02-186. Tobacco Marketing Quotas, Acreage Allotments and Production Adjustment

AGENCY:

Commodity Credit Corporation, USDA.

ACTION:

Proposed rule with request for comments.

SUMMARY:

This proposed rule would amend the tobacco marketing quota regulations by making it a requirement that burley tobacco producers designate the specific warehouse, dealer or receiving station at which they will sell their tobacco in order to qualify for price support and marketing cards. The tobacco marketing quota regulations currently require that only flue-cured tobacco producers, as a condition of price-support, designate the warehouses at which they will market their tobacco and the amounts to be marketed at each designated location. These amendments will provide warehouse operators, the Agriculture Marketing Service (AMS) and others accurate information when planning for a tobacco auction marketing year.

DATES:

Comments concerning the contents of the proposed rule must be submitted by January 22, 2002, to be assured of consideration. Comments concerning the information collection must be submitted by March 5, 2002.

ADDRESSES:

Interested persons are invited to submit written comments concerning this rule. Comments must be sent to Director, Tobacco and Peanuts Division, FSA, USDA, 1400 Independence Avenue, SW., room 5750-S, STOP 0514, Washington, DC 20250-0514; Fax: [phone]. All comments will be made available for public inspection in the Office of the Director during regular business hours.

FOR FURTHER INFORMATION CONTACT:

Ann Wortham, Agricultural Program Specialist, Tobacco and Peanuts Division, United States Department of Agriculture (USDA), 1400 Independence Avenue, SW., STOP 0514, Washington, DC 20250-0514, telephone [phone].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule is issued in conformance with Executive Order 12866 and has been determined to be significant and was reviewed by OMB.

Regulatory Flexibility Act

It has been determined that the Regulatory Flexibility Act is not applicable to this rule because USDA is not required by 5 U.S.C. 553 or any other provision of law to publish a notice of proposed rulemaking with respect to the subject matter of this rule.

Federal Assistance Programs

The title and number of the Federal Assistance Program, as found in the Catalog of Federal Domestic Assistance, to which this rule applies are: Commodity Loans and Purchases-10.0514.

Environmental Evaluation

It has been determined by an environmental evaluation that this action will have no significant impact on the quality of the human environment. Therefore, neither an environmental assessment nor an Environmental Impact Statement is needed.

Executive Order 12372

This program is not subject to the provisions of Executive Order 12372, which require intergovernmental consultation with State and local officials. See the notice related to 7 CFR part 3015, subpart V, published at 48 FR 29115 (June 24, 1983).

Unfunded Mandates

The provisions of Title II of the Unfunded Mandates Reform Act of 1995 are not applicable to this rule because the USDA is not required by 5 U.S.C. 553 or any other provision of law to publish a notice of proposed rulemaking with respect to the subject matter of this rule.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995, this notice announces the Commodity Credit Corporations's (CCC) intention to request an extension of a currently approved information collection. This information will be used in support of the Tobacco Marketing Quota Program. Producers must agree to inform the Farm Service Agency (FSA) of the locations at which they will sell their tobacco and the number of pounds of that tobacco that will be sold at each location using form FSA-808, “Designation of Burley Tobacco Sales and Request for Marketing Cards” to collect the data.

Title: Designation of Burley Tobacco Sales and Request for Marketing Cards.

OMB #: 0560-0217.

Type of Request: Extension of a currently approved information collection.

Expiration Date: 3/31/02.

Abstract: The information is necessary to promote, foster, and maintain an orderly marketing of burley tobacco in a swiftly changing market environment. Historically, 99 percent of all burley tobacco has been marketed at auction warehouses where the tobacco has been graded by AMS personnel and where price-support has been offered.

However, between the 2000 marketing season and the current, 2001, marketing season, and based on figures that have become recently available through the designation period for flue-cured tobacco (the second major cigarette-producing tobacco), FSA predicts that as much as 80 percent of the 2001 crop of burley tobacco will not be sold at auction warehouses.

The figures compiled at the close of the flue-cured designation period showed that 79 percent of that tobacco would bypass the traditional auction system. This change has resulted in the known closing of up to 25 flue-cured tobacco warehouses and in an AMS reduction-in-force that has cost the jobs of more than 50 tobacco graders. It is expected that nearly half the existing flue-cured warehouses may be out of business by the end of the 2001 market season.

