Raisins Produced From Grapes Grown in California; Use of Estimated Trade Demand to Compute Volume Regulation Percentages

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 989

[Docket No. FV99-989-4 FR]

Raisins Produced From Grapes Grown in California; Use of

Estimated Trade Demand to Compute Volume Regulation Percentages

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule authorizes using an estimated trade demand figure to

compute volume regulation percentages for 1999-2000 crop Natural (sun-

dried) Seedless (NS) raisins covered under the Federal marketing order

for California raisins (order). The order regulates the handling of

raisins produced from grapes grown in California and is administered

locally by the Raisin Administrative Committee (Committee). This rule

provides parameters for implementing volume regulation for 1999-2000

crop NS raisins if supplies are short for the purposes of maintaining a

portion of the industry's export markets and stabilizing the domestic

market.

EFFECTIVE DATE: This final rule becomes effective August 13, 1999.

FOR FURTHER INFORMATION CONTACT: Maureen T. Pello, Marketing

Specialist, California Marketing Field Office, Fruit and Vegetable

Programs, AMS, USDA, 2202 Monterey Street, suite 102B, Fresno,

California 93721; telephone: (559) 487-5901, Fax: (559) 487-5906; or

George 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, or Fax:

(202) 720-5698.

SUPPLEMENTARY INFORMATION: 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.

This rule is issued under Marketing Agreement and Order No. 989 (7

CFR part 989), both as amended, regulating the handling of raisins

produced from grapes grown in California, hereinafter referred to as

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

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

referred to as the ``Act.''

The Department of Agriculture (Department) is issuing this rule in

conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. This rule is not intended to have retroactive effect.

This rule will not preempt any State or local laws, regulations, or

policies, unless they present an irreconcilable conflict with this

rule.

The Act provides that administrative proceedings must be exhausted

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

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

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

obligation imposed in connection with the order is not in accordance

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

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

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

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

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

principal place of business, has jurisdiction in equity to review the

Secretary's ruling on the petition, provided an action is filed not

later than 20 days after the date of the entry of the ruling.

This rule authorizes using an estimated trade demand figure to

compute volume regulation percentages for 1999-2000 crop NS raisins

covered under the order. This rule provides parameters for implementing

volume regulation for 1999-2000 crop NS raisins if supplies are short

for the purposes of maintaining a portion of the industry's export

markets and stabilizing the domestic market. This action was

recommended by the Committee at a meeting on April 13, 1999.

Volume Regulation Authority

The order provides authority for volume regulation designed to

promote orderly marketing conditions, stabilize prices and supplies,

and improve producer returns. When volume regulation is in effect, a

certain percentage of the California raisin crop may be sold by

handlers to any market (free tonnage) while the remaining percentage

must be held by handlers in a reserve pool (reserve) for the account of

the Committee. Reserve raisins are disposed of through certain programs

authorized under the order. For instance, reserve raisins may be sold

by the Committee to handlers for free use or to replace part of the

free tonnage raisins they exported; used in diversion programs; carried

over as a hedge against a short crop the following year; or disposed of

in other outlets not competitive with those for free tonnage raisins,

such as government purchase, distilleries, or animal feed. Net proceeds

from sales of reserve raisins are distributed to the reserve pool's

equity holders, primarily producers.

Section 989.54 of the order prescribes procedures and time frames

to be followed in establishing volume regulation for each crop year,

which runs from August 1 through July 31. The Committee must meet by

August 15 to review data regarding raisin supplies. At that time, the

Committee computes a trade demand for each varietal type for which a

free tonnage percentage might be recommended. Trade demand is equal to

90 percent of the prior year's domestic and export shipments, adjusted

by subtracting carryin inventory from the prior year, and adding a

desirable carryout inventory for the end of the current year.

By October 5, the Committee must announce preliminary crop

estimates

[[Page 43898]]

and determine whether volume regulation is warranted for the varietal

types for which it computed trade demands. Preliminary volume

regulation percentages are then computed to release 85 percent of the

computed trade demand if a field price has been established, or 65

percent of the trade demand if no field price has been established.

Field price is the price that handlers pay for raisins from producers.

By February 15, the Committee must recommend final free and reserve

percentages which release the full trade demand.

