[Federal Register Volume 59, Number 236 (Friday, December 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30370]


[[Page Unknown]]

[Federal Register: December 9, 1994]


-----------------------------------------------------------------------


DEPARTMENT OF AGRICULTURE
7 CFR Part 981

[FV94-981-3FR]

 

Almonds Grown in California; Salable, Reserve, and Export 
Percentages for the 1994-95 Crop Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule establishes salable, reserve, and export 
percentages for California almonds received by handlers during the 
1994-95 almond crop year. Based on the recommendation of the Almond 
Board of California (Board), the agency which locally administers the 
almond marketing order, and other available information, this rule 
establishes salable, reserve, and export percentages of 90 percent, 10 
percent, and 0 percent, respectively. This rule is authorized under the 
marketing order for almonds grown in California and is intended to 
promote orderly marketing conditions and avoid unreasonable 
fluctuations in supplies and prices.

EFFECTIVE DATE: This final rule becomes effective January 9, 1995, and 
will apply to all almonds received by handlers during the 1994-95 crop 
year, which began on July 1, 1994 and ends on June 30, 1995.

FOR FURTHER INFORMATION CONTACT: Kathleen M. Finn, Marketing 
Specialist, Marketing Order Administration Branch, Fruit and Vegetable 
Division, AMS, USDA, Room 2536-S, P.O. Box 96456, Washington, D.C. 
20090-6456; telephone: (202) 720-1509, or fax (202) 720-5698; or Martin 
Engeler, Assistant Officer-in-Charge, California Marketing Field 
Office, Fruit and Vegetable Division, AMS, USDA, 2202 Monterey Street, 
Suite 102-B, Fresno, Ca., 93721; telephone: (209) 487-5901, or fax 
(209) 487-5906.

