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<body><p><i>Analysis in Support of Certification that the Rule will not have a Significant Economic Impact on a Substantial Number of Small Entities </i></p>
<p><i>Interim Rule:  Tuberculosis; Amend 9 CFR 77 by Moving Six Counties in Michigan (Antrim, Charlevoix, Cheboygan, Crawford, Emmet, and Otsego) from Modified Accredited Status to Modified Accredited Advanced Status</i></p>
<p><i>Docket No. APHIS-2009-0046</i></p>
<p><i>July 2009</i></p>
<p><i>Policy Analysis & Development
</i></p>
<p><i>Policy & Program Development
</i></p>
<p><i>Animal & Plant Health Inspection Service
</i></p>
<p><i>U.S. Department of Agriculture
</i></p>
<p>Michigan currently has split State status for bovine tuberculosis (TB), with an Accredited Free (AF) zone, a Modified Accredited Advanced (MAA) zone, and a Modified Accredited (MA) zone.  This rule will reclassify six counties in the State (Antrim, Charlevoix, Cheboygan, Crawford, Emmet, and Otsego) from MA status to MAA status.  MA status imposes various requirements for TB testing of cattle.  Reclassification to MAA status reduces or<b> </b>removes some of those testing requirements.  The Regulatory Flexibility Act (RFA) of 1980 (Public Law 96-354) requires agencies to evaluate the potential effects of proposed and final rules on small businesses, small organizations, and small governmental jurisdictions.  Section 605 of the RFA allows an agency to certify that a rule will not have a significant economic impact on a substantial number of small entities.  Following is the factual basis for such certification in this case.  
</p>
<p><u>Description and Estimate of Small Entities Affected by the Interim Rule
</u></p>
<p>Entities that will be directly affected by the rule are owners of cattle in six Michigan counties.  Reclassification of these counties from MA to MAA status reduces some TB testing requirements.  Operations in these counties will benefit from reduced costs associated with TB testing.  
</p>
<p>The cattle industry plays an important role in Michigan’s economy.  There were 14,454 cattle and calf operations in Michigan in 2007 with a total inventory of 1.05 million head.
  State-wide cash receipts from cattle and calves and dairy products totaled $343 million and $1.5 billion, respectively, in 2007.  Eight-year average cash receipts for cattle and calves and dairy products (2000-2007) were $262 million and $952 million, respectively.
  
</p>
<p>The Small Business Administration (SBA) has established guidelines for determining which businesses are considered small.  According to SBA size standards for beef cattle ranching and farming (NAICS 112111) and for dairy cattle and milk production (NAICS 112120), operations with not more than $750,000 in annual sales are considered small entities.  For cattle feedlots (NAICS 112112), operations with not more than $2.5 million in annual sales are considered small entities.  The vast majority of beef operations in Michigan are considered small, as well as most dairy operations.  In 2007 more than 98 percent of cattle and calf farms generated less than $500,000 in cash receipts and less than 1 percent generated $1 million or more.   About 67 percent of dairy farms generated less than $500,000 in cash receipts and about 15 percent generated $1 million or more.  More than 99 percent of cattle feedlots were considered small in 2007.
