[Federal Register Volume 66, Number 79 (Tuesday, April 24, 2001)]
[Proposed Rules]
[Pages 20615-20620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-10115]


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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.

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Federal Register / Vol. 66, No. 79 / Tuesday, April 24, 2001 / 
Proposed Rules

[[Page 20615]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 985

[Docket No. FV-01-985-1 PR]


Marketing Order Regulating the Handling of Spearmint Oil Produced 
in the Far West; Salable Quantities and Allotment Percentages for the 
2001-2002 Marketing Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule would establish the quantity of spearmint oil 
produced in the Far West, by class, that handlers may purchase from, or 
handle for, producers during the 2001-2002 marketing year, which begins 
on June 1, 2001. This rule invites comments on the establishment of 
salable quantities and allotment percentages for Class 1 (Scotch) 
spearmint oil of 900,208 pounds and 48 percent, respectively, and for 
Class 3 (Native) spearmint oil of 938,944 pounds and 45 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 this rule for 
the purpose of avoiding extreme fluctuations in supplies and prices, 
and thus help to maintain stability in the spearmint oil market.

DATES: Comments must be received by May 9, 2001.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposed rule. Comments must be sent to the Docket 
Clerk, Marketing Order Administration Branch, Fruit and Vegetable 
Programs, AMS, USDA, room 2525-S, P.O. Box 96456, Washington, DC 20090-
6456; Fax: (202) 720-5698; or E-mail: <a href="/cdn-cgi/l/email-protection#d1bcbeb0b3ffb5beb2bab4a5b2bdb4a3ba91a4a2b5b0ffb6bea7"><span class="__cf_email__" data-cfemail="690406080b470d060a020c1d0a050c1b02291c1a0d08470e061f">[email protected]</span></a>. 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.ams.usda.gov/fv/moab.html.

FOR FURTHER INFORMATION CONTACT: Robert J. Curry, Northwest Marketing 
Field Office, Marketing Order Administration Branch, Fruit and 
Vegetable Programs, AMS, USDA, 1220 SW Third Avenue, suite 385, 
Portland, Oregon 97204; telephone: (503) 326-2724; Fax: (503) 326-7440; 
or George Kelhart, Technical Advisor, Marketing Order Administration 
Branch, Fruit and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 
96456, Washington, DC 20090-6456; telephone: (202) 720-2491; Fax: (202) 
720-5698.
    Small businesses may request information on complying with this 
regulation by contacting Jay Guerber, Marketing Order Administration 
Branch, Fruit and Vegetable Programs, AMS, USDA, P.O. Box 96456, room 
2525-S, Washington, DC 20090-6456; telephone (202) 720-2491, Fax: (202) 
720-5698, or E-mail: <a href="/cdn-cgi/l/email-protection#eea48f97c0a99b8b9c8c8b9cae9b9d8a8fc0898198"><span class="__cf_email__" data-cfemail="6228031b4c2517071000071022171106034c050d14">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: This proposal 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.'' This 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 (Department) is issuing this rule in 
conformance with Executive Order 12866.
    This proposal has been reviewed under Executive Order 12988, Civil 
Justice Reform. Under the provisions of the 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, that may be purchased from or handled for producers by 
handlers during the 2001-2002 marketing year, which begins on June 1, 
2001. This proposed rule will not preempt any State or local laws, 
regulations, or policies, unless they present an irreconcilable 
conflict with this rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with the Secretary a 
petition stating that the order, any provision of the order, or any 
obligation imposed in connection with the order is not in accordance 
with law and request a modification of the order or to be exempted 
therefrom. A handler is afforded the opportunity for a hearing on the 
petition. After the hearing the Secretary would rule on the petition. 
The Act provides that the district court of the United States in any 
district in which the handler is an inhabitant, or has his or her 
principal place of business, has jurisdiction to review the Secretary's 
ruling on the petition, provided an action is filed not later than 20 
days after date of the entry of the ruling.
    Pursuant to authority in sections 985.50, 985.51, and 985.52 of the 
order, the Committee recommended the salable quantities and allotment 
percentages for the 2001-2002 marketing year at its October 11, 2000, 
meeting. The Committee unanimously recommended the establishment of a 
salable quantity and allotment percentage for Class 1 (Scotch) 
spearmint oil of 900,208 pounds and 48 percent, respectively, and a 
salable quantity and allotment percentage for Class 3 (Native) 
spearmint oil of 938,944 pounds and 45 percent, respectively.
    This proposed rule would limit the amount of spearmint oil that 
handlers may purchase from, or handle for, producers during the 2001-
2002 marketing year, which begins on June 1, 2001. Salable quantities 
and allotment percentages have been placed into effect each season 
since the order's inception in 1980.
    The U.S. production of spearmint oil is concentrated in the Far 
West, primarily Washington, Idaho, and Oregon (part of the area covered 
by the marketing order). Spearmint oil is also produced in the Midwest. 
The production area covered by the marketing order currently accounts 
for approximately 55 percent of the annual U.S. production of Scotch 
spearmint oil and over 90 percent of the annual U.S. production of 
Native spearmint oil.

