Tart Cherries Grown in the States of Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin; Additional Option for Handler Diversion and Receipt of Diversion Credits

Federal RegisterFeb 25, 1999

Ask Donna

What actually matters in this document.

Text

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV99-930-1 IFR]

Tart Cherries Grown in the States of Michigan, New York,

Pennsylvania, Oregon, Utah, Washington, and Wisconsin; Additional

Option for Handler Diversion and Receipt of Diversion Credits

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Interim final rule with request for comments.

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

SUMMARY: This interim final rule adds 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 will be allowed to obtain diversion certificates when

marketable finished tart cherry products are accidentally destroyed at

a handler's facility. In addition, this rule removes a paragraph in the

regulations which limits 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).

DATES: Effective February 26, 1999; comments received by April 26,

1999, will be considered prior to issuance of a final rule.

ADDRESSES: Interested persons are invited to submit written comments

concerning this rule. Comments must be sent to the Docket Clerk, Fruit

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

Washington, DC 20090-6456, Fax # (202) 720-5698 or E-mail:

[email protected]. All comments should reference the docket

number and the date and page number of this issue of the Federal

of the Docket Clerk during regular business hours.

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__N__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 adds a method of handler diversion to the

regulations for the 1998-99 crop year beginning July 1, 1998 through

June 30, 1999, and subsequent crop years. It also removes a provision

from the regulation which limits 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 date of the entry of the ruling.

This rule provides for an additional method of handler diversion.

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; contribution to a Board approved food bank or other

approved charitable organization; acquisition of grower diversion

certificates that have been issued in accordance with section 930.58;

or other uses, including diversion by destruction of the cherries

[[Page 9266]]

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 handler diversion for finished tart cherry products

accidentally destroyed should not be confused with at-plant diversion

as previously mentioned.

The Board has unanimously recommended that handlers should receive

diversion credit when marketable, finished cherry products are

accidentally destroyed at a handler's facility. For the purposes of

this rule, products will be considered destroyed if they sustain damage

which renders them unacceptable in normal market channels. For example,

finished, marketable cherry products could be accidentally destroyed in

a fire, explosion, or freezer malfunction. In order 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 cherries must

be verified by either a USDA inspector or Board agent or employee.

Verification would be accomplished by having a USDA inspector or Board

employee witness the disposition of the destroyed product. For the

purpose of proper control and oversight, the measures recommended by

the Board are considered to be 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.

The Board also specifically mentioned an incident that had occurred

in the industry where a handler's finished goods were accidentally

destroyed. In this incident, the handler's finished cherry products

were stacked in containers on pallets in a freezer. A pallet broke and

the stacked containers of cherry products toppled over and damaged the

interior walls of the freezer rendering it inoperable. The cherries

were unmarketable due to the contamination of the product as a result

of the damaged freezer. This created a financial hardship for the

handler. If diversion credit is allowed in cases of accidental

destruction of products, such hardship could be avoided. For example,

additional tonnage to meet any restricted percentage obligation amounts

would not need to be obtained.

Handlers wishing to obtain diversion certificates for finished tart

cherry products which are accidentally destroyed must apply for such

diversion certificates and sign an agreement that disposition of the

destroyed product will take place under the supervision of USDA's

Processed Products Branch inspectors or Board inspectors. This will

allow the Board to verify that finished product was unmarketable and

that it was disposed of.

Once diversion is satisfactorily accomplished, handlers will

receive diversion certificates stating the weight of cherries diverted.

Such diversion certificates can be used to satisfy handlers' restricted

percentage obligations.

In addition, this rule removes a paragraph in the regulations which

limits diversion credit for exempted products to one million pounds

each crop year. Currently, section 930.159 provides for diversion

credit of up to one million pounds of exempted products each crop year.

Exempted products can include products used in new product development

and new market development. Exempted products can also include those

that are 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, provided that, such cherry

products can 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), states 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 on exempted product did not apply to those products

receiving export diversions. The Board also indicated that it would be

continuing to review the issue of what limits 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 and should have no detrimental

affect. Therefore, section 930.159(f) of the regulations is removed.

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

initial regulatory flexibility analysis. The Regulatory Flexibility Act

(RFA) would allow 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 opt for such certification, but rather

perform 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.

[[Page 9267]]

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 1,220 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 was frozen, 25 percent canned and 4 percent utilized for juice.

The remaining 8 percent was dried or assembled into juice packs.

The Board reported that for the 1997-98 crop year 48.7 million

pounds of cherries received export diversion 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 will provide for handler diversion certificates in

cases where marketable, finished tart cherry products are accidentally

destroyed and thus rendered unacceptable in the marketplace. Such

diversion certificates can be used to satisfy the handler's restricted

percentage obligation. This enables handlers to either place cherries

into an inventory reserve or select the diversion option most

advantageous to their particular business operation. Providing such

diversion allows 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

amendment accomplishes the purposes of the order and the Act, one of

which is to increase grower returns and stabilize supplies with demand.

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

Allowing this additional diversion option, will prevent financial

hardships if 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. Handlers may divert cherries by

destroying them at their facility. Therefore, allowing diversion credit

for products which are accidentally destroyed, will not be inconsistent

with the overall regulatory scheme.

In addition, this rule removes a paragraph in the regulations which

limits diversion credit for exempted products to one million pounds

each crop year. Currently, section 930.159 provides 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

such allowable diversions until more experience with the program has

been obtained. The one million pound limitation for exempted products

did not apply to diversion credit for exports for the 1997 season. The

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

on exempted products.