[Federal Register: May 1, 2001 (Volume 66, Number 84)]
[Rules and Regulations]
[Page 21835-21842]
-----------------------------------------------------------------------
Part III
Department of Agriculture
-----------------------------------------------------------------------
Agricultural Marketing Service
-----------------------------------------------------------------------
7 CFR Part 930
Tart Cherries Grown in the States of Michigan, et al.; Final Free and
Restricted Percentages for the 2000-2001 Crop Year for Tart Cherries;
Final Rule
[[Page 21836]]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 930
[Docket No. FV01-930-2 FR]
Tart Cherries Grown in the States of Michigan, et al.; Final Free
and Restricted Percentages for the 2000-2001 Crop Year for Tart
Cherries
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule establishes final free and restricted percentages
for the 2000-2001 crop year. The percentages are 50 percent free and 50
percent restricted and will establish the proportion of cherries from
the 2000 crop which may be handled in normal commercial outlets. The
percentages are intended to stabilize supplies and prices, and
strengthen market conditions and were recommended by the Cherry
Industry Administrative Board (Board), the body which locally
administers the marketing order. This action will also authorize the
release of reserve pool cherries to replace those purchased for
government sales. The marketing order regulates the handling of tart
cherries grown in the States of Michigan, New York, Pennsylvania,
Oregon, Utah, Washington, and Wisconsin.
EFFECTIVE DATE: This final rule is effective May 2, 2001 through June
30, 2001.
FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Dawana R.
Johnson, Marketing Order Administration Branch, Fruit and Vegetable
Programs, AMS, USDA, Suite 2A04, Unit 155, 4700 River Road, Riverdale,
MD 20737, telephone: (301) 734-5243, or Fax: (301) 734-5275; or George
Kelhart, Technical Advisor, Marketing Order Administration Branch,
Fruit and Vegetable Programs, AMS, USDA, room 2525-S, PO Box 96456,
Washington, DC 20090-6456; telephone: (202) 720-2491, or Fax: (202)
720-5698.
Small businesses may request information on complying with this
regulation, or obtain a guide on complying with fruit, vegetable, and
specialty crop marketing agreements and orders by contacting Jay
Guerber, Marketing Order Administration Branch, Fruit and Vegetable
Programs, AMS, USDA, PO 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
agreement and Order No. 930 (7 CFR part 930), regulating the handling
of tart cherries produced in the States of Michigan, New York,
Pennsylvania, Oregon, Utah, Washington, and Wisconsin, hereinafter
referred to as the ``order.'' 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.''
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, final free and restricted percentages may be established for
tart cherries handled by handlers during the crop year. This rule will
establish final free and restricted percentages for tart cherries for
the 2000-2001 crop year, beginning July 1, 2000, through June 30, 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 exempt
therefrom. Such handler is afforded the opportunity for a hearing on
the petition. After the hearing, the Secretary would rule on the
petition. The Act provides that the district court of the United States
in any district in which the handler is an inhabitant, or has his or
her principal place of business, has jurisdiction in equity to review
the Secretary's ruling on the petition, provided an action is filed not
later than 20 days after the date of the entry of the ruling.
The order prescribes procedures for computing an optimum supply and
preliminary and final percentages that establish the amount of tart
cherries that can be marketed throughout the season. The regulations
apply to all handlers of tart cherries that are in the regulated
districts. Tart cherries in the free percentage category may be shipped
immediately to any market, while restricted percentage tart cherries
must be held by handlers in a primary or secondary reserve, or be
diverted in accordance with section 930.59 of the order and section
930.159 of the regulations, or used for exempt purposes (and obtaining
diversion credit) under section 930.62 of the order and section 930.162
of the regulations. The regulated Districts for this season are:
District one--Northern Michigan; District two--Central Michigan;
District three--Southwest Michigan; and District seven--Utah. Districts
four, five, six, eight, and nine (New York, Oregon, Pennsylvania,
Washington, and Wisconsin, respectively) would not be regulated for the
2000-2001 season.
The order prescribes under section 930.52 that, upon adoption of
the order, the districts to be regulated shall be those districts in
which the average annual production of cherries over the prior three
years has exceeded 15 million pounds. A district not meeting the 15
million-pound requirement shall not be regulated in such crop year.
Because this requirement was not met in the districts of New York,
Oregon, Pennsylvania, Washington, and Wisconsin, handlers in those
districts will not be subject to volume regulation during the 2000-2001
crop year. Production from New York was regulated last year. Production
from the other four States was not subject to regulation.
Demand for tart cherries at the farm level is derived from the
demand for tart cherry products at retail. Demand for tart cherries and
tart cherry products tends to be relatively stable from year to year.
