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[Federal Register Volume 77, Number 43 (Monday, March 5, 2012)]
[Proposed Rules]
[Pages 13019-13026]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-5195]

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 985

[Doc. No. AMS-FV-11-0088; FV12-985-1 PR]

Marketing Order Regulating the Handling of Spearmint Oil Produced 
in the Far West; Salable Quantities and Allotment Percentages for the 
2012-2013 Marketing Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule would establish the quantity of spearmint oil 
produced in the Far West, by class, that handlers may purchase from, or 
handle on behalf of, producers during the 2012-2013 marketing year, 
which begins on June 1, 2012. This rule invites comments on the 
establishment of salable quantities and allotment percentages for Class 
1 (Scotch) spearmint oil of 782,413 pounds and 38 percent, 
respectively, and for Class 3 (Native) spearmint oil of 1,162,473 
pounds and 50 percent, respectively. The Spearmint Oil Administrative 
Committee (Committee), the agency responsible for local administration 
of the marketing order for spearmint oil produced in the Far West, 
recommended these limitations for the purpose of avoiding extreme 
fluctuations in supplies and prices to help maintain stability in the 
spearmint oil market.

DATES: Comments must be received by April 4, 2012.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposal. Comments must be sent to the Docket Clerk, 
Marketing Order and Agreement Division, Fruit and Vegetable Programs, 
AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 
20250-0237; Fax: (202) 720-8938; or Internet: http://www.regulations.gov. All comments should reference the document number 
and the date and page number of this issue of the Federal Register and 
will be made available for public inspection in the Office of the 
Docket Clerk during regular business hours, or can be viewed at: http://www.regulations.gov. All comments submitted in response to this rule 
will be included in the record and will be made available to the 
public. Please be advised that the identity of the individuals or 
entities submitting the comments will be made public on the Internet at 
the address provided above.

FOR FURTHER INFORMATION CONTACT: Manuel Michel, Marketing Specialist, 
or Gary Olson, Regional Manager, Northwest Marketing Field Office, 
Marketing Order and Agreement Division, Fruit and Vegetable Programs, 
AMS, USDA; Telephone: (503) 326-2724, Fax: (503) 326-7440, or Email: 
Manuel.Michel@ams.usda.gov or GaryD.Olson@ams.usda.gov.
    Small businesses may request information on complying with this 
regulation by contacting Laurel May, Marketing Order and Agreement 
Division, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence 
Avenue SW., STOP 0237, Washington, DC 20250-0237; Telephone: (202) 720-
2491, Fax: (202) 720-8938, or Email: Laurel.May@ams.usda.gov.

SUPPLEMENTARY INFORMATION: This rule is issued under Marketing Order 
No. 985 (7 CFR part 985), as amended, regulating the handling of 
spearmint oil produced in the Far West (Washington, Idaho, Oregon, and 
designated parts of Nevada and Utah), hereinafter referred to as the 
``order.'' The order is 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 (USDA) is issuing this rule in 
conformance with Executive Order 12866.
    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. Under the marketing order now in effect, salable 
quantities and allotment percentages may be established for classes of 
spearmint oil produced in the Far West. This proposed rule would 
establish the quantity of spearmint oil produced in the Far West, by 
class, which handlers may purchase from, or handle on behalf of, 
producers during the 2012-2013 marketing year, which begins on June 1, 
2012.
    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 USDA 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, USDA 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 USDA's ruling on the petition, 
provided an action is filed not later than 20 days after the date of 
the entry of the ruling.
    The Committee meets annually in the fall to adopt a marketing 
policy for the ensuing marketing year or years. In determining such 
marketing policy, the Committee considers a number of factors, 
including, but not limited to, the current and projected supply, 
estimated future demand, production costs, and producer prices for all 
classes of spearmint oil, as well as input from spearmint oil handlers 
and producers regarding prospective marketing conditions. During the 
meeting, the Committee recommends to USDA any volume regulations deemed 
necessary to meet market requirements and to establish orderly 
marketing conditions for Far West spearmint oil. If the Committee's 
marketing policy

[[Page 13020]]

considerations indicate a need for limiting the quantity of any or all 
classes of spearmint oil marketed, the Committee subsequently 
recommends the establishment of a salable quantity and allotment 
percentage for such class or classes of oil for the forthcoming 
marketing year.
    The salable quantity represents the total amount of each class of 
spearmint oil that handlers may purchase from, or handle on behalf of, 
producers during the marketing year. Each producer is allotted a 
prorated share of the salable quantity by applying the allotment 
percentage to that producer's allotment base for each applicable class 
of spearmint oil. The producer allotment base is each producer's 
quantified share of the spearmint oil market based on a statistical 
representation of past spearmint oil production, with accommodation for 
reasonable and normal adjustments to such base as prescribed by the 
Committee and approved by USDA. Salable quantities are established at 
levels intended to meet market requirements and to establish orderly 
marketing conditions. Committee recommendations for volume controls are 
made well in advance of the period in which the regulations are to be 
effective, thereby allowing producers the chance to adjust their 
production decisions accordingly.
    Pursuant to authority in Sec. Sec.  985.50, 985.51, and 985.52 of 
the order, the full eight-member Committee met on October 12, 2011, and 
recommended salable quantities and allotment percentages for both 
classes of oil for the 2012-2013 marketing year. The Committee 
unanimously recommended the establishment of a salable quantity and 
allotment percentage for Scotch spearmint oil of 782,413 pounds and 38 
percent, respectively. For Native spearmint oil, the Committee, in a 
vote of seven members in favor and one member opposed, recommended the 
establishment of a salable quantity and allotment percentage of 
1,162,473 pounds and 50 percent, respectively. The member opposing the 
action favored recommending an undetermined higher salable quantity and 
allotment percentage for Native spearmint oil.
    This proposed rule would limit the amount of spearmint oil that 
handlers may purchase from, or handle on behalf of, producers during 
the 2012-2013 marketing year, which begins on June 1, 2012. Salable 
quantities and allotment percentages have been placed into effect each 
season since the order's inception in 1980.

