99-28301. Almonds Grown in California; Salable and Reserve Percentages for the 1999-2000 Crop Year  

  • [Federal Register Volume 64, Number 211 (Tuesday, November 2, 1999)]
    [Rules and Regulations]
    [Pages 59107-59113]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 99-28301]
    
    
    
    ========================================================================
    Rules and Regulations
                                                    Federal Register
    ________________________________________________________________________
    
    This section of the FEDERAL REGISTER contains regulatory documents 
    having general applicability and legal effect, most of which are keyed 
    to and codified in the Code of Federal Regulations, which is published 
    under 50 titles pursuant to 44 U.S.C. 1510.
    
    The Code of Federal Regulations is sold by the Superintendent of Documents. 
    Prices of new books are listed in the first FEDERAL REGISTER issue of each 
    week.
    
    ========================================================================
    
    
    Federal Register / Vol. 64, No. 211 / Tuesday, November 2, 1999 / 
    Rules and Regulations
    
    [[Page 59107]]
    
    
    -----------------------------------------------------------------------
    
    DEPARTMENT OF AGRICULTURE
    
    Agricultural Marketing Service
    
    7 CFR Part 981
    
    [Docket No. FV99-981-3 FR]
    
    
    Almonds Grown in California; Salable and Reserve Percentages for 
    the 1999-2000 Crop Year
    
    AGENCY: Agricultural Marketing Service, USDA.
    ACTION: Final rule.
    
    -----------------------------------------------------------------------
    
    SUMMARY: This rule establishes salable and reserve percentages for 
    California almonds received by handlers during the 1999-2000 crop year. 
    The almond marketing order (order) regulates the handling of almonds 
    grown in California and is administered locally by the Almond Board of 
    California (Board). The percentages are 77.64 percent salable and 22.36 
    percent reserve. Salable almonds may be sold by handlers to any market 
    at any time. Reserve almonds must be withheld by handlers or disposed 
    of in authorized outlets. The 1999-2000 crop is estimated to be the 
    largest crop on record. Volume regulation is intended to promote 
    orderly marketing conditions and avoid unreasonable fluctuations in 
    supplies and prices.
    
    DATES: Effective Date:  This final rule is effective December 2, 1999 
    through July 31, 2000. Applicability Date: This final rule applies 
    during the period August 1, 1999, through July 31, 2000.
    
    FOR FURTHER INFORMATION CONTACT: Martin Engeler, Assistant Regional 
    Manager, California Marketing Field Office, Marketing Order 
    Administration Branch, F&V, AMS, USDA, 2202 Monterey Street, suite 
    102B, Fresno, California 93721; telephone: (559) 487-5901, Fax: (559) 
    487-5906; or George Kelhart, Technical Advisor, Marketing Order 
    Administration Branch, Fruit and Vegetable Programs, AMS, USDA, room 
    2525-S, P.O. Box 96456, Washington, DC 20090-6456; telephone: (202) 
    720-2491, Fax: (202) 720-5698. Small businesses may request information 
    on complying with this regulation by contacting Jay Guerber, Marketing 
    Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 
    P.O. Box 96456, room 2525-S, Washington, DC 20090-6456; telephone (202) 
    720-2491, Fax: (202) 720-5698, or E-mail: Jay.Guerber@usda.gov.
    
    SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing 
    Order No. 981, as amended (7 CFR part 981), regulating the handling of 
    almonds grown in California, hereinafter referred to as the ``order.'' 
    The marketing order is effective under the Agricultural Marketing 
    Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter 
    referred to as the ``Act.''
    
