01-18953. Tart Cherries Grown in the States of Michigan, et al.; Suspension of Provisions Under the Federal Marketing Order for Tart Cherries

AGENCY:

Agricultural Marketing Service, USDA.

ACTION:

Interim final rule with request for comments.

SUMMARY:

This rule suspends a provision in the Federal tart cherry marketing order (order) to allow handlers to receive diversion credit for exporting juice and juice concentrate to countries other than Canada and Mexico. The provision to be suspended does not allow diversion credit for domestic shipments of tart cherry juice or juice concentrate. The Cherry Industry Administrative Board (Board) unanimously recommended this action to allow handlers of tart cherries to maintain and possibly expand market opportunities for juice and juice concentrate products in export outlets. The Board is responsible for local administration of the marketing order which regulates the handling of tart cherries grown in Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin.

DATES:

Effective August 1, 2001. Comments received by August 30, 2001, will be considered prior to issuance of a final rule.

ADDRESSES:

Interested persons are invited to submit written comments concerning this rule. Comments must be sent to the Docket Clerk, Fruit and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 96456, Washington, DC 20090-6456; Fax: [phone]; or E-mail: [e-mail]. Comments should reference the docket number and the date and page number of this issue of the Federal Register and will be available for public inspection in the Office of the Docket Clerk during regular business hours.

FOR FURTHER INFORMATION CONTACT:

Patricia A. Petrella or Kenneth G. Johnson, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, Suite 2AO4, Unit 155, 4700 River Road, Riverdale, Maryland 20737, telephone: [phone], Fax: [phone] or George Kelhart, Technical Advisor, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 96456, Washington, DC 20090-6456; telephone: [phone], Fax: [phone].

Small businesses may request information on compliance with this regulation, or obtain a guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders by contacting Jay Guerber, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, P.O. Box 96456, room 2525-S, Washington, DC 20090-6456; telephone [phone]; Fax: [phone], or E-mail: [e-mail].

SUPPLEMENTARY INFORMATION:

This rule is issued under Marketing Agreement and Order No. 930, both as amended (7 CFR part 930), regulating the handling of tart cherries grown in the States of Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin, hereinafter referred to as the “order.” 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 rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with the Secretary a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. Such handler is afforded the opportunity for a hearing on the petition. After the hearing the Secretary would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review the Secretary's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

The order authorizes the use of volume regulation. In years when volume regulation is implemented to stabilize supplies, a certain percentage of the cherry crop is required to be set aside as restricted tonnage, and the balance may be marketed freely as free tonnage. The restricted tonnage is required to be maintained in handler-owned inventory reserve pools. Under § 930.59, Handler diversion privilege, handlers in regulated districts may fulfill any restricted percentage requirements by diverting cherries or cherry products in programs approved by the Board. One form of diversion which the Board may authorize is the use of cherries for exempt purposes under § 930.62. That section states that the Board, with the approval of the Secretary, may exempt from various requirements of the order (such as assessments, and reserve pool obligation) cherries used for certain purposes such as experimental use or new market development. Section 930.162 of the regulations under the order contains various approved forms of exemption and the procedure for applying for, and obtaining, exempt use approval from the Board as well as diversion credit. One of the exempt uses authorized by regulation is the use of cherries or cherry products in the development of export markets (other than Canada and Mexico) provided that such products do not include juice or juice concentrate. When recommending provisions of the order, the industry considered Canada and Mexico to be premium markets for tart cherries, not outlets for which exemptions and diversion certificates should be given. The industry also was concerned about transshipments of lower priced cherries because of their close proximity to the United States and the primary domestic market. Thus, Canada and Mexico are excluded as eligible countries for the development of export markets.

The Board held a meeting on March 20, 2001, and unanimously recommended that the provision prohibiting handlers from receiving diversion credit through use of juice and juice concentrate be suspended from the order. However, the Board recommended that the suspension be only applicable to exports.

