Almonds Grown in California; Salable and Reserve Percentages for the 1999-2000 Crop Year

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 981

[Docket No. FV99-981-3 FR]

Almonds Grown in California; Salable and Reserve Percentages for

the 1999-2000 Crop Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule establishes salable and reserve percentages for

California almonds received by handlers during the 1999-2000 crop year.

The almond marketing order (order) regulates the handling of almonds

grown in California and is administered locally by the Almond Board of

California (Board). The percentages are 77.64 percent salable and 22.36

percent reserve. Salable almonds may be sold by handlers to any market

at any time. Reserve almonds must be withheld by handlers or disposed

of in authorized outlets. The 1999-2000 crop is estimated to be the

largest crop on record. Volume regulation is intended to promote

orderly marketing conditions and avoid unreasonable fluctuations in

supplies and prices.

DATES: Effective Date: This final rule is effective December 2, 1999

through July 31, 2000. Applicability Date: This final rule applies

during the period August 1, 1999, through July 31, 2000.

FOR FURTHER INFORMATION CONTACT: Martin Engeler, Assistant Regional

Manager, California Marketing Field Office, Marketing Order

Administration Branch, F&V, 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, Fax: (202) 720-5698. Small businesses may request information

on complying with this regulation 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].

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing

Order No. 981, as amended (7 CFR part 981), regulating the handling of

almonds grown in California, hereinafter referred to as the ``order.''

The marketing 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 final rule has been reviewed under Executive Order 12988,

Civil Justice Reform. Under the marketing order now in effect, salable

and reserve percentages may be established for almonds handled by

handlers during the crop year. This rule establishes salable and

reserve percentages for almonds received by handlers during the 1999-

2000 crop year which runs from August 1, 1999, through July 31, 2000.

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 final rule establishes salable and reserve percentages for

California almonds received by handlers during the 1999-2000 crop year.

The percentages are 77.64 percent salable and 22.36 percent reserve.

Salable almonds may be sold by handlers to any market at any time.

Reserve almonds must be withheld by handlers or disposed of in

authorized outlets. The 1999-2000 crop is estimated to be the largest

crop on record. Volume regulation is intended to promote orderly

marketing conditions and avoid unreasonable fluctuations in supplies

and prices. This action was recommended by the Board at a meeting on

July 12, 1999, by a vote of seven in favor and three opposed. Volume

regulation was last implemented for California almonds during the 1994-

95 crop year.

Section 981.47 of the order provides authority for the Secretary,

based on recommendations by the Board and analysis of other available

information, to establish salable and reserve percentages for almonds

received by handlers during a crop year. The crop year runs from August

1 through July 31. To aid the Secretary in fixing the salable and

reserve percentages, Sec. 981.49 of the order requires the Board to

submit information to the Department on estimates of the marketable

production of almonds, combined domestic and export trade demand needs

for the year, carryin inventory at the beginning of the year, and the

desirable carryout inventory at the end of the crop year. Section

981.66 authorizes the disposition of reserve almonds to certain outlets

such as almond oil, almond butter, and animal feed.

The Board met on May 12, 1999, to review the projected crop

estimate and marketing conditions for the 1999-2000 season. The day

before the Board's meeting, the California Agricultural Statistics

Service (CASS) issued its initial forecast for the 1999 almond crop at

760 million kernelweight pounds. Based on that estimate, the Board

recommended salable and reserve percentages of 84.79 percent and 15.21

percent, respectively, by a vote of seven in favor to three opposed.

The CASS revised its crop estimate upwards to 830 million pounds on

July 8, 1999. Based on the updated crop estimate, the Board met on July

12 and revised its

[[Page 59108]]

recommendation for salable and reserve percentages to 77.64 and 22.36

percent, respectively, again by a seven to three vote. The 830 million

pound crop estimate represents a 60 percent increase over 1998-99

production, and is 10 percent larger than the previous record crop of

756 million pounds produced in 1997-98. According to the CASS, although

freezing temperatures in early April caused locally variable production

losses, average yields are expected to be high due to excellent bloom

and good weather during the pollination period. If realized, this will

be the largest almond crop on record to date.