The supply of tart cherries, by contrast, varies greatly from crop year
to crop year. The magnitude of annual fluctuations in tart cherry
supplies is one of the most pronounced for any agricultural commodity
in the United States. In addition, since tart cherries are processed
either into cans or frozen, they can be stored and carried over from
crop year to crop year. This creates substantial coordination and
marketing problems. The supply and demand for tart cherries is rarely
balanced. The primary purpose of setting free and restricted
percentages is to balance supply with demand and reduce large surpluses
that may occur.
Section 930.50(a) of the order describes procedures for computing
an optimum supply for each crop year. The Board must meet on or about
July 1 of each crop year, to review sales data, inventory data, current
crop forecasts and market conditions. The optimum supply volume shall
be calculated as 100 percent of the average sales of the prior three
years to which is added a desirable carryout inventory not to exceed 20
million pounds or such other amount as may be established with the
approval of the Secretary. The optimum supply represents the desirable
volume
[[Page 21837]]
of tart cherries that should be available for sale in the coming crop
year.
The order also provides that on or about July 1 of each crop year,
the Board is required to establish preliminary free and restricted
percentages. These percentages are computed by deducting the actual
carryin inventory from the optimum supply figure (adjusted to raw
product equivalent--the actual weight of cherries handled to process
into cherry products) and subtracting that figure from the current
year's USDA crop forecast. If the resulting number is positive, this
represents the estimated over-production, which would be the restricted
percentage tonnage. The restricted percentage tonnage is then divided
by the sum of the USDA crop forecast for the regulated districts to
obtain percentages for the regulated districts. The Board is required
to establish a preliminary restricted percentage equal to the quotient,
rounded to the nearest whole number, with the complement being the
preliminary free tonnage percentage. If the tonnage requirements for
the year are more than the USDA crop forecast, the Board is required to
establish a preliminary free tonnage percentage of 100 percent and a
preliminary restricted percentage of zero. The Board is required to
announce the preliminary percentages in accordance with paragraph (h)
of Sec. 930.50.
The Board met on June 22, 2000, and computed, for the 2000-2001
crop year, an optimum supply of 275 million pounds. The Board
recommended that the desirable carryout figure be zero pounds.
Desirable carryout is the amount of fruit required to be carried into
the succeeding crop year and is set by the Board after considering
market circumstances and needs. This figure can range from zero to a
maximum of 20 million pounds. The Board calculated preliminary free and
restricted percentages as follows: The USDA estimate of the crop was
245 million pounds; an 88 million pound carryin added to that estimate
results in a total available supply of 333 million pounds. The carryin
figure reflects the amount of cherries that handlers actually have in
inventory. Subtracting the optimum supply of 275 million pounds from
the total estimated available supply results in a surplus of 58 million
pounds of tart cherries. An adjustment for changed economic conditions
of 35 million pounds was added to the surplus, pursuant to Sec. 930.50
of the order. This adjustment is discussed later in this document.
After the adjustment, the resulting total surplus is 93 million pounds
of tart cherries. The surplus was divided by the production in the
regulated districts (195 million pounds) and resulted in a restricted
percentage of 48 percent for the 2000-2001 crop year.The free
percentage was 52 percent (100 percent minus 48 percent). The Board
unanimously established these percentages and announced them to the
industry as required by the order.
The preliminary percentages were based on the USDA production
estimate and the following supply and demand information available at
the June meeting for the 2000-2001 year:
------------------------------------------------------------------------
Millions of
Optimum supply formula pounds
------------------------------------------------------------------------
(1) Average sales of the prior three years.............. 275
(2) Plus desirable carryout............................. 0
(3) Optimum supply calculated by the Board at the June 275
meeting................................................
Preliminary Percentages:
(4) USDA crop estimate.................................. 245
(5) Plus carryin held by handlers as of July 1, 2000.... 88
(6) Total available supply for current crop year........ 333
(7) Surplus (item 6 minus item 3)....................... 58
(8) Economic adjustment to surplus...................... 35
(9) Adjusted surplus (item 7 plus item 8)............... 93
(10) USDA crop estimate for regulated districts......... 195
------------------------------------------------------------------------
Percentages Free Restricted
------------------------------------------------------------------------
(11) Preliminary percentages (item 9 52 48
divided by item 10 x 100 equals
restricted percentage; 100 minus
restricted percentage equals free
percentage)............................
------------------------------------------------------------------------
Between July 1 and September 15 of each crop year, the Board may
modify the preliminary free and restricted percentages by announcing
interim free and restricted percentages to adjust to the actual pack
occurring in the industry.
