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Animal and Plant Health I nspection Service Economic Analy sis in Support of Certification Proposed Rule: Removal of Varietal Restrictions on Apples ( Malus domestica ) from Japan (7 CFR 319.56

- 27 and 7 CFR 305

- 2(i))
Docket No. APHI S

- 2009

- 0020
5/7 /2009
Wh en an agency

issues a rulemaking proposal, the Regulatory Flexibility

Act (RFA) requires the agency

to “prepare and make available for public comment an initial regulatory flexibility analy sis” which will “describe the impact of the proposed rule on small entities” (5 U.S.C. 603(a)). Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analy sis, if the proposed rulemaking is not expected to have a significant economic impact on a substantial number of small entities. A s speci fied by § 605 of the RFA, the following economic analy sis provides the basis for certification of the proposed rule to allow importation of all varieties of Malus domestica apples from Japan

. Reasons why

action by the agency

is being considered APHI S rece ived a request from the Japanese Ministry of Agriculture, Forestry

and Fisheries (MAFF) to allow the importation of all Malus domestica apple varieties into the United States under the same conditions as it currently exist for Fuji variety

apples. As part of an evaluation of Japan's request, APHI S prepared a commodity import evaluation document that included a review of data collected over 14 y ears , from 1994 to 2008 , regarding pest interce ption on Fuji apples from Japan and an evaluat ion of the risks ass ociated with the importation of Malus domestica apples of various varieties into the United States 1



### . The data indicated that no quarantine pests on commercial cargo of Fuji apples have been intercepted/reported/identified at U.S. ports of entry

from 1994 to 2008 , and no pests of concern have been reported by the pre

clearance program in Japan. APHI S has concluded that it is highly unlikely that other Malus

1 APHIS Commodity Import Evaluation Document (CIED) February 2009

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domestica apple varieties would have a pest host status significantly different from that of Fuji

va riety apples given that the varieties are of the same species

. Description and estimate of the number of small entities affected This proposed rule may affect domestic apple growers , especially those who engage in the production of Tsugaru, Jonagold, Orin and other Malus domestica varieties , 2 

### as well as the importers, wholesalers and distributors of all varieties of Malus domestica apples. APHI S does not have information on U.S. production of these apple varieties. Nonetheless , the action is expected to have minimal economic effect on U.S. entities , small or large , given the relatively small impact of current Fuji apple import s from Japan

. Any increase in the quantity

of apples from Japan because of i mportation of these other , more minor Malus domestica varieties is expected to be insignificant

. According to the Small Business Administration (SBA) standard , a business engaged in apple production is considered to be a small entity if its annual receipts are not more than $750,000

. 3 

### Table 1 summarizes 2007 Census of Agriculture data for apple growers
. 4 

### T hat y ear t here were a total of 25,591 U.S. apple growers. Average annual sales per apple grower are estimated to have been about $102,000 in 2007. 5 

### Clearly , apple growers are predominantly small entities according to the SBA standard of $750,000

. T he t op - 10 produc ing States

— Washington, California, Pennsy lvania, Michigan, New York, Oregon, Ohio, Wisconsin, New Mexico, and North Carolina

—

h ad 58 % of all apple growers and 84 % of U.S. apple acreage.

Table 1. Number of a

pple f arms and a cres , top 10 States State Number of a pple grow ers and p ercentage s hare of U.S. t otal Total a cres and p ercentage s hare of U.S. t otal Washington 3,05 2 ( 11 .9 %) 165,215 (41.5%) California 2,074 ( 8.1 %) 22,184 (5.5%)

2 After Fuji, these are the major apple varieties produced in Japan, accordin g to the Japanese Ministry of Agriculture, Forestry and Fisheries (MAFF)

. 3 North American Industry Classification System (NAICS) 111331

– Crop Production

– Apple Orchards. 4 The data include all varieties of apples. We do not have data specific to the M alus domestica varieties grown in Japan

. 5 Average sales per entity is based on the number of apple growers recorded in the 2007 Agricultural Census, i.e. 25,591, and the total value of fresh and processed apples reported in the 2008 USDA

- NASS Non

- citrus fruits and nuts summary, i.e. $2.6 billion.

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Pennsylvani a 1,886 (7 .4 %) 23,552 (5.9%) Michigan 1,772 ( 6.9%) 44,189 (11.1%) New York 1,350 (5.3%) 49,966 (12.6%) Oregon 1,330 (5.2%) 6,234 (1.6%) Ohio 1,000 (3.9%) 5.970 (1.5%) Wisconsin 935 (3.7%) 6,406 (1.6%) New Mexico 807 (3.2%) 2,057 (0.5%) North Carolin a 673 (2.6%) 7,583 (1.9%) Top 10 S tate t otal 14,879 ( 58.1 %) 333,356 ( 83.7 %) United States t otal 25,591 (100%) 398,770 (100%) Sourc e: USDA

- NASS 200 7 Census data , T able 32 , Fruits and n uts

.