Class 1 (Scotch) Spearmint Oil

    The U.S. production of Scotch spearmint oil is concentrated in the 
Far West, which includes Washington, Idaho, Oregon, and a portion of 
Nevada and Utah. Scotch type oil is also produced in seven other 
States: Indiana, Michigan, Minnesota, Montana, North Dakota, South 
Dakota, and Wisconsin. Additionally, Scotch spearmint oil is produced 
outside of the U.S., with China and India being the largest global 
competitors of domestic Scotch spearmint oil production.
    The Far West's share of total global Scotch spearmint oil sales has 
varied considerably over the past several decades, from as high as 72 
percent in 1988, and as a low as 27 percent in 2002. More recently, 
sales of Far West Scotch spearmint oil have been approximately 49 
percent of world sales, and are expected to hold steady, or increase 
slightly, in upcoming years.
    Despite the Far West's growing share of the world market for Scotch 
spearmint oil, in recent years the U.S. industry has faced challenging 
marketing conditions. From 2004 to 2007 the Far West spearmint oil 
industry experienced relatively good economic conditions, which 
motivated producers to increase their production acreage. The Far West 
region, which produced 635,508 pounds of Scotch spearmint oil in 2004, 
gradually increased production over a five-year period to 1,050,700 
pounds in 2009, an increase of 65 percent.
    However, as the Far West spearmint oil production was increasing, 
demand for spearmint oil started to decline significantly due in part 
to a weakening global economy. Sales, which had peaked at 1,002,779 
pounds in 2005, declined to 627,868 pounds in 2009. As production rose 
and sales dropped, excess inventory of uncommitted Scotch spearmint oil 
began to accumulate. Scotch spearmint oil carry-in (unsold salable 
quantity from prior years that is available for sale at the beginning 
of a new marketing year), which serves as a measure of oversupply in 
the market, grew from 23,141 pounds in 2007 to 431,028 pounds in 2010.
    The Committee's response to the deteriorating marketing environment 
after 2008 was to recommend the tightening of volume control 
regulations. The Committee, which had recommended a Scotch spearmint 
oil salable quantity of 993,067 pounds for 2008-2009, dropped the 
recommendation to only 566,523 pounds for the 2010-2011 marketing year. 
Similarly, the recommended allotment percentage was reduced from 50 
percent during 2008-2009 to just 28 percent during the 2010-2011 
marketing year.
    By 2011, production of Far West Scotch spearmint oil had declined 
to an estimated 753,947 pounds and was at levels considered more in 
line with demand. Salable carry-in on June 1, 2011, had also dropped to 
227,241 pounds.
    When the Committee met in October 2011 to consider volume 
regulation for the 2012-2013 marketing year, the outlook for Far West 
Scotch spearmint oil was slightly more optimistic than in previous 
years and an increase in salable quantity and allotment percentage was 
recommended.
    Although the spearmint industry continues to have some concern over 
the strength of the U.S. economy, at the same time there have been 
incremental improvements in the marketing conditions for Scotch 
spearmint oil. Current inventories, steady production, and increases in 
projected demand are all positive indicators of improving marketing 
conditions for Scotch spearmint oil, and are approaching levels 
considered stable for the industry.
    Certain factors may be contributing to the recent increase in 
demand for Far West Scotch spearmint oil. First, although China and 
India have been significant suppliers of spearmint oil for the past 15 
years, they have started to replace some spearmint acreage with other 
mint varieties, such as Mentha arvensis (wild mint), and other non-mint 
competing crops. In addition, both countries are utilizing more of 
their domestically produced spearmint oil, removing oil that might 
otherwise have been exported. Finally, the Midwest region of the U.S. 
is experiencing a significant reduction in spearmint production. This 
decrease in regional production is partly due to unexpected disease and 
weather related factors and partly the result of competition from other 
alternate crops, such as corn and soybeans, which are currently 
experiencing higher than average returns.
    The Committee estimates that the carry-in of Scotch spearmint oil 
on June 1, 2012, the primary measure of excess supply, will be 
approximately 161,154 pounds. This amount is down from the previous 
year's high of 227,241 pounds and is closer to a carry-in quantity that 
the Committee would consider to be favorable.
    As previously mentioned, production of Scotch spearmint oil has 
also been decreasing and is nearing a level that the Committee would 
view as optimum. Production has declined from a high of 1,050,700 
pounds in 2009 to 753,947

