21836 Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Rules and Regulations

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV01–930–2 FR]

Tart Cherries Grown in the States of

Michigan, et al.; Final Free and

Restricted Percentages for the 2000–

2001 Crop Year for Tart Cherries

AGENCY: Agricultural Marketing Service,

USDA.

ACTION: Final rule.

SUMMARY: This rule establishes final free

and restricted percentages for the 2000–

2001 crop year. The percentages are 50

percent free and 50 percent restricted

and will establish the proportion of

cherries from the 2000 crop which may

be handled in normal commercial

outlets. The percentages are intended to

stabilize supplies and prices, and

strengthen market conditions and were

recommended by the Cherry Industry

Administrative Board (Board), the body

which locally administers the marketing

order. This action will also authorize

the release of reserve pool cherries to

replace those purchased for government

sales. The marketing order regulates the

handling of tart cherries grown in the

States of Michigan, New York,

Pennsylvania, Oregon, Utah,

Washington, and Wisconsin.

EFFECTIVE DATE: This final rule is

effective May 2, 2001 through June 30,

2001.

FOR FURTHER INFORMATION CONTACT:

Patricia A. Petrella or Dawana R.

Johnson, Marketing Order

Administration Branch, Fruit and

Vegetable Programs, AMS, USDA, Suite

2A04, Unit 155, 4700 River Road,

Riverdale, MD 20737, telephone: (301)

734–5243, or Fax: (301) 734–5275; or

George Kelhart, Technical Advisor,

Marketing Order Administration

Branch, Fruit and Vegetable Programs,

AMS, USDA, room 2525–S, PO Box

96456, Washington, DC 20090–6456;

telephone: (202) 720–2491, or Fax: (202)

720–5698.

Small businesses may request

information on complying with this

regulation, or obtain a guide on

complying with fruit, vegetable, and

specialty crop marketing agreements

and orders by contacting Jay Guerber,

Marketing Order Administration

Branch, Fruit and Vegetable Programs,

AMS, USDA, PO Box 96456, Room

2525–S, Washington, DC 20090–6456;

telephone: (202) 720–2491, Fax: (202)

720–5698, or E-mail:

Jay.Guerber@usda.gov.

SUPPLEMENTARY INFORMATION: This final

rule is issued under marketing

agreement and Order No. 930 (7 CFR

part 930), regulating the handling of tart

cherries produced in the States of

Michigan, New York, Pennsylvania,

Oregon, Utah, Washington, and

Wisconsin, hereinafter referred to as the

‘‘order.’’ The order is effective under the

Agricultural Marketing Agreement Act

of 1937, as amended (7 U.S.C. 601–674),

hereinafter referred to as the ‘‘Act.’’

The Department of Agriculture

(Department) is issuing this rule in

conformance with Executive Order

12866.

This final rule has been reviewed

under Executive Order 12988, Civil

Justice Reform. Under the marketing

order provisions now in effect, final free

and restricted percentages may be

established for tart cherries handled by

handlers during the crop year. This rule

will establish final free and restricted

percentages for tart cherries for the

2000–2001 crop year, beginning July 1,

2000, through June 30, 2001. This 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 exempt therefrom. Such

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 in

equity to review the Secretary’s ruling

on the petition, provided an action is

filed not later than 20 days after the date

of the entry of the ruling.

The order prescribes procedures for

computing an optimum supply and

preliminary and final percentages that

establish the amount of tart cherries that

can be marketed throughout the season.

The regulations apply to all handlers of

tart cherries that are in the regulated

districts. Tart cherries in the free

percentage category may be shipped

immediately to any market, while

restricted percentage tart cherries must

be held by handlers in a primary or

secondary reserve, or be diverted in

accordance with section 930.59 of the

order and section 930.159 of the

regulations, or used for exempt

purposes (and obtaining diversion

credit) under section 930.62 of the order

and section 930.162 of the regulations.

The regulated Districts for this season

are: District one—Northern Michigan;

District two—Central Michigan; District

three—Southwest Michigan; and

District seven—Utah. Districts four, five,

six, eight, and nine (New York, Oregon,

Pennsylvania, Washington, and

Wisconsin, respectively) would not be

regulated for the 2000–2001 season.

The order prescribes under section

930.52 that, upon adoption of the order,

the districts to be regulated shall be

those districts in which the average

annual production of cherries over the

prior three years has exceeded 15

million pounds. A district not meeting

the 15 million-pound requirement shall

not be regulated in such crop year.

Because this requirement was not met in

the districts of New York, Oregon,

Pennsylvania, Washington, and

Wisconsin, handlers in those districts

will not be subject to volume regulation

during the 2000–2001 crop year.

Production from New York was

regulated last year. Production from the

other four States was not subject to

regulation.