A tabulation of the estimates and calculations used by the Board as

it considered recommending volume regulation for the 1999-2000 almond

crop follows:

Marketing Policy Estimates--1999 Crop (Kernelweight Basis)

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

Million

Pounds Percent

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

Estimated Production:

1. 1999 Production.......................... 830.0

2. Loss and Exempt--4.0% (Resulting from the 33.2

removal of inedible kernels by handlers and

losses during manufacturing)...............

3. Marketable Production.................... 796.8

Estimated Trade Demand:

4. Domestic................................. 190.0

5. Export................................... 459.0

6. Total.................................... 649.0

Inventory Adjustment:

7. Carryin 8/1/99........................... 100.4

8. Desirable Carryover 7/31/00 (available 70.0

for early season shipments during 2000-

2001)......................................

9. Adjustment (No. 8 minus no. 7)........... -30.4

Salable/Reserve:

10. Adjusted Trade Demand (Item 6 plus item 9) 618.6

(quantity of almonds from the marketable

production necessary to meet trade demand

needs)

11. Reserve (No. 3 minus no. 10)............ 178.2

12. Salable % (Item 10 divided by item 3 x ........... 77.64%

100).......................................

13. Reserve % (100% minus item 12).......... ........... 22.36

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

As specified in the marketing order, the Board considered the

factors set forth in the preceding table in its deliberations. The

available data indicate a supply for the 1999-2000 crop year of 827.2

million kernelweight pounds (marketable production adjusted for carryin

and desired carryout), which exceeds estimated trade demand by 178.2

million kernelweight pounds. The estimated trade demand of 649 million

kernelweight pounds represents 110 percent of the estimated shipments

for the current crop year, and exceeds the record high shipments of

1997-98 by 36 million kernelweight pounds, or 6 percent.

In addition to the factors included in the table, the Board

considered additional information such as the weather-related variation

in production from year to year, significant increases in recent almond

plantings, and increased yields. These are the primary factors

contributing to the projected oversupply situation. The Board also

considered recent price fluctuations in its deliberations. In 1997,

grower prices averaged $1.55 per pound; during the 1998-99 season,

prices reportedly dropped significantly. This was attributed to larger

than anticipated 1998 supplies, speculation within the marketplace, and

the anticipated large 1999-2000 crop.

The salable percentage of 77.64 percent will make 618.6 million

kernelweight pounds of the marketable production available to handlers

for sale to any market. Combining this figure with the carryin

inventory from the 1998-99 crop year (100.4 million kernelweight

pounds) and deducting the desired carryout inventory at the end of the

1999-2000 crop year (70.0 million kernelweight pounds) will result in a

supply of 649 million kernelweight pounds. This supply will allow the

industry to meet its trade demand needs of 649 million kernelweight

pounds and allow for market growth. The remaining 22.36 percent, or

178.2 million kernelweight pounds, of the marketable production will be

withheld by handlers to meet their reserve obligation.

All or part of the reserve almonds may be released to the salable

category if it is found that the supply made available by the salable

percentage is insufficient to satisfy 1999-2000 trade demand needs or

desirable carryover for use during the 2000-2001 crop year. The Board

is required to make any recommendations to the Secretary to increase

the salable percentage prior to May 15, 2000, pursuant to Sec. 989.48

of the order. Alternatively, all or a portion of the reserve almonds

may be sold by the Board, or by handlers under agreement with the

Board, to governmental agencies or charitable institutions or for

diversion into almond oil, almond butter, animal feed, or other outlets

which the Board finds are noncompetitive with existing normal outlets

for almonds.

As previously stated, 3 of the 10 Board members opposed the

recommendation for volume regulation at both meetings where the

percentages were recommended, with those in opposition commenting that

this year's projected ``large'' crop will ultimately be considered

average in size, and that next year's crop may be even larger due to

new plantings, or expressing a preference for the industry to

concentrate on building demand rather than imposing a reserve.