The order also requires that, when volume regulation is in effect,

two offers of reserve raisins must be made available to handlers for

free use. These offers are known as the ``10 plus 10'' offers. Each

offer consists of a quantity of reserve raisins equal to 10 percent of

the prior year's shipments. The order also specifies that ``10 plus

10'' raisins must be sold to handlers at the current field price plus a

3 percent surcharge and Committee costs.

Development of Export Markets

With the exception of 10 crop years, volume regulation has been

utilized for NS raisins since the order's inception in 1949. The

procedures for determining volume regulation percentages have been

modified over the years to address the industry's needs. In the past,

volume regulation has been utilized primarily to help the industry

manage an oversupply of raisins. Through the use of various marketing

programs operated through reserve pools and other industry promotional

activities, the industry has also developed its export markets which

now account for almost 40 percent of the industry's shipments.

Between 1980-85, exports of California NS raisins averaged about 26

percent (53,700 packed tons, or raisins which have been processed) of

the industry's total NS raisin shipments (207,600 packed tons,

excluding government purchases) per year. Between 1993-97, NS raisin

exports increased to average about 37 percent (112,000 packed tons) of

the industry's total NS raisin shipments (300,000 packed tons,

excluding government purchases) per year.

Export Replacement Offer

One market development program operated through reserve pools, the

Export Replacement Offer (ERO), has helped California raisins to be

price competitive in export markets. Prices in export markets are

generally lower than the domestic market. The ERO began in the early

1980's as a ``raisin-back'' program whereby handlers who exported

California raisins could purchase, at a reduced price, reserve raisins

for free use. This effectively blended down the cost of the raisins

which were exported. The NS raisin ERO was changed to a ``cash-back''

program in 1996 whereby handlers could receive cash from the reserve

pool for export shipments.

Over the past 5 years, an average of 43,000 natural condition tons

(unprocessed raisins) of reserve raisins have been utilized per year to

fund the ERO. Financing for the cash-back ERO program has been

generated primarily from the Committee's ``10 plus 10'' sales of

reserve raisins to handlers for free use. Under the 1996 and 1997 cash-

back ERO programs, an average of $57 million of reserve pool funds were

utilized to support the export of about 113,000 packed tons of NS

raisins.

Current Industry Situation--Potential of Two, Consecutive Short

Crops

The Committee is concerned with maintaining the ERO program through

potentially two, consecutive short crop years. The 1998-99 California

raisin crop was much smaller than average due to the combined effect of

adverse crop conditions created by the weather phenomenon known as El

Nino, scattered rain during the fall harvest, and a shortage of labor

once the grapes were ready for harvest. The 1998-99 NS raisin crop

totaled about 235,000 natural condition tons, about 35 percent lower

than the 10-year average of 360,183 natural condition tons. Volume

regulation was not implemented for 1998-99 NS raisins, the major

varietal type of California raisin, for the first time in 16 years.

However, about 60,000 natural condition tons of 1997-98 reserve raisins

were available to maintain the industry's ERO program.

The Committee is concerned that the 1999-2000 California raisin

crop may also be short due to an April 1999 frost and anticipated high

demand for raisin-variety grapes from wineries this fall. If no 1999-

2000 reserve is established, the industry will not be able to continue

the ERO program. Without a program to support its export sales, the

Committee is concerned that the industry could lose a significant

portion, perhaps 50 percent, of those markets. Further, handlers who

could not sell their raisins in export may sell their raisins

domestically. Annual domestic shipments of NS raisins for the past 5

years have averaged about 188,000 packed tons. The Committee is

concerned that additional raisins sold into the domestic market could

create instability.

Thus, the Committee formed a working group to review this issue and

consider options to continue to support its export sales while

maintaining stability in the domestic market. After several meetings,

the working group presented its recommendation to a subcommittee, and

then in turn to the Committee. At a meeting on April 13, 1999, the

Committee recommended adding a new paragraph to Sec. 989.154 of the

order's administrative rules and regulations that provides parameters

for implementing volume regulation for 1999-2000 crop NS raisins if

supplies are short. Section 989.154 is divided into two paragraphs, (a)

and (b). Paragraph (a) pertains to an existing regulation regarding

desirable carryout levels, and paragraph (b) pertains to estimated

trade demand.

