United States

Department of Agriculture Animal and Plant Health Inspection Service October 2014 **Final Regulatory Flexibility Analysis**  **Final Rule**  **APHIS -**  **2014 -**  **00 03**  **RIN 0579**  **- AD89**  **Importation of Fresh Apples from China into the Continental United States, 7CFR 319.56** 

Policy & Program Development Policy Anal ys is & Developmenti



### Summary The Animal and Plant Health I nspection Service (APHI S) received a request from the national plant protection organization (NPPO) of China to grant U.S. importation of all varieties of commercially

produced fresh apples (

Malus pumila )

. We are allow ing the importation of fresh apple s from China into the continental United States if they are produced in accordance with a specified sy stems approach to pest risk mitigation. The approach integrate s prescribed measures that would cumulatively achieve the appropriate level of ph yt osanitary protection

. T his anal ys is evaluates the potential effects of the rule on small U.S. entities. A pples are the second most popular fresh fruit for U.S. consumers and the third most valuable fruit crop produced in the United States. We are the world’s second largest apple producer and became the world’s largest apple exporter in terms of value in 2012 , generat ing a surplus of $909 million in fresh apple trade (exports minus imports)

. That year, t he United States commerciall y produced 4.1 million metric tons (MT) of apples, valued at $3 billion , of which 3 million MT of apples were sold fresh and 1.1 million MT were used for processing. Although apples are commercially

grown in all 50 States, 9 States account ed for 96 percent of production. The State of Washington was by far the largest producer, at more than 2.9 million MT per y ear (over 70 percent of the U.S. total)

. Almost all apple farms are family

- owned, and many of these families have been engaged in apple pr oduction for many generations. The U.S. apple industry is challenged by

relativel y flat domestic apple consumption, and its continued growth relies on expanded global trade. Roughly 30 percent of fresh apples produced in the United States were exported in 2012. That y ear, roughl y 8 percent of fresh apples consumed in the United States were imported , total ing 183, 000ii

MT and valued at $164 million. Virtually all imports ca me from four trading partners: Chile, New Zealand, Canada and Argentina. By quantity , China was the world’s largest producer, consumer and exporter of apples in 2012
. (In 2013, Poland became the world’s largest exporter of apples in quantity , whereas the United States remained the world’s largest exporter of apples in value)

. Apples are the l eading fruit produced in China , with production having increased from 2.3 million MT in 1978 , to 38.5 million MT (33.3 million MT for fresh markets and 5.2 million MT for processing) in 2012
. China’s a pple consumption has grown to 37.5 million MT

. In con trast to that of the United States , China’s apple industry relie s marginally on international trade

– in 2012, it exported about 3 percent of fresh apples produced and imported 0.1 percent of fresh apples consumed

. China’s exports of fresh apples peaked in 2009 at 1

. 2 million MT and declined to 0. 98 million MT in 2012. Most of the 4.3 million apple growers in China operate on a small scale , with farm acreage s averaging 1.3 acres. The Fuji variet y account s for about 70 percent of China’s apple prod uction

. China’s heav y dependence on the Fuji variet y is in sharp contrast to the many diverse varieties produced in the United States

. China’s export markets are concentrated in Russia, Southeast Asia, and the Middle East. Chinese fresh apples also have b een exported for more than a decade to Canada ; however, Canada accounted onl y for 0.4 percent of Chin a’s fresh apple exports in 2012. I n fact, China’s combined export volume to Canada, European Union (EU) member countries, Australia and Mexico is very

small (0.8 percent of its total fresh apple exports in 2012), and has significantl y declined in the last six y ears, from 45,267 MT in 2007 (4.4 percent of Chinese apple exports) to 8,273 MT in 2012. Average export prices of fresh apples from China in 2012 to the aforementioned countries (Canada, $1.50/KG ; EU, $1.10/KG ; Australia, $1.83/KG ; and Mexico,iii

$1.55/KG) are consistently higher than the average price paid in all 67 countries to which China exported fresh apples ($0.98/KG). It is reasonable to e xpect that price for fresh apples exported to the United States will be similar to prices paid in Canada and Mexico

. Considering the current availability

of relativel y l ow - priced imported apples in the United States and the wide range of domestic varieties , a

pple s import ed from China are not likely to compete solely

on price in the U.S. market

. U.S. c onsumers make their purchasing decisions for fresh apples based not only on price , but also on intrinsic product attributes such as variet y , color, size, flavor, texture , freshness, production method , and product origin. Based on historic data of China’s apple production , consumption , export volumes and prices , we expect no more than 10,000 MT of fr esh apples will be imported from China in to the continenta l United States annually , which represents less than 0.44 percent of the U.S. domestic fresh appl e suppl y and less than 5 percent of U.S. imports in 2012

. M ost of China ’s fresh apple exports to the United States will likely be shipped to W est C oast ports , primarily ones in California , and are expected to be distributed through Asian ethnic supermarkets mainl y to Asian communities

. California is the large st market for Washington State apples ; an y effects of the rule may be borne mainl y by

Washington and California apple growers . I n particular, U.S. appl e growers of the Fuji variety , which comprised about 8 percent of U.S. production in 2011 , may be more directly affected by

an increase in supply because we expect the majorit y of fresh apples from China wi ll be of the Fuji variet y. However, given the relativel y small quantity expected to be imported from China, any negative impacts for U.S. small entities will not be significant.iv



### Table of Contents Summary

................................ ................................ ................................ ................................ .......... i Introduction

................................ ................................ ................................ ................................ ..... 1 Need for and Objectives of the Rule

................................ ................................ ............................... 1 Significant Issues raised by Public Comment in response to the Initi al Regulatory Flexibility Analy sis

................................ ................................ ................................ ................................ ........... 2 Comments filed by

the Small Business Administration in response to the Proposed Rule

.......... 14 Potentially

Affected Small Entities

................................ ................................ ............................... 14 U.S. Apple Production and Trade

................................ ................................ ............................. 14 Apple production in the United States

................................ ................................ .................. 14 Apple trade b y the United States

................................ ................................ .......................... 18 China’s Apple production and trade

................................ ................................ .......................... 19 Apple production in China

................................ ................................ ................................ .... 19 Apple trade b y China

................................ ................................ ................................ ............ 23 Potential Effects

................................ ................................ ................................ ........................ 26 Prevalence of U.S. Small Entities

................................ ................................ ............................. 28 Projected Reporting, Recordkeeping, and Other Compliance Requirements

............................... 31 Steps taken by

APHI S to minimize Significant Economic I mpacts on Small Entities

................ 311



### Introduction China requested USDA authorization of market access for commercial shipments of its fresh apples , Malus pumila Mill, 1 in to the continental United States. In response to this request, APHI S prepared a pest risk assessment and a risk management document, and published a pro posed rule on July

18, 2014 , to allow the importation of commercial shipments of fresh apples from China (79 FR 41930

- 41934, Docket No. APHI S

- 2014

- 0003)

. This final rule will allow the importation of all varieties of commercially produced fresh apples from China into the continental United States, if they are produced in accordance with a specified sy stems approach to pest risk mitigation to protect against the introduction of quarantine pests

. Section 319.56

- 1 of Title 7 of the Code of Federal Regulations (CFR) grants USDA regulatory

authorit y for establishing phy tosanitary requirements for the importation of fruits and vege tables from foreign suppliers. The purpose of this final regulatory flexibility

anal ys is is to evaluate the potential effects of this r ule on small businesses, small organizations and small governmental jurisdictions as required b y s ection 604 of t he Regulatory Flexibility

Act , to ensure that any disproportionate burdens for such businesses that may result from the rulemaking are taken in to account
. 

