[Federal Register: July 11, 2000 (Volume 65, Number 133)]
[Rules and Regulations]
[Page 42598-42615]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11jy00-3]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 929
[Docket No. FV00-929-2 FR]
Cranberries Grown in States of Massachusetts, Rhode Island,
Connecticut, New Jersey, Wisconsin, Michigan, Minnesota, Oregon,
Washington, and Long Island in the State of New York; Establishment of
Marketable Quantity and Allotment Percentage and Other Modifications
Under the Cranberry Marketing Order
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
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SUMMARY: This rule establishes the quantity of cranberries that
handlers may purchase from, or handle for, growers during the 2000-2001
crop year, which begins on September 1, 2000, and ends on August 31,
2001. The order regulates the handling of cranberries grown in 10
States and is administered locally by the Cranberry Marketing Committee
(Committee). This rule establishes a marketable quantity of 5.468
million barrels, allows for some adjustment of this figure based on
final calculations of sales histories, and establishes an allotment
percentage of 85 percent. This action is designed to stabilize
marketing conditions and improve grower returns. Fresh and organically-
grown cranberries are exempt from the volume limitations to facilitate
marketing of these products. This rule also revises the method in which
growers' sales histories are computed and suspends certain dates in the
order which are impractical.
EFFECTIVE DATE: This final rule becomes effective July 12, 2000.
FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Kenneth G.
Johnson, DC Marketing Field Office, Fruit and Vegetable Programs, AMS,
USDA, Suite 2A04, Unit 155, 4700 River Road, Riverdale, Maryland 20737,
telephone: (301) 734-5243; Fax: (301) 734-5275; or Anne M. Dec,
Marketing Order Administration Branch, Fruit and Vegetable Programs,
AMS, USDA, room 2525-S, P.O. Box 96456, Washington, DC 20090-6456;
telephone: (202) 720-2491, Fax: (202) 720-5698.
Small businesses may request information on complying 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) 720-5698, or E-mail: Jay.Guerber@usda.gov.
SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing
Order No. 929 [7 CFR Part 929], as amended, regulating the handling of
cranberries grown in Massachusetts, Rhode Island, Connecticut, New
Jersey, Wisconsin, Michigan, Minnesota, Oregon, Washington, and Long
Island in the State of New York. The order is effective under the
Agricultural Marketing Agreement Act of 1937, as amended [7 U.S.C. 601-
674], hereinafter referred to as the ``Act.''
Question and Answer Overview
When Will This Final Rule Be Effective?
The final rule is effective on July 12, 2000, and the volume
regulation will apply to the 2000-2001 crop year which begins on
September 1, 2000, and ends on August 31, 2001.
Who Will Be Affected by This Action?
Cranberry growers and handlers/processors located in the 10-State
production area will be affected by this action. The 10-State
production area covers cranberries grown in Massachusetts, Rhode
Island, Connecticut, New Jersey, Wisconsin, Michigan, Minnesota,
Oregon, Washington, and Long Island in the State of New York.
Why Is Volume Control Being Implemented This Year?
The Committee recommended volume control this year in order to
address the serious oversupply situation being experienced by the
industry. For the 1999 crop year, industry reports show that continued
low grower prices will accompany record high production and
inventories. Many cranberry growers are experiencing difficulties
dealing with these extreme market conditions.
The Committee determined the best method of volume control would be
the producer allotment program which provides for an annual marketable
quantity and allotment percentage.
The use of volume control is not the only avenue that could be used
to address the oversupply situation being experienced by the industry.
The industry is also looking into methods of increasing demand by
developing new markets, both domestic and foreign, by developing new
products and by increasing promotional efforts.
What Is Marketable Quantity and Allotment Percentage?
Marketable quantity is defined as the number of pounds of
cranberries needed
[[Page 42599]]
to meet total market demand and to provide for an adequate carryover
into the next season. The marketable quantity for the 2000-2001 crop
year has been established at 5.468 million barrels. This figure is
subject to some change based on final calculations of sales histories.
This is approximately equal to the expected demand for fruit for
processing.
The allotment percentage equals the marketable quantity divided by
the total of all growers' sales histories. Total growers' sales
histories were set by the Committee at 6.432 million barrels. Using the
formula established under the order (5.468 million barrels divided by
6.432 million barrels), the annual allotment percentage is 85 percent.
Sales of fresh and organically-grown fruit are exempt from the
volume regulation. In addition, other modifications have been made to
implement volume regulation.
How Are Growers' Annual Allotments Calculated?
A grower's annual allotment is the result of multiplying the
individual grower's sales history by the 85% allotment percentage.
How Are Sales Histories Calculated for the 2000-2001 Season?
The Committee is responsible for calculating each grower's sales
history on an annual basis. A new grower with no sales history will be
issued allotment based on the State average yield per acre or total
estimated commercial sales, whichever is greater. For the 2000-2001
crop, the State average yield is defined as the average State yield for
the year 1997 or the average of the best four years out of the last six
years, whichever is greater.
For growers with existing cranberry acreage, sales history for
growers with six or more years of sales history is established by
computing an average of the highest four of the most recent six years
of sales. For growers with five years of sales history, the average of
the best four out of the last five years is used. For growers with four
years or less of commercial sales history, the sales history is
calculated by using the best single sales year. The sales history of
newly planted acreage belonging to existing growers which has no
commercial sales history (including those with four years or less of
sales history) is calculated the same way as the sales history of a new
grower with no sales history. If growers with existing acreage also
have newer acreage with four years of sales history or less, and such
grower can provide the Committee with credible information which would
allow the Committee to segregate the sales history of the newer
acreage, then that acreage will be treated in the same way as acreage
of a grower with four years or less of sales history.
Do Growers Have Recourse if They Are Not Satisfied With Their Sales
History Calculation?
If growers are dissatisfied with their sales history calculation as
determined by the Committee, they can appeal to the appeals
subcommittee appointed by the Committee. If growers are not satisfied
with the decision by the appeals subcommittee, two other levels of
appeal are available--the full Committee and the Secretary. All
decisions by the Secretary will be final.
The appeals subcommittee is in the process of developing specific
criteria to follow in making its decisions.
Appeals should be filed with David N. Farrimond, General Manager,
Cranberry Marketing Committee, 266 Main Street, Wareham, Massachusetts
02571; Telephone: (800) 253-0862; or Fax (508) 291-1511.
Executive Orders 12866 and 12998
The Department of Agriculture (Department) is issuing this rule in
conformance with Executive Order 12866.
This final rule has been reviewed under Executive Order 12988,
Civil Justice Reform. Under the marketing order provisions now in
effect, a marketable quantity and allotment percentage may be
established for cranberries during any crop year. This rule establishes
a marketable quantity and allotment percentage for cranberries for the
2000-2001 crop year beginning September 1, 2000, through August 31,
2001. This rule will not preempt any State or local laws, regulations,
or policies, unless they present an irreconcilable conflict with this
rule.
The Act provides that administrative proceedings must be exhausted
before parties may file suit in court. Under section 608c(15)(A) of the
Act, any handler subject to an order may file with the Secretary a
petition stating that the order, any provision of the order, or any
obligation imposed in connection with the order is not in accordance
with law and request a modification of the order or to be exempted
therefrom. 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.
Introduction
As discussed in detail later in this document, the U.S. cranberry
industry is experiencing an oversupply situation. Recent increases in
acreage and yields have resulted in greater supplies, while demand has
remained fairly constant. The result has been building inventories and
reduced grower returns.
The Committee has been considering ways to cope with this
oversupply situation in recent years. On March 30, 2000, the Committee
recommended using volume controls (in the form of producer allotments)
for the 2000-2001 crop year. Based on the Committee's recommendation
and other available information, a proposed rule was issued and
published in the May 30, 2000, Federal Register [65 FR 34411]. That
rule proposed three alternative levels of volume regulation. The
Committee met again on June 6, 2000, and revised its initial
recommendation in several respects.
This final rule establishes a marketable quantity and allotment
percentage for the 2000-2001 crop year. This action also revises
procedures for calculating growers' sales histories, exempts fresh and
organically-grown cranberries from volume regulation, defines State
average yield per acre, increases the barrels per acre for determining
a commercial crop, revises the Committee review procedures for re-
determination of sales histories, and suspends the date by which the
Committee notifies growers of their annual allotment. These actions are
based primarily upon the recommendations made by the Committee and
comments received in response to the May 30, 2000, proposed rule. The
volume regulation will be effective September 1, 2000, through August
31, 2001.
Marketable Quantity, Allotment Percentage and Sales Histories
Section 929.49 of the order currently provides that if the
Secretary finds from the recommendation of the Committee or from other
available information, that limiting the quantity of cranberries
purchased from or handled on behalf of growers during a crop year would
tend to effectuate the declared policy of the Act, the Secretary shall
determine and establish a marketable quantity for that year. In
addition, the Secretary would establish an allotment percentage which
shall equal the marketable quantity divided by the total of all
growers' sales histories. The allotment percentage
[[Page 42600]]
would be applied to each grower's individual sales history to derive
each grower's annual allotment. Handlers cannot handle cranberries
unless they are covered by a grower's annual allotment.
Section 929.48 of the order provides for computing growers' sales
histories to be used in calculating marketable quantities and allotment
percentages under Sec. 929.49. Sales history is defined in section
929.13 as the number of barrels of cranberries established for a grower
by the Committee. The Committee has been updating growers' sales
histories each season. The Committee accomplishes this by using
information submitted by the grower on a production and eligibility
report filed with the Committee. The order sets forth that a grower's
sales history is established by computing an average of the best four
years' sales out of the last six years' sales for those growers with
existing acreage. For growers with four years or less of commercial
sales history, the sales history has been calculated by averaging all
available years of such grower's sales. A new sales history for acreage
with no sales history is calculated by using the State average yield
per acre or the total estimated commercial sales, whichever is greater.
This is done for new growers, as well as those that also have acreage
with sales history.
Section 929.46 of the order requires the Committee to develop a
marketing policy each year prior to May 1. In its marketing policy, the
Committee projects expected supply and market conditions for the
upcoming season, including an estimate of the marketable quantity
(defined as the number of pounds of cranberries needed to meet total
market demand and to provide for an adequate carryover into the next
season).
Committee's Initial Recommendation--March 30, 2000
At a March 30, 2000 meeting, the Committee estimated the 2000-2001
domestic production of cranberries at 5.89 million barrels. Carryover
as of September 1, 2000, was estimated at 4.6 million barrels. Foreign
production (primarily Canada) was projected at 800,000 barrels.
Allowing for shrinkage of 2 percent for carryover and 4 percent for
domestic and foreign production, the total adjusted available supply of
cranberries was projected at 10,930,000 barrels.
Based in large part on historical sales figures, the Committee
estimated utilization of processing fruit at 5.4 million barrels and of
fresh fruit at 280,000 barrels.
A summary of the marketing policy follows:
Cranberry Marketing Policy, 2000 Crop Year Estimates
Carryover as of 9/1/2000.................. 4,600,000 barrels.
Domestic production....................... 5,890,000 barrels.
Foreign production........................ 800,000 barrels.
Available supply (sum of the above)....... 11,290,000 barrels.
Minus shrinkage........................... 360,000 barrels.
Adjusted Supply........................... 10,930,000 barrels.
------------------------------------------------------------------------
Fresh Fruit............................... 280,000 barrels.
Processing fruit.......................... 5,400,000 barrels.
Total Sales and Usage..................... 5,680,000 barrels.
Carryover as of 8/31/2001................. 5,250,000 barrels.
