Federal Register, Volume 64 Issue 105 (Wednesday, June 2, 1999)

[Federal Register Volume 64, Number 105 (Wednesday, June 2, 1999)]
[Rules and Regulations]
[Pages 29541-29550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13793]

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Rules and Regulations
Federal Register
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Federal Register / Vol. 64, No. 105 / Wednesday, June 2, 1999 / Rules
and Regulations

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DEPARTMENT OF AGRICULTURE

Animal and Plant Health Inspection Service

7 CFR Part 301

[Docket No. 96-016-24]
RIN 0579-AA83

Karnal Bunt Regulated Areas

AGENCY: Animal and Plant Health Inspection Service, USDA.

ACTION: Final rule.

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SUMMARY: We are adopting as a final rule, with changes, an interim rule
that amended the Karnal bunt regulations by modifying the criteria for
classifying regulated areas and by modifying the classification of
restricted areas. The interim rule required that a bunted wheat kernel
be found in or associated with a field within an area before that area
would be designated as a regulated area. The interim rule also
established separate restricted areas for seed and for regulated
articles other than seed. The actions taken in the interim rule were
necessary because tests currently available for use in identifying
spores do not allow us to differentiate between small numbers of Karnal
bunt spores and the spores of an as yet unnamed, but widely
distributed, ryegrass smut. The interim rule had the effect of removing
some areas in Arizona and California from the list of regulated areas
and relieving restrictions on the movement of grain and other regulated
articles from additional areas in Arizona, California, New Mexico, and
Texas.

EFFECTIVE DATE: June 2, 1999.

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

SUPPLEMENTARY INFORMATION: Karnal bunt is a fungal disease of wheat
(Triticum aestivum), durum wheat (Triticum durum), and triticale
(Triticum aestivum X Secale cereale), a hybrid of wheat and rye. Karnal
bunt is caused by the smut fungus Tilletia indica (Mitra) Mundkur and
is spread by spores, primarily through the movement of infected seed.
In the absence of measures taken by the U.S. Department of Agriculture
(USDA) to prevent its spread, the establishment of Karnal bunt in the
United States could have significant consequences with regard to the
export of wheat to international markets. The regulations regarding
Karnal bunt are set forth in 7 CFR 301.89-1 through 301.89-14.
In an interim rule effective on April 25, 1997, and published in
the Federal Register on May 1, 1997 (62 FR 23620-23628, Docket No. 96-
016-19), we amended the Karnal bunt regulations by modifying the
criteria for classifying regulated areas. We required that a bunted
wheat kernel be found in or associated with a field within an area
before that area would be designated as a regulated area. In that
interim rule, we also modified the classification of restricted areas
by establishing separate restricted areas for seed and for regulated
articles other than seed.
We solicited comments concerning the interim rule for 60 days
ending June 2, 1997. We received 13 comments by that date. They were
from five State agricultural agencies, three associations representing
grain growers and processors, a food corporation, a grain handler, a
wheat grower, and a scientific society. One of the commenters fully
supported the interim rule as written. The remaining 12 commenters
expressed concerns or made suggestions regarding certain aspects of the
interim rule, although 8 of those commenters did offer their support
for the changes contained in the interim rule. The issues raised by
those 12 commenters are discussed in detail below.
Comment: The definition of infestation (infected) in Sec. 301.89-1
of the regulations states that an area is infected if any stage of the
fungus Tilletia indica (Mitra) Mundkur is present. Section 301.89-3(e)
lists several criteria that are used to classify regulated areas, with
the classification of regulated areas being based on the discovery of
bunted kernels. If the discovery of bunted kernels is now the criterion
on which an area is regulated, rather than the detection of spores,
should the definition of infestation (infected) be modified to reflect
that change?
Response: If the discovery of bunted kernels was the sole criterion
on which an area's regulatory status was based, it would be appropriate
to modify the definition of infestation (infected) as suggested by the
commenter. However, Sec. 301.89-3(e) still provides for the designation
of regulated areas based on the detection of spores in a field when
that field is found to be associated with grain at a handling facility
containing a bunted wheat kernel. Therefore, it would be inaccurate to
base the definition of infestation (infected) only on the detection of
bunted kernels.
Comment: Is the designation of regulated areas in Sec. 301.89-3(f)
valid only for the 1996-1997 crop production year? Since those
regulated areas differ from those regulated in the 1995-1996 crop year,
will the 1996-1997 regulated areas be modified for the 1997-1998 crop
year? If so, what criteria will be used to define those areas?
Response: We do not intend to update the list of regulated areas in
Sec. 301.89-3(f) on a ``crop year'' basis as envisioned by the
commenter. Rather, we will continue to amend the list of regulated
areas when the situation warrants, removing areas from the list when we
determine that it is no longer necessary to regulate them to prevent
the spread of Karnal bunt and adding new areas to the list based upon
the detection of Karnal bunt. The criteria used to define regulated
areas are found in Sec. 301.89-3.
Comment: In Sec. 301.89-3(d), we would suggest that State plant
regulatory officials be included in the written notification of the
designation of an area as a regulated area. It is vital that State and
Federal agencies interact closely with industry on this issue.
Response: Paragraph (d) of Sec. 301.89-3 deals with the temporary
designation of a nonregulated area as a regulated area. Because the
movement of regulated articles from the temporarily designated
regulated area will be subject to the regulations, the written
notification is directed to the person most immediately affected by the
designation of an area as a regulated area, i.e., the owner or person
in possession of the land or, in the case of

