[Federal Register Volume 63, Number 3 (Tuesday, January 6, 1998)]
[Rules and Regulations]
[Pages 399-406]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-283]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 63, No. 3 / Tuesday, January 6, 1998 / Rules
and Regulations
[[Page 399]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 930
[Docket No. FV97-930-4 IFR]
Tart Cherries Grown in the States of Michigan, et al.; Temporary
Suspension of Proviso for Exporting Juice and Juice Concentrate;
Establishment of Regulations for Handler Diversion
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Interim final rule and temporary suspension of order provisions
with request for comments.
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SUMMARY: This interim final rule implements provisions of the Federal
tart cherry marketing order (order) by establishing regulations
concerning handler diversion, including diversion credit for exempt
uses, and by defining certain terms relating to exemptions. In
addition, this rule temporarily suspends language in a provision of the
order which would result in allowing handlers to receive diversion
credit for exporting juice and juice concentrate to eligible countries
for the 1997-98 crop year only. 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.
DATES: Effective January 7, 1998; comments received by February 5, 1998
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 in triplicate to the Docket
Clerk, Fruit and Vegetable Division, AMS, USDA, room 2525-S, P.O. Box
96456, Washington, DC 20090-6456, Fax # (202) 720-5698. All comments
should reference the docket number and the date and page number of this
issue of the Federal Register and will be made available for public
inspection in the Office 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)
720-5053, Fax: (202) 720-5698. Small businesses may request information
on compliance with this regulation by contacting: Jay Guerber,
Marketing Order Administration Branch, Fruit and Vegetable Division,
AMS, USDA, P.O. Box 96456, room 2525-S, Washington, DC 20090-6456;
telephone (202) 720-2491; Fax: (202) 720-5698.
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) 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 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.
The tart cherry marketing order was recently promulgated and the
Cherry Industry Administrative Board (Board) met March 12-13, June 26-
27, and September 11-12, 1997, to establish, and recommend to the
Secretary, rules and regulations to implement the order authorities,
and to consider volume regulation for this crop year. On or about July
1 of each crop year the Board is required to review sales data,
inventory data, crop forecasts and market conditions in order to
establish an optimum supply volume which is then used in calculating a
preliminary free market tonnage percentage. In the event that a
restricted percentage is recommended and imposed, handler diversion is
one method under the order that handlers can utilize to meet restricted
percentage requirements. The Board established and announced the
optimum supply level and preliminary free and restricted percentages
for the 1997-98 crop year as required by the order. On September 11-12,
1997, the Board reviewed its marketing policy and previous
recommendations, and recommended a 55 percent final free market tonnage
and a restricted percentage of 45 percent for this crop year.
All handlers were notified of this recommendation pursuant to
section 930.50(h) of the order. Pursuant to Sec. 930.50, final
percentages for volume regulation are required to be recommended to the
Secretary by September 15. Whenever it is found by the Secretary that
it would be appropriate to set free market tonnage and restricted
percentages for cherries acquired by handlers, volume regulations would
be issued through informal rulemaking.
This rule establishes procedures for handler diversion. Handler
diversion is authorized under Sec. 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
[[Page 400]]
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
Sec. 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 Sec. 930.58; or
other uses, including diversion by destruction of the cherries at the
handler's facilities.
A new Sec. 930.159 is added to the rules and regulations concerning
handler diversion. One method of diversion available to handlers is by
destruction of cherries at the handler's facility. Disposal at the
handler's facility will take place prior to placing the product into
the processing line. This is to ensure that the product diverted is not
simply an undesirable by-product of processing. Handlers electing to
divert cherries or cherry products must first notify the Board and
submit a plan for approval. Such notification and plan shall include an
agreement that diversion will take place under the supervision of the
USDA Processed Products Inspection Service or Board employee
inspectors, and that the costs of such supervision is to be paid by the
handler. USDA inspectors will supervise diversion of cherry products at
the current hourly rate of $41.00 under USDA's inspection fee schedule
(7 CFR Sec. 54.42). Board employees will supervise diversion at the
same rate. Diversion may also be accomplished by handlers donating
cherries to charitable organizations, utilizing cherries in exempt
outlets, or redeeming grower diversion certificates obtained from
growers who have diverted cherries by non-harvest, and who have been
issued diversion certificates by the Board in accordance with rules and
regulations governing the issuance of grower diversion certificates
(Sec. 930.100, 62 FR 44881, August 25, 1997). Diversion by means other
than destruction of cherries at handlers' facilities would also be
subject to supervision as found necessary by the Board. Fees would be
charged as discussed above.
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. Cherries and cherry products which have been
diverted shall not be subject to assessment.