Implementing Volume Regulation if Supplies are Short to Maintain

the ERO

Section 989.54(e) contains a list of factors that the Committee

must consider when computing volume regulation percentages. Factor (4)

states that the Committee must consider, if different than the computed

trade demand, the estimated trade demand for raisins in free tonnage

outlets. The Committee recommended using an estimated trade demand

figure for 1999-2000 crop NS raisins, or a figure different than the

computed trade demand, to compute volume regulation percentages to

create a reserve if supplies are short. This will allow the Committee

to continue its ERO program thereby maintaining a portion of its export

sales and stabilizing the domestic market.

Specifically, the Committee recommended that an estimated trade

demand be utilized to compute preliminary, interim, and final free and

reserve percentages for 1999-2000 crop NS raisins if the crop estimate

is equal to, less than, or no more than 10 percent greater than the

trade demand as computed according to the formula specified in

Sec. 989.54(a) of the order. If an estimated trade demand figure is

utilized, the final reserve percentage will be no more than 10 percent.

Finally, volume regulation will not be implemented if the 1999-2000

crop estimate is below 235,000 natural condition tons.

To illustrate how this will work, the Committee will compute a

trade demand for NS raisins by August 15 (as an example, 260,000

natural condition tons). At that time, the Committee will also announce

its intention to use an estimated trade demand of 235,000 natural

condition tons to compute

[[Page 43899]]

volume regulation percentages for the 1999-2000 crop.

Crop Estimate Below 235,000 Tons--No Regulation

The Committee will meet by October 5 to announce a NS crop estimate

and determine whether volume regulation is warranted. If the 1999-2000

crop estimate is under 235,000 natural condition tons, volume

regulation will not be recommended. With a crop of 235,000 natural

condition tons, and about 82,000 natural condition tons of NS raisins

carried forward from the 1998-99 crop year, a supply of about 317,000

natural condition tons of raisins would be available for the 1999-2000

crop year. As previously mentioned, annual NS raisin shipments average

about 300,000 packed tons (about 320,000 natural condition tons),

excluding government purchases.

With an available supply of only 317,000 natural condition tons of

NS raisins, the Committee believes that the industry's first priority

would be to satisfy the needs of the domestic market, which absorbs

annually an average of about 188,000 packed tons (200,000 natural

condition tons). Assuming that 200,000 natural condition tons were

shipped domestically, the Committee estimates that, with no ERO program

to help California raisins be price competitive in export markets, the

industry would export about half of its usual tonnage, or about 60,000

natural condition tons. The remaining 57,000 natural condition tons

would likely be held in inventory for the following 2000-2001 crop

year. Annual carryout inventory for NS raisins for the past 5 years has

averaged about 100,000 natural condition tons.

Crop Estimate Between 235,000 Tons and 10 Percent Above the

Computed Trade Demand--Volume Regulation

If the October 1999-2000 crop estimate for NS raisins falls between

235,000 natural condition tons and 10 percent above the computed trade

demand, the Committee will use an estimated trade demand figure to

compute preliminary free and reserve percentages for the 1999-2000

crop. Thus, using the 260,000 natural condition ton computed trade

demand figure, an estimated trade demand will be used to compute volume

regulation percentages if the crop estimate falls between 235,000 and

286,000 natural condition tons.

The order specifies that preliminary percentages compute to release

85 percent of the computed trade demand as free tonnage once a field

price is established. Producers are paid the field price for their free

tonnage. Normally, when preliminary percentages are computed, producers

receive an initial payment from handlers for 85 percent of the computed

trade demand (or 65 percent of the trade demand if no field price has

been established). Using the 260,000 natural condition ton computed

trade demand figure, this would equate to 238,000 natural condition

tons. However, if the lower, 235,000 natural condition ton estimated

trade demand figure were utilized to compute preliminary percentages,

producers would receive an initial payment from handlers for only

199,750 natural condition tons, or 71 percent of the computed trade

demand.

The Committee is concerned with the preliminary percentage

computation using an estimated trade demand and its impact on producer

returns. The Committee wants to ensure that producers receive the field

price for as much of their crop as possible early in the season while

still establishing a small pool of reserve raisins to maintain the ERO.

Thus, the Committee recommended that, if an estimated trade demand

figure is utilized, preliminary percentages be computed to release 85

percent of the crop estimate. However, the order specifies that

preliminary percentages be computed to release 85 percent of the trade

demand, not the crop estimate, once a field price is established.

