for wheat straw producers and wheat seed

growers and seed companies for the loss in value of their straw and

seed due to the regulations for Karnal bunt. As discussed in the

regulatory impact analysis referred to above, losses to seed growers

were estimated to be about $6 million; losses to straw producers were

estimated at about $200,000. The compensation in this final rule for

buried seed (see Sec. 301.89-14(e)) has been increased from what was

proposed, to provide an additional $2.40 per bushel for the cost of

previously cleaning, treating, and bagging the seed. Based on our

experience with compensating for buried grain in the 1995-1996 crop

season, we expect the amount of compensation for buried seed in the

1995-1996 crop season to be less than $100,000. Given that the amount

of buried seed for which compensation will be claimed is expected to be

small, the inclusion of cleaning, treatment, and bagging costs in the

compensation offered for buried seed does not affect the estimated loss

in value of seed that appeared in the regulatory impact analysis

referred to above. Other changes in this final rule primarily clarify

the intent of the proposed rule, and, likewise, do not affect the

estimated loss in value of seed or straw that appeared in the

regulatory impact analysis.

The regulatory flexibility analysis referred to above discusses the

impact of the Karnal bunt regulations on small entities. The majority

of the affected entities in the regulated areas have been determined to

be small entities. The table below is taken from the regulatory impact

analysis, and shows estimated losses due to the Karnal bunt regulations

in the 1995-1996 crop season.

Estimated Loss in Value Due to Karnal Bunt Regulations, 1995-96 Crop

Year

[In millions of dollars]

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

Estimated

Action loss in

value

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

1. Plowdown of NM and TX fields planted with infected seed... $1.2

2. KB-positive grain diverted to animal feed market.......... 4.2

3. KB-negative grain that experienced loss in value.......... \1\ 28.0

4. Cost of sanitizing storage facilities..................... 0.3

5. Millfeed treatment of KB-negative grain................... 1.6

6. Loss in value of seed..................................... 6.0

7. Loss in value of straw.................................... 0.2

8. Loss related to cleaning and disinfecting of combine

harvesters.................................................. 2.0

----------

Total...................................................... 44.0

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

\1\ $28 million is the potential maximum amount of loss in value of

uninfected wheat.

Executive Order 12372

This program/activity is listed in the Catalog of Federal Domestic

Assistance under No. 10.025 and is subject to Executive Order 12372,

which requires intergovernmental consultation with State and local

officials. (See 7 CFR part 3015, subpart V.)

Executive Order 12988

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. This rule: (1) Preempts all State and local laws and

regulations that are

[[Page 1329]]

inconsistent with this rule; (2) has no retroactive effect; and (3)

does not require administrative proceedings before parties may file

suit in court challenging this rule.

Paperwork Reduction Act

In accordance with section 3507(d) of the Paperwork Reduction Act

of 1995 (44 U.S.C. 3501 et seq.), the information collection or

recordkeeping requirements included in this final rule have been

approved by the Office of Management and Budget (OMB). The assigned OMB

control numbers are 0579-0121 and 0579-0126. Some of the information

collection requirements in this final rule differ from what was

proposed in order to facilitate the submission of applications for

compensation. However, these changes do not result in any changes in

burden hours.

List of Subjects in 7 CFR Part 301

Agricultural commodities, Plant diseases and pests, Quarantine,

Reporting and recordkeeping requirements, Transportation.

Accordingly, 7 CFR part 301 is amended as follows:

PART 301--DOMESTIC QUARANTINE NOTICES

1. The authority citation for part 301 continues to read as

follows:

Authority: 7 U.S.C. 147a, 150bb, 150dd, 150ee, 150ff, 161, 162,

and 164-167; 7 CFR 2.22, 2.80, and 371.2(c).

2. In Sec. 301.89-14, paragraph (f)(2), the reference to

``paragraph (d)'' is removed both times it appears and a reference to

``paragraph (f)'' is added in its place.

3. In Sec. 301.89-14, paragraphs (d), (e), and (f) are redesignated

as paragraphs (f), (g), and (h) respectively; and new paragraphs (d),

(e), and (i) are added to read as set forth below.

Sec. 301.89-14 Compensation for the 1995-1996 crop season.

* * * * *

(d) Growers and seed companies that sold wheat seed. Growers of and

seed companies with certified wheat seed or wheat grown with the intent

of producing certified wheat seed are eligible for compensation for the

loss in value of their seed, in accordance with this section, if the

seed was grown in a State where the Secretary has declared an

extraordinary emergency, and if the seed was grown in an area of that

State that was regulated for Karnal bunt or under Emergency Action

Notification (PPQ Form 523) for Karnal bunt during the 1995-1996 crop

season.

(1) Growers who sold wheat seed under contract. Growers who sold

1995-1996 crop season certified wheat seed or 1995-1996 crop season

wheat grown with the intent of producing certified wheat seed are

eligible to receive compensation as described in paragraphs (d)(1)(i)

and (d)(1)(ii) of this section if they sold the wheat under contract to

a seed company. However, compensation will not exceed $2.80 per bushel

under any circumstances.