Section 930.50(d) of the order requires the Board to meet no later
than September 15 to recommend final free and restricted percentages to
the Secretary for approval. The Board met on September 8, 2000, and
recommended final free and restricted percentages of 50 percent. The
Board recommended that the interim percentages and final percentages be
the same. At that time, the Board had available actual production,
sales, and carryin inventory amounts to review and made adjustments to
the percentages.
The Secretary establishes final free and restricted percentages
through the informal rulemaking process. These percentages will make
available the tart cherries necessary to achieve the optimum supply
figure calculated by the Board. The difference between any final free
percentage designated by the Secretary and 100 percent is the final
restricted percentage.
The Board used an updated optimum supply figure in determining the
final free and restricted percentages. The revised optimum supply is
277 million pounds, instead of 275 million pounds used in June. The 3-
year average sales figure computed in June included an estimate of June
2000 sales because actual June sales were not yet available. The 3-year
average sales figure used in the final calculations reflects actual
sales for each month of the 3-year period.
The actual production reported by the Board was 284 million pounds,
which is a 39 million pound increase from the USDA crop estimate of 245
million pounds. The increase in production was due to higher yields in
the major producing States (Michigan, New York, Utah, Washington, and
Wisconsin). For 2000-2001, production in the regulated districts
totaled 232 million pounds, 37 million pounds greater than the USDA
estimate of 195 million pounds.
An 87 million pound carryin (actual carryin as opposed to the 88
million pounds originally estimated in June)
[[Page 21838]]
was added to the Board's reported production of 284 million pounds,
yielding a total available supply for the current crop year of 371
million pounds. The optimum supply of 277 million pounds was subtracted
from the total available supply which resulted in a 94 million pound
surplus. An adjustment of 22 million pounds for changed economic
conditions was added to the surplus, pursuant to Sec. 930.50 of the
order. This adjustment is discussed later in this document. After the
adjustment, the resulting total surplus is 116 million pounds of tart
cherries. The total surplus of 116 million pounds is divided by the 232
million-pound volume of tart cherries produced in the regulated
districts. This results in a 50 percent restricted percentage and a
corresponding 50 percent free percentage for the regulated districts.
The final percentages are based on the Board's reported production
figures and the following supply and demand information available in
September for the 2000-2001 crop year:
------------------------------------------------------------------------
Millions of
Optimum supply formula pounds
------------------------------------------------------------------------
(1) Average sales of the prior three years.............. 277
(2) Plus desirable carryout............................. 0
(3) Optimum supply calculated by the Board at the 277
September meeting......................................
Final Percentages:
(4) Board reported production........................... 284
(5) Plus carryin held by handlers as of July 1, 2000.... 87
(6) Tonnage available for current crop year............. 371
(7) Surplus (item 6 minus item 3)....................... 94
(8) Economic adjustment to surplus...................... 22
(9) Adjusted surplus (item 7 plus item 8)............... 116
(10) Production in regulated districts.................. 232
------------------------------------------------------------------------
Percentages Free Restricted
------------------------------------------------------------------------
(11) Final Percentages (item 9 divided 50 50
by item 10 x 100 equals restricted
percentage; 100 minus restricted
percentage equals free percentage).....
------------------------------------------------------------------------
As previously mentioned, the Board recommended an economic
adjustment in computing both the preliminary and final percentages for
the 2000-2001 crop year. This is authorized under Sec. 930.50. These
provisions provide that in its deliberations of volume regulation
recommendations, the Board consider, among other things, the expected
demand conditions for cherries in different market segments and an
analysis of economic factors having a bearing on the marketing of
cherries. Based on these considerations, the Board may modify its
marketing policy calculations to reflect changes in economic
conditions.
The order provides that the 3-year average of all sales be used in
determining the optimum supply of cherries. The industry wants to
export diversion cherries to foreign markets, excluding Canada and
Mexico. Exports are used by handlers to meet their diversion
requirements. Including this volume of sales in the optimum supply
formula, however, results in an overestimate of the volume of tart
cherries that can be profitably marketed in unrestricted markets. Thus,
the Board recommended adjusting its estimate of surplus cherries by
adding exempt export sales (all exports except those going to Canada
and Mexico).
This season the Board also recommended that the adjustment reflect
the impact that USDA purchases for school lunch and other purposes
might have on the sales component of the optimum supply formula.
Purchases by USDA are part of the average sales history for the
industry. In recent years, USDA has purchased about 17 million pounds
of tart cherry products and this has been factored into the optimum
supply formula. During the 2000-2001 crop year, USDA expects to
purchase about 10 million pounds of frozen and hot pack cherries, and
20 million pounds of dried cherries. The Board determined that the
difference between the expected purchases (30 million pounds) during
the 2000-2001 crop year and the average purchases of 17 million pounds
should not be included in the optimum supply figure.