A handler will have one crop year to fulfill the diversion plan
which was submitted and approved by the Board. The details of the plan
shall show, among other things, the name and address of the handler,
the total product processed at-plant, cherries diverted at-plant, in-
orchard diversion certificates redeemed, and anticipated donations to
charitable outlets. A handler will also have one crop year to dispose
of cherries or cherry products for exempt uses approved by the Board,
unless granted a renewal. By February 5, 1998 for the 1997 crop year
only, and November 1 for subsequent crop years, each handler must
submit on Board Form No. 4 the details of how such handler will satisfy
the restricted percentage obligation. The Board may extend this date in
individual cases pursuant to a written request showing good cause why
the plan cannot be provided by the due date. The November 1 date
corresponds with the date that grower diversion certificates are no
longer valid (this date is extended by this action to February 5, 1998
for the 1997-98 crop year). Other reports detailing the inventory
reserve summary are also due by February 5, 1998 for the 1997 crop year
only, and November 1 for subsequent crop years. Any information
obtained by the Board which is of a confidential and/or proprietary
nature would be protected from disclosure pursuant to Sec. 930.73 of
the order.
Section 930.59(b) which specifies the diversion options for
handlers, includes uses exempt under Sec. 930.62. Section 930.62
provides that the Board, with the approval of the Secretary, may exempt
from the provisions of Secs. 930.41, 930.44, 930.51, 930.53, and 930.55
through 930.57 cherries which are diverted in accordance with section
930.59, which are used for new product and new market development,
which are used for experimental purposes, or which are used for any
other purpose designated by the Board, including cherries processed
into products for markets for which less than 5 percent of the
preceding 5-year average production of cherries were utilized. One such
use which may be designated as an exempt use and granted diversion
credit is the exportation of cherries. Tart cherries used for exempt
purposes are not subject to certain marketing order provisions. These
provisions include assessment, quality control, volume regulation, and
reserve provisions.
For the purposes of the regulation concerning exempt uses, the
Board has recommended that certain terms be defined. Also, the Board
recommended that handlers who use cherries or cherry products for
approved exempt purposes receive diversion credit pursuant to section
930.59(b).
Thus, a new section 930.162 is added to the rules and regulations
defining exempt use terms and authorizing exemptions under the
marketing order. Terms defined include new product development, new
market development, development of export markets, and experimental
purposes.
The first term defined is ``new product development.'' New product
development includes the production or processing of a tart cherry
product using a technique not presently being utilized commercially in
the tart cherry industry. For example, a handler may ask for an
exemption for product such as ground meat in combination with raw tart
cherries to form a leaner meat product. The Board determined that when
a new product is commercially viable, which is defined as the time when
total industry utilization for the product exceeds 2 percent of the
five year average production of tart cherries, the exemption shall
terminate. Therefore, the Board has recommended that when the
utilization of the product exceeds 2 percent of the five year average
production, the product has received consumer acceptance and should no
longer be eligible for a new product development exemption.
The second term which is defined is ``new market development.''
Under the definition, new market development means the development of
markets for cherry products which are not commercially established
markets and which are not competitive with commercial outlets presently
utilized by the tart cherry industry. For example, a handler may seek
to establish sales of cherry preserves to India or China, currently
undeveloped markets. The Board determined that a new market becomes
commercially established when the total industry utilization in that
market exceeds 2 percent of the five year average production of tart
cherries.
The third term which is defined is ``development of export
markets.'' This is defined as exports to countries other than Canada,
Mexico and Japan, including the development of sales for new or
different tart cherry products or the expansion of sales for existing
tart cherry products. An example of
[[Page 401]]
development of sales for new or different tart cherry products could be
a handler seeking to establish sales of dried cherries in Germany,
which is primarily a hot pack market. Board members and meeting
participants discussed the favorable export market this season.
Handlers have exports to many countries, including Italy, France,
Belgium, Germany and The Netherlands and have enjoyed a significant
increase in volume of exports into these countries. Handlers have
indicated that exports of tart cherry products have increased
significantly over previous years' exports. Board members indicated
that last year's exports totaled about 10 million pounds. This year,
handlers are expected to experience the largest volume of exports on
record, estimated at up to 50 million pounds. Handlers have been able
to expand existing export markets and establish new markets for the
future. Board members also commented that hot pack product (canned tart
cherries) have been shipped to export markets that have never received
such product before. Contributing to their success is the excellent
quality of this year's crop. Growers and handlers have experienced high
quality fruit due to favorable growing conditions for tart cherries
this season. This high quality fruit has resulted in high quality
products which are very competitive in export markets. The availability
of such high quality cherry products increases the likelihood of
maintaining such markets in future seasons. Handlers also have
experienced a growth in IQF (Individually Quick Frozen) sales in the
export market this season. If handlers are not able to use this option,
more product might be destroyed to avoid the possibility of processing
and storage costs associated with placing cherries into an inventory
reserve. Exports to Mexico, Canada, and Japan are not included in this
exemption because, according to the Board, tart cherry markets are well
established in those countries.