[[Page 13021]]

pounds in 2011 and is expected to remain comparatively the same during 
the 2012 season. The Committee considers this trend to be favorable 
because it has contributed relief to the industry's oversupply 
situation.
    There are also reports that indicate consumer demand for mint 
flavored products is steady, providing some optimism for long-term 
increases in the demand for Far West spearmint oil. Spearmint oil 
handlers have indicated that demand for Scotch spearmint oil may be 
gaining strength. Handlers that had projected the 2011-2012 trade 
demand for Far West Scotch Spearmint oil to be in the range of 785,000 
pounds to 1,000,000 pounds now expect it to increase to between 800,000 
pounds to 1,100,000 pounds during the 2012-2013 marketing year.
    However, this projected increase in demand, generally thought of as 
a positive indicator for the spearmint oil industry, is viewed 
cautiously by some industry participants. Due to the inelastic nature 
of demand for spearmint oil, the industry is aware that demand remains 
relatively consistent over time. Therefore, some handlers believe that 
the manufacturers of mint flavored products are currently increasing 
spearmint oil purchases just to rebuild inventories that were depleted 
during the worst of the recent U.S. economic recession. As such, those 
handlers feel that at least some of the recent increase in Scotch 
spearmint oil sales may not represent an actual increase in sustained 
demand, but instead a temporary response to fluctuations in the 
strategic inventories of spearmint product manufacturers.
    Given the moderately improving economic indicators for the Far West 
Scotch spearmint oil industry outlined above, the Committee took a 
cautiously optimistic perspective into the discussion of establishing 
appropriate salable quantities and allotment percentages for the 
upcoming season.
    Therefore, at the October 12, 2011, meeting, the Committee 
recommended the 2012-2013 Scotch spearmint oil salable quantity of 
782,413 pounds and allotment percentage of 38 percent. The Committee 
utilized sales estimates for 2012-2013 Scotch spearmint oil, as 
provided by several of the industry's handlers, as well as historical 
and current Scotch spearmint oil production and inventory statistics, 
to arrive at these recommendations. The volume control levels 
recommended by the Committee represent an increase of 48,500 pounds and 
2 percentage points over the previous year's final salable quantity and 
allotment percentage, reflecting a more positive assessment of the 
industry's economic conditions.
    The Committee estimates that about 825,000 pounds of Scotch 
spearmint oil may be sold during the 2012-2013 marketing year. When 
considered in conjunction with the estimated carry-in of 161,154 pounds 
of Scotch spearmint oil on June 1, 2012, the recommended salable 
quantity of 782,413 pounds results in a total available supply of 
approximately 943,567 pounds of Scotch spearmint oil during the 2012-
2013 marketing year. The Committee estimates that carry-in of Scotch 
spearmint oil into the 2013-2014 marketing year, which begins June 1, 
2013, would be 118,567 pounds, a decrease of 42,587 pounds from the 
beginning of the 2012-2013 marketing year.
    The Committee's stated intent in the use of marketing order volume 
control regulations for Scotch spearmint oil is to keep adequate 
supplies available to meet market needs and establish orderly marketing 
conditions. With that in mind, the Committee developed its 
recommendation for the proposed Scotch spearmint oil salable quantity 
and allotment percentage for the 2012-2013 marketing year based on the 
information discussed above, as well as the data outlined below.
    (A) Estimated carry-in on June 1, 2012--161,154 pounds. This figure 
is the difference between the revised 2011-2012 marketing year total 
available supply of 961,154 pounds and the estimated 2011-2012 
marketing year trade demand of 800,000 pounds.
    (B) Estimated trade demand for the 2012-2013 marketing year--
825,000 pounds. This figure is based on input from producers at six 
Scotch spearmint oil production area meetings held in late September 
and early October 2011, as well as estimates provided by handlers and 
other meeting participants at the October 12, 2011, meeting. The 
average estimated trade demand provided at the six production area 
meetings is 859,444 pounds, which is 28,056 pounds less than the 
average of trade demand estimates submitted by handlers. The average of 
Far West Scotch spearmint oil sales over the last five years is 743,506 
pounds.
    (C) Salable quantity required from the 2012-2013 marketing year 
production--663,846 pounds. This figure is the difference between the 
estimated 2012-2013 marketing year trade demand (825,000 pounds) and 
the estimated carry-in on June 1, 2012 (161,154 pounds). This figure 
represents the minimum salable quantity that may be needed to satisfy 
estimated demand for the coming year with no carryover.
    (D) Total estimated allotment base for the 2012-2013 marketing 
year--2,058,981 pounds. This figure represents a one percent increase 
over the revised 2011-2012 total allotment base. This figure is 
generally revised each year on June 1 due to producer base being lost 
because of the bona fide effort production provisions of Sec.  
985.53(e). The revision is usually minimal.
    (E) Computed allotment percentage--32.2 percent. This percentage is 
computed by dividing the minimum required salable quantity (663,846 
pounds) by the total estimated allotment base (2,058,981 pounds).
    (F) Recommended allotment percentage--38 percent. This is the 
Committee's recommendation and is based on the computed allotment 
percentage (32.2 percent), the average of the computed allotment 
percentage figures from the six production area meetings (36.2 
percent), and input from producers and handlers at the October 12, 
2011, meeting. The actual recommendation of 38 percent is based on the 
Committee's determination that the computed percentage (32.2 percent) 
may not adequately supply the potential 2012-2013 Scotch spearmint oil 
market.
    (G) The Committee's recommended salable quantity--782,413 pounds. 
This figure is the product of the recommended allotment percentage (38 
percent) and the total estimated allotment base (2,058,981 pounds).
    (H) Estimated available supply for the 2012-2013 marketing year--
943,567 pounds. This figure is the sum of the 2012-2013 recommended 
salable quantity (782,413 pounds) and the estimated carry-in on June 1, 
2012 (161,154 pounds).

