This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

15809

Vol. 62, No. 64

Thursday, April 3, 1997

DEPARTMENT OF AGRICULTURE

Animal and Plant Health Inspection

Service

7 CFR Part 301

[Docket No. 96–016–18]

RIN 0579–AA83

Karnal Bunt Regulatory Flexibility

Analysis

AGENCY: Animal and Plant Health

Inspection Service, USDA.

ACTION: Final rule; regulatory flexibility

analysis.

SUMMARY: We are publishing in this

document the regulatory flexibility

analysis prepared for an October 4,

1996, final rule that amended the Karnal

bunt regulations established in a series

of interim rules and that established

criteria for levels of risk, the movement

of regulated articles, and the planting of

seed from Karnal bunt host crops.

Because that final rule was published on

an emergency basis, compliance with

the regulatory flexibility analysis

requirements of the Regulatory

Flexibility Act was found to be

impracticable, and completion of those

requirements was delayed by the

Administrator of the Animal and Plant

Health Inspection Service. The required

analysis has been completed and is,

therefore, being made available to the

public.

FOR FURTHER INFORMATION CONTACT: Mr.

Mike Stefan, Operations Officer,

Domestic and Emergency Operations,

PPQ, APHIS, 4700 River Road Unit 134,

Riverdale, MD 20737–1236, (301) 734–

8247.

SUPPLEMENTARY INFORMATION: Karnal

bunt is a fungal disease of wheat

(Triticum aestivum), durum wheat

(Triticum durum), and triticale

(Triticum aestivum X Secale cereale), a

hybrid of wheat and rye. Karnal bunt is

caused by the smut fungus Tilletia

indica (Mitra) Mundkur and is spread

by spores. The establishment of Karnal

bunt in the United States would have

significant consequences with regard to

the export of wheat to international

markets. The regulations regarding

Karnal bunt are set forth in 7 CFR

301.89–1 through 301.89–14.

On October 4, 1996, we published in

the Federal Register (61 FR 52189–

52213, Docket No. 96–016–14) a final

rule that amended a series of interim

rules establishing a program to control

and eradicate Karnal bunt in the United

States, and also made final a proposed

rule establishing criteria for levels of

risk for areas with regard to Karnal bunt

and criteria for seed planting and

movement of regulated articles based on

those risk levels.

Under the Regulatory Flexibility Act

(5 U.S.C. 601 et seq.) (the Act), agencies

must prepare initial and final regulatory

flexibility analyses concerning the

economic impact of the regulatory

action on small entities unless the

agency certifies that the rule will not

have a significant economic impact on

a substantial number of small entities.

The criteria for initial and final

regulatory flexibility analyses are set out

in sections 603 and 604, respectively, of

the Act. Section 608, paragraph (a), of

the Act provides, however, that an

agency head may waive or delay the

completion of some or all of the

requirements for the initial regulatory

flexibility analysis if an emergency

situation makes timely compliance with

section 603 impracticable. Similarly,

paragraph (b) of section 608 provides

that an agency head may delay the

completion of a final regulatory

flexibility analysis for a period of not

more than 180 days following the

publication of a final rule in the Federal

Register if the agency publishes in the

Federal Register a written finding that

the rule is being promulgated in

response to an emergency that makes

timely compliance with section 604

impracticable.

Because the October 4, 1996, final

rule was published on an emergency

basis in order to give affected growers

the opportunity to make planting

decisions for the 1996–97 crop season

on a timely basis, the rule was

published without the regulatory

flexibility analysis. Instead, as provided

by section 608 of the Act, the rule

included a written finding that

compliance with section 603 and timely

compliance with section 604 of the Act

was impracticable. We further stated

that the rule may have a significant

economic impact on a substantial

number of small entities and, if that

were the case, that we would discuss

the issues raised in accordance with

section 604 of the Act in a final

regulatory flexibility analysis that

would be published in a future Federal

Register. We have now completed the

required regulatory flexibility analysis,

and it is set forth below.

I. Introduction

In accordance with the Regulatory

Flexibility Act (5 U.S.C. 601 et seq.),

this analysis examines the economic

impact, costs, and benefits to small

entities of the October 4, 1996, Karnal

bunt final rule, as well as impacts

attributable to the interim regulations.

On March 8, 1996, Karnal bunt was

detected in Arizona during a seed

certification inspection done by the

Arizona Department of Agriculture. On

March 20, 1996, the Secretary of

Agriculture signed a ‘‘Declaration of

Extraordinary Emergency’’ authorizing

the Secretary to take emergency action

under 7 U.S.C. 150dd with regard to

Karnal bunt within the States of

Arizona, New Mexico, and Texas. In an

interim rule effective on March 25,

1996, and published in the Federal

Register on March 28, 1996 (61 FR

13649–13655, Docket No. 96–016–3),

the Animal and Plant Health Inspection

Service (APHIS) established the Karnal

bunt regulations (7 CFR 301.89–1

through 301.89–11), and quarantined all

of Arizona and portions of New Mexico

and Texas because of Karnal bunt. The

regulations define regulated articles and

restrict the movement of these regulated

articles from the quarantined areas.

After the regulations were established,

Karnal bunt was detected in seed lots

that were either planted or stored in

California. On April 12, 1996, the

Secretary of Agriculture signed a

‘‘Declaration of Extraordinary

Emergency’’ authorizing the Secretary to

take emergency action under 7 U.S.C.

150dd with regard to Karnal bunt within

California. In an interim rule effective

on April 19, 1996, and published in the

Federal Register on April 25, 1996,

APHIS also regulated portions of

California because of Karnal bunt (61 FR
15810 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

1About 1.2 billion bushels of wheat are exported

from the U.S. annually, at a value of $4 billion.

18233–18235, Docket No. 96–016–5). In

an interim rule effective on June 27,

1996, and published in the Federal

Register on July 5, 1996 (61 FR 35107–

35109, Docket No. 96–016–6), we

removed certain areas in Arizona, New

Mexico, and Texas from the list of areas

regulated because of Karnal bunt. That

list was amended in a technical

amendment effective on July 9, 1996,

and published in the Federal Register

on July 15, 1996 (61 FR 36812–36813,

Docket No. 96–016–8). In an interim

rule effective June 27, 1996, and

published in the Federal Register on

July 5, 1996 (61 FR 35102–35107,

Docket No. 96–016–7), we amended the

regulations to provide compensation for

certain growers and handlers, owners of

grain storage facilities, and flour millers

in order to mitigate losses and expenses

incurred because of actions taken by the

Secretary to prevent the spread of

Karnal bunt.

In a proposed rule published in the

Federal Register on August 2, 1996 (61

FR 40354–40361, Docket No. 96–016–

10), we proposed to amend the

regulations to establish criteria for levels

of risk for areas with regard to Karnal

bunt and for the movement of regulated

articles based on those risk levels, and

to establish criteria for seed planting. A

rule finalizing these provisions was

published in the Federal Register on

October 4, 1996 (61 FR 52189–52213,

Docket No. 96–016–14). Although that

final rule did not change or make final

the interim rule on compensation

published in the Federal Register on

July 5, 1996, this analysis necessarily

addresses the role and impact of those

interim compensation provisions, which

remain in effect.

II. Need for Regulation

Karnal bunt is a fungal disease of

wheat (Triticum aestivum), durum

wheat (Triticum durum), and triticale

(Triticum aestivum X Secale cereale).

