[Federal Register Volume 63, Number 3 (Tuesday, January 6, 1998)]
[Rules and Regulations]
[Pages 399-406]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-283]



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  Federal Register / Vol. 63, No. 3 / Tuesday, January 6, 1998 / Rules 
and Regulations  

[[Page 399]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV97-930-4 IFR]


Tart Cherries Grown in the States of Michigan, et al.; Temporary 
Suspension of Proviso for Exporting Juice and Juice Concentrate; 
Establishment of Regulations for Handler Diversion

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Interim final rule and temporary suspension of order provisions 
with request for comments.

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SUMMARY: This interim final rule implements provisions of the Federal 
tart cherry marketing order (order) by establishing regulations 
concerning handler diversion, including diversion credit for exempt 
uses, and by defining certain terms relating to exemptions. In 
addition, this rule temporarily suspends language in a provision of the 
order which would result in allowing handlers to receive diversion 
credit for exporting juice and juice concentrate to eligible countries 
for the 1997-98 crop year only. Handlers handling cherries harvested in 
a regulated district may fulfill any restricted percentage requirement 
when volume regulation is in effect by diverting cherries or cherry 
products rather than by placing them in an inventory reserve.

DATES: Effective January 7, 1998; comments received by February 5, 1998 
will be considered prior to issuance of a final rule.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this rule. Comments must be sent in triplicate to the Docket 
Clerk, Fruit and Vegetable Division, AMS, USDA, room 2525-S, P.O. Box 
96456, Washington, DC 20090-6456, Fax # (202) 720-5698. All comments 
should reference the docket number and the date and page number of this 
issue of the Federal Register and will be made available for public 
inspection in the Office of the Docket Clerk during regular business 
hours.

FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Kenneth G. 
Johnson, Marketing Order Administration Branch, F&V, AMS, USDA, room 
2530-S, P.O. Box 96456, Washington, DC 20090-6456, telephone: (202) 
720-5053, Fax: (202) 720-5698. Small businesses may request information 
on compliance with this regulation by contacting: Jay Guerber, 
Marketing Order Administration Branch, Fruit and Vegetable Division, 
AMS, USDA, P.O. Box 96456, room 2525-S, Washington, DC 20090-6456; 
telephone (202) 720-2491; Fax: (202) 720-5698.
SUPPLEMENTARY INFORMATION: This rule is issued under Marketing 
Agreement and Order No. 930 (7 CFR part 930) regulating the handling of 
tart cherries grown in the States of Michigan, New York, Pennsylvania, 
Oregon, Utah, Washington, and Wisconsin, hereinafter referred to as the 
``order.'' This order is effective under the Agricultural Marketing 
Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter 
referred to as the ``Act.''
    The Department of Agriculture (Department) is issuing this rule in 
conformance with Executive Order 12866.
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is not intended to have retroactive effect. 
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 exempted 
therefrom. A handler is afforded the opportunity for a hearing on the 
petition. After the hearing the Secretary would rule on the petition. 
The Act provides that the district court of the United States in any 
district in which the handler is an inhabitant, or has his or her 
principal place of business, has jurisdiction to review the Secretary's 
ruling on the petition, provided an action is filed not later than 20 
days after date of the entry of the ruling.
    The tart cherry marketing order was recently promulgated and the 
Cherry Industry Administrative Board (Board) met March 12-13, June 26-
27, and September 11-12, 1997, to establish, and recommend to the 
Secretary, rules and regulations to implement the order authorities, 
and to consider volume regulation for this crop year. On or about July 
1 of each crop year the Board is required to review sales data, 
inventory data, crop forecasts and market conditions in order to 
establish an optimum supply volume which is then used in calculating a 
preliminary free market tonnage percentage. In the event that a 
restricted percentage is recommended and imposed, handler diversion is 
one method under the order that handlers can utilize to meet restricted 
percentage requirements. The Board established and announced the 
optimum supply level and preliminary free and restricted percentages 
for the 1997-98 crop year as required by the order. On September 11-12, 
1997, the Board reviewed its marketing policy and previous 
recommendations, and recommended a 55 percent final free market tonnage 
and a restricted percentage of 45 percent for this crop year.
    All handlers were notified of this recommendation pursuant to 
section 930.50(h) of the order. Pursuant to Sec. 930.50, final 
percentages for volume regulation are required to be recommended to the 
Secretary by September 15. Whenever it is found by the Secretary that 
it would be appropriate to set free market tonnage and restricted 
percentages for cherries acquired by handlers, volume regulations would 
be issued through informal rulemaking.
    This rule establishes procedures for handler diversion. Handler 
diversion is authorized under Sec. 930.59 of the order and, when volume 
regulation is in effect, handlers may fulfill restricted percentage 
requirements by diverting cherries or cherry products. Volume 
regulation is intended to help the tart cherry industry stabilize 
supplies and

