[Federal Register Volume 63, Number 184 (Wednesday, September 23, 1998)]
[Proposed Rules]
[Pages 50802-50814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25400]
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Proposed Rules
Federal Register
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This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 63, No. 184 / Wednesday, September 23, 1998 /
Proposed Rules
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 956
[Docket Nos. 98AMA-FV-956-1;FV98-956-1]
Sweet Onions Grown in the Walla Walla Valley of Southeast
Washington and Northeast Oregon; Recommended Decision and Opportunity
To File Written Exceptions to Proposed Amendment of Marketing Agreement
and Order No. 956
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule and opportunity to file exceptions.
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SUMMARY: This recommended decision invites written exceptions on
proposed amendments to the marketing agreement and order for sweet
onions grown in the Walla Walla Valley of Southeast Washington and
Northeast Oregon. The proposed amendments would broaden the scope of
the order by adding authority for grade, size, quality, maturity, and
pack regulations, mandatory inspection, marketing policy statements,
and minimum quantity exemptions. In addition, a proposal is included to
make a minor change in the Walla Walla Sweet Onion Committee
(committee) name. The committee is responsible for local administration
of the order. These proposals are intended to improve the operation and
functioning of the Walla Walla sweet onion marketing order program.
DATES: Written exceptions must be filed by October 23, 1998.
ADDRESSES: Written exceptions should be filed with the Hearing Clerk,
U.S. Department of Agriculture, room 1081-S, Washington, DC 20250-9200,
Facsimile number (202) 720-9776. Four copies of all written exceptions
should be submitted and they should reference the docket numbers and
the date and page number of this issue of the Federal Register.
Exceptions will be made available for public inspection in the Office
of the Hearing Clerk during regular business hours.
FOR FURTHER INFORMATION CONTACT: Kathleen M. Finn, Marketing
Specialist, Marketing Order Administration Branch, Fruit and Vegetable
Programs, AMS, USDA, room 2525-S, Washington, D.C. 20250-0200;
telephone: (202) 720-1509, or Fax: (202) 205-6632. Small businesses may
request information on compliance with this regulation by contacting
Jay Guerber, Marketing Order Administration Branch, Fruit and Vegetable
Programs, AMS, USDA, P.O. Box 96456, room 2525-S, Washington, DC 20090-
6456; telephone (202) 720-2491; Fax (202) 205-6632.
SUPPLEMENTARY INFORMATION: Prior documents in this proceeding: Notice
of Hearing issued on March 25, 1998, and published in the April 1,
1998, issue of the Federal Register (63 FR 15787).
This administrative action is governed by the provisions of
sections 556 and 557 of Title 5 of the United States Code and,
therefore, is excluded from the requirements of Executive Order 12866.
Preliminary Statement
Notice is hereby given of the filing with the Hearing Clerk of this
recommended decision with respect to the proposed amendment of
Marketing Agreement and Order No. 956, regulating the handling of sweet
onions grown in the Walla Walla Valley of Southeast Washington and
Northeast Oregon (hereinafter referred to as the order), and the
opportunity to file written exceptions thereto. Copies of this decision
can be obtained from Kathleen M. Finn whose address is listed above.
This action is issued pursuant to the provisions of the
Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601
et seq.), hereinafter referred to as the ``Act,'' and the applicable
rules of practice and procedure governing the formulation of marketing
agreements and orders (7 CFR part 900).
The proposed amendment of Marketing Agreement and Order No. 956 is
based on the record of a public hearing held in Walla Walla,
Washington, on April 7, 1998. Notice of this hearing was published in
the Federal Register on April 1, 1998. The notice of hearing contained
proposals submitted by the committee.
The committee's proposed amendments would add the authority for
grade, size, quality, maturity, and pack regulations, mandatory
inspection, marketing policy statements, and minimum quantity
exemptions. In addition, the committee proposed changing its name from
the Walla Walla Sweet Onion Committee to the Walla Walla Sweet Onion
Marketing Committee.
Also, the Fruit and Vegetable Programs of the Agricultural
Marketing Service (AMS), U.S. Department of Agriculture, proposed to
allow such changes as may be necessary to the order, if any or all of
the above amendments are adopted, so that all of its provisions conform
with the proposed amendment.
At the conclusion of the hearing, the Administrative Law Judge
fixed May 8, 1998, as the final date for interested persons to file
proposed findings and conclusions or written arguments and briefs based
on the evidence received at the hearing. None were filed.
Material Issues
The material issues of record addressed in this decision are as
follows:
(1) Whether to add the authority for grade, size, quality,
maturity, and pack regulations, mandatory inspection, marketing policy
statements, and minimum quantity exemptions; and
(2) Whether to change the committee name to the Walla Walla Sweet
Onion Marketing Committee.
Findings and Conclusions
The findings and conclusions on the material issues, all of which
are based on evidence presented at the hearing and the record thereof,
are:
Material Issue Number 1
The Walla Walla sweet onion marketing order was promulgated in May
1995. The order sets forth the production area, which consists of
designated parts of Walla Walla County, Washington, and designated
parts of Umatilla County, Oregon. The order authorizes production and
marketing research and marketing development and promotion projects,
including paid advertising. In addition, the order authorizes the
establishment of container marking requirements.
The promulgation record indicates that the production area was
designated
[[Page 50803]]
as it currently is because it was determined that the unique soil and
growing conditions in that highly localized area constituted the
definitive and smallest geographical area recognized for the production
of Walla Walla sweet onions. The proponents of the marketing order did
not want any other geographic area to have the authority to use the
``Walla Walla Sweet Onion'' name. The promulgation hearing record
indicated that growers in the Walla Walla Valley spent time and effort
attempting to market the Walla Walla sweet onion as one that has unique
characteristics because of the area where it is grown. Other growers
and handlers were selling onions produced outside the production area
and marketing them as Walla Walla sweet onions, which the record
indicated was detrimental to the integrity of the name Walla Walla
sweet onions.
In addition, the proponents of the marketing order believed that
research and promotion efforts were imperative if the industry was to
remain competitive with other sweet onion areas. The proponents of the
marketing order believed that pooling available resources under a
marketing order for marketing and production research and promotion
would allow the industry to expand existing markets, create new ones,
improve grower returns and compete with other sweet onion growing
areas.
At the April 7, 1998, hearing on the proposed amendments to the
marketing order, the record revealed that prior to the promulgation
proceedings, the industry discussed including authority for quality and
size regulations in the order at that time. However, because of
consternation on the part of some growers about how quality and size
regulations would impact their individual businesses, it was determined
not to include the proposals at that time. The intent was that the
aspects of the marketing order that were included during the
promulgation proceeding would address the major problems facing the
industry.
Testimony at the amendment hearing indicated that the committee now
realizes that poor quality on the market is a serious marketing
problem. The committee believes that market share is being lost because
of inconsistent quality of Walla Walla sweet onions.
The committee has discussed quality problems since the order was
promulgated and delegated some of the discussions to a compliance
subcommittee. Recently, more serious discussions concerning quality
issues revealed that the majority of the industry supported moving
toward establishing minimum quality and size authority in the order.
Currently, the Walla Walla sweet onion industry is comprised of 71
industry members, 33 of which are registered handlers. There are a
total of 64 growers, which includes growers who are also handlers.
There are 7 commercial packinghouses that pack approximately 90 percent
of the industry's onions.
In 1997, 43 percent of the Walla Walla sweet onion crop was shipped
to the Pacific Northwest United States (U.S.); 20 percent to North
Central U.S.; 12 percent to export markets; 10 percent to the Western/
Southwestern U.S.; 7 percent to the Western U.S.; and 3 percent or less
to the Rocky Mountain states, Southeast and Northeast U.S. and to
roadside stands.
In 1988, 1,800 acres of Walla Walla sweet onions were planted. In
1997, 900 acres of Walla Walla sweet onions were planted and harvested.
This represents a 50 percent decline in plantings since 1988.
Similarly, acres harvested have decreased from 1,600 in 1988 to 900 in
1997. Yields during this period ranged from 600 50-pound containers to
820 50-pound containers per acre and averaged 734 50-pound containers.
Production of Walla Walla sweet onions for 1988 was 1,280,000 50-pound
containers. In 1997, production was 666,000 50-pound containers, a 48
percent decrease in production in the last 10 years.
Record testimony indicates that the major reasons for the decreases
in plantings and production relate to uncertainty of grower returns,
and the increased competition from other sweet onion production areas.
These other sweet onion areas have established higher quality standards
than Walla Walla sweet onions, and have made substantial promotional
efforts that make the competition with these areas challenging. In
addition, poor shelf life and storability problems concern many Walla
Walla sweet onion industry members. Although research is being
conducted on behalf of the committee to address these quality problems,
it has been difficult to keep pace with the competition.
The record testimony indicated that large wholesale and chainstore
markets have been lost due to quality and shelf life problems and that
if these issues were addressed successfully, these markets could be
regained. With a higher quality onion, more distant markets could be
established and production could increase significantly.