Upon detection of Karnal bunt in

Arizona, the imposition of Federal

quarantine and emergency actions was a

necessary, short-run, measure taken to

prevent the interstate spread of the

disease to other wheat producing areas

in the country. The intent of the

quarantine was to immediately contain

the disease in the outbreak area, so that

eradication could be eventually

achieved. In dealing with a new disease

outbreak, eradication is a reasonable

first objective as long as national

disease-prevalence data indicate that

eradication remains a viable option. The

establishment of Karnal bunt in the

United States would have significant

economic ramifications on the U.S.

wheat export market, given that

approximately 50 percent of exports are

to countries that maintain restrictions

against wheat imports from countries

where Karnal bunt is known to occur.

The benefits of the regulatory program

can thus be viewed as the avoidance of

potential losses to the wheat export

market in the absence of regulation. The

economic significance of the wheat

industry required swift and coordinated

action, which in this case was most

efficiently achieved under Federal

coordination.

Wheat intended for domestic

processing and export is often blended

at elevators to establish lots of uniform

quality. Except for those occasions

where a specific producer’s wheat is

processed separately under contract to a

miller, the elevator’s supply of wheat

usually consists of a mix of many

varieties from many producers and

areas. For this reason, Federal oversight

is needed to safeguard against crosscontamination and to instill confidence

from both domestic and foreign buyers.

Thus, it is conceivable that, without

Federal intervention, individual States

and importing countries would place

their own, perhaps more severe,

restrictions on wheat shipments.

The Karnal bunt quarantine that was

initially established was necessarily

broad due to the lack of data available

at the time as to the extent of the

infestation. The discovery of Karnal

bunt and subsequent quarantine and

emergency actions occurred after

production and marketing decisions had

been made. Producers and other affected

individuals had little time or ability to

avoid the unexpected costs or pass those

costs on to others in the marketing

chain. The impact was particularly

severe on the wheat industry in the

affected area because much of the crop

is grown under contract at specified

amounts and prices.

In order to alleviate some of these

hardships and to ensure full and

effective compliance with the

quarantine program, compensation to

mitigate certain losses was offered to

producers and other affected parties in

a regulated area. The payment of

compensation is in recognition of the

fact that while benefits from regulation

accrue to a large portion of the wheat

industry outside the regulated areas, the

regulatory burden falls predominantly

on a small segment of the affected wheat

industry within the regulated area.

As additional information from

sampling and testing became available

in subsequent months following the

outbreak, the Agency was able to ease

the quarantine in order to minimize

disruption to affected entities. Those

changes, which were detailed in the

October 4, 1996, final rule, established

various risk categories for wheat

planting for the 1996–97 crop, relieving

unnecessary restrictions as the

regulatory actions that are imposed on

each category are based on the level of

risk.

Subsequent sections of this analysis

are structured as follows: Section III

addresses the benefits of regulation to

provide a perspective against which the

regulatory policies were formed. The

impact on the affected industry of the

disease and subsequent quarantine

actions, along with compensation to

mitigate losses, are discussed in section

IV. Section V provides a projection of

the impact in the regulated areas based

on risk categories for wheat planting in

1996–97. Other alternatives to the rule

are discussed in section VI. The

characteristics of the small entities

within the regulated areas that were

impacted by the disease and the

quarantine are described in section VII.

A summary of the analysis is provided

in section VIII.

III. Benefits of the Federal Quarantine

Program

The disease Karnal bunt causes

production losses to wheat in the form

of yield reduction due to the infestation

of kernels, and reduction in the quality

of grain. Roughly 4 percent of wheat

fields in Arizona, and 0.04 and 14

percent of fields in Imperial and

Riverside counties in California,

respectively, were found to be infected

with Karnal bunt.

The most economically significant

impact of the disease, however, is

inarguably its effect on the export

market. This is because about half of

U.S. wheat exports are to countries that

maintain restrictions against wheat

imports from countries where Karnal

bunt is known to occur.1 Eliminating the

quarantine currently in place would

jeopardize trade with those countries.

Benefits of Federal quarantine,

therefore, can be regarded largely as the

avoided losses to the export market.

A 50-percent reduction in U.S. wheat

exports would likely reduce U.S. wheat

prices by 30 percent, and lower net

sector income by $2.7 billion. This

estimate takes into account the

dampening effect on domestic wheat

prices, as wheat for export is diverted

into the domestic consumption market,

animal feed outlets, and ending stocks.

The reduction in U.S. wheat exports,

however, would likely be less than 50

percent. First, not all countries that have

restrictions against Karnal bunt would,
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15811

in practice, strictly prohibit wheat

imports from the United States. Second,

while some markets would be captured

by exports from countries that are free

of Karnal bunt, U.S. wheat exports to

countries that have no restrictions

against Karnal bunt would likely

increase. Lastly, substitution across

domestic markets could provide added

flexibility in meeting export demands.

In the long run, the effects could be

minimal depending on whether the

market were to treat Karnal bunt as a

quality issue and develop discounts for

Karnal bunt.

Even a 10-percent reduction in wheat

exports would have a significant effect

on wheat sector income. It is estimated

that a 10-percent decrease in U.S. wheat

exports would cause a 22-cent per

bushel drop in the wheat prices and a

drop in wheat sector income of over

$500 million. The effects of decreases in

wheat exports of various percentages are

presented in Table 1.

TABLE 1.—EFFECT OF A DECREASE IN WHEAT EXPORTS DUE TO KARNAL BUNT, 1997/98 CROP YYEAR

Item Unit

Reduction in exports

0% 10% 25% 50%

Exports ...................................................... mil. bu. ...................................................... 1,200 1,080 900 600

Total use .................................................... mil. bu. ...................................................... 2,462 2,394 2,295 2,138

Price .......................................................... $/bu ........................................................... 3.85 3.63 3.29 2.68

Value of production ................................... mil. dol. ..................................................... 9,543 8,898 8,146 6,637

Gross income 1 .......................................... mil. dol. ..................................................... 11,358 10,813 9,961 8,580

Variable expenses ..................................... mil. dol. ..................................................... 4,823 4,823 4,823 4,823

Net income ................................................ mil. dol. ..................................................... 6,536 5,990 5,138 3,758

1 Includes market transition payments.

The 1996 Federal quarantine and

emergency actions served to contain

Karnal bunt in the initial outbreak area

of the Southwest United States. The

Federal program provided assurances to

wheat importing countries that wheat

from uninfected areas were monitored

for Karnal bunt under the National

Survey program, by sampling and

testing of all wheat fields in the United

States. Countries that are willing to

accept wheat from the affected areas are

also assured that grain from those areas

are tested negative twice for the disease.

Through these means, the Federal

Karnal bunt program served to maintain

and preserve the economic viability of

the U.S. wheat export.

IV. Impact on the Affected Industry of

Karnal Bunt and Regulatory Actions

The wheat industry within the

regulated area is largely composed of

businesses who can be considered as

‘‘small’’ according to guidelines

established by the Small Business

Administration (SBA). The

characteristics of these firms as well as

other small affected entities are

provided in detail in section VII of the

analysis. The following discussion on

impacts is directly applicable to these

entities.

The 1995–96 Karnal bunt regulations

primarily affect persons or entities that

produce wheat in a regulated area and/

or move certain articles associated with

wheat out of a regulated area. These

articles are subject to certain regulatory

actions to minimize the risk of

spreading the causal agent of the disease

to other uninfected areas. Regulated

articles include:

1. Farm machinery and equipment

used to produce wheat;

2. Conveyances from field to handler,

such as farm trucks and wagons;

3. Grain elevators, equipment and

structures at facilities that store and

handle grain;

4. Conveyances from handler to other

marketing channels, such as railroad

cars;

5. Plant and plant parts, such as grain

for milling, grain for seed, and straw;

6. Flour and milling byproducts;

7. Manure from animals fed wheat/

wheat byproducts from quarantine area;

8. Used sacks;

9. Seed-conditioning equipment;

10. Byproducts of seed cleaning;

11. Soil-moving equipment;

12. Root crops with soil;

13. Soil.

As part of the Karnal bunt program,

grain that tests positive for Karnal bunt

is prohibited from moving out of the

regulated areas. Other contaminated

articles must be cleaned and sanitized

before such movement. Millfeed must

be treated to render inactive any disease

causal agent before its addition into

animal feed. Grain that tests negative

may move under limited permit to

approved mills. Commercial seed

intended for planting is prohibited

movement outside the regulated areas.

