Tart Cherries Grown in the States of Michigan, et al.; Additional Option for Handler Diversion and Receipt of Diversion Credits

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV99-930-1 FIR]

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

Option for Handler Diversion and Receipt of Diversion Credits

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

final rule, with a change, the provisions of an interim final rule

adding a method of handler diversion to the regulations under the

Federal tart cherry marketing order (order). Handlers handling cherries

harvested in a regulated district may fulfill any restricted percentage

requirement when volume regulation is in effect by diverting cherries

or cherry products rather than by placing them in an inventory reserve.

Under this additional method, handlers are allowed to obtain diversion

certificates when marketable finished tart cherry products owned by

them are accidentally destroyed. In addition, this rule continues in

effect the removal of a paragraph in the regulations which limited

diversion credit for exempted products to one million pounds each crop

year. The order regulates the handling of tart cherries grown in the

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

and Wisconsin and is administered locally by the Cherry Industry

Administrative Board (Board).

EFFECTIVE DATE: June 22, 1999.

FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Kenneth G.

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

2530-S, P.O. Box 96456, Washington, DC 20090-6456, telephone: (202)

720-2491. Small businesses may request information on compliance 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 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 rule is issued under Marketing

Agreement and Order No. 930 (7 CFR part 930) regulating the handling of

tart cherries grown in the States of Michigan, New York, Pennsylvania,

Oregon, Utah, Washington, and Wisconsin, hereinafter referred to as the

``order.'' This order is effective under the Agricultural Marketing

Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter

referred to as the ``Act.''

The Department of Agriculture (Department or USDA) is issuing this

rule in conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. This rule continues to allow handlers to obtain

diversion credit for finished marketable tart cherry products owned by

them which are accidentally destroyed during the 1998-99 crop year

(July 1, 1998, through June 30, 1999), and subsequent crop years. It

also continues the removal of a provision from the regulation which

limited diversion credit for exempted products to one million pounds

for each crop year. 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 an additional method of handler

diversion involving marketable finished tart cherry products which are

accidentally destroyed. Handler diversion is authorized under section

930.59 of the order and, when volume regulation is in effect, handlers

may fulfill restricted percentage requirements by diverting cherries or

cherry products. Volume regulation is intended to help the tart cherry

industry stabilize supplies and prices in years of excess production.

The volume regulation provisions of the order provide for a combination

of processor owned inventory reserves and grower or handler diversion

of excess tart cherries. Reserve cherries may be released for sale into

commercial outlets when the current crop is not expected to fill

demand. Under certain circumstances, such cherries may also be used for

charity, experimental purposes, nonhuman use, and other approved

purposes.

Section 930.59(b) of the order provides for the designation of

allowable forms of handler diversion. These include: Uses exempt under

section 930.62; contributions to a Board approved food bank or other

approved charitable organization; acquisitions of grower diversion

certificates that have been issued in accordance with section 930.58;

or other uses, including diversion by destruction of the cherries at

the handler's facilities as provided for in section 930.59(c).

Section 930.159 of the rules and regulations under the order allows

handlers to divert cherries by destruction of the cherries at the

handler's facility. At-plant diversion of cherries takes place at the

handler's facility prior to placing cherries into the processing line.

This is to ensure that the cherries diverted were not simply an

undesirable or unmarketable product of processing. The additional

method for

[[Page 33006]]

handler diversion for finished tart cherry products accidentally

destroyed should not be confused with at-plant diversion.

The Board unanimously recommended that handlers should receive

diversion credit when marketable, finished cherry products are

accidentally destroyed. For the purposes of this rule, products will be

considered destroyed if they sustain damage which renders them

unacceptable for use in normal market channels. For example, finished,

marketable cherry products could be accidentally destroyed in a fire,

explosion, or through freezer malfunction. To receive diversion credit

under this added option, the Board recommended that the cherry products

must: (1) Be owned by the handler at the time of accidental

destruction; (2) be a marketable product at the time of processing; (3)

be included in the handler's end of the year handler plan; and (4) have

been assigned a Raw Product Equivalent (RPE) by the handler to

determine the volume of cherries. In addition, the accidental

destruction, as well as the disposition of the now unmarketable cherry

product, must be verified by either a USDA inspector or Board agent or

employee. For the purpose of proper control and oversight, the measures

recommended by the Board are considered appropriate.