Class 3 (Native) Spearmint Oil

    The Native spearmint oil industry is facing market conditions 
similar to those affecting the Scotch spearmint oil market, although 
not nearly as severe. Approximately 90 percent of U.S. production of 
Native spearmint oil is produced within the Far West production area, 
thus domestic production outside this area is not a major factor in the 
marketing of Far West Native spearmint oil. This has been an attribute 
of U.S. production since the order's inception. A minor amount of 
domestic Native spearmint oil is produced outside of the Far West 
region in the States of Indiana, Michigan, Minnesota, Montana, North 
Dakota, South Dakota, and Wisconsin.
    According to the Committee, very little true Native spearmint oil 
is produced outside of the United States. However, India has been 
producing an

[[Page 13022]]

increasing quantity of spearmint oil with qualities very similar to 
Native spearmint oil. Committee records show that in 1996 the Far West 
accounted for nearly 93 percent of the global sales of Native or Native 
quality spearmint oil. By 2008, that share had declined to only 48 
percent. Since then, the percentage has been increasing and Far West 
Native spearmint oil was estimated to be over 70 percent of global 
sales in 2011.
    Despite the fact that Far West Native spearmint oil has been 
gaining world market share, the industry has endured challenging 
marketing conditions over the past several years. Overproduction, 
coupled with a decrease in demand, created a similar oversupply 
situation for Native spearmint oil as was previously discussed for 
Scotch spearmint oil. Production of Native spearmint oil in the Far 
West region was 701,372 pounds in 2004, but increased to 1,453,896 
pounds in 2009, an increase of 107 percent in just five years.
    In addition to oversupply issues during this period, demand for 
Native spearmint oil was moving in the opposite direction. Sales of Far 
West Native oil peaked in 2004 at 1,249,507 pounds and then steadily 
declined over the next five years, dropping to just 976,888 pounds in 
2009. As production rose and sales dropped, excess inventory of 
uncommitted Native spearmint oil began to accumulate. Salable carry-in 
of Native oil measured at the beginning of each marketing year, which 
serves as a measure of oversupply in the market, increased from 83,417 
pounds at the beginning of the 2007-2008 marketing year to 343,517 
pounds at the beginning of the 2010-2011 marketing year.
    The Committee's response to the changing marketing conditions of 
Native spearmint oil was similar to its response of the Scotch 
spearmint oil situation. In order to achieve more orderly marketing 
conditions and provide the optimal level of Native spearmint oil, the 
Committee recommended initial salable quantities and allotment 
percentages at the start of each marketing period and subsequently 
reassessed the market to determine if intra-seasonal increases were 
necessary. The approach proved successful in providing the market with 
adequate levels of Native spearmint oil.
    By 2010, production of Far West Native spearmint oil had decreased 
and was more in line with market demand. The Committee, which 
recommended a Native spearmint oil salable quantity of 953,405 pounds 
in 2010-2011, increased the recommendation to 1,266,161 pounds in the 
2011-2012 marketing period. Similarly, the recommended allotment 
percentage, which was 50 percent in 2010-2011, increased to 55 percent 
during the 2011-2012 marketing period. Salable carry-in on June 1, 
2011, was estimated to be approximately 164,809 pounds.
    When the Committee met on October 12, 2011, to consider volume 
regulations for the upcoming 2012-2013 marketing year, the general 
consensus within the Native spearmint oil industry was that marketing 
conditions were improving marginally in comparison to recent years.
    Although overproduction of Native spearmint oil has improved 
significantly, this continues to be an issue of constant concern for 
the industry. Production of Far West Native spearmint oil, which has 
declined from a high of 1,453,896 pounds in 2009 to approximately 
1,191,707 pounds in 2011, is expected to remain relatively the same, or 
increase slightly, during the 2012 season. The Committee considers the 
current level of production to be consistent with the projected demand 
of Native spearmint oil in upcoming years.
    In addition to an improved supply situation, demand for Far West 
Native spearmint oil appears to have halted its downward movement, and 
there is even some optimism for modest improvements in demand during 
the coming year. Spearmint oil handlers, who previously projected the 
2011-2012 trade demand for Far West Native spearmint oil in the range 
of 1,225,000 pounds to 1,400,000 pounds, have projected trade demand 
for the 2012-2013 marketing period to be in the range of 1,200,000 
pounds to 1,500,000 pounds.
    However, similar to Scotch spearmint oil, the slight increase in 
projected Native spearmint oil demand, generally thought of as a 
positive indicator for the industry, is viewed by some handlers with 
caution. As mentioned previously, consumer demand for mint flavored 
products is expected to be steady or increase slightly moving forward, 
which provides optimism for long-term improvement in the demand for Far 
West spearmint oil. Some handlers, though, have reported that the 
manufacturers of such products may just be temporarily increasing 
purchases of spearmint oil to rebuild inventories that were depleted 
during the worst of the current U.S. economic recession. As such, the 
handlers believe that at least some of the recent increase in purchases 
does not represent an actual increase in sustained demand but, rather, 
a short-term response to fluctuations in the strategic inventories of 
the manufacturers.
    Given the economic indicators for the Far West Native spearmint oil 
industry outlined above, the Committee took a cautiously optimistic 
perspective into the discussion of establishing appropriate salable 
quantities and allotment percentages for the upcoming season.
    As such, at the October 12, 2011, meeting, the Committee 
recommended a 2012-2013 Native spearmint oil salable quantity of 
1,162,473 pounds and an allotment percentage of 50 percent. The 
Committee utilized Native spearmint oil sales estimates for 2012-2013, 
as provided by several of the industry's handlers, as well as 
historical and current Native spearmint oil market statistics to 
establish these thresholds. These recommended volume control levels 
represent a 103,688 pound and a 5 percentage point decrease over the 
previous year's final salable quantity and allotment percentage. 
However, the Committee maintains the option to recommend an intra-
seasonal increase, as it has done in the past two marketing periods, if 
demand rises beyond expectations.
    The Committee estimates that approximately 1,300,000 pounds of 
Native spearmint oil may be sold during the 2012-2013 marketing year. 
When considered in conjunction with the estimated carry-in of 180,970 
pounds of Native spearmint oil on June 1, 2012, the recommended salable 
quantity of 1,162,473 pounds results in an estimated total available 
supply of 1,343,443 pounds of Native spearmint oil during the 2012-2013 
marketing year. The Committee also estimates that carry-in of Native 
spearmint oil at the beginning of the 2013-2104 marketing year will be 
approximately 43,443 pounds.
    The Committee's stated intent in the use of marketing order volume 
control regulations for Native spearmint oil is to keep adequate 
supplies available to meet market needs and establish orderly marketing 
conditions. With that in mind, the Committee developed its 
recommendation for the proposed Native spearmint oil salable quantity 
and allotment percentage for the 2012-2013 marketing year based on the 
information discussed above, as well as the data outlined below.
    (A) Estimated carry-in on June 1, 2012--180,970 pounds. This figure 
is the difference between the revised 2011-2012 marketing year total 
available supply of 1,430,970 pounds and the estimated 2011-2012 
marketing year trade demand of 1,250,000 pounds.
    (B) Estimated trade demand for the 2012-2013 marketing year--
1,300,000 pounds. This estimate is established by