Wheat seed to be planted within the

regulated areas must be sampled and

tested for Karnal bunt, and, for seed

originating in a regulated area, treated

prior to planting. Wheat growers in New

Mexico and Texas whose wheat fields

were planted with contaminated seed

were ordered to destroy their crops.

These requirements have resulted in

additional costs and claims of losses to

affected individuals. Wheat producers

and handlers claimed loss in market

value of their grain; seed companies and

researchers have claimed similar losses,

including lost royalties due to the

disruption in the development of seed

varietals. Other types of claims made

were for the cost of cleaning and

disinfecting equipment and facilities,

and damages to machinery caused by

required treatment. Some of these

claims are presented in Table 2.

TABLE 2.—IMPACT OF KARNAL BUNT QUARANTINE ACTIONS

Action Regulated article Affected entities Numbers affected Types of impacts due to

KB and quarantine actions

Plow-down & Seed Plot

Destruction.

• Fields planted with infected seed at pre-boot

stage.

• Certain producers in

Texas and New Mexico.

• 4100 acres ....................

• 73 producers .................

• Loss in value of wheat

crop destroyed.

• Tools and Farm Equipment.• Wheat producers in RA • 145 growers .................. • Cost of cleaning.
15812 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

TABLE 2.—IMPACT OF KARNAL BUNT QUARANTINE ACTIONS—Continued

Action Regulated article Affected entities Numbers affected Types of impacts due to

KB and quarantine actions

• Harvesters ..................... • Farmer owned and custom combines.• 389 combines ................ • Cost of cleaning.

• Grain Trucks .................. • Grain haulers from field

to grain elevators.

• 976 trucks ..................... • Cost of cleaning.

Cleaning/Disinfection .......... • Grain storage and

loadout facilities.

• Grain handling firms ...... • 17 elevators ................... • Cost of cleaning.

• Harvesters ..................... • Combine harvester owners.• 36 to 40 combines ........ • Excess wear and tear

on equipment.

• Harvesters ..................... • Combines involved in

pre-harvest sampling.

• 5 to 10 combines .......... • Down-time on harvesters due to field testing.

• Harvesters ..................... • Custom combine companies.• 5 companies .................. • Loss of income due to

termination of contracts

outside the RA.

• Railcars ......................... • Grain handling firms ...... • 10,880 cars (511 for

positive grain).

• Cost of cleaning.

• KB-positive milling

wheat.

• Producers ......................

• Grain handling firms ......

• 145 growers ..................

• 6 handlers .....................

• Loss in value of KBpositive wheat.

• KB-negative milling

wheat.

• Producers in RA ............

• Handlers in RA ..............

• 664 producers ...............

• 26.7 million bushels ......

• Loss in value of KB-negative wheat in RA.

• Millfeed .......................... • Millers, millfeed processors.• 108 mills ........................

• 45,644 tons ...................

• Millers reluctance to mill

KB-negative wheat from

RA.

• Movement restrictions

on wheat seed.

• Seed producers, researchers, and companies.• 15 producers .................

• 9 research firms ............

• 20 seed marketers ........

• Loss in premiums.

• Loss in market value.

• Loss in royalties.

Restriction on Use or Marketings.• Straw, Manure, Millfeed • Straw producers and

Handlers-Users of Straw.

• Livestock producers

using wheat or straw

produced in the RA.

• Flour millers ...................

• Millfeed processors/

users.

• 25 growers ....................

• 3 contractors .................

• 1 straw user, making of

straw mats for erosion

control.

• 7 millers in 5 States ......

• 2 millfeed processors ....

• Loss in income.

• Increased cost of production.

• Moratorium on wheat

production on KB-positive fields.

• Producers with KB-positive properties.• 109 growers ..................

• 13,674 acres .................

• Loss in income from

wheat.

• Soil on root crops grown

on infected properties.

• Vegetable producers on

KB-positive properties.

• Unknown number .......... • Increased cost of production.

• Used seed sacks ...........

• Seed-conditioning equipment.

• Byproducts of seed .......

• Seed research and marketing companies.• 9 research firms ............

• 20 seed marketers ........

• Increased cost of production.

Regulated area.

Estimated losses in value to the

affected wheat industry in the

Southwest, and compensation payments

to mitigate some of these losses, are

discussed below. The compensation

committed to date for the 1995–96 crop

year, published as an interim rule in the

Federal Register on July 5, 1996, is as

follows:

• Plow-down of infected fields in

New Mexico and Texas;

• Loss in value of wheat testing

positive for Karnal bunt for producers

and handlers;

• Loss in value of wheat testing

negative for Karnal bunt for producers;

• Cost of millfeed treatment;

• Cleaning and disinfecting of grain

storage facilities.

1. Order To Plow Down Fields Planted

With Infected Seed at Pre-Boot Stage

Most of the acreage ordered to be

plowed down in April 1996 was farm

production acreage located in four

counties in New Mexico (Dona Ana,

Hidalgo, Luna, and Sierra) and in two

counties in Texas (El Paso and

Hudspeth). This acreage amounted to

approximately 4,100 acres. Other

affected acreage were small seed

experimental plots in Washington,

California, and South Dakota that

totaled perhaps 50 acres in all.

Many affected growers were able to

plant immediately with vegetables and

recover some losses by farming

alternative crops on affected land.

Fertilizer carry-over on destroyed wheat

fields was possible for crops grown on

affected fields. The impact on farm

income that could have been derived

from wheat, however, is uncertain, as it

is unclear what the market returns to

wheat grown on known affected fields

would have been if the plow-down

order had not occurred.

To offset for costs related to the plowdown, compensation was offered to 74

producers to cover the $25 per acre

plowing cost plus the $275 per acre in

average cost of production expenses (up

until the time the crop was destroyed).

In total, these producers received

compensation of $1.23 million to cover

operating costs incurred for growing

wheat.

2. Cost of Sanitizing Grain Storage

Records of APHIS surveys in the

regulated area indicate that 16 facilities

have applied for the cost-share program.

Compensation is committed to owners

of contaminated grain storage facilities

on a one-time only basis for up to 50
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15813

2Price discounts on both KB-positive and

negative wheat could have been greater in the

absence of regulatory action. While this may justify

the regulatory action taken, the more convincing

evidence is the large benefits of regulations to the

greater part of the U.S. wheat industry outside of

the regulated area.

percent of the cost of decontamination,

not to exceed $20,000. The total cost of

cleaning facilities is estimated at

$268,000, with an average compensation

per facility of $8,375. Total cost of

compensation, as of March 14, 1997, is

estimated at $134,000.

3. Loss in Value of Wheat Testing

Positive for Karnal Bunt

Wheat testing positive for Karnal bunt

(either by pre-harvest sample or by

testing at the elevator site) was required

to go into sealed storage. This

movement of wheat out of the regulated

area was restricted (exiting only with a

limited permit) and most went into local

animal feed uses after treatment that

rendered ineffective any Karnal bunt

spore. This involved a heat-roll-flaking

process commonly in use for small

grains for feed formulas in California.

