[Federal Register Volume 62, Number 144 (Monday, July 28, 1997)]
[Proposed Rules]
[Pages 40312-40315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19798]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 989
[Docket No. FV-97-989-2 PR]
Raisins Produced From Grapes Grown in California; Suspension of
Provisions Concerning Certain Offers of Reserve Raisins to Handlers for
Free Use
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
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SUMMARY: This proposal invites comments on the suspension of language
in provisions of the raisin marketing order concerning certain offers
of reserve raisins to handlers for free use. The marketing order
regulates the handling of raisins produced from grapes grown in
California, and is administered locally by the Raisin Administrative
Committee (Committee). This rule would indefinitely suspend certain
language to provide the Committee more flexibility in meeting its
marketing needs. This proposal was unanimously recommended by the
Committee.
DATES: Comments must be received by August 27, 1997.
ADDRESSES: Interested persons are invited to submit written comments
concerning this proposal. Comments must be sent in triplicate to the
Docket Clerk, Fruit and Vegetable Division, AMS, USDA, room 2525-S,
P.O. Box 96456, Washington, DC 20090-6456, Fax # (202) 720-5698. All
comments should reference the docket number and the date and page
number of this issue
[[Page 40313]]
of the Federal Register and will be made available for public
inspection in the Office of the Docket Clerk during regular business
hours.
FOR FURTHER INFORMATION CONTACT: Maureen Pello, California Marketing
Field Office, Marketing Order Administration Branch, F&V, AMS, USDA,
2202 Monterey Street, suite 102B, Fresno, California 93721; telephone:
(209) 487-5901, Fax # (209) 487-5906; or Mark A. Slupek, Marketing
Specialist, Marketing Order Administration Branch, F&V, AMS, USDA, room
2536-S, P.O. Box 96456, Washington, DC 20090-6456; telephone: (202)
205-2830, Fax # (202) 720-5698. Small businesses may request
information on compliance with this regulation by contacting: Jay
Guerber, Marketing Order Administration Branch, Fruit and Vegetable
Division, AMS, USDA, P.O. Box 96456, room 2525-S, Washington, DC 20090-
6456; telephone (202) 720-2491; Fax # (202) 720-5698.
SUPPLEMENTARY INFORMATION: This proposal is issued under Marketing
Agreement and Order No. 989 (7 CFR part 989), both as amended,
regulating the handling of raisins produced in California, hereinafter
referred to as the ``order.'' The marketing agreement and order are
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 proposal has been reviewed under Executive Order 12988, Civil
Justice Reform. This rule is not intended to have retroactive effect.
This proposal will not preempt any State or local laws, regulations, or
policies, unless they present an irreconcilable conflict with this
rule.
The Act provides that administrative proceedings must be exhausted
before parties may file suit in court. Under section 608c(15)(A) of the
Act, any handler subject to an order may file with the Secretary a
petition stating that the order, any provision of the order, or any
obligation imposed in connection with the order is not in accordance
with law and request a modification of the order or to be exempted
therefrom. A handler is afforded the opportunity for a hearing on the
petition. After the hearing the Secretary would rule on the petition.
The Act provides that the district court of the United States in any
district in which the handler is an inhabitant, or has his or her
principal place of business, has jurisdiction to review the Secretary's
ruling on the petition, provided an action is filed not later than 20
days after date of the entry of the ruling.
This proposal invites comments on the indefinite suspension of
language in sections 989.54(g) and 989.67(j) of the order. The proposed
suspension concerns certain offers of reserve raisins to handlers for
free use. The suspension was unanimously recommended by the Committee.
Section 989.54(g) of the order describes two annual offers of
reserve raisins to handlers for free use for each varietal type for
which preliminary volume control percentages have been computed and
announced. Each of these offers consists of 10 percent of the prior
year's shipments of free raisins and reserve raisins sold for free use.
These offers are known to the industry as the ``10 plus 10'' offers.
The order currently mandates that the 10 plus 10 offers must be made
simultaneously on or before November 15 of the crop year. The order
defines the crop year for raisins as the 12-month period beginning with
August 1 of any year and ending with July 31 of the following year.
Section 989.54(a) establishes that the trade demand for raisins
shall be 90 percent of the prior crop year's shipments with adjustments
for inventory, meaning that the trade demand excludes 10 percent of the
prior year's shipments. Preliminary volume control percentages, which
are computed and announced by October 5 of each crop year, make up to
85 percent of the trade demand available to handlers for disposal in
any marketing channel. The final free percentage, which is recommended
by the Committee by February 15 of each crop year, makes the remainder
of the trade demand available to handlers.