Observers at the Board meetings who were opposed to volume regulation

commented that the industry should deal with increasing supplies by

building demand through its promotional activities, rather than

implementing reserves. Others suggested that it is more appropriate to

manage market risks at the individual handler level through marketing

tools such as forward contracting, rather than controlling supplies at

the industry level.

After much discussion, the majority of Board members supported the

establishment of a reserve to help maintain orderly marketing

conditions

[[Page 59109]]

so that the industry can successfully manage the projected large 1999

almond crop. The long-term goal of the almond industry is to increase

almond consumption and demand, and the supporting Board members believe

this can be best achieved in the presence of stable and orderly

marketing conditions. These members believe that use of the reserve

provisions of the order as a supply management tool, in conjunction

with other marketing tools available in the order, can assist in

accomplishing the industry's goals.

The ``Guidelines for Fruit, Vegetable, and Specialty Crop Marketing

Orders'' (Guidelines) issued by the Department in 1982 specify that 110

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

each season for marketing orders using volume regulation. This rule

will provide an estimated 719 million kernelweight pounds of California

almonds for unrestricted sales (1999 crop salable production plus

carryin from the 1998 crop) to meet increasing domestic and world

almond consumption demand. This amount exceeds the estimated delivered

sales for 1998-99 California almonds by about 22 percent. Thus, the

Guidelines' goals are met.

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 105 handlers of California almonds who are

subject to regulation under the order and approximately 6,000 almond

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.

Based on the most current data available, about 54 percent of the

handlers ship under $5,000,000 worth of almonds and 46 percent ship

over $5,000,000 worth on an annual basis. In addition, based on

acreage, production, and grower prices reported by the National

Agricultural Statistics Service (NASS), and the total number of almond

growers, the average annual grower revenue is approximately $195,000.

In view of the foregoing, it can be concluded that the majority of

handlers and producers of California almonds may be classified as small

entities.

Pursuant to Sec. 981.47 of the order, this rule establishes salable

and reserve percentages applicable to California almonds received by

handlers during the 1999-2000 crop year. The volume regulation

percentages are 77.64 percent salable and 22.36 percent reserve.

Salable almonds may be sold by handlers to any market at any time.

Reserve almonds must be withheld by handlers or disposed of in

authorized outlets such as almond oil, almond butter, and animal feed.

Volume regulation is warranted this season because the marketable

production estimate of 796.8 million kernelweight pounds combined with

the 1998-99 carryin inventory of 100.4 million kernelweight pounds

results in an available supply of about 897 million kernelweight

pounds. After subtracting the desirable carryout of 70 million

kernelweight pounds, the remaining supply of 827 million kernelweight

pounds would be 178 million kernelweight pounds higher than the trade

demand of 649 million kernelweight pounds. Volume regulation is

intended to promote orderly marketing conditions and avoid unreasonable

fluctuations in supplies and prices, and should ultimately improve

grower returns.

Regarding the impact of this rule on affected entities, the salable

and reserve percentages will apply uniformly to all handlers in the

industry, regardless of size. There were some concerns expressed at the

Board's meeting regarding the impact of a reserve on small handlers,

specifically, that small handlers who do not have adequate storage

facilities may have to rent such facilities to hold their reserve

almonds. These are costs they would not otherwise incur. However, the

costs of holding almonds in reserve would be borne proportionately

throughout the industry. All handlers would be required to store

reserve almonds in varying quantities, depending upon the total amount

of almonds handled. Those with existing facilities would also incur

storage costs, although those costs may be fixed costs spread over a

longer period of time. In any event, costs associated with storing

reserve product are expected to be more than offset by the benefits of

orderly marketing. In addition, the order was amended in 1996 to allow

handlers to transfer their reserve obligation to other handlers. Thus,

handlers with no storage facilities will now have the option to

transfer their reserve withholding obligation to other handlers who can

store the reserve almonds.