[[Page 20616]]

    When the order became effective in 1980, the U.S. produced nearly 
100 percent of the world's supply of Scotch spearmint oil, of which 
approximately 72 percent was produced in the regulated production area 
in the Far West. The Far West continued to produce an average of about 
69 percent of the world's Scotch spearmint oil supply during the period 
from 1980 to 1990. International production characteristics have 
changed since 1990, however, with foreign Scotch spearmint oil 
production contributing significantly to world production. The Far 
West's market share as a percent of total world sales has averaged 
about 44 percent since 1990.
    Since the 1996-97 marketing year, the Committee has employed a 
marketing strategy for Scotch spearmint oil that was intended to foster 
market stability and expand market share. This marketing strategy was 
an attempt to remain competitive on an international level by regaining 
a substantial amount of the Far West's historical share of the global 
market for this class of oil. In implementing this strategy, the 
Committee has been recommending the establishment of a salable quantity 
and allotment percentage for Scotch spearmint oil in excess of the 
estimated trade demand for each marketing year. In the development of 
its annual marketing policy statements during this period, the 
Committee's strategy considered general market conditions for each 
class of spearmint oil, including the Far West's world market share as 
it relates to the overall market stability of spearmint oil.
    During its deliberations at the October 11, 2000, meeting, however, 
the Committee concluded that its marketing strategy for Scotch 
spearmint oil of the past few seasons has not been entirely effective. 
Although sales have increased, the Far West's market share as a 
percentage of total world sales has not increased on average, and the 
market price for Scotch spearmint oil has continued to decline 
throughout this period. During the last two marketing years, the price 
paid to producers for Scotch spearmint oil has dropped to a low of 
$7.00 per pound. The Committee believes that such a price is generally 
below the cost of production for most producers.
    Furthermore, due to the depressed market, many producers with 
allotment base have not planted Scotch spearmint in recent years. The 
order (7 CFR 985.53(e)) requires that producers must make a bona fide 
effort to produce their annual allotment, or failing to do so, have 
their allotment base reduced by an amount equivalent to the unproduced 
portions. Currently, several producers are in danger of losing their 
allotment base if they do not have spearmint planted by the Spring of 
2001. With prices near or below the cost of production, many producers 
also face the potential of going out of business. The Committee 
determined that its only responsible course of action was to adjust its 
marketing strategy in an attempt to stabilize prices at a reasonable 
level while still considering market share. Therefore, the Committee's 
recommendation for Scotch spearmint oil for the 2001-2002 marketing 
year is based on a desire to remain competitive on an international 
level while maintaining the supply of oil at a level that could enhance 
prices and thus help producers to remain solvent. The Committee 
believes that this recommendation would stabilize the market at a level 
that is sustainable for the majority of Scotch spearmint oil producers.
    Despite the recent downward trend in the price of both classes of 
spearmint oil, the Committee believes that the order has contributed 
extensively to the stabilization of producer prices, which prior to 
1980 experienced wide fluctuations from year to year. According to the 
National Agricultural Statistics Service, for example, the average 
price paid for both classes of spearmint oil ranged from about $4.00 
per pound to about $12.50 per pound during the period between 1968 and 
1980. Excluding the most recent two marketing years, prices since the 
order's inception have generally stabilized at about $11.00 per pound 
for Native spearmint oil and at about $13.00 per pound for Scotch 
spearmint oil. Over the last couple of years, the price has dropped to 
about $9.00 per pound and $7.00 per pound, respectively, for Native and 
Scotch spearmint oils despite the Committee's efforts to balance 
available supplies with demand. Based on comments made at the 
Committee's meeting, factors that could have contributed to the low 
prices include the relatively poor returns being realized from other 
essential oils, an abundant supply of spearmint oil, and the continuing 
overall weak farm situation.
    The major conditions contributing to the Committee's current 
recommendation of 45 percent for the Native spearmint oil allotment 
percentage for the 2001-2002 marketing year include a surplus of oil 
and the resultant softening price being offered to growers. The surplus 
has a basis in a higher than anticipated carry-in on June 1, 2000, 
caused in part by a late-season increase in last year's salable 
quantity. The Committee recommended that increase due to signals from 
the industry that there was demand for more oil--a demand that did not 
materialize as expected. Thus, with over 90 percent of the world 
production currently located in the Far West, the Committee's method of 
calculating the Native spearmint oil salable quantity and allotment 
percentage continues to primarily utilize information on price and 
available supply as they are affected by the estimated trade demand.
    The Committee based its recommendation for the proposed salable 
quantity and allotment percentage for each class of spearmint oil for 
the 2001-2002 marketing year on the summary presented above, as well as 
the data outlined below.