At the Board meeting, there was a discussion that accidents may

occur at a handler's facility after the processing of cherries has

taken place. Freezers have collapsed and malfunctioned rendering the

finished product unmarketable. The Board noted that one of the goals of

the volume regulation program is to control the flow of marketable

fruit in the marketplace. Therefore, it was the Board's recommendation

that finished marketable products accidentally destroyed should be

allowed diversion credit.

Handlers wishing to obtain diversion certificates for finished tart

cherry products owned by them which are accidentally destroyed must

allow the disposition of the destroyed product to take place under the

supervision of USDA's Processed Products Branch inspectors or a Board

agent or employee. This will allow the Board to verify that the

accidentally destroyed finished product was unmarketable and that it

was disposed of properly.

Once diversion is satisfactorily accomplished, handlers receive

diversion certificates from the Board stating the weight of cherries

diverted. Such diversion certificates can be used to satisfy handlers'

restricted percentage obligations.

In addition, this rule continues in effect the removal of a

paragraph in the regulations which limited diversion credit for

exempted products to one million pounds each crop year. Prior to the

issuance of the interim final rule, section 930.159 provided for

diversion credit of up to one million pounds of exempted products each

crop year. Exempted products include products used in new product

development and new market development. Exempted products also include

those that were used to expand the use of new or different products or

the sales of existing products, or those that are exported to countries

other than Canada, Mexico, and Japan, but such cherry products do not

include juice or juice concentrate.

The supplementary information in the rulemaking which implemented

section 930.159 on January 6, 1998, (63 FR 399; interim final rule) and

April 22, 1998, (63 FR 20012; final rule), stated that during its

deliberations, the Board discussed its view that allowing diversion

credit for exempt uses would provide adequate flexibility for

individual handlers to ship cherries. The Board, however, recommended

providing some restriction on the absolute volume of such allowable

diversions until more experience with the program had been obtained,

and that restriction was set at one million pounds. The one million

pound limit for exempted product did not apply to those products

receiving export diversions for the 1997-98 season. The Board continued

reviewing the issue of what limits, if any, to impose on exempted

products.

During the 1997 season, 2.7 million pounds of exempted products for

new market and product development received diversion credit. In recent

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

export sales of 61.1 million pounds represented 379 percent of 1994

sales (16.1 million pounds). There was also an increase in export sales

to those destinations exempt from volume regulation (countries other

than Canada, Japan, and Mexico), rising from 12.2 million pounds to

48.7 million pounds. In view of the dynamics taking place in the cherry

industry, and particularly the expanding markets and opportunities, the

Board did not believe that the one million pound exemption should be

continued. The removal of the one million pound limitation on exempted

products should continue to encourage the further development of new

markets and new tart cherry products. Therefore, the removal of section

930.159(f) continues in effect.

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

final regulatory flexibility analysis. The Regulatory Flexibility Act

(RFA) allows 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 opts for such certification, but rather performs

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 thereunder, are unique in that they are

brought about through group action of essentially small entities acting

on their own behalf. Thus, both statutes have small entity orientation

and compatibility.

There are approximately 40 handlers of tart cherries who are

subject to regulation under the order and approximately 900 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. The majority of handlers

and producers of tart cherries may be classified as small entities.

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 were frozen, 25 percent were canned, and 4 percent were

utilized for juice. The remaining 8 percent were dried or assembled

into juice packs.

The Board reported that for the 1997-98 crop year handlers received

export diversion certificates for 48.7 million

[[Page 33007]]

pounds of cherries and 7.1 million pounds were diverted at handlers'

facilities.

