Hazelnuts Grown in Oregon and Washington; Establishment of Final Free and Restricted Percentages for the 1998-99 Marketing Year

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 982

[Docket No. FV99-982-1 FIR]

Hazelnuts Grown in Oregon and Washington; Establishment of Final

Free and Restricted Percentages for the 1998-99 Marketing Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

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

which established interim and final free and restricted percentages for

domestic inshell hazelnuts for the 1998-99 marketing year under the

Federal marketing order for hazelnuts grown in Oregon and Washington.

The percentages allocate the quantity of domestically produced

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

percentages are intended to stabilize the supply of domestic inshell

hazelnuts to meet the limited domestic demand for such hazelnuts and

provide reasonable returns to producers. This rule was recommended

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

agency responsible for local administration of the order.

EFFECTIVE DATE: June 1, 1999.

FOR FURTHER INFORMATION CONTACT: Teresa L. Hutchinson, Northwest

Marketing Field Office, Fruit and Vegetable Programs, Agricultural

Marketing Service, USDA, 1220 SW. Third Avenue, Room 369, Portland, OR

97204; telephone: (503) 326-2724, Fax: (503) 326-7440 or George J.

Kelhart, Technical Advisor, Marketing Order Administration Branch,

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

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

5698. 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) 720-5698, or E-mail:

Jay.G[email protected]. You may view the marketing agreement and order

small business compliance guide at the following web site: http://

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

SUPPLEMENTARY INFORMATION: This rule is issued under Marketing

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

regulating the handling of hazelnuts grown in Oregon and Washington,

hereinafter referred to as the ``order.'' The marketing agreement and

order are effective under the Agricultural Marketing Agreement Act of

1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the

``Act.''

The Department is issuing this rule in conformance with Executive

Order 12866.

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. It is intended that this rule apply to all merchantable

hazelnuts handled during the 1998-99 marketing year (July 1, 1998,

through June 30, 1999). This rule will not preempt any State or local

laws, regulations, or policies, unless they present an irreconcilable

conflict with this rule.

The Act provides that administrative proceedings must be exhausted

before parties may file suit in court. Under section 608c(15)(A) of the

Act, any handler subject to an order may file with the Secretary a

petition stating that the order, any provision of the order, or any

obligation imposed in connection with the order is not in accordance

with law and request a modification of the order or to be exempted

therefrom. A handler is afforded the opportunity for a hearing on the

petition. After the hearing, the Secretary would rule on the petition.

The Act provides that the district court of the United States in any

district in which the handler is an inhabitant, or has his or her

principal place of business, has jurisdiction to review the Secretary's

ruling on the petition, provided an action is filed not later than 20

days after the date of the entry of the ruling.

This rule continues in effect marketing percentages which allocate

the quantity of inshell hazelnuts that may be marketed in domestic

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

marketing year to compute its marketing policy for that year and

compute and announce an inshell trade demand if it determines that

volume regulations would tend to effectuate the declared policy of the

Act. The Board also computes and announces preliminary free and

restricted percentages for that year.

The inshell trade demand is the amount of inshell hazelnuts that

handlers may ship to the domestic market throughout the marketing

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

by averaging the preceding three ``normal''

[[Page 23012]]

years' trade acquisitions of inshell hazelnuts, rounded to the nearest

whole number. The Board may increase the three-year average by up to 25

percent, if market conditions warrant an increase. The Board's

authority to recommend volume regulations and the computations used to

determine the percentages are specified in Sec. 982.40 of the order.

The National Agricultural Statistics Service (NASS) estimated

hazelnut production at 16,500 tons for the Oregon and Washington area.

The majority of domestic inshell hazelnuts are marketed in October,

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

way.

The quantity marketed is broken down into free and restricted

percentages to make available hazelnuts which may be marketed in

domestic inshell markets (free) and hazelnuts which must be exported,

shelled, or otherwise disposed of by handlers (restricted). The

preliminary free percentage releases 80 percent of the adjusted inshell

trade demand. The preliminary free percentage is expressed as a

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

based on the preliminary crop estimate.

At its August 27, 1998, meeting, the Board computed and announced

preliminary free and restricted percentages of 18 percent and 82

percent, respectively. The Board used the NASS crop estimate of 16,500

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

demand under the preliminary percentage was to guard against an

underestimate of crop size. The preliminary free percentage released

2,763 tons of hazelnuts from the 1998 supply for domestic inshell use.