        The Department of Agriculture (Department) is issuing this rule in 
    conformance with Executive Order 12866.
        This final rule has been reviewed under Executive Order 12988, 
    Civil Justice Reform. Under the marketing order now in effect, salable 
    and reserve percentages may be established for almonds handled by 
    handlers during the crop year. This rule establishes salable and 
    reserve percentages for almonds received by handlers during the 1999-
    2000 crop year which runs from August 1, 1999, through July 31, 2000. 
    This rule will not preempt any State or local laws, regulations, or 
    policies, unless they present an irreconcilable conflict with this 
    rule.
        The Act provides that administrative proceedings must be exhausted 
    before parties may file suit in court. Under section 608c(15)(A) of the 
    Act, any handler subject to an order may file with the Secretary a 
    petition stating that the order, any provision of the order, or any 
    obligation imposed in connection with the order is not in accordance 
    with law and request a modification of the order or to be exempted 
    therefrom. A handler is afforded the opportunity for a hearing on the 
    petition. After the hearing the Secretary would rule on the petition. 
    The Act provides that the district court of the United States in any 
    district in which the handler is an inhabitant, or has his or her 
    principal place of business, has jurisdiction to review the Secretary's 
    ruling on the petition, provided an action is filed not later than 20 
    days after the date of the entry of the ruling.
        This final rule establishes salable and reserve percentages for 
    California almonds received by handlers during the 1999-2000 crop year. 
    The percentages are 77.64 percent salable and 22.36 percent reserve. 
    Salable almonds may be sold by handlers to any market at any time. 
    Reserve almonds must be withheld by handlers or disposed of in 
    authorized outlets. The 1999-2000 crop is estimated to be the largest 
    crop on record. Volume regulation is intended to promote orderly 
    marketing conditions and avoid unreasonable fluctuations in supplies 
    and prices. This action was recommended by the Board at a meeting on 
    July 12, 1999, by a vote of seven in favor and three opposed. Volume 
    regulation was last implemented for California almonds during the 1994-
    95 crop year.
        Section 981.47 of the order provides authority for the Secretary, 
    based on recommendations by the Board and analysis of other available 
    information, to establish salable and reserve percentages for almonds 
    received by handlers during a crop year. The crop year runs from August 
    1 through July 31. To aid the Secretary in fixing the salable and 
    reserve percentages, Sec. 981.49 of the order requires the Board to 
    submit information to the Department on estimates of the marketable 
    production of almonds, combined domestic and export trade demand needs 
    for the year, carryin inventory at the beginning of the year, and the 
    desirable carryout inventory at the end of the crop year. Section 
    981.66 authorizes the disposition of reserve almonds to certain outlets 
    such as almond oil, almond butter, and animal feed.
        The Board met on May 12, 1999, to review the projected crop 
    estimate and marketing conditions for the 1999-2000 season. The day 
    before the Board's meeting, the California Agricultural Statistics 
    Service (CASS) issued its initial forecast for the 1999 almond crop at 
    760 million kernelweight pounds. Based on that estimate, the Board 
    recommended salable and reserve percentages of 84.79 percent and 15.21 
    percent, respectively, by a vote of seven in favor to three opposed. 
    The CASS revised its crop estimate upwards to 830 million pounds on 
    July 8, 1999. Based on the updated crop estimate, the Board met on July 
    12 and revised its
    
    [[Page 59108]]
    
    recommendation for salable and reserve percentages to 77.64 and 22.36 
    percent, respectively, again by a seven to three vote. The 830 million 
    pound crop estimate represents a 60 percent increase over 1998-99 
    production, and is 10 percent larger than the previous record crop of 
    756 million pounds produced in 1997-98. According to the CASS, although 
    freezing temperatures in early April caused locally variable production 
    losses, average yields are expected to be high due to excellent bloom 
    and good weather during the pollination period. If realized, this will 
    be the largest almond crop on record to date.
        A tabulation of the estimates and calculations used by the Board as 
    it considered recommending volume regulation for the 1999-2000 almond 
    crop follows:
    
           Marketing Policy Estimates--1999 Crop (Kernelweight Basis)
    ------------------------------------------------------------------------
                                                      Million
                                                       Pounds      Percent
    ------------------------------------------------------------------------
    Estimated Production:
      1. 1999 Production..........................        830.0
      2. Loss and Exempt--4.0% (Resulting from the         33.2
       removal of inedible kernels by handlers and
       losses during manufacturing)...............
      3. Marketable Production....................        796.8
    Estimated Trade Demand:
      4. Domestic.................................        190.0
      5. Export...................................        459.0
      6. Total....................................        649.0
    Inventory Adjustment:
      7. Carryin 8/1/99...........................        100.4
      8. Desirable Carryover 7/31/00 (available            70.0
       for early season shipments during 2000-
       2001)......................................
      9. Adjustment (No. 8 minus no. 7)...........        -30.4
    Salable/Reserve:
    10. Adjusted Trade Demand (Item 6 plus item 9)        618.6
     (quantity of almonds from the marketable
     production necessary to meet trade demand
     needs)
      11. Reserve (No. 3 minus no. 10)............        178.2
      12. Salable % (Item 10 divided by item 3 x    ...........       77.64%
       100).......................................
      13. Reserve % (100% minus item 12)..........  ...........        22.36
    ------------------------------------------------------------------------
    