(i) If the wheat was grown under contract and a price was

determined in the contract on or before March 1, 1996, and the contract

price was not honored by the seed company, the compensation rate will

equal the contract price (CP), including the seed premium if specified

in the contract, minus the higher of either the salvage value (SV), as

described in paragraph (d)(6) of this section, plus the actual seed

premium received by the grower (SP)(actual), or the actual price

received by the grower (AP), including any seed premium specified on

the receipt for the final sale of the wheat. If the actual seed premium

received by the grower is not specified on the receipt for the final

sale of the wheat, the seed premium will be set at $.30 for the

compensation calculation. In each case, the amount of the actual price

or the salvage value of the wheat seed will include the value of any

proceeds accrued through insurance claims, judgments, or from any other

source. The equation for this compensation is: Compensation rate = CP--

higher of [SV + (SP(actual) or $.30) or [AP].

(ii) If the wheat was grown under contract and a price was

determined in the contract after March 1, 1996, the compensation rate

will equal the estimated market price for grain (EMP) plus the seed

premium if specified in the contract (SP)(contract) minus the higher of

either the salvage value (SV), as described in paragraph (d)(6) of this

section, plus the actual seed premium received by the grower

(SP)(actual), or the actual price received by the grower (AP),

including any seed premium specified on the receipt for the final sale

of the wheat. If a seed premium is not specified in the contract or on

the receipt for the final sale of the wheat, the seed premium that is

added to the estimated market price (EMP) and the seed premium that is

added to the salvage value (SV) will be set at $.30. In each case, the

amount of the actual price or the salvage value of the wheat seed will

include the value of any proceeds accrued through insurance claims,

judgments, or from any other source. The equation for this compensation

is: Compensation rate = [EMP + (SP(contract) or $.30)]--higher of [SV +

(SP(actual) or $.30)] or [AP]. The estimated market price will be

calculated by APHIS for each class of wheat, taking into account the

prices offered by relevant terminal markets (animal feed, milling, or

export) for the period between May 1 and June 30, 1996, with

adjustments for transportation and other handling costs.

(2) Growers who sold wheat seed for nonpropagative purposes.

Growers with 1995-1996 crop season certified wheat seed or 1995-1996

crop season wheat grown with the intent of producing certified wheat

seed are eligible to receive compensation in accordance with paragraphs

(d)(2)(i) and (d)(2)(ii) of this section if they sold the wheat for

nonpropagative purposes. However, compensation will not exceed $2.80

per bushel under any circumstances.

(i) If the grower has not claimed compensation under paragraph (b)

of this section, the compensation rate will equal the estimated market

price for grain (EMP) minus the actual price received by the grower

(AP), plus the seed premium specified in the contract the grower had

with a seed company (SP). If a seed premium is not specified in the

contract, SP will equal $.30. In each case, the amount of the actual

price of the wheat seed will include the value of any proceeds accrued

through insurance claims, judgments, or from any other source. The

equation for this compensation is: Compensation rate = (EMP-AP) + (SP

or $.30). Growers who claim compensation under this paragraph may not

claim compensation under paragraph (b) of this section.

(ii) If the grower has claimed compensation under paragraph (b) of

this section, the compensation rate will equal the premium specified in

the contract the grower had with a seed company. If no seed premium is

specified in the contract, compensation will equal $.30 per bushel.

(3) Seed companies that sold wheat seed for nonpropagative purposes

and that have not claimed compensation. Seed companies with 1995-1996

crop season certified wheat seed or 1995-1996 crop season wheat grown

with the intent of producing certified wheat seed, and seed companies

with certified wheat seed inventories in their possession that were

unsold as of March 1, 1996, are eligible to receive compensation as

described in paragraphs (d)(3)(i) and (d)(3)(ii) of this section if the

wheat seed was sold for nonpropagative purposes and if the seed company

has not claimed compensation under paragraph (b) of this section. Seed

companies that claim compensation under paragraph (d)(3)(i) or

(d)(3)(ii) of

[[Page 1330]]

this section may not claim compensation under paragraph (b) of this

section.

(i) If the wheat was grown in the 1995-1996 crop season, was under

contract, and the seed company honored the contract by paying the

grower the full contract price, including the seed premium if a seed

premium is specified in the contract, the compensation rate will equal

the estimated market price for grain (EMP) plus the seed margin (SM)

minus the higher of either the actual price received by the seed

company (AP) or the salvage value (SV), as described in paragraph

(d)(6) of this section. The equation for this compensation is:

Compensation rate = EMP + SM-higher of AP or SV. The seed margin is

$4.50 per bushel for private variety seed and $2.40 per bushel for

public variety seed. In each case, the amount of the actual price or

the salvage value of the wheat seed will include the value of any

proceeds accrued through insurance claims, judgments, or from any other

source. However, compensation will not exceed $7.00 per bushel for

private variety seed and $4.90 per bushel for public variety seed under

any circumstances.

(ii) If a seed company had wheat inventories from past crop seasons

that were unsold as of March 1, 1996, the compensation rate will equal