Demand for tart cherries at the farm

level is derived from the demand for tart

cherry products at retail. Demand for

tart cherries and tart cherry products

tends to be relatively stable from year to

year. The supply of tart cherries, by

contrast, varies greatly from crop year to

crop year. The magnitude of annual

fluctuations in tart cherry supplies is

one of the most pronounced for any

agricultural commodity in the United

States. In addition, since tart cherries

are processed either into cans or frozen,

they can be stored and carried over from

crop year to crop year. This creates

substantial coordination and marketing

problems. The supply and demand for

tart cherries is rarely balanced. The

primary purpose of setting free and

restricted percentages is to balance

supply with demand and reduce large

surpluses that may occur.

Section 930.50(a) of the order

describes procedures for computing an

optimum supply for each crop year. The

Board must meet on or about July 1 of

each crop year, to review sales data,

inventory data, current crop forecasts

and market conditions. The optimum

supply volume shall be calculated as

100 percent of the average sales of the

prior three years to which is added a

desirable carryout inventory not to

exceed 20 million pounds or such other

amount as may be established with the

approval of the Secretary. The optimum

supply represents the desirable volume

Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Rules and Regulations 21837

of tart cherries that should be available

for sale in the coming crop year.

The order also provides that on or

about July 1 of each crop year, the Board

is required to establish preliminary free

and restricted percentages. These

percentages are computed by deducting

the actual carryin inventory from the

optimum supply figure (adjusted to raw

product equivalent—the actual weight

of cherries handled to process into

cherry products) and subtracting that

figure from the current year’s USDA

crop forecast. If the resulting number is

positive, this represents the estimated

over-production, which would be the

restricted percentage tonnage. The

restricted percentage tonnage is then

divided by the sum of the USDA crop

forecast for the regulated districts to

obtain percentages for the regulated

districts. The Board is required to

establish a preliminary restricted

percentage equal to the quotient,

rounded to the nearest whole number,

with the complement being the

preliminary free tonnage percentage. If

the tonnage requirements for the year

are more than the USDA crop forecast,

the Board is required to establish a

preliminary free tonnage percentage of

100 percent and a preliminary restricted

percentage of zero. The Board is

required to announce the preliminary

percentages in accordance with

paragraph (h) of § 930.50.

The Board met on June 22, 2000, and

computed, for the 2000–2001 crop year,

an optimum supply of 275 million

pounds. The Board recommended that

the desirable carryout figure be zero

pounds. Desirable carryout is the

amount of fruit required to be carried

into the succeeding crop year and is set

by the Board after considering market

circumstances and needs. This figure

can range from zero to a maximum of 20

million pounds. The Board calculated

preliminary free and restricted

percentages as follows: The USDA

estimate of the crop was 245 million

pounds; an 88 million pound carryin

added to that estimate results in a total

available supply of 333 million pounds.

The carryin figure reflects the amount of

cherries that handlers actually have in

inventory. Subtracting the optimum

supply of 275 million pounds from the

total estimated available supply results

in a surplus of 58 million pounds of tart

cherries. An adjustment for changed

economic conditions of 35 million

pounds was added to the surplus,

pursuant to § 930.50 of the order. This

adjustment is discussed later in this

document. After the adjustment, the

resulting total surplus is 93 million

pounds of tart cherries. The surplus was

divided by the production in the

regulated districts (195 million pounds)

and resulted in a restricted percentage

of 48 percent for the 2000–2001 crop

year.The free percentage was 52 percent

(100 percent minus 48 percent). The

Board unanimously established these

percentages and announced them to the

industry as required by the order.

The preliminary percentages were

based on the USDA production estimate

and the following supply and demand

information available at the June

meeting for the 2000–2001 year:

Optimum supply formula Millions of

pounds

(1) Average sales of the prior three years .......................................................................................................................................... 275

(2) Plus desirable carryout .................................................................................................................................................................. 0

(3) Optimum supply calculated by the Board at the June meeting .................................................................................................... 275

Preliminary Percentages:

(4) USDA crop estimate ...................................................................................................................................................................... 245

(5) Plus carryin held by handlers as of July 1, 2000 .......................................................................................................................... 88

(6) Total available supply for current crop year .................................................................................................................................. 333

(7) Surplus (item 6 minus item 3) ........................................................................................................................................................ 58

(8) Economic adjustment to surplus .................................................................................................................................................... 35

(9) Adjusted surplus (item 7 plus item 8) ............................................................................................................................................ 93

(10) USDA crop estimate for regulated districts ................................................................................................................................. 195

Percentages Free Restricted

(11) Preliminary percentages (item 9 divided by item 10 × 100 equals restricted percentage; 100 minus restricted percentage equals free percentage) ....................................................................................................... 52 48

Between July 1 and September 15 of

each crop year, the Board may modify

the preliminary free and restricted

percentages by announcing interim free

and restricted percentages to adjust to

the actual pack occurring in the

industry.

