[Federal Register Volume 62, Number 146 (Wednesday, July 30, 1997)]
[Proposed Rules]
[Pages 40756-40763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20005]


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 Proposed Rules
                                                 Federal Register
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 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. 62, No. 146 / Wednesday, July 30, 1997 / 
Proposed Rules  

[[Page 40756]]


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DEPARTMENT OF AGRICULTURE

Animal and Plant Health Inspection Service

7 CFR Part 301

[Docket No. 96-016-21]
RIN 0579-AA83


Karnal Bunt; Compensation for Wheat Seed and Straw in the 1995-
1996 Crop Season

AGENCY: Animal and Plant Health Inspection Service, USDA.

ACTION: Proposed rule.

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SUMMARY: We are proposing to amend the Karnal bunt regulations by 
adding compensation provisions for growers and seed companies for the 
loss in value of wheat seed and straw in the 1995-1996 crop season. The 
payment of compensation is necessary in order to reduce the economic 
impact of the Karnal bunt regulations on affected wheat growers and 
other individuals.

DATES: For comments on all portions of this proposed rule except the 
rule's information collection and recordkeeping requirements that are 
subject to the Paperwork Reduction Act, consideration will be given 
only to comments received on or before August 29, 1997. For comments on 
the Paperwork Reduction Act requirements of this proposed rule, 
consideration will be given only to comments received on or before 
September 29, 1997.

ADDRESSES: Please send an original and three copies of your comments to 
Docket No. 96-016-21, Regulatory Analysis and Development, PPD, APHIS, 
suite 3C03, 4700 River Road Unit 118, Riverdale, MD 20737-1238. Please 
state that your comments refer to Docket No. 96-016-21. Comments 
received may be inspected at USDA, room 1141, South Building, 14th 
Street and Independence Avenue SW., Washington, DC, between 8 a.m. and 
4:30 p.m., Monday through Friday, except holidays. Persons wishing to 
inspect comments are requested to call ahead on (202) 690-2817 to 
facilitate entry into the comment reading room.

FOR FURTHER INFORMATION CONTACT: Mr. Mike Stefan, Operations Officer, 
Domestic and Emergency Operations, PPQ, APHIS, 4700 River Road Unit 
134, Riverdale, MD 20737-1236, (301) 734-8247.

SUPPLEMENTARY INFORMATION:

Background

    Karnal bunt is a fungal disease of wheat (Triticum aestivum), durum 
wheat (Triticum durum), and triticale (Triticum aestivum X Secale 
cereale), a hybrid of wheat and rye. Karnal bunt is caused by the smut 
fungus Tilletia indica (Mitra) Mundkur and is spread by spores. In the 
absence of measures taken by the U.S. Department of Agriculture (USDA) 
to prevent its spread, the establishment of Karnal bunt in the United 
States could have significant consequences with regard to the export of 
wheat to international markets. The regulations regarding Karnal bunt 
are set forth in 7 CFR 301.89-1 through 301.89-14. Among other things, 
the regulations define areas regulated for Karnal bunt and restrict the 
movement of certain regulated articles, including wheat seed and grain, 
from the regulated areas.
    In an interim rule effective June 27, 1996, and published in the 
Federal Register on July 5, 1996 (61 FR 35102-35107, Docket No. 96-016-
7), the Animal and Plant Health Inspection Service (APHIS) amended the 
regulations to provide compensation for certain wheat growers and 
handlers, owners of grain storage facilities, and flour millers in 
order to mitigate losses and expenses incurred in the 1995-1996 crop 
season because of actions taken by the Secretary to prevent the spread 
of Karnal bunt. On May 6, 1997, we published a document in the Federal 
Register (62 FR 24745-24753, Docket No. 96-016-17, effective April 30, 
1997) making final the July 5 interim rule, and adding compensation 
provisions for handlers of wheat that was tested and found negative for 
Karnal bunt and participants in the National Karnal Bunt Survey whose 
wheat tested positive for Karnal bunt in the 1995-1996 crop season. 
Several comments on the July 5 interim rule requested compensation for 
loss in value of wheat seed and straw in the 1995-1996 crop season. We 
stated in the May 6 final rule that we were still considering what 
compensation was appropriate for these losses. The provisions of the 
compensation plan for seed and straw are proposed in this document.
    The Agency has identified three principles for deciding whether to 
provide compensation. First, compensation may be appropriate where 
quarantine and emergency actions result in economic costs over and 
above those that would result from the normal operation of market 
forces. Payment of compensation would reflect the incremental burdens 
of complying with regulatory requirements insofar as market forces 
would not otherwise impose similar or analogous costs. Second, 
compensation may be appropriate where parties undertake actions that 
confer significant benefits on others. Under this principle, payment of 
compensation would be intended to overcome the usual disincentives to 
produce such benefits. Third, compensation may be appropriate where a 
small number of parties necessarily bear a disproportionate share of 
the burden of providing such benefits. This principle rests on the 
widely shared belief that burden-sharing is a fundamental principle of 
equity. Our decisions concerning the compensation we are proposing for 
seed and straw were made after consideration of these three principles.

Compensation for Seed

    In the 1995-1996 crop season, areas in Arizona, California, New 
Mexico, and Texas were regulated for Karnal bunt. For 1995-1996 crop 
season wheat, commercial shipments of wheat to be used for seed were 
prevented from moving outside of the regulated areas. Wheat seed grown 
in the regulated areas could be planted within the regulated areas, but 
only after it tested negative for Karnal bunt and was treated. These 
restrictions prevented most wheat seed from being shipped to intended 
markets. Growers and seed companies were permitted to sell their wheat 
seed for use as grain (for milling or animal feed). However, even under 
normal market conditions, the value of grain is less than for seed. In 
the 1995-1996 crop season, grain from the regulated areas was also 
decreased in value because of the Karnal bunt regulations. It is 
estimated that 1.5 million bushels of

