[Federal Register Volume 62, Number 64 (Thursday, April 3, 1997)]
[Rules and Regulations]
[Pages 15809-15819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8544]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules
and Regulations
[[Page 15809]]
DEPARTMENT OF AGRICULTURE
Animal and Plant Health Inspection Service
7 CFR Part 301
[Docket No. 96-016-18]
RIN 0579-AA83
Karnal Bunt Regulatory Flexibility Analysis
AGENCY: Animal and Plant Health Inspection Service, USDA.
ACTION: Final rule; regulatory flexibility analysis.
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SUMMARY: We are publishing in this document the regulatory flexibility
analysis prepared for an October 4, 1996, final rule that amended the
Karnal bunt regulations established in a series of interim rules and
that established criteria for levels of risk, the movement of regulated
articles, and the planting of seed from Karnal bunt host crops. Because
that final rule was published on an emergency basis, compliance with
the regulatory flexibility analysis requirements of the Regulatory
Flexibility Act was found to be impracticable, and completion of those
requirements was delayed by the Administrator of the Animal and Plant
Health Inspection Service. The required analysis has been completed and
is, therefore, being made available to the public.
FOR FURTHER INFORMATION CONTACT: Mr. Mike Stefan, Operations Officer,
Domestic and Emergency Operations, PPQ, APHIS, 4700 River Road Unit
134, Riverdale, MD 20737-1236, (301) 734-8247.
SUPPLEMENTARY INFORMATION: Karnal bunt is a fungal disease of wheat
(Triticum aestivum), durum wheat (Triticum durum), and triticale
(Triticum aestivum X Secale cereale), a hybrid of wheat and rye. Karnal
bunt is caused by the smut fungus Tilletia indica (Mitra) Mundkur and
is spread by spores. The establishment of Karnal bunt in the United
States would have significant consequences with regard to the export of
wheat to international markets. The regulations regarding Karnal bunt
are set forth in 7 CFR 301.89-1 through 301.89-14.
On October 4, 1996, we published in the Federal Register (61 FR
52189-52213, Docket No. 96-016-14) a final rule that amended a series
of interim rules establishing a program to control and eradicate Karnal
bunt in the United States, and also made final a proposed rule
establishing criteria for levels of risk for areas with regard to
Karnal bunt and criteria for seed planting and movement of regulated
articles based on those risk levels.
Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (the
Act), agencies must prepare initial and final regulatory flexibility
analyses concerning the economic impact of the regulatory action on
small entities unless the agency certifies that the rule will not have
a significant economic impact on a substantial number of small
entities. The criteria for initial and final regulatory flexibility
analyses are set out in sections 603 and 604, respectively, of the Act.
Section 608, paragraph (a), of the Act provides, however, that an
agency head may waive or delay the completion of some or all of the
requirements for the initial regulatory flexibility analysis if an
emergency situation makes timely compliance with section 603
impracticable. Similarly, paragraph (b) of section 608 provides that an
agency head may delay the completion of a final regulatory flexibility
analysis for a period of not more than 180 days following the
publication of a final rule in the Federal Register if the agency
publishes in the Federal Register a written finding that the rule is
being promulgated in response to an emergency that makes timely
compliance with section 604 impracticable.
Because the October 4, 1996, final rule was published on an
emergency basis in order to give affected growers the opportunity to
make planting decisions for the 1996-97 crop season on a timely basis,
the rule was published without the regulatory flexibility analysis.
Instead, as provided by section 608 of the Act, the rule included a
written finding that compliance with section 603 and timely compliance
with section 604 of the Act was impracticable. We further stated that
the rule may have a significant economic impact on a substantial number
of small entities and, if that were the case, that we would discuss the
issues raised in accordance with section 604 of the Act in a final
regulatory flexibility analysis that would be published in a future
Federal Register. We have now completed the required regulatory
flexibility analysis, and it is set forth below.
I. Introduction
In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.), this analysis examines the economic impact, costs, and benefits
to small entities of the October 4, 1996, Karnal bunt final rule, as
well as impacts attributable to the interim regulations.
On March 8, 1996, Karnal bunt was detected in Arizona during a seed
certification inspection done by the Arizona Department of Agriculture.
On March 20, 1996, the Secretary of Agriculture signed a ``Declaration
of Extraordinary Emergency'' authorizing the Secretary to take
emergency action under 7 U.S.C. 150dd with regard to Karnal bunt within
the States of Arizona, New Mexico, and Texas. In an interim rule
effective on March 25, 1996, and published in the Federal Register on
March 28, 1996 (61 FR 13649-13655, Docket No. 96-016-3), the Animal and
Plant Health Inspection Service (APHIS) established the Karnal bunt
regulations (7 CFR 301.89-1 through 301.89-11), and quarantined all of
Arizona and portions of New Mexico and Texas because of Karnal bunt.
The regulations define regulated articles and restrict the movement of
these regulated articles from the quarantined areas.
After the regulations were established, Karnal bunt was detected in
seed lots that were either planted or stored in California. On April
12, 1996, the Secretary of Agriculture signed a ``Declaration of
Extraordinary Emergency'' authorizing the Secretary to take emergency
action under 7 U.S.C. 150dd with regard to Karnal bunt within
California. In an interim rule effective on April 19, 1996, and
published in the Federal Register on April 25, 1996, APHIS also
regulated portions of California because of Karnal bunt (61 FR
[[Page 15810]]
18233-18235, Docket No. 96-016-5). In an interim rule effective on June
27, 1996, and published in the Federal Register on July 5, 1996 (61 FR
35107-35109, Docket No. 96-016-6), we removed certain areas in Arizona,
New Mexico, and Texas from the list of areas regulated because of
Karnal bunt. That list was amended in a technical amendment effective
on July 9, 1996, and published in the Federal Register on July 15, 1996
(61 FR 36812-36813, Docket No. 96-016-8). In an interim rule effective
June 27, 1996, and published in the Federal Register on July 5, 1996
(61 FR 35102-35107, Docket No. 96-016-7), we amended the regulations to
provide compensation for certain growers and handlers, owners of grain
storage facilities, and flour millers in order to mitigate losses and
expenses incurred because of actions taken by the Secretary to prevent
the spread of Karnal bunt.
In a proposed rule published in the Federal Register on August 2,
1996 (61 FR 40354-40361, Docket No. 96-016-10), we proposed to amend
the regulations to establish criteria for levels of risk for areas with
regard to Karnal bunt and for the movement of regulated articles based
on those risk levels, and to establish criteria for seed planting. A
rule finalizing these provisions was published in the Federal Register
on October 4, 1996 (61 FR 52189-52213, Docket No. 96-016-14). Although
that final rule did not change or make final the interim rule on
compensation published in the Federal Register on July 5, 1996, this
analysis necessarily addresses the role and impact of those interim
compensation provisions, which remain in effect.