Standard raisins are raisins which meet the minimum grade and
condition standards for natural condition raisins. Handlers are
required to place the reserve percentage of their standard raisin
acquisitions in the reserve pool. One of the 10 plus 10 offers makes
available, from the reserve pool, the 10 percent of the prior year's
shipments which the final free percentage does not make available. This
offer, then, equates the current year's supply with the prior year's
shipments. Because the free percentage and this 10 plus 10 offer only
make available the tonnage shipped during the prior year (with the
appropriate inventory adjustments), the other 10+10 offer, intended for
market expansion, makes an additional 10 percent available to handlers
from the reserve pool. Acceptance of the 10 plus 10 offers is
voluntary; handlers are not required to purchase any reserve raisins.
The Committee believes that changes in the raisin industry,
particularly changes to export programs administered under the
marketing order, have made the 10 plus 10 offers a more important
source of raisins for many handlers. The Committee's export programs in
the early 1990's allowed handlers who exported California raisins to
purchase, at a reduced rate, reserve raisins for free use. This
effectively blended down the cost of the raisins which were exported,
allowing handlers to be price competitive in export markets, which
generally feature lower prices than the domestic market. One effect of
this program was that handlers would continuously purchase reserve
raisins for free use throughout the crop year. Handlers who knew they
would be exporting raisins did not need to purchase enough raisins to
meet their needs for the entire year early in the season.
The current export program, which is in its second year of
operation, offers cash, rather than reserve raisins, to exporting
handlers. This has caused handlers to make larger purchases of 10 plus
10 raisins to replace the raisins formerly acquired through the export
program. When handlers make large 10 plus 10 purchases early in the
season, rather than small reserve purchases throughout the season,
however, they are committing themselves to raisins before they have a
firm estimate of their needs for the year. Handlers are forced to guess
at the demand for the remainder of the crop year. If this guess is too
high, prices will fall and there may be excess free tonnage inventory
at the end of the crop year, resulting in market instability and a
lower free percentage for the following year. If the guess is too low,
market needs may not be met and the Committee may be forced to dispose
of the excess reserve raisins in low income outlets.
Most raisin deliveries, and most of the associated costs, are
concentrated between September and November, so handlers must establish
large lines of credit at this time during each crop year. Because the
Committee is required to make the 10 plus 10 offers concurrently on or
before November 15 of the crop year, handlers must arrange for
additional credit to make their 10 plus 10 purchases. The Committee
believes that the inflexibility of the November 15 deadline and the
requirement of simultaneous offers creates unnecessary financial stress
on handlers.
Section 987.67(j) of the order lists other circumstances, including
national emergency, crop failure, changing
[[Page 40314]]
economic or marketing conditions, fire or other disasters, or to
supplement an inadequate inventory to carryover to the next crop year,
under which the Committee can sell reserve raisins for free use. The
Committee also can offer reserve raisins for free use if raisin
shipments during the first 10 months of the current crop year exceed
105 percent of shipments during the comparable period of the prior crop
year. This type of offer is limited to the amount exceeding 105 percent
of the prior year's shipments. Thus, if the market for raisins expands
rapidly during any crop year, this provision allows the Committee to
make more raisins available to handlers to supply the increased market
needs. The 105 percent limit was established to safeguard against
depressing raisin prices by expanding the free supply by too large a
quantity. Like the 10 plus 10 offers, handler acceptance of this type
of offer is voluntary.
During the past two seasons, the Committee has reduced its
desirable carryout inventory level by about 20 percent, meaning that
the free percentage provides for fewer raisins to remain at the end of
a crop year for use in the following crop year. Reduction of the
desirable carryout, coupled with the elimination of the export program
which offered reserve raisins for free use, has increased the
likelihood that the raisin industry might have an inadequate supply of
raisins late in a crop year which featured an increase in shipments. If
handlers, when making acquisition decisions early in the season,
underestimate their needs for the crop year, they could be forced to
either lose current sales or ship raisins which were intended to be
carried over, which could prevent the industry from meeting its market
needs early in the next crop year.
As an example, if the raisin industry were to experience 6 percent
growth over the first 10 months of a given crop year, the Committee
could offer reserve raisins for free use up to 1 percent of the
previous year's shipments. With the tightening of the desirable
carryout and the absence of reserve raisins offered under the export
program, the industry could face a short supply of free raisins while
an adequate supply of reserve raisins sat unused.