        As specified in the marketing order, the Board considered the 
    factors set forth in the preceding table in its deliberations. The 
    available data indicate a supply for the 1999-2000 crop year of 827.2 
    million kernelweight pounds (marketable production adjusted for carryin 
    and desired carryout), which exceeds estimated trade demand by 178.2 
    million kernelweight pounds. The estimated trade demand of 649 million 
    kernelweight pounds represents 110 percent of the estimated shipments 
    for the current crop year, and exceeds the record high shipments of 
    1997-98 by 36 million kernelweight pounds, or 6 percent.
        In addition to the factors included in the table, the Board 
    considered additional information such as the weather-related variation 
    in production from year to year, significant increases in recent almond 
    plantings, and increased yields. These are the primary factors 
    contributing to the projected oversupply situation. The Board also 
    considered recent price fluctuations in its deliberations. In 1997, 
    grower prices averaged $1.55 per pound; during the 1998-99 season, 
    prices reportedly dropped significantly. This was attributed to larger 
    than anticipated 1998 supplies, speculation within the marketplace, and 
    the anticipated large 1999-2000 crop.
        The salable percentage of 77.64 percent will make 618.6 million 
    kernelweight pounds of the marketable production available to handlers 
    for sale to any market. Combining this figure with the carryin 
    inventory from the 1998-99 crop year (100.4 million kernelweight 
    pounds) and deducting the desired carryout inventory at the end of the 
    1999-2000 crop year (70.0 million kernelweight pounds) will result in a 
    supply of 649 million kernelweight pounds. This supply will allow the 
    industry to meet its trade demand needs of 649 million kernelweight 
    pounds and allow for market growth. The remaining 22.36 percent, or 
    178.2 million kernelweight pounds, of the marketable production will be 
    withheld by handlers to meet their reserve obligation.
        All or part of the reserve almonds may be released to the salable 
    category if it is found that the supply made available by the salable 
    percentage is insufficient to satisfy 1999-2000 trade demand needs or 
    desirable carryover for use during the 2000-2001 crop year. The Board 
    is required to make any recommendations to the Secretary to increase 
    the salable percentage prior to May 15, 2000, pursuant to Sec. 989.48 
    of the order. Alternatively, all or a portion of the reserve almonds 
    may be sold by the Board, or by handlers under agreement with the 
    Board, to governmental agencies or charitable institutions or for 
    diversion into almond oil, almond butter, animal feed, or other outlets 
    which the Board finds are noncompetitive with existing normal outlets 
    for almonds.
        As previously stated, 3 of the 10 Board members opposed the 
    recommendation for volume regulation at both meetings where the 
    percentages were recommended, with those in opposition commenting that 
    this year's projected ``large'' crop will ultimately be considered 
    average in size, and that next year's crop may be even larger due to 
    new plantings, or expressing a preference for the industry to 
    concentrate on building demand rather than imposing a reserve. 
    Observers at the Board meetings who were opposed to volume regulation 
    commented that the industry should deal with increasing supplies by 
    building demand through its promotional activities, rather than 
    implementing reserves. Others suggested that it is more appropriate to 
    manage market risks at the individual handler level through marketing 
    tools such as forward contracting, rather than controlling supplies at 
    the industry level.
        After much discussion, the majority of Board members supported the 
    establishment of a reserve to help maintain orderly marketing 
    conditions
    
    [[Page 59109]]
    