II. Need for Regulation
Karnal bunt is a fungal disease of wheat (Triticum aestivum), durum
wheat (Triticum durum), and triticale (Triticum aestivum X Secale
cereale). Upon detection of Karnal bunt in Arizona, the imposition of
Federal quarantine and emergency actions was a necessary, short-run,
measure taken to prevent the interstate spread of the disease to other
wheat producing areas in the country. The intent of the quarantine was
to immediately contain the disease in the outbreak area, so that
eradication could be eventually achieved. In dealing with a new disease
outbreak, eradication is a reasonable first objective as long as
national disease-prevalence data indicate that eradication remains a
viable option. The establishment of Karnal bunt in the United States
would have significant economic ramifications on the U.S. wheat export
market, given that approximately 50 percent of exports are to countries
that maintain restrictions against wheat imports from countries where
Karnal bunt is known to occur. The benefits of the regulatory program
can thus be viewed as the avoidance of potential losses to the wheat
export market in the absence of regulation. The economic significance
of the wheat industry required swift and coordinated action, which in
this case was most efficiently achieved under Federal coordination.
Wheat intended for domestic processing and export is often blended
at elevators to establish lots of uniform quality. Except for those
occasions where a specific producer's wheat is processed separately
under contract to a miller, the elevator's supply of wheat usually
consists of a mix of many varieties from many producers and areas. For
this reason, Federal oversight is needed to safeguard against cross-
contamination and to instill confidence from both domestic and foreign
buyers. Thus, it is conceivable that, without Federal intervention,
individual States and importing countries would place their own,
perhaps more severe, restrictions on wheat shipments.
The Karnal bunt quarantine that was initially established was
necessarily broad due to the lack of data available at the time as to
the extent of the infestation. The discovery of Karnal bunt and
subsequent quarantine and emergency actions occurred after production
and marketing decisions had been made. Producers and other affected
individuals had little time or ability to avoid the unexpected costs or
pass those costs on to others in the marketing chain. The impact was
particularly severe on the wheat industry in the affected area because
much of the crop is grown under contract at specified amounts and
prices.
In order to alleviate some of these hardships and to ensure full
and effective compliance with the quarantine program, compensation to
mitigate certain losses was offered to producers and other affected
parties in a regulated area. The payment of compensation is in
recognition of the fact that while benefits from regulation accrue to a
large portion of the wheat industry outside the regulated areas, the
regulatory burden falls predominantly on a small segment of the
affected wheat industry within the regulated area.
As additional information from sampling and testing became
available in subsequent months following the outbreak, the Agency was
able to ease the quarantine in order to minimize disruption to affected
entities. Those changes, which were detailed in the October 4, 1996,
final rule, established various risk categories for wheat planting for
the 1996-97 crop, relieving unnecessary restrictions as the regulatory
actions that are imposed on each category are based on the level of
risk.
Subsequent sections of this analysis are structured as follows:
Section III addresses the benefits of regulation to provide a
perspective against which the regulatory policies were formed. The
impact on the affected industry of the disease and subsequent
quarantine actions, along with compensation to mitigate losses, are
discussed in section IV. Section V provides a projection of the impact
in the regulated areas based on risk categories for wheat planting in
1996-97. Other alternatives to the rule are discussed in section VI.
The characteristics of the small entities within the regulated areas
that were impacted by the disease and the quarantine are described in
section VII. A summary of the analysis is provided in section VIII.
III. Benefits of the Federal Quarantine Program
The disease Karnal bunt causes production losses to wheat in the
form of yield reduction due to the infestation of kernels, and
reduction in the quality of grain. Roughly 4 percent of wheat fields in
Arizona, and 0.04 and 14 percent of fields in Imperial and Riverside
counties in California, respectively, were found to be infected with
Karnal bunt.
The most economically significant impact of the disease, however,
is inarguably its effect on the export market. This is because about
half of U.S. wheat exports are to countries that maintain restrictions
against wheat imports from countries where Karnal bunt is known to
occur.1 Eliminating the quarantine currently in place would
jeopardize trade with those countries. Benefits of Federal quarantine,
therefore, can be regarded largely as the avoided losses to the export
market.
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\1\ About 1.2 billion bushels of wheat are exported from the
U.S. annually, at a value of $4 billion.
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A 50-percent reduction in U.S. wheat exports would likely reduce
U.S. wheat prices by 30 percent, and lower net sector income by $2.7
billion. This estimate takes into account the dampening effect on
domestic wheat prices, as wheat for export is diverted into the
domestic consumption market, animal feed outlets, and ending stocks.
The reduction in U.S. wheat exports, however, would likely be less
than 50 percent. First, not all countries that have restrictions
against Karnal bunt would,
[[Page 15811]]
in practice, strictly prohibit wheat imports from the United States.
Second, while some markets would be captured by exports from countries
that are free of Karnal bunt, U.S. wheat exports to countries that have
no restrictions against Karnal bunt would likely increase. Lastly,
substitution across domestic markets could provide added flexibility in
meeting export demands. In the long run, the effects could be minimal
depending on whether the market were to treat Karnal bunt as a quality
issue and develop discounts for Karnal bunt.
Even a 10-percent reduction in wheat exports would have a
significant effect on wheat sector income. It is estimated that a 10-
percent decrease in U.S. wheat exports would cause a 22-cent per bushel
drop in the wheat prices and a drop in wheat sector income of over $500
million. The effects of decreases in wheat exports of various
percentages are presented in Table 1.
Table 1.--Effect of a Decrease in Wheat Exports Due to Karnal Bunt, 1997/98 Crop Yyear
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Reduction in exports
Item Unit ---------------------------------------------------
0% 10% 25% 50%
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Exports............................. mil. bu............... 1,200 1,080 900 600
Total use........................... mil. bu............... 2,462 2,394 2,295 2,138
Price............................... $/bu.................. 3.85 3.63 3.29 2.68
Value of production................. mil. dol.............. 9,543 8,898 8,146 6,637
Gross income \1\.................... mil. dol.............. 11,358 10,813 9,961 8,580
Variable expenses................... mil. dol.............. 4,823 4,823 4,823 4,823
Net income.......................... mil. dol.............. 6,536 5,990 5,138 3,758
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\1\ Includes market transition payments.
The 1996 Federal quarantine and emergency actions served to contain
Karnal bunt in the initial outbreak area of the Southwest United
States. The Federal program provided assurances to wheat importing
countries that wheat from uninfected areas were monitored for Karnal
bunt under the National Survey program, by sampling and testing of all
wheat fields in the United States. Countries that are willing to accept
wheat from the affected areas are also assured that grain from those
areas are tested negative twice for the disease. Through these means,
the Federal Karnal bunt program served to maintain and preserve the
economic viability of the U.S. wheat export.
IV. Impact on the Affected Industry of Karnal Bunt and Regulatory
Actions
The wheat industry within the regulated area is largely composed of
businesses who can be considered as ``small'' according to guidelines
established by the Small Business Administration (SBA). The
characteristics of these firms as well as other small affected entities
are provided in detail in section VII of the analysis. The following
discussion on impacts is directly applicable to these entities.