The season-average f.o.b. prices for Walla Walla sweet onions have
ranged from a low of $4.14 per 50-pound container in 1983 to a high of
$11.95 per 50-pound container in 1991. Prices have generally trended
upward, but have been highly variable, which suggests unsteady market
conditions. The average price over an 18-year period is $7.45 per 50-
pound container.
Since 1981, U.S. per capita consumption of fresh onions has
increased from 10.7 pounds per year to 17.5 pounds per year. A witness
testifying for the committee stated that other onion groups and
associations are promoting various onion products and increasing
consumer awareness and use of onions, in general. This grower-handler
further stated that Walla Walla sweet onions still have a nationally
recognizable name. He believed that if the industry could improve the
quality of their onions and be consistent with that quality, the
industry could stabilize their market, regain consumer and chainstore
confidence, and gain some of this share of the market indicated by the
increased per capita consumption of onions.
Walla Walla sweet onions are a type of sweet onion. Sweet onions
are distinguished from other onion groups by their sweet taste and the
absence of the strong, pungent taste of yellow, red, white and other
storage onions and are usually only available during the spring and
summer months. Generally, these onions do not store well and have a
short shelf life. In addition, sweet onions usually bring higher prices
than other onions.
Other sweet onion growing areas that compete with Walla Walla sweet
onions at some time during its season are: Georgia Vidalia Onions;
Texas hybrid 1015Y's (spring and summer crops), Maui Sweets from
Hawaii, and New Mex. Sweets from New Mexico.
Statistical data shows that Vidalia and Maui Sweet onions have
increased their acres harvested while others have declined. Texas has
the largest volume of acres harvested (average--14,839 acres) while
Maui has the smallest (average--142 acres). Surprisingly, these two
onion areas have the lowest yield per acre. Although yields in all
onion producing areas are highly variable, New Mexico and Walla Walla
have the highest yields.
Texas, New Mexico and Vidalia sweet onions have the highest
production, with Vidalia sweet onions experiencing the most dramatic
increase in production in recent years. Walla Walla and Maui onions
have the lowest production, mostly due to the amount of acres planted
in recent years.
Maui onions' f.o.b. prices are the highest among the sweet onion
[[Page 50804]]
producing areas with an average price of $43 per 50-pound container
over the last 18 years. Vidalia onions are second with an average price
of $14 per 50-pound container for a nine-year period. These two onion
groups have clearly differentiated their production from the other
sweet onion groups and are receiving premium prices. These higher
prices may be based on superior quality and taste. However, these
premium prices demonstrate the marketing potential for other sweet
onion producing areas. Walla Walla sweet onions averaged $7.50 per 50-
pound container during this same period.
Comparing Vidalia onions with Walla Walla sweet onions for the
nine-year period that Vidalia onion data has been available, Vidalia
onion prices have always been higher than Walla Walla sweet onion
prices. The difference in f.o.b prices ranges from a low of $1.50 per
50-pound container in 1994 to a high of $9.90 per 50-pound container in
1990. The average difference between the two prices is $5.
Crop value statistics (based on price and production) for the sweet
onion producing areas show that while Maui onions receive the highest
prices, its total crop value is the lowest of the six producing areas
due to its low level of production. Vidalia and New Mexico onion crop
values have been increasing, while Texas, Maui, and Walla Walla's crop
values have been stagnant or slowly declining. The high crop values of
Vidalia onions are the result of increasing levels of production and
higher prices.
A witness for the committee testified that poor quality and shelf
life of Walla Walla sweet onions limits marketing firms to distribute
their products into the nearer markets, particularly the Pacific
Northwest. The grower-handler testified that these shipping patterns
tend to saturate these markets. If quality and shelf life were
improved, more product could be shipped outside of the Pacific
Northwest area and thereby, increase production and improve crop values
of Walla Walla sweet onions.
Record testimony indicates that the potential exists for Walla
Walla sweet onions to become more competitive with other sweet onion
growing regions. A witness for the committee testified that he believes
that part of the Vidalia onion industry's success has been due to the
proximity of the growing area to a large population base on the East
Coast. However, if the quality of Walla Walla sweet onions was
improved, more onions could be shipped to those areas where sweet
onions are widely accepted by consumers, which would result in an
increase in total production of Walla Walla sweet onions.
The season for Walla Walla sweet onions generally begins in middle
or late June and continues until the end of July. The season is
approximately 6 weeks long. The Department's Market News Service
collects data on Walla Walla sweet onions. Prices are published for
jumbo and medium 50-pound sacks and cartons. This data shows that in
most seasons, the prices start relatively high. As the season
progresses, prices generally fall. The high prices at the beginning of
the season are due to the low supply of sweet onions at that time of
the season and the high demand as summer approaches. The quality at the
beginning of the season sets the market tone for the remainder of the
season. If quality is high at the beginning of the season, this makes a
favorable impression on receivers as well as consumers. With high
quality onions at the start of the season, consumers are more willing
to become repeat customers. However, if quality is low at the beginning
of the season, receivers as well as consumers will be disappointed.
This low quality will result in consumers shopping for alternative
sweet onions and they will not be repeat purchasers.
This seasonal price behavior where prices start high and then fall
may cause producers to harvest onions before they are fully matured.
This may result in poor quality onions being sold on the market which
tends to make an unfavorable impression on consumers, supermarkets, and
other outlets that handle Walla Walla sweet onions.
Most Walla Walla onions meet U.S. No. 2 grade but the majority do
not meet U.S. No. 1. Testimony revealed that the committee would not
make a recommendation to impose a minimum grade requirement that would
be difficult for most handlers to make and would result in a higher
volume of onions being unmarketable. Initially, the committee would
likely recommend a minimum grade, less than a U.S. No. 1, such as a
modified U.S. Commercial, with stronger maturity requirements. This
would enable handlers and growers to modify their operations in a cost-
effective manner. In time, as growers and handlers realize the benefits
of minimum quality and size requirements, they would be more prepared
to further increase the quality of their onions.
Record evidence revealed that the Walla Walla sweet onion marketing
season is shortening because of the typical high prices at the
beginning of the season. A witness for the committee testified that he
believes that growers are harvesting immature onions in order to obtain
these higher prices. The witness stated that immature onions on the
market early in the season have a negative impact on the market at the
middle and the end of the season. He further testified that growers are
concerned with this and are targeting this problem. He believes that
these problems could be alleviated to a great extent by establishing
quality standards for defects such as sprouting and staining which
would address the maturity problem early in the season and increase
demand for Walla Walla sweet onions for a longer period. He further
stated that if a higher quality product is consistently available,
promotional efforts would be enhanced. These efforts would improve
buyers' confidence in purchasing Walla Walla sweet onions.
Statistical data evidenced on the record indicates that Walla Walla
sweet onions are currently sorted by size and packed in cartons or
sacks. Different prices are realized between sacks and cartons and
between jumbo and medium sized onions. Higher prices are received for
cartons as compared to sacks. Higher prices are received for jumbo as
compared with medium size onions. Data shows that larger sized onions
receive an average of $3 a container more than smaller onions.
The record revealed that when purchasing sweet onions, consumers
prefer a larger onion. There is a perception that sweet onions should
be larger than storage onions. Consumers are willing to pay a premium
price for a larger sweet onion. Proper seed spacing during planting is
a critical factor in producing larger onions. In addition, handlers who
can pack larger onions can realize larger returns.
Since the majority of handlers are already sorting onions by size,
record evidence revealed that handlers would not have to purchase new
equipment should these proposals be implemented. A grower-handler
testified that the majority of the larger handlers always try to pack
to certain established quality and size standards. Costs associated
with handlers modifying their grading facilities would be minimal
because most handlers already have the equipment necessary to implement
these proposals. These proposals, if implemented, would require that
all handlers conform to the same established quality and size
standards, which would provide a consistent product to buyers and
consumers. A primary cost associated with these proposals would be the
cost of inspection procedures, which are
[[Page 50805]]
discussed later in this recommended decision.
Another potential cost item is the cost associated with growers
having to purchase additional or improved equipment in order to meet
minimum quality or size standards. A handler testified that growers
could update their mechanical seeders so that the seeds could be
planted equidistant from each other, which would result in onions with
better shape and uniformity and larger onions. There are increasingly
more growers that are purchasing this equipment or contracting with
other growers that have the seeders. Seed coating or pelleting is
another alternative to achieve better seed placement, which is less
expensive than the purchase of a highly advanced seeder. The seed
coating adds a clay-like material to the exterior of the seed, so that
the seeders do not cause two or three seeds to drop at the same time.
It appears that costs associated with growers modifying their cultural
practices to abide by minimum quality and size standards would be
minimal and offset by improved returns.
Currently, there are limited secondary outlets for Walla Walla
sweet onions. Record testimony indicates that the primary outlets for
non-marketable or cull onions are livestock feed, charitable
institutions or disposal. A minimal amount is sent to processors, but
there are no returns realized other than the reduced cost of packing.