The Committee determined that the marketable quantity for the 2000-
2001 crop year should be established at 5.4 million barrels. This was
equal to the expected demand for processing fruit. Fresh fruit sales
were not included because (as discussed later in this document) fresh
fruit would not be covered by the allotment percentage. Using a
marketable quantity equal to processed fruit demand should result in a
more stable level of inventories. Supplies in inventory could easily
cover any unexpected increases in market demand.
Section 929.49(b) of the order provides that the marketable
quantity be apportioned among growers by applying the allotment
percentage to each grower's sales history. The allotment percentage
equals the marketable quantity divided by the total of all grower's
sales histories. No handler can purchase or handle cranberries on
behalf of any grower not within the grower's annual allotment.
Total growers' sales histories were set at 6.35 million barrels.
Using the formula established under the order in Sec. 929.49 (5.4
million barrels divided by 6.35 million barrels), the annual allotment
percentage was 85 percent.
Proposed Rule Published on May 30, 2000
The Committee has been discussing the possible use of volume
regulation for over a year. In its deliberations, concerns were voiced
about the potential inequities that could result from the current
process used to calculate sales histories. Because sales histories are
based on an average of past years' sales, newer growers could be
restricted to a greater extent than more established growers. This is
because a cranberry bog does not reach full capacity until several
years after being planted. Using an average of early years' sales
(which are low) would likely result in a sales history below future
sales potential. A more established grower, on the other hand, would
have a sales history more reflective of his or her production capacity.
The Committee's March 30, 2000, recommendation concerning the
definition of ``commercial crop'' (explained later in this document)
was intended to mitigate potential inequities. Based upon information
received from cranberry growers and handlers subsequent to the March 30
meeting, the Department believed a further modification might be needed
to lessen the differential impact a volume regulation could have on
individual cranberry growers. For this reason, the Department proposed
that a sales history for each existing grower be calculated using the
best single sales year in the past six years. For a grower with less
than six years of sales, the sales history would be the highest year of
sales available. This type of change is contemplated under
Sec. 929.48(a)(2) of the order, which provides that the number and
identity of the years used to compute sales histories may be altered by
regulation. The Department did not propose a change in the way sales
histories are computed for brand new acreage (acreage without any
history of sales).
The Department's proposal would have changed the way most growers'
sales histories were computed. If this change were adopted, each
affected grower's sales history would be recalculated. The Committee
staff reported that this would have resulted in a new industry total
sales history of 7.6 million barrels (about 20% above the 6.35 million
barrels used by the Committee). Retaining the 5.4 million barrel
marketable quantity recommended by the Committee would require an
allotment percentage of 71 percent. To retain the 85% allotment
percentage recommended by the Committee, the marketable quantity would
need to be increased to 6.46 million barrels (almost 20% above the 5.4
million barrels of expected demand for processing fruit as calculated
by the Committee). In the May 30 proposed rule, the Department
solicited comments on the Committee's original recommendation of
marketable quantity and allotment percentage, as well as on two
alternatives proposed by the Department. To summarize, the three
options proposed in the May 30 rule
[[Page 42601]]
were as follows (the marketable quantity and total sales histories
figures are all in million barrel units):
------------------------------------------------------------------------
Marketable Total sales Allotment
quantity histories percentage
------------------------------------------------------------------------
Committee Recommendation....... 5.4 6.35 85
USDA Option 1.................. 5.4 7.6 71
USDA Option 2.................. 6.46 7.6 85
------------------------------------------------------------------------
The proposed rule solicited comments on these three options or
appropriate modifications of them. Comments were due on June 14, 2000.
Committee's Recommendation of June 6, 2000
During the comment period, the Committee met again on June 6, 2000.
The primary reason the meeting was held was to consider the various
options contained in the proposed rule.
The Committee discussed the two options proposed by USDA. In order
to lessen the differential impact a volume regulation would have on
individual growers, the sales history calculation was proposed to be
modified by USDA so that each existing grower would use the best single
sales year in the past six years. A grower with less than six years of
sales would use the highest year of sales available. The computation
for all growers with brand new acreage was not modified from the
Committee's first recommendation (using the State average yield or the
total estimated commercial sales, whichever is greater). Using the
revised calculation, total sales histories would be increased to 7.6
million barrels. The Committee believed that this calculation
artificially inflates the total sales histories. For example, the new
total exceeds the record-high 1999 production of 6.39 million barrels
by 19 percent, and it exceeds the projected 2000 production (5.89
million barrels) by almost 30 percent.
The Committee also believes that the revised calculation favors
production regions with more variability in yield from year to year
over those with more consistent production. A Committee member at the
June 6, 2000, meeting stated that the standard deviation of yields in
Massachusetts is less than 15 barrels per acre, compared with more than
30 barrels per acre in Oregon. Using the best year out of the last six
would benefit those States with higher variation, introducing more
inequities rather than diminishing them. The proposed change would also
favor growers who have planted new acreage over growers who have a more
consistent record of production.
Discussion at the June 6 meeting also indicated that the proposed
change would favor growers who have planted new acreage in recent years
over growers who have a more consistent record of production. (No
concerns were expressed about the method used for computing sales
histories for new acreage with no sales history.) The Committee
concluded that the proposed change in the calculation of sales
histories would give undue advantages to growers who have expanded
acreage considerably in recent years, and would penalize growers who
maintained a consistent production base. This would, again, introduce
additional inequities.
Under USDA's option 1, the marketable quantity would remain at 5.4
million barrels, as recommended by the Committee on March 30, 2000.
Using the higher sales history figure of 7.6 million barrels would
reduce the allotment percentage to 71 percent (5.4 million barrels
divided by 7.6 million barrels). This would increase the restricted
percentage from 15 to 29 percent. The consensus of the Committee was
that volume regulation should not be more restrictive than an 85
percent producer allotment. Although a 15 percent restriction may not
have a great immediate impact on grower returns because of the expected
large crop and carryover inventories, the Committee believes that an 85
percent allotment percentage would be a good place to start for the
industry to address the oversupply situation. The Committee recognizes
that the market cannot be stabilized (under the marketing order) in a
single year.
More importantly, many growers have been anticipating an allotment
percentage not less than 85 percent and have been modifying their
cultural practices accordingly. Any dramatic increase in the restricted
percentage would likely be met with great opposition from the grower
community. The Committee therefore concluded that an allotment
percentage of 71 percent was unacceptable and rejected USDA's option 1.
Under its second option, USDA again used the higher sales history
figure of 7.6 million barrels. To retain the 85% allotment percentage
recommended by the Committee on March 30, the marketable quantity was
raised from the 5.4 million barrels recommended by the Committee to
6.46 million barrels, an increase of almost 20 percent. The Committee
believed that raising the marketable quantity to 6.46 million barrels
would result in adding more fruit to the oversupply, further
destabilizing the industry and lowering prices. The Committee therefore
did not support USDA's option 2.
Concerns were expressed at the June 6 meeting involving growers
with 4 years or less of sales histories. It was expressed that these
growers could be impacted more greatly by a volume regulation than
other growers because of the way the sales histories would be computed.
This is because, as previously discussed, yields are increasing on
younger acreage. Using an average of past years' sales, as the order
provides, would result in a sales history lower than that acreage's
future production capacity. To mitigate this problem, the Committee
recommended adopting, in part, the change in sales history calculation
proposed by USDA. Specifically, it voted to recommend, for a grower
with four years or less of sales history, the best year of sales
available as that grower's sales history.
Concern was also expressed that the sales history for a grower with
only acreage that is 4 years old or younger (who would use the highest
year as his or her sales history), would be calculated differently than
the sales history for a grower with a combination of both older and
younger acreage. For the more established grower, all sales off all
acreage is combined, regardless of the age of the acreage. Then the
average of the best four years of sales out of the last six years is
used as that grower's sales history. Thus, the more established grower
would not get the same adjustment for new acreage that the grower with
all new acreage does. It was discussed at the meeting that the
Committee does not collect information that would allow such an
adjustment. Growers' sales are not segregated by the age of individual
bogs, so based on the information available, an adjustment for acreage
with 4 years of sales or less cannot be made. Such information could be
collected by the Committee in the future.
[[Page 42602]]
The Committee ultimately recommended a fourth option. The Committee
recommended that growers with only acreage that is 4 years old or less
use the best single sales year to calculate a sales history. Growers
with 5 years of sales history would use an average of their highest 4
years of sales. Growers with 6 or more years would use an average of
their highest 4 years of sales of the most recent six years. New
acreage for both brand new and existing growers would continue to
receive a sales history using the State average yield or the total
estimated commercial sales from that acreage, whichever is greater.
The Committee's recommended change in the calculation of sales
histories revised the total industry sales history to 6.432 million
barrels. The Committee recommended a small increase in its marketable
quantity (from 5.4 to 5.468 million barrels) to retain an allotment
percentage of 85 percent. The vote on this recommendation was
unanimous. A summary of the various options under consideration follows
(again, the marketable quantity and sales history figures are in
million barrel units):
------------------------------------------------------------------------
Marketable Total sales Allotment
quantity histories percentage
------------------------------------------------------------------------
Initial Committee 5.4 6.35 85
Recommendation................
USDA Option 1.................. 5.4 7.6 71
USDA Option 2.................. 6.46 7.6 85
Revised Committee 5.468 6.432 85
Recommendation................
------------------------------------------------------------------------
This rule implements the Committee's June 6, 2000, recommendation,
with a change, by adding a new Sec. 929.149 to the order's rules and
regulations pertaining to determination of sales history. This section
is modified from what appeared in the May 30, 2000, proposed rule by
providing that a sales history for each grower with 5 years of sales
history shall be computed by using an average of the highest four years
of such grower's sales history. For a grower with six or more years of
sales history, the sales history shall be computed using an average of
the highest four of the most recent six years of sales. For a grower
with four years or less of commercial sales history, the sales history
will be computed using the highest year (the same as in the proposed
rule). Sales histories for new acreage with no previous sales will be
computed using the State average yield or estimated production,
whichever is greater (again, the same as in the proposed rule). This
rule clarifies the regulatory language pertaining to sales history for
new acreage. As discussed in the proposal (65 FR 34414), sales
histories for newly planted acreage by existing growers are computed in
the same way as for newly planted acreage by new growers without any
sales history. Finally, under this rule, if an established grower has
newer acreage with four years of sales history or less, and such grower
can provide the Committee with credible information which would allow
the Committee to segregate the sales history of the newer acreage, then
that acreage will be treated in the same manner as acreage of a grower
with four years or less of sales history.
This change in the way sales histories are calculated was made by
the Department based on the concerns and comments regarding fairness
and equity which were raised during this rulemaking. This change will
likely result in a slight increase in the marketable quantity
recommended by the Committee to maintain the allotment percentage at 85
percent. The Department believes that this change is needed to most
equitably allocate allotment among growers, consistent with the
requirements of the Act. Additionally, it is apparent that the industry
will not support any restricted percentage greater than 15 percent.
Although the level of restriction imposed under this rule will not
likely resolve the surplus situation facing the cranberry industry in a
single year, we conclude that this rule is the best course of action
given the economic crisis facing the industry.
This rule also adds a new Sec. 929.250 to set a marketable quantity
of 5.468 million barrels and an allotment percentage of 85 percent. The
marketable quantity is within the range proposed in the May 30 rule,
and the allotment percentage is equal to that under two of the three
options contained in that proposed rule. The additional change to
accommodate established growers with new acreage having four years of
sales history or less will result in a change in marketable quantity,
but not enough to undermine this regulation. This conclusion is based
on the Department's belief that sales histories of growers in this
category would be increased by a relatively small amount.
