[Federal Register Volume 62, Number 144 (Monday, July 28, 1997)]
[Proposed Rules]
[Pages 40312-40315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19798]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 989

[Docket No. FV-97-989-2 PR]


Raisins Produced From Grapes Grown in California; Suspension of 
Provisions Concerning Certain Offers of Reserve Raisins to Handlers for 
Free Use

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposal invites comments on the suspension of language 
in provisions of the raisin marketing order concerning certain offers 
of reserve raisins to handlers for free use. The marketing order 
regulates the handling of raisins produced from grapes grown in 
California, and is administered locally by the Raisin Administrative 
Committee (Committee). This rule would indefinitely suspend certain 
language to provide the Committee more flexibility in meeting its 
marketing needs. This proposal was unanimously recommended by the 
Committee.

DATES: Comments must be received by August 27, 1997.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposal. Comments must be sent in triplicate to the 
Docket Clerk, Fruit and Vegetable Division, AMS, USDA, room 2525-S, 
P.O. Box 96456, Washington, DC 20090-6456, Fax # (202) 720-5698. All 
comments should reference the docket number and the date and page 
number of this issue

[[Page 40313]]

of the Federal Register and will be made available for public 
inspection in the Office of the Docket Clerk during regular business 
hours.

FOR FURTHER INFORMATION CONTACT: Maureen Pello, California Marketing 
Field Office, Marketing Order Administration Branch, F&V, AMS, USDA, 
2202 Monterey Street, suite 102B, Fresno, California 93721; telephone: 
(209) 487-5901, Fax # (209) 487-5906; or Mark A. Slupek, Marketing 
Specialist, Marketing Order Administration Branch, F&V, AMS, USDA, room 
2536-S, P.O. Box 96456, Washington, DC 20090-6456; telephone: (202) 
205-2830, Fax # (202) 720-5698. Small businesses may request 
information on compliance with this regulation by contacting: Jay 
Guerber, Marketing Order Administration Branch, Fruit and Vegetable 
Division, AMS, USDA, P.O. Box 96456, room 2525-S, Washington, DC 20090-
6456; telephone (202) 720-2491; Fax # (202) 720-5698.

SUPPLEMENTARY INFORMATION: This proposal is issued under Marketing 
Agreement and Order No. 989 (7 CFR part 989), both as amended, 
regulating the handling of raisins produced in California, hereinafter 
referred to as the ``order.'' The marketing agreement and order are 
effective under the Agricultural Marketing Agreement Act of 1937, as 
amended (7 U.S.C. 601-674), hereinafter referred to as the ``Act.''
    The Department of Agriculture (Department) is issuing this rule in 
conformance with Executive Order 12866.
    This proposal has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is not intended to have retroactive effect. 
This proposal will not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with the Secretary a 
petition stating that the order, any provision of the order, or any 
obligation imposed in connection with the order is not in accordance 
with law and request a modification of the order or to be exempted 
therefrom. A handler is afforded the opportunity for a hearing on the 
petition. After the hearing the Secretary would rule on the petition. 
The Act provides that the district court of the United States in any 
district in which the handler is an inhabitant, or has his or her 
principal place of business, has jurisdiction to review the Secretary's 
ruling on the petition, provided an action is filed not later than 20 
days after date of the entry of the ruling.
    This proposal invites comments on the indefinite suspension of 
language in sections 989.54(g) and 989.67(j) of the order. The proposed 
suspension concerns certain offers of reserve raisins to handlers for 
free use. The suspension was unanimously recommended by the Committee.
    Section 989.54(g) of the order describes two annual offers of 
reserve raisins to handlers for free use for each varietal type for 
which preliminary volume control percentages have been computed and 
announced. Each of these offers consists of 10 percent of the prior 
year's shipments of free raisins and reserve raisins sold for free use. 
These offers are known to the industry as the ``10 plus 10'' offers. 