The 1995-96 Karnal bunt regulations primarily affect persons or
entities that produce wheat in a regulated area and/or move certain
articles associated with wheat out of a regulated area. These articles
are subject to certain regulatory actions to minimize the risk of
spreading the causal agent of the disease to other uninfected areas.
Regulated articles include:
1. Farm machinery and equipment used to produce wheat;
2. Conveyances from field to handler, such as farm trucks and
wagons;
3. Grain elevators, equipment and structures at facilities that
store and handle grain;
4. Conveyances from handler to other marketing channels, such as
railroad cars;
5. Plant and plant parts, such as grain for milling, grain for
seed, and straw;
6. Flour and milling byproducts;
7. Manure from animals fed wheat/wheat byproducts from quarantine
area;
8. Used sacks;
9. Seed-conditioning equipment;
10. Byproducts of seed cleaning;
11. Soil-moving equipment;
12. Root crops with soil;
13. Soil.
As part of the Karnal bunt program, grain that tests positive for
Karnal bunt is prohibited from moving out of the regulated areas. Other
contaminated articles must be cleaned and sanitized before such
movement. Millfeed must be treated to render inactive any disease
causal agent before its addition into animal feed. Grain that tests
negative may move under limited permit to approved mills. Commercial
seed intended for planting is prohibited movement outside the regulated
areas. Wheat seed to be planted within the regulated areas must be
sampled and tested for Karnal bunt, and, for seed originating in a
regulated area, treated prior to planting. Wheat growers in New Mexico
and Texas whose wheat fields were planted with contaminated seed were
ordered to destroy their crops.
These requirements have resulted in additional costs and claims of
losses to affected individuals. Wheat producers and handlers claimed
loss in market value of their grain; seed companies and researchers
have claimed similar losses, including lost royalties due to the
disruption in the development of seed varietals. Other types of claims
made were for the cost of cleaning and disinfecting equipment and
facilities, and damages to machinery caused by required treatment. Some
of these claims are presented in Table 2.
Table 2.--Impact of Karnal Bunt Quarantine Actions
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Types of impacts
Action Regulated article Affected entities Numbers affected due to KB and
quarantine actions
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Plow-down & Seed Plot Fields Certain 4100 Loss in
Destruction. planted with producers in acres. value of wheat
infected seed at Texas and New 73 crop destroyed.
pre-boot stage. Mexico. producers.
Tools and Wheat 145 Cost of
Farm Equipment. producers in RA. growers. cleaning.
[[Page 15812]]
Harvester Farmer 389 Cost of
s. owned and custom combines. cleaning.
combines.
Grain Grain 976 Cost of
Trucks. haulers from trucks. cleaning.
field to grain
elevators.
Cleaning/Disinfection........... Grain Grain 17 Cost of
storage and handling firms. elevators. cleaning.
loadout
facilities.
Harvester Combine 36 to 40 Excess
s. harvester owners. combines. wear and tear on
equipment.
Harvester Combines 5 to 10 Down-time
s. involved in pre- combines. on harvesters due
harvest sampling. to field testing.
Harvester Custom 5 Loss of
s. combine companies. companies. income due to
termination of
contracts outside
the RA.
Railcars. Grain 10,880 Cost of
handling firms. cars (511 for cleaning.
positive grain).
KB- Producers 145 Loss in
positive milling Grain growers. value of KB-
wheat. handling firms. 6 positive wheat.
handlers.
KB- Producers 664 Loss in
negative milling in RA. producers. value of KB-
wheat. Handlers 26.7 negative wheat in
in RA. million bushels. RA.
Millfeed. Millers, 108 mills Millers
millfeed 45,644 reluctance to
processors. tons. mill KB-negative
wheat from RA.
Movement Seed 15 Loss in
restrictions on producers, producers. premiums.
wheat seed. researchers, and 9 Loss in
companies. research firms. market value.
20 seed Loss in
marketers. royalties.
Restriction on Use or Marketings Straw, Straw 25 Loss in
Manure, Millfeed. producers and growers. income.
Handlers-Users of 3 Increased
Straw. contractors. cost of
Livestock 1 straw production.
producers using user, making of
wheat or straw straw mats for
produced in the erosion control.
RA. 7 millers
Flour in 5 States.
millers. 2
Millfeed millfeed
processors/users. processors.
Moratoriu Producers 109 Loss in
m on wheat with KB-positive growers. income from
production on KB- properties. 13,674 wheat.
positive fields. acres.
Soil on Vegetable Unknown Increased
root crops grown producers on KB- number. cost of
on infected positive production.
properties. properties.
Used seed Seed 9 Increased
sacks. research and research firms. cost of
Seed- marketing 20 seed production.
conditioning companies. marketers.
equipment.
Byproduct
s of seed.
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Regulated area.
Estimated losses in value to the affected wheat industry in the
Southwest, and compensation payments to mitigate some of these losses,
are discussed below. The compensation committed to date for the 1995-96
crop year, published as an interim rule in the Federal Register on July
5, 1996, is as follows:
Plow-down of infected fields in New Mexico and Texas;
Loss in value of wheat testing positive for Karnal bunt
for producers and handlers;
Loss in value of wheat testing negative for Karnal bunt
for producers;
Cost of millfeed treatment;
Cleaning and disinfecting of grain storage facilities.
1. Order To Plow Down Fields Planted With Infected Seed at Pre-Boot
Stage
Most of the acreage ordered to be plowed down in April 1996 was
farm production acreage located in four counties in New Mexico (Dona
Ana, Hidalgo, Luna, and Sierra) and in two counties in Texas (El Paso
and Hudspeth). This acreage amounted to approximately 4,100 acres.
Other affected acreage were small seed experimental plots in
Washington, California, and South Dakota that totaled perhaps 50 acres
in all.
Many affected growers were able to plant immediately with
vegetables and recover some losses by farming alternative crops on
affected land. Fertilizer carry-over on destroyed wheat fields was
possible for crops grown on affected fields. The impact on farm income
that could have been derived from wheat, however, is uncertain, as it
is unclear what the market returns to wheat grown on known affected
fields would have been if the plow-down order had not occurred.
To offset for costs related to the plow-down, compensation was
offered to 74 producers to cover the $25 per acre plowing cost plus the
$275 per acre in average cost of production expenses (up until the time
the crop was destroyed). In total, these producers received
compensation of $1.23 million to cover operating costs incurred for
growing wheat.
2. Cost of Sanitizing Grain Storage
Records of APHIS surveys in the regulated area indicate that 16
facilities have applied for the cost-share program. Compensation is
committed to owners of contaminated grain storage facilities on a one-
time only basis for up to 50
[[Page 15813]]
percent of the cost of decontamination, not to exceed $20,000. The
total cost of cleaning facilities is estimated at $268,000, with an
average compensation per facility of $8,375. Total cost of
compensation, as of March 14, 1997, is estimated at $134,000.