### Need for and **Objectives of the Rule**  APHI S has determined that the current prohibition on fresh apple imports from China is unnecessary

given that any

risks posed to U.S. agriculture can be sufficiently mitigated b y a sy stems approach designed to prevent the introduction of quarantine pests . APHI S is committed, under the International Plant Protection Convention (I PPC), to consider allowing the importation

1 [= Malus communis, M. domestica, M. sylvestris, Pyrus malus ].2

of plants and plant products subject to the least restrictive m easures consistent with ensuring phy tosanitary securit y. The systems approach for this action includes provisions for registration of production areas and packinghouses, orchard sanitation, fruit fly trapping, treatment and inspection for quarantine pests at set intervals b y China’s national plant protection organization ( NPPO ) , bagging of fruit, safeguarding, labeling , importation in commercial consignments, and a phy tosanitary certificate with an additional declaration certify ing the commercial shipment i s free from all quarantine pests and has been produced in accordance with the sy stems approach. The objective of the rule is to allow fresh apples to be imported into the continental United States from China. The rule will amend current regulations found i n 7CFR 319.56

- 1 , and is part of a continuing program to allow the importation of foreign agricultural products that APHI S has determined are without significant risk of introducing pests or diseases into the United States. 

### Significant Issues raised by Publi **c Comment in response to the Initial Regulatory Flexibility Analysis**  In this section, we respond to public comments on the initial regulatory flexibility anal ys is (the economic analy sis) that we received during the comment period for the proposed rule, Jul y 18 to September 16, 2014. B ilateral apple t rade : Several commenters expressed concern related to bilateral trade of fresh apples between the United States and China: “our legislators are misguided in thinking that allowing Chinese apples in the U.S. mar ket will result in the sale of more U.S. apples in the Chinese market;” “we want to emphasize that the underlying proposal not be finalized until APHI S has established that the U.S. apple industry will have meaningful access to the Chinese markets for all apple varieties;” “the economic analy sis is silent on how the proposed rule will3

provide increased trade opportunities for U.S. apples;” “if APHIS is hoping that China will reciprocate based on merely on good will, {

sic } the economic anal ys is should state this. The hope is a poor and an illegal basis for amending U.S. phy tosanitary regulations;” and “while there is no method to guarantee reciprocit y in the USDA/APHI S rule, if China were to lift their ban against the importation of apples from the US, there is reason to believe that New York State apple growers will not benefit. In the past China has only allowed the importation of Golden/Red Delicious apples (from Washington, Oregon and I daho), where are two varieties that are onl y minimally

grown in New York State.” Response : The rule is in response to a request received from the NPPO of China for authorization to export fresh apples to the continental United States. The Plant P rote ction Act (PPA) (7 U.S.C. 7701 et seq

. ) s tates that we may restrict or prohibit the importation of a commodity

into the United States only if we determine that such restriction or prohibition is necessary to prevent the introduction of dissemination of a plant pest or noxious weed within the Unit ed States. I t does not authorize APHI S to take non

- pest impacts such as the benefits and costs of bilateral trade agreements into considera tion when making such authorizations. As a signatory to the International Plant Protection Convention (I PPC), the Uni ted States agrees not to prescribe or adopt ph yt osanitary measures concerning the importation of plants, plant products, and other regulated articles, unless such measures are made necessary by phy tosanitary considerations and are technicall y justified. T h e rule is based on phy tosanitary determinations, not possible market implications. As we stated in the initial regulatory flexibility

anal ys is (I RFA), global trade plays a significant role for the U.S. fresh apple industry ; about 30 percent of the apples p roduced in the United States were exported and about 9 percent of fresh apples consumed in the United States were imported in the marketing y ear 2012/13 . Given the fact that4

virtually all U.S. apple farms are family owned, and the majority

are categorized as small entities under the Small Business Administration’s small

- entity threshold of annual revenue no more than $750,000, we believe such trade facts are relevant information to present to the public. Expected volume of fresh apples being imported from C hina : Several commenters disagreed with our estimate of 10,000 MT as the annual volume of fresh apples likely to be imported from China. For example: “the economic anal ys is assumes imports would be no greater than 10,000 metric tons (MT) annuall y, primaril y of the Fuji variety , but documentation to justify these assumptions is not provided;” “the economic anal ys is does not evaluate the potential for increase bey ond 10,000 MT/y ear;” “China’s apple exports to the U.S. could increase in the future, perhaps eve n dramatically , bey ond the 10,000 MT currentl y estimated. Such an increase could have a significant impact on small entities but nothing in the economic anal ys is addresses this issue;” “the assumption that the export volume of Chinese apples to the U.S. wi ll never exceed 10,000 MT is also untenable considering the dramatic increase in Chinese apple production from 2.3 million MT in 1978 to 38.5 million MT in 2012. The prospect of Chinese apples flooding U.S. domestic markets is daunting and poses a signific ant risk to U.S. economic securit y; ” and “w ith the Chinese government’s subsidy of apple production, and with no regulation of the number or variet y of apples allowed into the United States, conditions may form to create a competitive price point that woul d seriously undercut the growers in the Mid

Hudson Valley

and the state. And while it is speculated that market conditions will only support a small amount of apples from China vary ing from .5 percent (of domestic apple suppl y) to 5 percent (of total import) , there is no way to accurately

predict China’s behavior towards the US apple market, or their future intentions in a volatile and possibly hostil e international trade climate. Furthermore there is no way to predict future market conditions based on the variables5

of weather, pests, disease and other unforeseen acts of nature. If an y of the preceding circumstances were to result in the oversupply and underpricing of Chinese apples in the US markets, it might very

well irreparabl y harm our small family orch ards. ” Response : Given the historic data available to us on China’s and U.S. fresh apple production, consumption, and trade, we are reasonably confident that the annual import volume in the near term will be around 10,000 MT. I t is not possible to know the quantity of apples that will actually

be imported from China. Uncertainties as noted by some commenters, from the weather to political and economic events, can alter the global suppl y and demand for fresh apples. We arrived at the 10,000 MT estimate based on the following facts: 1) Chinese apples are no longer inexpensive. China exported a small amount of Fuji variet y apples, about 4,000 MT or about 0.4 percent of its total export volume, to Canada at $1.50/KG in 2012 and 2013, respectivel y. China also ex ported about 19 MT to Mexico in 2012, but its exports to Mexico ceased in 2013. China exported small amounts of apples, about 6,450 MT or about 0.7 percent of its total export, to the EU member countries, including the United Kingdom and the Netherlands, a t $1.37/KG in 2013. Combined volumes of export to Canada, Mexico and the EU member countries were 8,342 MT in 2012 and 11,357 MT in 2013 which accounted for onl y 0.9 percent and 1.1 percent of China’s total export in 2012 and 2013, respectivel y. We expect that the U.S. price for apples from China will be similar to those paid in Canada and Mexico. Under the s ys tems approach set forth in this rule, all apples to be exported to the United States have to be grown in a registered production site approved by the NPPO of China , produced and packed under specified protocols, and certified to prove that the apples have been inspected and found free of pests . We expect the production costs for apples exported to the6