Without the collection of designation information for burley tobacco, FSA will not know where the tobacco will be sold or how many pounds will be sold outside the traditional auction market system. Warehouse operators who, in the past, have handled almost all of any year's crop, will not have the information needed to keep their businesses open; and AMS will not know how to schedule the grading of burley tobacco.

Estimate of Respondent Burden: Public reporting burden for this collection of information is estimated to average .25 hours per response.

Respondents: Farm operators, farm operators' authorized agents, or any producers who have an interest in the tobacco to be marketed.

Estimated number of Respondents: 150,000.

Estimated Number of Annual Responses per Respondent: 1.

Estimated Total Annual Burden on Respondents: 1.25 hours. This estimate includes 60 minutes travel time for applicants to the local USDA service center office for those respondents who choose not to file the information electronically.

Proposed topics for comment include: (a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of burden, including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of the information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology. Comments concerning the information collection must be sent to the Desk Office for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, DC 20503, and to Ann Wortham, Agricultural Program Specialist, USDA-FSA-TPD-TB, STOP 0514, 1400 Independence Ave., SW., Washington, DC 20250-0514; E-mail Ann [e-mail]; or facsimile (202) 2690-4917. Copies of the information collection may be obtained from Ms. Wortham at the above address.

All responses to this notice will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.

Background

Currently, AMS, working with local trade boards or with tobacco warehouse associations, schedules the days on which auction sales are to take place at designated auction markets, equitably distributing sales opportunity among the warehouses based on floor space or performance or both.

Because of the recent high volume of direct contract purchases, the current manner of determining sales time no longer appears to be feasible. It is necessary to collect marketing-intention information on burley tobacco in the same manner that marketing-intention information has been collected on flue-cured tobacco since 1974.

In order to implement a successful burley tobacco designation program, producers were allowed to designate pounds to specific warehouses beginning June 1, 2001, as recommended by the Burley Tobacco Advisory Committee (Committee).

The 39-member committee was established by the Secretary in 1990 to provide information essential to the orderly marketing of burley tobacco. At a meeting in June, 2000, the Committee passed a motion that would affect the method of determining the number of days on which auction sales would be allowed to take place at each tobacco auction warehouse. The Committee's motion, to establish a Grower Designation Program for burley tobacco similar to the long standing Flue-cured Tobacco Warehouse Designation Program, followed an announcement in early 2000 by a major cigarette manufacturer that it would contract with burley tobacco growers to buy tobacco directly from them at central buying points known as receiving stations, essentially acting as a dealer and bypassing the traditional auction market system.

The Flue-cured Tobacco Warehouse Designation Program requires that each flue-cured farm operator designate to which warehouse(s) that farm's tobacco will be presented for sale and the number of pounds of tobacco that will be marketed at each designated location. Such designations provide information vital to the equitable scheduling among warehouses of the day(s) on which each location can hold an auction sale and the number of pounds that can be sold on each of those scheduled days. This information also allows AMS to schedule personnel to grade such tobacco when it is presented for sale. Designation is a condition of price support eligibility for flue-cured tobacco growers.

For the 2000 market year FSA had no advance information regarding the volume of burley tobacco that individual burley growers had placed under private contract with the buying company because such information was contained in individual and private contracts between grower and company; and thus did not know how much tobacco would bypass the traditional auction warehouse market system.

The buying company announced early in 2001 that it would dramatically expand its direct purchase program. It would contract to purchase both burley and flue-cured tobacco rather than just burley; and it would purchase these kinds of tobacco from receiving stations in Florida, Georgia, Kentucky, North Carolina, South Carolina, Tennessee and Virginia rather than just Kentucky and Tennessee.

Seven other leaf-buying companies followed this announcement with announcements of their own: they, too, would contract with individual burly and flue-cured tobacco growers to buy their crops direct. Currently there are eight companies with stated intentions of buying both burley and flue-cured tobacco at 72 established receiving stations in seven states.

On May 7, 2001, following the close of the flue-cured initial designation period, FSA received a report that predicted a need for a major information collection effort regarding burley tobacco: seventy-nine percent of the 2001 flue-cured tobacco available for sale has been designated to receiving stations.

The FSA judges that a comparable percentage of burley will be sold during 2001 at receiving stations. However, with no designation program in place there is no way to collect the information that is vital to the industry, to the warehouses where burley tobacco has historically been marketed, and to USDA, in particular AMS, which is immediately impacted by the lack of such data. From the historic 1 percent of sales that occurred outside the auction market system, there is the possibility that much of the burley tobacco crop will go elsewhere. This is a sudden change in only one market season. The FSA did not have figures to make such a deduction until after the end of flue-cured designation and the compilations of figures collected from flue-cured growers nationwide.