    so that the industry can successfully manage the projected large 1999 
    almond crop. The long-term goal of the almond industry is to increase 
    almond consumption and demand, and the supporting Board members believe 
    this can be best achieved in the presence of stable and orderly 
    marketing conditions. These members believe that use of the reserve 
    provisions of the order as a supply management tool, in conjunction 
    with other marketing tools available in the order, can assist in 
    accomplishing the industry's goals.
        The ``Guidelines for Fruit, Vegetable, and Specialty Crop Marketing 
    Orders'' (Guidelines) issued by the Department in 1982 specify that 110 
    percent of recent years' sales be made available to primary markets 
    each season for marketing orders using volume regulation. This rule 
    will provide an estimated 719 million kernelweight pounds of California 
    almonds for unrestricted sales (1999 crop salable production plus 
    carryin from the 1998 crop) to meet increasing domestic and world 
    almond consumption demand. This amount exceeds the estimated delivered 
    sales for 1998-99 California almonds by about 22 percent. Thus, the 
    Guidelines' goals are met.
        Pursuant to requirements set forth in the Regulatory Flexibility 
    Act (RFA), the Agricultural Marketing Service (AMS) has considered the 
    economic impact of this action on small entities. Accordingly, AMS has 
    prepared this final regulatory flexibility analysis.
        The purpose of the RFA is to fit regulatory actions to the scale of 
    business subject to such actions in order that small businesses will 
    not be unduly or disproportionately burdened. Marketing orders issued 
    pursuant to the Act, and rules issued thereunder, are unique in that 
    they are brought about through group action of essentially small 
    entities acting on their own behalf. Thus, both statutes have small 
    entity orientation and compatibility.
        There are approximately 105 handlers of California almonds who are 
    subject to regulation under the order and approximately 6,000 almond 
    producers in the regulated area. Small agricultural service firms have 
    been defined by the Small Business Administration (13 CFR 121.601) as 
    those having annual receipts of less than $5,000,000, and small 
    agricultural producers are defined as those having annual receipts of 
    less than $500,000.
        Based on the most current data available, about 54 percent of the 
    handlers ship under $5,000,000 worth of almonds and 46 percent ship 
    over $5,000,000 worth on an annual basis. In addition, based on 
    acreage, production, and grower prices reported by the National 
    Agricultural Statistics Service (NASS), and the total number of almond 
    growers, the average annual grower revenue is approximately $195,000. 
    In view of the foregoing, it can be concluded that the majority of 
    handlers and producers of California almonds may be classified as small 
    entities.
        Pursuant to Sec. 981.47 of the order, this rule establishes salable 
    and reserve percentages applicable to California almonds received by 
    handlers during the 1999-2000 crop year. The volume regulation 
    percentages are 77.64 percent salable and 22.36 percent reserve. 
    Salable almonds may be sold by handlers to any market at any time. 
    Reserve almonds must be withheld by handlers or disposed of in 
    authorized outlets such as almond oil, almond butter, and animal feed. 
    Volume regulation is warranted this season because the marketable 
    production estimate of 796.8 million kernelweight pounds combined with 
    the 1998-99 carryin inventory of 100.4 million kernelweight pounds 
    results in an available supply of about 897 million kernelweight 
    pounds. After subtracting the desirable carryout of 70 million 
    kernelweight pounds, the remaining supply of 827 million kernelweight 
    pounds would be 178 million kernelweight pounds higher than the trade 
    demand of 649 million kernelweight pounds. Volume regulation is 
    intended to promote orderly marketing conditions and avoid unreasonable 
    fluctuations in supplies and prices, and should ultimately improve 
    grower returns.
        Regarding the impact of this rule on affected entities, the salable 
    and reserve percentages will apply uniformly to all handlers in the 
    industry, regardless of size. There were some concerns expressed at the 
    Board's meeting regarding the impact of a reserve on small handlers, 
    specifically, that small handlers who do not have adequate storage 
    facilities may have to rent such facilities to hold their reserve 
    almonds. These are costs they would not otherwise incur. However, the 
    costs of holding almonds in reserve would be borne proportionately 
    throughout the industry. All handlers would be required to store 
    reserve almonds in varying quantities, depending upon the total amount 
    of almonds handled. Those with existing facilities would also incur 
    storage costs, although those costs may be fixed costs spread over a 
    longer period of time. In any event, costs associated with storing 
    reserve product are expected to be more than offset by the benefits of 
    orderly marketing. In addition, the order was amended in 1996 to allow 
    handlers to transfer their reserve obligation to other handlers. Thus, 
    handlers with no storage facilities will now have the option to 
    transfer their reserve withholding obligation to other handlers who can 
    store the reserve almonds.
        Furthermore, almond production, like that of many agricultural 
    commodities, can vary significantly from season to season due to a 
    variety of factors. This in turn can contribute to wide fluctuations in 
    prices. For example, California almond production over the past 10 
    years has varied from a low of 366.7 million kernelweight pounds in 
    1995 to a high of 756.5 million kernelweight pounds in 1997. Grower 
    prices for the past 10 years, as reported by the NASS, have varied from 
    a low of $.93 per pound in 1990 to $2.48 per pound in 1995.
        In addition, returns to growers have reportedly decreased by as 
    much as $1.00 per pound since the beginning of the 1998-99 crop year. 
    It is believed that a larger than anticipated 1998 crop, market 
    speculation, and an estimated record 1999 crop have contributed to the 
    depressed grower prices. Such swings in supplies and price levels can 
    result in market instability and uncertainty for growers, handlers, 
    buyers and consumers. While the benefits of this rulemaking may be 
    difficult to quantify, any stabilizing effects of volume regulation 
    will impact both small and large handlers positively by helping them 
    maintain orderly marketing conditions through supply management.
        Regarding alternatives, the Board considered not recommending 
    volume regulation this season. As previously mentioned, three Board 
    members and some observers at the Board's meetings expressed their view 
    that the industry should continue to focus on increasing the demand for 
    almonds rather than implementing a reserve. It was expressed that 
    market risk can be managed by individual handlers through marketing 
    tools such as forward contracting, rather than managing supply at the 
    industry level. However, the majority of Board members supported the 
    establishment of a reserve to help maintain orderly marketing 
    conditions so that the industry can successfully manage the projected 
    large 1999 almond crop. The Board also deliberated the merits of 
    allocating the reserve to noncompetitive outlets or ultimately 
    releasing part or all of the reserve as salable. The Board decided to 
    delay this decision until next spring when additional information, 
    including an estimate of the 2000-2001 crop, is available. However, 
    handlers may sell
    
    [[Page 59110]]
    