The preliminary restricted percentage of the 1998 supply for export and

kernel markets totaled 12,623 tons.

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

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

Board uses current crop estimates to calculate interim final and final

percentages. The interim final percentages are calculated in the same

way as the preliminary percentages and release the remaining 20 percent

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

by the Board. Final free and restricted percentages may release up to

an additional 15 percent of the average of the preceding three years'

trade acquisitions to provide an adequate carryover into the following

season; (i.e., desirable carryout). The final free and restricted

percentages must be effective by June 1, at least 30 days prior to the

end of the marketing year, June 30. The final free and restricted

percentages can be made effective earlier, if recommended by the Board

and approved by the Secretary. Revisions in the marketing policy can be

made until February 15 of each marketing year, but the inshell trade

demand can only be revised upward, consistent with Sec. 982.40(e).

The Board met on November 12, 1998, and reviewed and approved an

amended marketing policy and recommended the establishment of final

free and restricted percentages. The Board decided that market

conditions were such that immediate release of an additional 15 percent

for desirable carryout would not adversely affect the 1998-99 domestic

inshell market. Accordingly, no interim final free and restricted

percentages were recommended. Final percentages were recommended at 30

percent free and 70 percent restricted. The final percentages released

4,115 tons of inshell hazelnuts from the 1998 supply for domestic use.

The final marketing percentages are based on the Board's final

production estimate (14,500 tons) and the following supply and demand

information for the 1998-99 marketing year:

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

Tons

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

Inshell Supply:

(1) Total production (Board's estimate).... 14,500

(2) Less substandard, farm use 1,077

(disapperarance)..........................

(3) Merchantable production (Board's 13,423

adjusted crop estimate; Item 1 minus Item

2)........................................

(4) Plus undeclared carryin as of July 1, 120

1997, subject to regulation...............

(5) Supply subject to regulation (Item 3 13,543

plus Item 4)..............................

Inshell Trade Demand:

(6) Average trade acquisitions of inshell 4,408

hazelnuts for three prior years...........

(7) Less declared carryin as of July 1, 954

1997, not subject to regulation...........

(8) Adjusted Inshell Trade Demand.......... 3,454

(9) Desirable carryout on August 31, 1999 661

(15 percent of Item 6)....................

(10) Adjusted Inshell Trade Demand plus 4,115

desirable carryout (Item 8 plus Item 9)...

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

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

Percentages Free Restricted

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

(11) Final percentages (Item 10 divided by 30 70

Item 5) x 100..........................

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

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

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

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

making its computations in the marketing policy. This volume control

regulation provides a method to collectively limit the supply of

inshell hazelnuts available for sale in domestic markets. The

Guidelines provide that the domestic inshell market has available a

quantity equal to 110 percent of prior years' shipments before

secondary market allocations are approved. This provides for plentiful

supplies for consumers and for market expansion, while retaining the

mechanism for dealing with oversupply situations. The established final

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

available an additional 661 tons for desirable carryout. The total free

supply for the 1998-99 marketing year is 5,069 tons of hazelnuts, which

is the final trade demand of 4,408 tons plus the 661 tons for desirable

carryout. This amount is 115 percent of prior years' sales and exceeds

the goal of the Guidelines.

Pursuant to requirements set forth in the Regulatory Flexibility

Act (RFA), the Agricultural Marketing Service (AMS) has considered the

economic impact of this action on small entities. Accordingly, AMS has

prepared this final regulatory flexibility analysis.

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

business subject to such actions in order that small businesses will

not be unduly or disproportionately burdened.

[[Page 23013]]

Marketing orders issued pursuant to the Act, and the 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 800 producers of hazelnuts in the

production area and approximately 22 handlers subject to regulation

under the marketing order. Small agricultural producers have been

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

having annual receipts of less than $500,000, and small agricultural

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

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

small agricultural producers and an estimated 19 of the 22 handlers are

small agricultural service firms. In view of the foregoing, it can be

concluded that the majority of hazelnut producers and handlers may be

classified as small entities.

Many years of marketing experience led to the development of the

current volume control procedures. These procedures have helped the

industry solve its marketing problems by keeping inshell supplies in

balance with domestic needs. The current volume control procedures

fully supply the domestic inshell market while preventing oversupplies

in that market.