All eligible burley tobacco growers may avail themselves of the auction market system. However, only the growers/sellers and buyers involved in non-auction sale and purchase transactions know the amount of tobacco that will be involved in these private transactions. Without a burley designation program in place neither the buying companies, AMS, nor the warehouses will have any information concerning how much tobacco will be available for sale by auction, because they will not have information about what tobacco won't be available for sale by auction.

USDA is concerned with the effects that nonauction sales will have on the orderly marketing of tobacco and that large quantities of direct sales could be disruptive to the orderly process of marketing burley tobacco. The Grower Designation Program is necessary for the 2001 orderly marketing of burley tobacco. USDA's implementation of the burley tobacco Grower Designation Program will track market volumes and thereby enable the AMS to implement a process of remobilizing its downsized workforce.

FSA began collecting data through burley designations from growers voluntarily on June 1, 2001 in order to have data for planning the warehouse system needs prior to September 1, 2001. Although burley farmers may wait until the effective date of this rule to submit their information, they are encouraged to report now to facilitate the marketing of their crops. They may make changes during scheduled redesignation periods. The comment period has been limited to 15 days in order that this schedule can be met and accordingly serve the emergency needs of warehouse operators, dealers and producers.

This proposed rule would amend the tobacco marketing quota regulations by requiring that burley tobacco producers designate the specific warehouse, dealer or contract buying point at which they will market their tobacco in order to qualify for price support and the issuance of a marketing card. Producers would have the option to make changes during scheduled redesignation periods.

Burley and flue-cured tobacco that is produced for market is sold on a nationwide market and moves almost wholly in interstate and foreign commerce from the producer to the ultimate consumer. The Agricultural Adjustment Act of 1938 as amended (the Act) gave to the Secretary of Agriculture the responsibility for the promotion and maintenance of an orderly flow of tobacco in commerce. The means by which producers market these tobaccos has changed more in the past 12 months than in the past 50 years.

Until recently, approximately 97% of both burley and flue-cured tobacco was delivered to a warehouse, sometimes weeks in advance of a sale date. There the tobacco was either sold at auction with payment of the highest bid going to the producer or placed in storage as USDA loan security with payment of a price support advance against the loan going to the producer.

There has been a strong USDA presence in the auction market venue. Obvious (and physically present) at an auction warehouse on each sales day are the marketing recorder and the tobacco grader. Not so obvious are the cooperative marketing associations that act on behalf of their producer members by entering into annual loan agreements with USDA in order to secure the money that is used to make price support available to producers through auction warehouses. The warehouses have, in turn, contracted with an association in order to make price support advances to producers on behalf of the association and also to store the loan tobacco on which price support advances have been made. The checks and balances inherent in the warehouse venue have provided USDA with many methods to audit the flow of tobacco into commerce. The following are examples.

1. Marketing Recorders

Review warehouse records and reports for maintenance, completeness, and accuracy;

Report deficiencies in warehouse reports and records;

Record on the marketing card each producer sale of tobacco;

Collect producer payments, penalties, liens, or levies;

2. Graders

Inspect tobacco presented for sale, determining and then applying quality standards and assigning a grade to the tobacco to establish the amount of price support available for each lot;

Collect and submit of grade/pounds information for statistical purposes such as using the distribution of grades sold in one market year in order to establish the grade loan rates for the following market year;

Work with the warehouse sale supervisor, providing information on the daily pound limit-for-sale for an orderly scheduling of sales of producer tobacco;

3. Associations/Warehouses

Verify that tobacco for which a price support advance has been made and which has been placed under loan is indeed eligible for price support;

Arrange for shipment of loan tobacco for processing (such as to a stemmery) where it is then containerized and returned to storage; and

Maintain inventory loan tobacco until its ultimate sale to a leaf buying company.

