06-3099. Transfer of Sugar Program Marketing Allocations

AGENCY:

Commodity Credit Corporation, USDA.

ACTION:

Final rule.

SUMMARY:

This rule amends the sugar program regulations of the Commodity Credit Corporation (CCC). The provisions for transferring sugar marketing allocation when a mill closes and growers request to move their allocation are amended. A regulatory deadline, the 20th of each month, for the program's information reporting requirements is added. Also, each cane processor, cane refiner and beet processor will be required to provide an annual report prepared by a Certified Public Accountant (CPA) that verifies the company's data submitted to CCC.

DATES:

Effective Date: March 31, 2006.

FOR FURTHER INFORMATION CONTACT:

Barbara Fecso at [phone], or via e-mail at [e-mail]. Persons with disabilities who require alternative means for communication (Braille, large print, audiotape, etc.) should contact the USDA Target Center at [phone] (voice and TDD).

SUPPLEMENTARY INFORMATION:

The Commodity Credit Corporation (CCC) published a proposed rule on September 7, 2005 (70 FR 53103). Public comments were accepted until November 7, 2005. The rule proposed three changes to the Sugar Program Regulations at 7 CFR part 1435.

First CCC proposed to amend the regulations for transferring sugar marketing allocation when a mill closes. The proposed rule provided that the closed mill's allocation would be distributed based on the production history of the growers requesting to move their allocation.

To understand the change that was proposed, it is necessary to understand the relationship between processors, growers, and how allocations have been determined.

The Sugar Program was authorized by section 359 of the Agricultural Adjustment Act of 1938, as amended by the Farm Security and Rural Investment Act of 2002 (the “2002 Act”) (7 U.S.C. 1359aa et seq.). The 2002 Act requires CCC to periodically analyze market factors and establish a national sugar marketing allotment to limit the quantity of sugar that processors can market. The goal is to achieve a price level that will minimize sugar loan collateral forfeitures to CCC. Once the overall marketing allotment is established, it is allocated between the beet sugar and cane sugar sectors (54.35 and 45.65 percent, respectively). The beet allotment is allocated directly to beet processors, the cane allotment is allocated to four cane-producing states (Florida, Louisiana, Hawaii and Texas), and is further allocated among sugar cane processing mills within each state. Each mill, in turn, divides its allocation among its sugar cane growers. While the allocation formula in the regulation for the beet sector has not changed since 2002, the formula in the regulation for cane state allotments and cane processor allocations was changed in 2004 when a component of the formula, the “ability to market,” was redefined (69 FR 55061-55063, September 13, 2004). The problem addressed by this rule arose due to the new cane sector “ability to market” definition, which added the 2002 and 2003 crop years' production to the historic period for Florida, Louisiana and Texas.

The current regulations provided that if a mill closes, a grower may petition CCC to move an allocation commensurate with its production history to another mill of its choice. However, when two Louisiana cane processing mills announced they would not reopen for the 2005 crop, there was debate within CCC and in the sugarcane industry about the petition rights of growers who had delivered cane used to establish the mill's allocation, but did not deliver 2002 or 2003 crop cane. Some parties contended that growers who had not delivered in the crop year before the mill closed contributed to its demise by “shorting” the mill of its customary level of cane and, therefore, should not be rewarded with the right to petition for a transfer. Others contended that as long as a grower's production contributed to the establishment of a mill's allocation, a grower should always be entitled to transfer its share of the allocation.

The regulations at 7 CFR 1435.308, as set forth in the final rule, provide that CCC will distribute the closed mill's allocation based on the contribution of the growers' production history to the closed mill's allocation. This means that CCC will apply the same formula to each grower at the closed mill as the formula used when that mill's original allocation was determined. For example, if a mill closes in Louisiana, CCC will apply to a grower's history over the crop years 1997 through 2001, a 25% weight for the average of the highest two years of past processings, a 25% weight for the average of the highest two years of past marketings, and a 50% weight for the “ability to market”, i.e., the average of the production from the 2003 crop year and the Olympic average of the three years of production from among the 1999 through 2003 crop, excluding the highest and lowest production years. The result of using this formula, in this example, is that the right to petition for transfer belongs to any grower who delivered cane to the closed mill from the 1997 crop year through the 2003 crop year.

Public Comments

On this change, the Agency received 54 comments. Forty (40) sugar cane growers submitted form letters supporting the proposed rule, and nine growers submitted the same form letter but appended additional comments. Four sugar cane processors and the Louisiana Farm Bureau, an organization representing Louisiana sugarcane producers also submitted comments. Most of these comments were in support of the changes proposed. The Agency has reviewed the comments and addressed them as follows.