Definition of Commercial Crop
The Committee unanimously recommended on March 30, 2000, that the
number of barrels that defines a commercial crop under the marketing
order be increased from 15 to 50 barrels per acre. Calculations of
sales histories are based on ``commercial'' cranberry sales. Currently,
section 929.107 defines a commercial crop as acreage that has a
sufficient density of growing vines to produce at least 15 barrels per
acre without replanting or renovation. This rule increases the 15
barrels per acre to 50 barrels per acre. Acreage producing less than 50
barrels per acre will not be considered to produce a commercial crop.
This increase brings the order more in line with current growing
conditions.
This action will assist growers who harvested cranberries for the
first time in 1999. These growers will qualify for a new sales history
determination if they produced less than 50 barrels per acre.
A full commercial cranberry crop is usually not harvested until 3
or 4 years after being planted. Production is usually limited during
the first year, with increases in subsequent years until full capacity
is reached. Under the current rule, if a grower harvested a bog for the
first time in 1999, and achieved a yield of 25 barrels per acre, such
grower's sales history would be calculated by using the determination
for a grower with four years or less of production. This would be the
actual production for that year. Therefore, in this example, for the
2000-2001 crop year the grower's sales history would be 25 barrels
multiplied by the number of acres such grower harvested. The 25 barrels
would be used in the calculation since it is greater than the 15
barrels per acre used to define commercial cranberry acreage.
Under this rule change, such grower's first year of sales harvested
from that acreage will not count since it is less than 50 barrels per
acre. Therefore, the grower will be eligible to receive the
determination for growers with no sales history on such acreage (which
is the State average yield or the grower's
[[Page 42603]]
estimated commercial sales, whichever is greater). This should benefit
growers who had very low yields per acre for their first year of
production.
This rule revises Sec. 929.107 of the order's rules and
regulations, consistent with the proposed rule published on May 30,
2000.
Determination of Sales History for Growers With No History on Their
Acreage
As previously discussed, a new sales history for a grower with no
sales history is calculated by using the State average yield per acre
or the total estimated commercial sales, whichever is greater. Existing
growers who have newly planted acreage will also use this calculation
for their new acreage.
The Committee recommended that for the 2000-2001 crop year, the
State average yield be defined as the average State yields for the year
1997 or the average of the best four years out of the last six years,
whichever is greater. This calculation is similar to that used to
compute sales history for more established growers (an average of the
best four years out of the last six years), and would average out
seasonal variations in yields. However, if estimated commercial sales
are greater than what is computed above, the Committee will use the
commercial sales estimated by the grower.
To take into account the differences among the States, the
Committee recommended calculating the average yield for each State
using the best four of the last six years, and comparing it to the
average yield for that State in 1997. The higher of the two figures for
each State will be used to calculate new sales histories for new
growers.
A new Sec. 929.148 is added to the order's rules and regulations to
set forth the calculation of the State average yield. This is
consistent with the proposed rule published on May 30, 2000.
Fresh and Organic Fruit Exemption
The Committee also recommended on March 30, 2000, that fresh and
organically-grown cranberries be exempt from volume regulation during
the upcoming season. This exemption is authorized under Sec. 929.58 of
the order, which provides that the Committee may relieve from any or
all requirements cranberries in such minimum quantities as the
Committee, with the approval of the Secretary, may prescribe.
Fresh fruit accounts for about 4.7 percent of the total production.
The Committee estimated that about 280,000 barrels will be sold fresh
this year, compared to 260,000 barrels sold last season.
Under current growing and marketing practices, there is a
distinction between cranberries for fresh market and those for
processing markets. Cranberries intended for fresh fruit outlets are
grown and harvested differently. Fresh cranberries are dry picked (in
most cases) while cranberries used for processing are water picked.
When cranberries are water picked, the bog is flooded and the
cranberries that rise to the top are harvested. Dry picking is a more
labor intensive and expensive form of harvesting. Cranberry bogs are
designated as ``fresh fruit'' bogs and are grown and harvested
accordingly to produce fruit that is of the quality needed for fresh
fruit. Only the lower quality fruit from a fresh bog goes to processing
outlets. Yields of fresh fruit growers are typically reduced from those
of processed growers. Productions costs are higher, although a premium
price over fruit delivered for processing is anticipated.
Fresh cranberry sales constitute less than 5 percent of the
cranberry market. All fresh cranberries can be marketed and do not
compete with processing cranberries. Fresh cranberries are seasonal
(due to their limited shelf life) and are not part of the growing
industry inventories.
The Committee concluded that fresh supplies do not contribute
significantly to the current cranberry surplus. Thus, the Committee
recommended that such cranberries be exempt from the volume regulation
implemented by this rule.
Organically-grown cranberries comprise an even smaller portion of
the total crop than fresh cranberries do. The Committee estimated that
about 1,000 barrels of organic fruit will be sold this season, compared
to 450 barrels last season. Organic cranberries are a growing niche
market and regulating them could have an adverse effect on marketing
this product. Demand for organic cranberries is in line with the
current limited production. Thus, all organic cranberries can be
marketed, and they do not contribute in any meaningful way to the
current oversupply experienced with processing fruit. The Committee
therefore recommended that organically-grown cranberries be exempt from
volume regulation during the upcoming season. In order to be exempt,
organic cranberries will have to be certified as such by a third party
organic certifying organization that is acceptable to the Committee.
The fresh fruit exemption was further discussed at the Committee's
June 6, 2000, meeting. Concerns were expressed that this exemption
would give an unfair advantage to some cranberry processors (those that
do not handle fresh fruit) and to their growers. It was suggested that
any unused allotment earned by a fresh fruit grower be forfeited,
similar to what happens to unused allotment received by growers with
new acreage (based on the State average yield).
The Committee considered this suggestion, but continued to support
its recommendation to exempt fresh fruit from volume regulation. It was
concerned that any substantive departure from the requirements proposed
in the May 30 rule would require a second proposed rule to be issued
and an opportunity for additional comments to be made available. In any
event, the effect of the fresh fruit exemption on the market would
probably be minor. The Committee stated that the way in which fresh
fruit is handled in future years will be given additional
consideration.
Moreover, encouraging growth in organic and fresh markets for
cranberries is consistent with the Committee's (and industry)
objectives to develop additional market outlets for cranberries. Future
industry growth depends on expanding market outlets for cranberries and
should not be discouraged.
This rule provides an exemption from volume regulation for fresh
and organically-grown cranberries by adding a new Sec. 929.158, as
included in the May 30, 2000, proposed rule.
Outlets for Excess Cranberries
The purpose of the producer allotment program implemented by this
rule is to limit the amount of the total crop that can be marketed for
normal commercial uses. There is no need to limit the volume of
cranberries that may be marketed in noncommercial or noncompetitive
outlets. Thus, in accordance with Sec. 929.61, handlers will be able to
dispose of excess cranberries in certain designated outlets. That
section of the order provides that noncommercial outlets may include
charitable institutions and research and development projects for
market development purposes. Noncompetitive outlets may include any
nonhuman food use (animal feed) and foreign markets, except Canada.
Canada is excluded because significant sales of cranberries to Canada
could result in transshipment back to the United States of the
cranberries exported there. This could disrupt the U.S. market,
contrary to the intent of the volume regulation.
To ensure that excess cranberries diverted to the specified outlets
do not
[[Page 42604]]
enter normal market channels, certain safeguard provisions are
established under Sec. 929.61. These provisions require handlers to
provide documentation to the Committee to verify that the excess
cranberries were actually used in a noncommercial or noncompetitive
outlet. In the case of nonhuman food use, a handler would be required
to notify the Committee at least 48 hours prior to disposition so that
the Committee staff would have sufficient time to be available to
observe the disposition of the cranberries.
The proposed rule published on May 30, 2000, proposed revising
Sec. 929.104 of the order's rules and regulations to list the outlets
in which handlers can divert excess cranberries. That section currently
lists outlets for ``restricted cranberries.'' ``Restricted
cranberries'' is a term used in connection with withholding
requirements--another type of volume regulation authorized under the
order. While the specific outlets listed were not proposed for
revision, changes were proposed in the regulatory text to provide that
these outlets are authorized for excess cranberries under a producer
allotment program. The outlets listed included all those mentioned in
Sec. 929.61 of the order.
At its June 6, 2000, meeting, the Committee recommended that
foreign markets be excluded as outlets for excess cranberries.
When foreign markets were listed as potential outlets for excess
cranberries, cranberry exports were not as significant to the industry
as they are today. Exports of fresh cranberries for 1998 were 51,615
barrels, and for processed cranberries, 516,667 barrels. This
represents about 10 percent of total sales.
The Committee indicated that the industry is actively selling
cranberries in at least 54 foreign countries. The Committee concluded
that it would be difficult to list all the countries that are not
currently receiving U.S. cranberries (and therefore would be defined as
``noncompetitive'') and to monitor the sales activity in each such
country.
Moreover, the Committee intends to continue foreign promotion
activities to encourage cranberry export sales. These activities are
financed, in part, by funds from USDA's Foreign Agricultural Service,
which are matched by industry funds for promotional activities in
foreign markets. Currently, funds are being used for promotional
activities in Germany and Japan.
Additionally, individual handlers are working on developing markets
in many foreign countries. Encouraging disposal of excess cranberries
in countries where the Committee and individual handlers are attempting
to build cranberry markets could undermine these individual efforts to
develop commercial markets. Therefore, the Committee unanimously
recommended that foreign countries be excluded as eligible outlets for
excess cranberries.
The Department has concluded that the Committee's June 6, 2000,
recommendation is unnecessary. Excess cranberries cannot be
``handled,'' which means they cannot be processed. Therefore, under
current requirements, excess cannot be processed and then exported.
Fresh sales are exempt from volume regulation, so fresh cranberries can
be exported free from regulation. We have, however, revised
Sec. 929.104 of the regulations to clarify that excess cranberries
cannot be processed and sent to foreign markets.
Appeal Procedures
Section 929.125 of the order's rules and regulations establishes an
appeal procedure for growers who are dissatisfied with their sales
histories as determined by the Committee pursuant to Sec. 929.48 of the
order. Under procedures which have been used, a grower may submit to
the Committee a written argument within 30 days after receiving the
Committee's determination of that grower's sales history, if such
grower disagrees with the determination. The Committee must review its
determination within a reasonable time, reviewing all the material
submitted by the grower, and notify the grower of its decision. If the
grower is not satisfied with the Committee's decision, that grower may
appeal to the Secretary, through the Committee, within 30 days after
being notified of the Committee's decision. The Secretary must review
all pertinent information and render a decision. The Secretary's
decision is final.
On March 30, 2000, the Committee recommended revising the process.
The Department concurs with the Committee recommendation. Specifically,
this rule provides than an appeals subcommittee be established and that
the full Committee be provided with 15 days to further review appeals
by growers. This process should be more efficient in handling grower
appeals. The subcommittee, appointed by the Committee Chairman, will be
comprised of two independent and two cooperative representatives, as
well as a public member. Although an additional level of review is
being established, it should be more efficient for a smaller
subcommittee to consider grower appeals. The subcommittee will have 30
days to render a decision on each appeal.
If a grower is not satisfied with the appeal subcommittee's
decision, that grower could further appeal to the full Committee. The
grower would submit his or her written argument to the Committee along
with any pertinent information for the Committee's review within 15
days after being notified of the subcommittee's determination. The
Committee will have 15 days from the receipt of the grower's appeal to
respond. The Committee will promptly inform the grower of its decision,
including the reasons for its decision.
The grower may further appeal to the Secretary within 15 days after
notification of the Committee's findings, if the grower is not
satisfied with the Committee's decision. The Committee will forward a
file with all pertinent information related to the grower's appeal. The
Secretary will inform the grower and Committee staff of the Secretary's
decision. All decisions by the Secretary will be final.
This rule revises Sec. 929.125 of the order's rules and regulations
to implement the Committee's recommendation, consistent with the
proposed rule published on May 30, 2000.