Furthermore, almond production, like that of many agricultural

commodities, can vary significantly from season to season due to a

variety of factors. This in turn can contribute to wide fluctuations in

prices. For example, California almond production over the past 10

years has varied from a low of 366.7 million kernelweight pounds in

1995 to a high of 756.5 million kernelweight pounds in 1997. Grower

prices for the past 10 years, as reported by the NASS, have varied from

a low of $.93 per pound in 1990 to $2.48 per pound in 1995.

In addition, returns to growers have reportedly decreased by as

much as $1.00 per pound since the beginning of the 1998-99 crop year.

It is believed that a larger than anticipated 1998 crop, market

speculation, and an estimated record 1999 crop have contributed to the

depressed grower prices. Such swings in supplies and price levels can

result in market instability and uncertainty for growers, handlers,

buyers and consumers. While the benefits of this rulemaking may be

difficult to quantify, any stabilizing effects of volume regulation

will impact both small and large handlers positively by helping them

maintain orderly marketing conditions through supply management.

Regarding alternatives, the Board considered not recommending

volume regulation this season. As previously mentioned, three Board

members and some observers at the Board's meetings expressed their view

that the industry should continue to focus on increasing the demand for

almonds rather than implementing a reserve. It was expressed that

market risk can be managed by individual handlers through marketing

tools such as forward contracting, rather than managing supply at the

industry level. However, the majority of Board members supported the

establishment of a reserve to help maintain orderly marketing

conditions so that the industry can successfully manage the projected

large 1999 almond crop. The Board also deliberated the merits of

allocating the reserve to noncompetitive outlets or ultimately

releasing part or all of the reserve as salable. The Board decided to

delay this decision until next spring when additional information,

including an estimate of the 2000-2001 crop, is available. However,

handlers may sell

[[Page 59110]]

reserve almonds to authorized reserve outlets at any time pursuant to

an agency agreement as authorized in Sec. 981.67 of the order, and

receive credit against their withholding obligation.

This rule may impose some additional reporting, recordkeeping and

other compliance requirements on both small and large handlers.

Handlers who choose to divert their reserve almonds to authorized

outlets will have to file certain reports with the Board. This

requirement is the same as that applied during the 1991-92 and 1994-95

crop years when almond reserves were last established. Most of the

industry's handlers handled almonds during those years and are thus

familiar with the required reports. These reports have been previously

approved by the Office of Management and Budget (OMB) under OMB Control

No. 0581-0071. As with all Federal marketing order programs, reports

and forms are periodically reviewed to reduce information requirements

and duplication by industry and public sector agencies. 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.

In addition, the Board's meetings were widely publicized throughout

the almond industry and all interested persons were invited to attend

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

May 12 and July 12, 1999, meetings were public meetings and all

entities, both large and small, were able to express their views on

this issue. The Board itself is composed of 10 members, of which 5 are

producers and 5 are handlers.

Also, the Board has a number of appointed committees to review

certain issues and make recommendations to the Board. The Board's

Reserve Committee met on April 1, May 11, and July 12, 1999, and

presented its recommendations to the Board at meetings on May 12 and

July 12, 1999. All of these meetings were open to the public, and both

large and small entities were able to participate and express their

views.

A proposed rule concerning this action was published in the Federal

Register on August 10, 1999 (64 FR 43298). Copies of the rule were also

sent to all almond handlers in the industry. Finally, the rule was made

available through the Internet by the Office of the Federal Register. A

30-day comment period ending September 9, 1999, was provided to allow

interested persons to respond to the proposal.

Six comments were received during the comment period in response to

the proposal. Five comments were opposed to the proposal and one was in

favor.

The first commenter, an almond handler, was opposed to the reserve,

stating that reserves do nothing to stabilize prices, and that based on

historical data, prices are higher when reserves are not utilized.

Using the current year as an example, the commenter noted that price

levels have fallen since the Almond Board recommended implementing a

reserve. The commenter also stated the almond industry ships less

almonds in years of oversupply. Finally, the commenter stated that a

study conducted by the University of California, Davis concludes that

``unallocated'' reserves do not work.