[[Page 29542]]

publicly owned land, the person responsible for the management of the
land. The notification of State plant regulatory officials in such
cases is handled by the Animal and Plant Health Inspection Service
(APHIS) State Plant Health Director in each State and through updates
to the National Agricultural Pest Information Service database that is
maintained by the joint APHIS/State Cooperative Agricultural Pest
Survey. We do not, therefore, believe that it is necessary to include
State officials in the notification provisions of Sec. 301.89-3(d) to
ensure that they receive timely notice of the temporary designation of
nonregulated areas as regulated areas.
Comment: Intensive surveys should be conducted to ensure continued
confidence in the freedom of areas released from regulation and areas
outside the regulated area. It would be scientifically invalid to
assume that the bunted kernel fields now regulated will be the only
fields in which viable Karnal bunt spores may exist. The needs of the
wheat industry in the Southwest should be considered in APHIS'
regulatory decisionmaking, but the credibility of the U.S. export
certification program must be maintained for the benefit of the entire
nation. A thorough survey program will validate the regulatory program
and ensure continued confidence in our exports.
Response: We agree with the commenter's position regarding the need
for maintaining adequate delimiting surveys and detection programs. Our
work in that respect continues on two fronts. First, there are the
survey and detection activities that are carried out as part of the
regulatory program within those areas of Arizona, California, New
Mexico, and Texas that have been designated as regulated areas. In
addition to the regulatory program, we are also conducting an ongoing
National Survey of all wheat production areas in the United States in
order to gather information about the presence or absence of Karnal
bunt. The phytosanitary requirements of some of our trading partners
necessitate the collection of documentable evidence that production
areas are not infested at detectable levels. Without that
documentation, we cannot provide the certifications that allow wheat to
be sold into certain foreign markets. The intensity of this survey will
provide a high level of confidence that Karnal bunt is not detectable
in those parts of our wheat production system that contribute to the
export trade. As well as identifying areas that are free of Karnal bunt
infestations, the National Survey will provide information about
potential infections in new areas. By the end of 1997, the National
Survey had covered all wheat growing areas of the United States where
Karnal bunt had not previously been detected. In the National Survey,
composite wheat samples are collected at county elevators, feed mills,
seed laboratories, and seed trade and research locations. During 1996,
the first year Karnal bunt was known to be present in the United
States, 15,000 samples were collected and processed. By the end of
1997, over 11,000 additional composite samples had been collected, in
proportion to wheat production, from wheat-producing areas where Karnal
bunt had not been detected. We believe that our ongoing regulatory
program and National Survey activities provide the assurances sought by
the commenter and by our trading partners regarding the Karnal bunt
status of areas released from regulation and areas outside the
regulated areas.
Comment: APHIS should use the selective sieve technique, rather
than a bunted kernel search technique, to check samples from the pre-
release survey. The selective sieve technique can be used to eliminate
samples that do not require further inspection so that efforts can be
concentrated on those samples that do. In addition, all samples should
be processed in a timely manner, rather than being processed as time
allows.
Response: We have not limited ourselves to using any one method of
examining samples, and we do not believe it is necessary to do so. In
order to make the best use of our resources, we use the methodology
best suited to the situation and operational circumstances at hand.
Currently, the bunted kernel search technique is used in our survey
activities in the regulated areas. The selective sieve technique, which
involves the washing of grain samples and the subsequent examination of
only those samples from which spores were collected, cannot be
performed in the field. The bunted kernel search technique can be
performed expeditiously in the field. Therefore, while the selective
sieve technique may meet our operational needs in other situations, it
does not meet the need for quick results in the field test situation.
Comment: The current seed treatment requirement is a costly
procedure that could be a marketing problem within California and
abroad if it is determined that excess chemicals were used in the
production of California wheat. APHIS should review the efficacy of the
required seed treatments, their adverse effects on germination, and
whether the prescribed use of carboxin thiram and
pentachloronitrobenzene is consistent with the labeling of those
chemicals.
Response: We are satisfied that the use of carboxin thiram and
pentachloronitrobenzene as a double-fungicide treatment under
Sec. 301.89-13(d) is consistent with the labeling of those chemicals.
With regard to their effects on germination, preliminary data from
research gathered by APHIS' Karnal bunt regulatory program staff and
the Arizona Department of Agriculture suggested that the double-
fungicide treatment may negatively affect germination in some varieties
of seed. Specifically, this research data indicated that for the seed
varieties tested, double-treated seed may germinate at a lower rate
than untreated seed in some cases. However, as a result of our
continuing efficacy research, three single-fungicide treatment options
have been made available for seed originating in a regulated area that
will be planted within a regulated area. Those single-fungicide
treatments were added to Sec. 301.89-13(d) by an interim rule that was
effective on November 28, 1997, and published in the Federal Register
on December 5, 1997 (62 FR 64263-64265, Docket No. 96-016-27). In
answer to the commenter's concerns, the single-fungicide treatments now
available will reduce the cost of seed treatment and lessen the level
of chemicals used in the production of wheat. Further, we anticipate
that single-treated seeds may in some cases have germination rates
slightly higher than double-treated seeds. It should be noted, however,
that many factors affect germination, and it is not possible to
attribute increase or decrease in germination only to seed treatments.
Comment: The presence of regulated areas within California has
resulted in Mexico placing restrictions on the importation of wheat
from all wheat-producing areas of California. APHIS should ensure that
California wheat produced outside the regulated areas receives the same
consideration by our trading partners as wheat produced elsewhere in
the United States.
Response: APHIS routinely seeks to answer any concerns raised by
our trading partners regarding the phytosanitary status of U.S.-grown
agricultural commodities. Addressing concerns related to Karnal bunt
has been a part of our activities since the disease was first detected
in this country. Since that initial detection, APHIS has been able to
maintain export markets for U.S. wheat in more than three dozen
countries with concerns about Karnal bunt. In an instance such

