[Federal Register Volume 63, Number 77 (Wednesday, April 22, 1998)]
[Rules and Regulations]
[Pages 20012-20019]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10659]



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Part III





Department of Agriculture





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Agricultural Marketing Service



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7 CFR Part 930



Tart Cherries Grown in the States of Michigan, et al.; Temporary 
Suspension of a Proviso for Exporting Juice and Juice Concentrate; 
Establishment of Rules and Regulations Concerning Exemptions From 
Certain Order Provisions; Establishment of Regulations for Handler 
Diversion; Issuance of Grower Diversion Certificates; Rules

  Federal Register / Vol. 63, No. 77 / Wednesday, April 22, 1998 / 
Rules and Regulations  

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV97-930-4 FIR]


Tart Cherries Grown in the States of Michigan, et al.; Temporary 
Suspension of a Proviso for Exporting Juice and Juice Concentrate; 
Establishment of Rules and Regulations Concerning Exemptions From 
Certain Order Provisions; and Establishment of Regulations for Handler 
Diversion

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: The Department of Agriculture (Department) is adopting, as a 
final rule, with a change, the provisions of an interim final rule 
implementing 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 results 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.

EFFECTIVE DATE: May 22, 1998.

FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Kenneth G. 
Johnson, Marketing Order Administration Branch, F&V, AMS, USDA, room 
2525-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 Programs, 
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 
Sec. 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 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 are to be paid by 
the handler. USDA inspectors will

[[Page 20013]]

supervise diversion of cherry products at the current hourly rate of 
$41.00, which is subject to change, 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 in Sec. 930.100. 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 (for the 1997-98 crop year this date is February 5, 1998). 
Other reports detailing the inventory reserve summary were 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 section 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 
Sec. 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 was 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 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

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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 Sec. 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 should 
have applied for an exemption through February 5, 1998, for the 1997 
crop 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, which is 
subject to change, 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 Sec. 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 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

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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 1997 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 1997, 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 will 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 
should not experience any undue increase in competition. This is 
because indications are that the bulk of the new export sales of juice 
and juice concentrate represent sales to new markets or expansion of 
existing markets. This suspension action is not intended to establish a 
precedent for future seasons. Its purpose is 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 
final regulatory flexibility analysis. The Regulatory Flexibility Act 
(RFA) will allow AMS to certify that regulations do not have a 
significant economic impact on a substantial number of small entities. 
However, as a matter of general policy, AMS' Fruit and Vegetable 
Programs (Programs) no longer 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 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, which is subject to change, 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 in Sec. 930.100. 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

[[Page 20016]]

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 Sec. 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 
should not experience any undue increase in competition this season. 
This is because indications are that the bulk of the new export sales 
of juice and juice concentrate 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 
handlers who are subject to volume regulation are unable to receive 
diversion credit, they would have to divert cherries by other means or 
place cherries in an inventory reserve which may not be desirable 
because of storage costs. 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 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.
    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

[[Page 20017]]