### Table 2 summarizes the 2007 Census of Agriculture data for apple growers by acreage. According to the data, 36 % of apple growers ha d orchards of less than 1 acre, a nd the vast majority of apple growers, 99 %, ha d orchards of less than 25 0 acres , indicating that the majority of apple growers engage in relatively small

- sc ale operations. Table 2. Number of U.S. a pple farms by

a creage

Acres Number

of f arms Percentage

s hare Cumulative

p ercentage Acres Percentage s hare Cumulative

p ercentage 0.1 to 0.9 9,270 36.2% 36.2 % 3,000 0.8 % 0.8 % 1.0 to 4.9 9,059 35.4% 71.6 % 18,091 4.5 % 5 .3% 5.0 to 14.9 3,366 13.2% 84.8 % 27,070 6.8 % 12.1 % 15.0 to 24.9 1,131 4.4% 89.2 % 21,154 5.3 % 17.4 % 25.0 to 49.9 1,168 4.6% 93.8 % 40,102 10.1 % 27.4 % 50.0 to 99.9 791 3.1% 96.9 % 54,158 13.6 % 41.0 % 100.0 to 249.9 561 2.2% 99.0 % 83 ,996 21.1 % 62.1 % 250.0 to 499.9 152 0.6% 99.6 % 51,422 12.9 % 75.0 % 500.0 to 749.9 52 0.2% 99.8 % 31,107 7.8 % 82.8 %
750 .0 to 999.9 20 0.1% 99.9% 17,408 4.4% 87.1% 1,000 acres or more 21 0.1% 100.0% 51,263 12.9% 100.0% Total 25,591 100.0% 398,77 1 1 00.0% Source: USDA

- NASS 2007 Census data , Table 35 Specified fruits and nuts by acres

.

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Table 3 summarizes the 2007 Census of Agriculture data for apple growers by market value of agricultural products sold. Over 94% of apple farms had sales of less tha n $500,000. Table 3 clearly shows that apple growers are predomina ntly small entities based on the SBA standard of $750,000.

Table 3. Distribution of apple producers by the market value of apples sold: 2007

M arket value of apples s old Number of Percentage

s hare Cumulati ve

p ercentage Acres Percentage s hare Cumulative

p ercentage Less than $1,000 3,858 15.1% 15.1% 8,012 2.0% 2.0% $1,000 to $2,499 2033 7.9% 23.0% 2,592 0.6% 2.7% $2,500 to $4,999 2686 10.5% 33.5% 3,384 0.8% 3.5% $5,000 to $9,999 3511 13.7% 47.2% 5,479 1.4% 4.9% $10,000 to $24,999 4542 17.7% 65.0% 13,178 3.3% 8.2% $25,000 to $49,999 2727 10.7% 75.6% 15,484 3.9% 12.1% $50,0000 to $99,999 1,862 7.3% 82.9% 20,603 5.2% 17.2% $100,0000 to $249,9999 1,858 7.3% 90.2% 41,098 10.3% 27.5% $250,0000 to $499,999 1,047 4.1% 94.3% 44,500 11.2% 38.7% $500,000 to $999,999 689 2.7% 97.0% 50,595 12.7% 51.4% $1,000,000 or more 778 3.0% 100.0% 193,847 48.6% 100.0%

Total 25,591 100.0% 398,77 2 100.0% Source: USDA

- NASS 2007 Census dat a , T able 59 , Summary by market value of agricultural products sold

.



### In the case of fresh fruit merchant wholesalers (NAI CS 424480), establishments with not

more than 100 employ ees are considered small by the SBA standard . I n 2002, there were 5,376 fresh fruit and vegetable merchant wholesaler s in the United States with a total of 110,578 paid employ ees, or on average , 21 paid employ ees per establishment. I t is likely that domestic fruit merchant wholesaler s that may be affected by

the rule are predominan tly , if not entirely , small entities

.

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Japanese apple production and Japanese and U.S. trade statistics Table 4 summarizes 2007 apple production in Japan

. Fuji , the only variety of apple currently allowed to be imported from Japan, led all varieties at 4 68,400 metric tons (MT) , or about 56 % of Japan’s apple production. Tsugaru , the second largest variety , accounted for 99,900 MT , or 12 % of apple production in Japan

.

Table 4

. Japanese Production by Varieties (in metric tons) : 2007 Variety Production Sh are Fuji 468,400 56 % Tsugaru 99,900 12 % Jonagold 74,600 9 % Orin 70,900 8 % Others 1 126,300 15% Total 840,100 100 % Source: Japanese Ministry of Agriculture, Forestry and Fisheries (MAFF) Statistics , May 30, 2008 http://www.maff.go.jp/toukei/sokuhou/da ta/ringo

- syukaku2007/ringo

- syukaku2007.pdf

. 1 Others include Mutsu, Indo, Sekai

- ichi, Jonasan, Hokuto, Star King Delicious, Kinsei, Chiaki.