Section 930.50(d) of the order requires

the Board to meet no later than

September 15 to recommend final free

and restricted percentages to the

Secretary for approval. The Board met

on September 8, 2000, and

recommended final free and restricted

percentages of 50 percent. The Board

recommended that the interim

percentages and final percentages be the

same. At that time, the Board had

available actual production, sales, and

carryin inventory amounts to review

and made adjustments to the

percentages.

The Secretary establishes final free

and restricted percentages through the

informal rulemaking process. These

percentages will make available the tart

cherries necessary to achieve the

optimum supply figure calculated by

the Board. The difference between any

final free percentage designated by the

Secretary and 100 percent is the final

restricted percentage.

The Board used an updated optimum

supply figure in determining the final

free and restricted percentages. The

revised optimum supply is 277 million

pounds, instead of 275 million pounds

used in June. The 3-year average sales

figure computed in June included an

estimate of June 2000 sales because

actual June sales were not yet available.

The 3-year average sales figure used in

the final calculations reflects actual

sales for each month of the 3-year

period.

The actual production reported by the

Board was 284 million pounds, which is

a 39 million pound increase from the

USDA crop estimate of 245 million

pounds. The increase in production was

due to higher yields in the major

producing States (Michigan, New York,

Utah, Washington, and Wisconsin). For

2000–2001, production in the regulated

districts totaled 232 million pounds, 37

million pounds greater than the USDA

estimate of 195 million pounds.

An 87 million pound carryin (actual

carryin as opposed to the 88 million

pounds originally estimated in June)

21838 Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Rules and Regulations

was added to the Board’s reported

production of 284 million pounds,

yielding a total available supply for the

current crop year of 371 million pounds.

The optimum supply of 277 million

pounds was subtracted from the total

available supply which resulted in a 94

million pound surplus. An adjustment

of 22 million pounds for changed

economic conditions was added to the

surplus, pursuant to § 930.50 of the

order. This adjustment is discussed later

in this document. After the adjustment,

the resulting total surplus is 116 million

pounds of tart cherries. The total

surplus of 116 million pounds is

divided by the 232 million-pound

volume of tart cherries produced in the

regulated districts. This results in a 50

percent restricted percentage and a

corresponding 50 percent free

percentage for the regulated districts.

The final percentages are based on the

Board’s reported production figures and

the following supply and demand

information available in September for

the 2000–2001 crop year:

Optimum supply formula Millions of

pounds

(1) Average sales of the prior three years .......................................................................................................................................... 277

(2) Plus desirable carryout .................................................................................................................................................................. 0

(3) Optimum supply calculated by the Board at the September meeting ........................................................................................... 277

Final Percentages:

(4) Board reported production ............................................................................................................................................................. 284

(5) Plus carryin held by handlers as of July 1, 2000 .......................................................................................................................... 87

(6) Tonnage available for current crop year ........................................................................................................................................ 371

(7) Surplus (item 6 minus item 3) ........................................................................................................................................................ 94

(8) Economic adjustment to surplus .................................................................................................................................................... 22

(9) Adjusted surplus (item 7 plus item 8) ............................................................................................................................................ 116

(10) Production in regulated districts ................................................................................................................................................... 232

Percentages Free Restricted

(11) Final Percentages (item 9 divided by item 10 × 100 equals restricted percentage; 100 minus restricted

percentage equals free percentage) .................................................................................................................... 50 50

As previously mentioned, the Board

recommended an economic adjustment

in computing both the preliminary and

final percentages for the 2000–2001 crop

year. This is authorized under § 930.50.

These provisions provide that in its

deliberations of volume regulation

recommendations, the Board consider,

among other things, the expected

demand conditions for cherries in

different market segments and an

analysis of economic factors having a

bearing on the marketing of cherries.

Based on these considerations, the

Board may modify its marketing policy

calculations to reflect changes in

economic conditions.

The order provides that the 3-year

average of all sales be used in

determining the optimum supply of

cherries. The industry wants to export

diversion cherries to foreign markets,

excluding Canada and Mexico. Exports

are used by handlers to meet their

diversion requirements. Including this

volume of sales in the optimum supply

formula, however, results in an

overestimate of the volume of tart

cherries that can be profitably marketed

in unrestricted markets. Thus, the Board

recommended adjusting its estimate of

surplus cherries by adding exempt

export sales (all exports except those

going to Canada and Mexico).

This season the Board also

recommended that the adjustment

reflect the impact that USDA purchases

for school lunch and other purposes

might have on the sales component of

the optimum supply formula. Purchases

by USDA are part of the average sales

history for the industry. In recent years,

USDA has purchased about 17 million

pounds of tart cherry products and this

has been factored into the optimum

supply formula. During the 2000–2001

crop year, USDA expects to purchase

about 10 million pounds of frozen and

hot pack cherries, and 20 million

pounds of dried cherries. The Board

determined that the difference between

the expected purchases (30 million

pounds) during the 2000–2001 crop year

and the average purchases of 17 million

pounds should not be included in the

optimum supply figure.