A review of historical data pertaining to almond prices and

shipments indicates that price levels tend to be higher in years when

reserves are not utilized, and lower in years when reserves are

implemented. For instance, during the period from crop years 1990

through 1997, the average grower price for years when reserves were not

implemented was $1.87 per pound. During the same period, when reserves

were implemented, the grower price averaged $1.15 per pound. However,

contrary to the commenter's assertions, the data also indicate that in

reserve years, shipment levels and total supplies tend to be higher in

reserve years than in non-reserve years. For example, during the same

time period discussed above, in reserve years, shipments averaged 567

million pounds, while in non-reserve years, shipments averaged 529

million pounds. Lower price levels have occurred when supplies are

higher, consistent with the inverse relationship between supplies and

prices. In years of high production, if reserves were not implemented,

it would be expected that the resulting larger available supplies would

put further downward pressure on prices.

In addition, the commenter appears to attribute recent declines in

price levels to the Board recommendation for salable and reserve

percentages. The crop was initially estimated at 760 million pounds on

May 9 of this year, leading to a Board recommendation for a reserve.

The crop estimate was revised upwards to 830 million pounds on July 12,

confirming the earlier projections, leading to a revised Board

recommendation for a higher reserve percentage. Regardless of the

Board's recommendations, it would be expected that price levels would

decline as updated information confirming the existence of a record

large crop becomes available.

Regarding the reference to a University of California, Davis study

concerning ``unallocated reserves,'' a 1994 study conducted by

economists from that university does indicate reserves are most

effective if a portion of the crop is permanently removed from normal

consumption channels. This is due to the fact that the demand for

almonds is inelastic. Thus, removing a portion of the crop causes a

reduction in the supply, resulting in a larger percentage increase in

price than the decreased quantity demanded. The marketing order

authorizes implementing a requirement to dispose of reserve product to

non-competitive outlets. However, the order also provides for carrying

forward reserve product into the following crop year in the event of a

crop shortfall or increased trade demand needs. The order provides this

flexibility to allow the industry to obtain additional information

regarding the following year's crop size and trade demand needs prior

to making a recommendation concerning the ultimate disposition of the

reserve.

Two other comments submitted by growers/handlers of almonds are

identical in content. These comments are opposed to implementing a

reserve. The commenters indicate that they are currently selling

almonds at, or less than, the cost of production and handling. Further,

they stated that maintaining reserves adds costs and risks beyond those

normally incurred in producing and marketing almonds. The commenters

stated that large crops will continue in the future due to increased

acreage and yields; thus, carrying forward reserve product into a

future large crop year will compound the oversupply problem. The

commenters believe handlers should individually deal with crop size,

and that growers can adjust by pulling out orchards and planting

something else. Finally, the commenters contend that the Board

recommendation regarding the reserve was representative of only two

handlers, while there are approximately 100 handlers in the industry.

In response to these comments, the intent of a reserve is to maintain

orderly marketing conditions in an attempt to stabilize supplies and

prices. Profitably marketing a crop can best be achieved under stable

conditions. Although there may be costs associated with maintaining a

reserve, the anticipated benefits of more stable and orderly marketing

conditions are expected to outweigh those costs.

Based on a review of historical data concerning almond acreage and

yields, future crops are likely to continue to be large. Bearing

acreage increased from

[[Page 59111]]

411,000 acres in 1990 to 460,000 acres in 1998, and non-bearing acreage

increased from 32,400 acres to 113,000 acres during the same period. In

addition, average yields have also increased over time due to improved

varieties and production practices. During the 5-year period from 1980-

1985, almond yields averaged 1,094 pounds per acre, while during the

period from 1993-1998, the average yield was 1,405 pounds per acre.

While production and yields can vary significantly from year to year

due to weather and other factors, both are trending upwards.

With respect to compounding oversupply problems in the future, it

was noted earlier that reserve product may either be disposed of in

non-competitive markets or carried over to augment supplies during the

following year. Decisions regarding ultimate disposition of the reserve

will be made as additional market information and information on the

following year's crop becomes available.