To achieve the same objective but remain within the order's

parameters, the Committee could compute interim percentages to equal 85

percent free and 15 percent reserve. Pursuant to Sec. 989.54(c),

interim percentages may be computed prior to February 15 to release

less than the trade demand. As an example, with a crop estimate of

265,000 natural condition tons and an estimated trade demand of 238,500

natural condition tons, a free percentage of 85 percent of the crop

estimate would release 225,250 natural condition tons of raisins, or 94

percent of the estimated trade demand. This action will mollify the

impact of implementing volume regulation when supplies are short on

producers by allowing them to be paid for as much of their free tonnage

raisins as possible early in the season.

Finally, the Committee will meet by February 15 to compute final

free and reserve percentages. The Committee recommended that if an

estimated trade demand figure is used to compute percentages, the final

reserve percentage be computed to equal no more than 10 percent.

Producers would ultimately be paid the field price for 90 percent of

their crop, or their free tonnage.

The remaining 10 percent of the crop would be held in reserve and

offered for sale to handlers in the ``10 plus 10'' offers. As

previously described, the ``10 plus 10'' offers are two offers of

reserve raisins that are made available to handlers for free use. The

order specifies that each offer consists of a quantity of reserve

raisins equal to 10 percent of the prior year's shipments. This

requirement would not be met if volume regulation were implemented when

raisin supplies were short. However, all of the raisins held in reserve

would be made available to handlers for free use. Handlers would pay

the Committee for the ``10 plus 10'' raisins and that money would be

utilized to fund a 1999-2000 ERO program. Any unused 1999-2000 reserve

pool funds could be loaned forward to initiate a 2000-2001 ERO program.

However, the Committee recommended that such funds be paid back to the

1999-2000 reserve pool and ultimately be returned to 1999-2000 equity

holders.

Crop Estimate More Than 10 Percent Above the Computed Trade Demand

Finally, the Committee recommended that, if the 1999-2000 crop

estimate is more than 10 percent greater than the computed trade demand

(or above 286,000 natural condition tons in the earlier example), the

computed trade demand (as an example, 260,000 natural condition tons)

be utilized to compute volume regulation percentages. Under this

scenario, enough raisins (over 28,000 natural condition tons) would be

available in reserve to continue the ERO program.

It is anticipated that allowing the use of an estimated trade

demand figure to compute volume regulation percentages for 1999-2000

crop NS raisins if supplies are short will assist the industry in

maintaining a portion of its export markets and stabilize the domestic

market. If the crop estimate is below 235,000 natural condition tons,

no volume regulation will be implemented. If this occurs, it is

anticipated that domestic market needs would be met, while export

markets would likely not be satisfied.

However, if the crop falls between 235,000 natural condition tons

and slightly higher than the computed trade demand, establishing a

small reserve pool will allow the industry to not only satisfy the

needs of the domestic market, but also maintain a portion of its export

sales, which now account for almost 40 percent of the industry's annual

shipments. By maintaining an ERO program, even at a reduced level,

exporters could continue to be price

[[Page 43900]]

competitive and sell their raisins abroad. The domestic market would

remain stable because it would not have to absorb any additional

raisins that handlers could not afford to sell in export markets.

Final Regulatory Flexibility Analysis

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. Marketing orders issued

pursuant to the Act, and rules issued thereunder, are unique in that

they are brought about through group action of essentially small

entities acting on their own behalf. Thus, both statutes have small

entity orientation and compatibility.

There are approximately 20 handlers of California raisins who are

subject to regulation under the order and approximately 4,500 raisin

producers in the regulated area. Small agricultural service firms 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. No more than 7 handlers, and a majority of

producers, of California raisins may be classified as small entities.

Thirteen of the 20 handlers subject to regulation have annual sales

estimated to be at least $5,000,000, and the remaining 7 handlers have

sales less than $5,000,000, excluding receipts from any other sources.

This rule adds a new paragraph to Sec. 989.154 of the order's

administrative rules and regulations that provides parameters for using

an estimated trade demand figure specified in Sec. 989.54(e)(4) of the

order to compute volume regulation percentages for 1999-2000 crop NS

raisins. This rule provides guidelines for the use of volume regulation

if 1999-2000 NS raisin supplies are short for the purposes of

maintaining a portion of the industry's export markets and stabilizing

the domestic market.