Therefore, the Board adjusted the

expected surplus to 22 million pounds

(35 million pounds of exports minus 13

million pounds of USDA purchases).

Without this adjustment, the surplus for

the 2000–2001 crop year would have

been 129 million pounds. Dividing this

figure by the Board reported production

in the regulated districts (232 million

pounds) would have resulted in a 56

percent restricted percentage. Hence,

this adjustment resulted in a reduction

in the restricted percentage from 56

percent to 50 percent. The 50 percent

restricted percentage will allow growers

to deliver more of their crop to handlers.

This reduction should provide some

benefits to growers in Michigan and

Utah which are the only States

restricted for the 2000–2001 crop year.

By recommending this marketing

policy modification, the Board believes

that it will provide stability to the

marketplace and the industry will be in

a better situation in future years. This

modification is intended to further

facilitate and encourage market

expansion. Board members were of the

opinion that, if this adjustment is not

made, growers could be paid less than

their production costs, because handlers

would suffer financial losses that will

probably be passed on to the growers. In

addition, the value of cherries already in

inventory could be depressed due to the

overabundant supply of available

cherries, a result inconsistent with the

intent of the order and the Act.

The supplementary information

section of the proposed rule stated that

the Board also recommended that a like

quantity of cherries be released from the

reserve to replace cherries that the

USDA and other governmental agencies

offer to purchase for surplus removal

purposes. Based on a comment filed on

behalf of the Board, purchases by other

government agencies will also be

included. The comment, discussed in

full later, clarifies that the Board

intended that such releases only be

made for surplus removal type

purchases, and that all government

purchases, not only USDA purchases for

such purposes should trigger releases.

Simply put, the procurement process

consists of three stages. The offer to buy

stage, the invitation to bid stage, and the

awarding of contracts stage. Such

releases will be based on USDA and

other government agency announced

Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Rules and Regulations 21839

offers to purchase tart cherries for

surplus removal. The quantities

purchased are sometimes less than the

quantities mentioned in the announced

offers. Actual purchases depend on the

prices and quantities offered as well as

possible adjustments in user

requirements.

Because of the potential difference

between the offer and the actual

quantity purchased, and the timing of

the offer and the invitation to bid and

awarding of contracts by the

government agency, the Board

indicated, in its comment, that the

quantity of reserve tonnage released on

the basis of surplus removal offers

should not be considered as carryover at

the first stage of the procurement

process. If at the second stage, the

quantity for which bids are invited is

less than the initial quantity offered, the

difference between the two amounts

will be considered carryover tonnage. If

at the third stage the quantity for which

contracts have been awarded and the

quantity initially offered to be

purchased is less, the difference

between the two amounts will be

considered carryover for the purpose of

computing marketing percentages.

According to the Board, releasing a

like quantity of tart cherries from the

reserve to replace cherries that are

offered to be purchased by USDA and

other government agencies for surplus

removal, together with the previously

mentioned carryover adjustments, will

remove the variability and irregularity

of such purchases and thereby make the

computation of volume regulation

percentages more stable and predictable.

The Board believes that such releases

will equitably spread the benefit of

these planned purchases throughout the

industry because all handlers regulated

under the order, and not just those

handlers who successfully bid and sold

product to USDA and other government

agencies, will benefit from the surplus

removal tart cherry purchases.

The Department’s ‘‘Guidelines for

Fruit, Vegetable, and Specialty Crop

Marketing Orders’’ specify that 110

percent of recent years’ sales should be

made available to primary markets each

season before recommendations for

volume regulation are approved. This

goal will be met by the establishment of

a preliminary percentage which releases

100 percent of the optimum supply and

the additional release of tart cherries

provided under § 930.50(g). This release

of tonnage, equal to 10 percent of the

average sales of the prior three years

sales, is made available to handlers each

season. The Board recommended that

such release should be made available

to handlers the first week of December

and the first week of May. Handlers can

decide how much of the 10 percent

release they would like to receive

during the December and May release

dates. Once released, such cherries are

released for free use by such handler.

Approximately 27 million pounds will

be made available to handlers this

season in accordance with Department

Guidelines. This release will be made

available to every handler and released

to such handler in proportion to its

percentage of the total regulated crop

handled. If a handler does not take his/

her proportionate amount, such amount

shall remain in the inventory reserve.

The Regulatory Flexibility Act and

Effects on Small Businesses

The Agricultural Marketing Service

(AMS) has considered the economic

impact of this action on small entities

and has prepared this final regulatory

flexibility analysis. The Regulatory

Flexibility Act (RFA) will allow AMS to

certify that regulations do not have a

significant economic impact on a

substantial number of small entities.