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing 
Agreement and Order No. 981 [7 CFR Part 981], both as amended, 
hereinafter referred to as the ``order,'' regulating the handling of 
almonds grown in California. 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 final 
rule in accordance with Executive Order 12866.
    This rule has been reviewed under Executive Order 12778, Civil 
Justice Reform. Under the provisions of the marketing order now in 
effect, California almonds are subject to reserve requirements. It is 
intended that the salable and reserve percentages as issued herein will 
be applicable to all almonds handled during the 1994-95 crop year. This 
final 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. A handler is afforded the opportunity for a hearing on the 
petition. After a hearing the Secretary will 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 a bill in equity is filed 
not later than 20 days after date of entry of the ruling.
    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA), the Administrator of the Agricultural Marketing Service 
(AMS) has considered the economic impact of this action on small 
entities.
    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 115 handlers of almonds who are subject to 
regulation under the marketing order and approximately 7,000 producers 
in the regulated area. Small agricultural service firms have been 
defined by the Small Business Administration [13 CFR 121.601] as those 
having annual receipts less than $5,000,000, and small agricultural 
producers are defined those whose annual receipts are less than 
$500,000. The majority of handlers and producers of California almonds 
may be classified as small entities.
    The National Agricultural Statistics Service estimates 1994 
California almond production at 640 million kernelweight pounds, 31 
percent larger than last year. If realized, this could be one of the 
largest crops on record.
    In order to lessen the impact of this projected large almond supply 
facing the industry, the Board, at its July 7, 1994, meeting in 
Modesto, California, recommended establishing salable, reserve, and 
export percentages for the 1994-95 crop year by a vote of seven to 
three. The opposing votes are discussed later in this document. This 
rule requires handlers of California almonds to withhold, as a reserve, 
from normal domestic and export markets, 10 percent of the merchantable 
almonds they receive from growers during the 1994-95 crop year. The 
remaining 90 percent (the salable percentage) of the crop could be sold 
by handlers in any market at any time. The last year salable and 
reserve percentages were established was the 1991-92 crop year.
    Almond production, like that of many agricultural commodities, can 
vary significantly from season-to-season due to a variety of factors. 
This in turn can cause wide fluctuations in prices. For example, the 
Board has estimated grower prices increased from $1.26 per pound for 
1992 crop almonds to nearly $2.00 per pound for 1993 crop almonds, when 
the corresponding estimated shipments for those crop years were 535.9 
million pounds and 497.7 million pounds, respectively. The large 1994 
California almond crop estimate caused early speculation of grower 
prices in the $1.15 per pound range. Such swings in supplies and price 
levels can result in market instability and uncertainty for growers, 
handlers, buyers, and consumers. The long term goal of the almond 
industry is to increase almond consumption and demand, and the Board 
believes this can be best achieved in the presence of stable and 
orderly market conditions. The Board believes that the use of the 
reserve provisions of the marketing order as a supply management tool, 
in conjunction with other marketing tools available in the order, can 
assist in accomplishing the industry's goals.
    While this rule may restrict the amount of almonds which handlers 
could sell in normal domestic and export markets in the short term, the 
salable and reserve percentages are intended to promote orderly 
marketing conditions by avoiding unreasonable fluctuations in supplies 
and prices and improving grower returns. Further, this rule could help 
provide market stability during the 1995-96 crop year by reserving 
almonds for shipment during that season in the event 1995 production is 
below trade demand needs.
    Authority to establish salable and reserve percentages is provided 
in section 981.47 of the order. Section 981.66 authorizes disposition 
of reserve almonds to certain outlets, including export. Pursuant to 
sections 981.47 and 981.49 of the order, the Board based its 
recommendation for salable, reserve, and export percentages of 90 
percent, 10 percent, and 0 percent, respectively, on estimates of 
marketable supply and combined domestic and export trade demand for the 
1994-95 crop year. The Board's 1994 marketable production estimate of 
620.8 million kernelweight pounds is based on a 1994 crop estimate 
issued by the National Agricultural Statistics Service of 640 million 
kernelweight pounds, minus an estimated loss of 19.2 million 
kernelweight pounds resulting from the removal of inedible kernels by 
handlers and losses during manufacturing.
    Trade demand is estimated at 556.4 million kernelweight pounds--175 
million pounds for domestic needs and 381.4 million pounds for export 
needs. An inventory adjustment is made to account for supplies of 
salable almonds carried in from the 1993-94 crop year and for supplies 
of salable almonds deemed desirable to be carried out on June 30, 1995, 
for early season shipment during the 1995-96 crop year. After adjusting 
for inventory, the trade demand is calculated at 556.8 million 
kernelweight pounds. This is the quantity of almonds from the estimated 
1994 marketable production deemed necessary to meet trade demand needs. 
The salable percentage of 90 percent will meet those needs.
    The remaining 10 percent (64 million kernelweight pounds) of the 
1994 crop marketable production will be withheld by handlers to meet 
their reserve obligations.
    The percentage of reserve almonds available for export is 
established at 0 percent. Although the order permits establishment of a 
percentage of reserve almonds that can be exported, export is currently 
the largest market for California almonds and is not considered a 
secondary or noncompetitive outlet. Therefore, exports are included in 
trade demand and the export market is not an authorized reserve outlet.
    All or part of reserve almonds can be released to the salable 
category if it is found that the supply made available by the salable 
percentage is insufficient to satisfy 1994-95 trade demand needs, 
including desirable carryover for use during the 1995-96 crop year. The 
Board is required to make any recommendations to the Secretary to 
increase the salable percentage prior to May 15, 1995, pursuant to 
section 981.48 of the order. Alternatively, all or a portion of reserve 
almonds can be sold by the Board, or by handlers under agreement with 
the Board, to governmental agencies or charitable institutions or for 
diversion into almond oil, almond butter, animal feed, or other outlets 
which the Board finds are noncompetitive with existing normal markets 
for almonds.
    A tabulation of the estimates and calculations used by the Board in 
arriving at its recommendations follows:

                  Marketing Policy Estimates--1994 Crop                 
                          [Kernelweight basis]                          
------------------------------------------------------------------------
                                                       Million          
                                                       pounds    Percent
------------------------------------------------------------------------
Estimated production:                                                   
  1. 1994 Production................................     640.0          
  2. Loss and Exempt--3.0%..........................      19.2          
  3. Marketable Production..........................     620.8          
Estimated trade demand:                                                 
  4. Domestic.......................................     175.0          
  5. Export.........................................     381.4          
  6. Total..........................................     556.4          
Inventory adjustment:                                                   
  7. Carryin 7/1/94.................................      99.6          
  8. Desirable Carryover 6/30/95....................     100.0          
  9. Adjustment (Item 8 minus item 7)...............       0.4          
Salable/reserve:                                                        
  10. Adjusted Trade Demand (Item 6 plus item 9)....     556.8          
  11. Reserve (Item 3 minus item 10)................      64.0          
  12. Salable % (Item 10 divided by item 3 x 100)...  ........        90
  13. Reserve % (100% minus item 12)................  ........        10
------------------------------------------------------------------------