The order currently mandates that the 10 plus 10 offers must be made 
simultaneously on or before November 15 of the crop year. The order 
defines the crop year for raisins as the 12-month period beginning with 
August 1 of any year and ending with July 31 of the following year.
    Section 989.54(a) establishes that the trade demand for raisins 
shall be 90 percent of the prior crop year's shipments with adjustments 
for inventory, meaning that the trade demand excludes 10 percent of the 
prior year's shipments. Preliminary volume control percentages, which 
are computed and announced by October 5 of each crop year, make up to 
85 percent of the trade demand available to handlers for disposal in 
any marketing channel. The final free percentage, which is recommended 
by the Committee by February 15 of each crop year, makes the remainder 
of the trade demand available to handlers.
    Standard raisins are raisins which meet the minimum grade and 
condition standards for natural condition raisins. Handlers are 
required to place the reserve percentage of their standard raisin 
acquisitions in the reserve pool. One of the 10 plus 10 offers makes 
available, from the reserve pool, the 10 percent of the prior year's 
shipments which the final free percentage does not make available. This 
offer, then, equates the current year's supply with the prior year's 
shipments. Because the free percentage and this 10 plus 10 offer only 
make available the tonnage shipped during the prior year (with the 
appropriate inventory adjustments), the other 10+10 offer, intended for 
market expansion, makes an additional 10 percent available to handlers 
from the reserve pool. Acceptance of the 10 plus 10 offers is 
voluntary; handlers are not required to purchase any reserve raisins.
    The Committee believes that changes in the raisin industry, 
particularly changes to export programs administered under the 
marketing order, have made the 10 plus 10 offers a more important 
source of raisins for many handlers. The Committee's export programs in 
the early 1990's allowed handlers who exported California raisins to 
purchase, at a reduced rate, reserve raisins for free use. This 
effectively blended down the cost of the raisins which were exported, 
allowing handlers to be price competitive in export markets, which 
generally feature lower prices than the domestic market. One effect of 
this program was that handlers would continuously purchase reserve 
raisins for free use throughout the crop year. Handlers who knew they 
would be exporting raisins did not need to purchase enough raisins to 
meet their needs for the entire year early in the season.
    The current export program, which is in its second year of 
operation, offers cash, rather than reserve raisins, to exporting 
handlers. This has caused handlers to make larger purchases of 10 plus 
10 raisins to replace the raisins formerly acquired through the export 
program. When handlers make large 10 plus 10 purchases early in the 
season, rather than small reserve purchases throughout the season, 
however, they are committing themselves to raisins before they have a 
firm estimate of their needs for the year. Handlers are forced to guess 
at the demand for the remainder of the crop year. If this guess is too 
high, prices will fall and there may be excess free tonnage inventory 
at the end of the crop year, resulting in market instability and a 
lower free percentage for the following year. If the guess is too low, 
market needs may not be met and the Committee may be forced to dispose 
of the excess reserve raisins in low income outlets.
    Most raisin deliveries, and most of the associated costs, are 
concentrated between September and November, so handlers must establish 
large lines of credit at this time during each crop year. Because the 
Committee is required to make the 10 plus 10 offers concurrently on or 
before November 15 of the crop year, handlers must arrange for 
additional credit to make their 10 plus 10 purchases. The Committee 
believes that the inflexibility of the November 15 deadline and the 
requirement of simultaneous offers creates unnecessary financial stress 
on handlers.
    Section 987.67(j) of the order lists other circumstances, including 
national emergency, crop failure, changing