Suspension of Deadline for Notifying Growers of Their Annual
Allotment
Section 929.49 of the order provides that in any year in which an
allotment percentage is established by the Secretary, the Committee
must notify growers of their annual allotment by June 1. That section
also requires the Committee to notify each handler of the annual
allotments for that handler's growers by June 1.
The May 30 proposed rule proposed establishing a marketable
quantity and allotment percentage for the 2000 cranberry crop. To allow
adequate time for interested parties to comment on the proposal and for
the Department to give due consideration to the comments received, it
was determined that a final decision on the proposed rule would not be
reached before June 1. Therefore, the Department proposed that the June
1 deadline be suspended for the 2000-2001 crop year.
This rule suspends the June 1 date appearing in Sec. 929.49 of the
order as proposed on May 30, 2000.
Removal of Two Obsolete Regulations
At its June 6, 2000, meeting, the Committee discussed two of the
order's rules and regulations that are now obsolete, and unanimously
recommended that they be deleted. Those sections are Sec. 929.109
Unusual
[[Page 42605]]
circumstances as used in determining base quantities and Sec. 929.151
Allotment transfers and disposition of the growers annual allotment
certificate.
Both of these sections pertain to the ``base quantity'' method of
producer allotment, which was replaced in 1992 with the sales history
method of producer allotment. These sections were inadvertently left in
the regulations and do not apply to the sales history program.
Removing these sections from the order's rules and regulation will
reduce confusion to the cranberry industry. Therefore, this rule
removes Secs. 929.109 and 929.151 from the rules and regulations in
effect under the order.
Regulatory Flexibility Act & Effects on Small Businesses
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA), the Agricultural Marketing Service (AMS) has considered the
economic impact of this action and alternatives considered on small
entities. The purpose of the RFA is to fit regulatory actions to the
scale of business subject to such actions, in order that small
businesses are not unduly or disproportionately burdened. Marketing
orders issued pursuant to the Act, and rules thereunder, are unique in
that they are brought about through group action of essentially small
entities acting on their own behalf. Thus, both statutes have small
entity orientation and compatibility. Accordingly, AMS has prepared
this final regulatory flexibility analysis.
According to the Small Business Administration (13 CFR 121.201)
small handlers are those having annual receipts of less than $5,000,000
and small agricultural producers are defined as those with annual
receipts of less than $500,000. Because prices have declined
significantly in the past year, and because the small farm definition
is based on estimated sales, nearly all producers and some handlers are
considered small under the SBA definition. Therefore, this RFA analysis
is properly applicable for the entire industry. Of the 1,100 cranberry
growers, between 86 and 95 percent are estimated to have sales equal to
or less than $500,000. Fewer than 60 growers are estimated to have
sales that would have exceeded this threshold in 1999. Thus, the
consequences of this final action apply to virtually all growers.
Over two-thirds of the U.S. cranberry crop is handled by a grower-
owned marketing cooperative. Five other major processors, together with
the cooperative, handle over 97 percent of the crop. Using Committee
data on volumes handled, AMS has determined that none of these handlers
qualify as small businesses under SBA's definition. The remainder of
the crop is marketed by about a dozen grower-handlers who handle their
own crops. Dividing the remaining 3 percent of the crop by these
grower-handlers, all would be considered small businesses.
This action makes the following amendments to the regulations under
the cranberry marketing order: (1) revises the calculation of sales
histories; (2) exempts fresh and organic fruit; (3) includes a
definition of State average yields; (4) changes volume needed to
qualify as commercial production; (5) revises Committee review
procedure for determination of sales history; (6) suspends that annual
allotment notification date; and (7) establishes levels of marketable
quantity and allotment percentage to determine the level of volume
control.
Most of the changes as a result of this final rule are expected to
have little or no regulatory burden on industry, or are made expressly
to acknowledge problems faced by new producers and producers with new
acreage. The revisions to calculating sales histories will benefit new
growers or those who want to enter cranberry production. The exemption
for fresh and organic cranberry sales should help those two niche
markets continue to develop. Recalculating the number of barrels needed
to qualify for commercial production will enable new growers to use the
revised sales history calculation to obtain a higher sales history.
Before assessing the impact of volume control on the industry, an
economic profile of the cranberry market conditions is provided.
Industry Profile
Cranberries are produced in 10 States, but the vast majority of
farms and production is concentrated in Massachusetts, New Jersey,
Oregon, Washington, and Wisconsin. Massachusetts was the number one
producing State until 1990, when Wisconsin took over the lead. Since
1995, Wisconsin has been the top producing State. Both States account
for over 80 percent of cranberry production. The industry has operated
under a Federal marketing order since 1962.
Average farm size for cranberry production is very small. The
average across all producing States is about 33 acres. Wisconsin's
average is twice the U.S. average, at 66.5 acres, and New Jersey
averages 83 acres. Average farm size is below the U.S. average for
Massachusetts (25 acres), Oregon (17 acres) and Washington (14 acres).
Small cranberry growers dominate in all States: 84 percent of
growers in Massachusetts harvest 10,000 or fewer barrels of
cranberries, while another 3.8 percent harvest fewer than 25,000
barrels. In New Jersey, 62 percent of growers harvest less than 10,000
barrels, and 10 percent harvest between 10,000 and 25,000 barrels. More
than half of Wisconsin growers raise less than 10,000 barrels, while
another 29 percent produce between 10,000 and 25,000 barrels. Similar
production patterns exist in Washington and Oregon.
Over 90 percent of the cranberry crop is processed, with the
remainder sold as fresh fruit. In the 1950s and early 1960s, fresh
production was considerably higher than it is today, and in many years,
constituted as much as 25-50 percent of total production. Fresh
production began to decline in the 1980s, while processed utilization
and output soared as cranberry juice products became popular. Today,
fresh fruit claims only about 5-6 percent of total production.
(Typically, ``shrinkage'' absorbs the remaining 3 percent of
production.) Three of the top five States produce cranberries for fresh
sales. New Jersey and Oregon produce fruit for processed products only.
Historical Trends and Near Term Outlook
Production has risen steadily since the early 1950s, as more
acreage was brought into production and yields increased. Cranberry
output first exceeded 1.5 million barrels in 1966, 3 million barrels in
1982, 4 million in 1988, and hit a record 6.4 million barrels in 1999.
Acreage rose 62 percent since 1954, from just under 23,000 acres to
37,200 acres. Output growth was also fed by soaring yields--a 288-
percent increase from 44.3 barrels per acre in 1954 to almost 172
barrels in 1999.
The industry enjoyed healthy increases in demand as a result of new
juice drink products, which in turn prompted expansion in acreage and
output. Demand peaked in 1994 with per capita consumption of processed
berries at 1.7 pounds and has since declined, to 1.6 pounds in 1998.
Prices above $60 per barrel in 1996 and 1997 continued to stimulate
output. As a result, inventories began building. Over the period 1954-
1969, carryover averaged 222,179 barrels, about 19 percent of annual
average production. During the 1970s, annual production rose nearly 90
percent from 1954-69, and carryover stocks rose to about 29 percent of
annual average production during the decade. Carryover as a percent of
output fell back to 19 percent during the 1980s. The 1990s have seen
[[Page 42606]]
both large output increases and carryover stocks. For 1990-99,
beginning inventories rose to a level equal to nearly a third of annual
production over the decade. In 1999 alone, carryover swelled to more
than 3.1 million barrels, equivalent to 49 percent of the year's crop.
Current estimates of beginning stocks are for a record 4.6 million
barrels at the start of the 2000/2001 marketing year--equivalent to 78
percent of anticipated production. With no significant increases in
demand or cutbacks in production, at the end of the 2000/2001 marketing
year, there could be nearly a full year's production in storage (5.25
million barrels) to start the 2001 marketing season. Table 1 provides
indicators of average annual carryover, production, and prices.
The value of utilized production increased steadily from 1974 to
1986, dipped 9 percent in 1987, then began a more volatile but still
upward trend through 1997 before plunging 40 percent in 1998. Prices
per barrel over the 1979-98 period averaged $44.375, but dropped below
$40 a barrel for 1998 crop berries, and could fall below $20 for the
1999 crop. For the 2000/2001 marketing year, some handlers have
indicated they may only offer $9-$10 per barrel. If prices do not
exceed $20 per barrel in 1999, the value of utilized production will
decline again by half--from $211 million estimated for the 1998 crop to
less than $110 million in 1999. This would be the lowest crop value
since 1981.
Impact of Volume Control
The volume control for cranberries imposes no restrictions on entry
into production. For example, there is no quota such as used in the
tobacco industry that a new entrant would have to acquire from an
existing quota holder. The impact of volume control is evaluated
relative to the income effect that excessive inventories would
otherwise exert on growers and the likelihood that, without significant
improvement in either prices or sales or both, many growers will not be
able to remain in business.
Because inventories are large and cranberries may be stored for
long periods without deterioration, producers may not receive full
payment for cranberries delivered to storage for several years; and
storage costs are deducted from their final payment. In addition,
reports from various growers estimate current total costs of production
at approximately $30-$35 per barrel. With expectations of prices
declining well below this range in the 1999 marketing year, most
producers are not expected to cover variable costs of production, thus
increasing the likelihood they will either exit the industry or abandon
bogs until the market situation improves.
The effect of the Committee's revised volume control recommendation
(CMC2) contained in this final action may be evaluated in terms of the
loss of sales that producers incur as a result of volume control,
compared with the extent to which price increases due to volume control
offset that sales loss.
For the 15-percent volume control to be revenue-neutral--that is,
to leave producers on average no worse off with respect to revenue
realized from lower production--prices would need to rise by 17.7
percent in 2000/01. An alternative allotment percentage that was
considered by the Committee would have resulted in a volume control of
29 percent. A 29-percent volume control would require prices to rise by
40.8 percent to remain revenue-neutral. In both cases, a lesser price
increase results in a gross revenue loss to producers. In and of
itself, this would not necessarily mean that volume control should be
rejected as a marketing tool. Even if prices do not rise, producers
realize some savings from production costs not incurred and from higher
prices that may result in subsequent marketing years as a result of
lower inventories.
Economic analyses of factors affecting cranberry prices have been
conducted by Sexton, Jesse, and USDA in 1999 and 2000. All of the
analyses reported positive price impacts associated with a 100,000
barrel change in supply, ranging from $0.49-$1.26 per barrel for each
100,000 barrel change. Because inventories are so large, this analysis
uses the lowest reported price impact, of $0.49 for each 100,000 barrel
change, or $4.89 per barrel for a change of 1 million barrels. Thus, if
inventories decrease (increase) by 1 million barrels, prices are
estimated to increase (decrease) by $4.89 per barrel. In the
aforementioned economic analysis, prices averaged $27.695 per barrel
over the period analyzed from 1954 to 1998. The estimated price impact
of $4.89 per barrel represents a 17.7 percent change in prices compared
with the average over the 45-year period.
The 15-percent volume control is estimated to lead to a reduction
in inventories by 884,000 barrels, based on a 2000/2001 domestic
production forecast of 5.89 million barrels (prior to the 15-percent
volume control). This reduction in inventory is estimated to increase
prices by $4.32 per barrel (.884 x 4.89). Using a projected 2000/01
average price of $20 per barrel, prices are estimated to increase to
$24.32 per barrel. Thus, a grower who reduced output from 1,000 to 850
barrels would realize a gain in revenue from $20,000 to $20,672 or 3.4
percent. Some additional gain would be realized from cost savings from
150 barrels that were not produced. And, the volume reduction would be
expected to generate price increases in future years, providing
cumulative positive effects from the volume control.