3. Loss in Value of Wheat Testing Positive for Karnal Bunt
Wheat testing positive for Karnal bunt (either by pre-harvest
sample or by testing at the elevator site) was required to go into
sealed storage. This movement of wheat out of the regulated area was
restricted (exiting only with a limited permit) and most went into
local animal feed uses after treatment that rendered ineffective any
Karnal bunt spore. This involved a heat-roll-flaking process commonly
in use for small grains for feed formulas in California. Infected wheat
lost value as it was diverted from its original purposes to the animal
feed markets where it had to compete against lower-priced feed grains.
Similar discounts would have likely existed in the absence of
regulatory actions.2 Program guidelines limited maximum
compensation rates per bushel at $2.50; producers were asked to
establish financial losses by calculating the difference between their
contract price and actual prices received (if production was pre-
contracted) or the difference between the estimated market value in
May-June 1996 and their actual prices received (if production was not
pre-contracted). Handlers were limited by the same maximum compensation
amount, but determination of financial loss was based on the difference
between their wheat purchase price and a $3.60 per bushel salvage
value. They may have had additional costs to sort and treat their KB-
positive wheat (after finding their KB-negative wheat was, in fact, KB-
positive). Moreover, many handlers were reluctant to accept wheat from
affected areas. This expedited procedure was offered to handlers in
order to reduce administrative and recordkeeping costs by not
addressing their losses on a contract-by-contract basis. It provided
assistance that avoided a market collapse.
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2 Price discounts on both KB-positive and negative wheat
could have been greater in the absence of regulatory action. While
this may justify the regulatory action taken, the more convincing
evidence is the large benefits of regulations to the greater part of
the U.S. wheat industry outside of the regulated area.
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Eight percent of wheat production in the regulated area was found
to be KB-positive. This level of production amounted to 2.32 million
bushels of wheat taking a loss on average of $1.80 per bushel. It is
estimated that at these rates, compensation would need to be $4.2
million in order to offset much of the loss in value of positive wheat
to producers and handlers.
4. Loss in Value of Wheat Testing Negative for Karnal Bunt
At harvest, many wheat buyers refused to honor purchase contracts
with producers for their grain, most of which had been tested negative
for Karnal bunt by pre-harvest sample. These contracts had been agreed
upon before the discovery of the disease and the declaration of
quarantine. Also, wheat millers inside and outside the regulated areas
became reluctant to buy wheat from grain handlers due to the increased
cost of handling wheat from the regulated areas. Prices for wheat
produced within the regulated areas, therefore, dropped regardless of
its disease status.
For those growers who grew wheat under contract but who did not
receive full contract price, compensation for loss in value of wheat
testing negative for Karnal bunt is made based on the difference
between the contracted price and the higher of the actual price
received by the producer or the salvage value. (Salvage value was to
equal whichever price was higher of the following: The average price
paid in the region of the regulated area where the wheat was sold for
the period between May 1 and June 30, 1996; or $3.60 per bushel.)
Compensation for growers of nonpropagative wheat not grown under
contract is based on the difference between the estimated market price
for the relevant class of wheat and the higher of the actual price
received or its salvage value. (Salvage value was to be the same as
above for contracted wheat.) The estimated market price is what the
market price would have been if there were no quarantine for Karnal
bunt, and is calculated for each class of wheat, taking into account
the prices offered by relevant terminal markets (animal feed, milling,
or export) for the period between May 1 and June 30, 1996, with
adjustments for transportation and other handling costs.
Ninety-two percent of the quantity produced for domestic milling
(approximately 13 million bushels), plus the diverted quantity of KB-
negative wheat that was originally intended to be exported (6 million
bushels) could have experienced a price reduction. A portion of the
remaining 7 million bushels intended for export that could not be sold
at contract price could also experience a similar loss. The
compensation formula for negative grain would suggest an average price
drop of $1.10 per bushel. Thus, total losses due to the decline in
market value of KB-negative wheat held by producers and handlers could
total $28 million. This amount would be reduced by the amount of grain
sold on contract which received full contract price. Producers would
not have realized any losses on such production. Handlers may have
incurred the full drop in value of their wheat sales depending on their
previous contract prices. Given that information on contracts of
individual producers and handlers is unknown, it is estimated that $28
million is the potential maximum amount of economic loss due to a drop
in uninfected wheat grown in the regulated area.
5. Cost of Millfeed Treatment
Millfeed is a byproduct of wheat milling (the outer husk of the
wheat kernel and other byproducts from milling). Approximately 25
percent of the raw wheat going into milling comes out as millfeed,
while the remaining 75 percent is converted into flour. The sale of
this milling byproduct contributes around 10 percent towards their
gross income from milling. With the higher likelihood of Karnal bunt
being present in the millfeed rather than the flour, restrictions were
placed on the movement of millfeed produced from wheat grown in the
regulated areas. These restrictions stated that millfeed, before their
addition into animal feeds, were to be treated in order to render
inactive any presence of Karnal bunt spores. For whole wheat kernels,
this normally means that wheat undergo a heating-rolling-and-flaking
process. Similar procedures, except for flaking, were assumed to be
required in treating millfeed.
Many animal feed manufacturers commonly heat and treat ingredients
in their feed products. The treatment requirements would not add any
additional costs for them. For others, that restriction would place an
additional processing cost of around $35 per ton to their operation. In
order to encourage wheat marketings from the regulated areas and
reassure millers that they would not incur any additional costs in
handling uninfected wheat from a regulated area, a $35 per ton cost
offset for heat treatment was offered to millers using KB-negative
wheat produced in a regulated area. As of March 14, 1997, 108 requests
have been made from millers in Minnesota, Missouri, Oregon, Wisconsin,
and Virginia for a total of $1.6 million.
[[Page 15814]]
6. Loss in Value of Seed
Under the 1996 quarantine and emergency actions, wheat seed
produced in the regulated areas was prohibited from sale outside of the
regulated areas. Wheat seed intended for planting within the regulated
areas must be sampled and tested for Karnal bunt, and for seed
originating in a regulated area, treated prior to planting. These
restrictions are estimated to have a significant impact on the seed
industry, largely due to the high value that is commanded by
propagative seed. Seed companies contract with growers to produce seed
wheat at about 30 to 50 cents per bushel premium over non-propagative
wheat. This premium reflects the added precautions in production to
ensure seed integrity and cleanliness. These companies were affected by
the decline in market value resulting from the inability to move seed
out of the regulated areas. It is estimated that 1.5 million bushels of
wheat seed sustained loss in value of between $5 and 6 million. Seed
developers, who earn returns on their investment in research and
development of wheat varieties, also claim potential long-term losses
in royalties; by receiving plant variety protection (or patent rights),
seed developers then obtain royalties on future sales of wheat that are
developed and sold for propagative purposes. Other economic losses
suffered by the seed industry, but are difficult to quantify, include
additional handling, storage, and finance costs on seed that could no
longer be sold outside the regulated areas and costs to relocate wheat
breeding operations outside of the regulated areas. It should be noted
that, as stated in the interim rule of July 5, 1996, the Agency is
developing a compensation plan for the loss in value of 1995-96 crop
season seed. This plan will be published in a future edition of the
Federal Register. A detailed discussion of impacts will be provided at
that time.