[[Page 29543]]

as that brought up by the commenter, APHIS will act to address the
concerns of our trading partners and will seek the removal of any
unjustifiable phytosanitary restrictions.
Comment: The move by APHIS to regulate areas based on their
association with bunted kernels was a good one. However, the
restrictions placed on wheat grown as seed in the regulated area is not
consistent with that approach. If wheat seed grown in a regulated area
was found to contain spores (and is thus ineligible for planting), the
seed could be designated as grain and moved out of the regulated area
without restriction if it was grown in the area outside the
surveillance area. On the other hand, if grain to be moved from within
a surveillance area is found to have spores, it must move under a
limited permit. If testing cannot positively determine the presence of
Karnal bunt on the basis of spores alone, then none of this seed or
grain can be considered infected.
Response: We explained in the interim rule that grain from a
surveillance area found to contain spores must be moved under a limited
permit because it originated in an area that includes at least one
field in which a bunted wheat kernel had been detected, and that the
link to bunted wheat kernels gave us reason to believe that grain
containing spores was at greater risk for being infected with Karnal
bunt. We agree with the commenter's observation that current testing
methods cannot be used to determine the presence of Karnal bunt on the
basis of spores alone. It was that fact that led to the interim rule's
amendments to the Karnal bunt regulations to require that an area or
regulated article be associated with a bunted kernel before regulatory
restrictions would be applied. Following the publication of the interim
rule, we further amended the regulations (63 FR 50747-50752, Docket No.
96-016-32, published September 23, 1998) to allow the certified
movement of grain for uses other than seed if the grain was tested
prior to movement from the field, or before being commingled with other
grain, and found free of bunted kernels only, rather than Karnal bunt
spores and bunted kernels.
Comment: APHIS should recognize that Karnal bunt is a minor
disease--it is more a quality or grading issue than it is a quarantine
pest issue--and should remove its importation and interstate movement
restrictions and encourage our trading partners to adopt the same view.
Response: Given the continuing international perception of Karnal
bunt as a quarantine pest issue, we do not believe that it would serve
the interests of American agriculture to unilaterally remove our
regulatory restrictions through which we seek to prevent the
introduction and dissemination of Karnal bunt. The position that Karnal
bunt is a grading issue rather than a quarantine issue is one that has
been discussed in international trade and scientific circles, but until
such time as our trading partners view the disease as a grading issue,
we believe that it will be necessary to continue our Karnal bunt-
related regulatory activities and restrictions in order to protect our
international agricultural standing.
Comment: The Palo Verde Valley of California should not be a
surveillance area. The bunted kernels found in storage there were found
in facilities that were not cleaned prior to the storage of the 1996
crop, and no bunted kernels were found in any trucks hauling the
valley's 1996 crop. Given the low spore counts, it is unlikely any
bunted kernels could now be found.
Response: As we stated in the interim rule, the regulatory status
of the Palo Verde Valley is based on the presence of fields within the
valley that are considered to be positive for Karnal bunt. Those fields
had not been examined individually for bunted wheat kernels during the
1996 surveys, but they were found to contain spores. Further, grain
from those fields was part of a commingled lot of grain at a storage
facility that was found to contain bunted wheat kernels. However,
because the grain in that commingled lot came from several sources, the
bunted kernels could not be traced back to any individual field or
fields. It is the combination of spores in the fields and bunted wheat
kernels in grain associated with the fields that gives us reason to
believe that those fields are affected with Karnal bunt. At the present
time, we believe that regulatory restrictions on the Palo Verde Valley
should remain in place because we do not possess sufficient data that
would allow us to change our conclusion that those fields, and the
areas that surround them, are associated with Karnal bunt. Although the
programmatic classification of ``surveillance area'' was removed in a
final rule effective on April 28, 1999, and published on May 4, 1999
(64 FR 23749-23754, Docket No. 96-016-36), we retained the Palo Verde
Valley as a regulated area for the same reasons that the area was
designated as a surveillance area in the interim rule. However, we will
continue to reevaluate the regulatory status of areas, including the
Palo Verde Valley, as additional information becomes available.
Comment: If seed treatment is truly effective and significantly
reduces the possibility of spreading Karnal bunt, then seed treatment
should be required for all seed planted in the United States.
Similarly, if the treatment is effective, then treated seed from a
regulated area should be approved for planting outside the regulated
areas.
Response: With regard to requiring treatment for all seed planted
in the United States, we believe that it would be an unjustifiable
burden from a risk standpoint to require the treatment of seed that has
no association with Karnal bunt. As for the commenter's suggestion
about allowing treated seed from a regulated area to be planted outside
the regulated areas, we did amend our regulations on September 23, 1998
(63 FR 50747-50752, Docket No. 96-016-32) to allow, among other things,
commercial lots of treated seed from that portion of the restricted
area for seed lying outside the surveillance area to be moved outside
the regulated area for planting. However, that provision was rendered
unnecessary, and was therefore removed, by a subsequent final rule
effective on April 28, 1999, and published on May 4, 1999 (64 FR 23749-
23754, Docket No. 96-016-36). The May 1999 final rule removed the
programmatic classification of ``restricted area for seed'' and
released nearly all of the areas that had been designated as such from
regulation, thus making it possible for seed to be moved from those
areas without restriction.
Comment: Paragraph (f) of Sec. 301.89-3 of the interim rule states
that the areas listed in the section are designated as ``regulated
areas,'' and that those regulated areas are designated as either
``restricted areas'' or ``surveillance areas.'' Paragraph (a) of
Sec. 301.89-5 of the interim rule states that any regulated article
(i.e., certain articles from a regulated area) may be moved into or
through an area that is not regulated only if moved under certain
conditions. That restriction on the movement of regulated articles
would seem to apply to the movement of grain from any part of the
regulated area, but it appears that this is not the intent of the
interim rule. As explained in the interim rule, grain is a regulated
article, but its movement is restricted only from a surveillance area
and not from the entire regulated area, which includes the restricted
area for seed that extends beyond the surveillance area.
Response: The commenter is correct. The intent of the interim rule
was that:
Grain (wheat, durum wheat, and triticale) may not be grown
in a