[[Page 40757]]

wheat seed grown in the regulated areas sustained loss in value of 
between $5 and 6 million in the 1995-1996 crop season.
    Seed companies had contracts with growers in the regulated areas to 
produce commercial quantities of wheat seed (a seed company acquires 
wheat and processes it for sale as seed). Under a typical contract, a 
grower agreed to produce a specified quantity of seed for a price that 
was normally equal to the price the wheat would be worth as grain plus 
a 30 to 50 cents per bushel seed premium. This premium reflects the 
added precautions taken by the grower in production to ensure seed 
integrity and cleanliness. Some contract prices, including the seed 
premiums, were set in the contracts prior to the discovery of Karnal 
bunt in Arizona in March 1996. However, many of the contracts specified 
that the prices were to be set at harvest, which was after the 
discovery of Karnal bunt. Contract prices set at harvest were, 
therefore, likely to reflect the loss in value of wheat seed due to the 
restrictions on moving seed in the Karnal bunt regulations. Growers 
experienced a loss in the expected value of their seed if seed 
companies did not pay the full contract price specified in the contract 
prior to harvest, or if a price was determined in the contract at 
harvest, after the discovery of Karnal bunt.
    For seed companies, the price for which they are able to sell their 
seed consists of the market value for wheat grain plus the seed margin. 
The seed margin is the difference between the value of wheat sold as 
seed and wheat sold as grain, and reflects various costs to seed 
companies for producing seed, including seed premiums paid by the seed 
company to the grower. Seed companies also contract with growers to 
produce both public and private variety seed. Private variety seed is 
seed that has a plant variety protection patent. In the case of private 
variety seed production, the seed margin would also reflect premiums 
paid by the seed company to the private firm that owns the plant 
variety protection patent. Seed margins in the regulated areas average 
$4.50 per bushel for private variety seed and $2.40 per bushel for 
public variety seed.
    In the 1995-1996 crop season, seed companies with wheat seed 
produced in the regulated areas experienced loss in the expected value 
of their seed because, under the Karnal bunt regulations, they were 
unable to move their seed to intended markets outside the regulated 
areas. Seed companies could have sold their seed as grain, for milling 
or to make animal feed. However, they would have lost the seed margin, 
and they would have had to sell the seed for the reduced prices offered 
for wheat grain from the regulated areas in the 1995-1996 crop season.
    We are proposing to offer compensation to wheat seed growers and 
seed companies to help mitigate the losses in the value of wheat seed 
in the 1995-1996 crop season due to the Karnal bunt regulations. The 
proposed regulations for wheat seed and straw compensation would be 
added to Sec. 301.89-14, which contains compensation provisions for 
losses incurred in the 1995-1996 crop season. In the regulations, we 
would refer to wheat seed as ``propagative wheat'' or ``wheat grown for 
propagative purposes.'' Because the Secretary of Agriculture is 
authorized to compensate only individuals who are in States for which 
an extraordinary emergency has been declared, we would state that 
growers and seed companies would be eligible for compensation only if 
the wheat was grown in a State where the Secretary has declared an 
extraordinary emergency. Further, pursuant to an interim rule effective 
on April 25, 1997, and published in the Federal Register on May 1, 1997 
(62 FR 23620-23628, Docket 96-016-19), some areas that were regulated 
for Karnal bunt in the 1995-1996 crop season are no longer regulated 
for Karnal bunt. For this reason, we would stipulate that the wheat for 
which compensation is being claimed must have been grown in an area of 
that State that was regulated for Karnal bunt or under Emergency Action 
Notification (EAN)(PPQ Form 523) for Karnal bunt during the 1995-1996 
crop season. (EANs are issued by APHIS inspectors to temporarily 
regulate an area, in accordance with Sec. 301.89-3(d) of the Karnal 
bunt regulations.)

Compensation for Growers Who Sold Propagative Wheat

    As discussed previously in this document, growers experienced a 
loss in the expected value of their 1995-1996 crop season propagative 
wheat if seed companies did not pay the full contract price specified 
in the contract prior to harvest, or if a price was determined in the 
contract at harvest, after the discovery of Karnal bunt in March 1996. 
We are not proposing to pay compensation to growers if a price was 
determined in the contract prior to the discovery of Karnal bunt and 
that contract price was honored by the seed company. These growers 
would have received the full expected value of their propagative wheat.
    Growers had the option of selling their propagative wheat as grain, 
instead of selling it to the seed company with which it was contracted. 
Growers could then move the wheat out of the regulated areas under less 
burdensome restrictions than those that applied to commercial shipments 
of wheat seed. Some growers who chose to do this also filed 
compensation claims under the regulations for 1995-1996 crop season 
nonpropagative wheat (see Sec. 301.89-14(b)). These growers would still 
have experienced the loss of the expected seed premium. We are 
proposing, therefore, that growers of wheat grown for propagative 
purposes be eligible for different levels of compensation depending on 
whether they sold their wheat under contract to a seed company or they 
sold their wheat elsewhere for nonpropagative purposes. If they sold 
their wheat elsewhere for nonpropagative purposes, compensation would 
depend on whether or not they claimed compensation under the 
regulations for nonpropagative wheat.
    Compensation for growers who sold their wheat under contract to a 
seed company would be as follows:
    1. If the wheat was grown under contract and a price was determined 
in the contract on or before March 1, 1996, and the contract price was 
not honored by the seed company, the compensation rate would equal the 
contract price (CP) including the seed premium specified in the 
contract (SP)(contract) minus the higher of either the salvage value 
(SV) plus the actual seed premium received by the grower, if any, 
(SP)(actual), or the actual price received by the grower (AP) plus the 
actual seed premium received by the grower, if any, (SP)(actual). The 
equation for this compensation would be as follows: Compensation rate = 
[CP + SP(contract)]--[higher of (SV + SP(actual)) or (AP + 
SP(actual))].
    2. If the wheat was grown under contract and a price was determined 
in the contract after March 1, 1996, the compensation rate would equal 
the estimated market price for grain (EMP) plus the seed premium 
specified in the contract (SP)(contract) minus the higher of either the 
salvage value (SV) plus the actual seed premium received by the grower 
(SP)(actual), or the actual price received by the grower (AP) plus the 
actual seed premium received by the grower (SP)(actual). The equation 
for this compensation would be as follows: Compensation rate = [EMP + 
SP(contract)]--[higher of (SV + SP(actual)) or (AP + SP(actual))].
    Compensation for growers of propagative wheat who sold their wheat 
under contract to a seed company would not exceed $2.80 per bushel 
under any circumstances. This maximum compensation amount