However, as a matter of general policy,

AMS’ Fruit and Vegetable Programs

(Programs) no longer opts for such

certification, but rather performs

regulatory flexibility analyses for any

rulemaking that will generate the

interest of a significant number of small

entities. Performing such analyses shifts

the Programs’ efforts from determining

whether regulatory flexibility analyses

are required to the consideration of

regulatory options and economic or

regulatory impacts.

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 approximately 40 handlers

of tart cherries who are subject to

regulation under the tart cherry

marketing order and approximately 900

producers of tart cherries in the

regulated area. Small agricultural

service firms, which include handlers,

have been defined by the Small

Business Administration (13 CFR

121.201) as those having annual receipts

of less than $5,000,000, and small

agricultural producers are defined as

those having annual receipts of less than

$500,000.

Board and subcommittee meetings are

widely publicized in advance and are

held in a location central to the

production area. The meetings are open

to all industry members (including

small business entities) and other

interested persons who are encouraged

to participate in the deliberations and

voice their opinions on topics under

discussion. Thus, Board

recommendations can be considered to

represent the interests of small business

entities in the industry.

The principal demand for tart cherries

is in the form of processed products.

Tart cherries are dried, frozen, canned,

juiced, and pureed. During the period

1995/96 through 1999/00,

approximately 91 percent of the U.S.

tart cherry crop, or 280.5 million

pounds, was processed annually. Of the

280.5 million pounds of tart cherries

processed, 62 percent was frozen, 29

percent was canned, and 9 percent was

utilized for juice.

Based on National Agricultural

Statistics Service data, acreage in the

United States devoted to tart cherry

production has been trending

downward. In the ten-year period, 1987/

88 through 1997/98, the tart cherry area

decreased from 50,050 acres, to less

than 40,000 acres. In 1999/00,

approximately 90 percent of domestic

tart cherry acreage was located in four

States: Michigan, New York, Utah and

Wisconsin.

Michigan leads the nation in tart

cherry acreage with 70 percent of the

total. Michigan produces about 75

percent of the U.S. tart cherry crop each

year. In 1999/00, tart cherry acreage in

Michigan decreased to 28,100 acres

from 28,400 acres the previous year.

In crop years’ 1987/88 through 1999/

00, tart cherry production ranged from

a high of 359.0 million pounds in 1987/

88 to a low of 189.9 million pounds in

1991/92. The price per pound received

by tart cherry growers ranged from a low

of 7.3 cents in 1987 to a high of 46.4

cents in 1991. These problems of wide

supply and price fluctuations in the tart

cherry industry are national in scope

and impact. Growers testified during the

order promulgation process that the

prices they received often did not come

close to covering the costs of

production.

They also testified that production

costs for most growers range between 20

and 22 cents per pound, which is well

above average prices received during the

1993–1995 seasons.

The industry demonstrated a need for

an order during the promulgation

process of the marketing order because

large variations in annual tart cherry

supplies tend to lead to fluctuations in

prices and disorderly marketing. As a

result of these fluctuations in supply

21840 Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Rules and Regulations

and price, growers realize less income.

The industry chose a volume control

marketing order to even out these wide

variations in supply and improve

returns to growers. During the

promulgation process, proponents

testified that small growers and

processors would have the most to gain

from implementation of a marketing

order because many such growers and

handlers had been going out of business

due to low tart cherry prices.

They also testified that, since an order

would help increase grower returns, this

should increase the buffer between

business success and failure because

small growers and handlers tend to be

less capitalized than larger growers and

handlers.

Aggregate demand for tart cherries

and tart cherry products tends to be

relatively stable from year-to-year.

Similarly, prices at the retail level show

minimal variation. Consumer prices in

grocery stores, and particularly in food

service markets, largely do not reflect

fluctuations in cherry supplies. Retail

demand is assumed to be highly

inelastic which indicates that price

reductions do not result in large

increases in the quantity demanded.

Most tart cherries are sold to food

service outlets and to consumers as pie

filling; frozen cherries are sold as an

ingredient to manufacturers of pies and

cherry desserts. Juice and dried cherries

are expanding market outlets for tart

cherries.

Demand for tart cherries at the farm

level is derived from the demand for tart

cherry products at retail. 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.’’

The supply of tart cherries, by

contrast, varies greatly. The magnitude

of annual fluctuations in tart cherry

supplies is one of the most pronounced

for any agricultural commodity in the

United States. In addition, since tart

cherries are processed either into cans

or frozen, they can be stored and carried

over from year-to-year. This creates

substantial coordination and marketing

problems. The supply and demand for

tart cherries is rarely in equilibrium. As

a result, grower prices fluctuate widely,

reflecting the large swings in annual

supplies.

In an effort to stabilize prices, the tart

cherry industry uses the volume control

mechanisms under the authority of the

Federal marketing order. This authority

allows the industry to set free and

restricted percentages. These restricted

percentages are only applied to States or

districts with a 3-year average of

production greater than 15 million

pounds. Currently, only the three

districts in Michigan and Utah are

subject to restricted percentages.