[[Page 13023]]

the Committee and is based on input from producers at the seven Native 
spearmint oil production area meetings held in late September and early 
October 2011, as well as estimates provided by handlers and other 
meeting participants at the October 12, 2011, meeting. The average 
estimated trade demand provided at the seven production area meetings 
was 1,300,833 pounds, whereas the handler estimate ranged from 
1,200,000 pounds to 1,500,000 pounds.
    (C) Salable quantity required from the 2012-2013 marketing year 
production--1,119,030 pounds. This figure is the difference between the 
estimated 2012-2013 marketing year trade demand (1,300,000 pounds) and 
the estimated carry-in on June 1, 2012 (180,970 pounds). This is the 
minimum amount that the Committee believes would be required to meet 
the anticipated 2012-2013 Native spearmint oil trade demand.
    (D) Total estimated allotment base for the 2012-2013 marketing 
year--2,324,945 pounds. This figure represents a one percent increase 
over the revised 2011-2012 total allotment base. This figure is 
generally revised each year on June 1 due to producer base being lost 
due to the bona fide effort production provisions of Sec.  985.53(e). 
The revision is usually minimal.
    (E) Computed allotment percentage--48.1 percent. This percentage is 
computed by dividing the required salable quantity (1,119,030 pounds) 
by the total estimated allotment base (2,324,945 pounds).
    (F) Recommended allotment percentage--50 percent. This is the 
Committee's recommendation based on the computed allotment percentage 
(48.1 percent), the average of the computed allotment percentage 
figures from the seven production area meetings (51.3 percent), and 
input from producers and handlers at the October 12, 2011, meeting. The 
actual recommendation of 50 percent is based on the Committee's 
determination that the computed percentage (48.1 percent) may not 
adequately supply the potential 2012-2013 Native spearmint oil market.
    (G) The Committee's recommended salable quantity--1,162,473 pounds. 
This figure is the product of the recommended allotment percentage (50 
percent) and the total estimated allotment base (2,324,945 pounds).
    (H) Estimated available supply for the 2012-2013 marketing year--
1,343,443 pounds. This figure is the sum of the 2012-2013 recommended 
salable quantity (1,162,473 pounds) and the estimated carry-in on June 
1, 2012 (180,970 pounds).
    The salable quantity is the total quantity of each class of 
spearmint oil that handlers may purchase from, or handle on behalf of, 
producers during a marketing year. Each producer is allotted a share of 
the salable quantity by applying the allotment percentage to the 
producer's allotment base for the applicable class of spearmint oil.
    The Committee's recommended Scotch and Native spearmint oil salable 
quantities and allotment percentages of 782,413 pounds and 38 percent, 
and 1,162,473 pounds and 50 percent, respectively, are based on the 
goal of establishing and maintaining market stability. The Committee 
anticipates that this goal would be achieved by matching the available 
supply of each class of Spearmint oil to the estimated demand of such, 
thus avoiding extreme fluctuations in inventories and prices.
    The proposed salable quantities are not expected to cause a 
shortage of spearmint oil supplies. Any unanticipated or additional 
market demand for spearmint oil which may develop during the marketing 
year could be satisfied by an intra-seasonal increase in the salable 
quantity. The order makes the provision for intra-seasonal increases to 
allow the Committee the flexibility to respond quickly to changing 
market conditions. In addition, producers who produce more than their 
annual allotments during the 2012-2013 marketing year may transfer such 
excess spearmint oil to producers who have produced less than their 
annual allotment, or, up until November 1, 2012, place it into the 
reserve pool to be released in the future in accordance with market 
needs.
    This proposed regulation, if adopted, would be similar to 
regulations issued in prior seasons. The average allotment percentage 
for the five most recent marketing years for Scotch spearmint oil is 
36.5 percent, while the average allotment percentage for the same five-
year period for Native spearmint oil is 49.3 percent. Costs to 
producers and handlers resulting from this rule are expected to be 
offset by the benefits derived from a stable market and improved 
returns. In conjunction with the issuance of this proposed rule, USDA 
has reviewed the Committee's marketing policy statement for the 2012-
2013 marketing year. The Committee's marketing policy statement, a 
requirement whenever the Committee recommends volume regulation, fully 
meets the intent of Sec.  985.50 of the order.
    During its discussion of potential 2012-2013 salable quantities and 
allotment percentages, the Committee considered: (1) The estimated 
quantity of salable oil of each class held by producers and handlers; 
(2) the estimated demand for each class of oil; (3) the prospective 
production of each class of oil; (4) the total of allotment bases of 
each class of oil for the current marketing year and the estimated 
total of allotment bases of each class for the ensuing marketing year; 
(5) the quantity of reserve oil, by class, in storage; (6) producer 
prices of oil, including prices for each class of oil; and (7) general 
market conditions for each class of oil, including whether the 
estimated season average price to producers is likely to exceed parity. 
Conformity with the USDA's ``Guidelines for Fruit, Vegetable, and 
Specialty Crop Marketing Orders'' has also been reviewed and confirmed.
    The establishment of these salable quantities and allotment 
percentages would allow for anticipated market needs. In determining 
anticipated market needs, the Committee considered historical sales, as 
well as changes and trends in production and demand. This rule also 
provides producers with information on the amount of spearmint oil that 
should be produced for the 2012-2013 season in order to meet 
anticipated market demand.