    The ``Guidelines for Fruit, Vegetable, and Specialty Crop Marketing 
Orders'' (Guidelines) issued by the Department in 1982 specify that 110 
percent of recent years' sales be made available to primary markets 
each season. This rule provides an estimated 656.4 million kernelweight 
pounds of California almonds for unrestricted sales (1994 crop salable 
production plus carryin from the 1993 crop) to meet increasing domestic 
and world almond consumption demands. This amount exceeds the actual 
1991-92 record for delivered sales of California almonds by 18 percent. 
Thus, the Guidelines' goals are met.
    The members of the Board that opposed the establishment of salable 
and reserve percentages believe that free competition is best for the 
industry and that the industry should concentrate on building demand 
for almonds rather than imposing a reserve. One member was also 
concerned that enforcement procedures will be difficult as many 
handlers are reluctant to cooperate with a mandated reserve.
    The general consensus of the Board is that the establishment of 
salable and reserve percentages will reduce market volatility and 
enhance returns to growers, while stabilizing supplies to customers and 
encouraging customer confidence in the industry.
    A proposed rule concerning this action was published in the 
September 7, 1994, Federal Register [59 FR 46203], with a 15-day 
comment period. Three comments were received, one in favor and two 
opposed to the proposed rule.
    One comment in opposition to the proposed rule was submitted by Mr. 
Ross Blackburn, President and CEO of Panoche Creek Packing, an almond 
handler. Mr. Blackburn contends that a reserve will not benefit the 
industry and does not protect small entities. He also refers to 
statistics which indicate that the average price levels were lower in 
years when reserves were implemented in the past. Mr. Blackburn also 
states that market prices of almonds have dropped since the Almond 
Board recommended a reserve, that reserves are controversial and 
difficult to enforce, and the facts don't support use of reserves.
    Statistics referred to in the comment indicate that in past years 
(1980-1993) when reserves were implemented, average grower returns were 
$.965 per pound, which is 31 percent less than non-reserve years when 
the average return was $1.39 per pound. However, in order to make 
assumptions regarding potential losses (or benefits), it is necessary 
to also consider the supply side of the equation. In the reserve years 
referred to in the comment, average salable supplies were about 607 
million pounds compared to 539 million pounds in non-reserve years, or 
approximately 13 percent higher. The greater percentage difference in 
price than supply illustrates the inelastic market for almonds. 
Statistics indicate a similar relationship exists between actual 
shipments and prices.
    If there had been no reserves in these years, supplies would have 
averaged approximately 666 million pounds, or 22 percent more that the 
539 million pounds available as a result of reserves. Because of the 
inelastic demand referenced above, prices would likely have decreased 
proportionately more, resulting in lower grower returns. In addition, 
the Department recognizes there are a multitude of factors affecting 
almond prices, and any potential effects of a reserve must be evaluated 
over an entire season. It would not be appropriate to evaluate the 
potential effects of a reserve based on one market occurrence.
    Mr. Blackburn further commented that the reserve does not protect 
small entities. Regulations promulgated under the AMAA and marketing 
orders are required, under the Regulatory Flexibility Act, to consider, 
among other things, the impact of regulations on businesses both large 
and small, and also to consider the benefits and costs of proposed 
regulations on businesses. The Administrator of AMS has made a 
determination which is set forth in this final rule.
    In regard to enforcement, the Department recognizes that for a 
regulatory program to function properly, it must be administered in an 
effective and equitable manner. We are confident that the compliance 
program developed and administered by the Board and Department will 
provide for an effective enforcement mechanism.
    Another almond grower and handler, Mr. Brent Zehrung of Almond 
Valley Nut Co., submitted a comment in opposition to the proposed 
reserve for the 1994-95 crop year. Mr. Zehrung stated that the Almond 
Board is made up of large businesses and large growers. He also stated 
that small handlers would be required to rent storage facilities from 
large handlers if a reserve is implemented, thus imposing an increased 
cost on small handlers. Furthermore, Almond Board statistics show 