7. Loss in Value of Straw
Many growers sell wheat straw to supplement their wheat grain
income. Straw is sold for use at places such as racetracks, highway
shoulders, feed yards, and parks for erosion control and to minimize
muddy conditions. Wheat straw is listed in Karnal bunt regulations as a
regulated article and is prohibited from being moved outside of the
regulated areas. This has prevented many wheat straw producers from
shipping their 1995-96 crop season straw to the intended markets. Some
wheat straw was sold to alternative markets within the regulated areas
for a lower price; other wheat straw was not able to be sold. These
losses are estimated at about $200,000. Compensation for loss in income
due to the restrictions placed on movement of straw is being
considered.
8. Losses Related to Cleaning and Disinfecting Combine Harvesters and
Other Losses
A number of claims have been raised by about 220 combine harvesters
operating within the regulated areas, and those who travel outside of
the regulated areas to harvest crops. These claims are related to the
cleaning and disinfecting requirements of combine harvesters, which
particularly affected custom harvesters who contracted with the Agency
to do pre-harvest sampling for Karnal bunt. These claims involved: (1)
Excess damage to machines caused by treatment protocols; (2) cleaning
and disinfecting costs; (3) down time and extra operational costs
associated with testing of samples and treatment protocols; and (4)
loss of business as wheat producers inside and outside the regulated
areas switched to custom harvesters that were not associated with the
1996 wheat harvest in the regulated areas. The most serious of these
claims that can be directly attributed to the regulations involves the
excess wear and tear due to the subsequent corrosion on combines that
underwent extensive cleaning and disinfecting treatments according to
protocol. The loss in value of these combines is estimated at $2
million. Compensation for this loss is being considered.
Other economic losses that have been claimed by affected
individuals in the regulated areas but that are difficult to quantify
include additional handling, storage, and finance charges incurred by
handlers of nonpropagative wheat and various other claims by producers
and handlers in the regulated areas such as cleaning and disinfecting
railcars and trucks and buying wheat from alternate sources to fulfill
contracts that originally stipulated wheat produced from the regulated
area. The Agency continues to gather information for formulating
compensation for seed producers, and other issues relating to
compensation are also under consideration.
In sum, the impact on market value of the 1996 Federal quarantine
in the southwestern United States is estimated to be $44 million.
Roughly $35 million in compensation has been provided to cover for
these losses (Table 3). The final amount of compensation for grain
testing negative and for millfeed treatment will depend on the
marketing distribution of the 1996 wheat crop and will be
proportionately lower the greater the amount of wheat that is exported.
It is difficult to determine whether some of these losses would
have been incurred in the absence of regulation. Indeed, it could be
argued that losses without Federal intervention would have been higher
in the regulated areas, particularly in the long run, as the market
imposes its own restrictions by refusing to accept shipments due to the
inability to assess risk. Compensation payments for loss in value,
while not accounting for every loss or expense due to the disease or
regulation, limited the adverse impact on wheat sector income of
affected individuals within the regulated areas.
Table 3.--Estimated Loss in Value Due to Karnal Bunt Regulations, and
Compensation to Date, 1995-96 Crop Year
[IN MILLIONS OF DOLLARS]
------------------------------------------------------------------------
Estimated
Action loss in Compensation
value to date
------------------------------------------------------------------------
1. Plowdown of NM and TX fields planted with
infected seed............................... $1.2 $1.2
2. Cost of sanitizing storage facilities..... 0.3 0.1
3. KB-positive grain diverted to animal feed
market...................................... 4.2 4.2
4. KB-negative grain that experienced loss in
value....................................... 28.0 28.0
5. Millfeed treatment of KB-negative grain... 1.6 1.6
6. Loss in value of seed..................... 6.0 (\1\)
7. Loss in value of straw.................... 0.2 (\1\)
8. Loss related to cleaning and disinfecting
of combine harvesters....................... 2.0 (\1\)
--------------------------
[[Page 15815]]
Total.................................. 44.0 35.0
------------------------------------------------------------------------
Pending.
V. Conditions for Wheat Production and Utilization in a Regulated Area
for the 1996-97 Crop Year
Based upon survey data identifying the location of fields that have
tested positive, the regulations in effect during the 1996 harvest were
modified in 1997 for some areas within the initial quarantine. The
final rule published on October 4, 1996, set forth criteria by which
fields in regulated areas would be classified into two risk classes in
the 1996-97 crop year. The effects of being classified in a particular
category are outlined in Table 4.
In each regulated area, all or a portion of that regulated area is
designated as either being a restricted area or a surveillance area.
There are two differences between being designated a restricted area
and a surveillance area. First, grain from a restricted area that tests
negative for Karnal bunt may move under a limited permit from the
regulated area to designated facilities under safeguard and sanitation
conditions; grain from a surveillance area that tests negative for
Karnal bunt may move under a certificate to any destination without
restriction. Additionally, millfeed from grain produced in a restricted
area is required to be treated, whereas millfeed from grain produced in
a surveillance area is not required to be treated.
Each restricted and surveillance area is further divided into
individual fields within the respective areas. Each field within a
restricted area will fall into one of three categories: (1) A field in
which preharvest samples tested positive; (2) a field planted with
known contaminated seed in 1995; or (3) any other field within the
restricted area. In a surveillance area, each field will be designated
as (1) a field planted with known contaminated seed in 1995; or (2) any
other field in the surveillance area. In a restricted area, in fields
in which preharvest samples tested positive, no Karnal bunt host crops
may be planted in the 1996-97 crop season. The same prohibition applies
to fields in both restricted areas and surveillance areas which were
planted with known contaminated seed in 1995. Also, as noted above,
millfeed from grain from a field in the ``any other field'' category in
a restricted area must be treated; millfeed from a surveillance area
need not be treated.
Table 4.--Conditions for Wheat Production and Utilization in a Regulated Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
Disposition of
Definition Host planting Seed Decontamination Millfeed Survey grain
--------------------------------------------------------------------------------------------------------------------------------------------------------
Restricted Area Category:
1. Fields in which No host planting N/A............... Equipment movement N/A............... N/A............... N/A.
preharvest samples tested in 1996-97 crop outside regulated
positive. season. area: cleaned and
sanitized.
Movement within:
no restrictions.
2. Fields planted with known No host planting N/A............... Equipment movement N/A............... N/A............... N/A.
contaminated seed in 1995. in 1996-97 crop outside regulated
season. area: cleaned and
sanitized.
Movement within:
no restrictions.
3. All other fields within No restrictions... Tested and, if Equipment movement Required, unless Double tested: Movement of grain
restricted area. from regulated outside regulated destination State Sampled in field testing positive
area, treated area: cleaned and controls at harvest; restricted; grain
prior to planting sanitized. disposition/ composite sample testing negative
only within Movement within: movement. prior to Movement. may move under
regulated area. no restrictions. limited permit to
designated
facilities under
safeguard and
sanitation
conditions.