United States will be much higher than the costs of producing fresh apples for China’s domestic markets. 2) Currentl y, the United States primarily imports apples from the Southern Hemisphere, where the production season is opposite to that of the United States. U.S. imports from the Northern Hemisphere ar e limited. Only about 20,000 MT of fresh apples, almost all from Canada, were imported at an average price of $1.25/KG in 2013, which is lower than the $1.50/KG paid for China’s Fuji apple exports to Canada that ye ar. 3) China’s export markets are limited primarily to the Fuji variet y. U.S. growers produce Fuji variet y apples that are supplied to U. S. markets at lower prices than those prices being paid for China’s recent Fuji variet y exports to Canada and Mexico

. 4) The United States currently imports fre sh pears, such as Ya, fragrant and sand pears, from China under a s ys tems approach. These pears are not t ypicall y grown in the United States. The import volume of these fresh pears from China has been only about 10,000 MT annually , despite the minimal competition from U.S. pear growers. These pears from China are primarily distributed through Asian ethnic specialt y supermarkets for the Asian communities in the United States. We expect that fresh apples from China may be similarly

marketed. 5) There is evi dence that the general public has a prevailing negative perception of food products imported from China . Overcoming such perceptions could present a challenge for fresh apples from China in U.S. markets

. 6) The U.S. Embass y Beijing

- Agricultural Affairs Office reports that China’s apple industry is quite mature in terms of crop management and farming skills, and y ields are not expected to increase dramatically in the near future. Chinese official data indic ate that average yi elds in eight major producing provinces have increased onl y 5 percent between 2008 and 2012.7

Industry estimates published in China on October 8, 2014, report that Chinese apple production is expected to decline b y about 5 percent in 2014 , while producer costs are expected to increase by about $0.08/KG to $0.10/KG, due to unfavorable weather conditions and increased labor costs. 7) Domestic consumption of fresh apples in China continues to grow. Total consumption of fresh apples in China w as 32.3 million MT compared to U.S. consumption of approximately 2.3 million MT in MY2012/13. Fresh apple consumption on the Chinese domestic market has doubled over the last five y ears, in tandem with the increase in the number of middle

- income and afflue nt consumers in China. Fresh apple exports are not growing; Poland surpassed China to become the world’s largest fresh apple exporter, by volume, in 2013. Apple prices : Several commenters posed questions regarding the prices of apples at various stages in the distribution chain and the economic implications of the prices. For example: “while some average import and export prices were evaluated, the potential impacts on grower farm gate value were not addressed;” “the IRFA assumes that prices for fresh appl es from China would sell at prices similar to those paid in Canada and Mexico, approximately $1.50/KG, compared with current prices of imports from other origins of approximately $0.89/KG. I t seems highl y unlikely that Chinese apples would trade at a nearl y 70 percent price premium versus apples of other origins;” and “the IRFA estimates that 10,000 MT of apples will be imported annually at the price of approximately $1.50/KG. In total, that is about $15 million spent on Chinese apples per ye ar. In July 201 4, the average retail price of apples in the United States was about $3.06/KG. If the Chinese apples are sold at the average retail price, that would be approximately

a $15.6 million annual profit, not including shipping costs or other maintenance costs. T his would not seem likely considering that the United States imports apples from other8

countries at an average price of $0.89/KG, according to the IRFA. The Chinese apples may end up being overpriced, which could lead to a drop in sales and prof its.” Resp onse : We will respond to the commenters’ concerns beginning with retail prices, then farm gate prices and lastly import prices. 1) Retail prices

– We concur with the commenter that the July 2014 average retail price of Red Delicious reported by the Bureau of Labor Statistics (BL S) was about $3.06/KG. The BL S data show that the 2013 average price was also about $3.06/KG, which was a slight increase from the 2012 average Red Delicious price of $3.04/KG. According to the USDA

- Agricultural Marketing Service, th e average apple price for all varieties (including organic) was about$3.59/KG in 2013. 2) Farm gate prices

– USDA

- National Agricultural Statistics Service reports that the July 2014 preliminary

price received b y U.S. apple growers was about $0.75/KG, and t he 2013 average price they

received was about $0.90/KG. The U.S. Embassy Beijing

- Agricultural Affairs Office reports that national average farm gate price for the Fuji variet y in China was about $1.00/KG, compared to the U.S. average price of $0.90/KG. Chi na’s higher farm gate price is due to increased production costs, especiall y labor costs. (China’s w holesale apple price was about $1.40/KG in 2013; data on retail prices are not available.) 3) Im port prices

– China exported a small quantity of Fuji variet y apples, about 4,000 MT or about 0.4 percent of its tota l exports, to Canada at $1.50/KG in 2012 and 2013 , respectivel y . In July 2014, China exported 23 MT of apples to Canada at $1.88/KG, whereas, the United State exported 10,216 MT to Can ada at $1.12/KG during the same time period. As for the United States, it imported 198,746 MT of fresh apples at an average price of $1.09/KG in 2013. The price was higher than the 2012 average price reported in the I RFA, i.e., 183,453 MT at9

$0.89/KG. The increase in the price was mainly due to higher prices of apples imported from Chile (132,738 MT at $1.00/KG in 2013 compared to 121,917 MT at $0.76/KG in 2012 ). Nonetheless, these prices are still significantly lower than the prices t ypically paid for appl es exported from China. Comparisons of the aforementioned prices, especially of U.S. ($0.90/KG) and China’s ($1.00/KG) farm gate prices in 2013, and the import prices paid b y the United States ($1.09/KG on average in 2013) and import prices paid b y Canada for apples from China ($1.50/KG in 2012 and 2013, respectivel y), suggest that fresh apples imported from China by the United States will not offer an y price advantage in the U.S. markets, nor, as previousl y discussed, other intrinsic advantages. Pest outbr eaks and economic impacts : Some commenters expressed concern regarding economic impacts of pest outbreaks caused b y imported apples from China. For example: “in the event that a pest is introduced with the apples, all of the profits from the apples would e ssentially go to waste in order to quarantine the pests, especially if the case is as severe as the pest case in Australia in 1995 or Japan in the 1980’s and 1980’s ; ” “the prospect of Chinese apples flooding U.S. domestic markets is daunting and poses a si gnificant risk to U.S. economic securit y, unless again, very

strict mitigation measures are plied. It is difficult to understand how the risks associated with importation of this commodity outweigh th e relativel y miniscule benefits; ” and “t he US government provides strong support for Integrated Pest Management (I PM) and indeed has mandated its implementation. I nvasive pests are the biggest threat to I PM as evidenced by the consequences of the recent introduction and establishment of two invasives from China , Haly omorpha hal ys and Drosophila suzukii. Controlling these two invasive pests in US fruit production sy stems requires repeated applications of insecticides that essentially have curtailed10

previously

successful I PM programs. Moreover, the establishment o f these two invasives has led to $100s of millions in documented losses. The economic anal ys is for importation of apples from China discusses the financial impact of sales, but does not address the potential economic impact from crop loss, additional contr ol treatments and the abandonment of IP M should one of the 21 potential new pests become established in the US. Please provide this economic anal ys is. ” Response : This rule is possible only because the specified ph yt osanitary measures have been deemed suffi cient to prevent the introduction of quarantine pests and diseases from fresh apple imports from China. We conduct the Regulatory Flexibility

Anal ys is based on successful fulfillment of these measures. We acknowledge that i t is not possible to attain zero pest risk in the international trade of agricultural commodities . If zero tolerance for pest risk s were the standard , it is quite likely that trade in fresh produce would be severely limited . APHI S performed a risk analy sis for this rule and has concluded that the risk of pest introduction is negligible given the specified sy stems approach. V ariet y of apples to be imported from China : One commenter questioned our presumption that primarily Fuji variet y apples would be imported from China: “t he IRFA observes that most apples produced in China are the Fuji variet y and that Fuji apples represent only a limite d fraction of the U.S. market. While that may be true now, it could change