[[Page 400]]

prices in years of excess production. The volume regulation provisions 
of the order provide for a combination of processor owned inventory 
reserves and grower or handler diversion of excess tart cherries. 
Reserve cherries may be released for sale into commercial outlets when 
the current crop is not expected to fill demand. Under certain 
circumstances, such cherries may also be used for charity, experimental 
purposes, nonhuman use, and other approved purposes.
    Section 930.59(b) of the order provides for the designation of 
allowable forms of handler diversion. These include: uses exempt under 
Sec. 930.62; contribution to a Board approved food bank or other 
approved charitable organization; acquisition of grower diversion 
certificates that have been issued in accordance with Sec. 930.58; or 
other uses, including diversion by destruction of the cherries at the 
handler's facilities.
    A new Sec. 930.159 is added to the rules and regulations concerning 
handler diversion. One method of diversion available to handlers is by 
destruction of cherries at the handler's facility. Disposal at the 
handler's facility will take place prior to placing the product into 
the processing line. This is to ensure that the product diverted is not 
simply an undesirable by-product of processing. Handlers electing to 
divert cherries or cherry products must first notify the Board and 
submit a plan for approval. Such notification and plan shall include an 
agreement that diversion will take place under the supervision of the 
USDA Processed Products Inspection Service or Board employee 
inspectors, and that the costs of such supervision is to be paid by the 
handler. USDA inspectors will supervise diversion of cherry products at 
the current hourly rate of $41.00 under USDA's inspection fee schedule 
(7 CFR Sec. 54.42). Board employees will supervise diversion at the 
same rate. Diversion may also be accomplished by handlers donating 
cherries to charitable organizations, utilizing cherries in exempt 
outlets, or redeeming grower diversion certificates obtained from 
growers who have diverted cherries by non-harvest, and who have been 
issued diversion certificates by the Board in accordance with rules and 
regulations governing the issuance of grower diversion certificates 
(Sec. 930.100, 62 FR 44881, August 25, 1997). Diversion by means other 
than destruction of cherries at handlers' facilities would also be 
subject to supervision as found necessary by the Board. Fees would be 
charged as discussed above.
    Once diversion is satisfactorily accomplished, handlers will 
receive diversion certificates stating the weight of cherries diverted. 
Such diversion certificates can be used to satisfy handlers' restricted 
percentage obligations. Cherries and cherry products which have been 
diverted shall not be subject to assessment.
    A handler will have one crop year to fulfill the diversion plan 
which was submitted and approved by the Board. The details of the plan 
shall show, among other things, the name and address of the handler, 
the total product processed at-plant, cherries diverted at-plant, in-
orchard diversion certificates redeemed, and anticipated donations to 
charitable outlets. A handler will also have one crop year to dispose 
of cherries or cherry products for exempt uses approved by the Board, 
unless granted a renewal. By February 5, 1998 for the 1997 crop year 
only, and November 1 for subsequent crop years, each handler must 
submit on Board Form No. 4 the details of how such handler will satisfy 
the restricted percentage obligation. The Board may extend this date in 
individual cases pursuant to a written request showing good cause why 
the plan cannot be provided by the due date. The November 1 date 
corresponds with the date that grower diversion certificates are no 
longer valid (this date is extended by this action to February 5, 1998 
for the 1997-98 crop year). Other reports detailing the inventory 
reserve summary are also due by February 5, 1998 for the 1997 crop year 
only, and November 1 for subsequent crop years. Any information 
obtained by the Board which is of a confidential and/or proprietary 
nature would be protected from disclosure pursuant to Sec. 930.73 of 
the order.
    Section 930.59(b) which specifies the diversion options for 
handlers, includes uses exempt under Sec. 930.62. Section 930.62 
provides that the Board, with the approval of the Secretary, may exempt 
from the provisions of Secs. 930.41, 930.44, 930.51, 930.53, and 930.55 
through 930.57 cherries which are diverted in accordance with section 
930.59, which are used for new product and new market development, 
which are used for experimental purposes, or which are used for any 
other purpose designated by the Board, including cherries processed 
into products for markets for which less than 5 percent of the 
preceding 5-year average production of cherries were utilized. One such 
use which may be designated as an exempt use and granted diversion 
credit is the exportation of cherries. Tart cherries used for exempt 
purposes are not subject to certain marketing order provisions. These 
provisions include assessment, quality control, volume regulation, and 
reserve provisions.
    For the purposes of the regulation concerning exempt uses, the 
Board has recommended that certain terms be defined. Also, the Board 
recommended that handlers who use cherries or cherry products for 
approved exempt purposes receive diversion credit pursuant to section 
930.59(b).
    Thus, a new section 930.162 is added to the rules and regulations 
defining exempt use terms and authorizing exemptions under the 
marketing order. Terms defined include new product development, new 
market development, development of export markets, and experimental 
purposes.
    The first term defined is ``new product development.'' New product 
development includes the production or processing of a tart cherry 
product using a technique not presently being utilized commercially in 
the tart cherry industry. For example, a handler may ask for an 
exemption for product such as ground meat in combination with raw tart 
cherries to form a leaner meat product. The Board determined that when 
a new product is commercially viable, which is defined as the time when 
total industry utilization for the product exceeds 2 percent of the 
five year average production of tart cherries, the exemption shall 
terminate. Therefore, the Board has recommended that when the 
utilization of the product exceeds 2 percent of the five year average 
production, the product has received consumer acceptance and should no 
longer be eligible for a new product development exemption.
    The second term which is defined is ``new market development.'' 
Under the definition, new market development means the development of 
markets for cherry products which are not commercially established 
markets and which are not competitive with commercial outlets presently 
utilized by the tart cherry industry. For example, a handler may seek 
to establish sales of cherry preserves to India or China, currently 
undeveloped markets. The Board determined that a new market becomes 
commercially established when the total industry utilization in that 
market exceeds 2 percent of the five year average production of tart 
cherries.
    The third term which is defined is ``development of export 
markets.'' This is defined as exports to countries other than Canada, 
Mexico and Japan, including the development of sales for new or 
different tart cherry products or the expansion of sales for existing 
tart cherry products. An example of