[[Page 40758]]

represents the maximum $2.50 per bushel compensation for nonpropagative 
wheat provided in the regulations (see Sec. 301.89-14(b)) plus a $.30 
seed premium.
    The salvage value used in the calculations described above is 
intended to represent the actual value of wheat from the regulated 
areas as a result of Karnal bunt. The salvage values used for 
propagative wheat would be the same as those used for nonpropagative 
wheat compensation in the 1995-1996 crop season (see Sec. 301.89-
14(b)(3)). As with nonpropagative wheat, the salvage values for 
propagative wheat would vary depending on whether or not the wheat was 
positive or negative for Karnal bunt, and the use for which the wheat 
was sold. In each case, the amount of the actual price or the salvage 
value of the propagative wheat would include the value of any proceeds 
accrued through insurance claims, judgments, or from any other source. 
However, the minimum salvage value under any circumstances would be 
$3.60 per bushel.
    The estimated market price used in the calculations described above 
is intended to represent what the value of the wheat would have been if 
there were no regulations for Karnal bunt. Estimated market prices were 
used in calculating compensation for nonpropagative wheat in the 1995-
1996 crop season. Estimated market prices were calculated for 
nonpropagative durum wheat and nonpropagative hard red winter wheat for 
the harvest months of May and June. The estimated market prices for 
durum wheat were calculated based on the following: the daily closing 
cash prices for choice milling durum wheat traded on the Minneapolis 
Grain Exchange during the period of May 1 to June 30, 1996, adjusted to 
account for the handling and transportation charges incurred in getting 
the wheat from the regulated areas in California and Arizona to the 
central market in Minneapolis. These adjustments were based on the 
average difference between the Minneapolis cash price and the cash 
prices within the regulated areas for 1995. Estimated market prices for 
hard red winter wheat were calculated in a similar manner, based on the 
daily closing futures prices for the July hard red winter wheat 
contract traded on the Kansas City Board of Trade during the period of 
May 1 to June 30, 1996, adjusted to account for the handling and 
transportation charges incurred in getting the wheat from a central 
point in the regulated areas to the market in Kansas City. These 
adjustments were based on the average difference between the Kansas 
City futures price and the cash prices within the regulated areas for 
1995. We would use the same estimated market prices that were 
calculated for nonpropagative wheat for the propagative wheat 
compensation calculations in this proposed rule.
    Growers of 1995-1996 crop season wheat grown for propagative 
purposes who sold the wheat for nonpropagative purposes would be 
eligible to receive compensation as follows:
    1. If the grower has not claimed compensation under the regulations 
for nonpropagative wheat, the compensation rate would equal the 
estimated market price for grain (EMP) minus the actual price received 
by the grower (AP), plus the seed premium specified in the contract the 
grower had with a seed company (SP). The equation for this compensation 
would be as follows: Compensation rate = (EMP--AP) + SP.
    2. If the grower has claimed compensation under the regulations for 
nonpropagative wheat (Sec. 301.89-14(b)), the compensation rate would 
be equal to the seed premium specified in the contract the grower had 
with a seed company.

Compensation for Seed Companies That Sold Propagative Wheat

    As discussed previously in this document, seed companies 
experienced a loss in the expected value of propagative wheat produced 
in the regulated areas because, under the Karnal bunt regulations, they 
were unable to move their wheat to intended markets outside the 
regulated areas. Seed companies could have sold their wheat as grain, 
for milling or to make animal feed. However, they would have lost the 
seed margin, and they would have had to sell the seed for the reduced 
prices offered for wheat grain from the regulated areas in the 1995-
1996 crop season.
    Unlike growers, who typically sell their wheat seed at harvest, 
seed companies sometimes keep wheat seed inventories from past crop 
seasons on hand. These wheat inventories were subject to the same 
restrictions on movement as 1995-1996 crop season wheat. For this 
reason, we are proposing that seed companies with 1995-1996 crop season 
wheat grown for propagative purposes and seed companies with 
propagative wheat inventories in their possession that were unsold as 
of March 1, 1996, be eligible to receive compensation.
    Further, as discussed previously in this document, an interim rule 
effective on April 25, 1997, and published in the Federal Register on 
May 1, 1997, amended the regulated areas so that some areas that were 
regulated for Karnal bunt in the 1995-1996 crop season are no longer 
regulated for Karnal bunt. Many seed companies in the previously 
regulated areas had held their 1995-1996 crop season wheat seed. These 
seed companies are now able to move their wheat for propagative 
purposes without restriction. However, because the wheat seed market is 
down this year as compared to last year, and because the regulations 
prevented them from marketing their wheat last year when they may have 
received a higher price, the seed companies will probably still 
experience a loss in value of their propagative wheat.
    Seed companies handling propagative wheat grown in areas that 
remain regulated with regard to seed would continue to be subject to 
the restrictions on moving wheat outside of the regulated areas that 
apply to commercial shipments of seed, and will likely sell their wheat 
as grain. We are proposing separate compensation for seed companies 
depending on whether the propagative wheat is sold for nonpropagative 
purposes (such as milling or animal feed) or for propagative purposes 
(planting). We are also proposing different compensation for seed 
companies that sold propagative wheat for nonpropagative purposes 
depending on whether or not they have already claimed compensation 
under the regulations for nonpropagative wheat (see Sec. 301.89-14(b)).
    Compensation for seed companies that have sold propagative wheat 
for nonpropagative purposes, and that have not claimed compensation 
under the regulations for nonpropagative wheat, would be as follows:
    1. If the wheat was grown in the 1995-1996 crop season, was under 
contract, and the seed company honored the contract by paying the 
grower the full contract price, including the seed premium, the 
compensation rate would equal the estimated market price for grain 
(EMP) plus the seed margin (SM) minus the higher of either the actual 
price received by the seed company (AP) or the salvage value (SV). The 
equation for this compensation would be as follows: Compensation rate = 
EMP + SM--(higher of AP or SV). The seed margin would be set at $4.50 
per bushel for private variety seed and set at $2.40 per bushel for 
public variety seed. However, compensation would not exceed $7.00 per 
bushel for private variety seed and $4.90 per bushel for public variety 
seed under any circumstances. (The maximum compensation amounts 
represent the seed margins plus the maximum $2.50