  The composition of Michigan’s cattle inventory is shown in table 1.</p>
<table><tbody><tr>	<td><p><b>TABLE 1.  Michigan Cattle Inventory, January 1, 2009</b></p>
</td></tr>
<tr>	<td><p>Type</p>
</td>	<td><p></p>
</td>	<td><p>Number</p>
</td>	<td><p>Percentage of Total</p>
</td></tr>
<tr>	<td><p>Beef cows</p>
</td>	<td><p></p>
</td>	<td><p>92,000</p>
</td>	<td><p>8.6%</p>
</td></tr>
<tr>	<td><p>Milk cows</p>
</td>	<td><p></p>
</td>	<td><p>353,000</p>
</td>	<td><p>33.0%</p>
</td></tr>
<tr>	<td><p>Heifers</p>
</td>	<td><p></p>
</td>	<td><p></p>
</td>	<td><p></p>
</td></tr>
<tr>	<td><p></p>
</td>	<td><p>Beef cow replacements</p>
</td>	<td><p>27,000</p>
</td>	<td><p>2.5%</p>
</td></tr>
<tr>	<td><p></p>
</td>	<td><p>Milk cow replacements</p>
</td>	<td><p>148,000</p>
</td>	<td><p>13.8%</p>
</td></tr>
<tr>	<td><p></p>
</td>	<td><p>Other heifers</p>
</td>	<td><p>50,000</p>
</td>	<td><p>4.7%</p>
</td></tr>
<tr>	<td><p>Total heifers</p>
</td>	<td><p></p>
</td>	<td><p>225,000</p>
</td>	<td><p>21.0%</p>
</td></tr>
<tr>	<td><p>Steers</p>
</td>	<td><p></p>
</td>	<td><p>185,000</p>
</td>	<td><p>17.3%</p>
</td></tr>
<tr>	<td><p>Bulls</p>
</td>	<td><p></p>
</td>	<td><p>15,000</p>
</td>	<td><p>1.4%</p>
</td></tr>
<tr>	<td><p>Calves</p>
</td>	<td><p></p>
</td>	<td><p>200,000</p>
</td>	<td><p>18.7%</p>
</td></tr>
<tr>	<td><p>TOTAL</p>
</td>	<td><p></p>
</td>	<td><p>1,070,000</p>
</td>	<td><p></p>
</td></tr>
<tr>	<td><p>Source: National Agriculture Statistics Service, USDA.</p>
</td></tr>
</tbody></table>
<p><u>Expected Effects of the Rule
</u></p>
<p>Michigan currently has three TB status zones: an AF, a MAA and a MA zone. This rule will reclassify six counties from MA to MAA.  The elevation of an area to MAA status from MA status removes certain TB testing requirements on cattle owners.  The MA restrictions include a negative TB test within 60 days of the interstate movement of cattle and bison from a herd without accredited status, except for cattle moving directly to slaughter.  The restrictions also include a whole herd test within one year for intact cattle moving interstate from a herd without accredited status, unless the cattle are moving to an approved feedlot or directly to slaughter.  In addition, dairy herds in a MA zone are required to have an annual whole herd test in order to comply with the Pasteurized Milk Ordinance (PMO).
  With one exception, the preceding testing requirements do not apply to cattle moving out of a MAA zone.  Intact cattle from a herd without accredited status moving interstate, not directly to slaughter, are still required to have a negative TB test within 60 days of interstate movement.</p>
<p>Cattle herd owners in the six counties being upgraded to MAA status will see a reduction in TB testing requirements as a result of this rule, and will therefore benefit from reduced costs associated with that TB testing.  In 2008, there were 538 beef, dairy, or mixed cattle herds in the six affected counties, with about 18,400 cattle.   About 620 cattle are in 14 accredited herds.  There were also 32 cattle feedlots in those counties with about 700 cattle.  The cattle in these counties account for about 2 percent of the cattle in Michigan.
  </p>
<p>A negative TB test within 60 days of interstate movement of cattle for feeding will no longer be necessary for non-accredited herds in the six counties covered by this rule based on MAA status.  Tuberculosis testing, including veterinary fees, costs about $10 to $15 per head.
  The State of Michigan estimates that about 8,650 cattle moved interstate for feeding from the six counties were subject to this rule in 2008.  Based on the above range in testing costs per animal, we expect annual cost savings associated with reduced testing of feeder cattle moving interstate from these six counties to total between $86,500 and $129,750.  The more a herd owner in the affected counties engages in the interstate movement of feeding cattle, the greater will be the savings associated with the reduction in movement restrictions.  
</p>
<p>Owners of non-accredited herds in the MAA zone engaged in interstate movement of breeding cattle also will benefit from reduced costs associated with TB testing.  A negative whole herd test within 12 months of the interstate movement of intact cattle from a herd without accredited status will no longer be needed for herds in the MAA zone.  In addition, the annual whole herd test for dairies required under the PMO for herds in a MA zone is not required for herds in a MAA zone.  