The fourth term which is defined is ``experimental purposes.'' Uses
for experimental purposes include preliminary and/or developmental
activities, such as a handler working with cereal companies to develop
a cereal using dried cherries. Such experimental purposes should be
intended to result in new products, new applications and/or new markets
for existing tart cherry products. Any exemption for experimental
purposes shall be limited in scope, duration, and volume which the
applicant shall specify at the time a request for exemption is made. In
no case shall an exemption for experimental purposes last longer than
five years or exceed 100,000 pounds raw product equivalent per handler
of tart cherries during the duration of the experiment. The Board has
recommended that the five year or 100,000 pound raw product equivalent
per handler limits are sufficient to determine whether such cherries
for experimental purposes can be developed into new products or uses.
To qualify for an exemption under section 930.62, a handler must
apply to the Board for a new exemption or for renewal of an existing
exemption by November 1 for the next succeeding year. Handlers may
apply for an exemption through February 5, 1998 for the 1997 year only,
and by November 1 for subsequent crop years. These dates were changed
from the Board's recommendation of June 1 in order to provide handlers
ample time to harvest and assess their crop each year. When applying to
the Board for an exemption, the handler must detail the nature of the
product or market, how it differs from current, existing products and/
or markets and the estimated short and long term sales volume for the
exemption. In addition, in order to obtain diversion credit for
cherries used for exempt purposes, the application must also contain an
agreement that the proposed exempt use diversion is to be carried out
under the supervision of the Board, and that the cost of any such
supervision that is needed is to be paid by the applicant. The fees for
such USDA or Board supervision, as previously stated, will be the
current hourly rate of $41.00 under USDA's inspection fee schedule (7
CFR 54.42). The information which is provided will allow Board staff to
assess the request for exemption and render a determination concerning
its approval. Any information received by the Board which is of a
confidential and/or proprietary nature would be protected from
disclosure pursuant to section 930.73 of the order.
The Board discussed providing assistance to its staff with
reviewing applications pertaining to exemptions. The Board recommended
that a subcommittee be formed to assist staff members to ensure that
exemptions are properly reviewed and granted. The Board suggested that
a subcommittee of three persons, which could include the manager, a
public member and one industry member who is not on the Board, be
established. Handlers whose requests for exemption or renewal of
exemption are denied would be able to appeal such denial to the Deputy
Administrator, Fruit and Vegetable Programs.
Each handler that is granted an exemption must submit to the Board
an annual progress report, due May 1 of each year. The progress report
shall include the results of the exemption activity (comparison of
intended activity with actual activity) for the year in its entirety,
the volume of exempted fruit, an analysis of the success of the
exemption program, and such other information the Board may request.
As previously discussed, the Board has recommended that exports to
countries other than Canada, Mexico and Japan be exempted pursuant to
Sec. 930.62. The Board has also recommended that diversion credit be
granted for such exports. Handlers wishing to receive diversion credit
for exports must provide to the Board on-board bill of lading
documentation or other documentation to verify export before the Board
will issue diversion credit.
The Board will grant diversion credit for exempted products after
it has received the necessary information concerning the particular
exemption and when it is satisfied that the handler requesting the
diversion credit has satisfied all the requirements relevant to the
exemption. The Board recommended for the 1997 season (July 1, 1997
through June 30, 1998) only, that handlers receive diversion credit for
up to one million pounds of exempted products per handler for new
market development and new product development. The Board believes this
will provide adequate flexibility for individual handlers to obtain
diversion credit for exempt uses this season, but recommended providing
some restriction on the absolute volume of such allowable diversions
until more experience with the program has been obtained. However, the
one million pound limit for exempted products per handler does not
apply to handlers desiring to receive diversion credit for exports. As
stated previously, this is the first season this program is in effect
and handlers have exported or contracted to export tart cherry
products. Some of these handlers may have shipped in excess of the one
million pound limit. Allowing full diversion credit for the amount of
product shipped abroad, will prevent both growers and handlers from
incurring financial losses. The Board is continuing to review the issue
of what limits to impose on exempted products.
Handlers desiring to receive diversion credit for donations to
charitable organizations should follow the requirements specified in
the regulations. For contributions to qualify for diversion credit, the
contributed product should be marked clearly ``NOT
[[Page 402]]
FOR RESALE''. The receiving organization must be approved by the Board
as a qualified recipient of contributions of tart cherry products. Such
organizations must be tax-exempt, must not sell the donated products
and must be noncompetitive with other tart cherry industry sales
outlets. Once products are donated to an organization, the Board must
receive satisfactory documentation of the transaction. Handlers should
provide the Board with information on how the product was used and the
volume of product used.