Infected wheat lost value as it was

diverted from its original purposes to

the animal feed markets where it had to

compete against lower-priced feed

grains. Similar discounts would have

likely existed in the absence of

regulatory actions.2 Program guidelines

limited maximum compensation rates

per bushel at $2.50; producers were

asked to establish financial losses by

calculating the difference between their

contract price and actual prices received

(if production was pre-contracted) or the

difference between the estimated market

value in May–June 1996 and their actual

prices received (if production was not

pre-contracted). Handlers were limited

by the same maximum compensation

amount, but determination of financial

loss was based on the difference

between their wheat purchase price and

a $3.60 per bushel salvage value. They

may have had additional costs to sort

and treat their KB-positive wheat (after

finding their KB-negative wheat was, in

fact, KB-positive). Moreover, many

handlers were reluctant to accept wheat

from affected areas. This expedited

procedure was offered to handlers in

order to reduce administrative and

recordkeeping costs by not addressing

their losses on a contract-by-contract

basis. It provided assistance that

avoided a market collapse.

Eight percent of wheat production in

the regulated area was found to be KBpositive. This level of production

amounted to 2.32 million bushels of

wheat taking a loss on average of $1.80

per bushel. It is estimated that at these

rates, compensation would need to be

$4.2 million in order to offset much of

the loss in value of positive wheat to

producers and handlers.

4. Loss in Value of Wheat Testing

Negative for Karnal Bunt

At harvest, many wheat buyers

refused to honor purchase contracts

with producers for their grain, most of

which had been tested negative for

Karnal bunt by pre-harvest sample.

These contracts had been agreed upon

before the discovery of the disease and

the declaration of quarantine. Also,

wheat millers inside and outside the

regulated areas became reluctant to buy

wheat from grain handlers due to the

increased cost of handling wheat from

the regulated areas. Prices for wheat

produced within the regulated areas,

therefore, dropped regardless of its

disease status.

For those growers who grew wheat

under contract but who did not receive

full contract price, compensation for

loss in value of wheat testing negative

for Karnal bunt is made based on the

difference between the contracted price

and the higher of the actual price

received by the producer or the salvage

value. (Salvage value was to equal

whichever price was higher of the

following: The average price paid in the

region of the regulated area where the

wheat was sold for the period between

May 1 and June 30, 1996; or $3.60 per

bushel.)

Compensation for growers of

nonpropagative wheat not grown under

contract is based on the difference

between the estimated market price for

the relevant class of wheat and the

higher of the actual price received or its

salvage value. (Salvage value was to be

the same as above for contracted wheat.)

The estimated market price is what the

market price would have been if there

were no quarantine for Karnal bunt, and

is calculated for each class of wheat,

taking into account the prices offered by

relevant terminal markets (animal feed,

milling, or export) for the period

between May 1 and June 30, 1996, with

adjustments for transportation and other

handling costs.

Ninety-two percent of the quantity

produced for domestic milling

(approximately 13 million bushels),

plus the diverted quantity of KBnegative wheat that was originally

intended to be exported (6 million

bushels) could have experienced a price

reduction. A portion of the remaining 7

million bushels intended for export that

could not be sold at contract price could

also experience a similar loss. The

compensation formula for negative grain

would suggest an average price drop of

$1.10 per bushel. Thus, total losses due

to the decline in market value of KBnegative wheat held by producers and

handlers could total $28 million. This

amount would be reduced by the

amount of grain sold on contract which

received full contract price. Producers

would not have realized any losses on

such production. Handlers may have

incurred the full drop in value of their

wheat sales depending on their previous

contract prices. Given that information

on contracts of individual producers

and handlers is unknown, it is

estimated that $28 million is the

potential maximum amount of

economic loss due to a drop in

uninfected wheat grown in the regulated

area.

5. Cost of Millfeed Treatment

Millfeed is a byproduct of wheat

milling (the outer husk of the wheat

kernel and other byproducts from

milling). Approximately 25 percent of

the raw wheat going into milling comes

out as millfeed, while the remaining 75

percent is converted into flour. The sale

of this milling byproduct contributes

around 10 percent towards their gross

income from milling. With the higher

likelihood of Karnal bunt being present

in the millfeed rather than the flour,

restrictions were placed on the

movement of millfeed produced from

wheat grown in the regulated areas.

These restrictions stated that millfeed,

before their addition into animal feeds,

were to be treated in order to render

inactive any presence of Karnal bunt

spores. For whole wheat kernels, this

normally means that wheat undergo a

heating-rolling-and-flaking process.

Similar procedures, except for flaking,

were assumed to be required in treating

millfeed.

Many animal feed manufacturers

commonly heat and treat ingredients in

their feed products. The treatment

requirements would not add any

additional costs for them. For others,

that restriction would place an

additional processing cost of around $35

per ton to their operation. In order to

encourage wheat marketings from the

regulated areas and reassure millers that

they would not incur any additional

costs in handling uninfected wheat from

a regulated area, a $35 per ton cost offset

for heat treatment was offered to millers

using KB-negative wheat produced in a

regulated area. As of March 14, 1997,

108 requests have been made from

millers in Minnesota, Missouri, Oregon,

Wisconsin, and Virginia for a total of

$1.6 million.
15814 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

6. Loss in Value of Seed

Under the 1996 quarantine and

emergency actions, wheat seed

produced in the regulated areas was

prohibited from sale outside of the

regulated areas. Wheat seed intended for

planting within the regulated areas must

be sampled and tested for Karnal bunt,

and for seed originating in a regulated

area, treated prior to planting. These

restrictions are estimated to have a

significant impact on the seed industry,

largely due to the high value that is

commanded by propagative seed. Seed

companies contract with growers to

produce seed wheat at about 30 to 50

cents per bushel premium over nonpropagative wheat. This premium

reflects the added precautions in

production to ensure seed integrity and

cleanliness. These companies were

affected by the decline in market value

resulting from the inability to move seed

out of the regulated areas. It is estimated

that 1.5 million bushels of wheat seed

sustained loss in value of between $5

and 6 million. Seed developers, who

earn returns on their investment in

research and development of wheat

varieties, also claim potential long-term

losses in royalties; by receiving plant

variety protection (or patent rights),

seed developers then obtain royalties on

future sales of wheat that are developed

and sold for propagative purposes.

Other economic losses suffered by the

seed industry, but are difficult to

quantify, include additional handling,

storage, and finance costs on seed that

could no longer be sold outside the

regulated areas and costs to relocate

wheat breeding operations outside of

the regulated areas. It should be noted

that, as stated in the interim rule of July

5, 1996, the Agency is developing a

compensation plan for the loss in value

of 1995–96 crop season seed. This plan

will be published in a future edition of

the Federal Register. A detailed

discussion of impacts will be provided

at that time.

7. Loss in Value of Straw

Many growers sell wheat straw to

supplement their wheat grain income.

Straw is sold for use at places such as

racetracks, highway shoulders, feed

yards, and parks for erosion control and

to minimize muddy conditions. Wheat

straw is listed in Karnal bunt

regulations as a regulated article and is

prohibited from being moved outside of

the regulated areas. This has prevented

many wheat straw producers from

shipping their 1995–96 crop season

straw to the intended markets. Some

wheat straw was sold to alternative

markets within the regulated areas for a

lower price; other wheat straw was not

able to be sold. These losses are

estimated at about $200,000.

Compensation for loss in income due to

the restrictions placed on movement of

straw is being considered.