### Table 5 summarize s the Japanese export of fresh apples for 2006

- 2008

. Taiwan is by far the single largest importer of fresh apples from Japan. T he U.S. share of Japanese fresh apple exports was only

0.3% by value in 2008 ( $221,015 ) and totaled 60,500 KG.

Table 5

. Export of Fresh Apples from Japan (in US dollars and KG) 2006 2007 2008 2008 Country US$ KG US$ KG US$ KG US$ % Taiw an 45,196,62 7 17,869,272 62,862,587 24,360,021 64,338,250 23,354,845 88.0% Hong Kong 1,178,237 312,594 2,152,045 505,103 3,336,203 716,755 4.6% China 747,129 156,837 1,676,516 325,523 2,213,798 389,898 3.0% Thailand 841,168 202,148 1,061,420 245,104 1,483,386 306,069 2.0% Indonesia 257,023 63,345 239,441 56,02 0 402,322 80,925 0.6% Russia 28,500 6,638 261,626 52,110 371,089 68,724 0.5% Singapore 163,019 53,613 230,053 67,266 318,986 85,732 0.4% United States 206,334 60,500 208,302 60,500 221,015 60,500 0.3% United Arab Emirates - - 5,072 316 159,164 30,476 0.2% Fr ench Oceania 42,296 13,100 75,070 19,300 78,309 21,420 0.1% Others 107,010 22,839 210,929 36,624 187,080 45,538 0.3% World Total 48,767,342 18,760,886 68,983,063 25,727,887 73,109,600 25,160,882 100% Source: Global Trade Atlas annual data , c om mo dity 0808 10

.

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APHI S does not have an access to the U.S. production data by apple varieties that would be allowed to be imported from Japan, such as Tsugaru, Jonagold, and Orin

. However, if such production ta kes place in the United S tates , it is assumed to be significantly small compared to more widely marketed varieties, such as Red Delicious, Gala, Golden Delicious, Granny Smith, Fuji, McI ntosh, Rome, Empire, York, and Jonathan

. We welcome information that the public may provide on U.S. production levels, numbers of producers, and value of sales for varieties such as Tsugaru, Jonagold, Orin , Mutsu, I ndo, Sekai

- ichi, Jonasan, Hokuto, Star King Delicious, Kinsei, Chiaki with which the apples imported from Japa n will directly compete. Based on the USDA

- NASS 2008 non

- citrus fruits and nuts data, total U.S. fresh apple production was value d at $2.3 billion, with an average wholesale price per pound of $0.383. 6 

### In contrast, the average price of the apple varieties that would be allowed to be imported from Japan is expecte d to be substantially higher. For example, i n 2007, the average wholesale price of these Japanese apple varieties sold in Japan was $0.98 per pound , i.e. two

- and

- a - half times higher than the avera ge U.S. price

. 7 

### Table 6 shows the average prices of fresh apple s exported from Japan. I n 2008, the average price of fresh apples exported to the United States was $1.66 per pound, i.e. more than four times higher than the U.S. wholesale price for domestic ally

- produced apples. The wide price differential between apples grown in Japan and in the U.S. suggest s that the Japanese apples are sold as specialty

products to a very

limited market segment s in the U.S. and would not be a close substitute for most U.S

. - grown apple s
.

Table 6

. Average p rice of fresh apple e xports from Japan, by importing c ountry , 2006

– 2008, dollars per kilogram and dollars per pound 2006 2007 2008 Country Per KG Per pound Per KG Per pound Per KG Per pound Taiw an $ 2.53 $ 1.15 $ 2.58 $ 1.17 $ 2.75 $ 1.25 Hong Kong 3.77 1.71 4.26 1.93 4.65 2.11 China 4.76 2.16 5.15 2.34 5.68 2.58 Thailand 4.16 1.89 4.33 1.96 4.85 2.20 Indonesia 4.06 1.84 4.27 1.94 4.97 2.26

6 USDA National Agricultural Statistics Service “Noncitrus Fruits and Nuts Final Estimates 2002

- 2007” December 2008 Page 23 http://usda. mannlib.cornell.edu/usda/nass/SB985/sb1011.pdf 7 http://www.maff.go.jp/toukei/sokuhou/data/ringo

- syukaku2007/ringo

- syukaku2007.pdf Based on the average r ate of foreign exchange in 2007, ¥ 117.76/US$1.00, reported by Federal Reserve Statistical Release http://www.federalreserve.gov/releases/g5a/20080102/

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Russia 4.29 1.95 5.02 2.28 5.40 2.45 Singapore 3.04 1.38 3.42 1.55 3.72 1.69 United States 3.41 1.55 3.44 1.56 3.65 1.66 World t otal 2.60 1.18 2.68 1.22 2.91 1.32 Source: Global Trade Atlas annual data , c om mo dity 0808 10.