inventory levels that exceed the 60 million pound reserve being 
proposed, thus the reserve will have no effect. Also, the commenter 
claims that recent sales declines are a result of unwarranted 
restriction of supply and individuals' right to advertise. Inventories 
have declined from 250 million pounds in 1990 to 100 million pounds in 
1994. Mr. Zehrung also objects to restricting sales to export at a time 
the U.S. is trying to reduce the trade deficit. He also claims that 
almonds handled by handlers such as Almond Valley that are sold out of 
inventory should be exempt. This commenter further states that 
dissenting voters on the Board believe future production increases 
should cause the industry to focus on marketing, rather than limiting 
sales. In closing, Mr. Zehrung requests consideration of exempting from 
reserve requirements handlers with sales under $5,000,000 annually.
    The Department recognizes the Almond Board as the legally 
constituted body under the marketing order charged with administering 
the provisions of the order. It is elected by growers and handlers in 
the industry which is comprised of both small and large businesses, and 
is considered to represent the industry as a whole.
    While handlers with no storage facilities may need to rent such 
facilities in order to hold reserve almonds, the costs of holding 
almonds in reserve will be borne proportionately throughout the 
industry. All handlers will be required to store reserve almonds in 
varying quantities, dependent upon the total amount of almonds handled. 
Those with existing facilities will also incur storage costs, although 
those costs may be fixed costs spread over a longer period of time. In 
any event, costs associated with storing reserve product are expected 
to be more than offset by the benefits of orderly marketing.
    In response to Mr. Zehrung's request for exemption for handlers 
with sales less than $5,000,000, there currently is no authority in the 
marketing order to exempt handlers based on the volume of sales. In 
addition, we reiterate that regulations issued under the Act and order 
must be applied equitably among all handlers.
    Almond Board statistics show that inventory levels in recent years 
have been above the approximate 60 million pound reserve established. 
However, statistics provided in justification of implementing a reserve 
allow for 100 million pounds of carryout at the end of the 1994-95 crop 
year, in addition to the 64 million pounds of reserve product. The 
figures also provide for 556 million pounds available to sell with no 
restriction, which is equal to the highest shipment level experienced 
by the California almond industry, in the 1991-92 crop year. The 64 
million pounds proposed for reserve is above and beyond expected market 
needs and desirable carryout.
    In regard to Mr. Zehrung's comment that restriction of supply 
(reserves) is in part responsible for a recent decline in sales, 
statistics do not bear that out. Almond shipments reached an all time 
high in the 1991-92 crop year, a year in which a reserve was 
implemented. Shipments then declined to 535.9 million in the 1992 crop 
year and 497.7 million pounds in the 1993 crop year. In neither of the 
latter two years was a reserve recommended or implemented.
    The imposition of a reserve will not necessarily result in 
restricting sales to the export or domestic markets in the long term. 
Under the rule, some 656 million pounds of almonds will be available 
for sale and shipment to markets (556 million lbs. trade demand, plus 
100 million lbs. available carryout). This is over 100 million pounds 
greater than the record year of 1991. The purpose of the reserve is not 
to restrict sales. Rather, it is intended to temporarily remove excess 
supply from the markets to avoid unnecessary price declines, promote 
market stability, augment supply in the event of a short crop next 
season, or if necessary, remove almonds from the normal market channels 
permanently in the event of continued large supplies.
    In response to Mr. Zehrung's request for an exemption for handlers 
such as Almond Valley that might sell out of almonds, we note that 
section 981.56 of the order provides that the Board, on written 
request, may aid any handler in acquiring any almonds to meet any 
deficiency in their reserve.
    In response to the comment that dissenting Board members believe 
that in view of increased future production, efforts should concentrate 
on marketing rather than limiting ability to sell, we reiterate that 
this reserve does not intend to limit handler's sales. Rather, it is a 
marketing tool to be used as outlined in preceding paragraphs.
    For the reasons stated, we are not making any changes to this final 
rule based on the above comments.