8. Losses Related to Cleaning and

Disinfecting Combine Harvesters and

Other Losses

A number of claims have been raised

by about 220 combine harvesters

operating within the regulated areas,

and those who travel outside of the

regulated areas to harvest crops. These

claims are related to the cleaning and

disinfecting requirements of combine

harvesters, which particularly affected

custom harvesters who contracted with

the Agency to do pre-harvest sampling

for Karnal bunt. These claims involved:

(1) Excess damage to machines caused

by treatment protocols; (2) cleaning and

disinfecting costs; (3) down time and

extra operational costs associated with

testing of samples and treatment

protocols; and (4) loss of business as

wheat producers inside and outside the

regulated areas switched to custom

harvesters that were not associated with

the 1996 wheat harvest in the regulated

areas. The most serious of these claims

that can be directly attributed to the

regulations involves the excess wear

and tear due to the subsequent corrosion

on combines that underwent extensive

cleaning and disinfecting treatments

according to protocol. The loss in value

of these combines is estimated at $2

million. Compensation for this loss is

being considered.

Other economic losses that have been

claimed by affected individuals in the

regulated areas but that are difficult to

quantify include additional handling,

storage, and finance charges incurred by

handlers of nonpropagative wheat and

various other claims by producers and

handlers in the regulated areas such as

cleaning and disinfecting railcars and

trucks and buying wheat from alternate

sources to fulfill contracts that

originally stipulated wheat produced

from the regulated area. The Agency

continues to gather information for

formulating compensation for seed

producers, and other issues relating to

compensation are also under

consideration.

In sum, the impact on market value of

the 1996 Federal quarantine in the

southwestern United States is estimated

to be $44 million. Roughly $35 million

in compensation has been provided to

cover for these losses (Table 3). The

final amount of compensation for grain

testing negative and for millfeed

treatment will depend on the marketing

distribution of the 1996 wheat crop and

will be proportionately lower the greater

the amount of wheat that is exported.

It is difficult to determine whether

some of these losses would have been

incurred in the absence of regulation.

Indeed, it could be argued that losses

without Federal intervention would

have been higher in the regulated areas,

particularly in the long run, as the

market imposes its own restrictions by

refusing to accept shipments due to the

inability to assess risk. Compensation

payments for loss in value, while not

accounting for every loss or expense due

to the disease or regulation, limited the

adverse impact on wheat sector income

of affected individuals within the

regulated areas.

TABLE 3.—ESTIMATED LOSS IN VALUE DUE TO KARNAL BUNT REGULATIONS, AND COMPENSATION TO DATE, 1995–96

CROP YEAR

[IN MILLIONS OF DOLLARS]

Action

Estimated

loss in

value

Compensation to date

1. Plowdown of NM and TX fields planted with infected seed ........................................................................................ $1.2 $1.2

2. Cost of sanitizing storage facilities .............................................................................................................................. 0.3 0.1

3. KB-positive grain diverted to animal feed market ....................................................................................................... 4.2 4.2

4. KB-negative grain that experienced loss in value ....................................................................................................... 28.0 28.0

5. Millfeed treatment of KB-negative grain ...................................................................................................................... 1.6 1.6

6. Loss in value of seed ................................................................................................................................................... 6.0 (1)

7. Loss in value of straw .................................................................................................................................................. 0.2 (1)

8. Loss related to cleaning and disinfecting of combine harvesters ............................................................................... 2.0 (1)
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15815

TABLE 3.—ESTIMATED LOSS IN VALUE DUE TO KARNAL BUNT REGULATIONS, AND COMPENSATION TO DATE, 1995–96

CROP YEAR—Continued

[IN MILLIONS OF DOLLARS]

Action

Estimated

loss in

value

Compensation to date

Total ....................................................................................................................................................................... 44.0 35.0

Pending.

V. Conditions for Wheat Production

and Utilization in a Regulated Area for

the 1996–97 Crop Year

Based upon survey data identifying

the location of fields that have tested

positive, the regulations in effect during

the 1996 harvest were modified in 1997

for some areas within the initial

quarantine. The final rule published on

October 4, 1996, set forth criteria by

which fields in regulated areas would be

classified into two risk classes in the

1996–97 crop year. The effects of being

classified in a particular category are

outlined in Table 4.

In each regulated area, all or a portion

of that regulated area is designated as

either being a restricted area or a

surveillance area. There are two

differences between being designated a

restricted area and a surveillance area.

First, grain from a restricted area that

tests negative for Karnal bunt may move

under a limited permit from the

regulated area to designated facilities

under safeguard and sanitation

conditions; grain from a surveillance

area that tests negative for Karnal bunt

may move under a certificate to any

destination without restriction.

Additionally, millfeed from grain

produced in a restricted area is required

to be treated, whereas millfeed from

grain produced in a surveillance area is

not required to be treated.

Each restricted and surveillance area

is further divided into individual fields

within the respective areas. Each field

within a restricted area will fall into one

of three categories: (1) A field in which

preharvest samples tested positive; (2) a

field planted with known contaminated

seed in 1995; or (3) any other field

within the restricted area. In a

surveillance area, each field will be

designated as (1) a field planted with

known contaminated seed in 1995; or

(2) any other field in the surveillance

area. In a restricted area, in fields in

which preharvest samples tested

positive, no Karnal bunt host crops may

be planted in the 1996–97 crop season.

The same prohibition applies to fields

in both restricted areas and surveillance

areas which were planted with known

contaminated seed in 1995. Also, as

noted above, millfeed from grain from a

field in the ‘‘any other field’’ category in

a restricted area must be treated;

millfeed from a surveillance area need

not be treated.

TABLE 4.—CONDITIONS FOR WHEAT PRODUCTION AND UTILIZATION IN A REGULATED AREA

Definition Host planting Seed Decontamination Millfeed Survey Disposition of grain

Restricted Area Category:

1. Fields in which

preharvest samples tested positive.

No host planting in 1996–

97 crop season.

N/A ................. Equipment movement

outside regulated

area: cleaned and

sanitized. Movement

within: no restrictions.

N/A ................. N/A ................. N/A.

2. Fields planted

with known contaminated seed

in 1995.

No host planting in 1996–

97 crop season.

N/A ................. Equipment movement

outside regulated

area: cleaned and

sanitized. Movement

within: no restrictions.

N/A ................. N/A ................. N/A.

3. All other fields

within restricted

area.

No restrictions Tested and, if

from regulated area,

treated prior

to planting

only within

regulated

area.

Equipment movement

outside regulated

area: cleaned and

sanitized. Movement

within: no restrictions.

Required, unless destination State

controls

disposition/

movement.

Double tested:

Sampled in

field at harvest; composite sample prior to

Movement.

Movement of grain

testing positive restricted; grain testing negative may

move under limited

permit to designated

facilities under safeguard and sanitation

conditions.

Surveillance Area:

4. Fields planted

with known contaminated seed

in 1995.

No host planting in 1996–

97 crop season.

N/A ................. Equipment movement

outside regulated

area: cleaned and

sanitized. Movement

within: no restrictions.

N/A ................. N/A ................. N/A.
15816 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

3The estimate is based on an average yield of 100

bushels per acre for durum wheat produced in the

desert Southwest.

4Other rotational crops include alfalfa hay, sudan

hay, upland and pima cotton, safflower, and lettuce.

5This estimate is based on a heat treatment cost

of $35 per ton.

TABLE 4.—CONDITIONS FOR WHEAT PRODUCTION AND UTILIZATION IN A REGULATED AREA—Continued

Definition Host planting Seed Decontamination Millfeed Survey Disposition of grain

5. All other fields

located in definable area where

no fields in risk

level 1 are located..

No restrictions Tested and, if

from regulated area,

treated prior

to planting

only within

regulated

area.