In response to the comments that growers can respond to oversupply

conditions by pulling out orchards, the use of the authorized supply

control features under the marketing order, combined with demand

building activities, provides an alternative to such drastic measures.

Unlike other crops where planting decisions can be made on an annual

basis, tree crops require long-term commitment of resources and long-

term investment.

Finally, in response to the comment concerning the Almond Board

action, the Board is comprised of five grower members and five handler

members. The Board is the constituted body under the marketing order

charged with administering the provisions of the order and making

recommendations to the Department. The Board is nominated by growers

and handlers in the industry and represents the industry as a whole.

Further, one of the purposes of Federal marketing orders is to benefit

producers. Consistent with the provisions of the order, a majority of

the members of the Board voted in favor of the recommendation.

Another comment was received from a grower of almonds on behalf of

several family members who are also almond growers. This commenter

claims that the current marketing situation is the worst in the almond

industry since 1910, and projects a $500,000 to $600,000 loss for the

family almond farming operations during the coming season. The

commenter also stated that the anticipated reserve is not achieving the

desired effect of promoting orderly marketing conditions.

The commenter offered several alternatives to correct the current

industry situation, including requiring destruction of a certain

percentage of each grower's acreage, restricting new plantings,

government purchase of reserve almonds, and issuance of nonrecourse

loans.

Taking into account the current marketing conditions in the almond

industry, it would be premature to judge the effects of a reserve on

the market situation at this time, as a reserve is just now being

established and the ultimate disposition of the reserve will be

determined in accordance with the provisions of the order.

Regarding the alternatives offered by the commenter, except for the

option of a sale of reserve almonds to an agency, the proposals offered

by the commenter are not authorized under the almond marketing order.

The marketing order provides for a comprehensive regulatory scheme

which comes in effect when a reserve percentage is fixed for a crop

year. Accordingly, the alternatives, with one exception, exist outside

of the marketing order program. Regarding a sale of reserve almonds to

a government agency, as stated above, the ultimate disposition of the

reserve will be determined in accordance with the provisions of the

order.

Another comment from a grower of almonds opposed to the

establishment of a reserve for the 1999-2000 crop year was received.

This comment raised numerous issues. The commenter contends that the

proposed rule either violates or does not meet the requirements of the

Act and is inconsistent with or violates a number of other Federal

statutes, regulations, and policies.

Next, the commenter stated that the same rationale for establishing

a reserve was used in the proposed rule that has been used in past

seasons. The commenter claims that there has been no analysis of the

impact of reserves on the industry, including pricing effects, no

analysis of the decreased variability of the alternating production

cycles, and no correlation of variability data with acreage statistics

and long range weather forecasts.

The commenter also stated that current low price levels are not

indicative of disorderly marketing, but rather are a reflection of

industry structure and the conduct of handlers with regard to open

price contracting. The commenter is of the view that the open price

system has allowed handlers to take full advantage of smaller growers.

The commenter further stated that current low prices are a function of

lack of market price information to the industry. The comment asserted

there has been no evaluation of non-bearing almond acreage and improved

yields and speculated whether the Department was ignoring this impact

or merely giving special treatment to handlers interests in the

industry that would give the handlers increased profits while

furthering the problems of small growers. In addition, the commenter

claims that crop forecasting models indicate there is a 98 percent

chance that next year's crop will be larger than the current year's

crop, and this has not been considered. Also, there has been no

analysis conducted concerning the impact of reserves stimulating

production.

The commenter stated that establishment of a reserve would preempt

and conflict with Sections 58301 and 58302 of the California Food and

Agricultural Code because it will enable handlers to withhold payment

to growers on product held in reserve. Further, section 608c(7) of the

Act is cited as a statutory requirement that a reserve cannot be

established unless it declares that failure to pay a grower for the

reserve portion of his or her crop is an unfair trade practice and is

prohibited.