One grower comment suggested that the landowner, not the grower, should name the successor mill in the event of mill closure. The Agency feels that the rule sufficiently addresses this concern without providing explicit allotment transfer rights to landowners. This is because CCC has found that while the grower signs the petition to transfer allocation to a particular mill, landowners have changed transfer requests when better offers were received from competing mills. Further, CCC has found that a grower is normally more aware of what is occurring in the local sugar processing market than a landowner, who may be located some distance from the farm. Moreover, it is presumed that a grower will cooperate with its landowner in the choice of a successor mill and not risk any disquiet to its farm or lease by disputing the landowner's choice of a new mill. Therefore, the rule provides that a grower may petition for the transfer. Thus, no changes are planned in the final rule as a result of this comment.

One commenter supported the proposed rule, and suggested growers will place their allocation at successor mills offering the highest returns. The Agency generally agrees. As the commenter suggests, the intent of the rule was to give the grower the choice of where to deliver its cane if its mill closes. No change was made from the proposed rule in the final rule as a result of this comment.

One mill supported the proposal to determine the grower allocation based on their historical production and suggested that this method gives the grower the freedom to choose a successor mill that best ensures their future in farming. The Agency agrees. This rule offers security to growers by guaranteeing the right to petition for transfer as long as they delivered cane to the mill that closed during the period used to establish the mill's allocation. When their mill closes, growers can contract with mills offering the highest returns without risk of losing allocation. Again, no change was made from what was in the proposed rule in the final rule on this issue.

One processor agreed that the proposed method for calculating transferable allocation would ensure fair and equitable treatment for growers. However, this processor also maintained that “replacement growers” should not displace the production history from growers who contributed during the historical period. Replacement growers are those designated by the mill to supply sugarcane replacing sugarcane lost to the mill since the 2001 crop year and is a concept that only applies to Louisiana [See 7 CFR 1435.310(b)(1)(i)(C)].

The final rule partly addresses this commenter's concerns. The method to be used for distributing the closed mill's allocation grants any grower who delivered cane to the closed mill during the period when the mill's allocation was established the right to petition for a transfer of allocation, regardless of whether or not he was a replacement grower. If a grower supplies sugarcane to replace sugarcane lost to the mill after the historical period ends, and this mill closes, he may not petition for transfer.

The Louisiana Farm Bureau (LFB) strongly supported the proposed rule. LFB suggested that (1) it would be unfair to deny a grower who leaves within the last year of the historical period the right to transfer any allocation from a closed mill; (2) it would also be unfair to grant a grower who only delivers cane to a mill in the year prior to closure the right to petition for transfer of an allocation; and, (3) transferring allocations based on preceding crop year deliveries makes it possible to have marketing allocations awarded to non-base acreage. The Agency agrees. There is no change made in the final rule as a result of this comment.

One processor commented that there is a distinction between a mill “closure” and mill “consolidation” and that transfer rules should apply differently. The commenter stated that when a mill ceases to operate (a “closure”), growers should be able to choose their successor mill. However, when mills consolidate (which the commenter defines as to combine resources of more than one mill, and close a mill to achieve economies of scale), growers supplying cane to the closed mill should not be given the right to choose a successor mill. The allocation of these growers, the commenter argues, should stay with the remaining mill. The Agency disagrees. The authority for the transfer of allocation at 7 U.S.C. 1359f(c)(8) allows a grower to transfer allocation to another mill when the plant where it has established history closes. By statute, this right belongs to a grower, and exists to protect growers when a plant closes from having to ship their product beyond what is economically feasible, regardless of whether the closure by the mill owner was to consolidate production to achieve economies of scale. Typically, relationships between landowners, growers, processors, mills, and mill owners are defined by contracts, agreements, and a course of dealing over time. Absent terms in such an agreement which provide otherwise, when a processor closes a facility, the grower may transfer its allocation. Thus, the commenter's suggestions are not adopted and no change is planned in the final rule as a result.

The second change CCC proposed is a deadline for the program's information reporting requirements. The required monthly information would be due on the 20th of each month. The third change CCC proposed is to require each cane processor, cane refiner, and beet processor to provide an annual report by a Certified Public Accountant (CPA) that verifies the company's data submitted to CCC. No comments were received on either of these proposed changes and they are adopted in the final rule.

Executive Order 12866

This rule has been determined to be not significant under Executive Order 12866 and has not been reviewed by the Office of Management and Budget.