[[Page 401]]

development of sales for new or different tart cherry products could be 
a handler seeking to establish sales of dried cherries in Germany, 
which is primarily a hot pack market. Board members and meeting 
participants discussed the favorable export market this season. 
Handlers have exports to many countries, including Italy, France, 
Belgium, Germany and The Netherlands and have enjoyed a significant 
increase in volume of exports into these countries. Handlers have 
indicated that exports of tart cherry products have increased 
significantly over previous years' exports. Board members indicated 
that last year's exports totaled about 10 million pounds. This year, 
handlers are expected to experience the largest volume of exports on 
record, estimated at up to 50 million pounds. Handlers have been able 
to expand existing export markets and establish new markets for the 
future. Board members also commented that hot pack product (canned tart 
cherries) have been shipped to export markets that have never received 
such product before. Contributing to their success is the excellent 
quality of this year's crop. Growers and handlers have experienced high 
quality fruit due to favorable growing conditions for tart cherries 
this season. This high quality fruit has resulted in high quality 
products which are very competitive in export markets. The availability 
of such high quality cherry products increases the likelihood of 
maintaining such markets in future seasons. Handlers also have 
experienced a growth in IQF (Individually Quick Frozen) sales in the 
export market this season. If handlers are not able to use this option, 
more product might be destroyed to avoid the possibility of processing 
and storage costs associated with placing cherries into an inventory 
reserve. Exports to Mexico, Canada, and Japan are not included in this 
exemption because, according to the Board, tart cherry markets are well 
established in those countries.
    The fourth term which is defined is ``experimental purposes.'' Uses 
for experimental purposes include preliminary and/or developmental 
activities, such as a handler working with cereal companies to develop 
a cereal using dried cherries. Such experimental purposes should be 
intended to result in new products, new applications and/or new markets 
for existing tart cherry products. Any exemption for experimental 
purposes shall be limited in scope, duration, and volume which the 
applicant shall specify at the time a request for exemption is made. In 
no case shall an exemption for experimental purposes last longer than 
five years or exceed 100,000 pounds raw product equivalent per handler 
of tart cherries during the duration of the experiment. The Board has 
recommended that the five year or 100,000 pound raw product equivalent 
per handler limits are sufficient to determine whether such cherries 
for experimental purposes can be developed into new products or uses.
    To qualify for an exemption under section 930.62, a handler must 
apply to the Board for a new exemption or for renewal of an existing 
exemption by November 1 for the next succeeding year. Handlers may 
apply for an exemption through February 5, 1998 for the 1997 year only, 
and by November 1 for subsequent crop years. These dates were changed 
from the Board's recommendation of June 1 in order to provide handlers 
ample time to harvest and assess their crop each year. When applying to 
the Board for an exemption, the handler must detail the nature of the 
product or market, how it differs from current, existing products and/
or markets and the estimated short and long term sales volume for the 
exemption. In addition, in order to obtain diversion credit for 
cherries used for exempt purposes, the application must also contain an 
agreement that the proposed exempt use diversion is to be carried out 
under the supervision of the Board, and that the cost of any such 
supervision that is needed is to be paid by the applicant. The fees for 
such USDA or Board supervision, as previously stated, will be the 
current hourly rate of $41.00 under USDA's inspection fee schedule (7 
CFR 54.42). The information which is provided will allow Board staff to 
assess the request for exemption and render a determination concerning 
its approval. Any information received by the Board which is of a 
confidential and/or proprietary nature would be protected from 
disclosure pursuant to section 930.73 of the order.
    The Board discussed providing assistance to its staff with 
reviewing applications pertaining to exemptions. The Board recommended 
that a subcommittee be formed to assist staff members to ensure that 
exemptions are properly reviewed and granted. The Board suggested that 
a subcommittee of three persons, which could include the manager, a 
public member and one industry member who is not on the Board, be 
established. Handlers whose requests for exemption or renewal of 
exemption are denied would be able to appeal such denial to the Deputy 
Administrator, Fruit and Vegetable Programs.
    Each handler that is granted an exemption must submit to the Board 
an annual progress report, due May 1 of each year. The progress report 
shall include the results of the exemption activity (comparison of 
intended activity with actual activity) for the year in its entirety, 
the volume of exempted fruit, an analysis of the success of the 
exemption program, and such other information the Board may request.
    As previously discussed, the Board has recommended that exports to 
countries other than Canada, Mexico and Japan be exempted pursuant to 
Sec. 930.62. The Board has also recommended that diversion credit be 
granted for such exports. Handlers wishing to receive diversion credit 
for exports must provide to the Board on-board bill of lading 
documentation or other documentation to verify export before the Board 
will issue diversion credit.
    The Board will grant diversion credit for exempted products after 
it has received the necessary information concerning the particular 
exemption and when it is satisfied that the handler requesting the 
diversion credit has satisfied all the requirements relevant to the 
exemption. The Board recommended for the 1997 season (July 1, 1997 
through June 30, 1998) only, that handlers receive diversion credit for 
up to one million pounds of exempted products per handler for new 
market development and new product development. The Board believes this 
will provide adequate flexibility for individual handlers to obtain 
diversion credit for exempt uses this season, but recommended providing 
some restriction on the absolute volume of such allowable diversions 
until more experience with the program has been obtained. However, the 
one million pound limit for exempted products per handler does not 
apply to handlers desiring to receive diversion credit for exports. As 
stated previously, this is the first season this program is in effect 
and handlers have exported or contracted to export tart cherry 
products. Some of these handlers may have shipped in excess of the one 
million pound limit. Allowing full diversion credit for the amount of 
product shipped abroad, will prevent both growers and handlers from 
incurring financial losses. The Board is continuing to review the issue 
of what limits to impose on exempted products.
    Handlers desiring to receive diversion credit for donations to 
charitable organizations should follow the requirements specified in 
the regulations. For contributions to qualify for diversion credit, the 
contributed product should be marked clearly ``NOT