During the order promulgation process, producers and handlers from Oregon and Washington (Northwest), expressed concern that juice and/or juice concentrate could be established by the Board as a use eligible for diversion credit. Some handlers in the Northwest processed all or the majority of their cherries into juice/juice concentrate. At that time, this was the Northwest's primary product and handlers in the Northwest would not be subject to volume regulation. Northwest producers and handlers were concerned that the juicing and concentrating of surplus or restricted cherries by handlers in regulated districts (Michigan, New York, and Utah) would oversupply the Northwest's juice market with low-quality, low-priced product. Record testimony indicated that cherries produced in the Northwest have a high brix (sugar content) level desirable for juice/juice concentrate which produces a high quality product. Because of these concerns, the provision preventing the issuance of diversion credit for tart cherry juice and juice concentrate were included in the order in 1996 to protect the juice market for tart cherry producers and handlers in the Northwest.

However, use of juice and juice concentrate for export was allowed under the exemption provisions for the 1997-1998 season. The 1997-1998 season was the first season of operation for this order and its provisions were new to the industry and complex to administer. Handlers new to the order provision had shipped or contracted to ship tart cherry juice or juice concentrate to eligible countries with the intention of applying for diversion certificates. If those handlers had been prohibited from receiving diversion certificates for those sales, the handlers would have incurred severe financial difficulties. Thus, the provision against exports of juice and juice concentrate was suspended for the 1997-1998 season.

The Northwest tart cherry industry, specifically in Washington, is changing. Washington handlers are now producing 5 + 1 cherries (25 pounds of cherries to 5 pounds of sugar) in addition to packing juice and juice concentrate. According to the industry, the situation facing compliance with volume regulations, if necessary, for the 2001-2002 season is of significant concern for all regulated handlers and Washington handlers in particular. It is quite likely that the primary inventory reserve will be full at the onset of the harvest for the 2001-2002 crop year. The primary inventory reserve has a maximum limit of 50 million pounds of restricted cherries. If this reserve is full, the only reserve option for regulated handlers is a secondary reserve. A secondary reserve is an option for a handler when the primary reserve is above the 50 million pound limit. However, from a practical standpoint, a secondary reserve is not a reasonable option. Handlers establishing secondary reserves are responsible for all costs of that reserve, including inspection costs. This could prove costly for handlers establishing secondary reserves as no cherries can be released from the secondary reserve until all cherries in the primary reserve have been released. Handlers, in order to meet restricted percentage requirements, would have to consider options other than using inventory reserves. Diversion options are available to handlers. In-orchard diversion of cherries takes place when cherries are not harvested and left in the orchard. At-plant diversion of cherries takes place at the handler's facility prior to placing cherries into the processing line. This is to ensure that the cherries diverted were not simply an undesirable or unmarketable product of processing. According to the Board, export diversion would probably be the most preferred of the options. However, this option would not be available to handlers if the current limitation on exports of juice and/or juice concentrate continues. Products that sell in the export markets are mostly hot-pack (canned), dried, IQF (Individually Quick Frozen), juice or concentrate. Five plus one (5 + 1) cherries do not generally sell in export markets. This type of processed product contains sugar and is subject to increased tariffs when exported.

Tart cherry handlers in Washington produce only a few products. As previously mentioned, they produce juice and juice concentrate and 5 + 1 products. Without the ability to export juice and/or juice concentrate for diversion credit, Washington handlers could have difficulty in meeting their restricted percentage requirements. The suspension of the provision in § 930.59 of the order that prevent handlers from receiving diversion credit for juice and juice concentrate will allow Washington handlers as well as other handlers in volume regulated districts to receive diversion credit for such shipments. This will enable handlers to increase sales to new markets and fulfill their restricted reserve obligation for the 2001-2002 crop year.

The Board recommended that the proviso in § 930.59 concerning the exclusion of juice and concentrate products be suspended insofar as it applies to exports. In order to accomplish the intent of the Board's recommendation, the whole proviso needs to be suspended. Diversion credit may be granted for uses which fall under the exemptions in § 930.62 of the order. The regulations in § 930.162 implement the authority in the order concerning exempt uses and contain the terms and conditions under which diversion credit may be approved. Consistent with the Board's recommendation, the regulation will be amended to reflect the intent that exempt use approval, and diversion credit in the case of juice and juice concentrate will only be allowed for exports to countries other than Canada and Mexico.