If quality control and size provisions were implemented, it could
be assumed that more onions would become non-marketable which could
produce hardships for some producers. A witness for the committee
testified that if a U.S. Commercial grade were established as a minimum
quality standard, about 5 to 10 percent of the onions would not meet
that grade and would have to be disposed of in secondary outlets. The
witness testified that increased grower returns would offset any
increase in cull onions. In addition, if a minimum quality or size
standard were established, this would provide an incentive for growers
to modify and improve their cultural practices so that only onions that
would make that quality or size standard would be sent to the packing
houses. This would minimize the percentage of onions that do not make
quality or size standards.
The inspection and certification portion of the proposed amendments
would require that during any period when Walla Walla sweet onions are
regulated, the onions would be inspected by representatives of the
Federal-State Inspection Service. The proposal contains a provision
regarding re-inspection procedures. Handlers who handle a specified
minimum quantity would be exempt from inspection, but still be required
to meet any minimum quality or size regulations in effect. The minimum
quantity would be established at 2,000 pounds or less of onions per
shipment, but could be modified through informal rulemaking, if
necessary.
The Federal-State Inspection Service Office that is responsible for
inspecting Walla Walla sweet onions is currently located in Pasco,
Washington, less than 50 miles from Walla Walla. According to record
testimony, inspectors would be staffed in Walla Walla during the season
if mandatory inspection was implemented.
Inspection costs in the State of Washington are computed on an
hourly basis or a per unit basis, whichever is greater. If the hourly
rate is used, the rate applies to the total number of the inspector's
hours, including travel time. Depending upon the workload, inspectors
could be based in Walla Walla during the season, which would lessen
travel costs. Record testimony indicated that the hourly inspection
rate is $26, with a two-hour minimum, or $52, for inspection or $208
for an eight-hour day. However, the State of Washington Agriculture
Code regulations appearing at Chapter 16-400-210 WAC provide that the
hourly inspection rate is $23, with no minimum time required. In
accordance with the Rules of Practice and Procedure governing the
formulation of marketing agreements and orders (7 CFR Part 900),
official notice is taken of the fees set forth in the State of
Washington regulations at Chapter 16-400-210 WAC. The fee schedule will
be used in our analysis. On a per unit basis, the inspection fee is
$.04 per 50-pound unit.
As stated above, inspection costs are computed on an hourly basis
or a per unit basis, whichever is greater. For example, if an
inspection was requested on 100 50-pound containers and the inspection
lasted one hour, the per unit cost for inspecting the lot would be $4,
and the per hour cost would be $23. Under this scenario, the handler
would be charged $23 for the inspection, the greater amount. This would
average $.23 per unit.
Under the current fee schedule, it would be necessary for the
inspection office to inspect over 4,600 50-pound units of onions per
day in order to maintain the fee at $.04 per 50-pound unit. If handlers
do not handle over 4,600 50-pound units per day, their inspection costs
would be computed at the hourly rate. Even for handlers who normally
handle that volume, there would be times during the season,
particularly in the beginning and end of the season, where the volume
of onions inspected would not be at a level where the $.04 per 50-pound
unit could be used. The fees would convert to the hourly rate.
Record testimony indicated that the committee is concerned with
increased costs associated with these proposals, particularly, the
costs of inspection. The committee discussed options to address these
concerns and developed two remedies intended to alleviate the cost
burdens on small handlers. First, the committee recommended adding
authority in the order for the committee to contract with the Federal-
State Inspection Service and pay for all inspections of Walla Walla
sweet onions. Second, the committee recommended an exemption from
inspection for handlers of small lots of onions.
Under the scenario of contracting with the inspection service, each
handler would pay a separate assessment for inspection costs at a per
unit price. All handlers would pay the same price per bag for
inspection, whether exempt or not. Under such a contract, the larger
volume handlers would pay more of the inspection costs because they
handle so many more onions. In this manner, the burden of inspection
costs for smaller volume handlers would be minimized. This was
discussed at committee meetings with representatives of the inspection
service.
Testimony confirmed that travel costs would be lessened if an
inspector was based in Walla Walla. However, the witness indicated that
$.04 per 50-pound unit would be the minimum cost for the inspection.
Costs could increase depending on the workload. If the workload was
light, such as late in the season when the quantities of onions are
diminishing, it could be more costly for an inspector to conduct
inspections on smaller lots. It could be necessary to convert the cost
to an hourly cost, which would exceed $.04 per 50-pound unit.
A witness for the committee stated that there were discussions at
committee meetings regarding contractual relationships with the
inspection service but factors such as inspection of small quantities
would need to be addressed in the contract. The inspector testified
that the inspection office must cover the cost of inspectors and if
there was not a full day's work in Walla Walla, the inspector would
need to travel elsewhere. These situations would need to be factored
[[Page 50806]]
into any contractual agreements. Because of the variables associated
with inspecting Walla Walla sweet onions, a witness for the committee
estimated the cost of inspection would range between $.04 and $.06 per
50-pound unit if the per unit price were used in a contractual
agreement.
Another option the committee developed to address the issues of
costs on small handlers would provide an exemption for handlers who
handle up to, but not more than 2,000 pounds of Walla Walla sweet
onions per shipment. These handlers would be exempt from inspection
requirements, but these exempt onions would still be required to meet
the quality and size requirements in effect at the time of shipment.
Handlers could make more than one exempt shipment per day as long as
each shipment was at or below the 2,000-pound exemption. These exempt
onions would not be exempt from assessments. The committee would be
able to recommend modification of the minimum quantity exemption
through informal rulemaking, if necessary. The committee would be
responsible for monitoring compliance with this proposal. If necessary,
the committee would conduct spot inspections at the committee's expense
to ensure that inspection-exempt onions were meeting the established
quality and size regulations.
A witness for the committee projected that the committee manager's
work hours may need to be increased in order to monitor compliance with
these proposals, which could result in increased administrative costs
for the committee. The committee projects a possible increase of
$3,000, or a 3 percent increase in the current committee budget.
Currently, there are 7 commercial packers that pack approximately
90 percent of the industry's onions. The remaining 10 percent are
handled by approximately 26 handlers. If the 2,000 pound minimum
quantity exemption were implemented, it is estimated that 50 percent of
the remaining 26 handlers would be exempt from inspection. This would
represent approximately 42 acres (25,000 50-pound containers), or 5
percent of the crop. This minimum quantity exemption addresses concerns
regarding possible increased costs that could be encountered by small
handlers without jeopardizing the objectives of a quality and size
program.
Record testimony revealed that consideration to modify this
exemption provision would primarily relate to the effectiveness of the
amount exempted. If it was determined that 2,000 pounds or less was
insufficient, the committee could recommend raising the amount. A
similar recommendation could be made if it was determined the amount
was too large and too many onions were exempt from inspection. In
making any recommendations, consideration would be given to alleviating
any inordinate cost burden on handlers without jeopardizing the
objectives of quality and size requirements. Testimony indicated that
the committee does not believe it would ever recommend eliminating the
minimum quantity exemption.
The cost of inspection is a primary cost factor related to these
proposals. The record reveals that the industry is ready to accept this
additional cost in order to improve the competitiveness of the
industry. It is believed in the long run, increased production,
increased prices, and increased demand for Walla Walla sweet onions
would offset these inspection costs. The committee is concerned with
increased costs and is willing to take steps to mitigate these costs
for the benefit of the industry. It is believed that without
implementation of these proposals, the industry cannot improve and may
continue to decline.
Adding quality and size provisions to the marketing order would
provide an incentive for producers to allow their onions to fully
mature, resulting in a more favorable impression of the onions
purchased. Consumers prefer larger onions and are willing to pay a
premium price for large sweet onions. A better quality and larger onion
would provide an opportunity to establish consistent quality and size
of onions throughout the season. This would tend to benefit consumers
with a higher quality of onion and would benefit producers through a
higher demand for their product. In the long run, high quality,
seasonal product would build name recognition and help enhance demand
for Walla Walla sweet onions.
It is determined that there would be costs associated with
implementing these proposals. The primary costs relate to inspection
fees and administration by the committee for overseeing the program. In
addition, it is possible that some growers would need to modify their
cultural practices and handlers would need to modify their packing
operations in order to provide a higher quality product.
Witnesses testifying at the hearing represented small and large
handlers and growers. The majority of the industry is prepared to incur
some additional costs because they believe, that in the long run,
increased production and sales, and higher grower returns and buyer
confidence in Walla Walla sweet onions would offset any increased
costs. In fact, some growers testified that these proposals were not
strong enough. They would have been even more supportive of the
proposals if stronger quality requirements had been included.
One grower-handler testified that unless the minimum grade
regulations were established higher than a U.S. Commercial grade, they
would not benefit his company. He believed that the minimum grade
should not be lower than the standards to which most handlers already
pack. In addition, this grower-handler was concerned about the
committee being under-funded and wanted to be assured that these
proposals would be properly funded and that other programs, such as the
promotion program, would not suffer. In testimony, a witness noted that
the committee has considered the funding issues and has determined that
if these proposals were implemented, additional income would be
realized in the long run, which could be used for promotions and
research projects.