[[Page 402]]

FOR RESALE''. The receiving organization must be approved by the Board 
as a qualified recipient of contributions of tart cherry products. Such 
organizations must be tax-exempt, must not sell the donated products 
and must be noncompetitive with other tart cherry industry sales 
outlets. Once products are donated to an organization, the Board must 
receive satisfactory documentation of the transaction. Handlers should 
provide the Board with information on how the product was used and the 
volume of product used.
    Handlers desiring to receive diversion credit for cherries diverted 
under Sec. 930.59, including uses exempt under Sec. 930.62, but who 
fail to meet the terms and conditions in the regulation for such 
diversion would not receive diversion credit for the cherries or cherry 
products. Any cherries not properly diverted in accordance with Board 
Form No. 4 must be placed into the handler's secondary reserve if one 
has been established or the primary reserve if a secondary reserve has 
not been established. The primary reserve is the first reserve where 
handlers in volume regulated districts can place tart cherries or tart 
cherry products to hold from primary markets in order to meet 
restricted percentage obligations. The primary reserve is limited to a 
capacity of 50 million pounds. A secondary reserve is established only 
after the primary reserve has been filled to the 50 million pound 
capacity. The secondary reserve is where the balance of reserve 
cherries or cherry products are held. There is no maximum capacity for 
the secondary reserve. Both primary and secondary reserves are operated 
at the handler's expense and no cherries can be removed from the 
secondary reserve until the primary reserve has been depleted. Upon 
termination of an exemption, any volume of tart cherry products that 
were exempted from order requirements but which were not utilized 
should be placed into the secondary inventory reserve if one has been 
established, or into the primary reserve. It is the handler's 
responsibility to fulfill the restricted percentage obligations 
established by volume regulation. A handler may fulfill the restricted 
percentage obligation by either transferring cherries from his/her own 
inventory, purchasing additional cherries or cherry products or 
obtaining diversion certificates from other handlers to meet such 
obligation.
    In addition to the recommendation already discussed, the Board, at 
its March meeting, also recommended that the Department modify the 
optimum supply formula by deducting exports from the calculation. The 
Department is not proceeding with this recommendation since the order 
promulgation record indicates that average sales should include sales 
to all markets, including exports.
    At its meeting in March, when discussing exports, the Board also 
recommended that juice and juice concentrate, to countries other than 
Canada, Mexico, and Japan, receive diversion credit. During the 
production and processing of the crop, handlers have exported, or have 
contracted to export, tart cherry juice or juice concentrate for this 
season. Many of these exports were for the purpose of expanding 
existing markets or developing new markets. According to the Board, if 
diversion credit is not allowed for export juice or juice concentrate, 
some of these handlers could suffer substantial financial losses since 
they would have to pack or purchase additional cherries to place in 
their inventory reserves or default on contracts. These costs would 
likely be passed on to growers. Therefore, the Board recommended at its 
September 11-12, 1997, meeting that the proviso in Sec. 930.59(b) of 
the order be suspended for this year only and that diversion credit for 
exports of juice and juice concentrate be allowed for the 1997-1998 
crop year. The temporary suspension of the proviso for the 1997-98 crop 
year would allow handlers to receive diversion credit for juice and 
juice concentrate exported to countries other than Canada, Mexico and 
Japan.
    New export sales of juice and juice concentrate this crop year are 
estimated to be in the range of 4-7 million pounds. While significant 
to the handlers making such sales, traditional sellers of juice and 
juice concentrate products in established domestic and export markets 
have not indicated any undue increase in competition. This is because 
the bulk of the new export sales of juice and juice concentrate 
probably represent sales to new markets or expansion of existing 
markets. Therefore, the Board has recommended that diversion credit be 
granted this crop year only to those handlers exporting juice and juice 
concentrate to eligible countries. This action is not intended to 
establish a precedent for future seasons. It will be used to correct 
any misunderstandings that have occurred in the industry about order 
operations concerning juice and juice concentrate, to prevent 
disorderly marketing conditions and unnecessary financial losses by 
handlers. Not proceeding with the suspension this season could result 
in disorderly marketing in the domestic market, since, in addition to 
the problems already mentioned, juice and juice concentrate intended 
for export would likely have to be sold domestically. This situation 
will be avoided in subsequent seasons since handlers should be fully 
aware of the order's restrictions.