[[Page 40759]]

compensation for nonpropagative wheat provided in the regulations (see 
Sec. 301.89-14(b)).
    2. If a seed company had wheat inventories from past crop seasons 
on hand as of March 1, 1996, the compensation rate would equal the 
estimated market price for grain (EMP) plus the seed margin (SM) minus 
the higher of either the actual price received by the seed company (AP) 
or the salvage value (SV). The equation for this compensation would be 
as follows: Compensation rate = EMP + SM--(higher of AP or SV). The 
seed margin would be set at $4.50 per bushel for private variety seed 
and set at $2.40 per bushel for public variety seed. However, 
compensation would not exceed $7.00 per bushel for private variety seed 
and $4.90 per bushel for public variety seed under any circumstances.
    Seed companies that have sold propagative wheat for nonpropagative 
purposes, and that have claimed compensation under the regulations for 
nonpropagative wheat, would be eligible for a compensation rate equal 
to the seed margin. The seed margin would be $4.50 per bushel for 
private variety seed and $2.40 per bushel for public variety seed.
    The compensation we are proposing for seed companies that sold 
propagative wheat for propagative purposes would be as follows: The 
compensation rate would equal the estimated market price for grain 
(EMP) plus the seed margin (SM) minus the higher of either the actual 
price received by the seed company (AP), or the salvage value (SV). The 
equation for this compensation would be as follows: Compensation rate = 
(EMP + SM)--(higher of AP or SV). The seed margin would be $4.50 per 
bushel for private variety seed and $2.40 per bushel for public variety 
seed. However, compensation would not exceed $7.00 per bushel for 
private variety seed and $4.90 per bushel for public variety seed under 
any circumstances.
    The salvage values and estimated market prices used in the 
calculations described above for seed companies would be the same as 
discussed previously in this document for growers of propagative wheat. 
In each case, the amount of the actual price or the salvage value of 
the propagative wheat would include the value of any proceeds accrued 
through insurance claims, judgments, or from any other source.

Growers and Seed Companies--To Claim Compensation

    We are proposing that compensation payments for the loss in value 
of propagative wheat would be issued by the Farm Service Agency (FSA) 
of the U.S. Department of Agriculture. Growers and seed companies that 
are eligible for compensation under this proposed rule would have to 
submit the same documents to the local FSA county office, as follows: A 
grower or seed company would have to submit a Karnal Bunt Compensation 
Claim form, provided by FSA. If the wheat was grown in an area that is 
not a regulated areas, but for which an EAN for Karnal bunt has been 
issued, the grower or seed company would have to submit a copy of the 
EAN. A grower or seed company would also have to submit a copy of the 
contract under which the wheat was grown; a copy of the Karnal bunt 
certificate issued by APHIS that shows the Karnal bunt test results; a 
copy of the receipt for the final sale of the wheat, showing the 
intended use for which the wheat was sold, total bushels sold, and the 
total price received by the grower or seed company; and verification as 
to the actual (not estimated) weight of the wheat for which 
compensation is being claimed (such as a copy of the limited permit 
under which the wheat is being moved, or other verification). In 
addition, a seed company that is claiming compensation on seed 
inventories would have to certify to FSA that the propagative wheat was 
in the seed company's possession as of March 1, 1996.

Other Seed Company Compensation

    The compensation for seed companies with propagative wheat proposed 
above applies only to seed companies that sold their wheat. We are 
proposing that seed companies would be eligible to receive compensation 
under an additional circumstance: If a seed company is not able to or 
elects not to sell 1995-1996 crop season wheat grown for propagative 
purposes or propagative wheat inventories in their possession that were 
unsold as of March 1, 1996, the compensation rate would equal $7.00 per 
bushel for private variety seed and $4.90 per bushel for public variety 
seed. These amounts represent the seed margins of $4.50 for private 
variety seed and $2.40 for public variety seed plus the maximum $2.50 
per bushel compensation for nonpropagative wheat provided in the 
regulations (see Sec. 301.89-14(b)). Compensation would only be paid if 
the seed company has destroyed the wheat by burying it in a sanitary 
landfill or other site that has been approved by APHIS.
    Compensation for seed companies under this additional circumstance 
would be necessary in a small number of cases where seed companies had 
their seed treated with a fungicide and bagged. Such treatment is 
typical in seed production to make it suitable for planting and so that 
it can be stored for extended periods, but it renders the wheat 
unusable for nonpropagative purposes. Most seed companies did not treat 
and bag their 1995-1996 crop season wheat seed. Some seed companies, 
however, had wheat seed from past crop seasons on hand that had already 
been treated in this manner. If these seed companies choose not to or 
are unable to market their wheat for planting within the regulated 
areas, then they may bury their wheat and qualify for the compensation 
described above.
    To claim compensation under this additional circumstance, a seed 
company would have to submit documents to the local FSA county office, 
as follows: A seed company would have to submit a Karnal Bunt 
Compensation Claim form, provided by FSA. If the wheat was grown in an 
area that is not a regulated area, but for which an EAN for Karnal bunt 
has been issued, the seed company would have to submit a copy of the 
EAN. A seed company would also have to submit a copy of the contract 
under which the wheat was grown and verification of how much wheat was 
buried, in the form of a receipt from the sanitary landfill or 
verification signed by an APHIS inspector. In addition, a seed company 
that is claiming compensation on seed inventories would have to certify 
to FSA that the propagative wheat was in the seed company's possession 
as of March 1, 1996.