Initial Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), 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 the rules issued thereunder, are unique in 
that they are brought about through group action of essentially small 
entities acting on their own behalf.
    There are eight spearmint oil handlers subject to regulation under 
the order, and approximately 32 producers of Scotch spearmint oil and 
approximately 88 producers of Native spearmint oil in the regulated 
production area. Small agricultural service firms are defined by the 
Small Business Administration (SBA) (13 CFR 121.201) as those having 
annual receipts of less than $7,000,000, and small agricultural 
producers are defined as those having annual receipts of less than 
$750,000.

[[Page 13024]]

    Based on the SBA's definition of small entities, the Committee 
estimates that 2 of the 8 handlers regulated by the order could be 
considered small entities. Most of the handlers are large corporations 
involved in the international trading of essential oils and the 
products of essential oils. In addition, the Committee estimates that 
15 of the 32 Scotch spearmint oil producers and 26 of the 88 Native 
spearmint oil producers could be classified as small entities under the 
SBA definition. Thus, a majority of handlers and producers of Far West 
spearmint oil may not be classified as small entities.
    The Far West spearmint oil industry is characterized by producers 
whose farming operations generally involve more than one commodity, and 
whose income from farming operations is not exclusively dependent on 
the production of spearmint oil. A typical spearmint oil-producing 
operation has enough acreage for rotation such that the total acreage 
required to produce the crop is about one-third spearmint and two-
thirds rotational crops. Thus, the typical spearmint oil producer has 
to have considerably more acreage than is planted to spearmint during 
any given season. Crop rotation is an essential cultural practice in 
the production of spearmint oil for purposes of weed, insect, and 
disease control. To remain economically viable with the added costs 
associated with spearmint oil production, a majority of spearmint oil-
producing farms fall into the SBA category of large businesses.
    Small spearmint oil producers generally are not as extensively 
diversified as larger ones and as such are more at risk from market 
fluctuations. Such small producers generally need to market their 
entire annual allotment and do not have the luxury of having other 
crops to cushion seasons with poor spearmint oil returns. Conversely, 
large diversified producers have the potential to endure one or more 
seasons of poor spearmint oil markets because income from alternate 
crops could support the operation for a period of time. Being 
reasonably assured of a stable price and market provides small 
producing entities with the ability to maintain proper cash flow and to 
meet annual expenses. Thus, the market and price stability provided by 
the order potentially benefit small producers more than such provisions 
benefit large producers. Even though a majority of handlers and 
producers of spearmint oil may not be classified as small entities, the 
volume control feature of this order has small entity orientation.
    This proposed rule would establish the quantity of spearmint oil 
produced in the Far West, by class, that handlers may purchase from, or 
handle on behalf of, producers during the 2012-2013 marketing year. The 
Committee recommended this rule to help maintain stability in the 
spearmint oil market by matching supply to estimated demand, thereby 
avoiding extreme fluctuations in supplies and prices. Establishing 
quantities that may be purchased or handled during the marketing year 
through volume regulations allows producers to plan their spearmint 
planting and harvesting to meet expected market needs. The provisions 
of Sec. Sec.  985.50, 985.51, and 985.52 of the order authorize this 
rule.
    Instability in the spearmint oil sub-sector of the mint industry is 
much more likely to originate on the supply side than the demand side. 
Fluctuations in yield and acreage planted from season-to-season tend to 
be larger than fluctuations in the amount purchased by handlers. 
Notwithstanding the recent global recession and the overall negative 
impact on demand for consumer goods that utilize spearmint oil, demand 
for spearmint oil tends to change slowly from year to year.
    Demand for spearmint oil at the farm level is derived from retail 
demand for spearmint-flavored products such as chewing gum, toothpaste, 
and mouthwash. The manufacturers of these products are by far the 
largest users of mint oil. However, spearmint flavoring is generally a 
very minor component of the products in which it is used, so changes in 
the raw product price have virtually no impact on retail prices for 
those goods.
    Spearmint oil production tends to be cyclical. Years of relatively 
high production, with demand remaining reasonably stable, have led to 
periods in which large producer stocks of unsold spearmint oil have 
depressed producer prices for a number of years. Shortages and high 
prices may follow in subsequent years, as producers respond to price 
signals by cutting back production.
    The significant variability of the spearmint oil market is 
illustrated by the fact that the coefficient of variation (a standard 
measure of variability; ``CV'') of Far West spearmint oil grower prices 
for the period 1980-2010 (when the marketing order was in effect) is 
0.17 compared to 0.34 for the decade prior to the promulgation of the 
order (1970-79) and 0.48 for the prior 20-year period (1960-79). This 
provides an indication of the price stabilizing impact of the marketing 
order.
    Production in the shortest marketing year was about 48 percent of 
the 31-year average (1.89 million pounds from 1980 through 2010) and 
the largest crop was approximately 163 percent of the 31-year average. 
A key consequence is that, in years of oversupply and low prices, the 
season average producer price of spearmint oil is below the average 
cost of production (as measured by the Washington State University 
Cooperative Extension Service).
    The wide fluctuations in supply and prices that result from this 
cycle, which was even more pronounced before the creation of the order, 
can create liquidity problems for some producers. The order was 
designed to reduce the price impacts of the cyclical swings in 
production. However, producers have been less able to weather these 
cycles in recent years because of the increase in production costs. 
While prices have been relatively steady, the cost of production has 
increased to the extent that plans to plant spearmint may be postponed 
or changed indefinitely. Producers are also enticed by the prices of 
alternative crops and their lower cost of production.
    In an effort to stabilize prices, the spearmint oil industry uses 
the volume control mechanisms authorized under the order. This 
authority allows the Committee to recommend a salable quantity and 
allotment percentage for each class of oil for the upcoming marketing 
year. The salable quantity for each class of oil is the total volume of 
oil that producers may sell during the marketing year. The allotment 
percentage for each class of spearmint oil is derived by dividing the 
salable quantity by the total allotment base.
    Each producer is then issued an annual allotment certificate, in 
pounds, for the applicable class of oil, which is calculated by 
multiplying the producer's allotment base by the applicable allotment 
percentage. This is the amount of oil of each applicable class that the 
producer can sell.
    By November 1 of each year, the Committee identifies any oil that 
individual producers have produced above the volume specified on their 
annual allotment certificates. This excess oil is placed in a reserve 
pool administered by the Committee.
    There is a reserve pool for each class of oil that may not be sold 
during the current marketing year unless USDA approves a Committee 
recommendation to increase the salable quantity and allotment 
percentage for a class of oil and make a portion of the pool available. 
However, limited quantities of reserve oil are typically sold by one 
producer to another producer to fill

