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[Federal Register: March 22, 2010 (Volume 75, Number 54)]
[Proposed Rules]               
[Page 13445-13451]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22mr10-6]                         

========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================



[[Page 13445]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 985

[Doc. No. AMS-FV-09-0082; FV10-985-1 PR]

 
Marketing Order Regulating the Handling of Spearmint Oil Produced 
in the Far West; Salable Quantities and Allotment Percentages for the 
2010-2011 Marketing Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This rule would establish the quantity of spearmint oil 
produced in the Far West, by class that handlers may purchase from, or 
handle for, producers during the 2010-2011 marketing year, which begins 
on June 1, 2010. This rule invites comments on the establishment of 
salable quantities and allotment percentages for Class 1 (Scotch) 
spearmint oil of 566,962 pounds and 28 percent, respectively, and for 
Class 3 (Native) spearmint oil of 980,265 pounds and 43 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 6, 2010.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposal. Comments must be sent to the Docket Clerk, 
Marketing Order Administration Branch, 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 docket 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: Susan M. Coleman, Marketing Specialist 
or Gary D. Olson, Regional Manager, Northwest Marketing Field Office, 
Marketing Order Administration Branch, Fruit and Vegetable Programs, 
AMS, USDA; Telephone: (503) 326-2724; Fax: (503) 326-7440; or E-mail: 
Sue.Coleman@ams.usda.gov or GaryD.Olson@ams.usda.gov.
    Small businesses may request information on complying with this 
regulation by contacting Antoinette Carter, Marketing Order 
Administration Branch, 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 E-mail: 
Antoinette.Carter@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 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 may be purchased from or handled for producers by handlers 
during the 2010-2011 marketing year, which begins on June 1, 2010.
    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 review sales and other 
market information for the current marketing year, and to recommend the 
establishment of salable quantities and allotment percentages for each 
class of oil for the forthcoming marketing year beginning on June 1. 
The salable quantity establishes the amount of each class of spearmint 
oil that may be sold during the marketing year. Each producer is 
allotted a share of the salable quantity by applying the allotment 
percentage to that producer's allotment base for the applicable class 
of spearmint oil. The salable quantities are intended to satisfy 
anticipated market needs.
    Recommendations are made well in advance to allow producers the 
chance to adjust their spearmint plantings in relation to the salable 
quantities and allotment percentages in the proposed regulation. In 
developing a regulatory recommendation for USDA, the Committee utilizes 
information pertaining to current and projected supply, demand, 
production costs and producer prices, as well as input from spearmint 
oil handlers and producers regarding prospective marketing conditions.
    Pursuant to authority in Sec. Sec.  985.50, 985.51, and 985.52 of 
the order, the full eight-member Committee met on October 14, 2009, and 
recommended salable quantities and allotment percentages for both 
classes of oil for the

[[Page 13446]]