At its meeting on April 10, 1997, the Committee recommended
suspending language in both Secs. 989.54(g) and 989.67(j). In the
former, the suspension would eliminate both the simultaneous
requirement and the November 15 deadline for the 10 plus 10 offers. In
the latter, the 105 percent requirement would be removed from the
required level of shipments and the size of the reserve offer for free
use.
Elimination of the simultaneous requirement and the November 15
deadline from the first sentence of Sec. 989.54(g) would leave the
following sentence, ``the Committee shall make two offers of reserve
tonnage to sell to handlers to sell as free tonnage for each varietal
type for which preliminary percentages have been computed and
announced.'' This means that if preliminary percentages have been
established, the Committee would still be required to make two 10 plus
10 offers, but these offers could take place independently at any time
during the crop year.
The Committee expects that these changes would solve some of the
planning and credit problems which handlers currently face. If one or
both of the offers were moved to later in the crop year, handlers would
be able to make better informed acquisition decisions. At the same
time, a change in the offer date would ease the autumn credit burden
for many handlers.
The Committee's proposal to suspend language in Sec. 989.67(j)
would leave the following as one of the circumstances which allows the
Committee to offer reserve tonnage to handlers for free use: ``free
tonnage shipments during the then current crop year exceeding shipments
of a comparable period of the prior crop year: Provided, that, such
sale of reserve tonnage shall be limited to the quantity exceeding
shipments for the first ten months of the prior crop year''. Thus, if
free tonnage shipments were up during the first ten months of a crop
year, the Committee could offer reserve raisins to handlers for free
use in any amount exceeding the prior year's shipments.
Following the earlier example, if the raisin industry were to
experience 6 percent growth over the first ten months of a given crop
year, the Committee could offer reserve raisins for free use up to 6
percent of the previous year's shipments. In fact, if the growth was
only 4 percent, the Committee could offer up to 4 percent of the
previous year's shipments. Under the current provisions, the Committee
could make no offer at 4 percent growth because the year's growth did
not meet the 5 percent threshold. The Committee believes that the
current inflexibility could become problematic in the future,
particularly if the industry was unable to take advantage of a growth
opportunity in what has, in recent years, become a relatively stagnant
market.
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 initial 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 20 handlers of California raisins who are
subject to regulation under the raisin marketing order and
approximately 4,500 producers of raisins in the regulated area. Small
agricultural service firms, which includes handlers, have been defined
by the Small Business Administration (13 CFR 121.601) as those having
annual receipts of less than $5,000,000, and small agricultural
producers are defined as those having annual receipts of less than
$500,000. No more than 8 handlers, and a majority of producers, of
California raisins may be classified as small entities. Twelve of the
20 handlers subject to regulation have annual sales estimated to be at
least $5,000,000, and the remaining 8 handlers have sales less than
$5,000,000, excluding receipts from any other sources.
This proposal would suspend provisions concerning certain offers of
reserve raisins to handlers for free use under Secs. 989.54(g) and
989.67(j) of the raisin marketing order. The current provisions in
Sec. 989.54(g) require that the Committee make two simultaneous offers
of reserve raisins for free use, each equal to 10 percent of the prior
year's free shipments, on or before November 15 of each crop year for
each variety for which preliminary volume control percentages have been
computed and announced. These ``10 plus 10'' offers are intended to
ensure that the establishment of volume control regulations will not
prevent the industry from having enough raisins to meet the prior
year's shipments plus some raisins for market expansion.
Changes in the Committee's export programs have caused many
handlers to greatly increase their 10 plus 10 purchases. During the 5
years prior to the change to the export programs, handler purchases of
raisins from 10 plus 10 offers averaged 10,355 tons. In the 2 seasons
since the program was modified, the purchases increased to an average
of 61,033 tons, a 489 percent increase. The requirement that the offers
be made simultaneously on or before
[[Page 40315]]
November 15 of each crop year does not allow the Committee the
flexibility that it now believes is necessary for handlers to meet
their market needs. Because these offers must take place so early in
the season, handlers have to guess at the level of raisins they will
need for the year.
Raisin handlers, because most raisin deliveries to handlers are
concentrated between September and November, must establish credit
lines totaling between $250-270 million each autumn. Because of the
increase in 10 plus 10 purchases, handlers have had to establish an
additional $75-80 million in credit during their most financially
burdened period of the year. The Committee believes that the
inflexibility of the November 15 deadline and the requirement of
simultaneous offers creates unnecessary financial stress on handlers,
and that the proposed suspension would alleviate that stress and allow
the handlers to better plan to meet their market needs.