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 
initial regulatory flexibility analysis. The Regulatory Flexibility Act 
(RFA) would 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 opt for such certification, but rather 
perform regulatory flexibility analyses for any rulemaking that would 
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 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 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 order and approximately 1,220 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 121.601) 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. The majority of handlers 
and producers of tart cherries may be classified as small entities.
    Section 930.59 of the tart cherry marketing order provides 
authority for handler diversion. Handlers handling cherries harvested 
in a regulated district may fulfill any restricted percentage 
requirements which may be in effect in full or in part through 
diversion of cherries or cherry products in a program approved by the 
Board, rather than placing cherries in an inventory reserve. Handlers 
can divert by destruction of

[[Page 403]]

the cherries at the handler's facility, making charitable donations, 
and using cherries or cherry products for exempt purposes, or by 
redeeming grower diversion certificates obtained from growers who have 
diverted cherries by non-harvest, and who have been issued diversion 
certificates by the Board. Once diversion is satisfactorily 
accomplished, handlers will receive a diversion certificate stating the 
weight of cherries diverted. Such diversion certificates can be used to 
satisfy the handler's restricted percentage obligation. This enables 
handlers to either place cherries into an inventory reserve or select 
the diversion option most advantageous to their particular business 
operation. Costs for supervision of such actions will take place under 
the supervision of the USDA Processed Products Inspection Service or 
Board employee inspectors, and that the costs of such supervision is to 
be paid by the handler. USDA inspectors will supervise diversion of 
cherry products at the current hourly rate of $41.00 under USDA's 
inspection fee schedule (7 CFR 54.42). Board employees will supervise 
diversion at the same rate. Diversion may also be accomplished by 
handlers donating cherries to charitable organizations, utilizing 
cherries in exempt outlets, or redeeming grower diversion certificates 
obtained from growers who have diverted cherries by non-harvest, and 
who have been issued diversion certificates by the Board in accordance 
with rules and regulations governing the issuance of grower diversion 
certificates (Sec. 930.100, 62 FR 44881, August 25, 1997). Diversion by 
means other than destruction of cherries at handlers' facilities would 
also be subject to supervision as found necessary by the Board. Fees 
would be charged as discussed above. Providing such options allows 
handlers to minimize processing and storage costs associated with 
meeting restricted percentage obligations. Such cost savings may also 
be passed on to growers and consumers. Thus, providing these options 
accomplishes the purposes of the order and the Act.
    The Board also recommended granting handlers diversion credit for 
cherries used for exempt purposes under section 930.62. Those purposes 
include cherries used for new product development, for the development 
of export markets, for experimental purposes, and the export of 
cherries and cherry products, including juice or juice concentrate, to 
approved countries.
    In order to provide for juice and juice concentrate as a diversion 
outlet, the Board recommended that the proviso under Sec. 930.59 (b) of 
the order be suspended. Therefore, this rule temporarily suspends 
language in the proviso under Sec. 930.59 (b) of the order. The 
suspension would temporarily remove a prohibition against allowing 
diversion credit for juice and juice concentrate for this crop year 
only. However, the Board would only grant diversion credit for juice or 
juice concentrate exported to eligible countries. The Board recommended 
this suspension be used to correct any misunderstandings that have 
occurred in the industry about order operations concerning juice and 
juice concentrate, to prevent disorderly marketing conditions and 
unnecessary financial losses by handlers.
    The temporary suspension of the juice and juice concentrate proviso 
was discussed at the most recent Board meeting. It was the Board's view 
that if the proviso is not suspended, affected handlers will have to 
expend additional funds to meet their restricted obligations by placing 
products that they could have sold in export markets into an inventory 
reserve or at-plant divert. The costs of these actions would likely be 
passed on to growers.
    New export sales of juice and juice concentrate this crop year are 
estimated to be in the range of 4-7 million pounds. While significant 
to the handlers making such sales, traditional sellers of juice and 
juice concentrate products in established domestic and export markets 
have not indicated any undue increase in competition this season. This 
is because the bulk of the new export sales of juice and juice 
concentrate probably represent sales to new markets or expansion of 
existing markets, rather than an increase in competition among sellers 
for previously developed markets. As previously stated, handlers have 
indicated that exports of tart cherry products have increased 
significantly over previous years' exports. Board members indicated 
that last year's exports totaled about 10 million pounds. This year, 
handlers are expected to experience the largest volume of exports on 
record, estimated at up to 50 million pounds. Handlers have been able 
to expand existing export markets and establish new markets for the 
future. Board members also commented that hot pack product (canned tart 
cherries) have been shipped to export markets that have never received 
such product before. Contributing to their success is the excellent 
quality of this year's crop. Growers and handlers have experienced high 
quality fruit due to favorable growing conditions for tart cherries 
this season. This high quality fruit has resulted in high quality 
products which are very competitive in export markets. The availability 
of such high quality cherry products increases the likelihood of 
maintaining such markets in future seasons. Not proceeding with the 
suspension this season could result in disorderly marketing in the 
domestic market.
    The impact of this rule would be beneficial to growers and 
handlers. Authorizing various diversion outlets and allowing diversion 
credit for exempt uses means handlers will not be required to divert 
excess cherries at their plants. Instead, fruit can be processed into a 
usable form, thereby promoting the development of new products and the 
expansion of new markets for tart cherries. Authorizing exemptions for 
various uses of tart cherries should also promote such market 
development and expansion, as well as making cherries available for 
charitable purposes. Suspending an order provision for this season only 
will allow handlers to take advantage of export markets and obtain 
diversion credit for such exports, increasing the utilization of this 
season's crop and grower and handler returns.
    The Board considered alternatives to these recommendations. With 
respect to handler diversion and diversion credit for exempt uses, if 
volume regulation is imposed this season and diversion credits are not 
granted, handlers would have to divert cherries by other means or place 
cherries in an inventory reserve, which may not be desirable for some 
handlers since storage costs of the reserve are borne by the handler. 
For example, the Board discussed not granting handlers diversion credit 
for at-plant diversion. However, the Board felt that providing such a 
diversion option increased handler flexibility to process and pack the 
best cherries available during a year when volume regulation is in 
effect and to reduce the costs of processing and storing reserve 
cherries.
    The Board also discussed not granting exemptions, and diversion 
credit for such exemptions, for exports to eligible countries 
(including juice and juice concentrate), other exempt uses, and 
charitable donations. However, the Board felt this would not be in the 
best interest of the industry or the public. As previously discussed, 
the Board expressed that not allowing the export and other exemptions 
would have a detrimental effect on the market this season if free and 
restricted percentages are imposed. Without such exemptions and 
diversion credits for export sales, new market development and other 
specified uses, about 50 million pounds of cherries would not be 
removed from