Surveillance Area:
4. Fields planted with known No host planting N/A............... Equipment movement N/A............... N/A............... N/A.
contaminated seed in 1995. in 1996-97 crop outside regulated
season. area: cleaned and
sanitized.
Movement within:
no restrictions.
[[Page 15816]]
5. All other fields located No restrictions... Tested and, if Equipment movement Not required...... Double tested: Movement of grain
in definable area where no from regulated outside regulated Sampled in field testing positive
fields in risk level 1 are area, treated area: cleaned and at harvest; restricted; grain
located.. prior to planting sanitized. composite sample testing negative
only within Movement within: prior to movement. may move under
regulated area. no restrictions. certificate.
Safeguard and
sanitation of
railcars not
required.
--------------------------------------------------------------------------------------------------------------------------------------------------------
The number of wheat acres that is estimated to fall into the
various risk categories in the 1996-97 crop season is presented in
Table 5. The amount of wheat acres in the regulated area is estimated
to be greatly reduced from the previous years largely due to factors
affecting the wheat industry as a whole (in particular, the projected
decline in export demand for U.S. wheat). Wheat acres are estimated to
decline by 36 percent in the regulated areas of Arizona, an average of
24 percent in the three affected counties of California, and 20 percent
each in New Mexico and Texas.
Table 5.--Projected 1997 Regulated Wheat Acreage, by Risk Categories \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
California
---------------------------------------
Risk category Arizona Imperial Bard/ New Mexico Texas Total acres
Valley Winterhaven Blythe
--------------------------------------------------------------------------------------------------------------------------------------------------------
(6) Acres
Restricted Area.............................................. 9,200 ........... 40 450 3,239 494 13,423
Surveillance Area............................................ 105,800 90,000 3,960 4,050 4,128 3,906 211,844
------------------------------------------------------------------------------------------
Total 1997 Regulated Area.............................. 115,000 90,000 4,000 4,500 7,367 4,400 225,267
------------------------------------------------------------------------------------------
1996 Regulated Area.......................................... 180,000 106,592 8,909 14,000 9,209 5,494 324,204
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimates obtained from the Karnal Bunt Task Force, Arizona.
Overall, the impact of the Karnal bunt restrictions is likely to be
lessened for many growers and other individuals, as a large portion of
the regulated acres falls into the less restrictive surveillance
category. Wheat production can still occur on fields in the regulated
areas (in restricted category 3), on land which was not previously
planted with wheat in 1996. Growers who choose to plant wheat in these
areas are minimally restricted by regulations as grain that tests
negative for Karnal bunt can move under limited permit to designated
facilities.
Approximately 10,000 acres in risk categories 1 and 4 are
prohibited from planting wheat. The value of wheat production that
could have been harvested from these fields, calculated at an average
price for durum wheat before the disease outbreak of $5.50 per bushel,
would have been less than $6 million.3 The impact on growers with
fields in these categories, however, is uncertain. While the
restrictions deny income that could be earned from wheat, they do not
preclude the planting of other non-host crops, such as barley, alfalfa,
cotton, and vegetables. In many of the infected areas, especially on
irrigated operations, wheat is either double-cropped or grown on
rotation with other non-host crops. The impact on producers in these
risk categories would therefore be minimized with rotation. Barley
would likely be grown on these fields: county crop budget data from
Arizona indicate that, except for barley, the historical net returns
obtained from wheat production are actually lower than the net returns
for all other crops.4
---------------------------------------------------------------------------
\3\ The estimate is based on an average yield of 100 bushels per
acre for durum wheat produced in the desert Southwest.
\4\ Other rotational crops include alfalfa hay, sudan hay,
upland and pima cotton, safflower, and lettuce.
---------------------------------------------------------------------------
The required millfeed treatment would also impose additional costs
on the production of grain from the regulated areas. It is estimated
that about 3.4 million bushels of grain would be subject to this
restriction at a cost of roughly $1 million.5
---------------------------------------------------------------------------
\5\ This estimate is based on a heat treatment cost of $35 per
ton.
---------------------------------------------------------------------------
It should be noted that changes in the compensation plan to
remunerate for certain losses are being developed and will be published
in a future edition of the Federal Register. Information received
through public comments and other forums are invaluable in refining
regulatory policies regarding Karnal bunt. With no prior experience in
regulating the disease, the improvement of the Karnal bunt program
requires ongoing input from the public. This process will enable the
Agency to better protect the wheat growing areas of the United States,
while causing the least possible disruption to the affected areas.
VI. Consideration of Alternatives to the Rule
A number of alternatives to the quarantine were considered by the
Agency in controlling the disease outbreak. One alternative was to
limit the scope of the 1996 quarantine by regulating only fields that
tested positive for Karnal bunt. This option was rejected for the
following reasons. Karnal bunt was originally detected in many
certified wheat seed lots produced in Arizona, as well as in some grain
in storage from a previous harvest. The information available to the
Agency indicated that seed from the infected lots were planted widely
in parts of Arizona and California, and in a few counties in Texas and
New Mexico. This infected seed could not be traced to specific fields
because the process of seed certification in Arizona allows seed from
different fields to be commingled
[[Page 15817]]
in making a seed lot. Because Karnal bunt spores can remain viable in
soil for as long as 4 to 5 years, and because wheat is planted in
rotation in the Southwest, the actual infestation would not be apparent
until fields came into rotation with wheat. Moreover, the detection of
Karnal bunt spores in some grain in storage from the 1993 harvest
indicated that the disease had been in present for at least several
years. Given that there is currently no feasible soil test, the
disease, in this situation, could only be detected as wheat is planted.
The unknown extent of the infestation in Arizona and California
necessitated broader control actions than those offered by quarantining
infected fields. In New Mexico and Texas, where wheat acreage planted
with suspect seed was limited and the wheat crop was immature,
regulatory actions were directed at plow-down of those fields.
Another alternative available to the Agency would be not to
quarantine. This alternative was rejected as it could not be justified
given the risk of spread of Karnal bunt to uninfected areas and the
potential for significant losses in the wheat export market. The
quarantine actions to prevent disease spread serve to instill domestic
and foreign consumer confidence in the integrity of U.S. wheat. The
1995-96 Karnal bunt program provided pre-harvest sampling of all wheat
fields; compensation for losses as a result of Agency actions; and
remuneration to offset part of the additional costs in handling and
treating wheat produced in the regulated area (through a millfeed cost
offset and a cost-share facility clean-up program with grain handlers).
Without Federal intervention, it is conceivable that farm income of
wheat producers both within the affected area, and outside the
regulated area, would have been more negatively impacted.
When the treatment protocols for regulated articles were
established, few options to the requirements were made available to
affected wheat growers, handlers, and combine owners. These specific
protocols were based on the best scientific information available on
disease management in other countries affected by Karnal bunt.
Furthermore, the decision to require millfeed treatment, as with other
treatment requirements, was based on risk assessments that were
conducted to determine the acceptable level of risk of the various
modes of transportation of the disease. Compensation is thus being
considered to offset unanticipated losses and damages caused by the
regulatory requirements.