Compensation for Straw

    Some growers contract to sell wheat straw to supplement their wheat 
grain income. Straw is sold for use at places such as racetracks, 
highway shoulders, feed yards, and parks for erosion control and to 
minimize muddy conditions. Wheat straw is listed in the Karnal bunt 
regulations as a regulated article. In the 1995-1996 crop season, wheat 
straw could not move outside of the regulated areas because it could 
not meet the conditions in the regulations for moving regulated 
articles outside the regulated areas (see Sec. 301.89-5). This 
prevented wheat straw producers in the regulated areas from shipping 
their 1995-1996 crop season wheat straw to the intended markets. Some 
wheat straw was sold to alternative markets within the regulated areas 
for a lower price. However, most wheat straw was not able to be sold.
    We are adding a new Sec. 301.89-14(i) to provide compensation for 
wheat straw producers for the losses experienced because of the Karnal 
bunt regulations. We would define wheat straw producers to include 
either growers who bale their

[[Page 40760]]

own wheat straw or individuals contracted by growers to remove wheat 
straw from the growers' fields. We would require that the wheat straw 
producers must have produced the straw under contract. This would 
ensure that compensation is not claimed by individuals who did not 
intend to sell their straw, but produced it for their own use. 
Producers of wheat straw made from wheat grown in the regulated areas 
in the 1995-1996 crop season would be eligible to receive compensation 
on a one-time-only basis at the rate of $1.00 per 80-pound bale or 
$1.25 per hundredweight. Producers of straw contracted for sale would 
be eligible for compensation regardless of whether or not the straw was 
delivered to the contractee. Compensation payments would be issued by 
the Farm Service Agency (FSA). To claim compensation, a wheat straw 
producer would have to submit a Karnal Bunt Compensation Claim form, 
provided by FSA, and a copy of the contract under which the straw was 
produced to the local FSA county office.

Deadline for Claiming Compensation

    We are proposing to set a deadline for claiming compensation under 
this proposed rule. Claims for either seed or straw compensation would 
have to be received by FSA on or before 60 days after the date that the 
provisions of this proposed rule are made final. The Administrator 
could extend this deadline, upon request in specific cases, when 
unusual and unforeseen circumstances occur which prevent or hinder a 
claimant from requesting compensation prior to that date.

Executive Order 12866 and Regulatory Flexibility Act

    This proposed rule has been reviewed under Executive Order 12866. 
This rule has been determined to be economically significant for 
purposes of Executive Order 12866 and, therefore, has been reviewed by 
the Office of Management and Budget.
    The quarantine and regulations for Karnal bunt were established by 
a series of interim rules and a final rule published in the Federal 
Register on October 4, 1996. A final rule effective on April 30, 1997, 
and published in the Federal Register on May 6, 1997, amended the 
regulations to provide compensation for certain wheat grain growers and 
handlers, owners of grain storage facilities, flour millers, and 
participants in the National Karnal Bunt Survey in order to mitigate 
losses and expenses incurred in the 1995-1996 crop season because of 
actions taken by the Secretary of Agriculture to prevent the spread of 
Karnal bunt. The economic impact of the series of interim rules and the 
October 1996 final rule establishing the Karnal bunt quarantine and 
regulations, and the May 1997 final rule on compensation, was discussed 
in a regulatory flexibility analysis and regulatory impact analysis 
also published in the Federal Register on May 6, 1997 (62 FR 24753-
24765, Docket No. 96-016-20). The analyses estimate that losses due to 
the discovery of Karnal bunt and the subsequent emergency regulatory 
actions amounted to $44 million (see table below). These losses were 
associated with the plowdown of fields in New Mexico and Texas that 
were known to be planted with Karnal bunt-infected seed, 
decontamination of grain storage facilities, the decline in market 
value of wheat grain testing either positive or negative for Karnal 
bunt, treatment of millfeed required by the regulations, the decline in 
market value of wheat seed and straw, and damages to combine harvesters 
due to required disinfection treatment.
    In order to alleviate some of the economic hardships caused by the 
Karnal bunt regulations, and to ensure full and effective compliance 
with the regulatory program, compensation to mitigate certain losses 
was offered to affected parties in the regulated areas. A discussion of 
losses and the rationale for compensation can be found in the 
regulatory flexibility analysis and regulatory impact analysis cited 
above. Funding for compensation in the amount of $39 million has been 
made available through apportionment action (transfers from the 
Commodity Credit Corporation). Of the $39 million, $26.5 million has 
been allocated specifically for compensation for plowdown, 
decontaminating grain storage facilities, loss in value of grain, and 
millfeed treatment.
    This proposed rule would amend the Karnal bunt regulations by 
adding compensation provisions for wheat straw producers and wheat seed 
growers and seed companies for the loss in value of their straw and 
seed due to the regulations for Karnal bunt. As discussed in the 
regulatory impact analysis referred to above, losses to seed growers 
were estimated to be about $6 million; losses to straw producers were 
estimated at about $200,000. The regulatory flexibility analysis 
referred to above discusses the impact of the Karnal bunt regulations 
on small entities. The majority of the affected entities in the 
regulated areas have been determined to be small entities. Compensation 
in the amount of $10.8 million has been apportioned for compensation to 
seed producers and companies for the loss in value of their seed. Straw 
compensation was made available through funds appropriated for the loss 
in value of grain (see table below).