Handlers desiring to receive diversion credit for cherries diverted
under Sec. 930.59, including uses exempt under Sec. 930.62, but who
fail to meet the terms and conditions in the regulation for such
diversion would not receive diversion credit for the cherries or cherry
products. Any cherries not properly diverted in accordance with Board
Form No. 4 must be placed into the handler's secondary reserve if one
has been established or the primary reserve if a secondary reserve has
not been established. The primary reserve is the first reserve where
handlers in volume regulated districts can place tart cherries or tart
cherry products to hold from primary markets in order to meet
restricted percentage obligations. The primary reserve is limited to a
capacity of 50 million pounds. A secondary reserve is established only
after the primary reserve has been filled to the 50 million pound
capacity. The secondary reserve is where the balance of reserve
cherries or cherry products are held. There is no maximum capacity for
the secondary reserve. Both primary and secondary reserves are operated
at the handler's expense and no cherries can be removed from the
secondary reserve until the primary reserve has been depleted. Upon
termination of an exemption, any volume of tart cherry products that
were exempted from order requirements but which were not utilized
should be placed into the secondary inventory reserve if one has been
established, or into the primary reserve. It is the handler's
responsibility to fulfill the restricted percentage obligations
established by volume regulation. A handler may fulfill the restricted
percentage obligation by either transferring cherries from his/her own
inventory, purchasing additional cherries or cherry products or
obtaining diversion certificates from other handlers to meet such
obligation.
In addition to the recommendation already discussed, the Board, at
its March meeting, also recommended that the Department modify the
optimum supply formula by deducting exports from the calculation. The
Department is not proceeding with this recommendation since the order
promulgation record indicates that average sales should include sales
to all markets, including exports.
At its meeting in March, when discussing exports, the Board also
recommended that juice and juice concentrate, to countries other than
Canada, Mexico, and Japan, receive diversion credit. During the
production and processing of the crop, handlers have exported, or have
contracted to export, tart cherry juice or juice concentrate for this
season. Many of these exports were for the purpose of expanding
existing markets or developing new markets. According to the Board, if
diversion credit is not allowed for export juice or juice concentrate,
some of these handlers could suffer substantial financial losses since
they would have to pack or purchase additional cherries to place in
their inventory reserves or default on contracts. These costs would
likely be passed on to growers. Therefore, the Board recommended at its
September 11-12, 1997, meeting that the proviso in Sec. 930.59(b) of
the order be suspended for this year only and that diversion credit for
exports of juice and juice concentrate be allowed for the 1997-1998
crop year. The temporary suspension of the proviso for the 1997-98 crop
year would allow handlers to receive diversion credit for juice and
juice concentrate exported to countries other than Canada, Mexico and
Japan.
New export sales of juice and juice concentrate this crop year are
estimated to be in the range of 4-7 million pounds. While significant
to the handlers making such sales, traditional sellers of juice and
juice concentrate products in established domestic and export markets
have not indicated any undue increase in competition. This is because
the bulk of the new export sales of juice and juice concentrate
probably represent sales to new markets or expansion of existing
markets. Therefore, the Board has recommended that diversion credit be
granted this crop year only to those handlers exporting juice and juice
concentrate to eligible countries. This action is not intended to
establish a precedent for future seasons. It will be used to correct
any misunderstandings that have occurred in the industry about order
operations concerning juice and juice concentrate, to prevent
disorderly marketing conditions and unnecessary financial losses by
handlers. Not proceeding with the suspension this season could result
in disorderly marketing in the domestic market, since, in addition to
the problems already mentioned, juice and juice concentrate intended
for export would likely have to be sold domestically. This situation
will be avoided in subsequent seasons since handlers should be fully
aware of the order's restrictions.
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 impacts.
The purpose of the RFA is to fit regulatory actions to the scale of
business subject to such actions in order that small businesses will
not be unduly or disproportionately burdened. Marketing orders issued
pursuant to the Act, and rules thereunder, are unique in that they are
brought about through group action of essentially small entities acting
on their own behalf. Thus, both statutes have small entity orientation
and compatibility.
There are approximately 40 handlers of tart cherries who are
subject to regulation under the order and approximately 1,220 producers
of tart cherries in the regulated area. Small agricultural service
firms, which include 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.
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
requirements which may be in effect 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
[[Page 403]]
the cherries at the handler's facility, making charitable donations,
and using cherries or cherry products for exempt purposes, 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. Once diversion is satisfactorily
accomplished, handlers will receive a diversion certificate stating the
weight of cherries diverted. 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. Costs for supervision of such actions will take place under
the supervision of the USDA Processed Products Inspection Service or
Board employee inspectors, and that the costs of such supervision is to
be paid by the handler. USDA inspectors will supervise diversion of
cherry products at the current hourly rate of $41.00 under USDA's
inspection fee schedule (7 CFR 54.42). Board employees will supervise
diversion at the same rate. Diversion may also be accomplished by
handlers donating cherries to charitable organizations, utilizing
cherries in exempt outlets, or redeeming grower diversion certificates
obtained from growers who have diverted cherries by non-harvest, and
who have been issued diversion certificates by the Board in accordance
with rules and regulations governing the issuance of grower diversion
certificates (Sec. 930.100, 62 FR 44881, August 25, 1997). Diversion by
means other than destruction of cherries at handlers' facilities would
also be subject to supervision as found necessary by the Board. Fees
would be charged as discussed above. Providing such options 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, providing these options
accomplishes the purposes of the order and the Act.