2010-2011 marketing year. The Committee, in a vote with six members in 
favor and two members opposed, recommended the establishment of a 
salable quantity and allotment percentage for Scotch spearmint oil of 
566,962 pounds and 28 percent, respectively. The two members opposing 
the action were in favor of a greater salable quantity and allotment 
percentage for Scotch. For Native spearmint oil, the Committee 
unanimously recommended the establishment of a salable quantity and 
allotment percentage of 980,265 pounds and 43 percent, respectively.
    This rule would limit the amount of spearmint oil that handlers may 
purchase from, or handle for, producers during the 2010-2011 marketing 
year, which begins on June 1, 2010. 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, and Oregon and a portion of 
Nevada and Utah. Scotch spearmint oil is also produced in the Midwest 
states of Indiana, Michigan, and Wisconsin, as well as in the States of 
Montana, South Dakota, North Dakota, and Minnesota.
    When the order became effective in 1980, the Far West had about 72 
percent of global Scotch spearmint oil sales. This was produced on 
about 9,702 acres within the Far West production area. In 2004, Scotch 
spearmint was planted on 4,772 acres in the Far West, whereas acreage 
in 2009 was up to 7,583 acres. About 84 percent of the Far West Scotch 
spearmint oil acreage is produced in Washington State.
    During the last 40 years, the Far West's share of world Scotch 
production has varied. In 2002, for example, the Far West share of 
world sales reached a low of about 27 percent according to Committee 
records. The earlier downward trend in the Far West share of world 
sales was attributable to the increase in global production--
specifically increases in Canada and China--and decreasing acreage in 
the Far West. Since that low, Far West spearmint oil sales as a 
percentage of total world sales is back up to over 41 percent.
    This recent resurgence in overall shares of the world market is due 
to many factors, including an increase in Far West production, a 
decrease in production in China coupled with an increase in Chinese 
utilization of its own production, and a recent decrease in acreage in 
other production areas within the United States. For example, 
production in the Midwest states has gone from 186,000 pounds in 2004, 
down to an estimated 35,000 pounds in 2009. This has increased the Far 
West's percentage of annual U.S. sales of Scotch spearmint oil to 
approximately 60 percent from the 2002 low of about 43 percent.
    Other factors that have played a significant role in the Far West 
share of the global Scotch spearmint oil market include the overall 
quality of imported oil and technological advances that allow for more 
blending of lower quality oils. Such factors have provided the 
Committee with challenges in accurately predicting trade demand for 
Scotch spearmint oil. Despite these challenges, the marketing order has 
continued to contribute to price and market stabilization for Far West 
producers.
    When the Committee met in October 2008 to recommend the 2009-2010 
volume regulation, demand for spearmint oil appeared high in relation 
to expected production. The Committee consequently recommended a 
relatively high 2009-2010 Scotch salable quantity and allotment 
percentage in an effort to match supply with anticipated demand. When 
the Committee recommended the 2009-2010 Scotch salable quantity and 
allotment percentage of 842,171 pounds and 42 percent, respectively, it 
also estimated that the quantity of salable Scotch spearmint oil 
carried over from the 2008-2009 marketing year into the 2009-2010 
marketing year would approximate 124,735 pounds. The actual amount 
carried forward on June 1, 2009, however, was 207,976 pounds, an amount 
higher than the Committee considers desirable. Major factors 
contributing to the large quantity of Scotch spearmint oil being 
carried into the 2009-2010 marketing year included fewer 2008-2009 
sales than anticipated and production levels higher than expected.
    The large carry-in, coupled with the overall lackluster economy and 
current lack of demand for spearmint oil has led to an over-supply 
situation within the Far West spearmint oil industry, particularly with 
Scotch spearmint oil. A year ago, spearmint oil handlers had projected 
that the 2009-2010 trade demand for Far West Scotch spearmint oil would 
range from a low of 800,000 pounds to a high of 1,000,000 pounds. This 
year the same handlers have reassessed their earlier projection for 
this period with a less optimistic range of 700,000 pounds to 750,000 
pounds of Scotch spearmint oil trade demand. Although consumer demand 
for mint flavored products is reportedly steady--thus providing 
sustained optimism for the long term demand for Far West spearmint 
oil--the handlers report that the manufacturers of such products are 
currently reducing purchases and meeting current needs by trimming 
their own inventories to reduce the current recessionary impact on 
their businesses.
    The Committee recommended the 2010-2011 Scotch spearmint oil 
salable quantity of 566,962 pounds and allotment percentage of 28 
percent utilizing sales estimates for 2010-2011 Scotch spearmint oil as 
provided by several of the industry's handlers, as well as historical 
and current Scotch spearmint oil sales levels. The Committee is 
estimating that about 800,000 pounds of Scotch spearmint oil may be 
sold during the 2010-2011 marketing year. When considered in 
conjunction with the estimated carry-in of 349,998 pounds of oil on 
June 1, 2010, the recommended salable quantity of 566,962 pounds 
results in a total available supply of about 916,960 pounds of Scotch 
spearmint oil during the 2010-2011 marketing year.
    The Committee's stated intent is to keep adequate supplies 
available to meet market needs and improve producer prices.
    The Committee developed its recommendation for the proposed Scotch 
spearmint oil salable quantity and allotment percentage for the 2010-
2011 marketing year on the information discussed above, as well as the 
data outlined below.
    (A) Estimated carry-in on June 1, 2010--349,998 pounds. This figure 
is the difference between the revised 2009-2010 marketing year total 
available supply of 1,049,998 pounds and the estimated 2009-2010 
marketing year trade demand of 700,000 pounds.
    (B) Estimated trade demand for the 2010-2011 marketing year--
800,000 pounds. This figure is based on input from producers at six 
Scotch spearmint oil production area meetings held in late September 
and early October 2009, as well as estimates provided by handlers and 
other meeting participants at the October 14, 2009, meeting. The 
average estimated trade demand provided at the six production area 
meetings is 800,000 pounds, which is the same level as estimated by 
handlers. The average of sales over the last five years is 841,436 
pounds.
    (C) Salable quantity required from the 2010-2011 marketing year 
production--450,002 pounds. This figure is the difference between the 
estimated 2010-2011 marketing year trade demand (800,000 pounds) and 
the estimated carry-in on June 1, 2010 (349,998 pounds).