Regulatory Flexibility Act

The requirements of the Regulatory Flexibility Act (5 U.S.C. 601-602) do not apply to this rule because CCC is not required to publish a notice of proposed rulemaking for the subject of this rule. Nonetheless, CCC has determined that this rule will not have a significant economic impact on a substantial number of small entities and a Regulatory Flexibility Analysis was not performed.

Environmental Assessment

The environmental impacts of this rule have been considered under the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations of the Council on Environmental Quality (40 CFR parts 1500-1508), and regulations of the Farm Service Agency (FSA) of the Department of Agriculture (USDA) for compliance with NEPA, 7 CFR part 799. An environmental evaluation was completed and the proposed action has been determined not to have the potential to significantly impact the quality of the human environment and no environmental assessment or environmental impact statement is necessary. A copy of the environmental evaluation is available for inspection and review upon request.

Executive Order 12988

This rule has been reviewed in accordance with Executive Order 12988, Civil Justice Reform. In accordance with this Executive Order: (1) All State and local laws and regulations that are in conflict with this rule will be preempted; (2) no retroactive effect will be given to this rule; and (3) administrative proceedings in accordance with 7 CFR part 11 must be exhausted before seeking judicial review.

Executive Order 12372

This program is not subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. See the notice related to 7 CFR part 3015, subpart V, published at 48 FR 29115 (June 24, 1983).

Unfunded Mandates Reform Act of 1995

This rule contains no Federal mandates, as defined under title II of the UMRA, for State, local, and tribal governments or the private sector. Thus, this rule is not subject to the requirements of sections 202 and 205 of UMRA.

Executive Order 13132

The policies contained in this rule do not have any substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Nor does this rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.

Paperwork Reduction Act

Under 7 U.S.C. 7991(c)(2)(A) these regulations may be promulgated and the program administered without regard to chapter 5 of title 44 of the United States Code (the Paperwork Reduction Act). Accordingly, these regulations and the forms and other information collection activities needed to administer the provisions authorized by these regulations are not subject to review by the Office of Management and Budget under the Paperwork Reduction Act.

Government Paperwork Elimination Act

CCC is committed to compliance with the Government Paperwork Elimination Act (GPEA) and the Freedom to E-File Act, which require Government agencies in general, and the FSA in particular, to provide the public the option of submitting information or transacting business electronically to the maximum extent possible. Because of the nature of the forms and other information collection activities required for this program, they are not fully implemented in a way that would allow the public to conduct business with CCC electronically. Accordingly, at this time, all forms and information required to be submitted under this rule may be submitted to CCC by mail or FAX.

List of Subjects in 7 CFR Part 1435

• Loan programs—agriculture
• Price support programs
• Reporting and recordkeeping requirements, and Sugar

Accordingly, 7 CFR part 1435 is amended as follows:

PART 1435—SUGAR PROGRAM

1. The authority citation for part 1435 continues to read as follows:

Authority: 7 U.S.C. 1359aa-1359jj and 7272 et seq.; 15 U.S.C. 714b and 714c.

2. In § 1435.200 revise paragraph (a), redesignate paragraph (g) as paragraph (h), and add new paragraph (g) to read as follows:

§ 1435.200

Information reporting.

(a) Every sugar beet processor, sugarcane processor, cane sugar refiner, and importer of sugar, syrup, and molasses shall report, by the 20th of each month, on CCC-required forms, its imports and receipts, processing inputs, production, distribution, stocks, and other information necessary to administer the sugar programs. If the 20th of the month falls on a weekend or a Federal holiday, the report shall be made by the next business day.

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(g) By November 20 of each year, each sugar beet processor, sugarcane processor, sugarcane refiner, and importer of sugars, syrups, and molasses will submit to CCC a report, as specified by CCC, from an independent Certified Public Accountant that reviews its information submitted to CCC during the previous October 1 through September 30 period.

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3. Amend § 1435.308 by revising paragraph (a) to read as follows:

§ 1435.308

Transfer of allocation, new entrants.

(a) If a sugar beet or sugarcane processing facility is closed, and the growers that delivered their crops to the closed facility elect to deliver their crops to another processor, the growers may petition the Executive Vice President, CCC, to transfer their share of the allocation from the processor that closed the facility to their new processor. If CCC approves transfer of the allocations, it will distribute the closed mill's allocation based on the contribution of the growers' production history to the closed mill's allocation. CCC may grant the allocation transfer upon:

(1) Written request by a grower to transfer allocation,

(2) Written approval of the processing company that will accept the additional deliveries, and

(3) Evidence satisfactory to CCC that the new processor has the capacity to accommodate the production of petitioning growers.

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Signed in Washington, DC, on March 17, 2006.

Teresa C. Lasseter,

Executive Vice President, Commodity Credit Corporation.