. Once the U.S. market is opened to Chinese apple growers, these growers could switch production to varieties, e.g., Red Delicious, that would have a greater i mpact on U.S. small entities.” Response : We agree that the composition of apple varieties produced in China will likely change, especiall y as its domestic demand for oth er varieties grows. In the United States, the shares of traditionally

popular apple varieties, such as Red Delicious, Gala, Golden Delicious, Grann y Smith, Fuji, and McIntosh , have been declining and are being replaced b y new varieties11

including both non

- l icensed open access apples and licensed club apples with trademark brand
names . In general, it requires considerable time and resources to develop and successfull y market new varieties of apples. Moreover, the increasing number of new varieties is adding c omplexities to the U.S. apple market. Given this highly competitive environment and the costs to China’s producers of expanding production of new varieties, it is reasonable to assume that China will rely on Fuji variety

exports when it gains entry to U.S. markets. Economic impacts on small entities : One commenter questioned the IRFA’s regulatory sufficiency : “the IRFA nominally addresses the potential effects of the rule on these entities and concludes that ‘APHI S does not expect the proposed rule to have a significant economic impact on small entities.’ No information is presented to indicate the magnitude or even the direction of the economic impacts on the small entities listed. Apparentl y, the IRFA believes that because the volume of apples potentially imported from China would be small relative to the U.S. domestic apple supply , therefore the impacts on small entities would necessarily also be small. This is not certain, and it certainl y is not supported by the IR FA;” and “other than noting that apple g rowers, particularl y Fuji apple growers, in Washington, California and other States to which apples from Washington and California could be diverted could face increased competition, the I RFA contains no information on or evaluation of the magnitude of that competition or the economic impact of that competition. Nor is the I RFA’s lack of information on economic impact limited to just apple growers. Itfails to provide information on economic impact on any of the small entities listed on pages 18

- 20. Merel y listing the potentially impacted small entities and asserting without analy sis the absence of impact is not sufficient to satisfy the intent of the Regulatory Flexibility

Act. By failing to even an approximate estimate of the magnitude of the competition12

a nd the extent of the economic impact, the I RFA is non

- compliant with the Regulatory Flexibility

Act and the rule is illegal.” Response : As required by the initial regulatory

flexibility

anal ys is ( 5 U.S. Code § 603 ) , we describe d in the IRFA the ty pe and n umber of small entities that might be affected and whether ther e are compliance requirements that they would need to meet. This rulemaking will not establish any

compliance requirements that would result in an undue burden for U.S. small entities

. Executi ve Order 13563 and benefit s and cost s of the rule : One commenter expressed concern on the absence of benefit and cost anal ys is in the I RFA: “Executive Order 13563 (Jan. 18, 2011) states in part that ‘Our regulatory s ys tem must protect public health, welfar e, safet y, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must take into account benefits and costs, both quantitative and qualitative.’ APHI S has failed, in a wholesale fashion, to display that the c osts and risks to our Nation's environment, public health and welfare are outweighed by the benefit of bringing Chinese apples into its market. At best, APHIS could argue that importing apples from China will reduce apple prices, and possibly

foster global competition in apple prices, since APHI S readil y admits that China does not import an appreciable quantit y of apples (especially relative to US production). However, APHIS has failed to establish that there would be an y reduction in price to the consumer, and APHI S has failed to establish that consumers don't already enjoy a competitive marketplace. Thus, this Proposed Rule has not been shown to provide an y benefit.” Response : We disagree with the commenter’s assessment. Executive Order 13563 requires tha t agencies propose or adopt a regulation upon a reasoned determination that its benefits justify

its costs (recognizing that some benefits and costs are difficult to quantify ). The13

Executive Order also states that, where appropriate and permitted b y law, each agency may consider (and discuss qualitatively ) values that are difficult or impossible to quantify , including equity , human dignit y, fairness, and distributive impacts. The Executive Order ultimatel y leaves the ty pe of anal ys is to the discretion of the Agency . We have previousl y explained the reasons for which APHIS conducts qualitative rather than quantitative anal ys es. Apples from China relative to concentrated apple juice from China : One commenter expressed concern that the importation of fresh apples from China will follow a course similar to that of concentrated apple juice imports from China: “ In 1998 the United States allowed China to import apple juice into our market. Today they dominate sales by

70%. This takeover forced American apple gro wers out of business then and it can happen again with the sale of fresh apples. ” Response : We concur with the commenter’s description of the impact that concentrated apple juice imports from China have had on the U.S. processed apple juice industry . As
me ntioned in Footnote 6 of the I RFA, in 2012, 3 million MT of apples were sold fresh and 1.1 million MT were used for processing , including for production of apple juice . U.S. processed apple production declined from 1.8 million MT in 2000 to 1.1 million MT in 2012, and apple juice manufacturers substantially increased imports of concentrated apple juice, predominantl y from China. We stress that the apple juice and fresh apple markets are distinct. P rice and read y availability

are the key purchasing factor s f or generic concentrated apple juice

. Price is also a principal factor in the demand for fresh apples, and as has been explained elsewhere, we do not expect fresh apples from China will be inexpensive. In addition, consumer preferences, when purchasing fres h apples, are influenced b y several factors other than price , such as variet y, size, color , flavor, texture, freshness, product origin, and production method . American consumers14

benefit from a diverse and abundant supply of fresh apples that are sourced lo cally , regionall y, nationally , and globally ; it is highly unlikel y that China will become a dominant supplier in this increasingl y competitive U.S. market

. 

### Comments filed by the Small Business Administration in **response to the Proposed Rule** There were no c omments filed by the Small Business Administration in response to the initial regulatory

flexibility

analy sis. 

### Potentially Affected Small Entities **U.S. Apple P**  **roduction and Trade**  **Apple production**  **in the United States** The United States is the second largest apple

- producing country in the world after China, both by quantit y and value

. We became the world’s largest apple exporter in terms of export value in 2012

. 2 The United States commerciall y produced 4.1 million MT of apples, valued at $3 .1 billion, in 2012. The volume was lower than the previous ye ar’s 4.3 million MT , as several central and eastern States, such as Michigan and New York, experienced crop losses due to unseasonabl y cold weather. 3 Apple production is reported in all 50 States; however, commercial apple production on farms with more than 100 apple trees was limited to 29 States in 2012

. In that y ear, U.S. commercial apple production was concentrated in nine States, which together account ed for 96 percent of production. The State of Washington was by far the largest ,

2 2013 updates: Poland overtook China as the wo rld's largest apple exporter in quantity, exporting 1.2 million MT valued at $576 million, with an average unit price of $0.4 8/KG. China exported about 1 million MT valued at $1.03 billion, with an average unit price of $1.04/KG. The United States remained the w orld’s largest apple exporter in value, exporting about 0.9 million MT valued at $1.1 billion, w ith an average unit pri ce of $1.25/KG. 3 The situation for the 2013/14 apple crop is expected to improve significantly compared to 2012/13.15

produc ing more than 2.9 million MT in 2012, 72 percent of the U.S. total. New York was second , accounting for 8 percent ( Figure 1 ). 4 **Figure 1**  **.** U.S. commercial apple production , by State , 2012 (1,000 MT )