Section 930.59 of the tart cherry marketing order provides

authority for handler diversion. Handlers handling cherries harvested

in a regulated district may fulfill any restricted percentage

requirement in full or in part through diversion of cherries or cherry

products in a program approved by the Board, rather than placing

cherries in an inventory reserve. Handlers can divert by destruction of

the cherries at the handler's facility, making charitable donations and

selling cherry products in exempt outlets or by redeeming grower

diversion certificates obtained from growers who have diverted cherries

by non-harvest, and who have been issued diversion certificates by the

Board. This rule continues to provide for handler diversion

certificates in cases where marketable, finished tart cherry products

are accidentally destroyed, and thus, rendered unacceptable for the

marketplace. Such diversion certificates can be used to satisfy the

handler's restricted percentage obligation.

Handler diversion options enable handlers to either place cherries

into an inventory reserve or select the diversion option most

advantageous to their particular business operation. The diversion

options allow handlers to minimize processing and storage costs

associated with meeting restricted percentage obligations. Such cost

savings may also be passed on to growers and consumers. Thus, this

action continues to accomplish the purposes of the order and the Act by

providing a means of increasing grower returns and stabilizing supplies

with demand.

The impact of this rule will be beneficial to growers and handlers

regardless of size. Continuing the additional diversion option will

prevent financial hardships when marketable finished tart cherry

products are destroyed by accident. An alternative to this rule would

be to not grant diversion credit for such products. However, this is

not in the best interest of the industry. The marketing order's volume

regulation feature was designed to increase grower returns by

stabilizing supplies with demand. Providing for handler diversion is

one of the mechanisms employed to accomplish this goal, and this action

broadens handler diversion options. Moreover, handlers may divert

cherries by destroying them at their plants/facilities. Therefore,

allowing diversion credit for products which are accidentally

destroyed, is consistent with the overall regulatory scheme established

by the marketing order.

In addition, this rule continues in effect the removal of a

paragraph in the regulations which limited diversion credit for

exempted products to one million pounds each crop year. Previously,

section 930.159 provided for diversion credit of up to one million

pounds of exempted products each crop year, with the exception of

exported products for the 1997 season. The Board had recommended

providing some restriction on the absolute volume of exempted product

diversions until more experience with the program had been obtained.

The one million pound limitation for exempted products did not apply to

diversion credit for exports for the 1997-98 season. The Board

continued reviewing the issue of what limits, if any, to impose on

exempted products.

During the 1997 season, 2.7 million pounds of exempted products for

new market and product development received diversion credit. In recent

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

export sales of 61.1 million pounds represented 379 percent of 1994

sales (16.1 million pounds). There was also an increase in export sales

to those destinations exempt from volume regulation (countries other

than Canada, Japan, and Mexico), rising from 12.2 million pounds to

48.7 million pounds. In view of the dynamics taking place in the cherry

industry, and particularly the expanding markets and opportunities, the

Board does not believe that the one million pound exemption should be

continued. The removal of the one million pound limitation on exempted

products should continue to encourage the further development of new

markets and new tart cherry products. Therefore, continuing the removal

of the limitation will provide more flexibility to handlers by allowing

them to expand markets and new product opportunities.

In compliance with Office of Management and Budget (OMB)

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

Act of 1995 (44 U.S.C. Chapter 35), the information collection and

recordkeeping requirements imposed by this order have been previously

approved by OMB and assigned OMB Number 0581-0177. Included in the OMB

approval is the Handler Reserve Plan and Final Pack Report which

handlers must submit to utilize at-plant and exempt use diversion and

the requirements for other reports related to handler diversion and

handlers meeting their restricted percentage obligations. Handlers

applying for diversion credit for marketable finished tart cherry

products accidentally destroyed do not have to submit an additional

Handler Plan and Pack Report to the Board. Handlers can make changes in

their previously submitted Handler Plan and Final Pack Report to

account for product accidentally destroyed.

Accordingly, this rule will not impose any additional recordkeeping

requirements on either small or large tart cherry handlers. As with all

Federal marketing order programs, reports and forms are periodically

reviewed to reduce information requirements and duplication by industry

and public sectors. In addition, the Department has not identified any

relevant Federal rules which duplicate, overlap or conflict with this

rule.

The Board's meetings were widely publicized throughout the tart

cherry industry and all interested persons were invited to attend them

and participate in Board deliberations. Like all Board meetings, the

September 1998 meeting was a public meeting and all entities, both

large and small, were able to express their views on these issues. The

Board itself is composed of 18 members, of which 17 members are growers

and handlers and one represents the public. Also, the Board has a

number of appointed committees to review marketing order issues and

make recommendations.

