i



### United States Department of Agriculture Animal and Plant Health Inspection Service March 2011 Initial Regulatory Flexibility Analysis

Interim Rule APHIS - 2011 - 0004 RIN 0579 -AD58 Plum Pox Virus Compensation Rates

Policy & Program Development Policy Analysis & Developmenti



### Summary On December 27, 2010, APHI S established a quarantine for Plum Pox Virus (PPV) in New York State that includes areas in Niagara, Orleans, and Wayne Counties. Compensation of growers of PPV host species in the quarantined areas for the emergency destruction of their trees is central to the regulatory goal of preventing the spread of PPV and eradicating it from the United States. C urrent compensation rates were prepared in 2000 during the initial PPV outbreak in Pennsylvania. Earnings by stone fruit farmers and nurseries have since changed due to inflation and changes in management practices. This revisi on of the PPV compensation rates will help ensure compliance with the quarantine and provide incentive for 500
- meter buffers around positive PPV sites , as recommended b y USDA PPV exp erts and in contrast to the 50
- meter buffer s that have been used by many of the growers
. The revised compensation rates are based on the same methodology as was used to determine the current rates . USDA compensates up to 85 percent of the difference in value between destro ye d and replanted orchards. The compensation rate depends on the ye ar in an orchard’s life cycle that destruction of the trees occurs. Assuming a three
- year fallow period following the destruction of an orchard, the revised compensati on p ay ment s range from $ 3,302 to $18,519 per acre, when the farmer sells to processors or wholesalers; and $ 3,302 to $ 29,743 per acre , when the farmer sells directl y to consumers (such as at farmers’ markets). Owners of fruit tree nurseries and non
- fruit
-bearing tree nurseries who meet the eligibility requirements will be compensated by USDA for up to 85 percent of the net revenues lost from their crops. The lost net revenues for non
- fruit
-bearing tree nurseriesii

will be calculated using an average price of $1 0
. 80 per tree or shrub. The lost net revenues for fruit tree nurseries will be calculated using an average price per tree at $5.22 for plum and apricot trees and $3.69 for peach and nectarine trees for both first and second year crops. To date, a total of 11 peach growers and 12 nursery owners in New York have been compensated for destro yi ng PPV infected and exposed trees and nursery stock. Most if not all of the affected farms and nurseries are probabl y small entities, based on the Small Business Administration standard of annual receipts of not more than $750,000 and national sales data. These businesses will directly benefit from the higher compensation rates , and eradication of the disease will be more effectively achieved
.iii



### Table of Contents Summary
................................ ................................ ................................ .............................. i Background
................................ ................................ ................................ ......................... 1 Compensation of Grower s ................................ ................................ .............................. 4 Rate Determination
................................ ................................ ................................ ..... 4 Compensation for Non
- Direct Marketers
................................ ................................ ... 6 Compensation for Direct Marketers
................................ ................................ ............ 8 Compensation of Fruit Tree Nurseries and Nonfruit Bearing Ornamental Nurseries
.... 9 Fruit Tree Nurseries
................................ ................................ ................................ .. 10 Nonfruit Bearing Ornamental Nurseries
................................ ................................ ... 11 Initial Regulatory

Flexibility

Anal ys is
................................ ................................ .............. 12 Reason Action is Being Considered
................................ ................................ ............. 12 Objectives of and Legal Basis for the Rule
................................ ................................ .. 12 Potentially

Affected Small Entities
................................ ................................ ............... 13 Projected Reporting, Recordkeeping, and Other Compliance Requirements
............... 13 Duplication, Overlap, or Conflict with Existing Rules and Regulations
...................... 14 Alternatives to minimize Significant Economic Impacts of the Rule
........................... 141



### Background APHI S is amending the plum pox regulations to provide for the pay ment of compensation to eligible owners of non
- fruit
-bearing ornamental tree nurseries and to increase the amount of compensation that may be paid to eligible owners of commercial stone fruit orchards and fruit tree nurseries whose tree are required to be destro yed in order to prevent the spread of plum pox. . This initial regulatory flexibility anal ys is examines expected impacts of the interim rule for small entities. We begin with a discussion of the disease and the economic rationale for the revision of compensation rates , followed by an explanation of the methodology and assumptions used to calculate the revised rates. The detection of PPV in a peach orchard in Adams County, Penns ylvania, in October of 1999 was the first discovery of the virus in the United States. Subsequent discoveries occurred in 200 6 , in New York and Michigan. In Europe, where plum pox has been present for numerous years, PPV is considered to be the most serious disease affecting Prunus species, including peach, nectarine, apricot, plum, cherry , and almond. It severel y reduces fruit yield and quality, producing fruit that is blemished and unmarketable. The severity of the disease depends on the strain of the virus and the susceptibility

of Prunus cultivars. PPV
- D, the strain present in New York, affects peach, apricot, nectarine, and plum. 1 There is no cure or treatment for the disease once a tree becomes infected. PPV is transmitted by many species of aphid over short distances within an orchard or to nearb y orchards. Long
- distance spread can occur by the movement of