Another grower-handler testified that the industry used to ship
higher quality onions but perhaps because of lack of competition, the
quality decreased. Competition in the sweet onion business has
dramatically increased in recent years. The grower-handler stated that
the purpose of these proposals is for the industry to put a better
quality onion in the bag from the start, and then the onion would be a
better product when it reaches the consumer. As far as costs, this
grower-handler stated that the committee considered the costs very
seriously and even discussed the cost burden between larger and smaller
handlers. He believed the minimum quantity exemption addresses such
concerns.
This grower-handler also testified that Walla Walla sweet onions
are labor intensive and expensive to produce. With a quality control
system in place, poor quality onions could not be shipped by handlers.
Acreage could be increased, better prices could be realized, and
positive name recognition would result. Increased acreage and
production would result in additional funds for promotion and research,
including development of controlled atmosphere storage for Walla Walla
onions. In addition, the major cost of these proposals, the cost of
inspection, is not considered a high cost item compared to the cost of
labor and growing costs. Preharvest costs of production are estimated
to increase by 0.4 to 0.6 percent an acre due to inspection. Because so
much is invested up front per acre, a premium price is
[[Page 50807]]
necessary for growers to realize a reasonable return.
A witness for the proposals testified that lack of quality controls
has depleted repeat business. This handler did not believe that
handlers would need to purchase new equipment to implement grading
schemes in their businesses.
A witness testified that if these proposals are implemented,
possible increased administrative costs of $3,000 are projected. These
costs relate to the additional duties involved in overseeing compliance
of the inspection-exempt onions. The committee manager position is
currently a part-time position. The witness testified that the
committee has discussed increasing the hours of the manager's position
to provide adequate coverage of the new duties.
A witness for the committee indicated that an advertising agency
conducted market research at seven retail chains in the Los Angeles,
California area. The research concluded that the retail trade
perception of the Walla Walla sweet onion is that it is a high cost,
high shrink, and short shelf life alternative to low cost alternatives
already in the Los Angeles area. Retailers are concerned with paying a
premium price for a product with inconsistent quality.
Record evidence revealed that without the implementation of these
proposals, the Walla Walla sweet onion industry would remain stagnant
or decline further. With the tremendous rise in consumption of fresh
onions, and the success of other sweet onion producing areas, it is
clear that this industry has the potential to improve. These proposals
would enhance that opportunity.
The industry has attempted to regulate quality voluntarily. Prior
to implementation of the marketing order, the Walla Walla Sweet Onion
Commission, a voluntary organization composed of producers and
handlers, implemented quality requirements for its members. These
requirements restricted the sale of U.S. No. 2 grade onions and culls
from fresh market use, and included random inspections. Common defects
that caused the onions to fail to meet these conditions were seed
stems, immaturity, and decay. Because of the voluntary nature of these
imposed requirements, this project was unsuccessful.
Although the marketing order currently addresses problems the
industry is facing with the establishment of a production area and the
authority to conduct promotions and research projects, it is lacking in
that the current authorities cannot directly address the quality
problems that are detrimental to the industry. The record evidence
revealed that the establishment of quality control and size
requirements would specifically address the marketing problems being
experienced by the industry. The evidence showed conclusively that the
industry is facing further decline if nothing is done to improve the
quality of the onions marketed. Adding these authorities to the order
would enhance the program's effectiveness and provide the committee
with the tools needed to administer a productive, more useful program.
The committee is composed of 10 voting members. Seven concurring
votes, or a super majority, would be needed to pass a recommendation
relative to quality and size requirements. Other committee actions
require a simple majority or six votes. With the requirement of
preparing an annual marketing policy, the committee would review market
conditions each year. The committee could recommend that no regulations
be imposed on handlers.
It is determined that the costs related to implement these
proposals would be offset by improved grower returns, increased
production, re-established markets, new markets, and more effective
promotional efforts. Handlers are willing to impose these requirements
on themselves to save their industry. The record evidence provided a
compelling justification of these proposals.
Therefore, the proposals relating to authorizing quality control
and size requirements by adding new Sec. 956.15 (Grade and Size),
Sec. 956.16 (Pack), Sec. 956.60 (Marketing Policy), 956.70 (Inspection
and Certification) and amending Secs. 956.62 (Container Markings) and
956.64 (Minimum Quantities) are recommended.
As stated above, implementation of the above proposals would entail
adding and modifying several sections of the Walla Walla Sweet Onion
marketing order. These sections are interrelated and should be
considered together. For instance, there would be no need to have a
minimum quantity exemption if there were no mandatory inspection
requirements. If it is determined that these proposals would not
address problems facing the industry, none of the above proposals would
be implemented.
A new Sec. 956.14, a definition for ``grading'', would not be added
to the order. In the proposal, grading is defined as synonymous with
``preparing for market'' and means the sorting or separation of Walla
Walla Sweet Onions into grades, sizes, and packs for market purposes.
Currently, the term ``grading'' does not appear in the marketing
order. It is also not used in the proposed amendatory text. Testimony
indicated that the possibility exists for this term to be used in
future regulations.
If these proposals are adopted and regulations implemented,
handlers would be required to implement grading schemes in their
operations. Informal rulemaking actions would be necessary to implement
any minimum quality and size requirements. If this term is necessary in
the future, it can easily be included in the regulations without having
this term defined in the order. Therefore, this section is not proposed
herein.
A new Sec. 956.15, a definition for ``grade and size'', should be
added to the order. In the proposal, ``grade'' means any of the
officially established grades of onions and ``size'' means any of the
officially established sizes of onions, each set forth in the U.S.
Standards for grades of onions or the States of Washington and Oregon
standards. This section would authorize modifications or variations to
these standards if recommended by the committee and approved by the
Secretary.
It was determined that the above Federal and State standards would
be a commonly accepted basis for the committee to use in recommending
regulations on quality and size. The committee's intent is to have this
language flexible so that any subsequent amendments to these grade
standards would be applicable to the order.
Testimony indicated that it is common practice in the industry to
refer to onions by grades and/or sizes and these definitions would
provide a basis for making recommendations for regulations. The
proposal includes the authority to make variations from the U.S. and
State standards. This would allow the committee flexibility in
determining an appropriate quality or size to recommend which may
deviate from what the standards specify, but better serve the needs of
the industry. The definitions for grade and size are recommended.
A new Sec. 956.16, Pack, should be added to the order. ``Pack''
would be defined as a quantity of Walla Walla sweet onions specified by
grade, size, weight, or count or by type or condition of container
recommended by the committee and approved by the Secretary. Normally,
onions are sorted by grade or size. The intent of having a definition
for pack is to reduce the incidences of co-mingling grades and
[[Page 50808]]
sizes that could dissuade customers from purchasing the products. This
would provide the authority to restrict different grades and sizes to
certain containers in order to obtain higher prices and increase sales.
An example provided by a witness for the committee at the hearing
related to the possibility of establishing a premium pack which would
require a higher quality onion to be shipped in a container marked
``premium.'' The definition for pack is recommended.
A new Sec. 956.60, Marketing Policy, should be added to the order.
Specifically, this provision would require that the committee annually
consider and prepare a policy for marketing onions grown in the
production area prior to the beginning of the season. The committee's
marketing policy would rely on the conditions that exist at the time
the policy is adopted and projections for the upcoming season. It is
therefore, essential that the committee have as much information as
possible concerning marketing conditions, including information that
affects supply and demand.
Primary information that would assist the committee in determining
its marketing policy are supplies of Walla Walla sweet onions, expected
harvest, expected yield, quality, quality and supplies of competing
onions, and consumer preferences. The marketing policy would provide a
means of determining the recommendation of regulations relating to
quality and size for that year in order to prevent onions of inferior
quality or small size from being marketed. The marketing policy would
also assist the committee in recommending quality and size regulations
that would bring producers the greatest possible return consistent with
the supply and demand conditions, while protecting the interest of
consumers by making available for purchase better quality and preferred
sizes of onions. The marketing policy would focus on the optimization
of returns to growers given the conditions in the industry that year.
The committee would consider several factors in determining its
marketing policy. These factors include market prices for sweet onions,
supplies of sweet onions (including competitors), the trend and level
of consumer income, establishment and maintenance of orderly marketing
conditions, orderly marketing on behalf of the public, and other
relevant factors. A witness for the committee indicated that all of
this information is available through industry sources, the Department,
and University Extension Services. These available resources along with
the expertise of the committee members would guide the committee in
making informed effective marketing policies that would benefit growers
and consumers.
The committee would submit a report to the Secretary setting forth
the marketing policy and notify producers and handlers of the report.
Testimony indicated that the report would need to be prepared well
ahead of the shipping season, perhaps in January or February. A
specific due-date for the marketing policy could be established through
informal rulemaking, but the committee is aware that the policy must be
prepared well enough in advance of the season in order to be effective
and in order to effectuate timely regulations.
The marketing policy could also be amended depending on changed
supply and demand situations. Any amendments would be reported to the
Secretary and to producers and handlers.