Therefore, the Board adjusted the expected surplus to 22 million
pounds (35 million pounds of exports minus 13 million pounds of USDA
purchases). Without this adjustment, the surplus for the 2000-2001 crop
year would have been 129 million pounds. Dividing this figure by the
Board reported production in the regulated districts (232 million
pounds) would have resulted in a 56 percent restricted percentage.
Hence, this adjustment resulted in a reduction in the restricted
percentage from 56 percent to 50 percent. The 50 percent restricted
percentage will allow growers to deliver more of their crop to
handlers. This reduction should provide some benefits to growers in
Michigan and Utah which are the only States restricted for the 2000-
2001 crop year.
By recommending this marketing policy modification, the Board
believes that it will provide stability to the marketplace and the
industry will be in a better situation in future years. This
modification is intended to further facilitate and encourage market
expansion. Board members were of the opinion that, if this adjustment
is not made, growers could be paid less than their production costs,
because handlers would suffer financial losses that will probably be
passed on to the growers. In addition, the value of cherries already in
inventory could be depressed due to the overabundant supply of
available cherries, a result inconsistent with the intent of the order
and the Act.
The supplementary information section of the proposed rule stated
that the Board also recommended that a like quantity of cherries be
released from the reserve to replace cherries that the USDA and other
governmental agencies offer to purchase for surplus removal purposes.
Based on a comment filed on behalf of the Board, purchases by other
government agencies will also be included. The comment, discussed in
full later, clarifies that the Board intended that such releases only
be made for surplus removal type purchases, and that all government
purchases, not only USDA purchases for such purposes should trigger
releases.
Simply put, the procurement process consists of three stages. The
offer to buy stage, the invitation to bid stage, and the awarding of
contracts stage. Such releases will be based on USDA and other
government agency announced
[[Page 21839]]
offers to purchase tart cherries for surplus removal. The quantities
purchased are sometimes less than the quantities mentioned in the
announced offers. Actual purchases depend on the prices and quantities
offered as well as possible adjustments in user requirements.
Because of the potential difference between the offer and the
actual quantity purchased, and the timing of the offer and the
invitation to bid and awarding of contracts by the government agency,
the Board indicated, in its comment, that the quantity of reserve
tonnage released on the basis of surplus removal offers should not be
considered as carryover at the first stage of the procurement process.
If at the second stage, the quantity for which bids are invited is less
than the initial quantity offered, the difference between the two
amounts will be considered carryover tonnage. If at the third stage the
quantity for which contracts have been awarded and the quantity
initially offered to be purchased is less, the difference between the
two amounts will be considered carryover for the purpose of computing
marketing percentages.
According to the Board, releasing a like quantity of tart cherries
from the reserve to replace cherries that are offered to be purchased
by USDA and other government agencies for surplus removal, together
with the previously mentioned carryover adjustments, will remove the
variability and irregularity of such purchases and thereby make the
computation of volume regulation percentages more stable and
predictable. The Board believes that such releases will equitably
spread the benefit of these planned purchases throughout the industry
because all handlers regulated under the order, and not just those
handlers who successfully bid and sold product to USDA and other
government agencies, will benefit from the surplus removal tart cherry
purchases.
The Department's ``Guidelines for Fruit, Vegetable, and Specialty
Crop Marketing Orders'' specify that 110 percent of recent years' sales
should be made available to primary markets each season before
recommendations for volume regulation are approved. This goal will be
met by the establishment of a preliminary percentage which releases 100
percent of the optimum supply and the additional release of tart
cherries provided under Sec. 930.50(g). This release of tonnage, equal
to 10 percent of the average sales of the prior three years sales, is
made available to handlers each season. The Board recommended that such
release should be made available to handlers the first week of December
and the first week of May. Handlers can decide how much of the 10
percent release they would like to receive during the December and May
release dates. Once released, such cherries are released for free use
by such handler. Approximately 27 million pounds will be made available
to handlers this season in accordance with Department Guidelines. This
release will be made available to every handler and released to such
handler in proportion to its percentage of the total regulated crop
handled. If a handler does not take his/her proportionate amount, such
amount shall remain in the inventory reserve.
The Regulatory Flexibility Act and Effects on Small Businesses
The Agricultural Marketing Service (AMS) has considered the
economic impact of this action on small entities and has prepared this
final regulatory flexibility analysis. The Regulatory Flexibility Act
(RFA) will allow AMS to certify that regulations do not have a
significant economic impact on a substantial number of small entities.