The Board also recommended granting handlers diversion credit for
cherries used for exempt purposes under section 930.62. Those purposes
include cherries used for new product development, for the development
of export markets, for experimental purposes, and the export of
cherries and cherry products, including juice or juice concentrate, to
approved countries.
In order to provide for juice and juice concentrate as a diversion
outlet, the Board recommended that the proviso under Sec. 930.59 (b) of
the order be suspended. Therefore, this rule temporarily suspends
language in the proviso under Sec. 930.59 (b) of the order. The
suspension would temporarily remove a prohibition against allowing
diversion credit for juice and juice concentrate for this crop year
only. However, the Board would only grant diversion credit for juice or
juice concentrate exported to eligible countries. The Board recommended
this suspension be used to correct any misunderstandings that have
occurred in the industry about order operations concerning juice and
juice concentrate, to prevent disorderly marketing conditions and
unnecessary financial losses by handlers.
The temporary suspension of the juice and juice concentrate proviso
was discussed at the most recent Board meeting. It was the Board's view
that if the proviso is not suspended, affected handlers will have to
expend additional funds to meet their restricted obligations by placing
products that they could have sold in export markets into an inventory
reserve or at-plant divert. The costs of these actions would likely be
passed on to growers.
New export sales of juice and juice concentrate this crop year are
estimated to be in the range of 4-7 million pounds. While significant
to the handlers making such sales, traditional sellers of juice and
juice concentrate products in established domestic and export markets
have not indicated any undue increase in competition this season. This
is because the bulk of the new export sales of juice and juice
concentrate probably represent sales to new markets or expansion of
existing markets, rather than an increase in competition among sellers
for previously developed markets. As previously stated, handlers have
indicated that exports of tart cherry products have increased
significantly over previous years' exports. Board members indicated
that last year's exports totaled about 10 million pounds. This year,
handlers are expected to experience the largest volume of exports on
record, estimated at up to 50 million pounds. Handlers have been able
to expand existing export markets and establish new markets for the
future. Board members also commented that hot pack product (canned tart
cherries) have been shipped to export markets that have never received
such product before. Contributing to their success is the excellent
quality of this year's crop. Growers and handlers have experienced high
quality fruit due to favorable growing conditions for tart cherries
this season. This high quality fruit has resulted in high quality
products which are very competitive in export markets. The availability
of such high quality cherry products increases the likelihood of
maintaining such markets in future seasons. Not proceeding with the
suspension this season could result in disorderly marketing in the
domestic market.
The impact of this rule would be beneficial to growers and
handlers. Authorizing various diversion outlets and allowing diversion
credit for exempt uses means handlers will not be required to divert
excess cherries at their plants. Instead, fruit can be processed into a
usable form, thereby promoting the development of new products and the
expansion of new markets for tart cherries. Authorizing exemptions for
various uses of tart cherries should also promote such market
development and expansion, as well as making cherries available for
charitable purposes. Suspending an order provision for this season only
will allow handlers to take advantage of export markets and obtain
diversion credit for such exports, increasing the utilization of this
season's crop and grower and handler returns.
The Board considered alternatives to these recommendations. With
respect to handler diversion and diversion credit for exempt uses, if
volume regulation is imposed this season and diversion credits are not
granted, handlers would have to divert cherries by other means or place
cherries in an inventory reserve, which may not be desirable for some
handlers since storage costs of the reserve are borne by the handler.
For example, the Board discussed not granting handlers diversion credit
for at-plant diversion. However, the Board felt that providing such a
diversion option increased handler flexibility to process and pack the
best cherries available during a year when volume regulation is in
effect and to reduce the costs of processing and storing reserve
cherries.
The Board also discussed not granting exemptions, and diversion
credit for such exemptions, for exports to eligible countries
(including juice and juice concentrate), other exempt uses, and
charitable donations. However, the Board felt this would not be in the
best interest of the industry or the public. As previously discussed,
the Board expressed that not allowing the export and other exemptions
would have a detrimental effect on the market this season if free and
restricted percentages are imposed. Without such exemptions and
diversion credits for export sales, new market development and other
specified uses, about 50 million pounds of cherries would not be
removed from
[[Page 404]]
the domestic market this season, depressing grower returns for all
cherries. The marketing order was designed to increase grower returns
by stabilizing supplies with demand as well as stabilizing prices and
creating a more orderly and predictable marketing environment.
Expanding markets and developing new products is key to meeting this
marketing order's goals.
Not granting exemptions and diversion credit for exports to
countries other than Canada, Mexico, and Japan was also discussed at
Board meetings. However, the Board expressed that this recommendation
is very important to creating stable conditions in the export
marketplace this season and would encourage future market growth. The
Board further stated that such action will improve returns to growers
because of the tremendous growth in the export market this season.