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 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 were invited to submit information on the regulatory 
and informational impacts of the action on small businesses.
    The following discussion concerns comments raised about the initial 
regulatory flexibility analysis and statements made therein. A comment 
received from a tart cherry handler stated that the text of the interim 
final rule exhibits no detail of any analysis as required by the RFA. 
The commenter asserts that such analyses are required and that this 
industry includes both large and small entities. The commenter also 
states that this interim final rule should not be advanced as final 
until such analysis is completed, documented and published for comment. 
We disagree with this comment. Both the initial regulatory flexibility 
analysis published in the January 6, 1998, Federal Register (63 FR 399) 
and this final regulatory flexibility analysis are consistent with the 
provisions of the RFA. Accordingly, we are of the view that the 
Department has met the requirements of the RFA. Further, the comment 
offered no further explanation for this assertion but did go on to 
discuss part of the initial regulatory flexibility analysis as it 
relates to both large and small entities.
    Second, the commenter stated that the regulatory flexibility 
analysis lacked an understanding that tart cherries produced in, for 
instance, Oregon and Washington are handled in a manner that they 
become a high quality puree or juice concentrate by intent. Tart 
cherries produced in other parts of the production area under the order 
enter the stream of commerce generally in another form. The commenter 
contends that it is the sort outs or culls from these other products 
that become puree and juice concentrate and that these products, puree 
and juice concentrate made with these sort outs or culls, are not 
equivalent commodities. The commenter believes that allowing a one-year 
period where these sort outs or culls can receive diversion credit will 
unfairly compete with someone else's primary market product. The 
commenter went on to state that prevention of this inequity was part of 
the reason the order was written as it was.
    The Board made the recommendation to suspend the juice and juice 
concentrate provisions for one year only. The Department allowed the 
suspension of the juice and juice concentrate provisions on the basis 
that the bulk of the new export sales of juice and juice concentrate 
would probably represent sales to new markets or expansion of existing 
markets. It was expected that such shipments would not be in direct 
competition with juice and juice concentrate markets established by 
Oregon and Washington handlers. Present indications are that the bulk 
of sales of juice and juice concentrate are going to new export markets 
or are being used for the expansion of existing export markets and are 
thus not in direct competition with existing markets for juice and 
juice concentrate.
    Third, the commenter disagreed with a statement in the regulatory 
flexibility analysis and was of the view that meetings are not widely 
publicized in advance and are not held in a location central to the 
production area. Meetings have been central only to those producers and 
handlers in the Michigan districts. The commenter stated that the Board 
does a poor job of publicizing Board meetings.
    In regard to the commenter's statement, the Board also has to 
consider the cost of travel for all Board members since the Board pays 
travel expenses for all of its members. The first meetings held in 
December of 1996 and throughout 1997 were attended by all members and 
their alternates. A Board recommendation was passed that the start-up 
meetings be attended by the alternates so they would be involved and 
aware of Board activities. It would have resulted in considerable 
expense to the Board to hold the meetings outside of Michigan since 16 
members and alternates are from the State of Michigan. The Board 
realizes the time spent in travel and has made a commitment to hold the 
June marketing policy meeting in Michigan and the September marketing 
policy meeting in a district outside of Michigan. The Board is also 
committed to holding meetings outside the Michigan districts to allow 
producers and handlers to attend the meetings and cut down on travel 
time for those not located in Michigan. In regard to the commenter's 
contention that the Board does a poor job of publicizing Board and 
subcommittee meetings, we disagree. The Board has and will continue to 
take appropriate action to provide the widest possible notice of 
upcoming meetings to all handlers and Board members and alternate Board 
members. The Board sends meeting notices to all Board members and 
several tart cherry industry organizations. In fact, the Board is 
currently developing a newsletter which will be distributed to all 
growers and handlers of record to further publicize upcoming Board 
meetings.
    An interim final rule concerning this action was published in the 
Federal Register on January 6, 1998. Copies of the rule were mailed by 
the Board's staff to all Board members and cherry handlers. In 
addition, the rule was made available through the Internet by the 
Office of the Federal Register. That rule provided for a 30-day comment 
period which ended February 5, 1998. Two comments were received. One 
comment was received from a tart cherry association representing tart 
cherry growers and processors in the State of Oregon and the other from 
a handler.

[[Page 20018]]