In other words, in the traditional auction venue, the entrance into and passage through commerce of tobacco—from the producer to the ultimate consumer—is carefully monitored, with the scheduling of sales the most important factor in guaranteeing that the tobacco is marketed in an orderly manner. Since 1974, flue-cured producers have informed USDA by way of a designation program of where they would market their tobacco. This designation information has been provided to associations so that sale time might be scheduled at auction warehouses; and to assure that tobacco graders and market recorders are available at those times. Designation further provides statistical information to USDA about the total number of pounds that will be presented for sale in order to provide an audit trail for reconciliation with the pounds that are ultimately sold. That the designation program was already in place for flue-cured tobacco accounts in large part for the orderly marketing of this kind of tobacco during the recently ended market year when, instead of almost all of the flue-cured crop going as usual to auction for sale or price support, almost all the tobacco went to a non-auction venue with almost no USDA presence (only a market recorder).

With the information provided by producer designation, USDA knew how much flue-cured tobacco was scheduled to be sold at auction and how much was scheduled to be sold at non-auction. And this information has provided USDA with methods of meeting the requirements set out in the Act of monitoring the commercial flow of tobacco and assuring that no more than the established national quota was presented for sale, thus preserving the supply and demand intentions provided for in the Act.

Until the last 12 months, monitoring the movement of burley tobacco from farm into commerce has been straightforward because almost all of it was sold at auction. The approximately 3 percent of burley tobacco that was sold outside the auction warehouse venue did not jeopardize USDA's mandate to monitor and insure an orderly marketing of this crop. Burley warehouses are predominantly family owned and run operations, many for generations, so there has developed a close and often personal relationship between warehouse staff and the producers who sell there, providing an accommodating business-to-customer framework intended to assure that the same customers (producers selling tobacco) return to the same warehouse year after year. Annual sales time at burley auction warehouses, which has been determined by using a “previous 5 years” formula, has changed little in the past 50 years because of this method of doing business. Just as warehouse operations passed down from one generation to another, so too did the marketing relationships of producers.

If a disruption in this long-standing method of scheduling burley tobacco sales had occurred as it did in the flue-cured marketing venue in the early 1970's, a sales designation program would have been necessary for burley tobacco as well.

However, no such disruption in the burley tobacco venue occurred until recently, and the disruption has been dramatic enough to necessitate a designation program to monitor the flow of burley tobacco to sales location. In 2000 a traditional 97% of burley was sold in the long-established auction warehouse venue; in 2001 approximately 80% of burley tobacco will have been sold at non-auction locations and at present USDA has no method of knowing where or when this tobacco will enter into commerce or if it will do so in an orderly manner.

List of Subjects in 7 CFR Part 1464

• Imports
• Tobacco

Accordingly, 7 CFR part 1464 is proposed to be amended as follows:

PART 1464—TOBACCO

1. The authority citation for part 1464 continues to read as follows:

Authority: 7 U.S.C. 1421, 1423, 1441, 1445, 1445-1; 1445-2; 15 U.S.C. 714b, 714c; Pub. L. 106-78, Pub. L. 106-113, Stat. 1135 and Pub. L. 106-224.

2. Revise § 1464.2 (b)(2) introductory text, (b)(2)(ii), (b)(2)(iii), (b)(2)(iv), (b)(2)(v) and (b)(2)(vii) to read as follows:

§ 1464.2

Availability of price support.

* * * * *

(b) * * *

(2) Special requirements for flue-cured and burley tobacco. Price support will be available only on flue-cured and burley tobacco that has been designated for sale at specific warehouses by the producer under the following conditions:

* * * * *

(ii) Producer designation of warehouses. Producers will be required, as a condition of price support, to designate the warehouses at which they will market their tobacco.

(A) For flue-cured tobacco such designations may be at any warehouse or warehouses in any market within a radius of 100 miles from the county seat of the county in which the farm is located, or if such farm is physically within two counties, then from the county seat of the county in which the county FSA office administering that farm is located. To the extent there are less than eight markets within such radius, any warehouse or warehouses in any of the eight markets nearest to the county seat may be designated. A producer may obtain price support only in a warehouse that the producer has designated, and at each such warehouse only with respect to the quantity of tobacco designated for sale at such warehouse.

(B) For burley tobacco such designations may be at any warehouse or warehouses in any burley market.