Requiring the preparation of an annual marketing policy statement
is a good business practice to implement when establishing the
authority for quality control provisions. It would set forth a process
for the committee to follow and consider and provide adequate
timeframes to be effective. Therefore, this section is recommended.
Section 956.62, Issuance of Regulations, should be amended and re-
titled. This section is currently entitled ``Container markings'' and
sets forth the authority to recommend regulations for fixing the
marking of containers that may be used in the packaging or handling of
Walla Walla sweet onions.
The section would still include the regulations regarding container
markings but this proposal expands the section by adding the authority
for recommending regulations to the Secretary on quality and size. The
proposed amendment of this section would include the limitation of
shipments of Walla Walla sweet onions by: regulating grades, sizes,
qualities or maturities of Walla Walla sweet onions in any or all
portions of the production area during any period; regulating grades,
sizes, qualities or maturities for different varieties or packs for any
period; and establishing minimum standards of quality and maturity.
This section also provides that the Secretary may amend, terminate, or
suspend any or all portions of any regulation issued under this
section.
Portions of the production area or certain varieties could be
regulated, and record testimony revealed that this was recommended to
cover possible problems should a certain growing area or variety
experience a specific problem during the year, possibly due to adverse
weather conditions in one growing area. The overall intent of this
proposal is to establish the ability to make recommendations for the
entire industry and production area. Testimony revealed that the
proposal was meant to be flexible and cover a variety of situations
that could occur so that the amendment, if implemented, could be more
effective.
The proposed amendment is adequate to cover the needs of the
industry and has sufficient flexibility to cover any unusual
circumstances that may arise. Therefore, this section is recommended.
Section 956.64, Minimum Quantities, should be amended. This section
currently provides for establishing minimum quantities for which Walla
Walla sweet onions would be exempt from assessments, container
markings, and special purpose shipment requirements. The proposal
amends the section by adding a minimum quantity exemption for
inspection requirements.
Under this proposal, each handler could ship a maximum of 2000
pounds of sweet onions per shipment without regard to inspection
requirements. However, the exempt onions would still be required to
meet the quality and size requirements in effect at the time of
shipment. This requirement could be modified through informal
rulemaking.
The reason for the exemption is to provide a benefit for smaller
handlers. Onions would still be required to meet established quality
and size standards. It is estimated that only 5 percent of the crop
would not be inspected. If circumstances warrant modification of the
exemption amount in the future, it could be accomplished through
informal rulemaking. The amount of the exemption could be raised or
lowered depending on the effectiveness of the quality and size program
and the impact on handlers, especially small handlers. Testimony
revealed that reference should be made to Sec. 956.70, ``Inspection and
certification'' in the last sentence in the section. This reference has
been added to the amendatory language. Therefore, this section is
recommended as modified.
The committee proposes adding a new Sec. 956.70, Inspection and
Certification. This section sets forth the inspection requirements if
these proposals are implemented. The section states that during periods
of regulation, no onions, unless exempted, could be handled unless a
representative of the Federal-State Inspection Service or another
inspection service designated by the Secretary inspects the onions.
This section allows for modification of
[[Page 50809]]
these requirements through informal rulemaking.
If onions are regraded, resorted, or repacked, the prior inspection
would be invalid. If the onions are regraded, resorted or repacked,
they must be re-inspected to ensure that the quality or size
established is met prior to shipment of re-inspected onions. These
requirements could also be modified through informal rulemaking.
The committee could recommend that appropriate seals, stamps, or
tags identify the inspected onions, or that other identification be
affixed to the containers or master containers.
The committee could recommend the length of time for which an
inspection is valid and inspection certificates would be made available
to the committee. Finally, the section would authorize the committee to
enter into an agreement with the inspection service with respect to
costs of inspection and the committee would collect pro-rata shares of
such costs from handlers.
The portion relating to contracting with the inspection service
would cover a situation where the committee would try to lessen the
financial burden on handlers, especially by paying for all inspections
and assessing a pro-rata share back to the handlers. A witness
representing the inspection service testified that this was possible
but variables would have to be incorporated into any contractual
arrangement to cover all costs incurred by the inspection service. It
is reasonable to allow this provision in the order should a contractual
arrangement be necessary, to provide additional flexibility. Section
956.70(f) of this section has been modified to clarify that the
inspection service is as set forth in paragragh (a) of that section.
Regarding the identification procedures, the committee could
recommend that all onions have positive lot identification or PIQ
(Partners in Quality) certification. These procedures are
identification processes developed by the Department's inspection
service to aid in maintaining identity and integrity of products after
inspection. The proposed amendment was written as such to allow for
flexibility in determining the most effective and beneficial procedure
to use. For example, if a new identification process is developed by
the Department, the proposed amendment would allow the committee to
consider and recommend this new process.
Regarding establishing a time of validity for inspection
certificates, testimony revealed that Walla Walla sweet onions are not
stored and have a short shelf life. Three to five days is the maximum
that onions should be stored. Therefore, it is anticipated that the
committee could recommend a certificate validity of three to five days.
These inspection procedures are normal and customary procedures set
forth in marketing orders when mandatory inspection requirements are
authorized. They provide sufficient flexibility without losing
effectiveness. Therefore, this section is recommended.
Material Issue Number 2
The committee proposes to change its name from the Walla Walla
Sweet Onion Committee to the Walla Walla Sweet Onion Marketing
Committee. This proposal would entail an amendment to paragraph (a) of
Sec. 956.20, Establishment and membership, which sets forth the name of
the committee. The reason for the proposed change is to better reflect
the goals and accomplishments of the committee.
The committee believes adding the word ``marketing'' to their name
would better reflect the goals of the committee and better portray the
image sought. The committee is charged with improving the marketing
practices of Walla Walla sweet onions by using the authorities in the
marketing order and therefore, this proposal should be authorized.
The Agricultural Marketing Service proposed to make such changes as
may be necessary to the order to conform with any amendment that may
result from the hearing. No necessary conforming changes have been
identified by the Department.
Small Business Considerations
Pursuant to the requirements set forth in the Regulatory
Flexibility Act (RFA), the AMS has considered the economic impact of
this action on small entities. Accordingly, the 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 so that small businesses will not be
unduly or disproportionately burdened. Small agricultural producers
have been defined by the Small Business Administration (SBA) (13 CFR
121.601) as those having annual receipts of less than $500,000. Small
agricultural service firms, which include handlers regulated under the
order, are defined as those with annual receipts of less than
$5,000,000.
Interested persons were invited to present evidence at the hearing
on the probable regulatory and informational impact of the proposed
amendments on small businesses. The record indicates that growers and
handlers would not be unduly burdened by any additional regulatory
requirements, including those pertaining to reporting and
recordkeeping, that might result from this proceeding.
During the 1996-97 crop year, approximately 33 handlers were
regulated under Marketing Order No. 956. In addition, there were about
64 producers of Walla Walla sweet onions in the production area.
Marketing orders and amendments thereto are unique in that they are
normally brought about through group action of essentially small
entities for their own benefit. Thus, both the RFA and the Act are
compatible with respect to small entities.
Twenty-four of the 33 handlers are also producers who handle their
own onions. There are seven commercial packinghouses that pack
approximately 90 percent of all Walla Walla sweet onions. In the 1996-
97 season, the average f.o.b. price for Walla Walla sweet onions was
$8.70 per 50-pound sack. Total production for the 1996-97 season was
666,000 50-pound containers. A handler who packed over 550,000 50-pound
units would exceed the SBA definition of a small handler. According to
record evidence, there are two dominant handlers in the industry and at
least one of these handlers could be considered a large handler under
this definition. The record revealed that all Walla Walla sweet onion
growers would be considered small producers. Therefore, it can be
concluded that the majority of growers and handlers would be considered
small businesses.
The marketing order, promulgated in 1995, currently defines the
production area where onions must be grown to be designated as Walla
Walla sweet onions. It also provides the authority to fund research and
promotion activities through assessments on handlers, as well as
establish container regulations. Although the marketing order as
currently written addresses some of the marketing problems facing the
industry, the Walla Walla sweet onion industry continues to experience
marketing problems.
Economic data presented on the record indicates that the acres
planted have decreased from 1,800 in 1988 to 900 acres planted in 1997.
This is a 50% decrease since 1988. Similarly, acres harvested have
decreased from 1,600 in 1988 to 900 in 1997.
In addition, the data shows production has decreased dramatically
from 1,280,000 50-pound containers in 1988 to 666,000 50-pound
containers in 1997. This is a 48% decrease in production in the last 10
years.
Total crop values have declined from $9,345,000 in 1989 to
$5,794,000 in
[[Page 50810]]
1997. This is a 38% decrease in total crop values in 9 years.
U.S. per capita consumption of fresh onions has increased from 10.7
pounds per year in 1981 to 17.5 pounds per year in 1997. This is a 64%
increase in per capita use of fresh onions, while the production of
Walla Walla sweet onions has decreased. This increased consumption
shows that this industry has the potential to improve.