  Estimated Loss in Value Due to Karnal Bunt Regulations, 1995-96 Crop  
                                  Year                                  
                          [In million dollars]                          
------------------------------------------------------------------------
                                                               Estimated
                            Action                              loss in 
                                                                 value  
------------------------------------------------------------------------
1. Plowdown of NM and TX fields planted with infected seed...       $1.2
2. KB-positive grain diverted to animal feed market..........        4.2
3. KB-negative grain that experienced loss in value..........   \1\ 28.0
4. Cost of sanitizing storage facilities.....................        0.3
5. Millfeed treatment of KB-negative grain...................        1.6
6. Loss in value of seed.....................................        6.0
7. Loss in value of straw....................................        0.2
8. Loss related to cleaning and disinfecting of combine                 
 harvesters..................................................        2.0
                                                              ----------
      Total..................................................      44.0 
------------------------------------------------------------------------
\1\ $28 million is the potential maximum amount of loss in value of     
  uninfected wheat.                                                     

Executive Order 12372

    This program/activity is listed in the Catalog of Federal Domestic 
Assistance under No. 10.025 and is subject to Executive Order 12372, 
which requires intergovernmental consultation with State and local 
officials. (See 7 CFR part 3015, subpart V.)

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. If this proposed rule is adopted: (1) All State 
and local laws and regulations that are inconsistent with this rule 
will be preempted; (2) no retroactive effect will be given to this 
rule; and (3) administrative proceedings will not be required before 
parties may file suit in court challenging this rule.

Paperwork Reduction Act

    In accordance with section 3507(d) of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.), the information collection or 
recordkeeping requirements included in this proposed rule have been 
submitted for approval to the Office of Management and Budget (OMB) 
under OMB control number 0579-0121 in conjunction with APHIS Dockets 
96-016-15 and 96-016-17, with two exceptions.
    The first exception is the proposed requirement that growers and 
handlers submit to FSA a Karnal Bunt

[[Page 40761]]

Compensation Claim form. This information collection was submitted for 
approval to OMB in conjunction with Docket 96-016-15 for 1996-1997 
compensation claims, but not for 1995-1996 compensation claims (the 
crop season covered by this docket). The second exception is that, in 
order for FSA to complete the Karnal Bunt Compensation Claim form, the 
local FSA office would have to complete a Karnal Bunt Compensation 
Worksheet for 1995-1996 Propagative Wheat (PPQ Form 928). Completion of 
the worksheet would be necessary in order to calculate the rate of 
compensation in accordance with the regulations proposed in this 
docket. This worksheet would be completed using the information 
collected by FSA in completing the Karnal Bunt Compensation Claim form. 
This information collection was not submitted to OMB in conjunction 
with APHIS Dockets 96-016-15 and 96-016-17 because the need for FSA to 
complete a Karnal Bunt Compensation Worksheet for 1995-1996 Propagative 
Wheat is particular to this proposed rule.
    Estimate of burden: Public reporting burden for this collection of 
information is estimated to average .46 hours per response.
    Respondents: Growers and seed companies.
    Estimated number of respondents: 122.
    Estimated number of responses per respondent: 3.9.
    Estimated total annual burden on respondents: 216 hours.
    We are soliciting comments from the public (as well as affected 
agencies) concerning the information collection and recordkeeping 
requirements in this proposed rule, and concerning the information 
collection in support of the National Karnal Bunt Survey. We need this 
outside input to help us:
    (1) Evaluate whether the proposed information collection is 
necessary for the proper performance of our agency's functions, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of our estimate of the burden of the 
proposed information collection, including the validity of the 
methodology and assumptions used;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected;
    (4) Minimize the burden of the information collection on those who 
are to respond (such as through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology, e.g., permitting electronic 
submission responses).
Information collection in support of the National Karnal Bunt Survey:
    Please send written comments to the Office of Information and 
Regulatory Affairs, OMB, Attention: Desk Officer for APHIS, Washington, 
DC 20503. Please state that your comments refer to Docket No. 96-016-
21. Please send a copy of your comments to: (1) Docket No. 96-016-21, 
Regulatory Analysis and Development, PPD, APHIS, suite 3C03, 4700 River 
Road Unit 118, Riverdale, MD 20737-1238, and (2) Clearance Officer, 
OIRM, USDA, room 404-W, 14th Street and Independence Avenue SW., 
Washington, DC 20250. A comment to OMB is best assured of having its 
full effect if OMB receives it within 30 days of publication of this 
proposed rule.
    Copies of this information collection can be obtained from: Ms. 
Cheryl Jenkins, APHIS Information Collection Coordinator, (301)734-
5360.

List of Subjects in 7 CFR Part 301

    Agricultural commodities, Plant diseases and pests, Quarantine, 
Reporting and recordkeeping requirements, Transportation.

    Accordingly, 7 CFR part 301 would be amended as follows:

PART 301--DOMESTIC QUARANTINE NOTICES

    1. The authority citation for part 301 would continue to read as 
follows:

    Authority: 7 U.S.C. 147a, 150bb, 150dd, 150ee, 150ff, 161, 162, 
and 164-167; 7 CFR 2.22, 2.80, and 371.2(c).

    2. In Sec. 301.89-14, paragraph (f)(2), the reference to 
``paragraph (d)'' would be removed both times it appears and a 
reference to ``paragraph (f)'' would be added in its place.
    3. In Sec. 301.89-14, paragraphs (d), (e), and (f) would be 
redesignated as paragraphs (f), (g), and (h) respectively; and new 
paragraphs (d), (e), and (i) would be added to read as set forth below.


Sec. 301.89-14  Compensation for the 1995-1996 crop season.