(iii) When producer designations shall be made. Producers must designate the warehouse(s) at which they will market their tobacco during a period that shall be announced beforehand by the local county FSA office. Unless extended by the Deputy Administrator, the period for making designations shall be before May 31 each year for flue-cured tobacco and August 31 each year for burley tobacco. Producers who lease quota or whose farm is reconstituted (the combining or dividing of a farm due to a change in operation) after such period may designate the warehouse(s) at which their tobacco will be marketed according to procedures to be established by the Deputy Administrator, Farm Programs, FSA. Producers who have designated warehouses that cease to operate or cease to have tobacco inspection or price support available may change their designations at any time after such occurrences. Producers who have designated warehouses whose inspection services have been temporarily suspended for any reason for the equivalent of at least one sales day may change their designation at any time after such occurrences. Redesignation (changes in warehouse(s) designated or in pounds designated to a warehouse) or designations for farms that have not previously designated tobacco may be made by producers during the five business days ending on the first Friday of each month during the flue-cured or burley, as applicable, tobacco marketing season. Such redesignation or initial designation shall be made on any one day of each redesignation period. Such redesignation or initial designation shall be effective on the second Monday following the Friday on which the redesignation period ends.

(iv) Form and content of designations. For flue-cured tobacco a designation shall be made for each warehouse at which a producer desires to market tobacco by executing a form provided by the county FSA office. The producer will be required to indicate on such form the name of the warehouse or warehouses designated by the producer and the pounds of flue-cured tobacco the producer desires to sell at such warehouse as well as any other information required to be stated on such form. For burley tobacco a designation shall be made for each warehouse, receiving station or dealer at which a producer desires to market tobacco by executing a form provided by the county FSA office. The producer will be required to indicate on such form the name of the warehouse(s), receiving station(s) or dealer(s) designated by the producer and the pounds of burley tobacco the producer desires to sell at such warehouse, receiving station or dealer as well as any other information required to be stated on such form.

(v) Entering designation information. For flue-cured tobacco, the warehouse code number of the warehouse the producer has designated will be indicated on the farm marketing card. For burley tobacco, the warehouse, receiving station, or dealer code number of the warehouse, receiving station or dealer the producer has designated will be indicated on the farm marketing card. If an effective date is determined in accordance with paragraph (b)(2)(iii) of this section, such effective date will be shown on the farm marketing card. For flue-cured tobacco, if the producer has not designated a warehouse, a warehouse code will not be shown on the marketing card. Changes in designation by the producer shall be accomplished by the producer returning the marketing card to the county FSA office and requesting the transfer of any unmarketed pounds of flue-cured or burley tobacco shown on any marketing card to another eligible warehouse, receiving station or dealer, if applicable.

* * * * *

(vii) Availability of designation information. Each county FSA office shall send designations received to the Flue-Cured Tobacco Cooperative Stabilization Corporation, Raleigh, North Carolina for flue-cured tobacco, Burley Tobacco Growers Cooperative Association, Lexington, Kentucky and Burley Stabilization Corporation, Knoxville, Tennessee for burley tobacco, following each designation period and each period for changing designations. That association(s) shall inform the Flue-Cured Tobacco Advisory Committee or the Burley Tobacco Advisory Committee, as applicable, of the pounds designated to each warehouse and the pounds of any undesignated or nonauction tobacco that, for the purpose of recommending opening dates and selling schedules in accordance with part 29 of this title, is available for apportioning for sale at each warehouse. That association also shall furnish each warehouse the name and address of the producers who designated the warehouse, the pounds each designated and the pounds that represent 103 percent of the marketing quota of each such producer. The Director, Tobacco and Peanuts Division, shall furnish each receiving station the name and address of the producers who designated the receiving station, the pounds each designated and the pounds that represent 103% of the marketing quota of each such producer.

* * * * *

3. Revise § 1464.7(d) to read as follows:

§ 1464.7

Eligible producer

(a) * * *

(b) * * *

(c) * * *

(d) In addition to meeting all other requirements that apply elsewhere, including (but not limited to) the warehouse designation provisions of § 1464.2, must not be ineligible, in accordance with part 1400 of this title, to receive price support payments, loans and benefits.

* * * * *

4. Revise § 1464.10 (i)(1)(i), (i)(2) and (i)(3)(i) to read as follows:

§ 1464.10

No-net-cost tobacco fund or account.

* * * * *

(i) * * *

(1) * * *

(i) From any dealer, receiving station official or warehouse operator who acquired the tobacco involved from the producer; or

* * * * *

(2) A dealer, receiving station official or warehouse operator may deduct the amount of any producer contribution or assessment from the price paid to the producer for such tobacco.

(3) * * *

(i) From the dealer, receiving station official or warehouse operator who acquired the tobacco involved from the producer; or

* * * * *

Signed at Washington, DC, on December 21, 2001.

James R. Little,

Executive Vice-President, Commodity Credit Corporation.