    reserve almonds to authorized reserve outlets at any time pursuant to 
    an agency agreement as authorized in Sec. 981.67 of the order, and 
    receive credit against their withholding obligation.
        This rule may impose some additional reporting, recordkeeping and 
    other compliance requirements on both small and large handlers. 
    Handlers who choose to divert their reserve almonds to authorized 
    outlets will have to file certain reports with the Board. This 
    requirement is the same as that applied during the 1991-92 and 1994-95 
    crop years when almond reserves were last established. Most of the 
    industry's handlers handled almonds during those years and are thus 
    familiar with the required reports. These reports have been previously 
    approved by the Office of Management and Budget (OMB) under OMB Control 
    No. 0581-0071. As with all Federal marketing order programs, reports 
    and forms are periodically reviewed to reduce information requirements 
    and duplication by industry and public sector agencies. As noted in the 
    initial regulatory flexibility analysis, the Department has not 
    identified any relevant Federal rules that duplicate, overlap or 
    conflict with this rule.
        In addition, the Board's meetings were widely publicized throughout 
    the almond industry and all interested persons were invited to attend 
    and participate in Board deliberations. Like all Board meetings, the 
    May 12 and July 12, 1999, meetings were public meetings and all 
    entities, both large and small, were able to express their views on 
    this issue. The Board itself is composed of 10 members, of which 5 are 
    producers and 5 are handlers.
        Also, the Board has a number of appointed committees to review 
    certain issues and make recommendations to the Board. The Board's 
    Reserve Committee met on April 1, May 11, and July 12, 1999, and 
    presented its recommendations to the Board at meetings on May 12 and 
    July 12, 1999. All of these meetings were open to the public, and both 
    large and small entities were able to participate and express their 
    views.
        A proposed rule concerning this action was published in the Federal 
    Register on August 10, 1999 (64 FR 43298). Copies of the rule were also 
    sent to all almond handlers in the industry. Finally, the rule was made 
    available through the Internet by the Office of the Federal Register. A 
    30-day comment period ending September 9, 1999, was provided to allow 
    interested persons to respond to the proposal.
        Six comments were received during the comment period in response to 
    the proposal. Five comments were opposed to the proposal and one was in 
    favor.
        The first commenter, an almond handler, was opposed to the reserve, 
    stating that reserves do nothing to stabilize prices, and that based on 
    historical data, prices are higher when reserves are not utilized. 
    Using the current year as an example, the commenter noted that price 
    levels have fallen since the Almond Board recommended implementing a 
    reserve. The commenter also stated the almond industry ships less 
    almonds in years of oversupply. Finally, the commenter stated that a 
    study conducted by the University of California, Davis concludes that 
    ``unallocated'' reserves do not work.
        A review of historical data pertaining to almond prices and 
    shipments indicates that price levels tend to be higher in years when 
    reserves are not utilized, and lower in years when reserves are 
    implemented. For instance, during the period from crop years 1990 
    through 1997, the average grower price for years when reserves were not 
    implemented was $1.87 per pound. During the same period, when reserves 
    were implemented, the grower price averaged $1.15 per pound. However, 
    contrary to the commenter's assertions, the data also indicate that in 
    reserve years, shipment levels and total supplies tend to be higher in 
    reserve years than in non-reserve years. For example, during the same 
    time period discussed above, in reserve years, shipments averaged 567 
    million pounds, while in non-reserve years, shipments averaged 529 
    million pounds. Lower price levels have occurred when supplies are 
    higher, consistent with the inverse relationship between supplies and 
    prices. In years of high production, if reserves were not implemented, 
    it would be expected that the resulting larger available supplies would 
    put further downward pressure on prices.
        In addition, the commenter appears to attribute recent declines in 
    price levels to the Board recommendation for salable and reserve 
    percentages. The crop was initially estimated at 760 million pounds on 
    May 9 of this year, leading to a Board recommendation for a reserve. 
    The crop estimate was revised upwards to 830 million pounds on July 12, 
    confirming the earlier projections, leading to a revised Board 
    recommendation for a higher reserve percentage. Regardless of the 
    Board's recommendations, it would be expected that price levels would 
    decline as updated information confirming the existence of a record 
    large crop becomes available.
        Regarding the reference to a University of California, Davis study 
    concerning ``unallocated reserves,'' a 1994 study conducted by 
    economists from that university does indicate reserves are most 
    effective if a portion of the crop is permanently removed from normal 
    consumption channels. This is due to the fact that the demand for 
    almonds is inelastic. Thus, removing a portion of the crop causes a 
    reduction in the supply, resulting in a larger percentage increase in 
    price than the decreased quantity demanded. The marketing order 
    authorizes implementing a requirement to dispose of reserve product to 
    non-competitive outlets. However, the order also provides for carrying 
    forward reserve product into the following crop year in the event of a 
    crop shortfall or increased trade demand needs. The order provides this 
    flexibility to allow the industry to obtain additional information 
    regarding the following year's crop size and trade demand needs prior 
    to making a recommendation concerning the ultimate disposition of the 
    reserve.
        Two other comments submitted by growers/handlers of almonds are 
    identical in content. These comments are opposed to implementing a 
    reserve. The commenters indicate that they are currently selling 
    almonds at, or less than, the cost of production and handling. Further, 
    they stated that maintaining reserves adds costs and risks beyond those 
    normally incurred in producing and marketing almonds. The commenters 
    stated that large crops will continue in the future due to increased 
    acreage and yields; thus, carrying forward reserve product into a 
    future large crop year will compound the oversupply problem. The 
    commenters believe handlers should individually deal with crop size, 
    and that growers can adjust by pulling out orchards and planting 
    something else. Finally, the commenters contend that the Board 
    recommendation regarding the reserve was representative of only two 
    handlers, while there are approximately 100 handlers in the industry. 
    In response to these comments, the intent of a reserve is to maintain 
    orderly marketing conditions in an attempt to stabilize supplies and 
    prices. Profitably marketing a crop can best be achieved under stable 
    conditions. Although there may be costs associated with maintaining a 
    reserve, the anticipated benefits of more stable and orderly marketing 
    conditions are expected to outweigh those costs.
        Based on a review of historical data concerning almond acreage and 
    yields, future crops are likely to continue to be large. Bearing 
    acreage increased from
    