[[Page 13447]]

    (D) Total estimated allotment base for the 2010-2011 marketing 
year--2,024,863 pounds. This figure represents a one percent increase 
over the revised 2009-2010 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--22.2 percent. This percentage is 
computed by dividing the required salable quantity by the total 
estimated allotment base.
    (F) Recommended allotment percentage--28 percent. The Committee's 
recommendation is based on the computed allotment percentage (22.2 
percent), the average of the computed allotment percentage figures from 
the six production area meetings (23.7 percent), and input from 
producers and handlers at the October 14, 2009, meeting. The actual 
recommendation of 28 percent is based on the Committee's determination 
that the computed percentage (22.2 percent) may not adequately supply 
the potential 2010-2011 Scotch spearmint oil market.
    (G) The Committee's recommended salable quantity--566,962 pounds. 
This figure is the product of the recommended allotment percentage and 
the total estimated allotment base.
    (H) Estimated available supply for the 2010-2011 marketing year--
916,960 pounds. This figure is the sum of the 2010-2011 recommended 
salable quantity (566,962 pounds) and the estimated carry-in on June 1, 
2010 (349,998 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 as severe. Over 90 percent of U.S. production of Native spearmint 
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. Minor domestic production of 
Native spearmint oil outside of the Far West is in Indiana, Michigan, 
Wisconsin, Montana, South Dakota, North Dakota, and Minnesota.
    According to the Committee, very little true Native spearmint oil 
is produced outside of the United States. However, India produces an 
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 global sales of Native or Native 
quality spearmint oil. By 2009 that share had shrunk to less than 60 
percent.
    As with Scotch spearmint, acreage planted to Native spearmint has 
fluctuated with demand and producer price. In 2004, Committee records 
indicate that there were 4,805 acres of Native spearmint planted as 
opposed to the 8,919 acres planted in 2009.
    When the Committee met in October 2008 to recommend the 2009-2010 
volume regulation, the same relatively good market conditions buoying 
the industry since 2004 were in effect (although the Committee 
initially recommended Native spearmint oil allotment percentages 
averaging less than 43 percent between 2004 and 2008, demand proved 
better than anticipated and multiple intra-seasonal increases were 
effectuated each year to bring the final percentages up to a four year 
average of nearly 56 percent). As a consequence, the Committee 
recommended a 2009-2010 marketing year allotment percentage of 53 
percent for Native spearmint oil to match supply with anticipated 
demand.
    At the same time, the Committee also estimated that the quantity of 
salable Native spearmint oil that would be carried over from the 2008-
2009 marketing year into the 2009-2010 marketing year would approximate 
51,363 pounds. The actual amount carried forward on June 1, 2009, 
however, was 130,323 pounds. Factors contributing to the larger 2009-
2010 marketing year carry-in included fewer 2008-2009 sales than 
anticipated and production levels higher than expected.
    Although to a lesser extent than with Scotch spearmint oil, the 
large Native spearmint oil carry-in, coupled with the recessionary 
economy and subsequent lack of demand for spearmint oil, has led to a 
moderately over supplied Native spearmint oil market. A year ago, the 
2009-2010 trade demand for Far West Native spearmint oil was projected 
to average about 1,275,000 pounds. This year the same handlers revised 
the estimate for the 2009-2010 marketing year for a projected average 
of about 1,143,333 pounds for Native spearmint oil trade demand.
    The Committee's recommendation for the 2010-2011 Native spearmint 
oil salable quantity of 980,265 pounds and allotment percentage of 43 
percent utilized sales estimates provided by several of the industry's 
handlers, as well as historical and current Native spearmint oil sales 
levels. With figures about the same as those of the 2009-2010 marketing 
year, the Committee is estimating that 2010-2011 Native spearmint oil 
marketing year trade demand will be about 1,140,000 pounds. When 
considered in conjunction with the estimated carry-in of 186,595 pounds 
of oil on June 1, 2010, the recommended salable quantity of 980,265 
pounds results in a total 2010-2011 available supply of Native 
spearmint oil of about 1,166,860 pounds.
    Similar to the methods used with Scotch spearmint oil, the 
Committee's method of calculating the Native spearmint oil salable 
quantity and allotment percentage primarily relies on the relationship 
between estimated trade demand and available supply. The Committee's 
stated intent is to make adequate supplies available to meet market 
needs and improve producer prices.
    The Committee based its recommendation for the proposed Native 
spearmint oil salable quantity and allotment percentage for the 2010-
2011 marketing year on the information discussed above, as well as the 
data outlined below.
    (A) Estimated carry-in on June 1, 2010--186,595 pounds. This figure 
is the difference between the revised 2009-2010 marketing year total 
available supply of 1,326,595 pounds and the estimated 2009-2010 
marketing year trade demand of 1,140,000 pounds.
    (B) Estimated trade demand for the 2010-2011 marketing year--
1,140,000 pounds. This figure is based on input from producers at the 
six Native spearmint oil production area meetings held in late 
September and early October 2009, as well as estimates provided by 
handlers and other meeting participants at the October 14, 2009, 
meeting. The average estimated trade demand provided at the six 
production area meetings was 1,140,000 pounds, whereas the handler 
estimate ranged from 1,150,000 pounds to 1,200,000 pounds.
    (C) Salable quantity required from the 2010-2011 marketing year 
production--953,405 pounds. This figure is the difference between the 
estimated 2010-2011 marketing year trade demand (1,140,000 pounds) and 
the estimated carry-in on June 1, 2010 (186,595 pounds).
    (D) Total estimated allotment base for the 2010-2011 marketing 
year--2,279,687 pounds. This figure represents a one percent increase 
over the revised 2009-2010 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