[[Page 29544]]

restricted area for regulated articles other than seed. Because grain
may not be grown in such an area, there was no need to provide for the
movement of grain from a restricted area for regulated articles other
than seed. This was spelled out in the interim rule.
Grain may be grown in a surveillance area, and may be
eligible for movement from a surveillance area with a certificate under
the conditions set forth in Sec. 301.89-6(b). This, too, was spelled
out in the interim rule.
Outside the surveillance area, grain may be grown in the
restricted area for seed and may be moved from that area without a
certificate or limited permit. This was not made clear in the interim
rule and, as noted by the commenter, Sec. 301.89-5(a) does not provide
for the movement of grain from a restricted area for seed.
Although the commenter was correct in noting that the interim rule
did not provide for the movement of grain from a restricted area for
seed, we are not making any changes to the regulations as a result of
that comment. Such a change is now unnecessary due to the changes made
in a final rule that was effective on April 28, 1999, and published in
the Federal Register on May 5, 1999 (64 FR 23749-23754, Docket No. 96-
016-36), which removed the restricted area for seed classification.
Comment: APHIS' move to require only a single test for grain moved
from a surveillance area was a good one, but the single test that is
required should be for bunted kernels and not spores. It is illogical
to have a bunted kernel standard for establishing regulated areas and a
``one spore and you're out'' standard for moving grain and other
regulated articles. Placing restrictions on the movement of grain based
on the presence of spores that are assumed--but not proven--to be
associated with Karnal bunt holds growers to standards that are
stricter than the disease demands. In that same vein, there is no
explanation in the interim rule as to why double testing is still
required for the movement of grain out of a restricted area.
Response: As we noted in the response to another comment, our
September 23, 1998, final rule amended the regulations to allow the
certified movement of grain for uses other than seed if the grain is
tested prior to movement from the field, or before being commingled
with other grain, and found free of bunted kernels only, rather than
Karnal bunt spores and bunted kernels. Regarding the commenter's
reference to double-testing for the movement of grain from a restricted
area, that requirement, which had been found in Sec. 301.89-6(d), was
removed by the interim rule.
Comment: The interim rule contains an open-ended prohibition on the
planting of wheat in restricted areas for regulated articles other than
seed, i.e., the prohibition is not limited to a single crop season.
Although it may not have been the intent of the interim rule, it
appears that a significant amount of farm acreage could be permanently
barred from growing wheat. APHIS should adopt a timetable for the
release of those areas from regulation.
Response: In a final rule effective on April 28, 1999, and
published on May 4, 1999 (64 FR 23749-23754, Docket No. 96-016-36), we
removed the prohibition on the planting of Karnal bunt host material in
those fields that had been designated as restricted areas for regulated
articles other than seed, thus answering this commenter's concerns.
Comment: If APHIS is considering Mexico's request that the Mexicali
Valley be declared free from Karnal bunt, then APHIS should also
consider the adjacent areas in Yuma County, AZ, as free from Karnal
bunt, since the two areas can be viewed as comprising a single
``distinct, definable area'' as that term is defined in Sec. 301.89-1.
Response: Given that an international border lies between Mexico's
Mexicali Valley and the adjacent areas of Yuma County, AZ, and given
that restrictions are in place regarding the movement of Karnal bunt
host material between the United States and Mexico, we do not believe
that it is appropriate to consider the Mexicali Valley and Yuma County,
AZ, as a single ``distinct, definable area.'' Rather, Mexico's request
regarding the Karnal bunt status of the Mexicali Valley was evaluated
on its own merits, as should any decision regarding the regulatory
status of Yuma County, AZ.

Other Comments

In addition to the issues discussed above, several commenters
questioned the continuing regulatory status of areas in New Mexico. Two
commenters noted that Karnal bunt has been linked to New Mexico only
through the 106 fields identified as having been planted with
potentially contaminated seed. One of those commenters stated that
those 106 fields should be the only regulated areas in New Mexico--
i.e., there should be no restricted areas for seed in the State--while
the other commenter took the position that even those 106 fields should
be released from regulation because the wheat in those fields was
destroyed before heading out and no bunted kernels have been detected
in New Mexico in the course of subsequent testing. Other commenters
asked that specific fields in New Mexico be removed from regulation due
to their isolation from other farm areas and the lack of evidence--
other than the contaminated seed that was planted there--pointing to
the presence of Karnal bunt in New Mexico.
Even though the wheat in those 106 fields was plowed down and
destroyed before heading out, available information regarding Karnal
bunt indicates that viable T. indica inoculum could persist in the soil
for several years. Therefore, we believe that it is necessary for those
fields to continue to be designated as regulated areas. We have,
however, removed the regulatory restrictions that applied to the areas
surrounding those fields, which had been designated as restricted areas
for seed. As noted elsewhere in this document, the ``restricted area
for seed'' classification was eliminated by a final rule that was
effective on April 28, 1999, and published on May 4, 1999 (64 FR 23749-
23754, Docket No. 96-016-36), so those 106 individual fields are now
the only regulated areas in New Mexico. We will continue to reevaluate
the regulatory status of those fields in New Mexico, as well as the
regulated areas in other States. As we continue to accumulate negative
survey data, we will be in a better position to make and defend
decisions regarding the further release of areas from regulatory
restrictions.
Three of the commenters raised the issue of compensation. The issue
of compensation was not raised in the interim rule and is, therefore,
outside the scope of this final rule. Rather, compensation has been,
and will continue to be, addressed in separate rulemakings that focus
exclusively on that issue.