However, as a matter of general policy, AMS' Fruit and Vegetable
Programs (Programs) no longer opts for such certification, but rather
performs regulatory flexibility analyses for any rulemaking that will
generate the interest of a significant number of small entities.
Performing such analyses shifts the Programs' efforts from determining
whether regulatory flexibility analyses are required to the
consideration of regulatory options and economic or regulatory impacts.
The purpose of the RFA is to fit regulatory actions to the scale of
business subject to such actions in order that small businesses will
not be unduly or disproportionately burdened. Marketing orders issued
pursuant to the Act, and rules issued thereunder, are unique in that
they are brought about through group action of essentially small
entities acting on their own behalf. Thus, both statutes have small
entity orientation and compatibility.
There are approximately 40 handlers of tart cherries who are
subject to regulation under the tart cherry marketing order and
approximately 900 producers of tart cherries in the regulated area.
Small agricultural service firms, which include handlers, have been
defined by the Small Business Administration (13 CFR 121.201) as those
having annual receipts of less than $5,000,000, and small agricultural
producers are defined as those having annual receipts of less than
$500,000.
Board and subcommittee meetings are widely publicized in advance
and are held in a location central to the production area. The meetings
are open to all industry members (including small business entities)
and other interested persons who are encouraged to participate in the
deliberations and voice their opinions on topics under discussion.
Thus, Board recommendations can be considered to represent the
interests of small business entities in the industry.
The principal demand for tart cherries is in the form of processed
products. Tart cherries are dried, frozen, canned, juiced, and pureed.
During the period 1995/96 through 1999/00, approximately 91 percent of
the U.S. tart cherry crop, or 280.5 million pounds, was processed
annually. Of the 280.5 million pounds of tart cherries processed, 62
percent was frozen, 29 percent was canned, and 9 percent was utilized
for juice.
Based on National Agricultural Statistics Service data, acreage in
the United States devoted to tart cherry production has been trending
downward. In the ten-year period, 1987/88 through 1997/98, the tart
cherry area decreased from 50,050 acres, to less than 40,000 acres. In
1999/00, approximately 90 percent of domestic tart cherry acreage was
located in four States: Michigan, New York, Utah and Wisconsin.
Michigan leads the nation in tart cherry acreage with 70 percent of
the total. Michigan produces about 75 percent of the U.S. tart cherry
crop each year. In 1999/00, tart cherry acreage in Michigan decreased
to 28,100 acres from 28,400 acres the previous year.
In crop years' 1987/88 through 1999/00, tart cherry production
ranged from a high of 359.0 million pounds in 1987/88 to a low of 189.9
million pounds in 1991/92. The price per pound received by tart cherry
growers ranged from a low of 7.3 cents in 1987 to a high of 46.4 cents
in 1991. These problems of wide supply and price fluctuations in the
tart cherry industry are national in scope and impact. Growers
testified during the order promulgation process that the prices they
received often did not come close to covering the costs of production.
They also testified that production costs for most growers range
between 20 and 22 cents per pound, which is well above average prices
received during the 1993-1995 seasons.
The industry demonstrated a need for an order during the
promulgation process of the marketing order because large variations in
annual tart cherry supplies tend to lead to fluctuations in prices and
disorderly marketing. As a result of these fluctuations in supply
[[Page 21840]]
and price, growers realize less income. The industry chose a volume
control marketing order to even out these wide variations in supply and
improve returns to growers. During the promulgation process, proponents
testified that small growers and processors would have the most to gain
from implementation of a marketing order because many such growers and
handlers had been going out of business due to low tart cherry prices.
They also testified that, since an order would help increase grower
returns, this should increase the buffer between business success and
failure because small growers and handlers tend to be less capitalized
than larger growers and handlers.
Aggregate demand for tart cherries and tart cherry products tends
to be relatively stable from year-to-year. Similarly, prices at the
retail level show minimal variation. Consumer prices in grocery stores,
and particularly in food service markets, largely do not reflect
fluctuations in cherry supplies. Retail demand is assumed to be highly
inelastic which indicates that price reductions do not result in large
increases in the quantity demanded. Most tart cherries are sold to food
service outlets and to consumers as pie filling; frozen cherries are
sold as an ingredient to manufacturers of pies and cherry desserts.
Juice and dried cherries are expanding market outlets for tart
cherries.
Demand for tart cherries at the farm level is derived from the
demand for tart cherry products at retail. In general, the farm-level
demand for a commodity consists of the demand at retail or food service
outlets minus per-unit processing and distribution costs incurred in
transforming the raw farm commodity into a product available to
consumers. These costs comprise what is known as the ``marketing
margin.''