In addition, economic data shows that competition from other sweet
onion producing areas has increased dramatically. Producers of Walla
Walla sweet onions have lost market share to other sweet onions such as
Georgia Vidalia onions, California Imperial onions, Hawaii Maui Sweets,
New Mex. Sweets from New Mexico, and Texas hybrid 1015Y's.
The acres harvested and production of Vidalia onions have increased
by 236% and 447%, respectively, since 1989. The Vidalia sweet onion
industry's normal harvesting and shipping season begins in the middle
of April and ends in late July. The Vidalia onion industry has been
successful in extending its shipping season into September and October
by establishing controlled atmosphere storage capabilities. This may be
having a price dampening effect on Walla Walla sweet onions because of
the overlap of shipping seasons and direct competition caused by the
extended season of Vidalia onions.
Of the six sweet onion-producing areas in the U.S., Walla Walla
sweet onion prices are lower than Maui, Vidalia and Texas onions. In
addition, the economic report presented on the record shows that
Vidalia onions always receive higher prices than Walla Walla sweet
onions with an average price differential of $5 per 50-pound container.
The Walla Walla sweet onion season begins in middle or late June
and continues until the end of July. The shipping season lasts for
approximately six weeks. Prices for Walla Walla sweet onions at the
beginning of the season start relatively high. As the season
progresses, prices generally fall. This seasonal price behavior has
resulted in producers harvesting onions before they are fully matured.
This has led to poor quality onions being sold on the market that make
an unfavorable impression on consumers, supermarkets, and other outlets
that handle Walla Walla sweet onions. In addition, this situation
appears to have shortened the marketing season.
The quality at the beginning of the season has a tendency to set
the market tone for the remainder of the season. If quality is high at
the beginning of the season, this makes a favorable impression on
buyers as well as consumers. With high quality onions at the start of
the season, consumers are likely to become repeat customers. However,
if quality is low at the beginning of the season, receivers as well as
consumers are disappointed. Initial low quality will result in
consumers shopping for alternative sweet onions and they will not be
repeat purchasers.
Minimum quality and size requirements are established under
marketing orders to ensure that substandard produce does not find its
way to the market and destroy consumer confidence and harm producers'
returns. The objective of implementing quality control and size
provisions under marketing orders is to make the markets work more
efficiently, improve quality, and to market preferred sizes. The use of
quality and size standards through a grading scheme benefits consumers
by assuring the buyers that they are getting high quality produce of
desirable size. This helps build consumer demand in the long run.
Minimum quality and size standards are deemed desirable because they
prevent the shipment of poor quality produce, which ends up harming
producers' ability to sell their product and consumers' willingness to
buy.
The reputation of Walla Walla sweet onions has deteriorated over
the recent years due to the poor quality of some of the onions
marketed. Record evidence indicated that a surveillance project
conducted during the 1997 harvest season by the Washington State
Department of Agriculture on behalf of the committee noted that a
significant amount of onions sold within the immediate Walla Walla area
did not meet minimum U.S. standards. Walla Walla sweet onions usually
meet at least U.S. No. 2 grade, but only a small volume meets U.S. No.
1 grade.
Establishing quality and size provisions under the Walla Walla
sweet onion marketing order would provide an incentive for producers to
allow their onions to fully mature, resulting in a higher quality of
onion marketed. Establishing quality and size requirements would ensure
consistent quality and acceptable sizes of onions throughout the
season. This tends to benefit consumers through a higher quality of
onion and benefits producers with a higher demand for their product. In
the long run, high quality, seasonal produce builds name recognition
and helps enhance demand.
The Walla Walla sweet onion industry has attempted to voluntarily
implement quality control. Prior to implementation of the marketing
order, the Walla Walla Sweet Onion Commission, a voluntary organization
composed of producers and handlers, implemented quality rules for its
members. These rules restricted the sale of U.S. No. 2 grade onions and
culls from fresh market use, and included random inspections. Common
defects that caused the onions to fail to meet these requirements were
seed stems, immaturity, and decay. Because of the voluntary nature of
these imposed regulations, this project was unsuccessful.
Currently, the marketing order allows only onions grown in the
designated production area to be marketed as Walla Walla sweet onions.
Research activities as well as promotional activities are also
authorized under the current order. Broadening the scope of the order
by authorizing minimum quality and size requirements would add another
marketing tool to help the industry solve marketing problems,
especially those related to quality. Minimum quality and size
requirements would allow the industry to improve their name recognition
with a quality product. Amending the order by authorizing the
establishment of minimum quality and size requirements would help to
expand markets and deliver a more consistent quality product of
desirable size to the consumer.
Without any quality and size provisions in place, industry members
can place substandard product on the market that is severely impacting
the credibility and marketability of all Walla Walla sweet onions.
Because of these current practices, the industry is experiencing
problems establishing and maintaining markets in areas that have
traditionally been strong. The industry has lost markets due to poor
quality, short shelf life and increased competition from other sweet
onion producing areas.
Minimum quality and size requirements would help alleviate some of
these problems and work to improve producer returns by strengthening
consumer and retail demand. Mandatory inspection requirements would
make all producers and handlers responsible for the quality of the
industry's output. Poor quality would not be mixed with better quality.
The record revealed that most handlers are already sorting by size. The
Department's Market News Service reports prices for jumbo and medium
onions, which further indicates that handlers are sorting by size. Most
handlers also pack to a certain quality standards, usually based on
U.S. grade standards. Therefore, handlers would
[[Page 50811]]
not be required to drastically modify their packing operations or
purchase new equipment. The committee considered grower and handler
costs very seriously and even discussed the cost burden between larger
and smaller handlers. The minimum quantity exemption should address
such concerns.
Growers may be faced with a potential cost item related to improved
equipment that could be needed in order to meet minimum quality or size
standards. A handler testified that growers could update their
mechanical seeders so that the seeds could be planted equidistant from
each other, which would result in onions with better shape, more
uniformity and larger size. There are increasingly more growers that
are purchasing this equipment or contracting with other growers that
have the seeders. Seed coating or pelleting is another alternative for
better seed placement, which is less expensive than the purchase of a
highly advanced seeder. The seed coating adds a clay-like material to
the exterior of the seed, so that the seeders do not cause two or three
seeds to drop at the same time. It appears that costs associated with
growers modifying their cultural practices to abide by minimum quality
and size standards would be minimal and offset by improved producer
returns.
A witness for the committee testified that the benefits of
including the authority for minimum quality and size standards would
far outweigh any negative impact to producers and handlers and the
industry could start rebuilding markets and creating new ones.
The Federal-State Inspection Service Office that is responsible for
inspecting Walla Walla sweet onions is currently located in Pasco,
Washington, less than 50 miles from Walla Walla. According to record
testimony, inspectors would be staffed in Walla Walla during the season
if mandatory inspection was implemented.
Inspection costs in the State of Washington are computed on an
hourly basis or a per unit basis, whichever is greater. If the hourly
rate is used, the rate applies to the total number of the inspector's
hours, including travel time. Depending upon the workload, inspectors
could be based in Walla Walla during the season, which would lessen
travel costs. Record testimony indicated that the hourly inspection
rate is $26, with a two-hour minimun, or $52, for inspection or $208
for an eight-hour day. However, the State of Washington Agriculture
Code regulations appearing at Chapter 16-400-210 WAC provide that the
hourly inspection rate is $23, with no minimum time required. In
accordance with the Rules of Practice and Procedure governing the
formulation of marketing agreements and orders (7 CFR part 900),
official notice has been taken of the fees set forth in the State of
Washington regulations at Chapter 16-400-210 WAC. The fee schedule will
be used in our analysis. On a per unit basis, the inspection fee is
$.04 per 50-pound unit.
As stated above, inspection costs are computed on an hourly basis
or a per unit basis, whichever is greater. For example, if an
inspection was requested on 100 50-pound containers and the inspection
lasted one hour, the per unit cost for inspecting the lot would be $4,
and the per hour cost would be $23. Under this scenario, the handler
would be charged $23 for the inspection, the greater amount. This would
average $.23 per unit.
Under the current fee schedule, it would be necessary for the
inspection office to inspect over 4,600 50-pound units of onions per
day in order to maintain the fee at $.04 per 50-pound unit. If handlers
do not handle over 4,600 50-pound units per day, their inspection costs
would be computed at the hourly rate. Even for handlers who normally
handle that volume, there would be times during the season,
particularly in the beginning and end of the season, where the volume
of onions inspected would not be at a level where the $.04 per 50-pound
unit could be used. The fees would convert to the hourly rate.
Record testimony indicated that the committee is concerned with
increased costs associated with these proposals, particularly, the
costs of inspection. The committee discussed options to address these
concerns and developed two remedies intended to alleviate the cost
burdens on small handlers. First, the committee recommended adding
authority in the order for the committee to contract with the Federal-
State Inspection Service and pay for all inspections of Walla Walla
sweet onions. Second, the committee recommended an exemption from
inspection for handlers of small lots of onions.