[[Page 404]]

the domestic market this season, depressing grower returns for all 
cherries. The marketing order was designed to increase grower returns 
by stabilizing supplies with demand as well as stabilizing prices and 
creating a more orderly and predictable marketing environment. 
Expanding markets and developing new products is key to meeting this 
marketing order's goals.
    Not granting exemptions and diversion credit for exports to 
countries other than Canada, Mexico, and Japan was also discussed at 
Board meetings. However, the Board expressed that this recommendation 
is very important to creating stable conditions in the export 
marketplace this season and would encourage future market growth. The 
Board further stated that such action will improve returns to growers 
because of the tremendous growth in the export market this season.
    This rule imposes certain reporting and recordkeeping requirements 
on tart cherry handlers. As with all Federal marketing order programs, 
reports and forms are periodically reviewed to reduce information 
requirements and duplication by industry and public sectors. In 
addition, the Department has not identified any relevant Federal rules 
which duplicate, overlap or conflict with this rule.

Paperwork Reduction

    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 imposed by the order have been previously 
approved by OMB and assigned OMB Number 0581-0177. This includes the 
requirements contained in this regulation (i.e. progress reports, 
applications). The components of the Handler Reserve Plan and Final 
Pack Report which handlers must submit to utilize at-plant and exempt 
use diversion and the requirements for other reports related to handler 
diversion and handlers meeting their restricted percentage obligations 
(i.e., Inventory Reserve Summary, Cherries Acquired from Producers, 
Handler Reserve Plan and Final Pack Report, and Inventory Location 
Report) have received approval by OMB. It was anticipated that as many 
as 45 handlers might be regulated if volume regulations are 
established. Many reports are submitted a single time each season, 
while some are submitted more frequently. In addition, the bulk of the 
information handlers must report is obtained during the normal course 
of their business operations. It would take handlers approximately 15 
minutes per report to complete for a total of 60 minutes per handler 
and approximately 2,700 minutes annually for the estimated 45 handlers. 
As with all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies.
    The Board's meetings were widely publicized throughout the tart 
cherry industry and all interested persons were invited to attend them 
and participate in Board deliberations. Like all Board meetings, the 
March, June, and September 1997, meetings were public meetings and all 
entities, both large and small, were able to express their views on 
these issues. The Board itself is composed of 18 members, of which 17 
members are growers and handlers and one represents the public. Also, 
the Board has a number of appointed committees to review certain issues 
and make recommendations. The Board's Diversion Subcommittee met on 
March 12, 1997, and discussed handler diversion in detail. That meeting 
was also a public meeting and both large and small entities were able 
to participate and express their views. A majority of these entities 
expressed that, in their opinion, the recommendations made by the Board 
would have a positive impact on both small and large entities. Finally, 
interested persons are invited to submit information on the regulatory 
and informational impacts of this action on small businesses.
    Pursuant to section 930.50 of the order, the Board met on June 26-
27, 1997, to formulate a 1997-98 marketing policy using a USDA crop 
estimate of 242 million pounds. The Board met on September 11-12, 1997, 
and revised its marketing policy based on actual 1997-98 tart cherry 
production of 284 million pounds.
    After consideration of all relevant material presented, including 
the Board's recommendation, and other information, it is found that 
this interim final rule, as hereinafter set forth, will tend to 
effectuate the declared policy of the Act.
    It is also found that, for the 1997-98 crop year only, the proviso 
under Sec. 930.59(b), which prohibits handlers from receiving diversion 
credit for juice and juice concentrate, should be suspended since such 
proviso does not tend to effectuate the declared policy of the Act.
    This rule invites comments on the establishment of rules and 
regulations for handler diversion and granting exemptions from certain 
order provisions, allowing diversion credit for exempt uses and 
charitable donations, the suspension of an order provision in section 
930.59(b), and the possible impacts of these actions on both small and 
large entities.
    Pursuant to 5 U.S.C. 553, it is found and determined upon good 
cause that it is impracticable, unnecessary, and contrary to the public 
interest to give preliminary notice prior to putting this rule into 
effect and that good cause exists for not postponing the effective date 
of this rule until 30 days after publication in the Federal Register 
because: (1) This is the first season the marketing order has been in 
effect and regulations are needed to implement its authorities; (2) 
these rules need to be in place this season since the industry is 
marketing its crop currently and that the crop year began on July 1, 
1997; (3) the Board unanimously recommended these changes at public 
meetings and interested parties had an opportunity to provide input; 
(4) handlers need to know the procedures in order to operate their 
plants this season; and (5) this rule provides a 30-day comment period 
and any comments received will be considered prior to finalization of 
this rule.

List of Subjects in 7 CFR Part 930

    Marketing agreements, Tart cherries, Reporting and recordkeeping 
requirements.
    For the reasons set forth in the preamble, 7 CFR part 930 is 
amended 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.