Equipment movement

outside regulated

area: cleaned and

sanitized. Movement

within: no restrictions.

Not required ... Double tested:

Sampled in

field at harvest; composite sample prior to

movement.

Movement of grain

testing positive restricted; grain testing negative may

move under certificate. Safeguard and

sanitation of railcars

not required.

The number of wheat acres that is

estimated to fall into the various risk

categories in the 1996–97 crop season is

presented in Table 5. The amount of

wheat acres in the regulated area is

estimated to be greatly reduced from the

previous years largely due to factors

affecting the wheat industry as a whole

(in particular, the projected decline in

export demand for U.S. wheat). Wheat

acres are estimated to decline by 36

percent in the regulated areas of

Arizona, an average of 24 percent in the

three affected counties of California, and

20 percent each in New Mexico and

Texas.

TABLE 5.—PROJECTED 1997 REGULATED WHEAT ACREAGE, BY RISK CATEGORIES 1

Risk category Arizona

California

New Mexico Texas Total acres Imperial

Valley

Bard/

Winterhaven Blythe

Acres

Restricted Area ......................................... 9,200 .................... 40 450 3,239 494 13,423

Surveillance Area ...................................... 105,800 90,000 3,960 4,050 4,128 3,906 211,844

Total 1997 Regulated Area ............ 115,000 90,000 4,000 4,500 7,367 4,400 225,267

1996 Regulated Area ................................ 180,000 106,592 8,909 14,000 9,209 5,494 324,204

1Estimates obtained from the Karnal Bunt Task Force, Arizona.

Overall, the impact of the Karnal bunt

restrictions is likely to be lessened for

many growers and other individuals, as

a large portion of the regulated acres

falls into the less restrictive surveillance

category. Wheat production can still

occur on fields in the regulated areas (in

restricted category 3), on land which

was not previously planted with wheat

in 1996. Growers who choose to plant

wheat in these areas are minimally

restricted by regulations as grain that

tests negative for Karnal bunt can move

under limited permit to designated

facilities.

Approximately 10,000 acres in risk

categories 1 and 4 are prohibited from

planting wheat. The value of wheat

production that could have been

harvested from these fields, calculated

at an average price for durum wheat

before the disease outbreak of $5.50 per

bushel, would have been less than $6

million.3 The impact on growers with

fields in these categories, however, is

uncertain. While the restrictions deny

income that could be earned from

wheat, they do not preclude the

planting of other non-host crops, such

as barley, alfalfa, cotton, and vegetables.

In many of the infected areas, especially

on irrigated operations, wheat is either

double-cropped or grown on rotation

with other non-host crops. The impact

on producers in these risk categories

would therefore be minimized with

rotation. Barley would likely be grown

on these fields: county crop budget data

from Arizona indicate that, except for

barley, the historical net returns

obtained from wheat production are

actually lower than the net returns for

all other crops.4

The required millfeed treatment

would also impose additional costs on

the production of grain from the

regulated areas. It is estimated that

about 3.4 million bushels of grain would

be subject to this restriction at a cost of

roughly $1 million.5

It should be noted that changes in the

compensation plan to remunerate for

certain losses are being developed and

will be published in a future edition of

the Federal Register. Information

received through public comments and

other forums are invaluable in refining

regulatory policies regarding Karnal

bunt. With no prior experience in

regulating the disease, the improvement

of the Karnal bunt program requires

ongoing input from the public. This

process will enable the Agency to better

protect the wheat growing areas of the

United States, while causing the least

possible disruption to the affected areas.

VI. Consideration of Alternatives to the

Rule

A number of alternatives to the

quarantine were considered by the

Agency in controlling the disease

outbreak. One alternative was to limit

the scope of the 1996 quarantine by

regulating only fields that tested

positive for Karnal bunt. This option

was rejected for the following reasons.

Karnal bunt was originally detected in

many certified wheat seed lots produced

in Arizona, as well as in some grain in

storage from a previous harvest. The

information available to the Agency

indicated that seed from the infected

lots were planted widely in parts of

Arizona and California, and in a few

counties in Texas and New Mexico.

This infected seed could not be traced

to specific fields because the process of

seed certification in Arizona allows seed

from different fields to be commingled
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15817

6Source: 1992 Census of Agriculture.

7 Source: Economic Research Service,

Characteristics and Production Costs of U.S. Wheat

Farms, 1989, October, 1993.

in making a seed lot. Because Karnal

bunt spores can remain viable in soil for

as long as 4 to 5 years, and because

wheat is planted in rotation in the

Southwest, the actual infestation would

not be apparent until fields came into

rotation with wheat. Moreover, the

detection of Karnal bunt spores in some

grain in storage from the 1993 harvest

indicated that the disease had been in

present for at least several years. Given

that there is currently no feasible soil

test, the disease, in this situation, could

only be detected as wheat is planted.

The unknown extent of the infestation

in Arizona and California necessitated

broader control actions than those

offered by quarantining infected fields.

In New Mexico and Texas, where wheat

acreage planted with suspect seed was

limited and the wheat crop was

immature, regulatory actions were

directed at plow-down of those fields.

Another alternative available to the

Agency would be not to quarantine.

This alternative was rejected as it could

not be justified given the risk of spread

of Karnal bunt to uninfected areas and

the potential for significant losses in the

wheat export market. The quarantine

actions to prevent disease spread serve

to instill domestic and foreign consumer

confidence in the integrity of U.S.

wheat. The 1995–96 Karnal bunt

program provided pre-harvest sampling

of all wheat fields; compensation for

losses as a result of Agency actions; and

remuneration to offset part of the

additional costs in handling and treating

wheat produced in the regulated area

(through a millfeed cost offset and a

cost-share facility clean-up program

with grain handlers). Without Federal

intervention, it is conceivable that farm

income of wheat producers both within

the affected area, and outside the

regulated area, would have been more

negatively impacted.

When the treatment protocols for

regulated articles were established, few

options to the requirements were made

available to affected wheat growers,

handlers, and combine owners. These

specific protocols were based on the

best scientific information available on

disease management in other countries

affected by Karnal bunt. Furthermore,

the decision to require millfeed

treatment, as with other treatment

requirements, was based on risk

assessments that were conducted to

determine the acceptable level of risk of

the various modes of transportation of

the disease. Compensation is thus being

considered to offset unanticipated losses

and damages caused by the regulatory

requirements.

VII. Characteristics of Small Entities

Within the Regulated Area

The Regulatory Flexibility Act

requires that agencies assess the impact

of regulations on small businesses,

organizations, and governments. A

majority of the firms in the affected area

can be classified as small based on

criteria established by the Small

Business Administration (SBA). Much

of the analysis on impacts discussed in

the previous sections are therefore

applicable to these firms. Unless

otherwise noted, the SBA’s

characterization of a small business for

the categories of interest in this analysis

is a firm that employs at most 500

employees, or has sales of $5 million or

less. The SBA defines a ‘‘small’’ wheat

producer as having sales of less than

$500,000.

In addition to private businesses that

produce and handle grain in the

regulated area, there were a number of

other parties, such as governmental and

quasi-governmental entities and

industry organizations, that were also

affected by the quarantine. For example,

farm organizations that represented

producer interests were impacted by the

reduced activity due to a change in farm

receipts. Local governments may also

have experienced a change in the

business activity level, and thus tax

receipts, due to lower farmer spending.

Seed certification boards are expected to

see lower levels of seed certification as

the demand for seed is reduced. State

and county departments of agriculture

could also have experienced increased

financial burdens as regulatory

responsibilities related to Karnal bunt

surveillance and protocol monitoring

increased on the local level. The

magnitude of these effects, however, are

not quantifiable. The information below

describes the number of firms affected

and provides insight into the impact on

small entities due to Federal

regulations.