The supply of tart cherries, by contrast, varies greatly. The
magnitude of annual fluctuations in tart cherry supplies is one of the
most pronounced for any agricultural commodity in the United States. In
addition, since tart cherries are processed either into cans or frozen,
they can be stored and carried over from year-to-year. This creates
substantial coordination and marketing problems. The supply and demand
for tart cherries is rarely in equilibrium. As a result, grower prices
fluctuate widely, reflecting the large swings in annual supplies.
In an effort to stabilize prices, the tart cherry industry uses the
volume control mechanisms under the authority of the Federal marketing
order. This authority allows the industry to set free and restricted
percentages. These restricted percentages are only applied to States or
districts with a 3-year average of production greater than 15 million
pounds. Currently, only the three districts in Michigan and Utah are
subject to restricted percentages.
The primary purpose of setting restricted percentages is an attempt
to bring supply and demand into balance. If the primary market is over-
supplied with cherries, grower prices decline substantially. The tart
cherry sector uses an industry-wide storage program as a supplemental
coordinating mechanism under the Federal marketing order. The primary
purpose of the storage program is to warehouse supplies in large crop
years in order to supplement supplies in short crop years. The storage
approach is feasible because the increase in price--when moving from a
large crop to a short crop year--more than offsets the cost for
storage, interest, and handling of the stored cherries.
The price that growers' receive for their crop is largely
determined by the total production volume and carryin inventories. The
Federal marketing order permits the industry to exercise supply control
provisions, which allow for the establishment of free and restricted
percentages for the primary market, and a storage program. The
establishment of restricted percentages impacts the production to be
marketed in the primary market, while the storage program has an impact
on the volume of unsold inventories.
The volume control mechanism used by the cherry industry results in
decreased shipments to primary markets. Without volume control the
primary markets (domestic) would likely be over-supplied, resulting in
low grower prices.
To assess the impact that volume control has on the prices growers
receive for their product, an econometric model has been estimated. The
estimated model provides a way to see what impacts volume control may
have on grower prices. The three districts in Michigan and Utah are the
only restricted areas for this crop year and their combined total
production is 232 million pounds. A 50 percent restriction means 116
million pounds is available to be shipped to primary markets from these
two States. Production levels of 17 million pounds for New York, 4
million pounds for Oregon, 5 million pounds for Pennsylvania, 17
million pounds for Washington, and 10 million pounds for Wisconsin
results in an additional 53 million pounds available for primary market
shipments.
In addition, USDA requires a 10% release from reserves as a market
growth factor. This results in an additional 28 million pounds being
available for the primary market. The 116 million pounds from Michigan
and Utah, the 53 million pounds from the other producing states, and
the 28 million pound release gives a total of 197 million pounds being
available for the primary markets. This results in 88 million pounds
being restricted and an effective restricted percent of 30.8 percent.
The econometric model is used to estimate grower prices with and
without regulation. Without the volume controls, the estimated grower
price would be approximately $0.12 per pound. With volume controls, the
estimated grower price would increase to approximately $0.20 per pound.
The use of volume controls is estimated to have a positive impact
on growers' total revenues. Without regulation, growers' total revenues
from processed cherries are estimated to be $34.2 million in 2000-2001.
In this scenario, production is 284 million pounds and price, without
regulation, is estimated to be $0.12 per pound. With regulation,
growers' revenues from processed cherries are estimated to be $43.8
million. In this scenario, 197 million pounds are available for the
primary markets with an estimated price of $0.20 per pound. Over the
past several seasons, growers received approximately $0.05 per pound
for restricted (diverted) cherries.
The results of econometric analysis are subject to some level of
uncertainty. As long as the resulting grower prices are $0.15 per pound
or greater, then growers' are better off with the regulation. If price
with regulation is $0.15 per pound or less, the estimated revenues
under no regulation would be similar to the revenues with a 50 percent
regulation.
It is concluded that the 50 percent volume control would not unduly
burden producers, particularly smaller growers. The 50 percent
restriction is only applied to the growers in Michigan and Utah. The
growers in the other 5 regulated States will benefit from this
restriction. Michigan and Utah produced over 80 percent of the tart
cherry crop during the 2000/01 crop year.
Recent grower prices have been as high as $0.20 per pound. At
current production levels, the cost of production is reported to be
$0.20 to $0.22 per pound. Thus, the estimated $0.20 per pound received
by growers with regulation is close to the cost of production. The use
of volume controls
[[Page 21841]]
is believed to have little or no effect on consumer prices and will not
result in fewer retail sales or sales to food service outlets.