Section 989.67(j) of the order authorizes the Committee to offer
reserve raisins for free use if raisin shipments during the first 10
months of the current crop year exceed shipments during the comparable
period of the prior crop year. Thus, if the market for raisins expands
rapidly during any crop year, this provision allows the Committee to
make more raisins available to handlers to supply the increased market
needs. Any such offer is limited, however, to the amount of raisins
exceeding 105 percent of the prior year's shipments.
As described above, handlers are now making their acquisition
decisions earlier in the season than in previous years. In addition,
the Committee has tightened its supply situation during the last 2
seasons by reducing its desirable inventory level and eliminating the
feature of its export program which made reserve tonnage available to
handlers for free use. The Committee believes that these factors leave
the industry with little room for error; if handlers underestimate the
tonnage that is needed to meet the market needs, there are too few
avenues for acquiring raisins for free use later in the season. In a
growth year, a poor estimate could result in customers with unmet
needs.
The earlier example discussed years in which the industry
experienced 4 and 6 percent growth, and that the Committee now believes
that the inflexibility of Sec. 989.67(j) could prevent the industry
from taking advantage of growth opportunities in what has become a
relatively stagnant market. According to the Committee's 1996-97
marketing policy, during the last 10 crop years free shipments have
ranged between 290,646 (in 1986-87) and 338,881 tons (1990-91). The
most recent complete crop year's shipments (1995-96) were the lowest,
315,170 tons, since 1986-87. The Committee calculates that the loss of
just 1 percent of annual shipments due to the inability to supply the
late season market would cost about $3 million in grower revenue.
The Committee also considered the following situation. If free
shipments during 10 months of a crop year were 275,000 tons, and
shipments grew by 4 percent (11,000 tons) during the same time period
during the following crop year, the current provision would allow for
no reserve offer due to growth. Under the proposed suspension, however,
the Committee could offer up to 11,000 tons of reserve raisins for free
use. Assuming a profit to handlers of 1 cent per pound, the Committee
calculates that operating under the current provision would cost
handlers $220,000 in profit and growers $11 million in revenue. The
benefits generated by this rule are not expected to be
disproportionately greater or less for small handlers or producers than
for large entities.
The Committee discussed alternatives to this change, including not
suspending any language in either section of the order. Suspending the
provisions discussed herein provides the Committee with flexibility,
including the option of operating exactly as it does now. If the
Committee were to find any change was not beneficial, the suspension
would not prevent the Committee from returning to its current
procedures for the next year. Leaving the sections as they currently
stand, however, offers the Committee no marketing flexibility. The
Committee also recognized that reserve raisins can be offered for free
use to supplement an inadequate carryover inventory, but thought that
this option could be too late to prevent lost sales. Also, this
proposed suspension would not prevent the Committee from selecting such
a course.
This proposed rule would suspend language concerning offers of
reserve tonnage raisins under the raisin marketing order. The order
currently authorizes such offers and would continue to do so.
Accordingly, this action would not impose any additional reporting or
recordkeeping requirements on either small or large raisin handlers. As
with all Federal marketing order programs, reports and forms are
periodically reviewed to reduce information requirements and
duplication by industry and public sector agencies.
The Department has not identified any relevant Federal rules that
duplicate, overlap or conflict with this proposed rule.
Committee and subcommittee meetings are widely publicized in
advance and are held in a location central to the production area. The
meetings are open to all industry members (including small business
entities) and other interested persons--who are encouraged to
participate in the deliberations and voice their opinions on topics
under discussion. Thus, Committee recommendations can be considered to
represent the interests of small business entities in the industry.
Finally, interested persons are invited to submit information on the
regulatory and informational impacts of this action on small
businesses.
A 30-day comment period is provided to allow interested persons to
respond to this proposal. All written comments timely received will be
considered before a final determination is made on this matter.
List of Subjects in 7 CFR Part 989
Grapes, Marketing agreements, Raisins, Reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, 7 CFR part 989 is
proposed to be amended as follows:
PART 989--RAISINS PRODUCED FROM GRAPES GROWN IN CALIFORNIA
1. The authority citation for 7 CFR part 989 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
Sec. 989.54 [Amended]
2. In Sec. 989.54, paragraph (g) the words, ``On or before November
15 of the crop year,'' and ``simultaneous'', are suspended indefinitely
from the first sentence.
Sec. 989.67 [Amended]
3. In Sec. 989.67, paragraph (j) the words, ``by more than 5
percent'' and ``105 percent of'', are suspended indefinitely from the
first sentence.
Dated: July 22, 1997.
Lon Hatamiya,
Administrator, Agricultural Marketing Service.
[FR Doc. 97-19798 Filed 7-25-97; 8:45 am]
BILLING CODE 3410-02-P