[[Page 13448]]

Sec.  985.53(e). The revision is usually minimal.
    (E) Computed allotment percentage--41.8 percent. This percentage is 
computed by dividing the required salable quantity (953,405 pounds) by 
the total estimated allotment base (2,279,687 pounds).
    (F) Recommended allotment percentage--43 percent. This is the 
Committee's recommendation based on the computed allotment percentage 
(41.8 percent), the average of the computed allotment percentage 
figures from the six production area meetings (45 percent), and input 
from producers and handlers at the October 14, 2009, meeting.
    (G) The Committee's recommended salable quantity--980,265 pounds. 
This figure is the product of the recommended allotment percentage (43 
percent) and the total estimated allotment base (2,279,687 pounds).
    (H) Estimated available supply for the 2010-2011 marketing year--
1,166,860 pounds. This figure is the sum of the 2010-2011 recommended 
salable quantity (980,265 pounds) and the estimated carry-in on June 1, 
2010 (186,595 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 566,962 pounds and 28 percent, 
and 980,265 pounds and 43 percent, respectively, are based on the goal 
of maintaining market stability. The Committee anticipates that this 
goal would be achieved by matching supply to estimated demand and thus 
avoiding extreme fluctuations in spearmint oil supplies 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--developing during the marketing year--can be 
satisfied by an intra-seasonal increase in the salable quantities. 
Producers who produce more than their annual allotments during the 
2010-2011 marketing year may transfer such excess spearmint oil to 
producers with production less than their annual allotment, or, up 
until November 1, 2010, place it into the reserve pool.
    This proposed regulation, if adopted, would be similar to 
regulations issued in prior seasons. The average allotment percentage 
for the most recent five marketing years for Scotch spearmint oil is 47 
percent, while the average allotment percentage for the same five-year 
period for Native spearmint oil is 53 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 2010-2011 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 
2010-2011 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, consideration by the Committee was given to 
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 2010-2011 
season in order to meet anticipated market demand.

Initial Regulatory Flexibility Analysis

    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 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 38 producers of Scotch spearmint oil and 
approximately 84 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.
    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 
19 of the 38 Scotch spearmint oil producers and 29 of the 84 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 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.