    The comment in support of implementing the salable and reserve 
percentages set forth in the proposed rule was submitted by Mr. Steven 
W. Easter, Vice President/Secretary of Blue Diamond Growers, a 
cooperative association of almond growers and a handler regulated under 
the order. In addition to reiterating arguments in the proposed rule 
favoring a reserve, Mr. Easter stated that requiring handlers to hold 
10% of the crop in reserve will preclude product from falling into the 
hands of speculative interests that could use it to manipulate the 
almond market. Also, because of the relatively small 1993 almond crop, 
some consumption has been lost to the industry. By using the reserve to 
manage supplies, the industry may gradually build consumption so larger 
crops in the future may be sold without utilizing reserves.
    In addition to the comments received in response to the proposed 
rule, the Department received three letters prior to issuance of the 
proposed rule. Two of these letters were from almond growers; one was 
from a grower/handler. All three were opposed to implementation of a 
reserve for the 1994-95 season.
    Mr. Brent Zehrung of Almond Valley Nut Co. wrote a letter raising 
essentially the same issues as those in his official comment.
    Mr. Ramzi Khachadourian, General Manager of AICO Madera Limited, an 
almond grower, stated that his company has seen little benefit from 
reserves in the past and in some instances they have been 
counterproductive. Mr. Khachadourian also expressed that free trade is 
the most beneficial trade system, and that efforts in marketing should 
be improved.
    Another letter, from Mr. Joseph P. Silveira, President of Pacific 
Coast Farms, an almond grower, stated opposition to a reserve. Mr. 
Silveira expressed support for a free market, and stated that efforts 
should be concentrated on expanding markets in view of the projected 
future increased almond production.
    The issues raised in Mr. Zehrung's letter have been addressed 
previously in this rule.
    In response to the concerns expressed in the other two letters, the 
Department concurs with the concepts of free trade and expanding 
markets. The purpose of implementing a reserve is to promote market 
stability and orderly market conditions, thus enhancing grower returns. 
The long term goal of increasing almond consumption can be best 
achieved with stable market conditions in conjunction with promotional 
efforts. Imposition of this reserve is not intended to restrict the 
quantity of product going to market in the long term, but rather to 
help promote conditions that will result in increased consumption and 
sales in the future.
    Establishment of salable and reserve percentages are often 
contentious and controversial in the almond industry. Those opposed to 
reserves generally have philosophical differences with supporters, 
favoring a market situation not affected by supply controls as 
reflected in the Board discussion and vote. However, a majority of the 
Board favored the recommendation, and all Board members (even those 
opposed) have indicated they will support the majority Board 
recommendation and work to ensure fair and equitable administration of 
the reserve, if established.
    After thoroughly analyzing the comments received and all other 
available information, the Department has concluded that issuing this 
rule is appropriate.
    Based on the above, the Administrator of the AMS has determined 
that the issuance of this final rule will not have a significant 
economic effect on a substantial number of small entities.
    After consideration of all relevant material presented, including 
the Board's recommendation, the comments received, and other available 
information, it is found that this regulation, as hereinafter set 
forth, will tend to effectuate the declared policy of the Act.

List of Subjects in 7 CFR Part 981

    Almonds, Marketing agreements, Nuts, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, 7 CFR Part 981 is 
amended as follows:

PART 981--ALMONDS GROWN IN CALIFORNIA

    1. The authority citation for 7 CFR Part 981 continues to read as 
follows:

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

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

Subpart--Salable, Reserve, and Export Percentages

    2. Section 981.239 is added to read as follows:


Sec. 981.239  Salable, reserve, and export percentages for almonds 
during the crop year beginning on July 1, 1994.

    The salable, reserve, and export percentages during the crop year 
beginning on July 1, 1994, shall be 90 percent, 10 percent, and 0 
percent, respectively.

    Dated: December 2, 1994.
Eric M. Forman,
Deputy Director, Fruit and Vegetable Division.
[FR Doc. 94-30370 Filed 12-8-94; 8:45 am]
BILLING CODE 3410-02-P