Source: USDA

- ERS, Fruit and Tree Nut Yearbook, Table A17 “Utilized production of selected fruit and tree nuts, by State, US, 2012,” November 2013

. Note: a. Utilized production includes all apples marketed in either fresh or processed form , such as juice, cider, sauce, sliced fresh, dried, or frozen. b. Unit of measurement was converted from short tons to MT
. c. Michigan normally ranks third in U.S. apple production ; how ever it dropped to seventh in 2012 as a result of serious crop damages. Commercially

produced apples are either sold fresh or used for processing. In 2012, 3 million MT (73 percent ) of U.S. commercial app les w ere sold in fresh market s and 1.1 million MT (27 percent ) w ere used for processing ( Figure 2 ). The allocation of apples to the fresh and processing sectors differs significantl y between Washington State and other apple

- producing States. In2012, Washington allocated about 80 percent of its production to the fresh market s for

4 Crop production reports only cover apple production on commercial orchards, defined as orchards of 100 or more bearing trees (definition on page 74, http://usda01.library.cornell.edu/usda/current/NoncFruiNu/NoncFruiNu

- 01

- 25

- 2013.pdf )

. **2,948**

**322 215**  **136 104**  **58 52**  **41 34**  **169** 

### U.S. Apple Utilized **Production by State,**  **2012**

**(in 1,000 MT) U.S. T**  **otal: 4.1 million MT a, b**  **WA (72.2%) NY (7.9%)**  **PA (5.3%) CA (3.3%)**  **VA (2.6%) OR (1.4%)**  **MI (1.3%) c WV (1.0%)**  **ID (0.8%) 20 Other States**  **(4.2%)**16

domestic consumption and exports , whereas, onl y 53 percent and 40 percent of apple production in New York and Michigan, respectivel y , were allocated to the fresh apple markets. 5 , 6 **Figure 2**  . U. S dom estic utilization (million metric tons ) for fresh and processed apples, 2000

- 2012

Source: USDA

- ERS, Fruit and Tree Nut Yearbook, Table G

- 1 “ Fresh apples: Supply and utilization,” November 2013. ( C onverted from pounds to metric tons .) a. Processed apple products include apple juice and cider, canned, frozen , dried, fresh slice, and other. U.S. crop acreage devoted to apple production has declined b y 29 percent since its peak in 1997 , from 467,950 acres to 330,600 acres in 2011 ( Figure 3 )

. M ost of the a creage contraction is attribut able to decreased production for the processing sector. 7 Meanwhile, apple production yi elds have increased to 12.9 MT per acre in 2011 from 8.5 MT per acre in 1978, as cultivation and storage technologies continue to advance

.

5 APHIS estimates and the Washington Growers Clearing House, 56 th Apple Price Summary, 2012

- 13 Marketing Season. http://www.waclearinghouse.org/members/summary/apples/applesum.pdf NY: New York Apple Association Fast Fact, http://www.nyapplecountry.com/fastfacts.htm , MI: Michigan Apple Committee, History, http://www.michiganapples.com/history.html 6 U tilization for processed apples, mainly apple juice, has declined from 1.8 million MT in 2000 to 1.1 million MT in 2012. The share of concentrated apple juice (CAJ) im ported, mainly from China, increased to ove r 80 percent during this period

. Price and ava ilable supply are the key CAJ purchasing factor s for manufacturers of apple juice products. The situation is different for apples that are sold fresh to consumers; in addition to price, other factors such as variety, size, color, texture , flavor, freshness , product origin, and production method (traditional or organic) influence U.S. consumers’ purchasing decision. 7 Refer to footnote 6 for the decline in the processing sector.

0.0 1.0 2.0 3.0 4.0 5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 **2.8 2.5**  **2.4 2.5**  **3.0 2.8**  **2.9 2.8**  **2.8 2.9**  **2.8 2.9**  **3.0 1.8**  **1.7 1.4**  **1.5 1.7**  **1.6 1.6**  **1.3 1.5**  **1.4 1.3**  **1.4 1.1** **m i** **l l** **i o** **n M** **T** 

### U.S. Apple Utilization: **Fresh vs. Processed**  **a**

**2000 -**  **2012 (1 million MT) Fresh Apples**  **Processed Apples Total 4.6**  **4.2 3.8 4.0 4.7 4.4 4.5 4.1 4.3 4.3 4.1 4.3 4.1**17

**Figure 3**  **.** U.S. apple bearing acreage and y ield, 1978

- 2011

Source: APHIS analysis based on FAOSTAT and various USDA

- ERS Fruit and Tree Nut Yearbook s . According to the U.S. Apple Association, there are about 7,500 commercial apple farms ( those with at least 100 bear ing trees ) in the United States. Virtually all apple farms are family owned, and man y o f these families have been engaged in apple production for man y generations

. 8 Inaddition to these commercial

- scale operations, there are a large number of smaller apple farms. The 2007 Census of Agriculture , which includes apple growers with annual sales of $1,000 or more , reports a total of 25,591 apple farms in all 50 States. 9 Nearly 72 percent of these apple f

arms had fewer than 5 acres , account ing for onl y about 6 percent of the total
acr eage devoted to apple farming. The national average acreage per farm was 15.6 acres in 2007.

8 New York Apple Association , “New York apple fast facts,” http://www.nyapplecountry.com/fastfacts.htm The Michigan Apple Committee, “History of apples,” http://www.michiganapples.com/history.html Washington Apple Commission, “Meet your grower,” http://www.bestapples.com/growers/index.aspx 9 The 2012 Census of Agriculture is scheduled to be released on May 2, 2014. 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

- 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000**Y i** **e l** **d (** **t o** **n n** **e s** **/ a** **c r** **e )** **A c** **r e** **a g** **e** 

### U.S. Apple Bearing **Acreage and Yield 1978**  **- 2011 (in acres)**  **Acreage Yield (tons/acre)** 18

**Apple trade by the United States**  The United States is a significant net exporter of fresh apples

. In 2012, U.S. fresh apple trade generated a surplus of $909 million (exports minus imports)

. 10 The trade surplus in fresh apples more than tripled from 2000 to 2012 , as U.S. apple exports increased through the liberalization of export markets, intensive industry export promotion efforts and increased disposable income in developing countries. 11 In 2012, the United States exported 867,000 MT of fresh ap ples (about 30 percent of domestic production) valued at $1. 0 73 billion

. This was the first time U.S. fresh apple exports exceeded $1 billion in value

. The United States imported 183,453 MT of fresh apples, valued at $164 million in 2012 ( Figure 4 ). Virtuall y all imports (99.96 percent ) come from four trading partners: Chile, New Zealand, Canada and Argentina. With a crop production cy cle opposite to that of the United States, Southern Hemisphere exporters help maintain y ear - rou nd suppl y of fresh apples in the United States . B ilateral trade in fresh apples between Canada and the United States benefit s both countries due to the geographical proximit y of producers and key markets

. 12

10 Export values are based on Free Alon g Ship Export Value (F.A.S.) and import values are based on Custom Import Value (C.V.) 11 Agricultural Marketing Resource Center

– Apple profile http://www.agmrc.org/commodities__products/fruits/apples/commodity

- apple

- profile/ 12 For example, McIntosh apples from British Columbia complement the markets in western States where this variety does not grow

w ell. USDA

- ERS. 2013 “Imports Contribute to Ye ar - Round Fresh Fruit Availability” December 2013. http://www.ers.usda.gov/publications/fts