Inshell hazelnuts sold to the domestic market provide higher

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

market is inelastic and is characterized as having limited demand and

being prone to oversupply.

Industry statistics show that total hazelnut production has varied

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

high of 47,000 tons in 1997. Average production has been around 27,000

tons. While crop size has fluctuated, the volume regulations contribute

toward orderly marketing and market stability, and help moderate the

variation in returns for all producers and handlers, both large and

small. For instance, production in the shortest crop year (1989) was 48

percent of the 10-year average (1988-1997). Production in the biggest

crop year (1997) was 173 percent of the 10-year average. The percentage

releases provide all handlers with the opportunity to benefit from the

most profitable domestic inshell market. That market is available to

all handlers, regardless of handler size.

NASS statistics show that the producer price per pound has

increased over the last 5 years, from $.32 in 1993 to $.45 in 1997.

The Board discussed the only alternative to volume regulation

percentages which was not to regulate. Without any regulations in

effect, the Board believes that the industry would oversupply the

inshell domestic market. Although the 1998 hazelnut crop is much

smaller than last year, the release of 14,500 tons on the domestic

inshell market would cause producer returns to decrease drastically,

and completely disrupt the market.

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 and expand

markets even though hazelnut supplies fluctuate widely from season to

season.

Hazelnuts produced under the order comprise virtually all of the

hazelnuts produced in the United States. This production represents, on

average, less than 5 percent of total U.S. tree nut production, and

less than 5 percent of the world's hazelnut production.

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

hazelnut industry to limit the supply of domestic inshell hazelnuts

available for sale in the United States. Section 982.40 of the order

establishes a procedure and computations for the Board to follow in

recommending to the Secretary the release of preliminary, interim

final, and final quantities of hazelnuts to be released to the free and

restricted markets each marketing year. The program results in

plentiful supplies for consumers and for market expansion while

retaining the mechanism for dealing with oversupply situations.

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

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

secondary markets for hazelnuts is the export market. Inshell hazelnuts

produced under the marketing order compete well in export markets

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

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

China was the largest importer in 1997-98. A third market is for

shelled hazelnuts sold domestically. Domestically produced kernels

generally command a higher price in the domestic market than imported

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

secondary markets, especially the domestic kernel market. Small

business entities, both producers and handlers, benefit from the

expansion efforts resulting from this program.

This rule will not impose any additional reporting or recordkeeping

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

Federal marketing order programs, reports and forms are periodically

reviewed to reduce information requirements and duplication by industry

and public sectors. In addition, as noted in the initial regulatory

flexibility analysis, the Department has not identified any relevant

Federal rules that duplicate, overlap or conflict with this rule.

Further, the Board's meeting was widely publicized throughout the

hazelnut industry and all interested persons were invited to attend the

meeting and encouraged to participate in Board deliberations. Like all

Board meetings, the November 12, 1998, meeting was a public meeting

held in a location central to the production area and all entities,

both large and small, were able to express their views on this issue.

Thus, Board recommendations can be considered to represent the

interests of small business entities in the industry. The Board itself

is composed of 10 members, of which four are handlers, five are

growers, and one is a public member.

An interim final rule concerning this action was published in the

Federal Register on January 14, 1999. Copies of the rule were mailed by

the Board's staff to all Board members and hazelnut handlers. In

addition, the rule was made available through the Internet by the

Office of the Federal Register. That rule provided for a 60-day comment

period which ended March 15, 1999. No comments were received.

After consideration of all relevant material presented, including

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

finalizing the interim final rule, without change, as published in the

Federal Register (64 FR 2422, January 14, 1999) will tend to effectuate

the declared policy of the Act.

List of Subjects in 7 CFR Part 982

Filberts, Hazelnuts, Marketing agreements, Nuts, Reporting and

recordkeeping requirements.

For reasons set forth in the preamble, 7 CFR part 982 is amended as

follows:

PART 982--HAZELNUTS GROWN IN OREGON AND WASHINGTON

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

was published at 64 FR 2422 on January 14, 1999, is adopted as a final

rule without change.

[[Page 23014]]

Dated: April 21, 1999.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 99-10772 Filed 4-28-99; 8:45 am]

BILLING CODE 3410-02-P