[[Page 13025]]

deficiencies. A deficiency occurs when on-farm production is less than 
a producer's allotment. In that case, a producer's own reserve oil can 
be sold to fill that deficiency. Excess production (higher than the 
producer's allotment) can be sold to fill other producers' 
deficiencies. All of these provisions need to be exercised prior to 
November 1 of each year.
    In any given year, the total available supply of spearmint oil is 
composed of current production plus carryover stocks from the previous 
crop. The Committee seeks to maintain market stability by balancing 
supply and demand, and to close the marketing year with an appropriate 
level of carryout. If the industry has production in excess of the 
salable quantity, then the reserve pool absorbs the surplus quantity of 
spearmint oil, which goes unsold during that year, unless the oil is 
needed for unanticipated sales.
    Under its provisions, the order may attempt to stabilize prices by 
(1) limiting supply and establishing reserves in high production years, 
thus minimizing the price-depressing effect that excess producer stocks 
have on unsold spearmint oil, and (2) ensuring that stocks are 
available in short supply years when prices would otherwise increase 
dramatically. The reserve pool stocks, which are increased in large 
production years, are drawn down in years where the crop is short.
    An econometric model was used to assess the impact that volume 
control has on the prices producers receive for their commodity. 
Without volume control, spearmint oil markets would likely be over-
supplied. This could result in low producer prices and a large volume 
of oil stored and carried over to the next crop year. The model 
estimates how much lower producer prices would likely be in the absence 
of volume controls.
    The Committee estimated trade demand for the 2012-2013 marketing 
year for both classes of oil at 2,125,000 pounds, and that the expected 
combined carry-in will be 342,124 pounds. This results in a combined 
required salable quantity of 1,782,876 pounds. With volume control, 
sales by producers for the 2012-2013 marketing year would be limited to 
1,944,886 pounds (the recommended salable quantity for both classes of 
spearmint oil).
    The recommended allotment percentages, upon which 2012-2013 
producer allotments are based, are 38 percent for Scotch and 50 percent 
for Native. Without volume controls, producers would not be limited to 
these allotment levels, and could produce and sell additional 
spearmint. The econometric model estimated a $1.19 decline in the 
season average producer price per pound (from both classes of spearmint 
oil) resulting from the higher quantities that would be produced and 
marketed without volume control. The surplus situation for the 
spearmint oil market that would exist without volume controls in 2012-
2013 also would likely dampen prospects for improved producer prices in 
future years because of the buildup in stocks.
    The use of volume controls allows the industry to fully supply 
spearmint oil markets while avoiding the negative consequences of over-
supplying these markets. The use of volume controls is believed to have 
little or no effect on consumer prices of products containing spearmint 
oil and will not result in fewer retail sales of such products.
    The Committee discussed alternatives to the recommendations 
contained in this rule for both classes of spearmint oil. The Committee 
discussed and rejected the idea of recommending that there not be any 
volume regulation for both classes of spearmint oil because of the 
severe price-depressing effects that would occur without volume 
control.
    After computing the initial 32.2 percent Scotch spearmint oil 
allotment percentage, the Committee considered various alternative 
levels of volume control for Scotch spearmint oil. Given the moderately 
improving marketing conditions, there was consensus that the allotment 
percentage for 2012-2013 should be more than the percentage established 
for the 2011-2012 marketing year (36 percent). After considerable 
discussion, the eight-member committee unanimously determined that 
782,413 pounds and 38 percent would be the most effective salable 
quantity and allotment percentage, respectively, for the 2012-2013 
marketing year.
    The Committee was also able to reach a consensus regarding the 
level of volume control for Native spearmint oil. After first 
determining the computed allotment percentage at 48.1 percent, the 
Committee, in a vote of seven members in favor and one member opposed, 
recommended 1,162,473 pounds and 50 percent for the effective salable 
quantity and allotment percentage, respectively, for the 2012-2013 
marketing year. The dissenting member felt that the salable quantity 
and allotment percentage for Native spearmint oil should be set at an 
unidentified higher level.
    As noted earlier, the Committee's recommendation to establish 
salable quantities and allotment percentages for both classes of 
spearmint oil was made after careful consideration of all available 
information, including: (1) The estimated quantity of salable oil of 
each class held by producers and handlers; (2) the estimated demand for 
each class of oil; (3) the prospective production of each class of oil; 
(4) the total of allotment bases of each class of oil for the current 
marketing year and the estimated total of allotment bases of each class 
for the ensuing marketing year; (5) the quantity of reserve oil, by 
class, in storage; (6) producer prices of oil, including prices for 
each class of oil; and (7) general market conditions for each class of 
oil, including whether the estimated season average price to producers 
is likely to exceed parity. Based on its review, the Committee believes 
that the salable quantity and allotment percentage levels recommended 
would achieve the objectives sought.
    Without any regulations in effect, the Committee believes the 
industry would return to the pronounced cyclical price patterns that 
occurred prior to the order, and that prices in 2012-2013 could decline 
substantially below current levels.
    According to the Committee, the recommended salable quantities and 
allotment percentages are expected to facilitate the goal of 
establishing orderly marketing conditions for Far West spearmint oil.
    As previously stated, annual salable quantities and allotment 
percentages have been issued for both classes of spearmint oil since 
the order's inception.
    In accordance with the Paperwork Reduction Act of 1995, (44 U.S.C. 
Chapter 35), the order's information collection requirements have been 
previously approved by the Office of Management and Budget (OMB) and 
assigned OMB No. 0581-0178, Vegetable and Specialty Crops. No changes 
in those requirements as a result of this action are necessary. Should 
any changes become necessary, they would be submitted to OMB for 
approval.
    This proposed rule would establish the salable quantities and 
allotment percentages of Class 1 (Scotch) spearmint oil and Class 3 
(Native) spearmint oil produced in the Far West during the 2012-2013 
marketing year. Accordingly, this proposed rule would not impose any 
additional reporting or recordkeeping requirements on either small or 
large spearmint oil producers or 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. Furthermore, USDA has not identified any 
relevant Federal rules