This rule imposes certain reporting and recordkeeping requirements
on tart cherry handlers. As with all Federal marketing order programs,
reports and forms are periodically reviewed to reduce information
requirements and duplication by industry and public sectors. In
addition, the Department has not identified any relevant Federal rules
which duplicate, overlap or conflict with this rule.
Paperwork Reduction
In compliance with Office of Management and Budget (OMB)
regulations (5 CFR Part 1320) which implement the Paperwork Reduction
Act of 1995 (Pub. L. 104-13), the information collection and
recordkeeping requirements imposed by the order have been previously
approved by OMB and assigned OMB Number 0581-0177. This includes the
requirements contained in this regulation (i.e. progress reports,
applications). The components of the Handler Reserve Plan and Final
Pack Report which handlers must submit to utilize at-plant and exempt
use diversion and the requirements for other reports related to handler
diversion and handlers meeting their restricted percentage obligations
(i.e., Inventory Reserve Summary, Cherries Acquired from Producers,
Handler Reserve Plan and Final Pack Report, and Inventory Location
Report) have received approval by OMB. It was anticipated that as many
as 45 handlers might be regulated if volume regulations are
established. Many reports are submitted a single time each season,
while some are submitted more frequently. In addition, the bulk of the
information handlers must report is obtained during the normal course
of their business operations. It would take handlers approximately 15
minutes per report to complete for a total of 60 minutes per handler
and approximately 2,700 minutes annually for the estimated 45 handlers.
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.
The Board's meetings were widely publicized throughout the tart
cherry industry and all interested persons were invited to attend them
and participate in Board deliberations. Like all Board meetings, the
March, June, and September 1997, meetings were public meetings and all
entities, both large and small, were able to express their views on
these issues. The Board itself is composed of 18 members, of which 17
members are growers and handlers and one represents the public. Also,
the Board has a number of appointed committees to review certain issues
and make recommendations. The Board's Diversion Subcommittee met on
March 12, 1997, and discussed handler diversion in detail. That meeting
was also a public meeting and both large and small entities were able
to participate and express their views. A majority of these entities
expressed that, in their opinion, the recommendations made by the Board
would have a positive impact on both small and large entities. Finally,
interested persons are invited to submit information on the regulatory
and informational impacts of this action on small businesses.
Pursuant to section 930.50 of the order, the Board met on June 26-
27, 1997, to formulate a 1997-98 marketing policy using a USDA crop
estimate of 242 million pounds. The Board met on September 11-12, 1997,
and revised its marketing policy based on actual 1997-98 tart cherry
production of 284 million pounds.
After consideration of all relevant material presented, including
the Board's recommendation, and other information, it is found that
this interim final rule, as hereinafter set forth, will tend to
effectuate the declared policy of the Act.
It is also found that, for the 1997-98 crop year only, the proviso
under Sec. 930.59(b), which prohibits handlers from receiving diversion
credit for juice and juice concentrate, should be suspended since such
proviso does not tend to effectuate the declared policy of the Act.
This rule invites comments on the establishment of rules and
regulations for handler diversion and granting exemptions from certain
order provisions, allowing diversion credit for exempt uses and
charitable donations, the suspension of an order provision in section
930.59(b), and the possible impacts of these actions on both small and
large entities.
Pursuant to 5 U.S.C. 553, it is found and determined upon good
cause that it is impracticable, unnecessary, and contrary to the public
interest to give preliminary notice prior to putting this rule into
effect and that good cause exists for not postponing the effective date
of this rule until 30 days after publication in the Federal Register
because: (1) This is the first season the marketing order has been in
effect and regulations are needed to implement its authorities; (2)
these rules need to be in place this season since the industry is
marketing its crop currently and that the crop year began on July 1,
1997; (3) the Board unanimously recommended these changes at public
meetings and interested parties had an opportunity to provide input;
(4) handlers need to know the procedures in order to operate their
plants this season; and (5) this rule provides a 30-day comment period
and any comments received will be considered prior to finalization of
this rule.
List of Subjects in 7 CFR Part 930
Marketing agreements, Tart cherries, Reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, 7 CFR part 930 is
amended as follows:
PART 930--TART CHERRIES GROWN IN THE STATES OF MICHIGAN, NEW YORK,
PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN
1. The authority citation for 7 CFR part 930 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
Sec. 930.59 [Amended]
2. In Sec. 930.59, paragraph (b) the words, ``Provided, That
diversion may not be accomplished by converting cherries into juice or
juice concentrate'' are suspended through June 30, 1998.
3. A new Sec. 930.159 is added to read as follows:
Sec. 930.159 Handler diversion.