Under the scenario of contracting with the inspection service, each
handler would pay a separate assessment for inspection costs at a per
unit price. All handlers would pay the same price per bag for
inspection, whether exempt or not. Under such a contract, the larger
volume handlers would pay more of the inspection costs because they
handle so many more units of onions. In this manner, the burden of
inspection costs for smaller volume handlers could be minimized. This
was discussed with representatives of the inspection service.
A Washington State inspector confirmed that travel costs would be
lessened if an inspector was based in Walla Walla. However, the
inspector indicated that $.04 per 50-pound unit would be the minimum
cost for the inspection. Costs could increase depending on the
workload. If the workload was light, such as late in the season when
the quantities of onions are diminishing, it could be more costly for
an inspector to conduct inspections on smaller lots. It could be
necessary to convert the cost to an hourly cost, which would exceed
$.04 per 50-pound unit.
There have been discussions regarding contractual relationships
with the inspection service but factors such as inspection of small
quantities would need to be addressed in the contract. The inspector
testified that the inspection office must cover the cost of inspectors
and if there was not a full days work in Walla Walla, the inspector
would need to travel elsewhere. These situations would need to be
factored into any contractual agreements. A witness for the proposals
testified that because of the variables associated with inspecting
Walla Walla sweet onions, it is estimated the cost of inspection would
range between $.04 and $.06 per 50-pound unit if the per unit price
were used in a contractual agreement. The committee could consider only
contracting with the inspection service during the busiest parts of the
season in order to keep the inspection cost lower. The committee could
also consider only regulating for part of the season.
Another option the committee developed to address the issues of
costs on small handlers would provide an exemption for handlers who
handle up to, but not more than 2,000 pounds of Walla Walla sweet
onions per shipment. These handlers would be exempt from inspection
requirements, but these exempt onions would still be required to meet
the quality and size requirements in effect at the time of shipment.
Handlers could make more than one exempt shipment per day as long as
each shipment was at or below the 2,000-pound exemption. These exempt
onions would not be exempt from assessments. The committee would be
able to recommend modification of the minimum quantity exemption
through informal rulemaking, if necessary. The committee would be
responsible for monitoring compliance with this proposal. If necessary,
the
[[Page 50812]]
committee would conduct spot inspections at the committee's expense to
ensure that inspection-exempt onions were meeting the established
quality and size regulations.
Record testimony indicated the implementation of these proposals
could necessitate that the committee increase the manager's work hours
in order to monitor compliance with these provisions. This could result
in the need to recommend an increase in the marketing order assessment
rate. However, an increase is not expected because the increased
production, demand, and expanded markets would help to supply ample
funds to administer the program without increasing the assessment rate.
When the committee was considering amending the marketing order to
include quality and size requirements, a compliance subcommittee was
appointed to address concerns of small producers and handlers. The
subcommittee is composed of producers and handlers who developed the
minimum quantity exemption provisions of the committee's proposals. The
subcommittee considered different options during their deliberations
and determined that the current proposed amendments were the most
advantageous to small growers and handlers while still allowing quality
objectives to be met.
Inspection requirements would not apply to shipments of Walla Walla
sweet onions that are 2,000 pounds or less. However, these onions would
be required to meet any minimum requirements in effect at the time of
shipment. This would be enforced through periodic spot examinations
conducted by the committee. A general consensus among industry members
was that establishing a minimum quantity exemption was necessary to
relieve any undue financial burden on small volume handlers. The
committee would be responsible for monitoring compliance with this
proposal by conducting spot inspections, if necessary, at the
committee's expense. It is estimated that compliance with these
proposals could increase administrative costs for the committee by
$3,000, or a 3 percent increase in the current committee budget.
As previously stated, 7 commercial handlers pack 90 percent of the
industry's crop. Approximately 26 handlers handle the remaining 10
percent. With the 2,000 pound inspection exemption implemented, it is
estimated that 50 percent of the remaining 26 handlers would be exempt
from mandatory inspection. This represents approximately 42 acres or
25,000 50-lb. units, which is 5 percent of the crop. Therefore, it
appears that at least 13 handlers would be exempt from inspection,
while 95 percent of the production would still be inspected. This
proposed amendment would minimize the impact on small handlers without
jeopardizing quality objectives.
These exempt onions would not be exempt from assessments. In
addition, exempt onions would still be required to meet the minimum
quality and size requirements established by the committee and approved
by the Secretary. Committee staff would conduct spot inspections to
monitor the exempt handlers' activities. The proposal allows for
modification of this provision depending on industry needs. The
committee does not believe it would ever recommend not having a minimum
quantity exemption.
A witness for the proposals testified that the only cost increase
would be the cost of inspection. He further stated that the cost of
inspection is a minor cost item, compared to labor and growing costs.
Walla Walla sweet onion production is labor-intensive and high cost. A
premium price is necessary for the onions to pay the costs of
production.
This witness testified that a grower normally has $1,800 to $2,000
an acre invested in production prior to harvest. Using this estimate
and assuming a yield of 190 50-pound units per acre, inspection costs
(estimated at $.04 to $.06 per 50-pound unit) are estimated to be $7.60
to $11.40 per acre, or an estimated 0.4 to 0.6 percent increase of pre-
harvest cost.
Following is an example of possible costs associated with
implementing quality and size standards. Testimony revealed that if a
U.S. Commercial grade were established as a minimum quality standard, 5
to 10 percent of the onions would not meet that grade and would have to
be disposed of in secondary outlets. Using last year's production
figures (1996-97), 666,000 50-pound containers were produced for sale.
If 10 percent would not make U.S. Commercial grade, 66,600 50-pound
containers would need to be disposed of in secondary outlets. It is
estimated that 5 percent of the crop, or 33,300 pounds, would be exempt
from inspection. Therefore, approximately 566,100 50-pound containers
would need to be inspected. Using the high inspection cost estimate of
$.06 per container, inspection costs for the entire crop would be
$33,966. Seven commercial packing houses pack 90 percent of the crop
which would account for $30,569.40 of the costs. The remaining 26 small
handlers would be responsible for the remaining inspection costs of
$3,396.60, or approximately $131 per handler for inspection fees for
that season.
Minimum quality and size standards would maintain the integrity of
the product so that the commodities' overall quality image is not
diminished by a low quality sample. The principle objective of a
grading system is to make the market work more efficiently. Minimum
quality and size requirements would improve information between buyers
and sellers. Contracts could be made based on grade specifications, and
buyers need not personally inspect each lot of product. Standardization
of quality and size reduces uncertainty between buyers and sellers, and
this helps reduce marketing costs. The goal of an effective grading
system is to improve quality and size. Minimum quality and size
standards would help ensure that substandard produce does not find its
way to the market and destroy consumer confidence and harm producers'
returns.
The ability of producers of Walla Walla sweet onions to increase
the demand for their product depends on their ability to differentiate
their product and to create a favorable image (including quality) with
consumers. In recent years, this favorable image has deteriorated.
Culling out low quality produce of undesirable size, even though the
demand for it may be elastic, may increase total returns. The price
increase from the higher quality sold is expected to be large enough to
offset the effect of the reduced quantity sold, even after the costs of
culling are covered.
Record evidence also shows that the collection of information under
the marketing order would not be effected if the amendments were made
to the marketing order. No increase in information collection would
occur with the adoption of the amendments alone. However, if these
proposals are implemented and the committee recommends regulations to
impose quality and size requirements, it is possible that additional
information would be needed from handlers to aid in administering the
program effectively. It is also possible that because inspection
certificates would be received by the committee, needed information
could be collected from the certificates and the information collection
requirements could be reduced. Whatever information collection changes
result from any regulations, the committee and the Department would
submit such changes to the Office of Management and Budget (OMB) for
approval. Current information collection requirements for
[[Page 50813]]
part 956 are approved by OMB under OMB number 0581-0172.
The proposed amendment to modify the name of the committee from the
Walla Walla Sweet Onion Committee to the Walla Walla Sweet Onion
Marketing Committee would have no regulatory impact on handlers or
growers.
Accordingly, this action would not impose any additional reporting
or recordkeeping requirements on either small or large Walla Walla
sweet onion 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. All of these
amendments are designed to enhance the administration and functioning
of the marketing order to the benefit of the industry.
While the implementation of quality and size requirements may
impose some additional costs on handlers, the costs are minimal and
uniform on all handlers. Some of these costs may be passed on to
growers. However, these costs would be offset by the benefits derived
by the operation of the marketing order. In addition, the meetings
regarding these proposals as well as the hearing date were widely
publicized throughout the Walla Walla Sweet onion production area
industry and all interested persons were invited to attend the meetings
and the hearing and participate in committee deliberations on all
issues. All committee meetings and the hearing were public forums and
all entities, both large and small, were able to express views on these
issues. 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. Thirty days is deemed appropriate because the
committee would like to have the opportunity to discuss these
amendments if they are implemented and recommend appropriate
regulations prior to the 1999 season which starts in June 1999. All
written exceptions timely received will be considered and a grower
referendum will be conducted before these proposals are implemented.