The primary purpose of setting

restricted percentages is an attempt to

bring supply and demand into balance.

If the primary market is over-supplied

with cherries, grower prices decline

substantially. The tart cherry sector uses

an industry-wide storage program as a

supplemental coordinating mechanism

under the Federal marketing order. The

primary purpose of the storage program

is to warehouse supplies in large crop

years in order to supplement supplies in

short crop years. The storage approach

is feasible because the increase in

price—when moving from a large crop

to a short crop year—more than offsets

the cost for storage, interest, and

handling of the stored cherries.

The price that growers’ receive for

their crop is largely determined by the

total production volume and carryin

inventories. The Federal marketing

order permits the industry to exercise

supply control provisions, which allow

for the establishment of free and

restricted percentages for the primary

market, and a storage program. The

establishment of restricted percentages

impacts the production to be marketed

in the primary market, while the storage

program has an impact on the volume

of unsold inventories.

The volume control mechanism used

by the cherry industry results in

decreased shipments to primary

markets. Without volume control the

primary markets (domestic) would

likely be over-supplied, resulting in low

grower prices.

To assess the impact that volume

control has on the prices growers

receive for their product, an

econometric model has been estimated.

The estimated model provides a way to

see what impacts volume control may

have on grower prices. The three

districts in Michigan and Utah are the

only restricted areas for this crop year

and their combined total production is

232 million pounds. A 50 percent

restriction means 116 million pounds is

available to be shipped to primary

markets from these two States.

Production levels of 17 million pounds

for New York, 4 million pounds for

Oregon, 5 million pounds for

Pennsylvania, 17 million pounds for

Washington, and 10 million pounds for

Wisconsin results in an additional 53

million pounds available for primary

market shipments.

In addition, USDA requires a 10%

release from reserves as a market growth

factor. This results in an additional 28

million pounds being available for the

primary market. The 116 million

pounds from Michigan and Utah, the 53

million pounds from the other

producing states, and the 28 million

pound release gives a total of 197

million pounds being available for the

primary markets. This results in 88

million pounds being restricted and an

effective restricted percent of 30.8

percent.

The econometric model is used to

estimate grower prices with and without

regulation. Without the volume

controls, the estimated grower price

would be approximately $0.12 per

pound. With volume controls, the

estimated grower price would increase

to approximately $0.20 per pound.

The use of volume controls is

estimated to have a positive impact on

growers’ total revenues. Without

regulation, growers’ total revenues from

processed cherries are estimated to be

$34.2 million in 2000–2001. In this

scenario, production is 284 million

pounds and price, without regulation, is

estimated to be $0.12 per pound. With

regulation, growers’ revenues from

processed cherries are estimated to be

$43.8 million. In this scenario, 197

million pounds are available for the

primary markets with an estimated price

of $0.20 per pound. Over the past

several seasons, growers received

approximately $0.05 per pound for

restricted (diverted) cherries.

The results of econometric analysis

are subject to some level of uncertainty.

As long as the resulting grower prices

are $0.15 per pound or greater, then

growers’ are better off with the

regulation. If price with regulation is

$0.15 per pound or less, the estimated

revenues under no regulation would be

similar to the revenues with a 50

percent regulation.

It is concluded that the 50 percent

volume control would not unduly

burden producers, particularly smaller

growers. The 50 percent restriction is

only applied to the growers in Michigan

and Utah. The growers in the other 5

regulated States will benefit from this

restriction. Michigan and Utah

produced over 80 percent of the tart

cherry crop during the 2000/01 crop

year.

Recent grower prices have been as

high as $0.20 per pound. At current

production levels, the cost of

production is reported to be $0.20 to

$0.22 per pound. Thus, the estimated

$0.20 per pound received by growers

with regulation is close to the cost of

production. The use of volume controls

Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Rules and Regulations 21841

is believed to have little or no effect on

consumer prices and will not result in

fewer retail sales or sales to food service

outlets.

Without the use of volume controls,

the industry could be expected to

continue to build large amounts of

unwanted inventories. These

inventories have a depressing effect on

grower prices. The econometric model

shows for every 1 million-pound

increase in carryin inventories, a

decrease in grower prices of $0.0033 per

pound occurs. The use of volume

controls allows the industry to supply

the primary markets while avoiding the

disastrous results of over-supplying

these markets. In addition, through

volume control, the industry has an

additional supply of cherries that can be

used to develop secondary markets such

as exports and the development of new

products.

In discussing the possibility of

marketing percentages for the 2000–

2001 crop year, the Board considered

the following factors contained in the

marketing policy: (1) The estimated total

production of tart cherries; (2) the

estimated size of the crop to be handled;

(3) the expected general quality of such

cherry production; (4) the expected

carryover as of July 1 of canned and

frozen cherries and other cherry

products; (5) the expected demand

conditions for cherries in different

market segments; (6) supplies of

competing commodities; (7) an analysis

of economic factors having a bearing on

the marketing of cherries; (8) the

estimated tonnage held by handlers in

primary or secondary inventory

reserves; and (9) any estimated release

of primary or secondary inventory

reserve cherries during the crop year.