(1) Class 1 (Scotch) Spearmint Oil

    (A) Estimated carry-in on June 1, 2001--735,517 pounds. This figure 
is derived by subtracting the estimated 2000-2001 marketing year trade 
demand of 900,000 pounds from the revised 2000-2001 marketing year 
total available supply of 1,635,517 pounds. The 2000-2001 marketing 
year trade demand is an updated figure based on sales to date, 
historical data, and input from spearmint oil producers and handlers. 
The 2000-2001 marketing year total available supply has been revised 
from the figure originally estimated by the Committee during its 
deliberations for the 2000-2001 marketing year salable quantities and 
allotment percentages due to updated production estimates and the 
available reserve pool oil on June 1, 2000.
    (B) Total estimated allotment base for the 2001-2002 marketing 
year--1,875,433 pounds. This figure represents a one-percent increase 
over the revised 2000-2001 total allotment base. Section 985.53(d)(1) 
requires that the Committee make additional allotment bases available 
for each class of oil in the amount of no more than 1 percent of the 
total allotment base for that class of oil. The total allotment base 
for each marketing year is generally revised during each such marketing 
year since it is estimated several months earlier during the respective 
annual marketing policy meetings.
    (C) Average salable quantity as recommended at the five production 
area meetings--888,955 pounds.
    (D) Recommended allotment percentage--48 percent. This figure is 
based on the average of the salable quantity recommended at the five 
production area meetings divided by the total estimated allotment base. 
Committee records show that this is slightly above the average of the 
past

[[Page 20617]]

seven years' sales (891,815 pounds or 47.6 percent).
    (E) The Committee's recommended salable quantity--900,208 pounds. 
This figure is the product of the recommended allotment percentage and 
the total estimated allotment base.
    (F) Estimated available supply for the 2001-2002 marketing year--
1,635,725 pounds. This figure is the sum of the recommended salable 
quantity and the estimated carry-in on June 1, 2001.
    (G) Estimated trade demand for the 2001-2002 marketing year--
875,000 pounds. This figure is based on estimates provided by producers 
and handlers at the five Scotch spearmint oil production area meetings 
held in September 2000. These estimates were derived using average 
sales figures for the past 20 years as well as input from handlers 
regarding current and projected demand for Far West spearmint oil.
    (H) Estimated carry-out on May 31, 2002--760,725 pounds. This 
figure is the difference between the estimated available supply and the 
estimated trade demand for the 2001-2002 marketing year.