Civil Justice Reform
The amendments proposed herein have been reviewed under Executive
Order 12988, Civil Justice Reform. They are not intended to have
retroactive effect. If adopted, the proposed amendments would not
preempt any State or local laws, regulations, or policies, unless they
present an irreconcilable conflict with the amendments.
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.
General Findings
The findings hereinafter set forth are supplementary to the
findings and determinations which were previously made in connection
with the issuance of the marketing agreement and order; and all said
previous findings and determinations are hereby ratified and affirmed,
except insofar as such findings and determinations may be in conflict
with the findings and determinations set forth herein.
(1) The marketing agreement and order, as hereby proposed to be
amended, and all of the terms and conditions thereof, would tend to
effectuate the declared policy of the Act;
(2) The marketing agreement and order, as hereby proposed to be
amended, regulate the handling of Walla Walla sweet onions grown in the
production area in the same manner as, and are applicable only to,
persons in the respective classes of commercial and industrial activity
specified in the marketing agreement and order upon which a hearing has
been held;
(3) The marketing agreement and order, as hereby proposed to be
amended, are limited in their application to the smallest regional
production area which is practicable, consistent with carrying out the
declared policy of the Act, and the issuance of several orders
applicable to subdivisions of the production area would not effectively
carry out the declared policy of the Act; and
(4) All handling of Walla Walla sweet onions grown in the
production area as defined in the marketing agreement and order, as
hereby proposed to be amended, is in the current of interstate or
foreign commerce or directly burdens, obstructs, or affects such
commerce.
List of Subjects in 7 CFR Part 956
Marketing agreements, Onions, Reporting and recordkeeping
requirements.
Recommended Amendment of the Marketing Agreement and Order
For the reasons set out in the preamble, 7 CFR part 956 is proposed
to be amended as follows:
PART 956--SWEET ONIONS GROWN IN THE WALLA WALLA VALLEY OF SOUTHEAST
WASHINGTON AND NORTHWEST OREGON
1. The authority citation for 7 CFR part 956 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
2. In part 956, new Secs. 956.15 and 956.16 are added to read as
follows:
Sec. 956.15 Grade and size.
Grade means any of the officially established grades of onions,
including maturity requirements and size means any of the officially
established sizes of onions as set forth in the United States standards
for grades of onions or amendments thereto, or modifications thereof,
or variations based thereon, or States of Washington or Oregon
standards of onions or amendments thereto or modifications thereof or
variations based thereon, recommended by the committee and approved by
the Secretary.
Sec. 956.16 Pack.
Pack means a quantity of Walla Walla Sweet Onions specified by
grade, size, weight, or count, or by type or condition of container, or
any combination of these recommended by the committee and approved by
the Secretary.
Sec. 956.20 [Amended]
3. In Sec. 956.20, paragraph (a) is amended by adding the word
``Marketing'' immediately following the word ``Onion'' in the first
sentence.
4. In part 956, a new Sec. 956.60 is added to read as follows:
Sec. 956.60 Marketing policy.
(a) Preparation. Prior to each marketing season, the committee
shall consider and prepare a proposed policy for the marketing of Walla
Walla Sweet Onions. In developing its marketing policy, the committee
shall investigate
[[Page 50814]]
relevant supply and demand conditions for Walla Walla Sweet Onions. In
such investigations, the committee shall give appropriate consideration
to the following:
(1) Market prices for sweet onions, including prices by variety,
grade, size, quality, and maturity, and by different packs;
(2) Supply of sweet onions by grade, size, quality, maturity, and
variety in the production area and in other sweet onion producing
sections;
(3) The trend and level of consumer income;
(4) Establishing and maintaining orderly marketing conditions for
Walla Walla Sweet Onions;
(5) Orderly marketing of Walla Walla Sweet Onions as will be in the
public interest; and
(6) Other relevant factors.
(b) Reports. (1) The committee shall submit a report to the
Secretary setting forth the aforesaid marketing policy, and the
committee shall notify producers and handlers of the contents of such
report.
(2) In the event it becomes advisable to shift from such marketing
policy because of changed supply and demand conditions, the committee
shall prepare an amended or revised marketing policy in accordance with
the manner previously outlined. The committee shall submit a report
thereon to the Secretary and notify producers and handlers of the
contents of such report on the revised or amended marketing policy.
5. Section 956.62 is revised to read as follows:
Sec. 956.62 Issuance of regulations.
(a) Except as otherwise provided in this part, the Secretary shall
limit the shipment of Walla Walla Sweet Onions by any one or more of
the methods hereinafter set forth whenever the Secretary finds from the
recommendations and information submitted by the committee, or from
other available information, that such regulation would tend to
effectuate the declared policy of the Act. Such limitation may:
(1) Regulate in any or all portions of the production area, the
handling of particular grades, sizes, qualities, or maturities of any
or all varieties of Walla Walla Sweet Onions, or combinations thereof,
during any period or periods;
(2) Regulate the handling of particular grades, sizes, qualities,
or maturities of Walla Walla Sweet Onions differently, for different
varieties or packs, or for any combination of the foregoing, during any
period or periods;
(3) Provide a method, through rules and regulations issued pursuant
to this part, for fixing the size, capacity, weight, dimensions,
markings or pack of the container or containers, which may be used in
the packaging or handling of Walla Walla Sweet Onions, including
appropriate logo or other container markings to identify the contents
thereof;
(4) Regulate the handling of Walla Walla Sweet Onions by
establishing, in terms of grades, sizes, or both, minimum standards of
quality and maturity.
(b) The Secretary may amend any regulation issued under this part
whenever the Secretary finds that such amendment would tend to
effectuate the declared policy of the Act. The Secretary may also
terminate or suspend any regulation or amendment thereof whenever the
Secretary finds that such regulation or amendment obstructs or no
longer tends to effectuate the declared policy of the Act.
6. Section 956.64 is revised to read as follows:
Sec. 956.64 Minimum quantities.
During any period in which shipments of Walla Walla Sweet Onions
are regulated pursuant to this part, each handler may handle up to, but
not to exceed, 2,000 pounds of Walla Walla Sweet Onions per shipment
without regard to the inspection requirements of this part: Provided,
That such Walla Walla Sweet Onion shipments meet the minimum
requirements in effect at the time of the shipment pursuant to
Sec. 956.62. The committee, with the approval of the Secretary, may
recommend modifications to this section and the establishment of such
other minimum quantities below which Walla Walla Sweet Onion shipments
will be free from the requirements in, or pursuant to, Secs. 956.42,
956.62, 956.63, and 956.70, or any combination thereof.
7. In part 956, a new center heading and Sec. 956.70 are added to
read as follows:
Inspection
Sec. 956.70 Inspection and certification.
(a) During any period in which shipments of Walla Walla Sweet
Onions are regulated pursuant to this subpart, no handler shall handle
Walla Walla Sweet Onions unless such onions are inspected by an
authorized representative of the Federal-State Inspection Service, or
such other inspection service as the Secretary shall designate and are
covered by a valid inspection certificate, except when relieved from
such requirements pursuant to Secs. 956.63 and 956.64, or both. Upon
recommendation of the committee, with approval of the Secretary,
inspection providers and certification requirements may be modified to
facilitate the handling of Walla Walla Sweet Onions.
(b) Regrading, resorting, or repacking any lot of Walla Walla Sweet
Onions shall invalidate prior inspection certificates insofar as the
requirements of this section are concerned. No handler shall ship Walla
Walla Sweet Onions after they have been regraded, resorted, repacked,
or in any other way further prepared for market, unless such onions are
inspected by an authorized representative of the Federal-State
Inspection Service, or such other inspection service as the Secretary
shall designate: Provided, That such inspection requirements on
regraded, resorted, or repacked Walla Walla Sweet Onions may be
modified, suspended, or terminated under rules and regulations
recommended by the committee, and approved by the Secretary.
(c) Upon recommendation of the committee, and approval of the
Secretary, all Walla Walla Sweet Onions that are required to be
inspected and certified in accordance with this section shall be
identified by appropriate seals, stamps, tags, or other identification
to be furnished by the committee and affixed to the containers by the
handler under the direction and supervision of the Federal-State or
Federal inspector, or the committee. Master containers may bear the
identification instead of the individual containers within said master
container.
(d) Insofar as the requirements of this section are concerned, the
length of time for which an inspection certificate is valid may be
established by the committee with the approval of the Secretary.
(e) When Walla Walla Sweet Onions are inspected in accordance with
the requirements of this section, a copy of each inspection certificate
issued shall be made available to the committee by the inspection
service.
(f) The committee may enter into an agreement with an inspection
service with respect to the costs of the inspection as provided by
paragraph (a) of this section, and may collect from handlers their
respective pro rata shares of such costs.
Dated: September 17, 1998.
Enrique E. Figueroa,
Administrator, Agricultural Marketing Service.
[FR Doc. 98-25400 Filed 9-22-98; 8:45 am]
BILLING CODE 3410-02-P