VII. Characteristics of Small Entities Within the Regulated Area
The Regulatory Flexibility Act requires that agencies assess the
impact of regulations on small businesses, organizations, and
governments. A majority of the firms in the affected area can be
classified as small based on criteria established by the Small Business
Administration (SBA). Much of the analysis on impacts discussed in the
previous sections are therefore applicable to these firms. Unless
otherwise noted, the SBA's characterization of a small business for the
categories of interest in this analysis is a firm that employs at most
500 employees, or has sales of $5 million or less. The SBA defines a
``small'' wheat producer as having sales of less than $500,000.
In addition to private businesses that produce and handle grain in
the regulated area, there were a number of other parties, such as
governmental and quasi-governmental entities and industry
organizations, that were also affected by the quarantine. For example,
farm organizations that represented producer interests were impacted by
the reduced activity due to a change in farm receipts. Local
governments may also have experienced a change in the business activity
level, and thus tax receipts, due to lower farmer spending. Seed
certification boards are expected to see lower levels of seed
certification as the demand for seed is reduced. State and county
departments of agriculture could also have experienced increased
financial burdens as regulatory responsibilities related to Karnal bunt
surveillance and protocol monitoring increased on the local level. The
magnitude of these effects, however, are not quantifiable. The
information below describes the number of firms affected and provides
insight into the impact on small entities due to Federal regulations.
Number of Producers and Acreage in Regulated Area (RA)
There were 5,657 farms in the counties of the RA as reported in
1992 with over 1,501,089 acres.6 About \1/3\ of the reported total
acreage was irrigated. There were 598 wheat growers in the counties of
the RA: 236 in California (out of 2,236 wheat growers in the State);
310 in Arizona; 40 in New Mexico (out of 892 in the State); and 12 in
Texas (out of 14,877 in the State). Total wheat acreage reported in
these counties in 1992 was 176,753 acres producing 13.3 million
bushels. Wheat acreage represented less than 12 percent of total farm
acreage.
---------------------------------------------------------------------------
6 Source: 1992 Census of Agriculture.
---------------------------------------------------------------------------
Characteristics of Producers in the RA
Similar cotton and vegetable production data suggest that the
primary source of income in these areas is derived from cotton and
vegetable production. Cotton acreage in the counties of the RA was
reported at 496,284 acres on 1,301 farms in 1992. Vegetables grown for
harvest was reported on 509 farms with 202,694 acres. The acreage and
number of producers growing wheat, cotton, and other crops vary from
year to year depending on rotations, price and weather expectations,
and other factors. Wheat is often a rotation crop in cotton and
vegetable crop production providing a more stable income while
``resting the soil'' and providing weed control. Common rotations call
for wheat in one year in three. Data for the Pacific region indicate
that the previous crop on 57 percent of the wheat acres in 1989 had
crops other than wheat.7 Forty-percent had wheat, while 2 percent
had corn and 1 percent had sorghum as the previous crop.
---------------------------------------------------------------------------
7 Source: Economic Research Service, Characteristics and
Production Costs of U.S. Wheat Farms, 1989, October, 1993.
---------------------------------------------------------------------------
Of the total 598 wheat farms in the counties of the RA, 577 (or
96.5 percent) were growing wheat on irrigated fields. Of the 598 wheat
producers in the RA, 86 percent of producers harvested 499 acres or
less of wheat. These 514 wheat producers are assumed to be classified
in the SBA business classification as being ``small entities.'' It is
assumed that the other 84 growers are excluded from this business
classification. Wheat growers in the RA typically lack on-farm storage.
Acreage Affected
By 1995/96, the amount of planted wheat acreage in the counties of
interest had increased; the total number of growers in the RA was
reported at 882 growers (455 in Arizona, 354 in California, 72 in New
Mexico, and 1 in Texas), with wheat acreage totaling over 300,000
acres. Approximately 145 growers were found to have grown KB-positive
wheat, and 73 growers were issued plow-down orders. As a percentage of
the total in the four States of the RA, quarantine actions affected
less than 3.3 percent of producers, 3.75 percent of wheat acreage, but
almost 8 percent of wheat production.
Based on the SBA's size definition, 86 percent of producers (514
out of 598) are assumed to be classified within the small business
category. Thus, the major
[[Page 15818]]
part of any impact from Karnal bunt or Karnal bunt regulations is
assumed to fall on these individuals.
Harvesters
Harvesting equipment is expensive and specialized for many
agricultural crops. With a cost of over $130,000 for a new combine and
only a limited time of use, many wheat growers in the regulated area
depend on custom operators or ``custom cutters'' to harvest their wheat
crop. It is estimated that about 390 combines were needed to harvest
the 1995/96 wheat crop in the regulated area, with much of it being
supplied by custom cutters. There were probably 20 to 30 firms engaged
in this business activity (not including individuals who may have done
some custom cutting of neighboring properties). All firms are assumed
to be classified in the SBA classification as being a ``small
business.'' It is assumed that only a few of these firms, namely those
that were subjected to extensive cleaning and disinfection if they had
harvested many KB-positive fields, suffered losses to their machinery
as a result of quarantine actions. Additional losses occurred because
some harvesters were not allowed to bring their equipment to certain
States.
Wheat Seed Dealers
Wheat seed dealers sell seed to growers to produce their crop for
milling. They also represent seed wheat research firms in that they
sell wheat seed that is grown to be used as seed for the next growing
season or for export. This wheat seed is called private variety seed as
it was developed by a private firm and has a plant variety protection
``patent'' on that variety. There are approximately 25 to 30 seed
marketing firms in the RA; some specialize in acquiring seed production
from the RA for export. Probably 3 to 4 seed wheat dealers have over 80
percent of the seed business in the RA. These firms were affected by
quarantine actions, i.e., by the restriction on selling or transferring
seed out of the RA. Some of these firms derive their income from other
enterprises such as vegetable production, rather than solely from wheat
production and marketing. The number of firms that can be classified as
``small'' cannot be determined due to the proprietary nature of sales
records.
Seed Wheat Research Firms
Seed wheat research firms take the risk and have the expertise to
develop new wheat varieties for future use. Many develop a relationship
with a seed wheat dealer (who is then called an ``associate'') to
market the developers' specific varieties. Seed wheat research firms
use seed production in the RA as a basis for seed to be used in
climates similar to the RA, e.g., the Mediterranean, or use production
in the RA as seed increases'' to be used in Northern climates the
following spring. There are approximately 5 to 9 commercial seed wheat
research firms engaged in the RA, with perhaps 3 to 4 major firms
conducting over 70 percent of research activity. Also, there are small
firms in the RA that specialize in ``seed increases'' for varieties
being developed by universities, private companies, and foreign
countries. The number of firms that can be classified as ``small''
according to SBA standards cannot be determined due to the proprietary
nature of sales records.
Custom Haulers
There are approximately 130 to 140 individuals in the RA that haul
grain from fields directly after harvest to storage and load-out
locations (referred to as grain handlers). Some of these individuals
also haul farm machinery from field to field to prepare or harvest
wheat and other crops. The number of firms that can be categorized as a
``small business'' is unknown.