The commenter stated that if a reserve is established, it should

require that the reserve be held within the State of California. The

commenter adds that a reserve would be unfair to growers who incurred a

crop loss due to frost. Growers, some of which lost up to 70 percent of

their crop, should be exempt from reserve requirements if they suffered

30 percent or more crop loss. Furthermore, a reserve would be unfair to

growers who withheld their 1998-99 crop from delivery to handlers until

the 1999-2000 crop year in anticipation of improved prices or to guard

against reduced production in 1999-2000.

Finally, the commenter stated that the almond marketing order was

recently approved by only 27 percent of the State's producers in a

continuance referendum, and that there would have been stronger support

if the ballot in the continuation referendum would have been split to

have the reserve provisions voted on separately.

In response to these comments, the Department disagrees that

establishment of salable and reserve percentages do not meet the

requirements of the Act and are in conflict with other Federal

statutes, regulations, and policies. The establishment of salable and

reserve percentages in the action is consistent with applicable law,

including the provisions of the Act, order, and regulations governing

this program.

[[Page 59112]]

The Department has considered and evaluated economic data regarding

the potential impact of reserves on the almond industry, as well as

information pertaining to acreage statistics and production cycles. In

accordance with the provisions of the order, the Board is required to

provide to the Department specific information to aid the Department in

fixing salable and reserve percentages. Economic studies indicate that

the demand for almonds is inelastic. Therefore, a reduction in supply

would result in a proportionately larger increase in price levels for

the product. This would result in an increase in total revenue to the

industry. With respect to acreage statistics, as previously stated, the

Department is aware that both bearing and non-bearing almond acreage

has increased significantly in recent seasons, and, therefore, future

production levels may be expected to continue to increase. This is not

an unusual response to a pattern of high price levels as experienced in

recent years in the almond industry.

Further, regarding production cycles, a review of historical data

indicates that almond production patterns do not display a true pattern

of an alternate bearing characteristic. While there appears to be a

general pattern of short crops followed by large crops and vice-versa,

instances of two consecutive short or large crops have occurred.

The commenter refers to a purported ``crop projection model'' that

indicates there is a 98 percent or greater chance that the 2000-2001

California almond crop will equal or exceed the 1999-2000 crop. Thus, a

large carryin of reserve product from the 1999 crop, when combined with

a large crop the following year, will put further downward pressure on

prices. The Department is unaware of any study that contains such

findings regarding the probability of the 2000-2001 crop size. In

addition, even if this assertion is assumed to be valid, reserve

product from the 1999 crop reserve will not necessarily increase the

supply the following year. As previously discussed, under the almond

marketing order, reserve may be carried into the following crop year,

or removed permanently from normal market channels. If the latter

course is taken, that reserve product would not add to the following

year's supply. A decision regarding ultimate disposition of reserve

product does not need to be made until information concerning the

following year's crop is known.

In response to the commenter's claims that low price levels are the

result of handler pricing practices and lack of market price

information, there may be indeed other factors that can contribute to

disorderly marketing. The commenter believes that the combination of

poor prices for other crops, the flow of dollars from the Freedom to

Farm Act, the lack of information of prices on movement by variety,

grade, size, and terms of sale are elements of disorder. The commenter

also raises the issue of foreign plantings in connection with an

analysis of the production stimulation effects of implementing

reserves. However, the Department is not aware of any studies conducted

which have attempted to address that issue. While the marketing order

and its provisions may not be able to address every possible

contingency in the almond industry, it does, however, authorize use of

volume control as a means of helping to foster orderly marketing

conditions. By establishing a reserve, the industry would be utilizing

a tool available to it in an attempt to achieve its goals.

The commenter contends that establishment of a reserve conflicts

with California State law. The issue of grower-handler payments, and

open price contracts is raised again; however, the almond marketing

order does not regulate grower-handler payments or such contracts. If

State laws regarding grower-handler payments are in some way violated,

then one could look to those statutes for appropriate remedies.