(2) Class 3 (Native) Spearmint Oil

    (A) Estimated carry-in on June 1, 2001--130,929 pounds. This figure 
is the difference between the estimated 2000-2001 marketing year trade 
demand of 990,000 pounds and the revised 2000-2001 marketing year total 
available supply of 1,120,929 pounds.
    (B) Estimated trade demand for the 2001-2002 marketing year--
1,000,000 pounds. This figure is based on the average of the estimates 
provided at the four Native spearmint oil production area meetings held 
in September 2000.
    (C) Salable quantity required from the 2001-2002 marketing year 
production--864,071 pounds. This figure is the calculated difference 
between the estimated 2001-2002 marketing year trade demand and the 
estimated carry-in on June 1, 2001.
    (D) Total estimated allotment base for the 2001-2002 marketing 
year--2,086,542 pounds. This figure represents a one percent increase 
over the revised 2000-2001 total allotment base.
    (E) Computed allotment percentage--41.7 percent. This percentage is 
computed by dividing the required salable quantity by the total 
estimated allotment base.
    (F) Recommended allotment percentage--45 percent. This is the 
Committee's recommendation based on the computed allotment percentage, 
the average of the computed allotment percentage figures from the four 
production area meetings (46.4 percent), and input from producers and 
handlers.
    (G) The Committee's recommended salable quantity--938,944 pounds. 
This figure is the product of the recommended allotment percentage and 
the total estimated allotment base.
    (H) Estimated available supply for the 2001-2002 marketing year--
1,069,873 pounds.
    The salable quantity is the total quantity of each class of 
spearmint oil which 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 spearmint oil salable quantity 
of 900,208 pounds and allotment percentage of 48 percent are based on 
the Committee's goal of maintaining market stability by avoiding 
extreme fluctuations in supplies and prices, and thereby helping the 
industry remain competitive on the international level. The Committee's 
recommended Native spearmint oil salable quantity of 938,944 pounds and 
allotment percentage of 45 percent are based on the anticipated supply 
and trade demand during the 2001-2002 marketing year. The proposed 
salable quantities are not expected to cause a shortage of spearmint 
oil supplies. Any unanticipated or additional market demand for 
spearmint oil which may develop during the marketing year can be 
satisfied by an increase in the salable quantities. Both Scotch and 
Native spearmint oil producers who produce more than their annual 
allotments during the 2001-2002 season may transfer such excess 
spearmint oil to a producer with spearmint oil production less than his 
or her annual allotment or put it into the reserve pool.
    This proposed regulation, if adopted, would be similar to those 
which have been issued in prior seasons. Costs to producers and 
handlers resulting from this proposed action 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, the Committee's 
marketing policy statement for the 2001-2002 marketing year has been 
reviewed by the Department. The Committee's marketing policy statement, 
a requirement whenever the Committee recommends volume regulations, 
fully meets the intent of section 985.50 of the order. During its 
discussion of potential 2001-2002 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) prospective production of 
each class of oil; (4) 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 Department'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 which should be produced for next season in 
order to meet anticipated market demand.
    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, the AMS 
has prepared this initial regulatory flexibility analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and rules issued thereunder, are unique in that 
they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility.
    There are 7 spearmint oil handlers subject to regulation under the 
order, and approximately 116 producers of Class 1 (Scotch) spearmint 
oil and approximately 102 producers of Class 3 (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 $5,000,000, and small 
agricultural producers are defined as those whose annual receipts of 
less than $500,000.
    Based on the SBA's definition of small entities, the Committee 
estimates that 2 of the 7 handlers regulated by the

[[Page 20618]]