Grain Handlers
Grain handlers store and unload nonpropagative wheat received from
growers. Wheat is received by trucks, pickups, and farm tractors
pulling either grain buggies or farm wagons. Ownership of the wheat is
usually transferred from the grower to the grain handler. It is
estimated that there are 92 such assembly sites in the RA (50 in
Arizona, 33 in California, 8 in New Mexico, and 1 in Texas). Off-farm
storage capacities are only available on a State-wide basis: 8
Arizona (22.3 million bushels), California (98.04 million bushels), New
Mexico (15.63 million bushels); and Texas (840.2 million bushels). The
SBA defines a small grain elevator as one that employs fewer than 100
employees. It is estimated that nearly all of the elevators in the
regulated areas can be classified as ``small.''
---------------------------------------------------------------------------
8 Source: Grain and Milling Annual 1996. Off-farm
capacities may also reflect storage capacities of millers.
---------------------------------------------------------------------------
Wheat Millers
The number of wheat millers for the four States are: 9
California (12, with 1 processing durum); Arizona (2, with 1 processing
durum); New Mexico (none); Texas (7, with 1 processing rye). There were
24 millers in and around the RA that entered into limited permits with
APHIS: 2 in Arizona, 1 in New Mexico, and 21 in California. Limited
permit data indicate that millers in the following States were also
affected: Minnesota, Oregon, Virginia, Missouri, and Wisconsin. The
size of these operations could not be estimated in terms of their SBA
classification as ``small'' or ``large'' businesses. However, these
firms are likely to be classified as a ``small'' business.
---------------------------------------------------------------------------
9 See footnote 8.
---------------------------------------------------------------------------
Prepared Feed Manufacturers
The number of animal feed manufacturers and/or millfeed processors
in the Riverside-San Bernardino primary metropolitan statistical area
(PMSA) is 15, and there are 11 in Arizona.10 Only 12 of these 26
establishments employed over 20 employees. The Riverside-San Bernardino
PMSA data indicates that the 15 establishments in that area
collectively employed a total of 600 workers with a $20.5 million
payroll (8 establishments of the 15 employed more than 20 employees).
Based on these data, it is estimated that these larger firms employ
about 62 workers on average and smaller firms had 15 workers per firm.
Similar data for Arizona show that 4 of the 11 establishments in that
State employed more than 20 employees. Given these scant data and SBA's
definition of a ``small business'' in this group (SIC 2048)--i.e., an
establishment with fewer than 500 employees--it is assumed that all
firms fall in SBA's ``small'' business category.
---------------------------------------------------------------------------
10 Source: U.S. Department of Commerce, Economics and
Statistics Administration Bureau, Bureau of Census, various State
reports on California and Arizona, Manufacturers--Geographic Area
Series, 1992.
---------------------------------------------------------------------------
Feedlots
It is estimated that about 24 feedlots in the RA (presumably
feeding beef cattle) were affected by the regulations. They were found
in Arizona (16), New Mexico (3), and California (5). SBA's definition
of a ``small business'' in this group (SIC 0211) is an establishment
with sales less than $1.5 million. No sales data on these firms were
available, so it is not possible to estimate the number of firms that
do not fall in SBA's small business category.
Based on the above information, we have concluded that the majority
of the impact of Karnal bunt and subsequent regulations falls on small
businesses. It is conceivable, however, that without Federal
intervention, individual States and importing countries would place
their own, perhaps more severe, restrictions on wheat shipments from
the regulated areas. The 1996 Karnal
[[Page 15819]]
bunt program provided pre-harvest sampling of fields and other measures
to ensure the quality of wheat from the regulated areas. The use of
limited permits for uninfected wheat further facilitated the marketing
flow of wheat, thereby enabling the wheat industry within the regulated
areas to be preserved.
VIII. Summary and Conclusions
The imposition of quarantine and emergency actions against Karnal
bunt was a necessary, short-run measure taken to prevent the artificial
spread of the disease to other wheat-producing areas in the United
States. The establishment of Karnal bunt would have had serious adverse
impact on the wheat export market, as over half of U.S. wheat exports
are to countries that maintain restrictions against imports from
countries where Karnal bunt is known to occur. In the absence of
regulatory action, it is conceivable that farm income both within and
outside the regulated areas could have been further jeopardized.
Given the regulatory objective of disease eradication, the
quarantine measures to control a new disease outbreak such as Karnal
bunt is necessarily broad due to the lack of information on the extent
of the outbreak. These actions, enacted after production and marketing
decisions were in place, undoubtedly had an adverse impact on growers
and other affected individuals; many were likely unable to recover
unexpected costs. The loss in market value due to the quarantine is
estimated at $44 million. The majority of affected individuals and
firms can be classified as ``small'' based on criteria established by
the Small Business Administration.
In order to reduce the economic impact of the quarantine on
affected wheat growers and other individuals, compensation was provided
to mitigate certain losses and expenses. The payment of compensation is
in recognition of the fact that while a large portion of the benefits
of regulation accrue to others outside the regulated area, the
regulatory burden falls disproportionately on a small segment of the
industry. Indeed, it could be argued that without compensation, the
regulatory actions would not have been economically justified, as the
costs of disease control that are borne now could have a greater weight
than benefits that are received in the future.
Based upon our analysis, we have concluded that our quarantine
measures were appropriate and justifiable when compared with the
magnitude of the benefits achieved. Even a 10-percent reduction in
wheat exports would have a significant effect on wheat sector income.
It is estimated that a 10-percent decrease in U.S. wheat exports would
cause a decline in wheat sector income of over $500 million.
As of March 14, 1996, compensation for the 1995-96 crop year is
estimated at $35 million. While not accounting for every loss or
expense due to the disease or regulation, compensation for loss in
value lessened the adverse impact on wheat sector income within the
regulated areas. Remunerations for other losses are also being
developed.
As more information is obtained on disease prevalence, the number
of regulated acres are reduced and restrictions for the 1996-97 crop
season are modified to be commensurate with the level of risk. The
impact on those that are affected by regulation would also likely be
reduced; unlike in 1996, the 1997 restrictions on wheat planting are
known in advance and can, therefore, be taken into account when
cropping decisions are made.
Wheat acreage in the regulated areas is projected to decline from
1995-96 levels, largely due to decreased demand for U.S. wheat exports.
Less than 5 percent of the acres in the regulated areas is prohibited
from planting wheat. The impact on farm income due to this prohibition
is uncertain, as wheat is normally rotated with other crops. Overall,
the impact of the Karnal bunt restrictions on wheat production in the
regulated areas is likely to be small, as wheat can still be grown on
ample, available land that was not planted with wheat in 1996.
Done in Washington, DC, this 31st day of March 1997.
Terry L. Medley,
Administrator, Animal and Plant Health Inspection Service.
[FR Doc. 97-8544 Filed 3-31-97; 3:19 pm]
BILLING CODE 3410-34-P