Number of Producers and Acreage in

Regulated Area (RA)

There were 5,657 farms in the

counties of the RA as reported in 1992

with over 1,501,089 acres.6 About 1⁄3 of

the reported total acreage was irrigated.

There were 598 wheat growers in the

counties of the RA: 236 in California

(out of 2,236 wheat growers in the

State); 310 in Arizona; 40 in New

Mexico (out of 892 in the State); and 12

in Texas (out of 14,877 in the State).

Total wheat acreage reported in these

counties in 1992 was 176,753 acres

producing 13.3 million bushels. Wheat

acreage represented less than 12 percent

of total farm acreage.

Characteristics of Producers in the RA

Similar cotton and vegetable

production data suggest that the primary

source of income in these areas is

derived from cotton and vegetable

production. Cotton acreage in the

counties of the RA was reported at

496,284 acres on 1,301 farms in 1992.

Vegetables grown for harvest was

reported on 509 farms with 202,694

acres. The acreage and number of

producers growing wheat, cotton, and

other crops vary from year to year

depending on rotations, price and

weather expectations, and other factors.

Wheat is often a rotation crop in cotton

and vegetable crop production

providing a more stable income while

‘‘resting the soil’’ and providing weed

control. Common rotations call for

wheat in one year in three. Data for the

Pacific region indicate that the previous

crop on 57 percent of the wheat acres

in 1989 had crops other than wheat.7

Forty-percent had wheat, while 2

percent had corn and 1 percent had

sorghum as the previous crop.

Of the total 598 wheat farms in the

counties of the RA, 577 (or 96.5 percent)

were growing wheat on irrigated fields.

Of the 598 wheat producers in the RA,

86 percent of producers harvested 499

acres or less of wheat. These 514 wheat

producers are assumed to be classified

in the SBA business classification as

being ‘‘small entities.’’ It is assumed that

the other 84 growers are excluded from

this business classification. Wheat

growers in the RA typically lack on-farm

storage.

Acreage Affected

By 1995/96, the amount of planted

wheat acreage in the counties of interest

had increased; the total number of

growers in the RA was reported at 882

growers (455 in Arizona, 354 in

California, 72 in New Mexico, and 1 in

Texas), with wheat acreage totaling over

300,000 acres. Approximately 145

growers were found to have grown KBpositive wheat, and 73 growers were

issued plow-down orders. As a

percentage of the total in the four States

of the RA, quarantine actions affected

less than 3.3 percent of producers, 3.75

percent of wheat acreage, but almost 8

percent of wheat production.

Based on the SBA’s size definition, 86

percent of producers (514 out of 598) are

assumed to be classified within the

small business category. Thus, the major
15818 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

8Source: Grain and Milling Annual 1996. Offfarm capacities may also reflect storage capacities

of millers.

9See footnote 8.

10Source: U.S. Department of Commerce,

Economics and Statistics Administration Bureau,

Bureau of Census, various State reports on

California and Arizona, Manufacturers—Geographic

Area Series, 1992.

part of any impact from Karnal bunt or

Karnal bunt regulations is assumed to

fall on these individuals.

Harvesters

Harvesting equipment is expensive

and specialized for many agricultural

crops. With a cost of over $130,000 for

a new combine and only a limited time

of use, many wheat growers in the

regulated area depend on custom

operators or ‘‘custom cutters’’ to harvest

their wheat crop. It is estimated that

about 390 combines were needed to

harvest the 1995/96 wheat crop in the

regulated area, with much of it being

supplied by custom cutters. There were

probably 20 to 30 firms engaged in this

business activity (not including

individuals who may have done some

custom cutting of neighboring

properties). All firms are assumed to be

classified in the SBA classification as

being a ‘‘small business.’’ It is assumed

that only a few of these firms, namely

those that were subjected to extensive

cleaning and disinfection if they had

harvested many KB-positive fields,

suffered losses to their machinery as a

result of quarantine actions. Additional

losses occurred because some harvesters

were not allowed to bring their

equipment to certain States.

Wheat Seed Dealers

Wheat seed dealers sell seed to

growers to produce their crop for

milling. They also represent seed wheat

research firms in that they sell wheat

seed that is grown to be used as seed for

the next growing season or for export.

This wheat seed is called private variety

seed as it was developed by a private

firm and has a plant variety protection

‘‘patent’’ on that variety. There are

approximately 25 to 30 seed marketing

firms in the RA; some specialize in

acquiring seed production from the RA

for export. Probably 3 to 4 seed wheat

dealers have over 80 percent of the seed

business in the RA. These firms were

affected by quarantine actions, i.e., by

the restriction on selling or transferring

seed out of the RA. Some of these firms

derive their income from other

enterprises such as vegetable

production, rather than solely from

wheat production and marketing. The

number of firms that can be classified as

‘‘small’’ cannot be determined due to

the proprietary nature of sales records.

Seed Wheat Research Firms

Seed wheat research firms take the

risk and have the expertise to develop

new wheat varieties for future use.

Many develop a relationship with a seed

wheat dealer (who is then called an

‘‘associate’’) to market the developers’

specific varieties. Seed wheat research

firms use seed production in the RA as

a basis for seed to be used in climates

similar to the RA, e.g., the

Mediterranean, or use production in the

RA as seed increases’’ to be used in

Northern climates the following spring.

There are approximately 5 to 9

commercial seed wheat research firms

engaged in the RA, with perhaps 3 to 4

major firms conducting over 70 percent

of research activity. Also, there are

small firms in the RA that specialize in

‘‘seed increases’’ for varieties being

developed by universities, private

companies, and foreign countries. The

number of firms that can be classified as

‘‘small’’ according to SBA standards

cannot be determined due to the

proprietary nature of sales records.

Custom Haulers

There are approximately 130 to 140

individuals in the RA that haul grain

from fields directly after harvest to

storage and load-out locations (referred

to as grain handlers). Some of these

individuals also haul farm machinery

from field to field to prepare or harvest

wheat and other crops. The number of

firms that can be categorized as a ‘‘small

business’’ is unknown.

Grain Handlers

Grain handlers store and unload

nonpropagative wheat received from

growers. Wheat is received by trucks,

pickups, and farm tractors pulling either

grain buggies or farm wagons.

Ownership of the wheat is usually

transferred from the grower to the grain

handler. It is estimated that there are 92

such assembly sites in the RA (50 in

Arizona, 33 in California, 8 in New

Mexico, and 1 in Texas). Off-farm

storage capacities are only available on

a State-wide basis: 8 Arizona (22.3

million bushels), California (98.04

million bushels), New Mexico (15.63

million bushels); and Texas (840.2

million bushels). The SBA defines a

small grain elevator as one that employs

fewer than 100 employees. It is

estimated that nearly all of the elevators

in the regulated areas can be classified

as ‘‘small.’’

Wheat Millers

The number of wheat millers for the

four States are: 9 California (12, with 1

processing durum); Arizona (2, with 1

processing durum); New Mexico (none);

Texas (7, with 1 processing rye). There

were 24 millers in and around the RA

that entered into limited permits with

APHIS: 2 in Arizona, 1 in New Mexico,

and 21 in California. Limited permit

data indicate that millers in the

following States were also affected:

Minnesota, Oregon, Virginia, Missouri,

and Wisconsin. The size of these

operations could not be estimated in

terms of their SBA classification as

‘‘small’’ or ‘‘large’’ businesses. However,

these firms are likely to be classified as

a ‘‘small’’ business.