    [[Page 59111]]
    
    411,000 acres in 1990 to 460,000 acres in 1998, and non-bearing acreage 
    increased from 32,400 acres to 113,000 acres during the same period. In 
    addition, average yields have also increased over time due to improved 
    varieties and production practices. During the 5-year period from 1980-
    1985, almond yields averaged 1,094 pounds per acre, while during the 
    period from 1993-1998, the average yield was 1,405 pounds per acre. 
    While production and yields can vary significantly from year to year 
    due to weather and other factors, both are trending upwards.
        With respect to compounding oversupply problems in the future, it 
    was noted earlier that reserve product may either be disposed of in 
    non-competitive markets or carried over to augment supplies during the 
    following year. Decisions regarding ultimate disposition of the reserve 
    will be made as additional market information and information on the 
    following year's crop becomes available.
        In response to the comments that growers can respond to oversupply 
    conditions by pulling out orchards, the use of the authorized supply 
    control features under the marketing order, combined with demand 
    building activities, provides an alternative to such drastic measures. 
    Unlike other crops where planting decisions can be made on an annual 
    basis, tree crops require long-term commitment of resources and long-
    term investment.
        Finally, in response to the comment concerning the Almond Board 
    action, the Board is comprised of five grower members and five handler 
    members. The Board is the constituted body under the marketing order 
    charged with administering the provisions of the order and making 
    recommendations to the Department. The Board is nominated by growers 
    and handlers in the industry and represents the industry as a whole. 
    Further, one of the purposes of Federal marketing orders is to benefit 
    producers. Consistent with the provisions of the order, a majority of 
    the members of the Board voted in favor of the recommendation.
        Another comment was received from a grower of almonds on behalf of 
    several family members who are also almond growers. This commenter 
    claims that the current marketing situation is the worst in the almond 
    industry since 1910, and projects a $500,000 to $600,000 loss for the 
    family almond farming operations during the coming season. The 
    commenter also stated that the anticipated reserve is not achieving the 
    desired effect of promoting orderly marketing conditions.
        The commenter offered several alternatives to correct the current 
    industry situation, including requiring destruction of a certain 
    percentage of each grower's acreage, restricting new plantings, 
    government purchase of reserve almonds, and issuance of nonrecourse 
    loans.
        Taking into account the current marketing conditions in the almond 
    industry, it would be premature to judge the effects of a reserve on 
    the market situation at this time, as a reserve is just now being 
    established and the ultimate disposition of the reserve will be 
    determined in accordance with the provisions of the order.
        Regarding the alternatives offered by the commenter, except for the 
    option of a sale of reserve almonds to an agency, the proposals offered 
    by the commenter are not authorized under the almond marketing order. 
    The marketing order provides for a comprehensive regulatory scheme 
    which comes in effect when a reserve percentage is fixed for a crop 
    year. Accordingly, the alternatives, with one exception, exist outside 
    of the marketing order program. Regarding a sale of reserve almonds to 
    a government agency, as stated above, the ultimate disposition of the 
    reserve will be determined in accordance with the provisions of the 
    order.
        Another comment from a grower of almonds opposed to the 
    establishment of a reserve for the 1999-2000 crop year was received. 
    This comment raised numerous issues. The commenter contends that the 
    proposed rule either violates or does not meet the requirements of the 
    Act and is inconsistent with or violates a number of other Federal 
    statutes, regulations, and policies.
        Next, the commenter stated that the same rationale for establishing 
    a reserve was used in the proposed rule that has been used in past 
    seasons. The commenter claims that there has been no analysis of the 
    impact of reserves on the industry, including pricing effects, no 
    analysis of the decreased variability of the alternating production 
    cycles, and no correlation of variability data with acreage statistics 
    and long range weather forecasts.
        The commenter also stated that current low price levels are not 
    indicative of disorderly marketing, but rather are a reflection of 
    industry structure and the conduct of handlers with regard to open 
    price contracting. The commenter is of the view that the open price 
    system has allowed handlers to take full advantage of smaller growers. 
    The commenter further stated that current low prices are a function of 
    lack of market price information to the industry. The comment asserted 
    there has been no evaluation of non-bearing almond acreage and improved 
    yields and speculated whether the Department was ignoring this impact 
    or merely giving special treatment to handlers interests in the 
    industry that would give the handlers increased profits while 
    furthering the problems of small growers. In addition, the commenter 
    claims that crop forecasting models indicate there is a 98 percent 
    chance that next year's crop will be larger than the current year's 
    crop, and this has not been considered. Also, there has been no 
    analysis conducted concerning the impact of reserves stimulating 
    production.
        The commenter stated that establishment of a reserve would preempt 
    and conflict with Sections 58301 and 58302 of the California Food and 
    Agricultural Code because it will enable handlers to withhold payment 
    to growers on product held in reserve. Further, section 608c(7) of the 
    Act is cited as a statutory requirement that a reserve cannot be 
    established unless it declares that failure to pay a grower for the 
    reserve portion of his or her crop is an unfair trade practice and is 
    prohibited.
        The commenter stated that if a reserve is established, it should 
    require that the reserve be held within the State of California. The 
    commenter adds that a reserve would be unfair to growers who incurred a 
    crop loss due to frost. Growers, some of which lost up to 70 percent of 
    their crop, should be exempt from reserve requirements if they suffered 
    30 percent or more crop loss. Furthermore, a reserve would be unfair to 
    growers who withheld their 1998-99 crop from delivery to handlers until 
    the 1999-2000 crop year in anticipation of improved prices or to guard 
    against reduced production in 1999-2000.
        Finally, the commenter stated that the almond marketing order was 
    recently approved by only 27 percent of the State's producers in a 
    continuance referendum, and that there would have been stronger support 
    if the ballot in the continuation referendum would have been split to 
    have the reserve provisions voted on separately.
        In response to these comments, the Department disagrees that 
    establishment of salable and reserve percentages do not meet the 
    requirements of the Act and are in conflict with other Federal 
    statutes, regulations, and policies. The establishment of salable and 
    reserve percentages in the action is consistent with applicable law, 
    including the provisions of the Act, order, and regulations governing 
    this program.
    