Changes Made in This Document

In the interim rule, we amended the regulations by redesignating
footnotes 2 through 6 as footnotes 1 through 5, respectively. When we
redesignated footnote 3 as footnote 2, we should have amended the text
of what is now footnote 5, which refers the reader to footnote 3, to
reflect the redesignation of footnote 3. We are correcting that
omission in this document.
Since the interim rule that is the subject of this document became
effective, we have published two other rulemakings in the Federal
Register that amended the provisions established in the interim rule.
This document does not affect those rulemakings. The provisions of
those rulemakings are:

[[Page 29545]]

In the interim rule, we revised paragraphs (e) and (f) of
Sec. 301.89-3. Those two paragraphs were revised again by a final rule
effective on April 28, 1999, and published on May 4, 1999 (64 FR 23749-
23754, Docket No. 96-016-36).
In the interim rule, we revised Sec. 301.89-4. That
section was revised again by the May 1999 final rule.
In the interim rule, we revised paragraph (b) of
Sec. 301.89-6. That paragraph was revised again by a final rule
published and effective on September 23, 1998 (63 FR 50747-50752,
Docket No. 96-016-32), and that September 1998 revision was further
amended by the May 1999 final rule.
In the interim rule, we amended Sec. 301.89-6 by removing
and reserving paragraph (d). In the September 1998 final rule, we added
a new paragraph (d) to Sec. 301.89-6. Then, in the May 1999 final rule,
we removed the paragraph (d) that had been added by the September 1998
final rule and redesignated paragraph (e) as paragraph (d).
Therefore, for the reasons set forth in the interim rule and in
this document, we are adopting the provisions of the interim rule as a
final rule with the change discussed in this document.
This final rule also affirms the information contained in the
interim rule concerning Executive Orders 12372 and 12988 and the
Paperwork Reduction Act.

Executive Order 12866 and Regulatory Flexibility Act

This rule has been reviewed under Executive Order 12866. The rule
has been determined to be significant for the purposes of Executive
Order 12866 and, therefore, has been reviewed by the Office of
Management and Budget.
This document adopts as a final rule, with one change, an interim
rule that amended the Karnal bunt regulations by modifying the criteria
for classifying regulated areas and by modifying the classification of
restricted areas. The interim rule required that a bunted wheat kernel
be found in or associated with a field within an area before that area
would be designated as a regulated area. The interim rule also
established separate restricted areas for seed and for regulated
articles other than seed. The actions taken in the interim rule had the
effect of removing some areas in Arizona and California from the list
of regulated areas and relieving restrictions on the movement of grain
and other regulated articles from additional areas in Arizona,
California, New Mexico, and Texas.
In the interim rule, we stated that we were taking those actions on
an expedited basis in order for the amended regulations to be in place
prior to the spring wheat harvest in the affected States, and that the
need to publish the interim rule on an expedited basis made compliance
with section 603 and timely compliance with section 604 of the
Regulatory Flexibility Act (5 U.S.C. 603 and 604) impracticable.
The interim rule substantially reduced the amount of acreage
regulated for Karnal bunt, which meant that regulated articles like
grain, seed, and straw from the areas released from regulation could be
moved without restriction. The interim rule also eased restrictions on
the movement of grain and other regulated articles from those areas
that remained under regulation. Given those changes, we stated our
expectation that the interim rule would have a significant deregulatory
impact on affected entities. We further stated that, because the
majority of the affected entities in the regulated areas have been
determined to be small entities, we would discuss the issues raised by
section 604 of the Regulatory Flexibility Act in our Final Regulatory
Flexibility Act Analysis. That Final Regulatory Flexibility Act
Analysis, which also serves as our cost-benefit analysis, is set forth
below.

Entities Affected

The Regulatory Flexibility Act requires that agencies assess the
impact of regulations on small businesses, organizations, and
governments. We have assumed that the majority of the wheat producers
in the regulated area would be classified as small entities, based on
criteria established by the Small Business Administration (SBA) that
defines a ``small'' wheat producer as one having annual sales of less
than $500,000. We have also assumed that the economic impacts on all
wheat producers would tend to be lower over time, especially if wheat
production and marketings increase in the regulated area in response to
the deregulatory effects of the interim rule. The economic impact of
the interim rule on seed producers, however, depends largely on the
degree to which foreign and domestic markets are willing to accept seed
produced in areas that had been regulated for Karnal bunt.
The interim rule greatly reduced the number of nonpropagative wheat
(i.e., grain) growers operating under regulatory constraints. Prior to
the effective date of the interim rule, there were an estimated 598
growers affected by the regulations (236 in California, 310 in Arizona,
40 in New Mexico, and 12 in Texas). Once the interim rule became
effective, the number of affected growers dropped to 93, a decline of
84.4 percent. Of those remaining affected growers, 56 were located in
restricted areas for seed (29 in Arizona, 2 in California, 23 in New
Mexico, and 2 in Texas) and 37 were located in surveillance areas (20
in Arizona, 17 in California, and none in New Mexico and Texas).
Although nonpropagative wheat (grain) growers are the entities
primarily affected by the interim rule, there are other businesses that
provide supplies and that harvest, transport, and process wheat grown
in the regulated areas that were also affected by the interim rule.
These entities include harvesters and grain trucks, grain storage and
load-out facilities, railroad companies, grain handlers and marketers,
seed producers and seed companies, seed research firms and
universities, millers and other users of milling grain and millfeed,
straw producers and users, and other entities involved in providing
supplies to wheat growers and services to market and process their
production.