Sec. 930.59  [Amended]

    2. In Sec. 930.59, paragraph (b) the words, ``Provided, That 
diversion may not be accomplished by converting cherries into juice or 
juice concentrate'' are suspended through June 30, 1998.
    3. A new Sec. 930.159 is added to read as follows:


Sec. 930.159  Handler diversion.

    (a) Methods of diversion. Handlers may divert cherries by redeeming 
grower diversion certificates, by destroying cherries at handlers' 
facilities (at-plant), by donating cherries or cherry products to Board 
approved charitable organizations, or by using cherries or cherry 
products for exempt purposes

[[Page 405]]

under Sec. 930.162, including export to countries other than Canada, 
Mexico and Japan. Once diversion is satisfactorily accomplished, 
handlers will receive diversion certificates stating the weight of 
cherries diverted. Diversion credit may be used to fulfill any 
restricted percentage requirement in full or in part. Any information 
received of a confidential and/or proprietary nature pursuant to this 
section will be protected from disclosure pursuant to Sec. 930.73 of 
the order.
    (b) Board notification and handler plan. Any handler intending to 
divert cherries or cherry products pursuant to Sec. 930.59 of the order 
(except through exempt uses under Sec. 930.62 of the order) must notify 
the Board of such intent and provide a plan by November 1 which shows 
how the handler intends to meet the restricted percentage obligation, 
except that, for the 1997-98 season only, the deadline is February 5, 
1998. The Board may extend this date in individual cases pursuant to a 
written request showing good cause why the plan cannot be provided by 
the due date. A handler will have one year to fulfill such plan. The 
details of the plan shall include, but not be limited to, the name and 
address of the handler, the total product processed at-plant, product 
diverted at-plant, in-orchard diversion certificates redeemed, 
anticipated donations to charitable outlets, disposition to exempt 
outlets or uses and detailed plans for how and where such disposition 
will be made, and inventory reserve amount. It shall also contain an 
agreement that the proposed diversion is to be carried out under the 
supervision of the Board and that the cost of such supervision is to be 
paid by the handler. Supervision of diversion by means other than 
destruction of the cherries at a handler's facility will be subject to 
supervision as found necessary by the Board. USDA inspectors or Board 
employees will supervise diversion of cherry products at the current 
hourly rate under USDA's inspection fee schedule (7 CFR 52.42). Any 
cherries not diverted in accordance with the handler's plan will be 
placed into the secondary inventory reserve or the primary inventory 
reserve if a secondary inventory reserve has not been established.
    (c) At-plant diversion. Diversion by disposal at-plant will take 
place prior to placing the cherries into the processing line. Such 
diversion will take place under the supervision of USDA Inspection 
Service or Board employee inspectors. USDA inspectors or Board 
employees will supervise diversion of cherry products at-plant at the 
current hourly rate under USDA's inspection fee schedule (7 CFR 52.42).
    (d) Contributions to approved charitable organizations. When 
diverting by donating cherries or cherry products to charitable 
organizations, handlers should follow the requirements specified 
herein. For contributions to qualify for diversion credit, the 
contributed product should be marked clearly ``NOT FOR RESALE''. The 
receiving organization must be approved by the Board as a qualified 
recipient of contributions of tart cherry products. Such organizations 
must be tax-exempt, must not sell the donated products and must be 
noncompetitive with other tart cherry industry sales outlets. Once 
products are donated to an organization, the Board must receive 
satisfactory documentation of the transaction. Handlers should provide 
the Board with information on how the product was used and the volume 
of product used.
    (e) Grower diversion certificates. To satisfy restricted percentage 
obligations by redeeming grower diversion certificates handlers must 
present to the Board grower diversion certificates obtained from 
growers who have diverted cherries by non-harvest, and who have been 
issued diversion certificates by the Board in accordance with the 
applicable rules and regulations governing the issuance of grower 
diversion certificates. For this crop year July 1, 1997, through June 
30, 1998, grower diversion certificates will be valid until February 5, 
1998.
    (f) Exempt uses. To receive diversion credit for cherries used for 
exempt purposes, handlers must meet the terms and conditions specified 
in Sec. 930.162. Each handler may receive diversion credit for up to 
one million pounds of exempted products each crop year, except that, 
for the 1997 season only, the one million pound exemption limitation 
for diversion credit does not apply to handlers exporting juice or 
juice concentrate.
    4. A new Sec. 930.162 is added to read as follows:


Sec. 930.162  Exemptions.