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 25 of the 116 Scotch spearmint oil producers and 7 of 
the 102 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. Crop rotation is an essential cultural 
practice in the production of spearmint oil for weed, insect, and 
disease control. A normal spearmint oil producing operation would have 
enough acreage for rotation such that the total acreage required to 
produce the crop would be about one-third spearmint and two-thirds 
rotational crops. An average spearmint oil producing farm would thus 
have to have considerably more acreage than would be planted to 
spearmint during any given season. To remain economically viable with 
the added costs associated with spearmint oil production, most 
spearmint oil producing farms would fall into the SBA category of large 
businesses.
    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 2001-2002 marketing year. The 
Committee recommended this rule for the purpose of avoiding extreme 
fluctuations in supplies and prices, and thus help to maintain 
stability in the spearmint oil market. This action is authorized by the 
provisions of sections 985.50, 985.51 and 985.52 of the order.
    Small spearmint oil producers generally are not extensively 
diversified and as such are more at risk to market fluctuations. Such 
small farmers generally need to market their entire annual crop and do 
not have the luxury of having other crops to cushion seasons with poor 
spearmint oil returns. Conversely, large diversified producers have the 
potential to endure one or more seasons of poor spearmint oil markets 
because incomes 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.
    The Committee discussed alternatives to the proposal including 
higher and lower levels for the salable quantities and allotment 
percentages for both classes of oil, as well as not regulating the 
handling of spearmint oil during the 2001-2002 marketing year.
    During the discussion on the 2001-2002 Scotch spearmint oil salable 
quantity and allotment percentage, one producer recommended that the 
Committee continue with the Scotch spearmint oil marketing strategy 
that it has used in the recent past. He recommended the establishment 
of an allotment percentage of 65 percent or higher, or alternatively, 
that there be no regulation established for Scotch spearmint oil during 
the 2001-2002 marketing year. The producer was of the opinion that the 
global nature of Scotch spearmint oil production negates the 
stabilizing benefits of the order, and therefore the order, in regards 
to Scotch spearmint oil, no longer effectuates the declared policy of 
the Act. He feels that a swing in policy from 65 percent to a 48 
percent allotment percentage is radical and will not stabilize the 
market nor improve prices to producers.
    With several individuals commenting during the meeting, however, 
most indicated support for a change in the marketing strategy for 
Scotch spearmint oil to an approach that takes into consideration 
current price, supply, and demand along with the Far West's share of 
the world market. It was noted that, although world production of 
Scotch spearmint oil has increased significantly, the provisions of the 
order in regards to this class of oil are still relevant since demand 
for high quality Far West oil remains relatively good. Blending of 
essential oils is more prevalent today then in the past. Consequently, 
the Committee believes that buyers will continue to seek out the 
quality Far West oil for the purpose of blending with the readily 
available lower quality oils. The Committee's belief that the Scotch 
spearmint oil market can be improved and stabilized is reflected in its 
recommendation to establish the salable quantity and allotment 
percentage at 900,208 pounds and 48 percent, respectively. The 
Committee is of the view that levels higher than 48 percent could cause 
further depression in prices, thus potentially forcing some growers out 
of business.
    The Committee discussed allotment percentage levels for Native 
spearmint oil from a low of 43 percent to a high of 46 percent. With 
the current price for Native spearmint oil lower than the 20 year 
average, and demand fairly flat, the Committee, after considerable 
discussion, decided on 938,944 pounds and 45 percent as the most 
effective salable quantity and allotment percentage, respectively, for 
the 2001-2002 marketing year.
    Further, 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) prospective production of each class of oil; (4) 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.
    The U.S. spearmint oil market is considered a mature agricultural 
operation. Aggregate demand for spearmint 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 is expected to expand slowly in line 
with population growth. Demand for spearmint oil at the farm level is 
derived from the demand for spearmint-flavored products at retail and 
the manufacturers of chewing gum, toothpaste, and mouthwash are by far 
the largest users of mint oil. In general, the farm-level demand for a 
commodity consists of the demand at retail or food service outlets 
minus per-unit processing and distribution costs incurred in 
transforming the raw farm commodity into a product available to 
consumers. These costs comprise what is known as the ``marketing 
margin.'' However, spearmint flavoring tends to be a very small 
component of the retail price for the products in which it is used.