Rationale for and Benefits of Regulation

Upon detection of Karnal bunt in the southwestern United States in
the spring of 1996, quarantine and emergency actions were immediately
imposed by APHIS in order to prevent the interstate spread of the
disease to noninfected wheat producing areas in the country, which
would have had serious economic impact on the $4 billion wheat export
market,¹ given that 50 percent of exports were to countries
that maintain restrictions against wheat imports from countries where
Karnal bunt is known to occur. These actions included designating areas
where Karnal bunt had been detected as regulated areas from which the
movement of Karnal bunt host material was restricted or prohibited.
---------------------------------------------------------------------------

\1\ About 1.2 billion bushels of wheat was exported from the
United States in 1995, at a value of $4 billion.
---------------------------------------------------------------------------

In addition to the quarantine, the Karnal bunt program consisted of
a National Survey component in which samples of wheat from fields
throughout the United States were collected and tested for Karnal bunt.
The National Survey program provided assurances to wheat importing
countries that fields outside the regulated areas were monitored for
the disease. Countries that are willing to accept wheat from the
regulated areas are assured that grain grown in those areas has been
tested and found negative for the disease. Through these means, the
Federal Karnal bunt program served to maintain and preserve the
economic viability of

[[Page 29546]]

the U.S. wheat export market. The main benefit of the regulatory
program, therefore, can be viewed as the avoidance of the potentially
significant losses to the wheat export market that would likely have
occurred in the absence of regulation. Without Federal regulation, it
is conceivable that farm income both within and outside the regulated
areas could have been further jeopardized.
As additional information from sampling and testing became
available, the Agency was able to ease the initial quarantine, which
was necessarily broad due to the lack of data available at the time as
to the extent of the infestation. Our subsequent modifications to the
classification criteria for regulated areas and the classification of
restricted areas, and the relief from restrictions that accompanied
those changes, are the focus of this analysis. As a result of those
modifications to the program, the Agency has been able to continue to
assure importing countries that U.S. grain exports are coming from
areas where Karnal bunt is not known to exist, but at a lower cost to
producers and handlers than had been possible under the initial
quarantine.

Changes in Planted Acreage

When Karnal bunt was first detected in the United States in March
1996, APHIS responded by placing nearly 1.7 million acres of
agricultural land, including approximately 330,149 acres of wheat,
under regulation through a series of interim rules in order to prevent
the further spread of the disease. After gathering additional
information through sampling, testing, and research, we published a
final rule in the Federal Register on October 4, 1996 (61 FR 52189-
52213, Docket No. 96-016-14), that amended the Karnal bunt regulations
that had been established in that series of interim rules.
The October 1996 final rule established criteria for levels of
risk, the movement of regulated articles, and the planting of seed from
Karnal bunt host crops, and divided the regulated areas into
surveillance areas and restricted areas. Under the October 1996 final
rule, wheat could not be grown within the restricted areas (which
amounted to about 16,859 acres), but grain could be grown in and moved
from the surveillance areas (which amounted to about 207,670 acres of
wheat grown for grain) if the grain was tested for spores and found
negative. The final rule also prohibited the movement of commercial
wheat seed from anywhere in a regulated area (i.e., both restricted
areas and surveillance areas). On April 3, 1997, we published in the
Federal Register (62 FR 15809-15819, Docket No. 96-016-18) the
regulatory flexibility analysis prepared for the October 1996 final
rule. While the October 1996 final rule did not reduce the size of the
regulated area, it did ease restrictions on the movement of grain grown
in regulated areas.
The May 1997 interim rule (Docket No. 96-016-19) that is the
subject of this final rule reduced the size of the area regulated for
Karnal bunt and further eased restrictions on the movement of grain and
other regulated articles from those areas that remained under
regulation, so its long-term economic effect is expected to be
positive. The changes contained May 1997 interim rule were made
possible in large part by research that led the Agency to conclude the
detection of a bunted wheat kernel--and not spores alone--was necessary
to confirm the presence of Karnal bunt in an area or article. The shift
to this bunted kernel standard had an immediate positive effect on the
States of Alabama, Florida, Georgia, and Tennessee, where grain in a
number of storage facilities had been found to be contaminated with
spores that appeared to be Karnal bunt spores, and on South Carolina,
where seed from a seed lot contaminated with those spores had been
planted. Because no bunted kernels were detected in those storage
facilities or the seed lot, it was not necessary to place those areas
under regulation.
Under both the October 1996 final rule and the May 1997 interim
rule, the movement of grain from a surveillance area is subject to
restrictions. However, in the interim rule, the size of the
surveillance areas was greatly reduced by limiting the size of the
surveillance area to an approximately 3-square-mile buffer around
restricted fields, with the remainder of the former surveillance area
being designated as a restricted area for seed from which grain could
move without a certificate or limited permit. Thus, the interim rule
reduced the size of the areas from which the movement of grain was
subject to restrictions by about 95 percent, from 207,670 acres to
9,806 acres. By requiring that an area or article be associated with a
bunted kernel (and not just spores), the interim rule eliminated the
need to expand the regulated area into the five southeastern States
where Karnal bunt-like spores had found and into any other area of the
United States where such spores might have been found in the future.
The interim rule also allowed grain grown in restricted areas for seed
lying outside surveillance areas (which amounted to 91,924 acres of
grain in the 1996-1997 crop season) to be moved without a certificate
or limited permit. This represented an increase of more than 44 percent
in the amount of grain eligible for unrestricted movement.
Additional positive impacts are expected to occur as a result of
the reduction in the size of the areas in which the growing of wheat is
prohibited. The restricted area acreage fell from 16,859 acres under
the October 1996 final rule to 13,519 acres under the May 1997 interim
rule, a reduction of nearly 20 percent. Table 1 summarizes the changes
in regulatory designations and regulated acreage in the 1995-1996 and
1996-1997 crop seasons.