The Board considered alternatives to its recommendations. These

included not granting diversion credit and continuing to impose

limitations on the volume of exempted product receiving diversion

credit. However, these alternatives were determined as not being in the

best interest of the industry.

An interim final rule concerning this action was published in the

Federal Register on February 25, 1999 (64 FR 9265). Copies of the rule

were mailed by the Board's staff to all Board members and cherry

handlers. In addition, the rule was made available through the Internet

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

comment period which ended April 26, 1999. One comment was received

from a tart cherry association representing tart cherry growers and

processors in the State of Oregon.

The commenter asked several questions about the additional handler

diversion option, and expressed the view that Board meetings are not

well publicized. These comments are addressed below.

The commenter first asked whether the additional diversion option

concerning accidentally destroyed tart cherry products applied to

cherries harvested during the Summer of 1998

[[Page 33008]]

and whether such application is equitable.

The regulation applies to finished products accidentally destroyed

during the 1998-99 crop year (July 1, 1998, through June 30, 1999), and

thereafter. The interim final rule was effective February 6, 1999, and

making the rule applicable to the whole crop year is not inequitable.

Only handlers in volume regulated districts are eligible to receive

diversion credit. Allowing a handler to receive diversion credit for

accidentally destroyed product satisfies part, or all, of the handler's

restricted obligation and is consistent with the concept of volume

regulation. The goal of volume regulation is to bring supplies in line

with market needs, strengthen market conditions, and to increase grower

returns.

The commenter also asked whether handlers with insurance who were

compensated for their accidental loss would be eligible for diversion

credit. Under this regulation, an insurance settlement received by a

handler for product loss or damage does not prevent the handler from

obtaining diversion credit.

Another issue raised by the commenter concerns the term ``handler's

facility'' as it relates to obtaining diversion credit for product

which is accidentally destroyed at a handler's facility. In this

regard, the commenter raised questions about product accidentally

destroyed while in a facility leased by a handler or in storage at a

public cold storage warehouse. The commenter also asked whether the

diversion credit applies to accidentally destroyed cherries before

processing on the handler's premises, or to cherries or product

destroyed while en route to a handler's facility. The diversion option

in this regulation is intended to apply to finished marketable cherry

products that are owned by a handler and are accidentally destroyed. It

does not apply to cherries before processing which are accidentally

destroyed.

The interim final rule published February 25, 1999 (64 FR 9265),

stated that finished marketable product accidentally destroyed at a

handler's facility may be granted diversion credit. It was the Board's

intent that diversion credit be granted for finished marketable

product, when the product is owned by the handler at time of accidental

destruction. The physical location of the finished product at the time

of accidental destruction is not a determining factor. Because of the

commenter's questions, the Department has modified the regulatory

provisions to clarify the Board's intent. That is, handlers can receive

diversion credit for accidentally destroyed finished marketable product

as long as the product is owned by the handler at the time of

destruction.

Finally, the commenter disagreed with the statement that Board

meetings are widely publicized throughout the tart cherry industry and

all interested persons are invited to attend them and participate in

Board deliberations. The commenter stated that the Board office seems

to communicate only through the ``The Fruit Growers News'' in the

Michigan area or through direct mail to Board participants. The

commenter mentioned that he was a member of the Board, and did not know

if many of the things he received from the Board office go to all

growers or handlers or just to the Board members and alternates.

The Board has and will continue to take appropriate action to

provide broad notice of upcoming meetings to all handlers and Board

members and alternate members. The Board sends meeting notices to all

Board members and several tart cherry organizations throughout the

production area. In fact, the Board sends a newsletter to all growers

and handlers of record in the production area which further publicizes,

among other things, upcoming Board meetings.

The commenter also mentioned that participation in Board meetings

is challenging to all growers because a majority of them are held in

Michigan, and that travel is extremely expensive from the west coast

and very time consuming. The commenter also stated that the Board has

not considered holding meetings at major hub city airports that are

more accessible, and less expensive. According to the commenter, this

situation limits the level of involvement by, and consideration for,

smaller industry participants, such as the small, remote, and the

independent members of the tart cherry industry.