1 Fuchs, M, R, Cox and K, Cox. Plum Pox Disease of Stone Fruit. Cornell University Fact Sheet. http://www.nysipm.cornell.edu/factsheets/treefruit/diseases/pp/pp.pdf2

infected nursery

stock and propagative material. Unlike other plant diseases, the sy mptoms of plum pox may not be apparent for 5 to 6 years, and infected trees may not be significantly

damaged for several more ye ars. The fruit is not a vector for the disease and therefore is not a regulated article ; growers within quarantined areas have no restrictions on the movement and use of their fruit. B ecause the manner in which PPV spreads is not predictable, the eradication strategy calls for the destruction of asy mptomatic trees , a s being exposed trees, in the vicinity of infected trees
. Through surveying and removal of infected and exposed tre e s , PPV was successfull y eradicated from Pennsylvania and that F ederal quarantine ended on October 29, 2009. A ffected growers were compensated based on the number of acres from which trees were removed and the age of the orchard at removal. Growers aggressivel y removed entire blocks of infected and exposed trees , including trees within 500 meter s of infected trees . In total, 52 growers received compensation for the removal of 1,846 acres of trees in the Pennsylvania PPV outbreak. Compensations pay ments by USDA between 2000 and 2005 totaled approximately $ 22,564,000
. 2 Since 2006, a total of 85.31 acres of infected and exposed tress have been removed in u

pper New York State (table 1 )
. In total, 37 peach trees have tested positive for PPV. To date, a total of 11 peach growers and 12 nursery owners in New York have been compensated for destroying PPV infected and exposed tre e s and nursery stock. These producers were compensated under the current compensation tables. Compensation pay

ments by USDA between 2006 and 2010 , totaled $1,345,000
. 3 In

2 USDA APHIS, Pl ant Protection and Quartantine. 3 USDA APHIS, Plant Protection and Quartantine.3

addition, New York State has compensated producers an additional $297,0 00
. 4 The average age of destro ye d trees, which is important for compensation calculations, was 9 ye ars. New York growers have not removed trees as aggressively as occurred in Pennsylvania. The standard removal practice in New York has been to destroy trees within a 50
- meter buffer from an infected tree, although some growers have gone above and beyond this standard and removed entire orchards. Low compensations rates are one reason experts believe that many growers have been resistant to removing trees beyond the 50
- meter buffer. USDA and scientific studies support the removal of trees within 500 meters of an infected tree. Table 1. Acres of Infected and Exposed Trees Removed in New York , 2006
- 2010 Year Acres 2006 3.4 0 2007 22.51 2008 16.24 2009 29 .00 2010 14.16 Total 85.31 Source: New York State Department of Agriculture and Markets
. S ections of Niagara, Orleans, and Wayne Counties in New York are under the F ederal and State PPV quarantine. According to the 2007 Census of Agriculture , there
are 204 growers with 1,230 acres of PPV host species located within the se three counties (table s 2 and 3 ) . The number of nurseries impacted by the quarantine is 53
. 5

4 New York State Department of Agriculture and Markets. 5 New York Department of Agriculture and Markets.4

Table 2. Number of New York Farms Producing PPV Host Species , for Counties with Quarantined Areas Commodity New York

State Quarantined

Counties Niagara

County Orleans

County Way

ne County Apricots 71 20 8 5 7 Nectarines 98 29 6 5 18 Peaches 439 155 35 32 88 Total 608 204 49 42 113 Source: USDA NASS , 2007 Census of Agriculture. Table 3. Number of Acres used to produce PPV Host Species , for Counties with Quarantined Areas Commodity New York