(a) Methods of diversion. Handlers may divert cherries by redeeming
grower diversion certificates, by destroying cherries at handlers'
facilities (at-plant), by donating cherries or cherry products to Board
approved charitable organizations, or by using cherries or cherry
products for exempt purposes
[[Page 405]]
under Sec. 930.162, including export to countries other than Canada,
Mexico and Japan. Once diversion is satisfactorily accomplished,
handlers will receive diversion certificates stating the weight of
cherries diverted. Diversion credit may be used to fulfill any
restricted percentage requirement in full or in part. Any information
received of a confidential and/or proprietary nature pursuant to this
section will be protected from disclosure pursuant to Sec. 930.73 of
the order.
(b) Board notification and handler plan. Any handler intending to
divert cherries or cherry products pursuant to Sec. 930.59 of the order
(except through exempt uses under Sec. 930.62 of the order) must notify
the Board of such intent and provide a plan by November 1 which shows
how the handler intends to meet the restricted percentage obligation,
except that, for the 1997-98 season only, the deadline is February 5,
1998. The Board may extend this date in individual cases pursuant to a
written request showing good cause why the plan cannot be provided by
the due date. A handler will have one year to fulfill such plan. The
details of the plan shall include, but not be limited to, the name and
address of the handler, the total product processed at-plant, product
diverted at-plant, in-orchard diversion certificates redeemed,
anticipated donations to charitable outlets, disposition to exempt
outlets or uses and detailed plans for how and where such disposition
will be made, and inventory reserve amount. It shall also contain an
agreement that the proposed diversion is to be carried out under the
supervision of the Board and that the cost of such supervision is to be
paid by the handler. Supervision of diversion by means other than
destruction of the cherries at a handler's facility will be subject to
supervision as found necessary by the Board. USDA inspectors or Board
employees will supervise diversion of cherry products at the current
hourly rate under USDA's inspection fee schedule (7 CFR 52.42). Any
cherries not diverted in accordance with the handler's plan will be
placed into the secondary inventory reserve or the primary inventory
reserve if a secondary inventory reserve has not been established.
(c) At-plant diversion. Diversion by disposal at-plant will take
place prior to placing the cherries into the processing line. Such
diversion will take place under the supervision of USDA Inspection
Service or Board employee inspectors. USDA inspectors or Board
employees will supervise diversion of cherry products at-plant at the
current hourly rate under USDA's inspection fee schedule (7 CFR 52.42).
(d) Contributions to approved charitable organizations. When
diverting by donating cherries or cherry products to charitable
organizations, handlers should follow the requirements specified
herein. For contributions to qualify for diversion credit, the
contributed product should be marked clearly ``NOT FOR RESALE''. The
receiving organization must be approved by the Board as a qualified
recipient of contributions of tart cherry products. Such organizations
must be tax-exempt, must not sell the donated products and must be
noncompetitive with other tart cherry industry sales outlets. Once
products are donated to an organization, the Board must receive
satisfactory documentation of the transaction. Handlers should provide
the Board with information on how the product was used and the volume
of product used.
(e) Grower diversion certificates. To satisfy restricted percentage
obligations by redeeming grower diversion certificates handlers must
present to the Board grower diversion certificates obtained from
growers who have diverted cherries by non-harvest, and who have been
issued diversion certificates by the Board in accordance with the
applicable rules and regulations governing the issuance of grower
diversion certificates. For this crop year July 1, 1997, through June
30, 1998, grower diversion certificates will be valid until February 5,
1998.
(f) Exempt uses. To receive diversion credit for cherries used for
exempt purposes, handlers must meet the terms and conditions specified
in Sec. 930.162. Each handler may receive diversion credit for up to
one million pounds of exempted products each crop year, except that,
for the 1997 season only, the one million pound exemption limitation
for diversion credit does not apply to handlers exporting juice or
juice concentrate.
4. A new Sec. 930.162 is added to read as follows:
Sec. 930.162 Exemptions.
(a) General. Tart cherries which are used for the purpose of new
product development, for new market development, for development of
export markets, for experimental purposes, for export (including juice,
juice concentrate or puree, for the 1997-98 crop year only) to
countries other than Canada, Mexico and Japan, or which are donated to
charitable organizations may be granted an exemption by the Board and
will be exempt from Secs. 930.41, 930.44, 930.51, 930.53, and
Secs. 930.55 through 930.57, subject to the following terms and
conditions. Any information received of a confidential and/or
proprietary nature included in this application will be protected from
disclosure pursuant to Sec. 930.73 of the order.
(b) Definitions. The terms in paragraph (a) of this section shall
have the following meaning:
(1) New product development. The development of new tart cherry
products or of foods or other products in which tart cherries or tart
cherry products are incorporated which are not presently being produced
on a commercial basis. New product development can also include the
production or processing of a tart cherry product using a technique not
presently being utilized commercially in the tart cherry industry. Once
total industry utilization for a new product exceeds 2 percent of the
five year average production of tart cherries, the product shall no
longer be considered under development and not eligible for a new
product development exemption.
(2) New market development. The development of markets for tart
cherry products which are not commercially established markets and
which are not competitive with commercial outlets presently utilized by
the tart cherry industry (including the development of new export
markets). A new market becomes commercially established, when total
industry utilization in the market exceeds 2 percent of the five year
average production of tart cherries.