On the matter of Board meeting location, the Board has to consider

the cost of travel for all Board members because it pays travel

expenses for all of its members. It is a considerable expense to the

Board to hold the meetings outside of Michigan since 16 members and

alternates of the 18 member Board are from the State of Michigan. The

Board realizes the time spent in travel by Board members and producers

and handlers throughout the production area. To make attendance at

Board meetings easier while properly managing travel costs, the Board

has made a commitment to hold the June 1999 marketing policy meeting in

Michigan and the September 1999 marketing policy meeting in Washington.

The Board is also considering holding meetings outside the Michigan

districts to allow producers and handlers to attend the meetings and

cut down on travel time for those not located in Michigan. Recently,

producer meetings were held in Pasco, Washington and Rochester, New

York, to inform growers about proposed amendments to the order and the

activities of the Board.

Based on the comments and the questions received, the limitation on

the location of the accidental destruction is being removed. In the

first sentence of paragraph (a), the phrase ``at a handlers' facility''

following the words ``by diverting cherry products accidentally

destroyed'' is removed from this regulation. Also, removed in the first

sentence of paragraph (d), is the phrase ``at a handler's facility''

following the words ``Handlers may be granted diversion credit for

diverting finished tart cherry products accidentally destroyed''. The

removal of the these phrases is intended to clarify the intent of the

regulation. In addition, to clarify the period of applicability,

wording has been added to the regulation indicating that it applies to

finished products accidentally destroyed during the 1998-99 crop year

(July 1, 1998, through June 30, 1999), and thereafter.

After consideration of all relevant material presented, including

the Board's recommendation, the comment received, and other

information, it is found that finalizing this interim final rule, with

modifications, as published in the Federal Register (64 FR 9265), will

tend to effectuate the declared policy of the Act.

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

cause exists for not postponing the effective date of this rule until

30 days after publication in the Federal Register because: (1) This

rule continues to relax requirements by providing an additional

opportunity for handlers to receive diversion credit and meet their

restricted obligations; and (2) the clarifications made to the

provisions should be effective promptly to effectively carry out this

program.

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

amended as follows:

[[Page 33009]]

PART 930--TART CHERRIES GROWN IN THE STATES OF MICHIGAN, NEW YORK,

PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN

Accordingly, the interim final rule amending 7 CFR part 930 which

was published at 64 FR 9265 on February 25, 1999, is adopted as a final

rule with the following change:

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

follows:

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

2. In Sec. 930.159 paragraphs (a) and (d) are revised to read as

follows:

Sec. 930.159 Handler diversion.

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

grower diversion certificates, by destroying cherries at handlers'

facilities (at-plant), by diverting cherry products accidentally

destroyed, by donating cherries or cherry products to charitable

organizations or by using cherries or cherry products for exempt

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

Canada, Mexico and Japan. Once diversion has taken place, handlers will

receive diversion certificates stating the weight of cherries diverted.

Diversion credit may be used to fulfill any restricted percentage

requirement in full or in part. Any information of a confidential and/

or proprietary nature included in this application would be held in

confidence pursuant to Sec. 930.73 of the order.

* * * * *

(d) Diversion of finished products. Handlers may be granted

diversion credit for finished tart cherry products that are

accidentally destroyed during the 1998-1999 crop year (July 1, 1998,

through June 30, 1999), and thereafter. To receive diversion credit

under this option the cherry products must be owned by the handler at

the time of accidental destruction, be a marketable product at the time

of processing, be included in the handler's end of the year handler

plan, and have been assigned a Raw Product Equivalent (RPE) by the

handler to determine the volume of cherries. In addition, the

accidental destruction, and disposition of the product must be verified

by either a USDA inspector or Board agent or employee who witnesses the

disposition of the accidentally destroyed product. Products will be

considered destroyed if they sustain damage which renders them

unacceptable in normal market channels.

* * * * *

Dated: June 14, 1999.

Eric M. Forman,

Acting Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 99-15625 Filed 6-18-99; 8:45 am]

BILLING CODE 3410-02-P