    The first commenter representing the tart cherry association also 
commented on the proposed rule published on January 21, 1998, in the 
Federal Register (63 FR 3048) that proposed final free and restricted 
percentages for the 1997-98 crop year. To the extent that the comment 
addressed or identified issues relating to the January 21, 1998, 
publication, that portion of the comment will be discussed, as 
appropriate, in the final action concerning that document which will be 
published separately from this action.
    The first commenter stated that they objected to the use of export 
markets for disposal of tart cherries for exempt or diversion purposes. 
The commenter stated that the use of exports in this manner will create 
a two-tiered pricing system. Some exports have been cheaply priced even 
though domestic prices warrant a stronger approach. The commenter 
states further that this will draw down the domestic price, as well as 
the export price for those cherries not receiving diversion credit. The 
commenter believes that if the domestic market strengthens as a result 
of these activities, the industry may become over enthusiastic and 
begin planting and create a worse oversupply in the future. There must 
be well maintained compliance to ensure that tart cherry products 
exported and receive diversion credit are not returned to the domestic 
market.
    In response to the commenter's statements, the Board has 
recommended that exports to certain countries receive diversion credit. 
The Board has indicated exports have increased due to the diversion 
credit option and short supplies in other countries. The Board will be 
able to analyze results of this year's activity to determine if such 
program worked. The Board will continue to monitor activities to ensure 
that exported cherries are not reexported into the domestic market.
    The first commenter also commented that the Department rule soon on 
the identity and nature of CherrCo, Inc., a new entity in the tart 
cherry industry, as it relates to the marketing order. The Department 
is continuing to work with the Board on this issue. This issue will be 
addressed separately.
    Finally, the first commenter noted that there is reference made to 
a limit for diversion credit of 1 million pounds of product per year. 
The commenter further states that in the interim final rule, the 
Board's intent that there be no limit on export credits at all needs to 
be properly reflected. The regulatory text inadvertently states that 
under Sec. 930.159(f) that the one million pound exemption limitation 
for diversion credit does not apply to handlers exporting juice or 
juice concentrate. The one million pound limitation does not apply to 
any exports, not just juice and juice concentrate. The supplementary 
information of the interim final rule explains this limitation 
correctly. Therefore, this final rule corrects this error in the 
amendatory language as suggested by the commenter. Additionally, this 
commenter stated that they agree with the comments submitted by the 
second commenter discussed below.
    The second commenter raised ten points in his comment, three of 
which related to the initial regulatory flexibility analysis and have 
been discussed previously in this document. First, the commenter stated 
that it is not equitable that cherries which have been authorized for 
diversion or exemption from restrictions are excused from assessment. 
All tonnage produced should be subject to assessment. A majority of the 
Board's budget is earmarked for compliance expenses. The compliance 
costs are generated in districts with the bulk of the diversions and 
exemptions. Handlers and producers in districts which are not subject 
to tonnage restrictions should not be penalized for maintaining 
production at moderate levels.
    The Board, after its initial 1997-98 crop year, is reviewing the 
order and considering several amendment proposals to assist the order 
to operate more efficiently in future crop years. One proposal the 
Board is considering is that any cherries produced, which would be 
those diverted or exempted, be subject to assessments. Only those 
cherries that are diverted at the orchard would not be subject to 
assessments.
    Secondly, the commenter stated that it is not equitable that 
diversion credits are issued in situations involving exemption. Based 
on its category of use, destruction or reserve, a cherry product should 
qualify either as a diversion or an exemption. The commenter asserted 
the two terms are not synonymous and stated that this confusion should 
be clarified with a re-publication for subsequent comment prior to the 
interim final rule becoming truly final. We disagree.
    The terms used in this rule are not used synonymously. These terms 
are different because diversion credit is provided to growers who 
voluntarily divert their crop if such crop is of poor quality due to 
hail damage or some other climatic condition. Diversion credit is 
provided to handlers if such handlers, in order to meet their 
restricted percentage obligations, when volume regulations are 
implemented, by placing cherries in a primary inventory reserve or 
diverting cherries, or a combination of both. Whereas, tart cherries 
can be exempted from certain order provisions if they are diverted in 
accordance with the order by being used for new products or new market 
development or for experimental purposes or other uses designated by 
the Board. The Board has the authority to grant diversion credit under 
Sec. 930.59 for products that are exempted under Sec. 930.62. There is 
no reason to clarify this authority under the order, since the 
recommendations made by the Board are clearly authorized under 
marketing order provisions.
    Thirdly, the commenter stated that the Board should not be allowed 
to deviate from the marketing order authorities, even for a season, 
because some participants in the industry did not clearly understand 
what they could and could not utilize as either diversionary or 
exempted products. The commenter further stated that it was clear 
during the promulgation that the order was to be very specific in the 
authorities that would be granted to the Board.
    The Board may recommend suspensions of the order or provisions 
thereof. The Board felt that it would be in the best interests of the 
industry to suspend the order language with regard to juice and juice 
concentrate. This is a new order and difficult to administer in its 
first year of operation. The Board's recommendation will be used to 
correct any misunderstandings that have occurred in the industry about 
order operations concerning juice and juice concentrate and allow the 
industry to expand the export market for this season. As explained in 
the rule this suspension is for one year only. Accordingly, no change 
is made to the temporary suspension as a result of this comment.
    Fourth, the commenter stated that it is simply untrue that 
interested parties have an opportunity to provide input concerning the 
recommendations of the Board to the Secretary. The commenter further 
stated that the record of Board meetings will also show that not all 
these recommendations were made unanimously as stated in the rule.
    Since the meetings are public, interested persons have an 
opportunity to provide input on these actions. Also, during this 
informal rulemaking process, comments are solicited. Most of the 
actions discussed herein were recommended unanimously by the Board.
    Fifth, the commenter stated that the Board needs to have an 
approved compliance plan prior to issuing supply

[[Page 20019]]

control regulations. The Board has approved a compliance plan at its 
January 29-30, 1998, meeting.
    Sixth, the commenter believes it is a particularly serious matter 
that the Board appears to be functioning under the control of CherrCo, 
Inc., a new entity in the tart cherry industry. The Department is 
continuing to work with the Board on this issue. This issue will be 
addressed separately.
    Finally, the commenter urges the Department to insist that the 
Board randomly conduct unannounced compliance inspections prior to next 
harvest to insure that reserves are maintained as certified and that 
required documentation is maintained properly by handlers.
    The Board has the authority to inspect reserves and audit handlers 
as required. The Board will audit handlers, as appropriate, to ensure 
that proper inventory reserves are being maintained.
    Accordingly, one change will be made to the rule as proposed, based 
on the comments received.
    After consideration of all relevant material presented, including 
the Board's recommendation, and other information, it is found that 
finalizing the interim final rule, with a change, as published in the 
Federal Register (63 FR 399, January 6, 1998), 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.

List of Subjects in 7 CFR Part 930

    Cherries, Marketing agreements, 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

    Accordingly, the interim final rule amending 7 CFR part 930 which 
was published at 63 FR 399 on January 6, 1998, is adopted as a final 
rule with the following change:

PART 930--TART CHERRIES GROWN IN THE STATES OF MICHIGAN, NEW YORK, 
PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN

    1. The authority citation for part 930 continues to read as 
follows:

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

    2. Paragraph (f) of Sec. 930.159 is revised to read as follows:


Sec. 930.159  Handler diversion.

* * * * *
    (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 tart cherry 
products.

    Dated: April 16, 1998.
Robert C. Keeney,
Deputy Administrator, Fruit and Vegetable Programs.
[FR Doc. 98-10659 Filed 4-21-98; 8:45 am]
BILLING CODE 3410-02-P