- fruit

- and

- tree
- nuts
- outlook/fts

- 356

- 01.aspx19

**Figure 4**  **.** U.S. fresh apple imports, t op four trading countries ( metric tons ), 2012

Source: APHIS analysis based on Global Trade Atlas data. **China’s Apple production**  **and trade**  **Apple production in China** China is the world’s largest producer of apples, and apples are its leading fruit by volume, followed by

pears. Since adopting market

- based agricultural reforms in 1978, China has increased its apple production from 2.3 million MT in 1978 to 38.5 million MT in 2012, with the majority of production (37.5 million MT) abs orbed by China’s domestic markets. China’s sharp increase in apple production has been in response to a robust increase in domestic consumption, and sharpl y contrasts with the recent history of relatively stable apple production in the United States. U.S. apple production grew from 3.4 million MT in 1978 to 4.1 million MT in 2012 ( Figure 5 ). **121,917**

**33,978 22,767** 

**4,718 72**  

### U.S. Fresh **Apple Imports (in MT), 2012** 

**To tal:**  **183,453 MT Chile (66%)**  **New Zealand (19%) Canada (12%)**  **Argentina (3%) Others: 3 countries**  **(0.04%)**20

**Figure 5**  **.** Apple Production: China and U.S. (millio n metric tons ), 1978

- 2012

Source: APHIS analysis based on the USDA

- ERS Fruit and Tree Nut Yearbook , USDA

- FAS GAIN Report “China

– Fresh deciduous fruit annual” November 29, 2013, FAOSTAT Note: Marketing year (MY) for the U.S. data begins in July, and for the Chinese data begins in August. Table 1 compares apple production , consumption , and trade by the United States and China for the marketing y ear ( MY ) 2012/13. 13 Both countries are net exporters of fresh apples; however, the United States is much more heavil y dependent on global trade . In the United States , imports (196,000 MT) provided for 8.6 percent of domestic consumption ; 29.8 percent of the apples produced (889,000 MT) were exported . In absolute quantity , China produced far more apples (33.3 million MT for the fresh market) than the United States (about 3 million MT) ; however, China is much less reliant on global trade of fresh apples than th e United States , importing only

43,000 MT (0.1 percent of its domestic consumption) and export ing 1 million MT of apples (3.1 percent of its domestic production)

. China’s fresh apple production exceeded domestic consumption by about 3 percent, whereas fres h apple production in the United States exceeded domestic consumption by more than 3 0 percent
. 14

13 For the U.S. data , the marketing year begins in August ; for China data, it begins in July. Marketing year (MY) based data do not correspond with calendar year (CY) based data in this analysis, because of the different reporting period s . 14 China’s import share would be high er if fresh apple re

- exports from H ong Kong were included.

0 10 20 30 40

**2.3 38.5** 

**3.4 4.1** **m i** **l l** **i o** **n M** **T** 

### Apple Production: **China vs. U.S.A.** 

**1978 -**  **2012 (in million MT)** 

**China U.S.A.** 21

**Table 1**  . Fresh apple production, consumption, import s and export s by the United States and China (1,000 metric tons) , MY 2012/13 Fresh Apple Production, Consumption, Imports and Exports, MY 2012/13 (1,000 MT) Percentage Shares Marketing Year \ 1 2012/13 Domestic

Production Domestic

Consumption Import Export Import Share of Domestic Consump
tion \ 2 Export

Share of Domestic Produc

tion \ 3 Excess of

Production over Consump
tion \ 4 U.S.A. 2,980 2,287 196 889 8.6% 29.8 % 30.3 % China 33,300 \ 5 32,317 43 1,0 26 0.1% \ 6 3.1 % 3.0 % Source: APHIS calculation. For t he United States

– USDA

- ERS Fruit and Tree Nuts 2013 Yearbook Table G

- 1 “ Fresh apples: Supply and utilization, 1980/81 to date ” For China

– USDA

- FAS GAIN Report, MY2012/2013 New Post, “China

– Fresh Deciduous Fruit Annual,” November 29, 201 3 Note: 1. Marketing year (MY) for the U.S. data begins in August , for China it begins in July

. 2
. Import s hare calculated by dividing import by domestic consumption. 3
. Export s hare calculated by dividing export by domestic production. 4
. Excess of production over consumption calculated by dividing domestic production by domestic consumption and subtracting 1

. 5
. Fresh apple domestic production for China was calculated by subtracting the processing (5.2 million MT) from total apple production (38.5 million MT) 6
. Share of import w ould be higher if fresh apple re

- exports from Hong Kong to China were included. China’s apple acreages significantly expanded from 1,482,000 acres in 1978 , peak ing at 7,377,717 acres in 1996 , and then declining b y 31 percent, to 5,068,440 acres in 2011 ( Figure 6 ). By contrast, average yi eld per acre has been steadily increasing since 1992 and averaged 7.1 MT/acre in 2011. 15 , 16

15 Average yield per acre includes both bearing and non

- bearing acres

. 16 According to the USDA

- FAS Beijing office , t he average yield in eight major producing provinces plus Beijing in 2011 w as 12 MT /acre, which is similar to the average yield in the United States. Nationally, yield on bearing acreage is estimated to be about 10 to 11 MT/acre. The current bearing percentage is estimated to be about 85

- 90 percent of all apple acres.22

**Figure 6**  **.** China apple planting acreage and yi eld, 1978

- 2011

Source APHIS analysis based on the USDA

- FAS GAIN Report “China

– Fresh deciduous fruit annual” November 29, 2013 , http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Fresh%20Deciduous%20Fruit%20Annual_Beijing_Chin a%20

- %20Peoples%20Republic%20of_11

- 29

- 2013.pdf Most apple growers in China operate on a very small scale

. There are approximately 4 .3 million apple growers in China , and the average size of an orchard is 1.3 acres

. 17 Apple production in China is labor

- intensive, requiring significant labor resources to plant, tend, and harvest the crop

. China’s low labor cost s were a key factor to the industry ’s competitiveness , 18 although labor costs have been increasing in recent years

. The Fuji variety

accounts for about 70 percent of China’s apple production , a concentration that sharply differs from the divers e apple varieties produced in the United States ( Figure 7 )

. 19 , 20

17 Source: China Agri culture Industrial Information Center and Washington Apple Commission. 18 USITC, “China's agricultural trade: Competitive conditions and effects on U.S. exports” USITC Publication 4219 , March 2011. http://www.usitc.gov/publications/332/pub4219.pdf 19 In China, grow ers are also planting newly introduced varieties from New Zealand, Australia, Japan, France, and other European countries; however, Fuji variety apples still dominate acreage and production

. 20 USDA

- FAS GAIN report, “China

– Fresh deciduous fruit annual 2003” September 15,2003. 0 1 2 3 4 5 6 7 8

- 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000**Y i** **e l** **d (** **t o** **n n** **s /** **a c** **r e** **a )** **A c** **r e** **a g** **e** 

### China Apple **To tal Acreage**  **and Yield 1978**  **- 2011 (in acres)**  **Area Planted (Acre) Yield (tons/acre)** 23

**Figure 7**  . Fresh apple varieties in China and the United States (in percent shares of total apple production), 2011

Source: China

– Mo, Sheng and Tian, Ling, 2012. “ 当前国内外苹果主栽品 种 的 构 成与 发 展 趋势 (translation: T he current composition and development trend of key apple varieties planted in and out of China)” Yantai Fruits 1 :37, http://wenku.baidu.com/link?url=oohzn1_ZyOUIsOolrt0aXZ0pEj4

- ojnb3nnyYuIv74Z

iQ5Z1sgSGOF0k9ArgSu 8TNga46R9EX1dhAgMaMaJSfabV6Yu8yxFZ3I8pd1gJbK ) U.S.A.