The results of econometric analyses are subject to some level of
uncertainty. Results are generally reported as estimates subject to a
specified error. Assuming a 5 percent error to illustrate the
sensitivity of the results, the $4.89 per barrel price change estimate
could range from $4.65 to $5.14 per barrel. Then, a reduction in
inventory of 884,000 barrels would lead to higher prices ranging from
$4.11 to $4.54 per barrel. Table 2 illustrates these estimated price
increases and their effect on producer revenue, using a forecast price
for 2000/01 of $20 per barrel.
We conclude that the 15 percent volume control would not unduly
burden producers, particularly smaller growers. While there would be a
loss of salable product, producers are likely to benefit from the
price-enhancing effect of the reduced inventories in 2000/01. If
producers do not benefit in 2000/01, the reduction in inventory is
expected to raise prices in future years which would provide cumulative
annual effects. The estimated price increases reported here would mean
higher prices for consumers. However, recent prices have been
significantly higher than these estimated prices; thus the consumer
price effect is still well below previous years' prices.
Table 1.--Average Annual Cranberry Output, Carryover Stocks, and Prices
----------------------------------------------------------------------------------------------------------------
Indicator 1954-59 1960-69 1970-79 1980-89 1990-99 1954-99
----------------------------------------------------------------------------------------------------------------
Production (barrels).......... 1,083,217 1,234,610 2,221,610 3,303,050 4,656,500 2,622,983
Carryover (barrels)........... 213,746 227,239 644,720 617,897 1,506,718 679,309
[[Page 42607]]
Carryover/Production (%)...... 19.7 18.4 29.0 18.7 32.4 25.9
Price per barrel ($).......... 10.74 13.09 15.13 43.16 46.80 27.695
----------------------------------------------------------------------------------------------------------------
Table 2.--Estimated Impacts of Price Changes on a Representative Producer
----------------------------------------------------------------------------------------------------------------
Average price Total output
Price estimates ($/barrel) (barrels) Gross revenue
----------------------------------------------------------------------------------------------------------------
Base Case....................................................... $20.00 1,000 $20,000
Volume Control Cases:
--$4.32 price rise ($4.89 x .884)......................... $24.32 850 $20,672
--$4.11 price rise ($4.89 reduced by 5% error, x .884).... $24.11 850 $20,494
--$4.54 price rise ($4.89 increased by 5% error, x .884).. $24.54 850 $20,859
----------------------------------------------------------------------------------------------------------------
Summary of Rule
In accordance with Sec. 929.49 of the order, this rule establishes
a marketable quantity of 5.468 million barrels and an allotment
percentage of 85 percent for cranberries in the 10-State production
area during the 2000-2001 crop year. Because the Department is making
allowances for established growers with acreage with four years of
sales histories or less, this rule also provides for an increase in the
marketable quantity which may be needed to maintain the 85 percent
allotment percentage. This action also revises procedures for
calculating growers' sales histories, defines the State average yield,
increases the barrels per acre for determining a commercial crop,
exempts fresh and organic cranberries from volume regulation, and
revises Committee review procedures. These actions are designed to
improve cranberry marketing conditions and the operation of the volume
regulation program.
The marketable quantity for the 2000-2001 crop year is established
at 5.468 million barrels with an allowance for an adjustment to allow
for the additional sales history calculation provision. This is equal
to the expected demand for processing fruit. Fresh fruit sales were not
included because fresh fruit is exempt from volume regulation.
Organically-grown cranberries are also exempt because projected sales
are only about 1,000 barrels. Using a marketable quantity equal to
processed fruit demand should result in a more stable level of
inventories. Supplies in inventory could easily cover any unexpected
increases in market demand.
Section 929.49(b) provides that the marketable quantity be
apportioned among growers by applying the allotment percentage to each
grower's sales history. The allotment percentage equals the marketable
quantity divided by the total of all grower's sales histories. No
handler can purchase or handle cranberries on behalf of any grower not
within the grower's annual allotment.
Total growers' sales histories were established by the Committee at
6.432 million barrels. Using the formula established under the order
(5.468 million barrels divided by 6.432 million barrels), the annual
allotment percentage is 85 percent. The order provides that a grower's
sales history is established by computing an average of the best four
years' sales out of the last six years' sales for those growers with
existing acreage. Under this rule, growers with 5 years of sales
history will use an average of their highest 4 years of sales. Growers
with 6 or more years will use an average of their highest 4 of the most
recent 6 years of sales. For growers with four years or less of
commercial sales history, the sales history is calculated by using the
highest single year of all available years of such growers' sales. New
acreage with no sales history for both brand new and existing growers
would receive a sales history using the State average yield or the
total estimated commercial sales from that acreage, whichever is
greater. If these growers also have newer acreage with four years of
sales history or less, and such growers can provide the Committee with
credible information which would allow the Committee to segregate the
sales history of the newer acreage, then that acreage shall be treated
in the same manner as acreage of a grower with four years or less of
sales history.
This rule changes the method of calculating sales histories for
acreage with four years or less of sales. This rule should increase the
amount of allotment available to growers with newer plantings. This is
because a cranberry bog does not reach full capacity until several
years after being planted. Using an average of early years' sales
(which are low) normally results in a sales history below current sales
potential. A more established bog, on the other hand, would have a
sales history more reflective of his or her production capacity. The
Committee recommended this adjustment be allowed only for growers who
have no acreage with more than four years of sales. However, the
Department is accommodating more established growers by making this
calculation available to them as well.
Calculations of sales histories are made on ``commercial''
cranberry acreage. This rule raises the amount of barrels that defines
a commercial crop under the order from 15 to 50 barrels. This action
will assist growers who harvested cranberries for the first time in
1999. Such grower's first year of sales will not count if it was less
than 50 barrels per acre. Instead, the grower will receive the same
sales history as is provided to a grower with no sales history on his
or her acreage (which is the State average yield or the grower's
estimated commercial sales, whichever is greater). This will benefit
growers who had very low yields per acre for their first year of
production.
Growers with no sales history on their acreage receive the State
average yield. This applies to both brand new growers and growers with
sales history on some of their acreage. This rule defines the State
average yield for the 2000-2001 crop as the average yields during the
year 1997 or the average of the best four years out of the last six
years, whichever is greater. This calculation is similar to that used
to compute sales history (an average of the best four years out of the
last six years), and should average out seasonal variations in yields.
However, if estimated commercial sales are greater than what is
computed above, the Committee will use the commercial sales estimated
by the grower.
[[Page 42608]]
There is no need to limit the volume of cranberries that may be
marketed in these noncommercial and noncompetitive outlets. Thus, this
rule provides that handlers may dispose of excess cranberries in such
outlets. Noncommercial outlets are charitable institutions and research
and development projects for market development purposes.
Noncompetitive outlets are non-human food use and foreign markets,
except Canada.
This rule exempts fresh and organically-grown fruit from the volume
regulation. This exemption is provided pursuant to section 929.58 of
the order which provides that the Committee may relieve from any or all
requirements, cranberries in such minimum quantities as the Committee,
with the approval of the Secretary, may prescribe.
Fresh fruit accounts for about 4.7 percent of the total production.
The Committee estimated that about 280,000 barrels will be sold fresh
this year, compared to 260,000 barrels sold last season. Sales of
organically-grown fruit are projected at only 1,000 barrels. These
relatively small volumes of fruit do not contribute in any significant
way to the current oversupply or inventory build-up. Therefore, there
is no need to cover them under the volume regulation.
The sales history re-determination procedures are being modified by
appointing a subcommittee composed of two independent and two
cooperative representatives and one public member to be the first level
of review.
Currently, section 929.125 provides an appeal procedure for growers
with their sales history determinations. A grower may submit to the
Committee a written argument within 30 days of receiving the
Committee's determination for sales history, if such grower disagrees
with the determination.
This rule establishes an appeals subcommittee as a more efficient
way to consider grower appeals. Although an additional level of review
is being established, it will be more efficient for a subcommittee
composed of 5 members to discuss and decide on appeals. Scheduling a
meeting of the entire Committee to discuss and make determinations of
grower appeals is more cumbersome and time consuming.
Finally, this rule suspends the June 1 deadline for notifying
growers and handlers of their annual allotments. This will allow for
adequate time to complete this rulemaking proceeding, without unduly
impacting the cranberry industry.
Alternatives Considered
1. Different Methods of Volume Regulation
Eight months ago, the Committee established a volume regulation
subcommittee that researched the two methods of volume regulation
available under the order. Those two methods are a producer allotment
program and handler withholding program. The subcommittee's primary
mission was to determine what method of volume control would be best
for the industry if volume regulations were recommended. After holding
several meetings, the subcommittee concluded that a producer allotment
is the best method available to the industry at this time.
The withholding program has not been used since 1971. The
provisions of the producer allotment program were amended in 1992, but
never used. Under the withholding program, growers deliver all their
cranberries to their respective handlers. The handler is responsible
for setting aside restricted cranberries and ultimately disposing of
the cranberries in authorized noncommercial and noncompetitive outlets.
This could result in a large volume of cranberries being disposed of
and perhaps destroyed. In addition, the withholding provisions require
that all withheld cranberries be inspected by the Federal or Federal-
State Inspection Service, which could be costly.
The producer allotment program allows cultural practices to be
changed at the grower level prior to harvest. This could result in less
fruit being produced and will not require the disposal of as many
cranberries as with the withholding provisions. In addition,
inspections are not required under the producer allotment method, which
is more cost effective and simpler to administer. For these reasons, we
conclude that the producer allotment program is the preferred method of
volume regulation at the current time.
2. Other Alternatives Considered
One alternative to this regulation discussed at length by the
Committee and the industry was not regulating at all. Economic reports
of the condition of the cranberry industry indicate that if supplies
are not controlled, grower prices will continue to drop. It will be
difficult for small growers as well as large ones to sustain further
price declines. Thus, the Committee discarded this alternative. AMS
concurs.
Another alternative to regulation was to increase demand through
market development activities rather than control supplies through
regulation. A domestic promotion program is being considered by the
Committee, in addition to the export promotion activities already
underway. These efforts in market development and new product
development can increase demand for cranberries and assist in
addressing the oversupply situation. This, in conjunction with volume
regulation, was determined to be the best course of action for the
cranberry industry at this time. AMS concurs.
3. Calculation of Sales Histories and Varying Levels of Volume
Regulation
In addition, the Committee considered alternative ways to calculate
growers' sales histories and different levels of regulation. These are
discussed in more detail in the section of this document entitled
``Analysis of Comments.''
A grower's annual allotment is established by applying the
allotment percentage to that grower's sales history. Several
alternative methods of calculating sales histories were considered,
primarily to mitigate the situation where newer growers (those with few
years of sales history) would be more dramatically impacted by volume
regulation than more established growers.
One change recommended by the Committee increases the number of
barrels that defines commercial acreage. This change will allow growers
who had a small initial crop in 1999 to market their entire 2000 crop
(since they will receive as their sales history the State average
yield). This should assist growers in their second year of production,
without dramatically increasing the total industry sales history.
The Committee also considered a change proposed by USDA to allow
every grower to use his or her best single sales year out of the last
six years as that grower's sales history. This change would have
increased the industry total by a substantial amount (about 20
percent), and would have resulted in either a much higher restricted
percentage or marketable quantity (see the following discussion of USDA
Options 1 and 2). This alternative was rejected as not being in the
best interest of most cranberry growers.