Regarding the impact of the action on producers and handlers, if an

estimated trade demand figure is used to compute volume regulation

percentages, the final reserve percentage would compute to no more than

10 percent. Producers would thus be paid the field price for at least

90 percent of their crop, but would lose being paid the field price for

about 10 percent of their crop that would go into a reserve pool. The

field price for NS raisins for the past 5 years has averaged $1,216 per

ton. Handlers in turn would purchase 90 percent of their raisins

directly from producers at the field price, but would have to buy

remaining raisins out of the reserve pool at a higher price (field

price plus 3 percent and Committee costs). The ``10 plus 10'' price of

NS reserve raisins has averaged about $100 higher than the field price

for the past 5 years, or $1,316 per ton. Proceeds from the ``10 plus

10'' sales would be used to support export sales.

While there may be some initial costs for both producers and

handlers, the long term benefits of this action far outweigh the costs.

The Committee believes that with no reserve pool and hence no ERO

program, export sales would decline dramatically, perhaps up to 50

percent. Handlers would likely sell into the domestic market raisins

that they were unable to sell into lower priced export markets.

Additional NS raisins sold into the domestic market, which typically

absorbs about 188,000 packed tons, could create instability. The

industry would likely lose a substantial portion of its export markets,

which now account for about 37 percent (112,000 packed tons) of the

industry's annual shipments (300,000 packed tons, excluding government

purchases). Committee members have also commented that, once export

markets were lost, it would be difficult and costly for the industry to

recover those sales.

Maintaining the industry's export markets will, in turn, help the

industry maximize its 1999-2000 total shipments and prevent handlers

from carrying forward large quantities of inventory into the 2000-2001

crop year. If the industry is unable to maximize its 1999-2000

shipments, carryin inventory could be high which would result in a

lower computed trade demand figure for the 2000-2001 crop year. If the

industry returns to its pattern of relatively large crops in 2000-2001,

a low trade demand and large crop estimate would compute to a low free

tonnage percentage. Since producers are paid significantly more for

their free tonnage than for reserve tonnage, this would mean reduced

returns to producers. Projected reduced 2000-2001 returns to raisin

producers, coupled with the risks of rain and labor shortages during

harvest, may influence producers to ``go green,'' or sell their raisin-

variety grapes to the fresh-grape, wine, or juice concentrate markets.

Additional supplies to those outlets could potentially reduce ``green''

returns as well.

A similar scenario occurred in the California raisin industry in

the early 1980's where the industry experienced two consecutive, short

crop years. The 1981-82 and 1982-83 crops were short followed by

relatively large crops for the remainder of the 1980's. The producer

field price for NS raisins was $1,275 per ton for 1981-82 crop raisins,

and $1,300 per ton for 1982-83 crop raisins. No volume regulation was

implemented in 1982-83. However, a large inventory of high-priced

raisins was carried forward into the 1983-84 crop year. When coupled

with the largest crop on record at the time, volume regulation was

implemented for the 1983-84 crop with the free tonnage percentage at a

historically low 37.5 percent. By 1984, the producer field price for

free tonnage raisins fell to $700 per ton, causing producers to

experience large financial losses. Thus, the industry wants to help

avoid a repeat of what happened in the 1980's by utilizing the Federal

order to maintain export sales and provide stability in the domestic

market.

Several alternatives to this action were considered by the

industry. As previously mentioned, the Committee formed a working group

to address its concerns. The working group considered utilizing money

remaining in the 1997-98 reserve pool to fund some portion of an ERO.

About $22 million would be available. However, because there was no

1998-99 reserve, the 1997-98 pool will ultimately fund at least 16

months of an ERO program. Ideally, the Committee would like to see each

reserve pool support one year of an ERO program. Unfortunately, because

of variances in crop size, the spread in price between the domestic and

export markets, and other factors, this goal is not always met. In any

event, the Committee agreed that any remaining 1997-98 reserve pool

funds could be loaned forward to initiate a 1999-2000 ERO program, but

those funds would have to be paid back and ultimately returned to the

1997-98 equity holders.

A second alternative considered by the working group was to fund

the ERO through an increased assessment rate. The current assessment

rate is $8.50 per ton for raisins acquired by handlers. The Committee

estimated that the rate would need to be increased to at least $60 per

ton for acquired raisins. The Department had concerns with such an

increase as well as whether the ERO could be funded through the order's

assessment authority.