    (a) General. Tart cherries which are used for the purpose of new 
product development, for new market development, for development of 
export markets, for experimental purposes, for export (including juice, 
juice concentrate or puree, for the 1997-98 crop year only) to 
countries other than Canada, Mexico and Japan, or which are donated to 
charitable organizations may be granted an exemption by the Board and 
will be exempt from Secs. 930.41, 930.44, 930.51, 930.53, and 
Secs. 930.55 through 930.57, subject to the following terms and 
conditions. Any information received of a confidential and/or 
proprietary nature included in this application will be protected from 
disclosure pursuant to Sec. 930.73 of the order.
    (b) Definitions. The terms in paragraph (a) of this section shall 
have the following meaning:
    (1) New product development. The development of new tart cherry 
products or of foods or other products in which tart cherries or tart 
cherry products are incorporated which are not presently being produced 
on a commercial basis. New product development can also include the 
production or processing of a tart cherry product using a technique not 
presently being utilized commercially in the tart cherry industry. Once 
total industry utilization for a new product exceeds 2 percent of the 
five year average production of tart cherries, the product shall no 
longer be considered under development and not eligible for a new 
product development exemption.
    (2) New market development. The development of markets for tart 
cherry products which are not commercially established markets and 
which are not competitive with commercial outlets presently utilized by 
the tart cherry industry (including the development of new export 
markets). A new market becomes commercially established, when total 
industry utilization in the market exceeds 2 percent of the five year 
average production of tart cherries.
    (3) Development of export markets. The sale of cherries or cherry 
products, including the development of sales for new or different tart 
cherry products or the expansion of sales for existing tart cherry 
products, to countries other than Canada, Mexico, and Japan: Provided, 
That such cherry products cannot include juice or juice concentrate: 
Provided further, That the exclusion of juice or juice concentrate 
shall not apply for the 1997 season only (through June 30, 1998).
    (4) Experimental purposes. The use of cherries or cherry products 
in preliminary and/or developmental activities intended to result in 
new products, new applications and/or new markets for tart cherry 
products. Any exemption for experimental work shall be limited in 
scope, duration and volume based on information supplied by the 
applicant at the time a request for exemption is made. In no case shall 
an individual exemption for experimental purposes last longer than five 
years or exceed 100,000 pounds raw product equivalent of tart cherries.

[[Page 406]]

    (c) Obtaining approval for exempt uses. In order to receive 
exemptions for cherries or cherry products utilized for exempt 
purposes, handlers must apply to the Board for a new exemption or for 
renewal of an existing exemption by November 1 for the next succeeding 
year, except for the 1997 year only, handlers may apply through 
February 5, 1998. A handler shall have one crop year to dispose of 
cherries or cherry products to exempt outlets approved by the Board, 
unless granted a renewal. Handlers applying to the Board for a new 
exemption or for renewal of an existing exemption are subject to the 
following conditions:
    (1) When applying to the Board for an exemption for new product 
development, handlers must detail the nature of their new product, how 
it differs from current, existing products and the anticipated short 
and long term sales volume for the exemption. It will be the Board 
staff's responsibility to analyze and investigate any request and upon 
completion of that analysis authorize or deny the exemption.
    (2) When applying to the Board for an exemption for new market 
development, handlers must detail the nature of their new market, how 
it differs from current, existing markets and the anticipated short and 
long term sales volume for the exemption. It will be the Board staff's 
responsibility to analyze and investigate any request and upon 
completion of that analysis authorize or deny the exemption.
    (3) When applying to the Board for an exemption for the development 
of export markets for tart cherries or cherry products (including juice 
and juice concentrate through June 30, 1998 only) in countries other 
than Canada, Mexico and Japan, including the expansion of sales in 
existing export markets, handlers must detail the nature of their 
product, specify whether such product differs from current products 
being sold in export markets, and estimate the anticipated short and 
long term sales volumes for the requested exemption.
    (4) When applying to the Board for an exemption for experimental 
purposes, handlers must indicate the preliminary and/or developmental 
experimental activity. Such experimental purposes should be intended to 
result in new products, new applications and/or new markets for 
existing tart cherry products. Any exemption for experimental work 
shall be limited in scope, duration and volume which the proposing 
party shall specify at the time a request for exemption is made. In no 
case shall an exemption for experimental purposes last longer than five 
years or exceed 100,000 pounds raw product equivalent per handler of 
tart cherries during the duration of the experiment.
    (d) Review of applications. A Board appointed subcommittee of three 
persons which shall include the manager (or a Board member acting in 
the Manager's stead), the public member and one industry person who is 
not on the Board, shall review applications for exemption or renewal of 
exemption and either approve or deny the exemption. Any denial of an 
application for exemption or renewal of an existing exemption shall be 
served on the applicant by certified mail and shall state the reasons 
for the denial. Within 10 days after the receipt of a denial, the 
applicant may file an appeal, in writing, with the Deputy 
Administrator, Fruit and Vegetable Programs, supported by any arguments 
and evidence the applicant may wish to offer as to why the application 
for exemption or renewal of exemption should have been approved. The 
Deputy Administrator upon consideration of such appeal will take such 
action as deemed appropriate with respect to the application for 
exemption or renewal of exemption.
    (e) Progress report. Each handler that is granted an exemption must 
submit to the Board an annual progress report, due May 1 of each crop 
year. The progress report shall include the results of the exemption 
activity (comparison of intended activity with actual activity) for the 
year in its entirety, the volume of exempted fruit, an analysis of the 
success of the exemption program, and such other information as the 
Board may request.
    (f) Diversion credit; failure to meet terms and conditions of 
exemption. Handler diversion certificates for exempt uses shall be 
issued to handlers provided that terms and conditions applicable to 
exempt uses are satisfied. Diversion certificates will not be issued to 
handlers for any volume of tart cherry products for which such terms 
and conditions are not satisfied and such cherries would be subject to 
all of the terms and conditions of Secs. 930.41, 930.44, 930.51, 
930.53, and Secs. 930.55 through 930.57.
    (g) Failure to meet terms and conditions for exemption. Upon 
termination of an exemption, any volume of tart cherry products that 
were granted an exemption but were not utilized for the authorized 
exempt purpose would be subject to all of the terms and conditions of 
Secs. 930.41, 930.44, 930.51, 930.53, and Secs. 930.55 through 930.57.

    Dated: December 30, 1997.
Enrique E. Figueroa,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 98-283 Filed 1-5-98; 8:45 am]
BILLING CODE 3410-02-U