The Committee ultimately recommended that growers with four years
or less of sales history receive their highest year of sales as their
sales history. This rule adopts this recommendation. It will result in
a higher allotment for these growers than would be obtained by
averaging all their available sales years. This will mitigate
[[Page 42609]]
the impact of the restricted percentage on growers with relatively new
acreage, without increasing the marketable quantity by a significant
amount. In the case of growers with five years of sales, the Committee
recommended their sales history be computed using an average of the
highest four years of sales. For growers with six or more years of
sales history, a sales history will be computed using an average of the
highest four of the most recent six years of sales. Growers (both new
and established growers) having new acreage with no sales history will
get the State average yield or estimated commercial production,
whichever is greater. This rule also adopts these recommendations. In
addition, based on concerns expressed during the June 6 Committee
meeting and in comments, the Department added a provision to this
regulation which applies to established growers with newer acreage
having four years of sales history or less.
The following three levels of volume regulation were also
considered (in addition to that finally recommended by the Committee).
Initial Committee Recommendation (15% volume control; sales
history--6.35 million barrels; marketable quantity--5.4 million
barrels): This alternative was rejected because it does not take into
account the additional sales histories being granted to newer cranberry
growers as described above.
USDA Option 1 (29% volume control; sales history--7.6 million
barrels; marketable quantity--5.4 million barrels): This option was
rejected because it almost doubled the restricted percentage (from 15
to 29 percent) recommended by the Committee and anticipated by the
industry. As previously stated, this would require prices to rise by 40
percent to remain revenue-neutral for growers.
USDA Option 2 (15% volume control; sales history--7.6 million
barrels; marketable quantity--6.46 million barrels): This option
dramatically increases the marketable quantity above anticipated market
demand. Thus, it would have the same impact as no volume regulation and
is therefore rejected.
Reporting and Recordkeeping Requirements
As with all Federal marketing order programs, reports and forms are
periodically reviewed to reduce information requirements and
duplication by industry and public sectors. In addition, the Department
has not identified any relevant Federal rules which duplicate, overlap
or conflict with this rule.
In compliance with Office of Management and Budget (OMB)
regulations (5 CFR Part 1320) which implement the Paperwork Reduction
Act of 1995 (44 U.S.C. Chapter 35), the information collection and
recordkeeping requirements imposed by this order have been previously
approved by OMB and assigned OMB Number 0581-0103.
There are some reporting and recordkeeping and other compliance
requirements under the marketing order. The reporting and recordkeeping
burdens are necessary for compliance purposes and for developing
statistical data for maintenance of the program. The forms require
information which is readily available from handler records and which
can be provided without data processing equipment or trained
statistical staff. This rule does not change those requirements.
Opportunity for Public Participation in the Rulemaking Process
The Committee's meetings were widely publicized throughout the
cranberry industry and all interested persons were invited to attend
them and participate in Committee deliberations. Like all Committee
meetings, the March 30 and June 6 meetings were public meetings. Press
releases were issued announcing the meetings and setting forth the
agenda. Meeting announcements were also placed on a website
specifically designed for the cranberry industry. All interested
parties were invited to attend. All entities, both large and small,
were able to express their views on these issues by attending the
meetings or contacting their Committee representatives about their
concerns prior to the meetings. Subsequent to the publication of the
proposed rule on May 30, AMS mailed a copy of that rule to every
cranberry grower and handler of record. That mailing also invited
interested parties to attend the June 6 meeting and express their
views. Additionally, AMS posted a summary of what transpired at that
meeting (as well as a full transcript of the meeting) on its website
and included it in the rulemaking record. The Committee itself is
composed of eight members, of which seven members are growers and one
represents the public. Also, the Committee has a number of appointed
subcommittees to review certain issues and make recommendations. The
Committee manager also held several meetings with growers throughout
the production area to discuss the methods of volume regulation and the
procedures for regulation.
A proposed rule concerning this action was published in the Federal
Register on May 30, 2000 (65 FR 34411). Copies of the rule were mailed
to all known cranberry growers in the production area. Also, the rule
was made available on the Department's website. Finally, the rule was
made available through the Internet by the Office of the Federal
Register. A 15-day comment period ending June 14, 2000, was provided to
allow interested persons to respond to the proposal.
Analysis of Comments
A total of 131 comments were filed in response to the May 30, 2000,
proposed rule by 125 individuals (4 persons submitted 2 and one
individual submitted 3 comments). By far, the majority of commenters
were cranberry growers. The six major cranberry handlers also
commented, as did the Committee, three U.S. Congressmen, the New Jersey
Department of Agriculture, and an attorney representing two cranberry
processors. Sixty-nine comments were opposed to a volume regulation in
general or opposed to a specific portion of the proposal. Fifty-six
comments favored one of the options under consideration. A number of
comments addressed the fresh fruit exemption. Also, James M. Talent,
Chairman of the U.S. House of Representatives' Committee on Small
Business commented that AMS did not prepare a sufficient regulatory
flexibility analysis in the proposed rule published on May 30, 2000.
Main Arguments Against Establishing a Volume Regulation
Sixty-nine comments opposed establishing a volume regulation for
the 2000-2001 crop year. Following is a discussion of the six main
arguments against volume regulation.
1. The 15 Percent Volume Control Will Have Little or No Impact on the
Oversupply
Many commenters believed that a 15 percent reduction will have
little or no impact on improving the market or reducing the large
inventories.
The producer allotment program is a tool available to the cranberry
industry to use in time of need. In their consideration of this issue,
agricultural economists who have studied the program concluded that
volume regulation is one avenue available to the industry that can help
stabilize prices and shorten the period of oversupply. Economists have
addressed the Committee and indicated that grower prices will further
plummet if some type of action is not taken to decrease the
[[Page 42610]]
oversupply. It was also reported to the Committee that if volume
regulation is implemented, a 100,000 barrel reduction in carryover
inventory would result in a price increase ranging from $0.49 to $0.73
per barrel, while a 1,000,000 barrel reduction in inventories would
result in a price increase of $4.89 to $7.26 per barrel.
It may be true that an 85 percent allotment percentage will not
dramatically drive up grower prices. However, the Committee has
communicated with a vast number of growers and determined that an
allotment percentage lower than 85 percent would not be supported for
the first year of volume regulation. By establishing a less restrictive
percentage this year, growers will be eased into the mechanics of the
program operations. Also, this volume regulation could be successful in
stopping the decline of prices. The Committee and the industry are
aware that the surplus situation cannot be resolved in one season or by
volume regulation alone. It is possible that volume regulation may have
to be instituted again in future years. However, that decision would be
made on an annual basis.
The marketing order is only one tool the Committee has decided to
use to assist in reducing the oversupply. The establishment of a
domestic generic promotion program to increase the awareness and
consumption of cranberries has also been recommended. The Committee is
currently in the developmental stage of implementing such a program.
The Committee is also involved in an export program using Marketing
Access Program funds with USDA's Foreign Agricultural Service.
Individual handlers have also taken steps to develop new products and
expand foreign and domestic markets.
2. It Is Too Late in the Year To Establish Volume Regulation
Some commenters believed that the regulation is being implemented
too late for the upcoming season, and growers do not have time to
adjust cultural practices to reduce production and associated costs.
Many growers have been aware for months that a volume regulation
has been under consideration by the Committee and USDA. The Committee
has been discussing the implementation of volume regulations for this
season for more than eight months. In addition, all Committee meetings,
including the March 30 and June 6, 2000, meetings were public meetings,
widely publicized throughout the industry. All interested parties were
encouraged to attend. The Committee manager also held several meetings
with growers throughout the production area to discuss the possible
implementation of volume regulation for the 2000 crop.
In anticipation of a volume regulation, many growers have been
taking steps to prepare for a 15 percent crop reduction. Information
received by USDA indicates that there are still steps growers can take
to minimize production costs. Some examples are that bogs can be
flooded, and chemical applications and bee pollination can be
curtailed. Also, as previously discussed, handler costs associated with
the storage of excess inventories (which are ultimately passed on to
growers) would be reduced.
We agree that it would have been preferable for this rule to be
recommended and implemented at an earlier date to provide more time for
growers to prepare for a volume regulation. However, this did not
happen for several reasons. The last time volume control was imposed
under the order was approximately 30 years ago. Difficulties were
encountered in arriving at the most fair method of calculating grower
sales histories in order to achieve (within the order's current
parameters) an equitable apportionment of allotments among producers.
And finally, although the Committee recommended volume control and,
along with USDA, proposed regulations to implement such control, the
industry is not unified in its support of the proposals. Nevertheless,
there is overall agreement that volume controls need to be implemented,
and USDA concludes that the implementation of volume control as set
forth in this regulation is an important step to take in addressing the
oversupply situation and resultant low grower returns.
3. The Proposed Calculation of Sales Histories Does Not Treat Growers
Equitably
Many comments expressed concerns about the determination of sales
histories, particularly that growers with four years or less of sales
histories would be more dramatically impacted than others. The
commenters stated that the reduction for these growers could exceed 15
percent by a substantial amount. Some suggested that these growers
receive the State average yield as their sales history, similar to the
method used to provide sales histories for growers with new acreage.
The Committee and the Department have been working for many months
now to develop a way to calculate sales histories which would result in
the most equitable allocation of allotment among growers in the
cranberry industry as it exists today. The primary concern has been
with growers with four years or less of sales history. In response to
this concern, USDA's proposed recalculation of sales histories which
modified the Committee's initial recommendation was intended to
mitigate some of the perceived inequities that could arise. In its
second recommendation, the Committee further recommended that the
formula be changed so that growers with four years or less of sales be
given their highest year of sales as their sales history. Growers with
five years of sales or more would still have their sales history
calculated by averaging the highest four years of sales during the most
recent five or six years of sales, whichever is applicable.
This Committee recommendation is expected to help some growers with
newly planted acreage. Instead of using an average of all years' sales,
which could be lower on newer acreage, these growers can use their best
year as their sales history. Most likely, with newer acreage, the last
year of production will be the best year and will raise such growers'
sales histories (over the current method of averaging all available
years of sales).
Another concern was that the Committee's recommendation is not
equitable for more established growers who have put in new acreage. Any
grower who reports to the Committee that he or she has new acreage
coming into production for the first time receives the State average
yield as the sales history for that acreage. In that case, the
established grower is treated in the same manner as a brand new grower.
Once the new acreage starts producing cranberries, the grower reports
to the Committee sales off all acres combined. Information reported to
the Committee does not segregate sales by the age of the acreage. The
combined sales are thus used in calculating the more established
growers' sales histories (using an average of the best four years out
of five or six). Since the sales are not separated, the Committee did
not recommend making an adjustment for acreage belonging to an
established grower that has been producing for four years or less.
Nevertheless, based on concerns and comments expressed during this
rulemaking proceeding, USDA has decided to allow such an adjustment if
growers can produce credible records which would allow the Committee to
segregate the newer acreage.
The Committee and USDA have worked diligently to ensure that all
growers would receive a sales history that accurately represents each
grower's
[[Page 42611]]
capability to produce on such acreage while still being an effective
regulation. The various recommendations, although not perfect, were
intended to achieve the most fair method of computing sales histories,
which would result in allotments being equitably apportioned among
producers.
The allotment calculation in this rule is based on prior years'
histories. There are no barriers to entry into the cranberry growing or
handling business under the marketing order nor should there be any. In
the early 1990's, the order was amended to change the producer
allotment program from the base quantity to the sales history method.
The program amendments were put in place after a public hearing and
grower and processor vote. However, this is the first time the sales
history program has actually been implemented. The Committee and USDA
have discovered some areas of the order provisions that could to be
improved for future seasons. The Committee is currently considering
needed order amendments, which would likely be necessary to make any
substantive changes in the sales history provisions of the order.
4. Only Two Handlers Are Responsible for the Surplus
Many growers commented that their handlers are not responsible for
the surplus, since two of the largest handlers maintain the largest
inventories.