A third alternative considered by the working group was to change

the order's desirable carryout formula. Desirable carryout is part of

the order's trade demand formula and is the amount of

[[Page 43901]]

tonnage from the prior crop year needed during the first part of the

next crop year to meet market needs, before new crop raisins are

available for shipment. Desirable carryout is specified in the order's

regulations and is equal to 2\1/2\ months of the prior year's

shipments. Changing the desirable carryout changes the trade demand

computation. The working group considered developing a sliding scale

which would match crop estimates with levels of carryout inventory.

However, after much discussion, the working group ultimately

recommended to the Committee using an estimated trade demand to compute

volume regulation percentages next year if NS raisin supplies are

short.

There are some reporting, recordkeeping and other compliance

requirements under the order. The reporting and recordkeeping burdens

are necessary for compliance purposes and for developing statistical

data for maintenance of the program. If volume regulation were

implemented this year using an estimated trade demand figure, the

requirements on handlers would be identical to those requirements

imposed in past seasons when volume regulation was implemented. As

previously stated, volume regulation has been utilized in all but 10

seasons for NS raisins since the inception of the order in 1949. Thus,

handlers are familiar with the requirements.

Furthermore, this action imposes no additional reporting or

recordkeeping burden on either small or large handlers. The forms

require information which is readily available from handler records and

which can be provided without data processing equipment or trained

statistical staff. The information and recordkeeping requirements have

been previously approved by the Office of Management and Budget (OMB)

under OMB Control No. 0581-0178. As with other similar marketing order

programs, reports and forms are periodically reviewed to reduce

information requirements and duplication by industry and public sector

agencies. Finally, the Department has not identified any relevant

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

In addition, the Committee's working group meetings held on

February 24, March 10, March 18, April 6, 1999, and the subcommittee

and Committee meetings on April 13, 1999, where this action was

deliberated were all public meetings widely publicized throughout the

raisin industry. The Committee held a follow-up meeting on June 10,

1999, to further educate the industry on its recommendation. All

interested persons were invited to attend the meetings and participate

in the industry's deliberations.

Further, two major industry organizations, Sun-Maid Growers of

California (Sun-Maid) and the Raisin Bargaining Association (RBA), have

held meetings to provide additional information to their members on the

Committee's recommendation. Sun-Maid and the RBA represent about 70

percent of the California raisin industry.

A proposed rule concerning this action was published in the Federal

Register on June 28, 1999 (64 FR 34571). A 20-day comment period, which

ended on July 19, 1999, was provided to allow interested persons to

respond to this proposal. Copies of the rule were mailed to all

Committee members and alternates, handlers, and producers. The rule was

also made available through the Internet by the Office of the Federal

Register. Three comments were received.

All three commenters expressed concern with the impact of

implementing volume regulation in short crop years on producers. One

commenter stated that he supports maintaining the industry's export

markets, but only if it is profitable for producers. The commenters

also stated that the ERO program benefits handlers with producers

assuming the burden of financing the program.

The evidence before the Committee indicates that the domestic

market can currently only absorb a limited quantity of California

raisins annually, or about 188,000 packed tons (200,000 natural

condition tons). If the crop significantly exceeded this level and if

no ERO program were established, handlers who could not sell their

raisins in export might sell their raisins domestically. Additional NS

raisins sold into the domestic market would create instability and

reduce producer returns.

In addition, while the domestic market generates the highest return

for producers (about $1,216 per ton), the export market generates the

second highest level of return (about $800 per ton). Other outlets for

raisins such as government purchase, diversion, and distilleries or

animal feed provide much lower returns. Thus, since the domestic market

can only absorb a limited amount of raisins, it is prudent to help

ensure that as much of the remainder of the crop as possible be sold to

the next profitable outlet--export.

Two of the commenters expressed concern with the relationship

between the world supply of raisins and the proposal's concern with a

potential loss of export markets. Early season forecasts predict

relatively smaller crops in some other raisin-producing countries. The

commenters contend that, if the world supply of raisins this year is

short, along with a short California crop, the California raisin

industry would not lose its export markets because other raisin-

producing countries would not be able to supply those markets.

Even in light of a relatively short world supply of raisins,

however, an ERO program would be necessary to continue to help

California raisins attract buyers in export markets. Raisins are not a

necessary product for consumers, and export markets would disappear if

prices sharply advanced to free tonnage levels. It would be very

difficult and costly for the industry to regain export markets once

they were lost.