</p>
<p>A whole herd test requires the testing of all animals in a herd that are 12 months of age or older at the time of the test.  In 2008, beef and mixed beef in the six counties covered in this rule had an average of 25 head.  Dairy herds had an average of 183 head.  With TB testing costs of $10 to $15 per head, annual whole herd testing costs average between $250 and $375 per beef and mixed herd and between $1,830 and $2,745 per dairy herd.  These cost estimates per herd may be high because the cost of whole herd testing on a per-animal basis is generally less than the cost of testing animals individually, and it assumes that all animals in the average herd are at least 12 months of age.  
</p>
<p>The State of Michigan has estimated that there are 493 non-accredited beef and mixed herds in the six counties covered in this rule.  Based on the above estimates of the average cost of a whole herd test, and assuming that all of the non-accredited beef and mixed herds move cattle interstate, the annual cost savings associated with the removal of this whole herd testing requirement could total between $123,250 (493 herds, multiplied by $250 per herd) and $184,875 (493 herds, multiplied by $375 per herd).
</p>
<p>The State of Michigan has estimated that there are 31 commercial dairies operating in the six counties.  These dairies will no longer be required to perform an annual whole herd test under the PMO.  Based on the above estimates of the average cost of a whole herd test, the annual cost savings for dairy herds of the removal of the whole herd testing requirement could total between $56,730 (31 herds multiplied by $1,830 per herd) and $85,095 (31 herds, multiplied by $2,475 per herd).  </p>
<p>Cattle herd owners in the six counties covered in this rule will see a reduction in TB testing requirements as a result of this rule, and will therefore benefit from reduced costs associated with that TB testing.  However, the six counties covered in this rule account for less than 4 percent of cattle operations and less than 2 percent of the cattle in the State of Michigan.  In addition, TB testing costs are small when compared to the value of the cattle tested, and the expected savings therefore are also relatively small.  On January 1, 2008, beef cattle in Michigan had an average per animal value of $1,330.
  The average value of dairy cattle is considerably higher, given the value of milk produced.  The savings in TB testing costs represent no more than about 1.1 percent of the average per-head value of beef cattle in Michigan ($15 / $1,330) and an even smaller percentage of the average value of dairy cattle in the State.  This rule will not have a significant economic impact on a substantial number of small entities.   </p>
<p><u>Conclusion
</u></p>
<p>Michigan currently has three TB status zones: an AF, a MAA and a MA zone. This rule will reclassify six counties from MA to MAA.  The elevation of an area to MAA status from MA status removes certain interstate movement and whole herd TB testing requirements.  Cattle owners will benefit from time savings and reduced costs associated with TB testing.  The annual cost savings to all producers could be between $266,000 and $400,000.  However, the six counties covered in this rule account for less than 4 percent of cattle operations and less than 2 percent of the cattle in the State of Michigan.  In addition, TB testing costs are about one percent or less of the value of the cattle tested.  Thus, the expected savings will be relatively small.  This rule will not have a significant economic impact on a substantial number of small entities.   </p>
<p>� 2007 Census of Agriculture. National Agriculture Statistics Service, USDA.
</p>
<p>� USDA/ERS Cash Receipts, by Commodity Groups and Selected Commodities, United States and States, 2000-2007. � HYPERLINK "http://www.ers.usda.gov/Data/farmincome/FinfidmuXls.htm" ��http://www.ers.usda.gov/Data/farmincome/FinfidmuXls.htm� 
</p>
<p>� 2007 Census of Agriculture. National Agriculture Statistics Service, USDA.
</p>
<p> 
</p>
<p>� U.S. Food and Drug Administration, Center for Food Safety and Applied Nutrition.
</p>
<p>� 2007 Michigan Agricultural Statistics, USDA/NASS, Michigan Department of Agriculture; Michigan TB annual report, 2008.
</p>
<p>� USDA/APHIS/VS, personal communication.
</p>
<p>
</p>
<p>� Meat Animals Production, Distribution and Income Final Estimates 2003-2007.  May 2009.  NASS, USDA. Statistical Bulletin Number 1026.  � HYPERLINK "http://usda.mannlib.cornell.edu/usda/nass/SB995/sb1026.pdf" ��http://usda.mannlib.cornell.edu/usda/nass/SB995/sb1026.pdf� 
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