### The United States is a net exporter of fresh apples. I n 2008, it exported 701,000 MT of fresh apples to 87 countries , valued at $737 million, and imported 165,000 MT of fresh apples from 9 countries , valued at $141 million, resulting in net exports of $596 million

. 8 

### Table s 7 and 8 list the countries from which the United States imported fresh apples from 2 006 to 2008

. In terms of both value and quantity , Chile consistently supplied the largest amount of fresh apples over the last three ye ars
. Other major sources of fresh apples are New Zealand and Canada

. Japan’s share of U.S. apple im port s, by quantity , was only

0.1% in 2008.

Table 7. Quantity

of U.S. f resh apple i mports , by

exporting country , 2006

- 2008 , kilograms 2006 2007 2008 2008 Country US$ KG US$ KG US$ KG KG %
Chile 75,764,915 82,618,856 99,328,264 123,520,738 8 3,329,174 93,667,670 56.7 % New Zealand 31,023,986 37,416,519 39,320,338 47,209,643 27,851,862 32,801,688 19.8%
Canada 26,878,098 34,892,849 26,424,534 31,062 ,309 26,853,738 36,035,546 21.8% Argentina 1,323,108 1,511,723 4,479,852 4,423,771 2,088,117 2,243,108 1.4%
Brazil

- - 214,715 226,308 384,748 358,974 0.2% Japan 210,581 60,500 210,129 60,520 218,093 144,036 0.1% South Africa

- - 33,333 11,382 67,600 21,840 0.0%
Vietnam

- - 8,199 9,008 10,876 5,689 0.0%
Thailand 17,543 13,530 36,128 27,002 5,712 3,889 0.0% St. Vincent & the Grenadines

- - 5,975 4,345

- - -
Philippines

- - 6,930 4,948

- - -
China 80,597 171,880

- - - - -

-

8 Global Trade Atlas annual data, commodity 080810

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Guatemala

- - 20,496 161

- - India 6,855 2,850 4,826 2,000

- - - World Total 135,305,683 156,688,707 170,093,719 206,562,135 140,809,920 165,282,440 100 % Source: Global Trade Atlas annual data , c om mo dity 08081 0

.


### Table 8

. Average price of fresh apple imports by the U.S., by

exporting country , 2006

– 2008, dol lars per kilogram and dollars per pound 2006 2007 2008 Country Per KG Per pound Per KG Per pound Per KG Per pound Chile $ 0.92 $ 0.42 $ 0.80 $ 0.36 $ 0.89 $ 0.40 New Zealand 0.83 0.38 0.83 0.38 0.85 0.39 Canada 0.77 0.35 0.85 0.39 0.75 0.34 Argentina 0.88 0.40 1.01 0.46 0.93 0.42 Brazil 0.95 0.43 1.07 0.49 Japan 3.48 1.58 3.47 1.57 1.51 0.69 South Africa 2.93 1.33 3.10 1.40 Vietnam 0.91 0. 41 1.91 0.87 Thailand 1.30 0.59 1.34 0.61 1.47 0.67 World Total 0.86 0.39 0.82 0.37 0.85 0.39 Source: Global Trade Atlas annual data , c om mo dity 08081 0

.


### The trade data indicate tha t Fuji apple imports from Japan are m inor in the overall U.S.

m arket. A llowing entry

of other varieties of Malus domestica apples is expected to change the quantity of apple imports from Japan only minimal ly . T he significantly higher prices of apples fro m Japan compared to other imported apples or domestically grown apples underscore the lack of direct substitution between apples varieties from Japan and the principal U.S. varieties. Although most U.S. apple farms are small, this rule would not have a si gnificant economic impact on a substantial number of small entities. However, we welcome information on U.S. production of the apple varieties that are exp e cted to be imported from Japan, in order to better understand the potential impact o f this rule on the part of the U.S. apple industry with which the apple imports from Japan w ould directly compete.
Summary and Conclusions The proposed rule to allow imports of all varieties of Malus domestica apples from Japan into the United States is expected to have minimal economic impact on U.S. entities , large or small. A lthough the Fuji apple is the most common variety grown in Japan, it constituted only

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0.1% of U.S. apple imports in 2008. Allowing entry of other Malus domestica varieties i s expected to change the quantity of apple imports from Japan only minimally

. The wide price differential between apples grown in Japan and in the United States suggests that apples imported from Japan are not a close substitute for the principal U.S.

- grown apple varieties. The rule, if promulgated, will not have a significant economic impact on a substantial number of small entities.