[[Page 20619]]

    Mint growers tend to respond to price signals. Consequently, there 
has been a cycle where larger grower stocks of unsold spearmint oil 
have depressed grower prices for a number of years, and then shortages 
and high prices occur in subsequent years.
    The wide fluctuations in supply and prices that result from this 
cycle create liquidity problems for some growers, particularly those 
with a heavy debt load. Moreover, growers have been less able to 
weather these cycles in recent years because of the decline in prices 
of many alternative crops. Almost all spearmint growers diversify by 
growing other commodities. It is important that spearmint be rotated 
with other crops to avoid the development of disease problems.
    Instability in the spearmint oil subsector 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 buyers. From 
1980 through 2000, production averaged 1,888,810 pounds. The standard 
deviation over this period was 480,911 pounds. This indicates that 
production can vary by over 480,000 pounds from year-to-year.
    This variation in production has necessitated the use of a reserve 
pool to store product in large production years; these stocks are drawn 
down in short production years. In any given year, the total available 
supply of spearmint oil is composed of current production plus 
carryover stocks from the previous crop.
    In an effort to stabilize prices, the spearmint oil industry uses 
the volume control mechanisms authorized under the Federal marketing 
order. This authority allows the industry to set a salable quantity and 
allotment percentage for each class of oil for the upcoming marketing 
year (June 1--May 31). The salable quantity for each class of oil is 
the total volume of that oil which growers may sell during the 
marketing year.
    The allotment percentage for each class of oil is derived by 
dividing the salable quantity by the total allotment base. Each grower 
is then issued an annual allotment certificate, in pounds, for the 
applicable class of oil, which is calculated by multiplying the 
grower's allotment base by the applicable allotment percentage.
    By November 1 of each year, the Far West Spearmint Oil 
Administrative Committee (Committee) identifies any oil that individual 
growers have produced above the volume specified on their annual 
allotment certificates. This excess oil is placed into a reserve pool 
administered by the Committee.
    The reserve pool oil may not be sold during the current marketing 
year unless the Committee decides and the Department approves, that it 
is appropriate to open up the pool. There is a reserve pool for each 
class of oil. However, a grower's reserve oil can be used to fill 
deficiencies in production (which is less than the salable quantity) 
and excess production can be sold to fill other growers' deficiencies.
    The marketing order attempts to minimize the price depressing 
effect that excess grower stocks have on unsold spearmint oil. The 
marketing order attempts to stabilize prices by having stocks available 
in short supply years when prices would increase dramatically, and 
limiting supply and establishing reserves in high production years when 
prices would fall dramatically.
    It is the goal of the Committee to balance supply and demand with 
an appropriate carryout in order to maintain market stability. If the 
industry has production in excess of the salable quantity, then the 
reserve pool absorbs the surplus, and spearmint oil goes unsold.
    To assess the impact that volume control has on the prices growers 
receive for their commodity, an econometric model has been developed 
projecting that the volume control mechanism used by the spearmint oil 
industry will result in decreased production. Without volume control, 
spearmint oil markets would likely be over-supplied, resulting in low 
grower prices and a large volume of oil stored and carried over to the 
next crop year.
    The price growers receive for harvesting their crops is largely 
determined by the level of production and carryin inventories. In years 
of oversupply and low prices, the season average grower price of 
spearmint oil has failed to cover the average variable cost of 
production. The estimated model provides a way to see what impacts 
volume control may have on grower prices. The econometric model is used 
to estimate grower prices with and without regulation. Without volume 
controls, the estimated season-average grower price would be 
approximately $8.97 per pound and production is assumed to increase to 
3,961,975 pounds. With volume controls, production would be limited to 
the salable quantity of 2,086,542 pounds and the grower price would be 
estimated at approximately $10.43 per pound.
    The Committee has estimated the total trade demand for spearmint 
oil to be 1,929,623 pounds for the 2002 crop year. Without volume 
controls, the volume supplied to the market would be approximately 
3,961,975 pounds. This would result in a severe surplus situation for 
the spearmint oil market. This situation would not only negatively 
impact grower prices this year, but would dampen prospects for prices 
in future years because of the buildup in stocks. The econometric model 
shows that for every one-percent increase in carryin inventories, a 
decrease of 0.07 percent in grower prices occurs. The use of volume 
controls allows the industry to fully supply spearmint oil markets 
while avoiding the disastrous results of over-supplying these markets. 
The use of volume controls is believed to have little to no effect on 
consumer prices and will not result in fewer retail sales.
    The use of volume controls is believed to have a positive impact on 
growers' revenues. With regulation, growers' revenues are estimated to 
be $20,125,968. In this scenario, demand is estimated at 1,929,623 
pounds and price at $10.43 per pound. Without regulation, grower prices 
are estimated to be $8.97 per pound and the total demand for spearmint 
oil would have to increase to 2,243,698 pounds for growers to be as 
well off as in the regulated scenario. However, even if demand were to 
increase to 2,243,698 pounds in response to the lower $8.97 per pound 
price, over 1,700,000 pounds of spearmint oil would likely be placed in 
storage, putting tremendous downward pressure on price the next crop 
year.
    The Committee further believes that the order has contributed 
extensively to the stabilization of producer prices, which prior to 
1980 experienced wide fluctuations from year to year. For example, 
National Agricultural Statistics Service records indicate that the 
average price paid for both classes of spearmint oil ranged from about 
$4.00 per pound to about $12.50 per pound during the period between 
1968 and 1980. Excluding the most recent two marketing years, prices 
since the order's inception have generally stabilized at about $11.00 
per pound for Native spearmint oil and at about $13.00 per pound for 
Scotch spearmint oil. Over the last couple of years, the price has 
dropped to about $9.00 per pound and $7.00 per pound, respectively, for 
Native and Scotch spearmint oils despite the Committee's efforts to 
balance available supplies with demand.
    Without any regulations in effect, the Committee believes the 
industry would return to the pattern of cyclical prices of