In response to the comment regarding holding reserve product within

the State of California, when salable and reserve percentages are in

effect, the marketing order requires handlers to withhold from handling

a certain percentage of the product received from growers. By

definition, shipping product outside the State of California

constitutes handling under the almond marketing order.

The marketing order contains no provisions to protect growers from

losses due to freeze damage or other natural disasters. Establishment

of a reserve is based on collective industry data, and is applied to

all handlers equally. While there may be growers who suffered crop

losses during the season, other government sponsored programs may be

available to recompense growers for such losses, such as crop insurance

programs.

If growers withheld product from delivery to handlers during the

1998 season and deliver the product to handlers in the current season,

that product will be subject to reserve requirements in accordance with

provisions of the order. While growers may have taken such action in

anticipation of improved prices or reduced production levels in 1999,

they did so based upon their own initiative.

In response to the comment regarding continuation referendum

results, 90 percent of the almond growers voting in the February 1999

referendum voted to continue the order. In addition, 88 percent of the

volume represented in the referendum voted for continuance.

Approximately 27 percent of the State's almond producers voted in the

referendum. The Department cannot control this aspect of the voting

process and tabulates the results based on the voters who participate

in the process, consistent with the requirements of the Act. Finally,

continuance referendums have been and are conducted to determine the

support of an industry as to the marketing order program established

for that commodity. To look at individual provisions is more a function

of the marketing order amendatory process.

One comment was received in support of establishing salable and

reserve percentages for the 1999-2000 crop year. The commenter

presented data regarding world almond supplies and consumption over the

most recent 5-year period, and projections for the current year. Also

summarized were the high price levels for almonds experienced in the

mid-1990's, which was attributed to world demand chasing limited

supplies.

The commenter pointed out that reserves have been used in the

almond industry in ten of the years during the period from 1980 through

1998, and attributed the use of reserves as a successful tool to manage

supplies while increasing demand for almonds. Stable supplies resulted

in less market volatility, thus encouraging new product development and

expansion of markets for existing products.

The commenter indicated that in reserve years, the industry

actually shipped more than the trade demand figure established by the

Board.

The commenter also referenced a study conduced by the University of

California, Davis indicating that the demand for almonds is inelastic.

A practical application of the effect of inelastic demand on prices and

supplies of almonds was presented.

Concluding remarks in the comment support the use of supply

management as a short-term tool while building long-term consumption

and demand for the product.

Members within the industry may have differences of opinion

regarding the concept of volume control under the marketing order, as

well as its effectiveness and these differences can be and are

reflected in Board and

[[Page 59113]]

Committee discussions, as well as the comments received in response to

the proposed rule. However, a majority of Board members favored the

recommendation, and even those opposed indicated they would support the

Board's recommendation.

After reviewing the comments received and other available

information, the Department has concluded that issuing this rule is

appropriate. Accordingly, no changes will be made to the rule as

proposed, based on the comments received.

A small business guide on complying with fruit, vegetable, and

specialty crop marketing agreements and orders may be viewed at the

following web site: http://www.ams.usda.gov/fv/moab.html. Any questions

about the compliance guide should be sent to Jay Guerber at the

previously mentioned address in the FOR FURTHER INFORMATION CONTACT

section.

After consideration of all relevant matter presented, including the

information and recommendation submitted by the Board 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.

List of Subjects in 7 CFR Part 981

Almonds, Marketing agreements, Nuts, Reporting and recordkeeping

requirements.

For the reasons set forth in the preamble, 7 CFR part 981 is

amended as follows:

PART 981--ALMONDS GROWN IN CALIFORNIA

1. The authority citation for 7 CFR part 981 continues to read as

follows:

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

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

Regulations.

2. In Part 981, Sec. 981.240 is added to read as follows:

Sec. 981.240 Salable and reserve percentages for almonds during the

crop year beginning on August 1, 1999.

The salable and reserve percentages during the crop year beginning

on August 1, 1999, shall be 77.64 percent and 22.36 percent,

respectively.

Dated: October 22, 1999.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 99-28301 Filed 10-28-99; 3:22 pm]

BILLING CODE 3410-02-P