[[Page 13449]]

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 the small producer 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 for, producers during the 2010-2011 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 to 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. Demand 
for spearmint oil tends to be relatively stable from year-to-year. The 
demand for spearmint oil is expected to grow slowly for the foreseeable 
future because the demand for consumer products that use spearmint oil 
will likely expand slowly, in line with population growth.
    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 no impact on retail prices for those goods.
    Spearmint oil production tends to be cyclical. Years of large 
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 is illustrated by the fact that the 
coefficient of variation (a standard measure of variability; ``CV'') of 
Far West spearmint oil production from 1980 through 2008 was about 
0.23. The CV for spearmint oil grower prices was about 0.14, well below 
the CV for production. This provides an indication of the price 
stabilizing impact of the marketing order.
    Production in the shortest marketing year was about 49 percent of 
the 29-year average (1.87 million pounds from 1980 through 2008) and 
the largest crop was approximately 165 percent of the 29-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 
marketing order, can create liquidity problems for some producers. The 
marketing 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 for the 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 make a portion of the pool available. However, 
limited quantities of reserve oil are typically sold to fill 
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 this needs to take place by November 1.
    In any given year, the total available supply of spearmint oil is 
composed of current production plus carry-over 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 grown in large production years 
are drawn down in short crop years.
    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, resulting 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 the trade demand for the 2010-2011 
marketing year for both classes of oil at 1,940,000 pounds, and that 
the expected combined carry-in will be 536,593 pounds. This results in 
a combined required salable quantity of 1,403,407 pounds. With volume 
control, sales by

[[Page 13450]]

producers for the 2010-2011 marketing year would be limited to 
1,547,227 pounds (the recommended salable quantity for both classes of 
spearmint oil).
    The recommended salable percentages, upon which 2010-2011 producer 
allotments are based, are 28 percent for Scotch and 43 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 $1.51 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 2010-
2011 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 22.2 percent Scotch spearmint oil 
allotment percentage, the Committee considered various alternative 
levels of volume control for Scotch spearmint oil. Considered levels 
ranged from 28 percent to 32 percent. There was consensus that the 
allotment percentage for 2010-2011 should be less than the percentage 
established for the 2009-2010 marketing year (42 percent). After 
considerable discussion, however, the Committee determined that 566,962 
pounds and 28 percent would be the most effective salable quantity and 
allotment percentage, respectively, for the 2010-2011 marketing year.
    The Committee was able to reach a consensus regarding the level of 
volume control for Native spearmint oil. After first computing the 
allotment percentage at 41.8 percent, the Committee unanimously 
determined that 980,265 pounds and 43 percent would be the most 
effective salable quantity and allotment percentage, respectively, for 
the 2010-2011 marketing year.
    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 2010-2011 would decline 
substantially below current levels.
    According to the Committee, the recommended salable quantities and 
allotment percentages are expected to achieve the goals of market and 
price stability.
    As previously stated, annual salable quantities and allotment 
percentages have been issued for both classes of spearmint oil since 
the order's inception. Reporting and recordkeeping requirements have 
remained the same for each year of regulation. These requirements have 
been approved by the Office of Management and Budget under OMB Control 
No. 0581-0178, Vegetable and Specialty Crops. Accordingly, this 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 that duplicate, overlap, 
or conflict with this 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 
14, 2009, 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: http://www.ams.usda.gov/AMSv1.0/ams.fetchTemplateData.do?template=TemplateN&page=MarketingOrdersSmallBus
inessGuide. Any questions about the compliance guide should be sent to 
Antoinette Carter at the previously mentioned address in the FOR 
FURTHER INFORMATION CONTACT section.
    A 15-day comment period is deemed appropriate to allow interested 
persons the opportunity to respond to this proposal, taking into 
account that the marketing year begins on June 1, 2010. All written 
comments timely received will be considered before a final 
determination is made on this matter.

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.  985.229 is added to read as follows:

    Note: This section will not appear in the Code of Federal 
Regulations.

Sec.  985.229  Salable quantities and allotment percentages--2010-2011 
marketing year.

    The salable quantity and allotment percentage for each class of 
spearmint oil during the marketing year beginning on June 1, 2010, 
shall be as follows:
    (a) Class 1 (Scotch) oil--a salable quantity of 566,962 pounds and 
an allotment percentage of 28 percent.

[[Page 13451]]

    (b) Class 3 (Native) oil--a salable quantity of 980,265 pounds and 
an allotment percentage of 43 percent.

    Dated: March 16, 2010.
David R. Shipman,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 2010-6187 Filed 3-19-10; 8:45 am]
BILLING CODE 3410-02-P
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