* * * * *
    (d) Growers and seed companies that sold propagative wheat. Growers 
of and seed companies with wheat grown for propagative purposes are 
eligible for compensation for the loss in value of their wheat, in 
accordance with this section, if the wheat was grown in a State where 
the Secretary has declared an extraordinary emergency, and if the wheat 
was grown in an area of that State that was regulated for Karnal bunt 
or under Emergency Action Notification (PPQ Form 523) for Karnal bunt 
during the 1995-1996 crop season.
    (1) Growers who sold propagative wheat under contract. Growers of 
1995-1996 crop season wheat grown for propagative purposes are eligible 
to receive compensation as described in paragraphs (d)(1)(i) and 
(d)(1)(ii) of this section if they sold the wheat under contract to a 
seed company. However, compensation will not exceed $2.80 per bushel 
under any circumstances.
    (i) If the wheat was grown under contract and a price was 
determined in the contract on or before March 1, 1996, and the contract 
price was not honored by the seed company, the compensation rate will 
equal the contract price (CP) including the seed premium specified in 
the contract (SP)(contract) minus the higher of either the salvage 
value (SV), as described in paragraph (d)(6) of this section, plus the 
actual seed premium received by the grower (SP)(actual), or the actual 
price received by the grower (AP) plus the actual seed premium received 
by the grower (SP)(actual). In each case, the amount of the actual 
price or the salvage value of the propagative wheat will include the 
value of any proceeds accrued through insurance claims, judgments, or 
from any other source. The equation for this compensation is: 
Compensation rate = [CP + SP(contract)]--[higher of (SV + SP(actual)) 
or (AP + SP(actual))].
    (ii) If the wheat was grown under contract and a price was 
determined in the contract after March 1, 1996, the compensation rate 
will equal the estimated market price for grain (EMP) plus the seed 
premium specified in the contract (SP)(contract) minus the higher of 
either the salvage value (SV), as described in paragraph (d)(6) of this 
section, plus the actual seed premium received by the grower 
(SP)(actual), or the actual price received by the grower (AP) plus the 
actual seed premium received by the grower (SP)(actual). In each case, 
the amount of the actual price or the salvage value of the propagative 
wheat will include the value of any proceeds accrued through insurance 
claims, judgments, or from any other source. The equation for this 
compensation is: Compensation rate = [EMP + SP(contract)]--[higher of 
(SV + SP(actual)) or (AP + SP(actual))]. The estimated market price 
will be calculated by APHIS for each class of wheat, taking into 
account the prices offered by relevant terminal markets (animal feed, 
milling, or export) for the period between May 1 and June 30, 1996, 
with adjustments for transportation and other handling costs.

[[Page 40762]]

    (2) Growers who sold propagative wheat for nonpropagative purposes. 
Growers of 1995-1996 crop season wheat grown for propagative purposes 
who sold the wheat for nonpropagative purposes are eligible to receive 
compensation in accordance with paragraphs (d)(2)(i) and (d)(2)(ii) of 
this section.
    (i) If the grower has not claimed compensation under paragraph (b) 
of this section, the compensation rate will equal the estimated market 
price for grain (EMP) minus the actual price received by the grower 
(AP), plus the seed premium specified in the contract the grower had 
with a seed company (SP). In each case, the amount of the actual price 
of the propagative wheat will include the value of any proceeds accrued 
through insurance claims, judgments, or from any other source. The 
equation for this compensation is: Compensation rate = (EMP--AP) + SP. 
Growers who claim compensation under this paragraph may not claim 
compensation under paragraph (b) of this section.
    (ii) If the grower has claimed compensation under paragraph (b) of 
this section, the compensation rate will equal the premium specified in 
the contract the grower had with a seed company.
    (3) Seed companies that sold propagative wheat for nonpropagative 
purposes and that have not claimed compensation. Seed companies with 
1995-1996 crop season wheat grown for propagative purposes and seed 
companies with propagative wheat inventories in their possession that 
were unsold as of March 1, 1996, are eligible to receive compensation 
as described in paragraphs (d)(3)(i) and (d)(3)(ii) of this section if 
the propagative wheat was sold for nonpropagative purposes and if the 
seed company has not claimed compensation under paragraph (b) of this 
section. Seed companies that claim compensation under paragraph 
(d)(3)(i) or (d)(3)(ii) of this section may not claim compensation 
under paragraph (b) of this section.
    (i) If the wheat was grown in the 1995-1996 crop season, was under 
contract, and the seed company honored the contract by paying the 
grower the full contract price, including the seed premium, the 
compensation rate will equal the estimated market price for grain (EMP) 
plus the seed margin (SM) minus the higher of either the actual price 
received by the seed company (AP) or the salvage value (SV), as 
described in paragraph (d)(6) of this section. The equation for this 
compensation is: Compensation rate = EMP + SM--(higher of AP or SV). 
The seed margin is $4.50 per bushel for private variety seed and $2.40 
per bushel for public variety seed. In each case, the amount of the 
actual price or the salvage value of the propagative wheat will include 
the value of any proceeds accrued through insurance claims, judgments, 
or from any other source. However, compensation will not exceed $7.00 
per bushel for private variety seed and $4.90 per bushel for public 
variety seed under any circumstances.
    (ii) If a seed company had wheat inventories from past crop seasons 
on hand as of March 1, 1996, the compensation rate will equal the 
estimated market price for grain (EMP) plus the seed margin (SM) minus 
the higher of either the actual price received by the seed company (AP) 
or the salvage value (SV), as described in paragraph (d)(6) of this 
section. The equation for this compensation is: Compensation rate = EMP 
+ SM--(higher of AP or SV). The seed margin is $4.50 per bushel for 
private variety seed and $2.40 per bushel for public variety seed. In 
each case, the amount of the actual price or the salvage value of the 
propagative wheat will include the value of any proceeds accrued 
through insurance claims, judgments, or from any other source. However, 
compensation will not exceed $7.00 per bushel for private variety seed 
and $4.90 per bushel for public variety seed under any circumstances.
    (4) Seed companies that sold propagative wheat for nonpropagative 
purposes and that have claimed compensation. Seed companies with 1995-
1996 crop season wheat grown for propagative purposes and seed 
companies with propagative wheat inventories in their possession that 
were unsold as of March 1, 1996, are eligible to receive compensation 
as described in this paragraph if the propagative wheat was sold for 
nonpropagative purposes and if the seed company has claimed 
compensation under paragraph (b) of this section. The compensation rate 
will equal the seed margin. The seed margin is $4.50 per bushel for 
private variety seed and $2.40 per bushel for public variety seed.
    (5) Seed companies that sold propagative wheat for propagative 
purposes. Seed companies with 1995-1996 crop season wheat grown for 
propagative purposes and seed companies with propagative wheat 
inventories in their possession that were unsold as of March 1, 1996, 
are eligible to receive compensation as described in this paragraph if 
the propagative wheat was sold for propagative purposes. The 
compensation rate will equal the estimated market price for grain (EMP) 
plus the seed margin (SM) minus the higher of either the actual price 
received by the seed company (AP) or the salvage value (SV), as 
described in paragraph (d)(6) of this section. In each case, the amount 
of the actual price or the salvage value of the propagative wheat will 
include the value of any proceeds accrued through insurance claims, 
judgments, or from any other source. The equation for this compensation 
is: Compensation rate = (EMP + SM)--(higher of AP or SV). The seed 
margin is $4.50 per bushel for private variety seed and $2.40 per 
bushel for public variety seed. However, compensation will not exceed 
$7.00 per bushel for private variety seed and $4.90 per bushel for 
public variety seed under any circumstances.
    (6) Salvage value. Salvage values will be determined as follows:
    (i) If the wheat is positive for Karnal bunt and is sold for use as 
animal feed, salvage value equals $6.00 per hundredweight or $3.60 per 
bushel for all classes of wheat.
    (ii) If the wheat is positive for Karnal bunt and is sold for a use 
other than animal feed, salvage value equals whichever is higher of the 
following: the average price paid in the region of the regulated areas 
where the wheat is sold for the relevant class of wheat (meaning type 
of wheat, such as durum or hard red winter) for the period between May 
1 and June 30, 1996; or, $3.60 per bushel.
    (iii) If the wheat is negative for Karnal bunt and is sold for any 
use, salvage value equals whichever is higher of the following: the 
average price paid in the region of the regulated areas where the wheat 
is sold for the relevant class of wheat (meaning type of wheat, such as 
durum or hard red winter) for the period between May 1 and June 30, 
1996; or, $3.60 per bushel.
    (7) To claim compensation. Compensation payments for claims made 
under paragraph (d) of this section will be issued by the Farm Service 
Agency (FSA). Claims for compensation must be received by FSA on or 
before [date 60 days after effective date of final rule]. The 
Administrator may extend this deadline, upon request in specific cases, 
when unusual and unforeseen circumstances occur which prevent or hinder 
a claimant from requesting compensation on or before that date. To 
claim compensation, a grower or seed company must submit to the local 
FSA county office a Karnal Bunt Compensation Claim form, provided by 
FSA. If the wheat was grown in an area that is not a regulated areas, 
but for which an Emergency Action