Table 1.--Acreage in Regulated Areas Under 1995-96 Regulations and Under the May 1997 Interim Rule
----------------------------------------------------------------------------------------------------------------
Regulated acreage by state
Year Regulatory designation ---------------------------------------------------- Total
AZ CA NM TX
----------------------------------------------------------------------------------------------------------------
1995-96............ Total planted wheat 181,339 137,870 10,235 705 330,149
acreage in regulated
areas.
Total agricultural acreage 928,542 500,000 215,000 35,000 1,678,542
in regulated areas.
----------------------------------------------------------------------------------------------------------------
1996-97 Acreage Regulated Under the October 4, 1996, Final Rule (Docket No. 96-016-14)
----------------------------------------------------------------------------------------------------------------
1996-97............ Acreage in which wheat 9,200 3,200 3,990 469 16,859
planting prohibited
(restricted areas).
Total planted wheat 105,800 98,010 3,327 533 207,670
acreage in regulated
areas.
Total agricultural acreage 928,542 500,000 215,000 35,000 1,678,542
in regulated areas.
----------------------------------------------------------------------------------------------------------------

[[Page 29547]]

1996-97 Acreage Regulated Under the May 1, 1997, Interim Rule (Docket No. 96-016-19)
----------------------------------------------------------------------------------------------------------------
1996-97............ Acreage in which wheat 5,947 3,113 3,990 469 13,519
planting prohibited
(restricted areas for
regulated articles other
than seed).
Planted wheat acreage in 7,023 2,783 0 0 9,806
surveillance areas.
Planted wheat acreage in 81,977 6,087 3,327 533 91,924
restricted areas for seed.
Total planted wheat 89,000 8,870 3,327 533 101,730
acreage in regulated
areas.
Total agricultural acreage 875,000 301,772 215,000 35,000 1,426,772
in regulated areas.
----------------------------------------------------------------------------------------------------------------

Although the May 1997 interim rule further reduced the size of the
area regulated for Karnal bunt, there was an observed reduction in
1996-1997 wheat plantings. While those reductions were likely due in
part to planting decisions influenced by the continuing Karnal bunt
regulatory program, we do not believe that the reductions can be
attributed entirely to Karnal bunt regulations. Accordingly, the
analysis of impacts addresses certain factors that could explain the
observed changes in plantings in the affected areas.

Impact of Karnal Bunt Regulations and Other Factors on Wheat Acreage
Reductions in 1996-1997

Propagative (seed) and nonpropagative (grain) wheat acreage in the
regulated area in the 1995-1996 crop season had been planted and was at
various preharvest stages when Karnal bunt was first detected in early
March 1996. The initial regulatory action, therefore, mainly affected
wheat marketings and not wheat production. Production in the regulated
areas had increased from the 1994-1995 crop season due to expected
higher prices fueled by strong export demand (California Farmer,
``Scion of the Irrigated West,'' mid-March 1996, p. 14). However, by
the time the 1995-1996 crop was marketed, wheat prices had dropped
nationwide due to a number of reasons, including record increases in
planted spring wheat acreage in the Midwest (Agricultural Outlook,
USDA, Economic Research Service, August 1996). Due to lower prices and
the changed regulatory environment, in addition to the risk of being
infected with Karnal bunt, planted wheat acreage in the regulated areas
was expected to be lower in the 1996-97 crop season. Assuming an
average 25 percent decline in wheat prices in the regulated areas from
1995 to 1996, it is estimated that 1996-1997 planted wheat acreage in
the regulated areas should have totaled 280,627 acres, a decline in
planted acreage of almost 15 percent based solely on producer reaction
to lower prices.² The past average ratio of planted
propagative to nonpropagative wheat acreage in the regulated area
suggests that 14,031 acres of this planted acreage would have been
devoted to seed production. Thus, the planted acreage totals for grain
and seed production that would have been expected in 1997, based
entirely on lower expected prices, are 266,595 and 14,031 acres,
respectively (Table 2).
---------------------------------------------------------------------------

\2\ This estimate is produced using a standard planted acreage
to price response function for wheat set at 0.6 (a 10 percent
decrease in wheat price elicits a 6 percent decline in planted wheat
acreage) multiplied by the estimated average 25 percent decrease in
wheat prices in the regulated areas.

Table 2.--1995-96 and 1996-97 Actual Planted Wheat Acreage in the Regulated Area and 1997 Acreage Estimate as a
Result of Lower Prices
----------------------------------------------------------------------------------------------------------------
Estimated acreage in:
Scenario --------------------------------------
Total Wheat Grain Seed
----------------------------------------------------------------------------------------------------------------
Actual 1995-1996......................................................... 330,149 313,642 16,507
1996-1997 estimated acreage as a result of lower prices.................. 280,627 266,595 14,031
Actual 1996-1997......................................................... 101,730 97,865 3,865
----------------------------------------------------------------------------------------------------------------
Acreage change as compared with
actual 1996 acreage:
----------------------------------------------------------------------------------------------------------------
Estimated decrease in 1997 acreage due to lower prices................... -49,522 -47,047 -2,476
(-15%) (-15%) (-15%)
Actual decrease in 1997 acreage.......................................... -228,419 -215,777 -12,642
(-70%) (-69%) (-77%)
----------------------------------------------------------------------------------------------------------------
Difference Between Estimated Lower Price 1997 Acreage and Actual 1997:
----------------------------------------------------------------------------------------------------------------
Lower price acreage minus actual 1997 acreage............................ -178,897 -168,730 -10,166
----------------------------------------------------------------------------------------------------------------

The actual total planted wheat acreage in the regulated areas for
the 1996-1997 crop season is estimated at 101,730 acres, which is a 70
percent decrease from the 330,149 planted acres in the 1995-1996 crop
season (a far larger decrease than the 15 percent reduction that, as
noted above, would have been expected due solely to lower prices).
Planted wheat seed acreage showed a greater decline, falling by 12,642
acres or more than 77 percent. Evidently,