– U.S. Apple Association/USDA

- ERS Apple Statistics Note: In China, other varieties include Hanfu, New World, Chiaki, American Eight, etc. In the United States, other varieties include Ambrosia, Lady Ali ce, Pinata, Ginger Gold, Golden Supreme, Pacific Rose, Sonya, etc. Note: Honeycrisp variety is not itemized in the 2011 U.S. fresh apple data, how ever, its popularity is growing. In 2011, for example, shares of bearing and non

- bearing trees for the H oneycr isp variety in the State of Washington were 4.8 percent and 23.2 percent of its total of bearing and non

- bearing trees, indicating a strong interest by Washington apple grow ers to cultivate the H oneycrisp variety. **Apple trade by China**  China is a net exporter of fresh apples. China’s trade surplus (exports minus imports) , in value terms, has been consistently increasing , from $35 million in 2000 to $737 million in 69.6% 9.2% 6.8% 6.3% 

### China Fresh **Apple Va**  **rieties**

**2011**

**Fuji Delicious**  **Qinguan Gala**  **Guoguang (Ralls) Arima**  **Golden Delicious (HuangYuanShuai) Jonagold**  **Red King Other varieties**  24% 15% 11% 8% 8% 4% 11% 

### U.S.A. Fresh **Apple V**

**arieties 2011** 

**Red Delicious Gala**  **Golden Delicious Granny Smith**  **Fuji McIntosh**  **Rome Empire**  **Cripps Pink Braeburn**  **Idared York**  **Jonathan Cortland**  **Jonagold Cameo**  **Stayman Newtown**  **R.I. Greening Northern Spy**  **Other varieties**24

2012. 21 Interms of quantity , China’s trade surplus peaked in 2008 at 1,051,000 MT a nd declined to 822,000 MT in 2012 ( Figure 8 ). 22 **Figure 8**  . China and Hong Kong fresh appl e trade surplus (in $ million and 1,000 MT), 2000

- 2012

Source: APHIS analysis based on Global Trade Atlas data. Note: Export values for China and Hong Kong are based on Free On Board (F.O.B.) prices and import values for China and Hong Kong are based on Cost, Insurance, and Freight Import Val ue (C.I.F.) prices. China’s e xport markets are concentrated in Russia, Southeast Asia, and the Middle East. Chinese fresh apples also have been exported for more than a decade to Canada ; h owever , Canada accounted onl y for 0.4 percent of total Chin e se fres h apple exports in 2012. In fact, the combined e xport volume to Canada, European Union (EU) member countries , Australia and Mexico is very

small (0. 8 percent of total fresh apple exports by China in 2012), and has significantl y declined , from 45,267 MT in 2007 ( 4.4 percent of Chinese apple exports ) to 8,273 MT in 2012

.

21 Update for the FRFA: In 2013, Poland became the w orld’s largest exporter of apples , by quantity , surpassing China. In terms of export value, the United Sta tes rem ained the w orld’s largest exporter of apples in 2013. 22 Significant quantities of fresh apples that com e into mainland China through Hong Kong as re - exports are included . Since Hong Kong’s apple exports are negligible, the net trade surplus is small er than it w ould be for mainland China alone.

**35 584**  **737 214**  **1,051 822** 

- 200 400 600 800 1,000 1,200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012**U s** **$ m** **i l** **l i** **o n** **/ 1** **, 0** **0 0** **M T**  

### China and Hong Kong Fresh **Apple T ra**  **de Surplus**

**2000 -**  **2012, Surplus**  **= Exports -**  **Imports Value (US$ million)**  **Quantity (1,000 MT)**25

Average 2012 e xport prices of fresh apple s from China to the aforementioned countries
were : $1.50/KG (Canada), $1.10/KG (EU), $1.83/KG (Australia) and $1.55/KG ( Mexico ) . The se average export prices are consistently higher than the average export price for all 67 countries to which China export ed fresh apples ($0.98/KG)

. Figure 9 com pares average prices of fresh apples that were imported and exported by the United States and China

. Average prices associated with the U.S. fresh apple imports have been trending at a stead y pace of around $0.89/KG, while the unit value for China’s imported fresh apples has increased substantially, from $0.46/KG in 2000 to $1.50/KG in 2012. U.S. fresh a pple export prices have been consistentl y higher than China’s export prices, reflecting the two countries’ different export markets. **Figure 9**  . U.S. and China

–Average prices for imported and exported fresh apples ($/KG), 2000

- 2012

Source: APHIS analysis based on Global Trade Atlas data. Note: Export values for China are based on Free On Board (F.O.B.) prices and import values are based on Cost, Insurance, and Freight Import Value (C.I.F.) prices. Export values for the United S tates are based on Free Along Ship Export Value (F.A.S.) prices and import values are based on Custom Import Value (C.V.) prices. It is reasonable to expect that prices for fresh apples exported by China to the United States would be similar to the prices paid in Canada, the EU, Australia, and Mexico

. Since the **0.56 0.89**  **0.58 1.24** 

$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.602000200120022003200420052006200720082009201020112012 

### U.S. Fresh **Apple T ra**  **de Avereage Prices: 2000**  **- 2012**  **Import ($/KG) Export ($/KG)** 

**0.46 1.50** 

**0.32 0.98** 

$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.602000200120022003200420052006200720082009201020112012 

### China's **Fresh Apple T**  **ra de**  **Average Prices: 2000 -**  **2012 Import ($/KG)**  **Export ($/KG)**26

trend for U.S. fresh apple import prices have been steady at around $0.89/KG , Chinese apple imports are not likely

to compete with dome stic U

. S

. apples solely on price. T he U

. S

. Embassy

Beijing

- Agricultural Affairs Office estimate s that the quantity of fresh apples imported from China by the United States w ould likely be less than 10,000 MT per ye ar . 23 This upper range of 10,000 MT is equivalent to about 5 percent of current U.S. apple imports and is 20 percent more than China exported in 2012 to Canada, the EU , Australia and Mexico combined. It is also equivalent to 0.44 percent of the U.S. domestic supply in MY 2012 /13 of 2,286,800 MT ( production plus imports minus exports). The r elatively high price of fresh apples exported by China to markets similar those of the United States , China’s limited varieties, and its robust domestic demand are underl yi ng factors supporting our expectation that the rule would result in relativel y low volumes of fresh apples imported from China

. **Potential Effects** Consumers make their purchasing decisions for fresh apples based not only on price but also qualitative attributes such as variet y, flavor (acids, sugars, aroma), texture ( crispness, firmness , juiciness), appearance (color, shape, size), freshness, perceived health benef its, production method (organic, conventional), and product orig in (local, regional, domestic, import). Fresh apples imported from China would compete with other available fresh apples in the U.S. market based on these product attributes. We expect that the volume of fresh apples to be imported from China will be relativel y small , no more than 10,000 MT annually, which is the equivalent of less than 0.44 percent of U.S. domestic fresh apply consumption and less than 5 percent of U.S. imports in 2012. We

23 We consulted with t he Agricultural Affairs Office of the U.S. Embassy Beijing in estimating that the U.S. market for fresh apples from China would be less than 10,000 MT per year