Without the use of volume controls, the industry could be expected
to continue to build large amounts of unwanted inventories. These
inventories have a depressing effect on grower prices. The econometric
model shows for every 1 million-pound increase in carryin inventories,
a decrease in grower prices of $0.0033 per pound occurs. The use of
volume controls allows the industry to supply the primary markets while
avoiding the disastrous results of over-supplying these markets. In
addition, through volume control, the industry has an additional supply
of cherries that can be used to develop secondary markets such as
exports and the development of new products.
In discussing the possibility of marketing percentages for the
2000-2001 crop year, the Board considered the following factors
contained in the marketing policy: (1) The estimated total production
of tart cherries; (2) the estimated size of the crop to be handled; (3)
the expected general quality of such cherry production; (4) the
expected carryover as of July 1 of canned and frozen cherries and other
cherry products; (5) the expected demand conditions for cherries in
different market segments; (6) supplies of competing commodities; (7)
an analysis of economic factors having a bearing on the marketing of
cherries; (8) the estimated tonnage held by handlers in primary or
secondary inventory reserves; and (9) any estimated release of primary
or secondary inventory reserve cherries during the crop year.
The Board's review of the factors resulted in the computation and
announcement in September 2000 of the free and restricted percentages
in this rule (50 percent free and 50 percent restricted).
A positive factor for the cherry industry this year is the
unusually large USDA purchases of cherries during this crop year. These
USDA sales include a significant amount of frozen cherries and large
quantities of dried cherries. It also appears likely that the USDA will
offer to buy more cherries later this year using Congressionally
appropriated funds designated for purchases of specified commodities,
including tart cherries.
A number of industry leaders have suggested that the Board should
consider alternative approaches for dealing with this challenging
situation which has developed with this year's crop because of (a) the
considerably larger actual crop size, (b) the resulting high regulation
percentage, and the prospect of a significant secondary reserve, (c)
the unusually large USDA purchases, and (d) other factors.
The Board discussed two alternatives. The first alternative was an
economic adjustment component for the large USDA purchases. The Board
added a separate component for the economic adjustment in the supply
regulation calculations for the large USDA purchases.
The average of USDA purchases during the last three years has been
17 million pounds. This year USDA has purchased 10 million pounds of
frozen cherries to be delivered during the 2000 crop-marketing year.
USDA has also currently offered to buy another approximately 20 million
pounds as dried cherries. If all of this is successfully awarded after
the bids, this will be a total of 30 million pounds to be delivered
this year. This is 13 million pounds more than USDA tart cherry
purchases in recent years. Those who support this type of economic
adjustment for the USDA demand agree that the additional 17 million
pounds over the average could be used as a partial balance to the 35
million pounds of the economic adjustment for the expected export
diversion credit volume.
The second alternative is that no change be made in the economic
adjustment (with a reserve release if needed). The Board might decide
to make no changes in the economic adjustment with the expectation
that, if cherries are needed from the reserve to meet the unusually
large USDA purchases, a reserve release will be made by the Board when
needed during the coming marketing year. Some in the industry stated
that even though the crop turned out to be considerably larger than
expected in June, and despite the large USDA purchases, it is best to
keep the economic adjustment factor at 35 million pounds. With the
larger crop size, this would result in a regulation of 57 percent in
the regulated districts. With this alternative, if more open market
cherries are needed because of the large USDA purchases to date (and/or
an expected additional purchase later this year), some of the reserve
can be used to replace the free tonnage tart cherries.
As mentioned earlier, the Department's ``Guidelines for Fruit,
Vegetable, and Specialty Crop Marketing Orders'' specify that 110
percent of recent years' sales should be made available to primary
markets each season before recommendations for volume regulation are
approved. The quantity available under this rule is 110 percent of the
quantity shipped in the prior three years.
The free and restricted percentages established by this rule
release the optimum supply and apply uniformly to all regulated
handlers in the industry, regardless of size. There are no known
additional costs incurred by small handlers that are not incurred by
large handlers. The stabilizing effects of the percentages impact all
handlers positively by helping them maintain and expand markets,
despite seasonal supply fluctuations. Likewise, price stability
positively impacts all producers by allowing them to better anticipate
the revenues their tart cherries will generate.
The Department has not identified any relevant Federal rules that
duplicate, overlap, or conflict with this regulation.
While the benefits resulting from this rulemaking are difficult to
quantify, the stabilizing effects of the volume regulations impact both
small and large handlers positively by helping them maintain markets
even though tart cherry supplies fluctuate widely from season to
season.
In compliance with Office of Management and Budget (OMB)
regulations (5 CFR part 1320) which implement the Paperwork Reduction
Act of 1995 (Pub. L. 104-13), the information collection and
recordkeeping requirements have been previously approved by OMB and
assigned OMB Number 0581-0177.