[[Page 20620]]

prior years, as well as suffer the potentially price depressing 
consequence that a release of over a million pounds of spearmint oil 
reserves would have on the market. According to the Committee, levels 
for the salable quantities and allotment percentages either higher or 
lower than those recommended would not achieve the intended goals of 
market and price stability.
    As stated earlier, 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. 0581-0065. Accordingly, this action would not impose any additional 
reporting or recordkeeping requirements on either small or large 
spearmint oil producers and handlers. All reports and forms associated 
with this program are reviewed periodically in order to avoid 
unnecessary and duplicative information collection by industry and 
public sector agencies. The Department has not identified any relevant 
Federal rules that duplicate, overlap, or conflict with this proposed 
rule.
    The Committee's meeting was widely publicized throughout the 
spearmint oil industry and all interested persons were invited to 
attend and participate on all issues. In addition, interested persons 
are invited to submit information on 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/fv/moab.html. Any questions about the compliance 
guide should be sent to Jay Guerber at the previously mentioned address 
in the FOR FURTHER INFORMATION CONTACT section.
    A 15-day comment period is provided to allow interested persons the 
opportunity to respond to the proposal, including any regulatory and 
informational impacts of this action on small businesses. Fifteen days 
is deemed appropriate because this rule would need to be effective as 
soon as possible to provide producers sufficient time prior to the 
beginning of the 2001-2002 marketing year to adjust their cultural and 
marketing plans accordingly. All written comments received within the 
comment period 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. 985.220 is added to read as follows:

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

Sec. 985.220  Salable quantities and allotment percentages--2001-2002 
marketing year.

    The salable quantity and allotment percentage for each class of 
spearmint oil during the marketing year beginning on June 1, 2001, 
shall be as follows:
    (a) Class 1 (Scotch) oil--a salable quantity of 900,208 pounds and 
an allotment percentage of 48 percent.
    (b) Class 3 (Native) oil--a salable quantity of 938,944 pounds and 
an allotment percentage of 45 percent.

    Dated: April 18, 2001.
Kenneth C. Clayton,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 01-10115 Filed 4-23-01; 8:45 am]
BILLING CODE 3410-02-P


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