[[Page 40314]]

economic or marketing conditions, fire or other disasters, or to 
supplement an inadequate inventory to carryover to the next crop year, 
under which the Committee can sell reserve raisins for free use. The 
Committee also can offer reserve raisins for free use if raisin 
shipments during the first 10 months of the current crop year exceed 
105 percent of shipments during the comparable period of the prior crop 
year. This type of offer is limited to the amount exceeding 105 percent 
of the prior year's shipments. Thus, if the market for raisins expands 
rapidly during any crop year, this provision allows the Committee to 
make more raisins available to handlers to supply the increased market 
needs. The 105 percent limit was established to safeguard against 
depressing raisin prices by expanding the free supply by too large a 
quantity. Like the 10 plus 10 offers, handler acceptance of this type 
of offer is voluntary.
    During the past two seasons, the Committee has reduced its 
desirable carryout inventory level by about 20 percent, meaning that 
the free percentage provides for fewer raisins to remain at the end of 
a crop year for use in the following crop year. Reduction of the 
desirable carryout, coupled with the elimination of the export program 
which offered reserve raisins for free use, has increased the 
likelihood that the raisin industry might have an inadequate supply of 
raisins late in a crop year which featured an increase in shipments. If 
handlers, when making acquisition decisions early in the season, 
underestimate their needs for the crop year, they could be forced to 
either lose current sales or ship raisins which were intended to be 
carried over, which could prevent the industry from meeting its market 
needs early in the next crop year.
    As an example, if the raisin industry were to experience 6 percent 
growth over the first 10 months of a given crop year, the Committee 
could offer reserve raisins for free use up to 1 percent of the 
previous year's shipments. With the tightening of the desirable 
carryout and the absence of reserve raisins offered under the export 
program, the industry could face a short supply of free raisins while 
an adequate supply of reserve raisins sat unused.
    At its meeting on April 10, 1997, the Committee recommended 
suspending language in both Secs. 989.54(g) and 989.67(j). In the 
former, the suspension would eliminate both the simultaneous 
requirement and the November 15 deadline for the 10 plus 10 offers. In 
the latter, the 105 percent requirement would be removed from the 
required level of shipments and the size of the reserve offer for free 
use.
    Elimination of the simultaneous requirement and the November 15 
deadline from the first sentence of Sec. 989.54(g) would leave the 
following sentence, ``the Committee shall make two offers of reserve 
tonnage to sell to handlers to sell as free tonnage for each varietal 
type for which preliminary percentages have been computed and 
announced.'' This means that if preliminary percentages have been 
established, the Committee would still be required to make two 10 plus 
10 offers, but these offers could take place independently at any time 
during the crop year.
    The Committee expects that these changes would solve some of the 
planning and credit problems which handlers currently face. If one or 
both of the offers were moved to later in the crop year, handlers would 
be able to make better informed acquisition decisions. At the same 
time, a change in the offer date would ease the autumn credit burden 
for many handlers.
    The Committee's proposal to suspend language in Sec. 989.67(j) 
would leave the following as one of the circumstances which allows the 
Committee to offer reserve tonnage to handlers for free use: ``free 
tonnage shipments during the then current crop year exceeding shipments 
of a comparable period of the prior crop year: Provided, that, such 
sale of reserve tonnage shall be limited to the quantity exceeding 
shipments for the first ten months of the prior crop year''. Thus, if 
free tonnage shipments were up during the first ten months of a crop 
year, the Committee could offer reserve raisins to handlers for free 
use in any amount exceeding the prior year's shipments.
    Following the earlier example, if the raisin industry were to 
experience 6 percent growth over the first ten months of a given crop 
year, the Committee could offer reserve raisins for free use up to 6 
percent of the previous year's shipments. In fact, if the growth was 
only 4 percent, the Committee could offer up to 4 percent of the 
previous year's shipments. Under the current provisions, the Committee 
could make no offer at 4 percent growth because the year's growth did 
not meet the 5 percent threshold. The Committee believes that the 
current inflexibility could become problematic in the future, 
particularly if the industry was unable to take advantage of a growth 
opportunity in what has, in recent years, become a relatively stagnant 
market.
    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA), the Agricultural Marketing Service (AMS) has considered the 
economic impact of this action on small entities. Accordingly, AMS has 
prepared this initial regulatory flexibility analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and rules issued thereunder, are unique in that 
they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility.
    There are approximately 20 handlers of California raisins who are 
subject to regulation under the raisin marketing order and 
approximately 4,500 producers of raisins in the regulated area. Small 
agricultural service firms, which includes handlers, have been defined 
by the Small Business Administration (13 CFR 121.601) as those having 
annual receipts of less than $5,000,000, and small agricultural 
producers are defined as those having annual receipts of less than 
$500,000. No more than 8 handlers, and a majority of producers, of 
California raisins may be classified as small entities. Twelve of the 
20 handlers subject to regulation have annual sales estimated to be at 
least $5,000,000, and the remaining 8 handlers have sales less than 
$5,000,000, excluding receipts from any other sources.
    This proposal would suspend provisions concerning certain offers of 
reserve raisins to handlers for free use under Secs. 989.54(g) and 
989.67(j) of the raisin marketing order. The current provisions in 
Sec. 989.54(g) require that the Committee make two simultaneous offers 
of reserve raisins for free use, each equal to 10 percent of the prior 
year's free shipments, on or before November 15 of each crop year for 
each variety for which preliminary volume control percentages have been 
computed and announced. These ``10 plus 10'' offers are intended to 
ensure that the establishment of volume control regulations will not 
prevent the industry from having enough raisins to meet the prior 
year's shipments plus some raisins for market expansion.
    Changes in the Committee's export programs have caused many 
handlers to greatly increase their 10 plus 10 purchases. During the 5 
years prior to the change to the export programs, handler purchases of 
raisins from 10 plus 10 offers averaged 10,355 tons. In the 2 seasons 
since the program was modified, the purchases increased to an average 
of 61,033 tons, a 489 percent increase. The requirement that the offers 
be made simultaneously on or before

[[Page 40315]]