One of the commenters expressed concern with the composition of the

Committee, and another commenter expressed concern with the composition

of the working group which deliberated the issue. Specifically, one

commenter contends that the Committee is suppose to be made up of an

equal number of producers and handlers, and that many handlers who are

also producers hold producer positions on the Committee. The commenter

contends that this results in Committee discussions which usually favor

the interests of handlers rather than producers.

Consistent with the terms of the order, the Committee is composed

of 47 members--35 producers, 10 handlers, 1 representing the RBA, and 1

public member. Nothing under the current order prohibits a producer

member from having a handler interest, or a handler member from having

a producer interest. In addition, the Committee can change its

composition through formal rulemaking (public hearing and producer

referendum) if desired.

As stated above, one commenter expressed concern with the make-up

of the working group which held preliminary meetings to discuss this

issue. The commenter contends that the working group was composed of

five Committee members--one public member and four members affiliated

with a handler. However, the working group was composed of 13 Committee

members representing a cross-section of producers and handlers.

Further, all of the working group meetings were open to any interested

person who would have liked to attend.

The Department believes that the group to which the commenter is

referring is the group of Committee members who responded to industry

questions on this issue at the meeting on June 10, 1999. That group

consisted of only a few members of the original

[[Page 43902]]

working group who visited the Department's headquarters' office in

April 1999 to discuss the Committee's proposal.

Finally, regardless of the recommendation of the Committee or its

working group, it is the Department of Agriculture that makes the

decision to adopt this rule after a thorough consideration of all the

evidence and views of the entire industry.

Accordingly, no changes have been made to the rule as proposed,

based on the comments received.

After consideration of all relevant matter presented, including the

information and recommendation submitted by the Committee, the comments

received in response to the proposed rule, and other available

information, it is hereby found that this rule, as hereinafter set

forth, will tend to effectuate the declared policy of the Act.

It is further found that good cause exists for not postponing the

effective date of this rule until 30 days after publication in the

Federal Register (5 U.S.C. 553) because: (1) This action needs to be in

effect by August 12, 1999, which is the date of the Committee's meeting

where the 1999-2000 trade demand will be announced; (2) producers and

handlers are aware of this action which was recommended at a public

meeting; and (3) a 20-day comment period was provided in the proposed

rule, and the comments received in response to that rule were addressed

herein.

List of Subjects in 7 CFR Part 989

Grapes, Marketing agreements, Raisins, Reporting and recordkeeping

requirements.

For the reasons set forth in the preamble, 7 CFR part 989 is

amended as follows:

PART 989--RAISINS PRODUCED FROM GRAPES GROWN IN CALIFORNIA

1. The authority citation for 7 CFR part 989 continues to read as

follows:

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

2. The undesignated center heading preceding Sec. 989.154 is

revised to read ``Marketing Policy.''

3. Section 989.154 is revised to read as follows:

Sec. 989.154 Marketing policy computations.

(a) Desirable carryout levels. The desirable carryout levels to be

used in computing and announcing a crop year's marketing policy shall

be equal to total shipments of free tonnage of the prior crop year

during August, September, and one-half of October, for each varietal

type, converted to a natural condition basis: Provided, That, should

the prior year's shipments be limited because of crop conditions, the

Committee may select the total shipments during the months of August,

September, and one-half of October during one of the three crop years

preceding the prior crop year.

(b) Estimated trade demand. Pursuant to Sec. 989.54(e)(4),

estimated trade demand is a figure different than the trade demand

computed according to the formula in Sec. 989.54(a). The Committee

shall use an estimated trade demand to compute preliminary and interim

free and reserve percentages, or determine such final percentages for

recommendation to the Secretary for 1999-2000 crop Natural (sun-dried)

Seedless (NS) raisins if the crop estimate is equal to, less than, or

no more than 10 percent greater than the computed trade demand:

Provided, That the final reserve percentage computed using such

estimated trade demand shall be no more than 10 percent, and no reserve

shall be established if the final 1999-2000 NS raisin crop estimate is

less than 235,000 natural condition tons.

Sec. 989.157 [Amended]

4. A new undesignated center heading is added preceding

Sec. 989.157 to read ``Quality Control.''

Dated: August 9, 1999.

Kathleen A. Merrigan,

Administrator, Agricultural Marketing Service.

[FR Doc. 99-20877 Filed 8-9-99; 1:55 pm]

BILLING CODE 3410-02-P