The Regulatory Flexibility Act and Effects on Small Businesses

The Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities and has prepared this initial regulatory flexibility analysis. The Regulatory Flexibility Act (RFA) would allow AMS to certify that regulations do not have a significant economic impact on a substantial number of small entities. However, as a matter of general policy, AMS' Fruit and Vegetable Programs (Programs) no longer opts for such certification, but rather performs regulatory flexibility analyses for any rulemaking that would generate the interest of a significant number of small entities. Performing such analyses shifts the Programs' efforts from determining whether regulatory flexibility analyses are required to the consideration of regulatory options and economic or regulatory impacts.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and rules thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility.

There are approximately 900 producers of tart cherries in the production area and approximately 40 handlers subject to regulation under the marketing order. Small agricultural producers have been defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts less than $500,000, and small agricultural service firms are defined as those whose annual receipts are less than $5,000,000. The majority of tart cherry producers and handlers may be classified as small entities.

Data from the National Agricultural Statistics Service (NASS) states that for 1999, tart cherry utilization for juice, wine, or brined uses was 34.5 million pounds for all districts covered under the order. The total processed amount for 1999 was 252.3 million pounds. Juice, wine, and brined tart cherries represented about 14 percent of the total processed crop, and about 10 percent over the last three seasons (1997 through 1999).

This rule suspends a provision in the order to allow handlers to receive diversion credit for exporting tart cherry juice and juice concentrate to certain eligible countries. The Board met on March 20, 2001, and unanimously recommended that the provision prohibiting handlers from receiving diversion credit through use of juice and juice concentrate be suspended from the order. However, the Board recommended that the suspension be only applicable to exports.

During the order promulgation process, producers and handlers from Oregon and Washington (Northwest), expressed concern that juice and/or juice concentrate could be established by the Board as a use eligible for diversion credit. Some handlers in the Northwest processed all or the majority of their cherries into juice/juice concentrate. At that time, this was the Northwest's primary product and handlers in the Northwest would not be subject to volume regulation. Northwest producers and handlers were concerned that the juicing and concentrating of surplus or restricted cherries by handlers in regulated districts (Michigan, New York, and Utah) would oversupply the Northwest's juice market with low-quality, low-priced product. Record testimony indicated that cherries produced in the Northwest have a high brix (sugar content) level desirable for juice/juice concentrate which produces a high quality product. Because of these concerns, the provision preventing the issuance of diversion credit for tart cherry juice and juice concentrate were included in the order in 1996 to protect the juice market for tart cherry producers and handlers in the Northwest. In the long run, it is anticipated that all businesses, whether large or small, will benefit from this suspension action because market growth will be increased for tart cherry products, grower returns will be improved, and less fruit will be abandoned in-orchard or at-plant by producers and handlers. Moreover, all regulated handlers will be allowed to participate in export markets and have access to diversion credits.

According to the industry, the situation facing compliance with volume regulations, if necessary, for the 2001-2002 season is of significant concern for all regulated handlers and Washington handlers in particular. It is quite likely that the primary inventory reserve will be full at the onset of the harvest for the 2001-2002 crop year. The primary inventory reserve has a maximum limit of 50 million pounds of restricted cherries. If this reserve is full, the only reserve option for regulated handlers is a secondary reserve. A secondary reserve is an option for a handler when the primary reserve is above the 50 million pound limit. However, from a practical standpoint, a secondary reserve is not a reasonable option. Handlers establishing secondary reserves are responsible for all costs of that reserve, including inspection costs. This could prove costly for handlers establishing secondary reserves as no cherries can be released from the secondary reserve until all cherries in the primary reserve have been released. Handlers, in order to meet restricted percentage requirements, would have to consider options other than using inventory reserves. Diversion options are available to handlers. In-orchard diversion of cherries takes place when cherries are not harvested and left in the orchard. At-plant diversion of cherries takes place at the handler's facility prior to placing cherries into the processing line. This is to ensure that the cherries diverted were not simply an undesirable or unmarketable product of processing. According to the Board, export diversion would probably be the most preferred of the options. However, this option would not be available to handlers if the current limitation on exports of juice and/or juice concentrate continues. The suspension of the order provision that prevents handlers from receiving diversion credit for juice and juice concentrate will allow Washington handlers as well as other handlers in volume regulated districts to receive diversion credit for such shipments. To be consistent with the Board's intent, the regulation would prevent the use of juice or juice concentrate for exempt use or diversion credit in the domestic market. This will enable handlers to increase sales to new markets and fulfill their restricted reserve obligation for the 2001-2002 crop year. Industry estimates are that in Washington State alone, this suspension would affect up to 4,200 tons of juice/juice concentrate products, with an estimated value of $1.5 to $2.5 million dollars.