The Board’s review of the factors

resulted in the computation and

announcement in September 2000 of the

free and restricted percentages in this

rule (50 percent free and 50 percent

restricted).

A positive factor for the cherry

industry this year is the unusually large

USDA purchases of cherries during this

crop year. These USDA sales include a

significant amount of frozen cherries

and large quantities of dried cherries. It

also appears likely that the USDA will

offer to buy more cherries later this year

using Congressionally appropriated

funds designated for purchases of

specified commodities, including tart

cherries.

A number of industry leaders have

suggested that the Board should

consider alternative approaches for

dealing with this challenging situation

which has developed with this year’s

crop because of (a) the considerably

larger actual crop size, (b) the resulting

high regulation percentage, and the

prospect of a significant secondary

reserve, (c) the unusually large USDA

purchases, and (d) other factors.

The Board discussed two alternatives.

The first alternative was an economic

adjustment component for the large

USDA purchases. The Board added a

separate component for the economic

adjustment in the supply regulation

calculations for the large USDA

purchases.

The average of USDA purchases

during the last three years has been 17

million pounds. This year USDA has

purchased 10 million pounds of frozen

cherries to be delivered during the 2000

crop-marketing year. USDA has also

currently offered to buy another

approximately 20 million pounds as

dried cherries. If all of this is

successfully awarded after the bids, this

will be a total of 30 million pounds to

be delivered this year. This is 13 million

pounds more than USDA tart cherry

purchases in recent years. Those who

support this type of economic

adjustment for the USDA demand agree

that the additional 17 million pounds

over the average could be used as a

partial balance to the 35 million pounds

of the economic adjustment for the

expected export diversion credit

volume.

The second alternative is that no

change be made in the economic

adjustment (with a reserve release if

needed). The Board might decide to

make no changes in the economic

adjustment with the expectation that, if

cherries are needed from the reserve to

meet the unusually large USDA

purchases, a reserve release will be

made by the Board when needed during

the coming marketing year. Some in the

industry stated that even though the

crop turned out to be considerably

larger than expected in June, and

despite the large USDA purchases, it is

best to keep the economic adjustment

factor at 35 million pounds. With the

larger crop size, this would result in a

regulation of 57 percent in the regulated

districts. With this alternative, if more

open market cherries are needed

because of the large USDA purchases to

date (and/or an expected additional

purchase later this year), some of the

reserve can be used to replace the free

tonnage tart cherries.

As mentioned earlier, the

Department’s ‘‘Guidelines for Fruit,

Vegetable, and Specialty Crop

Marketing Orders’’ specify that 110

percent of recent years’ sales should be

made available to primary markets each

season before recommendations for

volume regulation are approved. The

quantity available under this rule is 110

percent of the quantity shipped in the

prior three years.

The free and restricted percentages

established by this rule release the

optimum supply and apply uniformly to

all regulated handlers in the industry,

regardless of size. There are no known

additional costs incurred by small

handlers that are not incurred by large

handlers. The stabilizing effects of the

percentages impact all handlers

positively by helping them maintain

and expand markets, despite seasonal

supply fluctuations. Likewise, price

stability positively impacts all

producers by allowing them to better

anticipate the revenues their tart

cherries will generate.

The Department has not identified

any relevant Federal rules that

duplicate, overlap, or conflict with this

regulation.

While the benefits resulting from this

rulemaking are difficult to quantify, the

stabilizing effects of the volume

regulations impact both small and large

handlers positively by helping them

maintain markets even though tart

cherry supplies fluctuate widely from

season to season.

In compliance with Office of

Management and Budget (OMB)

regulations (5 CFR part 1320) which

implement the Paperwork Reduction

Act of 1995 (Pub. L. 104–13), the

information collection and

recordkeeping requirements have been

previously approved by OMB and

assigned OMB Number 0581–0177.

There are some reporting,

recordkeeping, and other compliance

requirements under the marketing order.

The reporting and recordkeeping

burdens are necessary for compliance

purposes and for developing statistical

data for maintenance of the program.

The forms require information which is

readily available from handler records

and which can be provided without data

processing equipment or trained

statistical staff. As with other, similar

marketing order programs, reports and

forms are periodically studied to reduce

or eliminate duplicate information

collection burdens by industry and

public sector agencies. This rule does

not change those requirements.

A proposed rule concerning this

action was published in the Federal

Register on January 10, 2001 (66 FR

1909). Copies of the rule were mailed or

sent via facsimile to all Board members

and handlers. Finally, the rule was

made available through the Internet by

the Office of the Federal Register. A 15-

day comment period ending on January

25, 2001, was provided to allow

21842 Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Rules and Regulations

interested persons to respond to the

proposal.