[[Page 40763]]

Notification (PPQ Form 523)(EAN) for Karnal bunt has been issued, the 
grower or seed company must submit a copy of the EAN. A grower or seed 
company must also submit to the local FSA county office a copy of the 
contract under which the wheat was grown; a copy of the Karnal bunt 
certificate issued by APHIS that shows the Karnal bunt test results; a 
copy of the receipt for the final sale of the wheat, showing the 
intended use for which the wheat was sold, total bushels sold, and the 
total price received by the grower or seed company; and verification as 
to the actual (not estimated) weight of the wheat for which 
compensation is being claimed (such as a copy of the limited permit 
under which the wheat is being moved, or other verification). In 
addition, a seed company that is claiming compensation on seed 
inventories must certify to FSA that the propagative wheat was in the 
seed company's possession as of March 1, 1996.
    (e) Other seed company compensation for propagative wheat. Seed 
companies are also eligible to receive compensation under the following 
circumstance: If a seed company is not able to or elects not to sell 
1995-1996 crop season wheat grown for propagative purposes or 
propagative wheat inventories in their possession that were unsold as 
of March 1, 1996, the compensation rate will equal $7.00 per bushel for 
private variety seed and $4.90 per bushel for public variety seed. 
Compensation will only be paid if the seed company has destroyed the 
wheat by burying it in a sanitary landfill or other site that has been 
approved by APHIS. The compensation will be issued by the Farm Service 
Agency (FSA). To claim compensation, a seed company must submit to the 
local FSA county office a Karnal Bunt Compensation Claim form, provided 
by FSA. If the wheat was grown in an area that is not a regulated 
areas, but for which an Emergency Action Notification (PPQ Form 
523)(EAN) for Karnal bunt has been issued, the seed company must submit 
a copy of the EAN. A seed company must also submit to the local FSA 
county office a copy of the contract under which the wheat was grown 
and verification of how much wheat was buried, in the form of a receipt 
from the sanitary landfill or verification signed by an APHIS 
inspector. In addition, a seed company that is claiming compensation on 
seed inventories must certify to FSA that the propagative wheat was in 
the seed company's possession as of March 1, 1996. Claims for 
compensation must be received by FSA on or before [date 60 days after 
effective date of final rule]. The Administrator may extend this 
deadline, upon request in specific cases, when unusual and unforeseen 
circumstances occur which prevent or hinder a claimant from requesting 
compensation on or before that date.
* * * * *
    (i) Wheat straw producers. Producers of wheat straw (either growers 
who bale their own wheat straw or individuals contracted by growers to 
remove wheat straw from the growers' fields) made from wheat grown in 
the regulated areas in the 1995-1996 crop season are eligible to 
receive compensation on a one-time-only basis at the rate of $1.00 per 
80-pound bale or $1.25 per hundredweight. Producers are eligible for 
compensation regardless of whether or not the straw is sold, but the 
straw must have been produced under contract. Compensation payments 
will be issued by the Farm Service Agency (FSA). To claim compensation, 
a wheat straw producer must submit a Karnal Bunt Compensation Claim 
form, provided by FSA, and a copy of the contract under which the wheat 
straw was produced to the local FSA county office. Claims for 
compensation must be received by FSA on or before [date 60 days after 
effective date of final rule]. The Administrator may extend this 
deadline, upon request in specific cases, when unusual and unforeseen 
circumstances occur which prevent or hinder a claimant from requesting 
compensation prior to that date.

    Done in Washington, DC, this 24th day of July 1997.
Terry L. Medley,
Administrator, Animal and Plant Health Inspection Service.
[FR Doc. 97-20005 Filed 7-29-97; 8:45 am]
BILLING CODE 3410-34-P