State Quarantined

Counties Niagara

County Orleans

County Way

ne County Apricots 98 >26 23 3 (D) Nectarines 117 > 17 (D) (D) 17 Peaches 2 , 157 1 , 187 548 153 486 Total 2 , 372 > 1 , 230 571 156 503 (D) Withheld to avoid disclosing data for individual operations
. Source: USDA NASS , 2007 Census of Agriculture. Compensation of Growers **Rate Determination** The same methodology

is used to calculate the revised PPV compensation rates as was used to determine the current rates (7 CFR 301.74
- 5). The rate of compensation paid by USDA is up to 85 percent of the difference in value between destroyed and replanted orchards. The State of New York has the option of using State funds to compensate growers for the remaining difference in value. In no case will USDA and State compensation exceed 100 percent of the difference in value. As at present, e ligible growers will be c ompensated on a per
- acre basis at a rate based on the age of the trees destro yed and a three
- to - five
- ye ar prohibition on planting of5

host trees (fallow period) . A three
- ye ar fallow period is most commonly used, but the fallow period can increase by one or two additional ye ars depending on the proximity of the land to recent PPV finds. The compensation rate paid b y USDA is based on a discounted cash flow model used to calculate the loss of value of the destroyed orchard. O rchards that are under a year in age will be compensated for the costs incurred in land preparation and planting, plus additional land maintenance cost s for additional years fallow. The loss in value of orchards one to 25 ye ars in age is calculated as the difference between the net present value (NPV) of the original (destroyed) orchard over the remaining portion of a 25
- ye ar life cycle minus the NPV of the replanted orchard for its entire productive life of 25 years plus the fallow period. Experts were consulted for variable production values. USDA welcomes comments pertaining to the variable production values, price s , and yield values used in the calculations. The NPV formula is as follows:

= ( ) + ( ) + ( ) + ⋯ + ( ) Y = net income
r = discount rate
n = number of ye ars in the discount period The discount rate used in the NPV calculation is 12.5 percent, which is the risk
adjusted rate estimated to be the most appropriate in this situation. The revenues and costs were calculated over a period equal to the expected productive life of a replanted orchard, which is 25 years , with marketable harvests beginning in Year 4
. To determine per
- acre net income, the yield per acre was multiplied by the price per bushel, and then production costs were subtracted. The estimation of net income for6

commercial growers is based on the 2004
- 2007 average New York peach price from the USDA National Agricultural Statistics Service (NASS) and the 2004
- 2006 yi eld average obtained from the New York State Horticultural Society (table 4 )
. Variable production cost estimates were obtained from extension economists and are shown in table 5. Table 4. N ew Y ork State Price and Yield Averages for Commercial Peach Growers (Non
- Direct Marketers ), 2004
- 2007 Peaches Price Yield
Year US dollars per

bushel 6 Bushels per

acre , at 156 trees per acre 7 2007 18.85
--- 2006 19.60 288.6 2005 22.50 164.5 2004 23.00 230.8 Average 20.99 228.0 Table 5. Variable Production Cost Estimates , New York State, PPV Host Species Ty pe of Cost Year Incurred Cost Land Preparation Year 0 $1,425 per acre Planting Year 1 $1,303 per acre Orchard Maintenance During Pre
-productive Year Year 2 $222 per acre Orchard Maintenance During Productive Years Year s 3
- 25 $899 per acre Harvest Cost Year s 4
- 25 $1.36 per bushel **Compensation for Non -**  **Direct Marketers** Using the information and methodology set forth in the pre ceding paragraphs , revised commercial grower compensation rates range from $ 3,302 to $18,519 per acre for
non - direct marketed orchards with a three
- ye ar fallow period (table 6 )
.

6 USDA NASS Agricultural Statistics. 7 New York State Horticultural Society.7

Table 6. N ew Y ork Plum Pox Compensation Rates for Commercial Growers (Non
- Direct Marketers )

A ge of O rchard 85% Federal

Share based on a 3
- Y ear F allow P eriod Maximum

Additional C om pensation for a 4th F allow Y ear Maximum

Additional C om pensation for a 5th F allow Y ear 0 $ 3,302 $954 $842 1 $6,959 $1,072 $953 2 $10,090 $1,072 $953 3 $12,737 $1,072 $953 4 $16,263 $1,072 $953 5 $17,929 $1,072 $953 6 $18,423 $1,072 $953 7 $18,519 $1,072 $953 8 $18,167 $1,072 $953 9 $17,771 $1,072 $953 10 $17,325 $1,072 $953 11 $16,823 $1,072 $953 12 $16,259 $1,072 $953 13 $15,625 $1,072 $953 14 $14,911 $1,072 $953 15 $14,107 $1,072 $953 16 $13,204 $1,072 $953 17 $12,279 $1,072 $953 18 $11,331 $1,072 $953 19 $10,356 $1,072 $953 20 $9,352 $1,072 $953 21 $8,314 $1,072 $953 22 $7,330 $1,072 $953 23 $6,408 $1,072 $953 24 $5,554 $1,072 $953 25 $4,777 $1,072 $9538