Two comments were received during

the comment period in response to the

proposal. One comment was received

from a Michigan grower-handler who

supported the Board’s recommendation.

A second comment was received on

behalf of the Board, and recommended

several clarifications to the proposal.

The commenter stated that the Board

intended that reserve releases should be

made for USDA and other government

intended purchases, not only USDA

purchases. The commenter also stated

that the intent of the Board was that

reserve releases involving intended

government purchases should be

triggered only by bonus purchases (nonentitlement purchases) of surplus tart

cherries; i.e., purchase offers intended

to remove surplus supplies from the

marketplace. The Board believes that

the benefits of purchases to remove

surpluses should be shared by each

handler in proportion to the quantities

of reserve cherries held by the handlers.

Purchases by government agencies for

other purposes (referred to as

entitlement purchases) should continue

to be supplied with free tonnage, not

reserve tonnage.

The commenter also stated that any

reserve inventory released based on

surplus removal purchase offers should

not adversely impact the Optimum

Supply Formula and volume regulation

percentages in the subsequent marketing

season. If an offer to make a surplus

removal purchase results in a reserve

release in one crop year and an

invitation to submit bids and an

awarding of contracts the following

year, the tonnage released during the

previous year would be considered as

carryover tonnage. This would increase

the total available supply of cherries for

the succeeding year even though most if

not all of them will probably be

purchased by the government agency,

and make the volume regulation for the

succeeding year more restrictive than

needed. To prevent this from occurring,

the commenter recommended various

methods of handling the carryover

during the procurement steps. If the

tonnage offered and released is the same

as the quantity purchased, none of the

released tonnage should be considered

as carryover. The same would be true if

the offer had been made but the

invitations to bid and the awarding of

contracts had not been issued. If the

offer to purchase and the amount

released is more than the quantity for

which contracts were awarded, the

difference between the two amounts

would not be considered as carryover

tonnage. If the offer to purchase and the

amount of tonnage released is more than

the amount in the invitation to bid or

the contracts awarded, the difference in

the amounts would be considered

carryover tonnage. This reflects how

this aspect of the computation of

volume regulations will be

accomplished. They will help the Board

properly administer the inventory

releases and the volume control

provisions of the marketing order.

Supply management is a critical feature

of the tart cherry marketing order and it

is important that the percentages not be

more restrictive than needed.

In summary, it was the Board’s intent

to limit the types of purchases that

would trigger inventory reserve releases

to bonus (non-entitlement) surplus

removal purchases. Also, the Board did

not intend to limit reserve releases to

surplus removal purchases made by the

USDA. It wanted all government

purchases for such purposes to trigger

releases of reserve cherries. These

requested changes are made in the

applicable provisions.

A small business guide on complying

with fruit, vegetable, and specialty crop

marketing agreements and orders may

be viewed at the following website:

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.

After consideration of all relevant

material presented, including the

information and recommendation

submitted by the Board and other

available information, and the

comments received, it is hereby found

that this rule, as hereinafter set forth,

will tend to effectuate the declared

policy of the Act.

It is further found that good cause

exists for not postponing the effective

date of this rule until 30 days after

publication in the Federal Register

because handlers have already received

2000–2001 crop tart cherries from

growers. Further, handlers are aware of

this rule which was recommended at a

public meeting. Also, a 15-day comment

period was provided for in the proposed

rule, and the comments received have

been addressed.

List of Subjects in 7 CFR Part 930

Marketing agreements, Reporting and

recordkeeping requirements, Tart

cherries.

For the reasons set forth in the

preamble, 7 CFR Part 930 is amended to

read as follows:

PART 930—TART CHERRIES GROWN

IN THE STATES OF MICHIGAN, NEW

YORK, PENNSYLVANIA, OREGON,

UTAH, WASHINGTON, AND

WISCONSIN

1. The authority citation for 7 CFR

part 930 continues to read as follows:

Authority: 7 U.S.C. 601–674.

2. Section 930.154 is added to read as

follows:

§ 930.154 Reserve release.

If USDA or any other governmental

agency initiates an invitation to

purchase product as a non-entitlement

purchase, the Board shall release a like

quantity of cherries from the reserve

pool to each handler who has a

proportionate share in the reserve.

3. Section 930.252 is added to read as

follows:

§ 930.252 Final free and restricted

percentages for the 2000–2001 crop year.

The final percentages for tart cherries

handled by handlers during the crop

year beginning on July 1, 2000, which

shall be free and restricted, respectively,

are designated as follows: Free

percentage, 50 percent and restricted

percentage, 50 percent.

Dated: April 24, 2001.

Kenneth C. Clayton,

Acting Administrator, Agricultural Marketing

Service.

[FR Doc. 01–10664 Filed 4–30–01; 8:45 am]

BILLING CODE 3410–02–U