Review of this available information shows that the volume of
inventories of these two handlers is directly proportional to the
volume of cranberries handled. In addition, the increased plantings
over the last few years, which have contributed to the surplus, was
industry-wide. Regardless, the cranberry surplus is an industry
problem, since large inventories depress overall grower prices. The
marketing order's volume regulation features are designed to help all
growers in the industry by stabilizing grower returns.
5. Handlers With No Inventories May Have To Purchase Cranberries From
Their Competitors To Fill Orders
Some handler commenters said that with a restriction in place, they
would have to purchase cranberries from their competitors to supply
their customers since they do not have inventories like other handlers.
Purchases among handlers is a standard practice in the cranberry
business. With the surplus, there should be an abundance of fruit
available for sale at a reasonable rate in the event handlers need
additional product. In addition, one such commenter stated that they
routinely purchase a large percentage (20-30%) of their cranberries
from other handlers rather than directly from growers. The purpose of
the volume regulation is to benefit the grower by stabilizing the
marketplace. If handlers must purchase cranberries from other handlers,
and inventories are reduced, the volume regulation is working. In
addition, if a handler has excess cranberries, any unused allotment
forfeited to the Committee will be equitably distributed among the
remaining handlers.
6. The Regulation Will Encourage Plantings and Exports From Canada
Some commenters were concerned that Canada's cranberry industry
could have a dampening effect on any volume regulation implemented in
the United States. The marketing order regulates domestic cranberry
handlers. Although any volume regulation implemented cannot extend to
Canada, the British Columbia Cranberry Committee has voted to reduce
their 2000 crop by 15 percent if volume regulations are implemented in
the United States.
The Committee reported 1999 Canadian fruit production at 634,000
barrels of cranberries. A substantial portion of the Canadian fruit is
grown in British Columbia. If volume regulation is instituted in
Canada, growers will not be encouraged to plant new vines. Also, with
the current U.S. surplus of cranberries, there are ample domestic
supplies of fruit, which, along with current low grower prices, should
discourage the importation of foreign fruit.
Discussion of Alternative Levels of Volume Regulation
Fifty-six of the comments supported volume regulation in general,
many of those favoring one of the options under consideration over the
others. Some of those who opposed volume regulation indicated which
option they preferred if USDA does implement a regulation.
Initial Committee Recommendation (15% volume control; sales
history--6.35 million barrels; marketable quantity--5.4 million
barrels): Few comments were received in support of this option. Those
in support commented that this was the most equitable option and the
Committee's original recommendation should be adhered to. One commenter
favored the initial Committee recommendation because he believed that
the two alternatives offered by USDA favored certain growers over
others. The calculation of sales histories using the average of the
best four out of six years was favored by these commenters.
USDA Option 1 (29% volume control; sales history--7.6 million
barrels; marketable quantity--5.4 million barrels): Some commenters who
discussed this option were against volume regulation but believed this
would be the best if volume regulation were implemented. This option
would have established a restricted percentage of 29 percent. Those
supporting this option believed that a 15 percent reduction does not go
far enough and will not have an impact on the surplus. One commenter
stated that the volume regulation should be restrictive enough to make
a difference. Some commenters believed that a 29 percent reduction is
necessary if the oversupply situation is to be seriously addressed. One
commenter stated that this is the best opportunity to return market
prices to a level that will allow growers to break even this year,
after heavy losses in 1998. This commenter further stated that this
regulation will not raise consumer prices but will allow the industry
to avoid incurring costs of delivering, cleaning, freezing, and storing
cranberries only to have them be sold at a loss. Others commented that
allowing all growers to use the best single sales year out of the last
6 years as a sales history was preferable to using an average.
Those opposed to USDA Option 1 stated that it would cause hardships
for growers. Most of those commented on the negative impact a volume
reduction exceeding 15 percent would have on many growers. One
commenter stated that growers will be unduly disadvantaged by a 71
percent producer allotment because many growers have already incurred
production costs at levels designed to target a reduction of 15 percent
of the average of the best 4 out of 6 years. This commenter further
stated that growers who have produced consistent crops for six years
would see their volume reduction double. According to this commenter,
this option overinflates sales histories to 7.6 million barrels, which
would cause a doubling of the restriction in order to maintain a
reasonable marketable quantity. Using the best year of 6 will alter the
sales histories of virtually all growers.
Many commenters did not support using the best year of the last 6
to calculate sales histories for all growers (except those with new
acreage) because it rewards growers who have contributed most to the
current oversupply. Some felt this method of calculating sales
histories was too advantageous for newer growers, and those who have
expanded their acreage in recent years.
[[Page 42612]]
USDA Option 2 (15% volume control; sales history--7.6 million
barrels; marketable quantity--6.46 million barrels): Comments in
support of this option believed that it was the most equitable of all
options. Some commented, however, that it still did not go far enough
on how newer growers will be allocated allotment. One comment in
support of the option stated handlers should not be allowed to transfer
unused allotments to other growers.
One supporter believed that unlike the Committee option, this was a
good faith attempt to determine grower sales histories in an equitable
fashion. This supporter further stated this option will have a similar
impact on the entire industry, whereby most growers' actual crop
reduction will be closer to 15 percent. This commenter added that
because it does not result in significant differences in allotments, it
better complies with the Act regarding equitable apportionment of
allotments.
Those opposed to this option were generally opposed to both USDA
options as they relate to the calculation of sales histories. As with
USDA option 1, some commenters believed the method of calculating sales
histories under this option was too advantageous for newer growers. One
commenter believed that raising the marketable quantity to 6.35 million
barrels (USDA Option 1) was unrealistic and, therefore, the volume
regulation would have no effect on reducing supply.
Revised Committee Recommendation (CMC2) (15% volume control; sales
history--6.432 million barrels; marketable quantity--5.468 million
barrels): Comments submitted on CMC2 (following the June 6 public
hearing) in support of this option believed that this was the best
option to bring market stability and reduce costs. While it would not
have an equal impact on each individual grower, it would help the
industry overall. Some stated that a 15% restriction will not eliminate
the surplus, but believed that it will allow handlers to begin the
process of balancing supply and demand. Many commented that the
marketable quantity should be near 5.4 million barrels to be effective.
Some were supportive of any proposal that limits the marketable
quantity to approximately 5.4 million barrels, and believed calculating
sales histories for established growers using the best 4 years out of 6
was the best method. Some supported CMC2 even though USDA option 1
would have a greater impact on reducing the surplus. They believed CMC2
would be best for the long-term interests of the industry.
One commenter stated that he could deliver 3000 more barrels under
USDA option 2, but still supported CMC2 as being best for the industry
overall.
Those opposed to CMC2 stated that this option is grossly
inequitable. One commenter stated that under both Committee
recommendations, some growers would see a small reduction but others
would be forced to dump up to 50 percent of this year's crop. This
commenter stated that the Committee presented CMC2 as a compromise, but
it is not. The commenter stated that this option does nothing to remedy
the inequities of the first Committee recommendation, and only creates
additional inequities. This commenter further stated that this option
would reward growers growing for 4 years or less and punish established
growers that have added new acreage.
Conclusions: Since the Committee's meeting on March 30, 2000, the
Department received additional information from cranberry growers and
handlers pertaining to the way in which sales histories are computed.
Of primary concern were the potential inequities that could result from
the Committee's initial recommendation. Specifically, some were
concerned about growers with four years or less of sales histories on
some or all of their acreage. The Department suggested two alternative
levels of volume regulation in an attempt to address those concerns,
with the expectation that the Committee would meet and discuss all
options and recommend any needed revisions prior to finalization of the
rule. The Department looked for flexibility in the marketing order that
would assist this segment of the industry while still providing for an
effective volume regulation.
The Department's options changed the way in which nearly all
growers would calculate their sales histories. Under USDA Option 1, the
sales histories would have increased to 7.6 million barrels (as opposed
to the Committee's established sales histories of 6.35 million
barrels). Using the Committee's recommended marketable quantity of 5.4
million barrels resulted in an allotment percentage of 71 percent. USDA
Option 2 increased the marketable quantity to 6.46 million barrels (as
opposed to the Committee's established marketable quantity of 5.4
million barrels) to stay within the Committee's original recommendation
to establish an allotment percentage no lower than 85 percent. The
Department recognized that the proposed rule provided a wide range of
possible methods of implementing volume regulation for the industry to
consider.
At the June 6 meeting and in written comments, it was expressed
that both USDA options dramatically inflate the sales histories and
USDA option 2 further provides an unrealistic marketable quantity. To
demonstrate the unrealistic marketable quantity in USDA option 2, a
commenter stated that the marketable quantity established in CMC2
(5.468 million barrels) represents a 10 percent increase in demand in
one year. The largest increase in annual demand in recent years has
been only about 5 percent. Further, the 6.46 million barrel marketable
quantity in USDA option 2 exceeds anticipated production by over a half
a million barrels. USDA Option 2 would, therefore, result in no
reduction of available supplies. It would thus be an ineffective
regulation and would provide no benefits to cranberry growers. We
therefore concur with the Committee and comments received that USDA
Option 2 should not be implemented.
Also, based on Committee meetings and comments received, we agree
that USDA Option 1, which would establish an allotment percentage of 71
percent, would not be prudent at this time. For months, many growers
have anticipated a volume regulation and believed it would not entail a
reduction of more than 15 percent. Many growers altered their cultural
practices accordingly. Establishing a reduction of more than 15 percent
so close to the beginning of the season would cause too many hardships
on too many growers. Although an 85 percent allotment percentage would
have a lesser impact on supplies and prices than a 71 percent allotment
percentage, we conclude that doubling the restriction from what was
anticipated would be too costly to growers.
Both USDA options changed the way sales histories are calculated by
allowing virtually all growers to use the best year of production. The
primary concern of the Committee and industry was the method of
establishing sales histories for growers with new acreage. We agree
with the Committee that this method would overinflate total industry
sales histories. The calculation for more established growers (using
the average of the best four out of six years) has been in effect for
many years and provides a reasonable and accurate sales history for
these growers.
Additionally, the Committee is continuing its work on amending the
order to address some of the problems it has encountered while
considering volume regulation for the 2000-2001 crop year.
[[Page 42613]]
For these reasons, the Department has concluded that implementing
CMC2, the Committee's recommendation of June 6, 2000, is the best
course of action. It provides the most equitable means of allocating
producer allotments available at this time, and should provide benefits
to growers in excess of its costs. The only change the Department is
making is allowing established growers who also have newer acreage with
four years of sales history or less to receive the highest sales season
on that acreage. Because this change will cause an increase in the
marketable quantity if established growers can segregate production
from their newer acreage, a change has also been made in Sec. 929.250
of the regulations to reflect this adjustment.
Fresh and Organic Fruit Exemption
Fresh and organically-grown fruit are exempt from the volume
regulation pursuant to Sec. 929.58 of the order which provides that the
Committee may relieve from any or all requirements cranberries in such
minimum quantities as the Committee, with the approval of the
Secretary, may prescribe.
Many comments were received regarding the fresh and organic
cranberry exemption. Twenty-seven comments were against the exemption,
primarily the fresh fruit exemption. Those in opposition were generally
concerned that fresh fruit handlers are being given an unfair advantage
as they will be in a position to make unused allotments from fresh
growers available to their processed growers and virtually market all
of their cranberries. Some commented that much of the fresh fruit
excess would end up in the processed markets. In addition, some
commented that the fresh market would be oversupplied with fresh
cranberries and the quality would suffer, as well.
Five of the 27 who oppose the exemption commented that if the fresh
fruit exemption is part of the regulation, any unused allotment
realized from fresh fruit acreage should be forfeited in the same
manner as with new growers who use the State average yield as their
sales history and forfeit unused allotment.