(3) Development of export markets. The sale of cherries or cherry
products, including the development of sales for new or different tart
cherry products or the expansion of sales for existing tart cherry
products, to countries other than Canada, Mexico, and Japan: Provided,
That such cherry products cannot include juice or juice concentrate:
Provided further, That the exclusion of juice or juice concentrate
shall not apply for the 1997 season only (through June 30, 1998).
(4) Experimental purposes. The use of cherries or cherry products
in preliminary and/or developmental activities intended to result in
new products, new applications and/or new markets for tart cherry
products. Any exemption for experimental work shall be limited in
scope, duration and volume based on information supplied by the
applicant at the time a request for exemption is made. In no case shall
an individual exemption for experimental purposes last longer than five
years or exceed 100,000 pounds raw product equivalent of tart cherries.
[[Page 406]]
(c) Obtaining approval for exempt uses. In order to receive
exemptions for cherries or cherry products utilized for exempt
purposes, handlers must apply to the Board for a new exemption or for
renewal of an existing exemption by November 1 for the next succeeding
year, except for the 1997 year only, handlers may apply through
February 5, 1998. A handler shall have one crop year to dispose of
cherries or cherry products to exempt outlets approved by the Board,
unless granted a renewal. Handlers applying to the Board for a new
exemption or for renewal of an existing exemption are subject to the
following conditions:
(1) When applying to the Board for an exemption for new product
development, handlers must detail the nature of their new product, how
it differs from current, existing products and the anticipated short
and long term sales volume for the exemption. It will be the Board
staff's responsibility to analyze and investigate any request and upon
completion of that analysis authorize or deny the exemption.
(2) When applying to the Board for an exemption for new market
development, handlers must detail the nature of their new market, how
it differs from current, existing markets and the anticipated short and
long term sales volume for the exemption. It will be the Board staff's
responsibility to analyze and investigate any request and upon
completion of that analysis authorize or deny the exemption.
(3) When applying to the Board for an exemption for the development
of export markets for tart cherries or cherry products (including juice
and juice concentrate through June 30, 1998 only) in countries other
than Canada, Mexico and Japan, including the expansion of sales in
existing export markets, handlers must detail the nature of their
product, specify whether such product differs from current products
being sold in export markets, and estimate the anticipated short and
long term sales volumes for the requested exemption.
(4) When applying to the Board for an exemption for experimental
purposes, handlers must indicate the preliminary and/or developmental
experimental activity. Such experimental purposes should be intended to
result in new products, new applications and/or new markets for
existing tart cherry products. Any exemption for experimental work
shall be limited in scope, duration and volume which the proposing
party shall specify at the time a request for exemption is made. In no
case shall an exemption for experimental purposes last longer than five
years or exceed 100,000 pounds raw product equivalent per handler of
tart cherries during the duration of the experiment.
(d) Review of applications. A Board appointed subcommittee of three
persons which shall include the manager (or a Board member acting in
the Manager's stead), the public member and one industry person who is
not on the Board, shall review applications for exemption or renewal of
exemption and either approve or deny the exemption. Any denial of an
application for exemption or renewal of an existing exemption shall be
served on the applicant by certified mail and shall state the reasons
for the denial. Within 10 days after the receipt of a denial, the
applicant may file an appeal, in writing, with the Deputy
Administrator, Fruit and Vegetable Programs, supported by any arguments
and evidence the applicant may wish to offer as to why the application
for exemption or renewal of exemption should have been approved. The
Deputy Administrator upon consideration of such appeal will take such
action as deemed appropriate with respect to the application for
exemption or renewal of exemption.
(e) Progress report. Each handler that is granted an exemption must
submit to the Board an annual progress report, due May 1 of each crop
year. The progress report shall include the results of the exemption
activity (comparison of intended activity with actual activity) for the
year in its entirety, the volume of exempted fruit, an analysis of the
success of the exemption program, and such other information as the
Board may request.
(f) Diversion credit; failure to meet terms and conditions of
exemption. Handler diversion certificates for exempt uses shall be
issued to handlers provided that terms and conditions applicable to
exempt uses are satisfied. Diversion certificates will not be issued to
handlers for any volume of tart cherry products for which such terms
and conditions are not satisfied and such cherries would be subject to
all of the terms and conditions of Secs. 930.41, 930.44, 930.51,
930.53, and Secs. 930.55 through 930.57.
(g) Failure to meet terms and conditions for exemption. Upon
termination of an exemption, any volume of tart cherry products that
were granted an exemption but were not utilized for the authorized
exempt purpose would be subject to all of the terms and conditions of
Secs. 930.41, 930.44, 930.51, 930.53, and Secs. 930.55 through 930.57.
Dated: December 30, 1997.
Enrique E. Figueroa,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 98-283 Filed 1-5-98; 8:45 am]
BILLING CODE 3410-02-U