    [[Page 59112]]
    
        The Department has considered and evaluated economic data regarding 
    the potential impact of reserves on the almond industry, as well as 
    information pertaining to acreage statistics and production cycles. In 
    accordance with the provisions of the order, the Board is required to 
    provide to the Department specific information to aid the Department in 
    fixing salable and reserve percentages. Economic studies indicate that 
    the demand for almonds is inelastic. Therefore, a reduction in supply 
    would result in a proportionately larger increase in price levels for 
    the product. This would result in an increase in total revenue to the 
    industry. With respect to acreage statistics, as previously stated, the 
    Department is aware that both bearing and non-bearing almond acreage 
    has increased significantly in recent seasons, and, therefore, future 
    production levels may be expected to continue to increase. This is not 
    an unusual response to a pattern of high price levels as experienced in 
    recent years in the almond industry.
        Further, regarding production cycles, a review of historical data 
    indicates that almond production patterns do not display a true pattern 
    of an alternate bearing characteristic. While there appears to be a 
    general pattern of short crops followed by large crops and vice-versa, 
    instances of two consecutive short or large crops have occurred.
        The commenter refers to a purported ``crop projection model'' that 
    indicates there is a 98 percent or greater chance that the 2000-2001 
    California almond crop will equal or exceed the 1999-2000 crop. Thus, a 
    large carryin of reserve product from the 1999 crop, when combined with 
    a large crop the following year, will put further downward pressure on 
    prices. The Department is unaware of any study that contains such 
    findings regarding the probability of the 2000-2001 crop size. In 
    addition, even if this assertion is assumed to be valid, reserve 
    product from the 1999 crop reserve will not necessarily increase the 
    supply the following year. As previously discussed, under the almond 
    marketing order, reserve may be carried into the following crop year, 
    or removed permanently from normal market channels. If the latter 
    course is taken, that reserve product would not add to the following 
    year's supply. A decision regarding ultimate disposition of reserve 
    product does not need to be made until information concerning the 
    following year's crop is known.
        In response to the commenter's claims that low price levels are the 
    result of handler pricing practices and lack of market price 
    information, there may be indeed other factors that can contribute to 
    disorderly marketing. The commenter believes that the combination of 
    poor prices for other crops, the flow of dollars from the Freedom to 
    Farm Act, the lack of information of prices on movement by variety, 
    grade, size, and terms of sale are elements of disorder. The commenter 
    also raises the issue of foreign plantings in connection with an 
    analysis of the production stimulation effects of implementing 
    reserves. However, the Department is not aware of any studies conducted 
    which have attempted to address that issue. While the marketing order 
    and its provisions may not be able to address every possible 
    contingency in the almond industry, it does, however, authorize use of 
    volume control as a means of helping to foster orderly marketing 
    conditions. By establishing a reserve, the industry would be utilizing 
    a tool available to it in an attempt to achieve its goals.
        The commenter contends that establishment of a reserve conflicts 
    with California State law. The issue of grower-handler payments, and 
    open price contracts is raised again; however, the almond marketing 
    order does not regulate grower-handler payments or such contracts. If 
    State laws regarding grower-handler payments are in some way violated, 
    then one could look to those statutes for appropriate remedies.
        In response to the comment regarding holding reserve product within 
    the State of California, when salable and reserve percentages are in 
    effect, the marketing order requires handlers to withhold from handling 
    a certain percentage of the product received from growers. By 
    definition, shipping product outside the State of California 
    constitutes handling under the almond marketing order.
        The marketing order contains no provisions to protect growers from 
    losses due to freeze damage or other natural disasters. Establishment 
    of a reserve is based on collective industry data, and is applied to 
    all handlers equally. While there may be growers who suffered crop 
    losses during the season, other government sponsored programs may be 
    available to recompense growers for such losses, such as crop insurance 
    programs.
        If growers withheld product from delivery to handlers during the 
    1998 season and deliver the product to handlers in the current season, 
    that product will be subject to reserve requirements in accordance with 
    provisions of the order. While growers may have taken such action in 
    anticipation of improved prices or reduced production levels in 1999, 
    they did so based upon their own initiative.
        In response to the comment regarding continuation referendum 
    results, 90 percent of the almond growers voting in the February 1999 
    referendum voted to continue the order. In addition, 88 percent of the 
    volume represented in the referendum voted for continuance. 
    Approximately 27 percent of the State's almond producers voted in the 
    referendum. The Department cannot control this aspect of the voting 
    process and tabulates the results based on the voters who participate 
    in the process, consistent with the requirements of the Act. Finally, 
    continuance referendums have been and are conducted to determine the 
    support of an industry as to the marketing order program established 
    for that commodity. To look at individual provisions is more a function 
    of the marketing order amendatory process.
        One comment was received in support of establishing salable and 
    reserve percentages for the 1999-2000 crop year. The commenter 
    presented data regarding world almond supplies and consumption over the 
    most recent 5-year period, and projections for the current year. Also 
    summarized were the high price levels for almonds experienced in the 
    mid-1990's, which was attributed to world demand chasing limited 
    supplies.
        The commenter pointed out that reserves have been used in the 
    almond industry in ten of the years during the period from 1980 through 
    1998, and attributed the use of reserves as a successful tool to manage 
    supplies while increasing demand for almonds. Stable supplies resulted 
    in less market volatility, thus encouraging new product development and 
    expansion of markets for existing products.
        The commenter indicated that in reserve years, the industry 
    actually shipped more than the trade demand figure established by the 
    Board.
        The commenter also referenced a study conduced by the University of 
    California, Davis indicating that the demand for almonds is inelastic. 
    A practical application of the effect of inelastic demand on prices and 
    supplies of almonds was presented.
        Concluding remarks in the comment support the use of supply 
    management as a short-term tool while building long-term consumption 
    and demand for the product.
        Members within the industry may have differences of opinion 
    regarding the concept of volume control under the marketing order, as 
    well as its effectiveness and these differences can be and are 
    reflected in Board and
    