**Compensation for Direct Marketers** Direct marketers sell all the produce they grow directly

to consumers at farmers’ markets. Although direct marketers and commercial growers share certain characteristics such as similar variable production costs, direct marketers are able to command higher prices by growing varieties demanded locally and selling directly to consumers thereb y saving middleman’s margins/commission s and other related costs
. For directl y marketed peaches, we estimate a price of $31.95 per bushel. For growers to qualify for compensation as direct marketers , documentation is needed to prove that all produce was dire ctly marketed to consumers , such as at farmers ’ markets. To calculate the compensation rate for direct marketers , the same methodology , yi eld, and variable production costs were used. The average price received per bushel was increased from $20.99 to $ 31. 95 per bushel. Prices for fruit marketed directly to consumers can vary

depending on quality and variety of the fruit, suppl y from other growers, season, demand from local consumers and visitors, and other factors. There is no single price that all direct marketers earn throughout the season. USDA welcomes comments pertaining to the average price received per bushel b y direct marketers. Revised direct
- marketer compensation rates range from $ 3,302 to $ 29,743 per acre with a three
- ye ar fallow period (ta ble 7 )
.9

Table 7. N ew Y ork Plum Pox Compensation Rates for Direct Marketers
age of orchard 85% Federal

Share based on 3 year fallow period Maximum

additional compensation for 4th fallow year Maximum

additional compensation for 5th fallow year 0 $ 3,302 $954 $842 1 $11,639 $1,936 $1,721 2 $16,327 $1,936 $1,721 3 $20,725 $1,936 $1,721 4 $26,222 $1,936 $1,721 5 $28,820 $1,936 $1,721 6 $29,592 $1,936 $1,721 7 $29,743 $1,936 $1,721 8 $29,196 $1,936 $1,721 9 $28,581 $1,936 $1,721 10 $27,889 $1,936 $1,721 11 $27,110 $1,936 $1,721 12 $26,234 $1,936 $1,721 13 $25,248 $1,936 $1,721 14 $24,140 $1,936 $1,721 15 $22,892 $1,936 $1,721 16 $21,489 $1,936 $1,721 17 $20,054 $1,936 $1,721 18 $18,582 $1,936 $1,721 19 $17,070 $1,936 $1,721 20 $15,513 $1,936 $1,721 21 $13,905 $1,936 $1,721 22 $12,382 $1,936 $1,721 23 $10,955 $1,936 $1,721 24 $9,638 $1,936 $1,721 25 $8,442 $1,936 $1,721 Compensation of F ruit Tree Nurseries and Nonfruit Bearing Ornamental Nurseries The movement of nursery stock and propagative plant material of susceptible Prunus species from the quarantined area s represents the greatest threat of long
- distance10

spread of PPV. Therefore, the movement from th e quarantined areas of PPV
- susceptible nursery stock and propagative plant material is prohibited. **Fruit Tree Nurseries** Owners of fruit tree nurseries who meet the eligibility requirements will be compensated b y USDA for up to 85 percent of the net revenue lost from their first
- and second
- ye ar crop s . To calculate the net revenue lost for the first
- ye ar crop, the number of tre e s that were expected to be sold is multiplied by the average price per tree , and digging, grading, and storage costs are then subtracted : First
- year net revenue loss = (number of tre e s that were expected to be sold) x (average price per tree)

– (digging, grading and storage costs) Where: 1. The number of tre e s that were expected to be sold is equal to the number of trees in the f ield minus 2 percent culls and 3 percent unsold. 2. The ave rage price per tree is $ 5.22 for plum and apricot trees and $3.69 for peach and nectarine trees
. 8 3. Digging, grading, and storage costs equal $0.10 per tree. The second
- ye ar net revenue lost is calculated by multiplying the number of tre e s that were expected to be sold by the average price per tree , and excludes digging, grading, and storage costs . Second
- year net revenue loss = (number of tre e s that were expected to be sold) x (average price per tree) Where: 1. The number of tre e s that were expected to be sold is equal to the number of budded trees in the field minus 20 percent death rate and 2 percent culls.