[[Page 13026]]

that duplicate, overlap, or conflict with this proposed rule.
    AMS is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.
    In addition, the Committee's meeting was widely publicized 
throughout the spearmint oil industry and all interested persons were 
invited to attend the meeting and participate in Committee 
deliberations on all issues. Like all Committee meetings, the October 
12, 2011, meeting was a public meeting and all entities, both large and 
small, were able to express views on this issue. Finally, interested 
persons are invited to submit comments on this proposed rule, including 
the regulatory and informational impacts of this action on small 
businesses.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at: 
www.ams.usda.gov/MarketingOrdersSmallBusinessGuide. Any questions about 
the compliance guide should be sent to Laurel May at the previously 
mentioned address in the FOR FURTHER INFORMATION CONTACT section.
    A 30-day comment period is provided to allow interested persons to 
respond to this proposed rule. Thirty days is deemed appropriate 
because: (1) The 2012-2013 fiscal period begins on June 1, 2012, and a 
final determination on the salable quantities and allotment percentages 
should be made prior to handlers purchasing from, or handling on behalf 
of, producers any oil for the ensuing marketing year; and (2) handlers 
are aware of this action, which was recommended by the Committee at a 
public meeting and is similar to other salable quantities and allotment 
percentages issued in past years.

List of Subjects in 7 CFR Part 985

    Marketing agreements, Oils and fats, Reporting and recordkeeping 
requirements, Spearmint oil.

    For the reasons set forth in the preamble, 7 CFR part 985 is 
proposed to be amended as follows:

PART 985--MARKETING ORDER REGULATING THE HANDLING OF SPEARMINT OIL 
PRODUCED IN THE FAR WEST

    1. The authority citation for 7 CFR part 985 continues to read as 
follows:

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

    2. A new Sec.  985.231 is added to read as follows:

    [Note:
    This section will not appear in the Code of Federal 
Regulations.]

Sec.  985.231  Salable quantities and allotment percentages--2012-2013 
marketing year.

    The salable quantity and allotment percentage for each class of 
spearmint oil during the marketing year beginning on June 1, 2012, 
shall be as follows:
    (a) Class 1 (Scotch) oil--a salable quantity of 782,413 pounds and 
an allotment percentage of 38 percent.
    (b) Class 3 (Native) oil--a salable quantity of 1,162,473 pounds 
and an allotment percentage of 50 percent.

    Dated: February 28, 2012.
Robert C. Keeney,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 2012-5195 Filed 3-2-12; 8:45 am]
BILLING CODE 3410-02-P
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