November 15 of each crop year does not allow the Committee the 
flexibility that it now believes is necessary for handlers to meet 
their market needs. Because these offers must take place so early in 
the season, handlers have to guess at the level of raisins they will 
need for the year.
    Raisin handlers, because most raisin deliveries to handlers are 
concentrated between September and November, must establish credit 
lines totaling between $250-270 million each autumn. Because of the 
increase in 10 plus 10 purchases, handlers have had to establish an 
additional $75-80 million in credit during their most financially 
burdened period of the year. The Committee believes that the 
inflexibility of the November 15 deadline and the requirement of 
simultaneous offers creates unnecessary financial stress on handlers, 
and that the proposed suspension would alleviate that stress and allow 
the handlers to better plan to meet their market needs.
    Section 989.67(j) of the order authorizes the Committee to offer 
reserve raisins for free use if raisin shipments during the first 10 
months of the current crop year exceed shipments during the comparable 
period of the prior crop year. Thus, if the market for raisins expands 
rapidly during any crop year, this provision allows the Committee to 
make more raisins available to handlers to supply the increased market 
needs. Any such offer is limited, however, to the amount of raisins 
exceeding 105 percent of the prior year's shipments.
    As described above, handlers are now making their acquisition 
decisions earlier in the season than in previous years. In addition, 
the Committee has tightened its supply situation during the last 2 
seasons by reducing its desirable inventory level and eliminating the 
feature of its export program which made reserve tonnage available to 
handlers for free use. The Committee believes that these factors leave 
the industry with little room for error; if handlers underestimate the 
tonnage that is needed to meet the market needs, there are too few 
avenues for acquiring raisins for free use later in the season. In a 
growth year, a poor estimate could result in customers with unmet 
needs.
    The earlier example discussed years in which the industry 
experienced 4 and 6 percent growth, and that the Committee now believes 
that the inflexibility of Sec. 989.67(j) could prevent the industry 
from taking advantage of growth opportunities in what has become a 
relatively stagnant market. According to the Committee's 1996-97 
marketing policy, during the last 10 crop years free shipments have 
ranged between 290,646 (in 1986-87) and 338,881 tons (1990-91). The 
most recent complete crop year's shipments (1995-96) were the lowest, 
315,170 tons, since 1986-87. The Committee calculates that the loss of 
just 1 percent of annual shipments due to the inability to supply the 
late season market would cost about $3 million in grower revenue.
    The Committee also considered the following situation. If free 
shipments during 10 months of a crop year were 275,000 tons, and 
shipments grew by 4 percent (11,000 tons) during the same time period 
during the following crop year, the current provision would allow for 
no reserve offer due to growth. Under the proposed suspension, however, 
the Committee could offer up to 11,000 tons of reserve raisins for free 
use. Assuming a profit to handlers of 1 cent per pound, the Committee 
calculates that operating under the current provision would cost 
handlers $220,000 in profit and growers $11 million in revenue. The 
benefits generated by this rule are not expected to be 
disproportionately greater or less for small handlers or producers than 
for large entities.
    The Committee discussed alternatives to this change, including not 
suspending any language in either section of the order. Suspending the 
provisions discussed herein provides the Committee with flexibility, 
including the option of operating exactly as it does now. If the 
Committee were to find any change was not beneficial, the suspension 
would not prevent the Committee from returning to its current 
procedures for the next year. Leaving the sections as they currently 
stand, however, offers the Committee no marketing flexibility. The 
Committee also recognized that reserve raisins can be offered for free 
use to supplement an inadequate carryover inventory, but thought that 
this option could be too late to prevent lost sales. Also, this 
proposed suspension would not prevent the Committee from selecting such 
a course.
    This proposed rule would suspend language concerning offers of 
reserve tonnage raisins under the raisin marketing order. The order 
currently authorizes such offers and would continue to do so. 
Accordingly, this action would not impose any additional reporting or 
recordkeeping requirements on either small or large raisin handlers. As 
with all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies.
    The Department has not identified any relevant Federal rules that 
duplicate, overlap or conflict with this proposed rule.
    Committee and subcommittee meetings are widely publicized in 
advance and are held in a location central to the production area. The 
meetings are open to all industry members (including small business 
entities) and other interested persons--who are encouraged to 
participate in the deliberations and voice their opinions on topics 
under discussion. Thus, Committee recommendations can be considered to 
represent the interests of small business entities in the industry. 
Finally, interested persons are invited to submit information on the 
regulatory and informational impacts of this action on small 
businesses.
    A 30-day comment period is provided to allow interested persons to 
respond to this proposal. All written comments timely received will be 
considered before a final determination is made on this matter.

List of Subjects in 7 CFR Part 989

    Grapes, Marketing agreements, Raisins, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, 7 CFR part 989 is 
proposed to be amended as follows:

PART 989--RAISINS PRODUCED FROM GRAPES GROWN IN CALIFORNIA

    1. The authority citation for 7 CFR part 989 continues to read as 
follows:

    Authority: 7 U.S.C. 601-674.


Sec. 989.54  [Amended]

    2. In Sec. 989.54, paragraph (g) the words, ``On or before November 
15 of the crop year,'' and ``simultaneous'', are suspended indefinitely 
from the first sentence.


Sec. 989.67  [Amended]

    3. In Sec. 989.67, paragraph (j) the words, ``by more than 5 
percent'' and ``105 percent of'', are suspended indefinitely from the 
first sentence.

    Dated: July 22, 1997.
Lon Hatamiya,
Administrator, Agricultural Marketing Service.
[FR Doc. 97-19798 Filed 7-25-97; 8:45 am]
BILLING CODE 3410-02-P