    [[Page 59113]]
    
    Committee discussions, as well as the comments received in response to 
    the proposed rule. However, a majority of Board members favored the 
    recommendation, and even those opposed indicated they would support the 
    Board's recommendation.
        After reviewing the comments received and other available 
    information, the Department has concluded that issuing this rule is 
    appropriate. Accordingly, no changes will be made to the rule as 
    proposed, based on the comments received.
        A small business guide on complying with fruit, vegetable, and 
    specialty crop marketing agreements and orders may be viewed at the 
    following web site: http://www.ams.usda.gov/fv/moab.html. Any questions 
    about the compliance guide should be sent to Jay Guerber at the 
    previously mentioned address in the FOR FURTHER INFORMATION CONTACT 
    section.
        After consideration of all relevant matter presented, including the 
    information and recommendation submitted by the Board and other 
    available information, it is hereby found that this rule, as 
    hereinafter set forth, will tend to effectuate the declared policy of 
    the Act.
    
    List of Subjects in 7 CFR Part 981
    
        Almonds, Marketing agreements, Nuts, Reporting and recordkeeping 
    requirements.
    
        For the reasons set forth in the preamble, 7 CFR part 981 is 
    amended as follows:
    
    PART 981--ALMONDS GROWN IN CALIFORNIA
    
        1. The authority citation for 7 CFR part 981 continues to read as 
    follows:
    
        Authority: 7 U.S.C. 601-674.
    
        Note: This section will not appear in the Code of Federal 
    Regulations.
    
        2. In Part 981, Sec. 981.240 is added to read as follows:
    
    
    Sec. 981.240  Salable and reserve percentages for almonds during the 
    crop year beginning on August 1, 1999.
    
        The salable and reserve percentages during the crop year beginning 
    on August 1, 1999, shall be 77.64 percent and 22.36 percent, 
    respectively.
    
        Dated: October 22, 1999.
    Robert C. Keeney,
    Deputy Administrator, Fruit and Vegetable Programs.
    [FR Doc. 99-28301 Filed 10-28-99; 3:22 pm]
    BILLING CODE 3410-02-P
    
    
    

Document Information

Published:
11/02/1999
Department:
Agricultural Marketing Service
Entry Type:
Rule
Action:
Final rule.
Document Number:
99-28301
Pages:
59107-59113 (7 pages)
Docket Numbers:
Docket No. FV99-981-3 FR
PDF File:
99-28301.pdf
CFR: (1)
7 CFR 981.240