One alternative to this relaxation would be to continue the status quo. However, this would not be favorable to cherry producers and handlers as they would be forced to either destroy tons of cherries in-orchard or at-plant, or incur costly storage fees for maintaining a secondary reserve.

This action imposes no additional reporting or recordkeeping requirements on either small or large tart cherry handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. In addition, the Department has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

In compliance with Office of Management and Budget (OMB) regulations (5 CFR Part 1320) which implement the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the information collection and recordkeeping requirements imposed by this order have been previously approved by OMB and assigned OMB Number 0581-0177.

The Board's meeting was publicized and all Board members and alternate Board members, representing both large and small entities, were invited to attend the meeting and participate in Board deliberations. The Board itself is composed of 18 members, of which 17 members are growers and handlers and one represents the public. Also, the Board has a number of appointed committees to review certain issues and make recommendations.

Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at the following website: http://www.ams.usda.gov/​fv/​moab.html. Any questions about the compliance guide should be sent to Jay Guerber at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

This rule invites comments on suspending language in the provisions in the order to allow handlers to receive diversion credit for exporting juice and juice concentrate to countries other than Canada and Mexico. All comments received will be considered in finalizing this interim final rule.

After consideration of all relevant material presented, including the information and recommendation submitted by the Board and other available information, it is hereby found that the provision suspended does not tend to effectuate the declared policy of the Act, while the additional regulatory amendments are necessary to implement the suspension, and, therefore, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect, and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) The 2001-2002 crop year begins July 1, 2001, and this rule needs to be effective as soon as possible in order to allow the industry to take advantage of the export opportunity; (2) the Board unanimously recommended this change at a public meeting and interested persons had an opportunity to provide input; and (3) this interim final rule provides a 30-day comment period, and all comments timely received will be considered prior to finalization of this rule. In view of the above, a thirty day comment period is deemed appropriate.

List of Subjects in 7 CFR Part 930

• Marketing agreements
• Reporting and recordkeeping requirements
• Tart cherries

For the reasons set forth in the preamble, 7 CFR part 930 is amended as follows:

PART 930—TART CHERRIES GROWN IN THE STATES OF MICHIGAN, NEW YORK, PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN

1. The authority citation for 7 CFR part 930 continues to read as follows:

Authority: 7 U.S.C. 601-674.

§ 930.59

(Suspended in part)

2. In § 930.59, paragraph (b), the words “: Provided, That diversion may not be accomplished by converting cherries into juice or juice concentrate” are suspended indefinitely.

3. In § 930.162, paragraphs (a), (b)(3), and (c)(3) are revised to read as follows:

§ 930.162

Exemptions.

(a) General. Tart cherries which are used for the purpose of new product development, for new market development, for development of export markets, for experimental purposes, for export to countries other than Canada, and Mexico, or which are donated to charitable organizations may be granted an exemption by the Board and will be exempt from §§ 930.41, 930.44, 930.51, 930.53, and §§ 930.55 through 930.57, subject to the following terms and conditions. Tart cherry juice and juice concentrate products are not eligible for exempt use/diversion credit in domestic markets. Only tart cherry juice and juice concentrate products for export can receive exempt use/diversion credit. Any information received of a confidential and/or proprietary nature included in this application will be protected from disclosure pursuant to § 930.73 of the order.

(b) * * *

(3) Development of export markets. The sale of cherries or cherry products, including the development of sales for new or different tart cherry products or the expansion of sales for existing tart cherry products, to countries other than Canada, and Mexico.

* * * * *

(c) * * *

(3) When applying to the Board for an exemption for the development of export markets for tart cherries or cherry products (including juice and juice concentrate) in countries other than Canada and Mexico, including the expansion of sales in existing export markets, handlers must detail the nature of their product, specify whether such product differs from current products being sold in export markets, and estimate the anticipated short and long term sales volumes for the requested exemption.

* * * * *

Dated: July 25, 2001.

Kenneth C. Clayton,

Acting Administrator, Agricultural Marketing Service.