.27

expect the majority

of apples imported from China would be the Fuji variety , as about 70 percent of apples produced in China consists of that variety and the majority of apple vari eties being exported from China is of the Fuji variet y . We expect that m ost of China’s fresh apple would likely be shipped to West Coast ports, primarily ones in California and be distributed through Asian ethnic supermarkets to Asian communities in the U nited States together with fresh pears ( Y a pears, fragrant pears and san d pears) which are currently imported from China

. California is the large st market for Washington apples, t herefore, we expect that the largest effects of the rule would be borne by Wa shington and California apple growers, particularl y Fuji apple growers , which consisted of about 8 percent of apple varieties in 2011 , and to an extent by apple producers in neighboring States. If the Washington apples were diverted to markets currently se rved by

other U.S. apple growers, producers in other States could face increased competition. While China’s interest in obtaining market access to the United States for its apples is a recognized concern of the U.S. apple industry and by the general public , U.S. apple trade groups have publicl y acknowledged the importance of fostering stable bilateral trade with China by making progress on their market access request

. 24 As of the time of writing this analy sis, China continues to ban the importation of Red De licious and Golden Delicious, two varieties which China had allowed to enter from three States: Washington, Idaho, and Oregon. As a consequence, apples which would have been exported to China have been diverted to domestic

24 Letters submitted to APHIS by the Washington Apple Commission, The U.S. Apple Association, and the U.S. Apple Export Council, dated July 22, 2013, August 20, 2013, and September 9, 2013, respectively.28

markets or other overseas destina tions, contributing to downward pressure on domestic fresh apple prices. 25 U.S. domestic apple consumption remains relatively flat, and, in order for the U.S. apple industry to grow, it needs to rely

on global trade. The example of China’s ban of U.S. fresh apples and how it can affect the U.S. domestic market illustrates the close linkage between global and domestic markets. Given APHI S’ determination that the rule will not result in significant adverse impacts on plant health , the rule could provide additional trade opportunities for the two countries

. **Prevalence of U.S. Small Entities** Small

- entity

apple producers may

be directl y affected b y the rule, especially those that produce the Fuji variet y . Other small entities that may be affected include auxiliary industries which support the production and distribution of fresh apples in the United States , as well as importers of fresh apples. P otentially affected entities are classified within the follo wing industries, according to the North American Industry Classification S ys tem (NAICS) : Apple Orchards (NAI CS 111331), Postharvest Crop Activities (except cotton ginning) (NAICS 115114), Fresh Fruit and Vegetable Merchant Wholesalers (NAICS 424480), Pesti cide and Other Agricultural Chemical Manufacturing (NAICS 352320), Farm Product Warehousing and Storage (NAI CS 493130), Nursery and Tree Production (NAICS 111421), Fruit and Vegetable Markets (NAI CS 445230), Packing and Crating (NAI CS 488991), General Frei ght Trucking, local (NAICS 484110), Wood Container and Pallet Manuf acturing (NAI CS 321920).

25 The implication of the Washington fresh apples shipped to the eastern U.S. instead of exported to China is described by the Fruit Grower News “ Are Chinese apples the biggest threat? ” http://fruitgrowersnews.com/index.php/magazine/article/are

- chinese

- apples

- the

- biggest

- threat29

Establishments classified within Apple Orchards are considered small b y the Small Business Administration (SBA) if annual sales are not more than $750,000. Accordi ng to 2007 Census of Agriculture data, there were 25,591 farms classified within Apple Orchards in 2007. Average annual sales per apple grower are estimated to have been about $102,000 in 2007. 26 Clearly , apple growers are predominantl y small entities accor ding to the SBA standard of $750,000. Establishments classified within Postharvest Crop Activities (except cotton ginning) (NAICS 115114), are considered small by SBA standards if annual sales are not more than $7 million. The percentage of establishment s that meet this standard is not known; neither the Census of Agriculture nor the Economic Census reports revenue for these establishments. Establishments classified within Fresh Fruit and Vegetable Merchant Wholesalers (NAICS 424480) are considered small by SBA standards if they

employ not more than 100 persons . 27 In 2007, there were 5,074 fresh fruit and vegetable merchant wholesalers in the United States with a total of 104,749 paid employ ees, or on average, 21 paid employ ees per establishment. Out of the 5,074 vegetable merchant wholesalers, about 83 percent of the establishments in this category employ ed fewer than 100 people. 28 Itis likel y that domestic fruit merchant wholesalers that may be affected b y the rule are predominantl y, if not entirely, small entities. Establishments classified within Pesticide and Other Agricultural Chemical Manufacturing (NAICS 352320) are consider ed small by SBA if they employ

no more than 500

26 Average sales per entity is based on the number of apple grow ers 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. 27 U.S. Small Business Administration, Table of Small Business Size Standards http://www.sba.gov/content/table

sm all

- business

- size

- standards 28 U.S. 2007 Economic Census http://www.census.gov/econ/census07/30

employ ees. In 2007, there were 240 of these establishments in the United States with a total of 10,039 paid employ ees , or on average 42 paid employ ees per establishment. According to the 2007 Economic Census , all the 240 Pesticide and other Agricultural Chemical Manufacturing establishments employ ed fewer than 10 0 people. 29 Establishments classified within Farm Product Warehousing and Storage (NAI CS 493130), are considered small by SBA standards if annual sales are not more than $25.5 million. In 2007 there were 1,156 entities with sales revenue less than $25.5 mil lion, which is about 91 percent of all establishments. 30 Entities in Nursery and Tree Production (NAICS 111421) are considered to be small by SBA standards if annual sales are not more than $750.000. I n 2007 there were 34,532 with average sales revenue of $ 257,786 . I t can be concluded that virtually all Nursery and Tree Production are small entities. 31 Establishments in Fruit and Vegetable Markets (NAI CS 445230) are considered small by SBA standards if annual sales are not more than $7.0 million. APHI S does not have information on the size distribution of these businesses , but according to the 2007 Economic Census there were 2,938 with average annual sale s of $1.1 million. Establishments in Packing and Crating (NAICS 488991) are considered to be small by SBA standards if annual sales are not more than $25.5 million. APHI S does not have information

29 Ibid 30 Ibid 31 U.S 2007 Agricultur e Census table 46. Selected characteristics of farms by North American Industry Classification System http://www.agcensus.usda.gov/Publications/2007/Full_Report/Volume_1,_Chapter_1_US/st99_1_046_046.pdf31

on the size, but the latest Economic Census states that in 2011 there were 1,243 packing and crating establishments. 32 Entities in General Freight Trucking, local (N AI CS 484110) are considered to be small by SBA standards if annual sales are not m o re than $25.5 million

. APHI S does not have information on the ir size, but the latest Economic Census states that in 2011 there were 26,585 establishments. 33 Establishments i n Wood Container and Pallet Manufacturing (NAICS 321920) are considered to be small if establishments employ no more than 500 employ ees . APHI S does not have information on the average number of employ ees per establishment in this industry

. 

### Projected Repor**ting, Recordkeeping, and Ot h**  

### er Compliance **Requirements** Reporting and recordkeeping requirements associated with the rule are discussed in the rule under the heading "Paperwork Reduction Act." 

### Steps taken by APHIS to minimize Significant Economic **Impacts on Small Entities**  Based on our review of available information, APHI S does not expect the rule to have a significant econ omic impact on small entities. In the absence of significant economic impacts, we have not identified alternatives that would minimize such impacts.

32 U.S. 2007 Economic Census http://www.census.gov/econ/census07/ 33 Ibid