There are some reporting, 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. As with other, similar marketing order programs,
reports and forms are periodically studied to reduce or eliminate
duplicate information collection burdens by industry and public sector
agencies. This rule does not change those requirements.
A proposed rule concerning this action was published in the Federal
Register on January 10, 2001 (66 FR 1909). Copies of the rule were
mailed or sent via facsimile to all Board members and handlers.
Finally, the rule was made available through the Internet by the Office
of the Federal Register. A 15-day comment period ending on January 25,
2001, was provided to allow
[[Page 21842]]
interested persons to respond to the proposal.
Two comments were received during the comment period in response to
the proposal. One comment was received from a Michigan grower-handler
who supported the Board's recommendation. A second comment was received
on behalf of the Board, and recommended several clarifications to the
proposal. The commenter stated that the Board intended that reserve
releases should be made for USDA and other government intended
purchases, not only USDA purchases. The commenter also stated that the
intent of the Board was that reserve releases involving intended
government purchases should be triggered only by bonus purchases (non-
entitlement purchases) of surplus tart cherries; i.e., purchase offers
intended to remove surplus supplies from the marketplace. The Board
believes that the benefits of purchases to remove surpluses should be
shared by each handler in proportion to the quantities of reserve
cherries held by the handlers. Purchases by government agencies for
other purposes (referred to as entitlement purchases) should continue
to be supplied with free tonnage, not reserve tonnage.
The commenter also stated that any reserve inventory released based
on surplus removal purchase offers should not adversely impact the
Optimum Supply Formula and volume regulation percentages in the
subsequent marketing season. If an offer to make a surplus removal
purchase results in a reserve release in one crop year and an
invitation to submit bids and an awarding of contracts the following
year, the tonnage released during the previous year would be considered
as carryover tonnage. This would increase the total available supply of
cherries for the succeeding year even though most if not all of them
will probably be purchased by the government agency, and make the
volume regulation for the succeeding year more restrictive than needed.
To prevent this from occurring, the commenter recommended various
methods of handling the carryover during the procurement steps. If the
tonnage offered and released is the same as the quantity purchased,
none of the released tonnage should be considered as carryover. The
same would be true if the offer had been made but the invitations to
bid and the awarding of contracts had not been issued. If the offer to
purchase and the amount released is more than the quantity for which
contracts were awarded, the difference between the two amounts would
not be considered as carryover tonnage. If the offer to purchase and
the amount of tonnage released is more than the amount in the
invitation to bid or the contracts awarded, the difference in the
amounts would be considered carryover tonnage. This reflects how this
aspect of the computation of volume regulations will be accomplished.
They will help the Board properly administer the inventory releases and
the volume control provisions of the marketing order. Supply management
is a critical feature of the tart cherry marketing order and it is
important that the percentages not be more restrictive than needed.
In summary, it was the Board's intent to limit the types of
purchases that would trigger inventory reserve releases to bonus (non-
entitlement) surplus removal purchases. Also, the Board did not intend
to limit reserve releases to surplus removal purchases made by the
USDA. It wanted all government purchases for such purposes to trigger
releases of reserve cherries. These requested changes are made in the
applicable provisions.
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 material presented, including
the information and recommendation submitted by the Board and other
available information, and the comments received, 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 because handlers have already received 2000-2001 crop
tart cherries from growers. Further, handlers are aware of this rule
which was recommended at a public meeting. Also, a 15-day comment
period was provided for in the proposed rule, and the comments received
have been addressed.
List of Subjects in 7 CFR Part 930
Marketing agreements, Reporting and recordkeeping requirements,
Tart cherries.
For the reasons set forth in the preamble, 7 CFR Part 930 is
amended to read as follows:
PART 930--TART CHERRIES GROWN IN THE STATES OF MICHIGAN, NEW YORK,
PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN
1. The authority citation for 7 CFR part 930 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
2. Section 930.154 is added to read as follows:
Sec. 930.154 Reserve release.
If USDA or any other governmental agency initiates an invitation to
purchase product as a non-entitlement purchase, the Board shall release
a like quantity of cherries from the reserve pool to each handler who
has a proportionate share in the reserve.
3. Section 930.252 is added to read as follows:
Sec. 930.252 Final free and restricted percentages for the 2000-2001
crop year.
The final percentages for tart cherries handled by handlers during
the crop year beginning on July 1, 2000, which shall be free and
restricted, respectively, are designated as follows: Free percentage,
50 percent and restricted percentage, 50 percent.
Dated: April 24, 2001.
Kenneth C. Clayton,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 01-10664 Filed 4-30-01; 8:45 am]
BILLING CODE 3410-02-U
This archive was generated by hypermail 2b29 : 2001/05/01 EST