Prepared Feed Manufacturers

The number of animal feed

manufacturers and/or millfeed

processors in the Riverside-San

Bernardino primary metropolitan

statistical area (PMSA) is 15, and there

are 11 in Arizona.10 Only 12 of these 26

establishments employed over 20

employees. The Riverside-San

Bernardino PMSA data indicates that

the 15 establishments in that area

collectively employed a total of 600

workers with a $20.5 million payroll (8

establishments of the 15 employed more

than 20 employees). Based on these

data, it is estimated that these larger

firms employ about 62 workers on

average and smaller firms had 15

workers per firm. Similar data for

Arizona show that 4 of the 11

establishments in that State employed

more than 20 employees. Given these

scant data and SBA’s definition of a

‘‘small business’’ in this group (SIC

2048)—i.e., an establishment with fewer

than 500 employees—it is assumed that

all firms fall in SBA’s ‘‘small’’ business

category.

Feedlots

It is estimated that about 24 feedlots

in the RA (presumably feeding beef

cattle) were affected by the regulations.

They were found in Arizona (16), New

Mexico (3), and California (5). SBA’s

definition of a ‘‘small business’’ in this

group (SIC 0211) is an establishment

with sales less than $1.5 million. No

sales data on these firms were available,

so it is not possible to estimate the

number of firms that do not fall in

SBA’s small business category.

Based on the above information, we

have concluded that the majority of the

impact of Karnal bunt and subsequent

regulations falls on small businesses. It

is conceivable, however, that without

Federal intervention, individual States

and importing countries would place

their own, perhaps more severe,

restrictions on wheat shipments from

the regulated areas. The 1996 Karnal
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15819

1P.L. 104–208, tit. 12, 110 Stat. 3009 (September

30, 1996).

2 12 U.S.C. 1464, 1467a, respectively.

3HOLA, § 5, previously limited education loans

to 5% of a thrift’s total assets. 12 U.S.C.

1464(c)(3)(A).

bunt program provided pre-harvest

sampling of fields and other measures to

ensure the quality of wheat from the

regulated areas. The use of limited

permits for uninfected wheat further

facilitated the marketing flow of wheat,

thereby enabling the wheat industry

within the regulated areas to be

preserved.

VIII. Summary and Conclusions

The imposition of quarantine and

emergency actions against Karnal bunt

was a necessary, short-run measure

taken to prevent the artificial spread of

the disease to other wheat-producing

areas in the United States. The

establishment of Karnal bunt would

have had serious adverse impact on the

wheat export market, as over half of U.S.

wheat exports are to countries that

maintain restrictions against imports

from countries where Karnal bunt is

known to occur. In the absence of

regulatory action, it is conceivable that

farm income both within and outside

the regulated areas could have been

further jeopardized.

Given the regulatory objective of

disease eradication, the quarantine

measures to control a new disease

outbreak such as Karnal bunt is

necessarily broad due to the lack of

information on the extent of the

outbreak. These actions, enacted after

production and marketing decisions

were in place, undoubtedly had an

adverse impact on growers and other

affected individuals; many were likely

unable to recover unexpected costs. The

loss in market value due to the

quarantine is estimated at $44 million.

The majority of affected individuals and

firms can be classified as ‘‘small’’ based

on criteria established by the Small

Business Administration.

In order to reduce the economic

impact of the quarantine on affected

wheat growers and other individuals,

compensation was provided to mitigate

certain losses and expenses. The

payment of compensation is in

recognition of the fact that while a large

portion of the benefits of regulation

accrue to others outside the regulated

area, the regulatory burden falls

disproportionately on a small segment

of the industry. Indeed, it could be

argued that without compensation, the

regulatory actions would not have been

economically justified, as the costs of

disease control that are borne now could

have a greater weight than benefits that

are received in the future.

Based upon our analysis, we have

concluded that our quarantine measures

were appropriate and justifiable when

compared with the magnitude of the

benefits achieved. Even a 10-percent

reduction in wheat exports would have

a significant effect on wheat sector

income. It is estimated that a 10-percent

decrease in U.S. wheat exports would

cause a decline in wheat sector income

of over $500 million.

As of March 14, 1996, compensation

for the 1995–96 crop year is estimated

at $35 million. While not accounting for

every loss or expense due to the disease

or regulation, compensation for loss in

value lessened the adverse impact on

wheat sector income within the

regulated areas. Remunerations for other

losses are also being developed.

As more information is obtained on

disease prevalence, the number of

regulated acres are reduced and

restrictions for the 1996–97 crop season

are modified to be commensurate with

the level of risk. The impact on those

that are affected by regulation would

also likely be reduced; unlike in 1996,

the 1997 restrictions on wheat planting

are known in advance and can,

therefore, be taken into account when

cropping decisions are made.

Wheat acreage in the regulated areas

is projected to decline from 1995–96

levels, largely due to decreased demand

for U.S. wheat exports. Less than 5

percent of the acres in the regulated

areas is prohibited from planting wheat.

The impact on farm income due to this

prohibition is uncertain, as wheat is

normally rotated with other crops.

Overall, the impact of the Karnal bunt

restrictions on wheat production in the

regulated areas is likely to be small, as

wheat can still be grown on ample,

available land that was not planted with

wheat in 1996.

Done in Washington, DC, this 31st day of

March 1997.

Terry L. Medley,

Administrator, Animal and Plant Health

Inspection Service.

[FR Doc. 97–8544 Filed 3–31–97; 3:19 pm]

BILLING CODE 3410–34–P

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 560

[No. 97–28]

RIN 1550–AB05

Amendments Implementing Economic

Growth and Regulatory Paperwork

Reduction Act

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Final rule.

SUMMARY: The Office of Thrift

Supervision (OTS) today is issuing a

final rule implementing provisions of

the Economic Growth and Regulatory

Paperwork Reduction Act of 1996

(EGRPRA). Among other actions,

EGRPRA: expanded and clarified federal

thrifts’ lending and investment

authority; amended the Qualified Thrift

Lender (QTL) test; authorized OTS to

grant anti-tying exceptions conforming

to exceptions granted to banks by the

Board of Governors of the Federal

Reserve System (FRB); and modified

OTS’s oversight authority over bank

holding companies that own savings

associations. Today’s rule implements

these statutory changes in final form

and enables thrifts to take advantage of

the expanded flexibility and burden

reduction afforded by EGRPRA.

EFFECTIVE DATE: April 3, 1997.

FOR FURTHER INFORMATION CONTACT:

William J. Magrini, Senior Project

Manager, (202) 906–5744, Supervision

Policy; Ellen J. Sazzman, Counsel

(Banking and Finance), (202) 906–7133,

or Karen Osterloh, Assistant Chief

Counsel, (202) 906–6639, Regulations

and Legislation Division, Chief

Counsel’s Office. For information about

holding company issues, contact Kevin

A. Corcoran, Assistant Chief Counsel,

(202) 906–6962, Business Transactions

Division, Chief Counsel’s Office, Office

of Thrift Supervision, 1700 G Street,

NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

On September 30, 1996, Congress

enacted the EGRPRA 1 which amended

and clarified thrifts’ lending and

investment powers under sections 5 and

10 of the Home Owners’ Loan Act

(HOLA).2 EGRPRA confirmed that

federal savings associations may engage

in credit card lending without

limitation; enabled federal savings

associations to engage in education

lending without investment

restrictions; 3 increased the 10% of

assets limitation on federal savings

associations’ commercial lending to

20% of assets, provided that amounts in

excess of 10% are used for small

business loans as defined by the OTS

Director; and amended the QTL test to

provide that investments in education,

small business, credit card, and credit

card account loans are includable