Twelve comments supported the exemptions. In most cases, the
commenters supported a specific option or volume regulation in general,
including the fresh and organic exemption. One comment was against any
volume regulation, but stated that if one is implemented, the fresh
exemption should be a part of it.
The supporting commenters expressed that fresh and organic
cranberries are small, but important segments of the overall cranberry
market, and do not contribute to the oversupply situation. Because
there is adequate demand for these products, one commenter stated that
it does not make sense to restrict the volume of fresh cranberries that
can be sold profitably. Another commenter stated that fresh fruit
production requires special cultural practices that need to be
implemented over the course of several growing seasons to transition
the cranberry vines from processed fruit production to fresh fruit
production. For this reason, it is unlikely that growers who normally
produce cranberries for the processed market will become fresh growers
during the 2000-2001 crop year. In addition, this commenter expressed
that it would be unlikely for growers to market their excess fruit as
fresh product for logistical reasons.
The Department supports the fresh and organic exemption. As stated
previously, fresh fruit accounts for about 4.7 percent of the total
production. Organically-grown cranberries comprise an even smaller
portion of the total crop than fresh cranberries, about 1,000 barrels.
Under current marketing practices, there is a distinction between
cranberries for fresh market and those for processing markets.
Cranberries intended for fresh fruit outlets are grown and harvested
differently. Most fresh cranberries are dry picked while cranberries
used for processing are water picked. When cranberries are water
picked, the bog is flooded and the cranberries that rise to the top are
harvested. During this proceeding, it was noted that in the State of
Wisconsin, cranberries for fresh market are water picked much like
cranberries for processing. Additional information revealed that
although cranberries intended for fresh market can be water picked, the
resulting yields are more similar to the labor intensive dry picked
cranberries, than to cranberries that are water picked for processing.
This is partially attributable to the fact that only the highest
quality fruit is earmarked for the fresh market.
Regarding the comments that many growers will become ``fresh
growers'' and flood the market with fresh fruit, information received
does not support that this will happen. Industry members advised that
it takes many years to cultivate an acceptable ``fresh'' product.
Handlers would not likely buy fresh cranberries from a first year fresh
grower, as it would be expected the quality would not be acceptable.
For these reasons, it would not be practical or economically feasible
to convert from a processed grower to a fresh grower this season.
Regarding the comments that fresh cranberries will be diverted into
processing outlets, safeguards are established under the program to
protect against this. The exemption for both fresh and organic
cranberries applies to cranberries packed in consumer packaging, such
as cellophane bags for supermarkets. Any sorted-out cranberries
converted to processing will count against that grower's allotment.
The Committee has deliberated for over eight months to arrive at a
volume regulation recommendation that addresses the oversupply
situation and is acceptable to most of the industry. The Committee
recognizes that some improvements could be made in the way volume
regulations are implemented, but it is impossible to make many more
changes in time for the 2000-2001 crop year.
One idea that has been discussed, for example, is to amend the
marketing order to provide that fresh and organic sales be segregated
from processed sales, and allotment only be earned on the processed
sales. The suggestion that fresh and organic cranberry growers forfeit
any unused allotment is also an idea that could be considered in the
future. The formal rulemaking process, which involves a hearing and
grower referendum, usually takes 12 to 18 months to complete.
If the fresh or organic markets show significant growth in the
coming years, and surplus becomes an issue, different measures can be
taken at that time to include them in any volume regulation.
The Department supports the decision to exempt fresh and
organically-grown cranberries from volume regulation this year. It is
concluded that fresh and organic supplies do not contribute
significantly to the current cranberry surplus, and that such
cranberries should therefore be exempt from the allotment percentage
this rule imposes.
Initial Regulatory Flexibility Analysis
James M. Talent, Chairman of the U.S. House of Representatives'
Committee on Small Business commented that the proposed rule issued by
AMS apparently did not comply with the Regulatory Flexibility Act.
Specifically, he commented that our Initial Regulatory Flexibility
Analysis did not find that the proposed rule would have a significant
economic impact on small entities. Our initial analysis did conclude
that cranberry growers and handlers (both large and small) would
benefit from the establishment of volume regulation during the upcoming
season. The Final Regulatory Flexibility
[[Page 42614]]
Analysis contained in this document provides further analysis to
support this conclusion. Also, this document analyzes the impact of the
various alternative levels of regulation offered in the proposed rule.
Congressman Talent also stated that AMS eliminated opportunity for
public comment on the Committee's revised recommendation for volume
regulation (CMC2) that it made on June 6, 2000. Subsequent to the
publication of the proposed rule on May 30, AMS mailed a copy of that
rule to every cranberry grower and handler of record. That mailing also
invited interested parties to attend the June 6 meeting and express
their views. Additionally, AMS posted a summary of what transpired at
that meeting (as well as a full transcript of the meeting) on its
website and included it in the rulemaking record. Many of those who
filed comments in response to the proposed rule specifically addressed
the second Committee recommendation. More importantly, CMC2 falls
within the scope of options contained in the proposed rule. The
marketable quantity is slightly higher than in two of those options,
and lower than in a third. The 85 percent allotment percentage
established by this rule is the same as that contained in two of the
three published options. The change in the way sales histories are
computed is also within the scope of options proposed.
A small business guide on complying with fruit, vegetable, and
specialty crop marketing agreements and orders may be viewed at the
following website: http://www.ams.usda.gov/fv/moab.html. Any questions
about the compliance guide should be sent to Jay Guerber at the
previously mentioned address in the FOR FURTHER INFORMATION CONTACT
section.
After consideration of all relevant matter presented, including the
information and recommendation submitted by the Committee and other
available information, it is hereby found that this rule, as
hereinafter set forth, will tend to effectuate the declared policy of
the Act.
It is further found that good cause exists for not postponing the
effective date of this rule until 30 days after publication in the
Federal Register (5 U.S.C. 553). The crop year begins on September 1,
2000. This rule should be effective prior to the beginning of the crop
year so that the Committee can initiate its appeals procedures well in
advance of the start of the volume regulation. Also, growers need time
to adjust their cultural practices in preparation for the volume
regulation. Further, handlers and growers are aware of this rule, which
was recommended and modified based on public meetings. Also, a 15-day
comment period was provided for in the proposed rule.
List of Subjects in 7 CFR Part 929
Cranberries, Marketing agreements, Reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, 7 CFR Part 929 is
amended as follows:
PART 929--CRANBERRIES GROWN IN THE STATES OF MASSACHUSETTS, RHODE
ISLAND, CONNECTICUT, NEW JERSEY, WISCONSIN, MICHIGAN, MINNESOTA,
OREGON, WASHINGTON, AND LONG ISLAND IN THE STATE OF NEW YORK
1. The authority citation for 7 CFR Part 929 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
2. In paragraph (d) of Sec. 929.49, the phrase ``On or before June
1'' is suspended.
3. In paragraph (e) of Sec. 929.49, the phrase ``On or before June
1 of any year in which an allotment percentage is established by the
Secretary'' is suspended.
4. Section 929.104 is revised to read as follows:
Sec. 929.104 Outlets for excess cranberries.
(a) In accordance with Sec. 929.61, excess cranberries may be
disposed of only in the following noncommercial or noncompetitive
outlets, but only if the requirements in paragraph (b) of this section
are complied with:
(1) Foreign countries, except Canada.
(2) Charitable institutions.
(3) Any nonhuman food use.
(4) Research and development projects dealing with dehydration,
radiation, freeze drying, or freezing of cranberries, for the
development of foreign markets.
(b) Excess cranberries may not be converted into canned, frozen, or
dehydrated cranberries or other cranberry products by any commercial
process. Handlers may divert excess cranberries in the outlets listed
in paragraph (a) of this section only if they meet the diversion
requirements specified in Sec. 929.61(c).
5. In Sec. 929.107, paragraphs (a) and (c) are amended by replacing
the number ``15'' with the number ``50''.
Sec. 929.109 [Removed]
6. Section 929.109 is removed.
7. Section 929.125 is revised to read as follows:
Sec. 929.125 Committee review procedures.
Growers may request, and the Committee may grant, a review of
determinations made by the Committee pursuant to Secs. 929.48 and
929.149, in accordance with the following procedures:
(a) If a grower is dissatisfied with a determination made by the
Committee which affects such grower, the grower may submit to the
Committee within 30 days after receipt of the Committee's determination
of sales history, a request for a review by an appeals subcommittee
composed of two independent and two cooperative representatives, as
well as a public member. Such appeals subcommittee shall be appointed
by the Chairman of the Committee. Such grower may forward with the
request any pertinent material for consideration of such grower's
appeal.
(b) The subcommittee shall review the information submitted by the
grower and render a decision within 30 days of receipt of such appeal.
The subcommittee shall notify the grower of its decision, accompanied
by the reasons for its conclusions and findings.
(c) If the grower is not satisfied with the subcommittee's
decision, the grower may further appeal to the full Committee. The
grower must submit its written argument to the Committee along with any
pertinent information for the Committee's review within 15 days after
notification of the subcommittee's decision. The Committee shall
respond within 15 days of the receipt of the grower's appeal. The
Committee shall inform the grower of its decision, accompanied by the
reasons for its decision.
(d) The grower may further appeal to the Secretary, within 15 days
after notification of the Committee's findings, if such grower is not
satisfied with the Committee's decision. The Committee shall forward a
file with all pertinent information related to the grower's appeal. The
Secretary shall inform the grower and all interested parties of the
Secretary's decision. All decisions by the Secretary are final.
8. A new Sec. 929.148 is added to read as follows:
Sec. 929.148 State average yield.
The State average yield pursuant to section 929.48(a)(5)(ii) is
defined as the yield per State for the year 1997 or the best four years
out of the last six years whichever is greater. However, if the
estimated commercial sales are greater than the volume computed by this
method, the Committee will use the grower's estimated commercial sales.
[[Page 42615]]
9. A new Sec. 929.149 is added to read as follows:
Sec. 929.149 Determination of sales history
A sales history for each grower shall be computed by the Committee.
For growers with five years of sales history, a sales history shall be
computed using an average of the highest 4 years of sales. For growers
with six or more years of sales history, a sales history shall be
computed using an average of the highest four of the most recent six
years of sales. If these growers also have newer acreage with four
years of sales history or less, and such growers can provide the
Committee with credible information which would allow the Committee to
segregate the sales history of the newer acreage, then that acreage
shall be treated in the same manner as acreage of a grower with four
years or less of sales history. For a grower with four years or less of
sales history, the sales history shall be computed using the highest
sales season. Sales history for new acreage with no history of sales
(for both new and existing growers) shall be computed according to
Sec. 929.48 of the order.
Sec. 929.151 [Removed]
10. Section 929.151 is removed.
11. A new Sec. 929.158 is added to read as follows:
Sec. 929.158 Exemptions.
Sales of organic and fresh cranberries shall be exempt from volume
regulation provisions. Handlers shall qualify for such exemption by
filing the amount of fresh or organic cranberry sales on the grower
acquisition listing form. In order to receive an exemption for organic
cranberry sales, such cranberries must be certified as such by a third
party organic certifying organization acceptable to the Committee.
12. A new Sec. 929.250 is added to read as follows:
Sec. 929.250 Marketable quantity and allotment percentage for the
2000-2001 crop year.
The marketable quantity for the 2000-2001 crop year is set at 5.468
million barrels and the allotment percentage is designated at 85
percent. The marketable quantity may be adjusted to retain the 85
percent allotment percentage if the total industry sales history
increases due to established growers receiving additional sales history
on acreage with four years sales or less.
Dated: July 3, 2000.
Robert C. Keeney,
Deputy Administrator, Fruit and Vegetable Programs.
[FR Doc. 00-17289 Filed 7-5-00; 4:00 pm]
BILLING CODE 3410-02-P
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