8 http://www.rma.usda.gov/tools/eplpps/2011/CTBK2011.pdf . Base Price Tables Fruit and Nut Trees.11

2. The average price per tree is $ 5.22 for plum and apricot trees and $3.69 for peach and nectarine trees
. 9
Note: The average price of $ 5.22 per plum and apricot tree is equal to the 2011 and Succeeding Years Nursery Crop Insurance Program base price for a field
- grown 18
- inch fruit or nut tree of $6.00 multiplied by the adjustment factor 0. 87. The adjustment factor used is the average of the adjustment factor s for field
- grown Prunus ‘Superior’ (0.74) and Prunus armeniaca (1.0) The average price of $3.69 per peach and nectarine tree is equal to the 2011 and Succeeding Years Nursery Crop Insurance Program base price for a field
- grown 18
- inch fruit or nut tree of $6.00 multiplied by the adjustment factor 0.615. The adjustment factor used is the average of the adjustment factor s for field
- grown Prunus persica (0. 64 ) and Prunus persica ver. nucipersica (0.59). **Nonfruit Bearing Ornamental Nurseries** Nonfruit bearing ornamental nurseries produce trees and shrubs for landscaping purposes. Affected o wners of nonfruit bearing ornamental nurseries will be compensated based on the number of trees destro ye d. The amount they will be compensated is $ 10.80 per tree . 10 This amount is based on the average base prices for two - and five
- gallon container
- grown deciduous trees and shrubs from the 2011 and Succeeding Years Nursery Crop Insurance Program
.

9 Ibid
. 10 http://www.rma.usda.gov/tools/eplpps/2011/CTBK2011.pdf Base Price Tables Deciduous Trees, Deciduous Shrubs.12



### Initial Regulatory Flexibility Analysis The Regulatory

Flexibility

Act requires agencies to evaluate the potential effects of their propo sed and final rules on small businesses, small organizations and small governmental jurisdictions. Section 603 of the Act requires agencies to prepare and make available for public comment an initial regulatory flexibility anal ys is that describes expected impacts of a proposed rule on small entities. An anal ys is of expected small
entity impacts follows for this interim rule. Reason Action is Being Considered On December 27, 2010, APHI S established a PPV quarantine in New York State that includes areas in Niagara, Orleans, and Way ne Counties. Compensation of growers of PPV host species in the se quarantined areas for the emergency destruction of their trees is integral to the regulatory

goal of preventing the spread of PPV and eradicating it from the United States. The current compensation rates were prepared in 2000 during the initial PPV outbreak in Pennsylvania. Earnings by stone fruit farmers and nurseries have since changed due to inflation and changes in management practices. This revisi on of the P PV compensation rates will help ensure compliance with the quarantine and provide incentive for 500
- meter buffers around positive PPV sites , as recommended by USDA PPV experts and in contrast to the 50
- meter buffer s that have been used in New York by many of the growers
. Objectives of and Legal Basis for the Rule Revision of compensation rates to more accurately reflect revenue losses by farmers and nurseries will help ensure compliance with the quarantine requirements in general and the recommended 500
- meter buffer area in particular. Conscientious regulatory compliance will facilitate timely destruction of infected and exposed trees
.13

Without revision of compensation rates, there is a greater risk that growers may not destroy a sy

mptom atic trees that are exposed to the disease. The legal basis for the rule is the Plant Protection Act (7 U.S.C. 7701 et seq. ). Potentially Affected Smal l Entities According to the Small Business Administration (SBA) size standards and based on the North American Industry Classification S ystem , stone fruit growers (NAICS 1113 “fruit and tree nut farming”) and nursery owners (NAI CS 1114 “greenhouse, nursery , and floriculture production”) with gross receipts of $750,000 or less are categorized as small businesses
. 11 Specific sales information for the entities affected is not available, although we expect that most if not all affected entities are small businesses , based on nationwide data for these industries
. In2007, average sales by businesses engaged in fruit o r tree nut farming was about $187,000, and average sales by businesses engaged in greenhouse, nursery , or floriculture production was about $309,000
. 12 For both industries in 2007 , average annual receipts by enterprise s were well below the small
- entity standard. We welcome public comment that may provide information on the size of affected entities within the regulated area s . Projected Reporting, Recordkeeping, and Other Compliance Requirement s Revision of compensation rates, per se , will not result in additional reporting, recordkeeping, or other compliance requirements.

11 Small Business Administration. Size Standards Table. http://www.sba.gov/content/table
- small
-business
- size
standards 12 2007 Census of Agriculture, Volume 1, Chapter 1, Table 62. Summary by North American Industry Classification System: 2007, http://www.agcensus.usda.gov/Publications/2007/Full_Report/Volume_1,_Chapter_1_US/st99_1_062_062.pdf
.14

Duplication, Overlap , or Conflict with Existing Rules and Regulations APHI S has not identified any duplication, overlap, or conflict of the interim rule with other Federal rules. Alternatives to minimize Significant Economic Impacts of the Rule Based on our review of available information, APH IS does not expect the interim rule to have a significant economic impact on small entities. In the absence of significant economic impacts, we have not identified alternatives that would minimize such impacts.