[[Page 29548]]

grain and seed producers cut back production due to reasons other than
lower prices, such as the presence of Federal regulations and the
threat of Karnal bunt infection.
Because only 49,522 acres (22 percent) of the actual 228,419-acre
decline in total 1996-1997 planted wheat acreage in the regulated area
can be explained as occurring in response to lower prices, there is the
implication that the remaining 178,897 acres of planted wheat acreage
were dropped due to factors unrelated to price. Attention is now
focused on explaining this non-price-generated 178,897-acre (168,730
acres of grain, 10,166 acres of seed) decrease in planted wheat acreage
in the regulated area.³
---------------------------------------------------------------------------

\3\ Comparing the expected amount of planted wheat seed acreage
(14,031) that would have been expected as a result of lower prices
with the actual 1997 planted wheat seed acreage (3,865) gives a
total of 10,166 fewer acres of seed left unexplained by lower prices
in 1997. Deducting the 10,166 fewer acres of wheat seed from the
total wheat acreage decrease left unexplained by lower prices in
1997 produces a non-price-generated drop of 168,730 acres of grain.
---------------------------------------------------------------------------

Of the 168,730-acre non-price-generated decline in grain acreage,
Federal regulations that prohibit wheat planting in restricted areas
can explain acreage reductions of 13,519 acres (see Table 1). Assuming
that half of this restricted area acreage would have been rotated out
of wheat production in 1996-1997 in any case, it is estimated that
Federal planting restrictions reduced grain acreage by about 6,760
acres (Table 3). A certain amount of wheat seed would have been needed
to produce wheat on this restricted area acreage; this associated seed
acreage is estimated at 125 acres.⁴ Deducting the impact of
planting restrictions on grain and its associated seed production needs
from the total non-price-generated acreage reductions leaves a cutback
of 162,095 acres of grain and 10,042 acres of seed left unexplained by
lower prices.
---------------------------------------------------------------------------

\4\ This assumes that 1 acre of wheat seed produces enough clean
propagative seed to plant 54 acres.

Table 3.--Non-Price-Generated Acreage Shifts in the Regulated Area, 1996-
97 Crop Season
------------------------------------------------------------------------
Acreage reductions associated with
the Interim Rule in 1996-97:
Item --------------------------------------
Total Grain Seed
------------------------------------------------------------------------
Total non-price-generated acreage 178,897 168,730 10,166
reduction.......................
Reduction due to planting -6,760 -6,635 -125
restrictions....................
--------------------------------------
Total...................... 172,137 162,095 10,042
------------------------------------------------------------------------

The estimated 1996-97 grain and seed acreage reductions are assumed
to have occurred as a result of several non-price factors, including
reduced interest from buyers outside the regulated area and possible
Karnal bunt-related production and marketing concerns. This planted
wheat acreage cutback may have resulted from a combination of producer
reaction to lower demand for wheat--both domestically and in foreign
markets--and grower reluctance to plant wheat due to the possibility of
becoming infected with Karnal bunt. No attempt is made to estimate the
relative influence among these non-price factors on the remaining
planted grain and seed wheat acreage reductions.

Potential Economic Losses in 1996-97 Due to Reduced Planted Acreage

The potential economic losses resulting from lost sales of wheat
grain and seed due to the non-price-generated acreage reductions
described in the previous paragraphs are presented below. These
potential economic losses are broken down into three categories: (1)
Losses associated with the prohibition on planting wheat in restricted
areas; (2) losses in gross value of grain and associated seed; and (3)
losses resulting from reduced seed sales.
Losses Associated With the Prohibition on Planting Wheat in Restricted
Areas
The gross economic losses resulting from the prohibition on
planting wheat on the 6,635 acres in the restricted areas is estimated
at $3 million for the 1996-1997 crop season.⁵ This gross
loss implies a net wheat income reduction of $1.5 million.⁶
To offset those losses, other crops with historically high returns,
such as barley, could be grown as replacement crops in the restricted
areas. Assuming the substitution of barley, which yields returns of
about 80 percent of that of wheat, gross economic losses to wheat
producers are reduced to $0.6 million, and the associated net loss to
producers on these barley sales would be even lower, at $0.35 million.
---------------------------------------------------------------------------

\5\ The calculation of the value of wheat grain is based on the
assumption that an acre of wheat yields 100 bushels of grain, and a
bushel of grain is valued at $4.50 per bushel.
\6\ This net income calculation is made using the same net
income to gross income proportion used in the Karnal Bunt Regulatory
Flexibility Analysis published in the Federal Register on April 3,
1997 (62 FR 15809-15819, Docket No. 96-016-18).
---------------------------------------------------------------------------

Losses in Gross Value of Grain
The loss in gross value of the remaining non-price-generated wheat
grain acreage reduction of 162,095 acres is estimated at $72.9 million.
Again, if we assume the substitution of barley for wheat on this
acreage, gross grower losses are lowered to $14.6 million and the
corresponding net losses to growers would be even lower, estimated at
around $7.3 million.
Losses Resulting From Reduced Seed Sales
The entire amount of non-price-generated wheat grain acreage
reductions and their associated needed wheat seed production was
totally accounted for in the loss calculations above. Some of the
additional seed acreage reductions were left unaccounted for because
the acreage reductions were proportionately greater for wheat seed than
for wheat grain. These remaining wheat seed acreage reductions of
10,042 acres have an associated gross and net grower economic loss of
$7.6 and $3.7 million, respectively. This planted seed acreage cutback
probably was due primarily to seed producers reacting to lower seed
demand in export markets.

Reduced Surveillance Area

The interim rule reduced the acreage in surveillance areas, which
reduces the amount of potential economic losses to growers and handlers
of grain. That reduction is based on the assumption that 15 percent of
production in a surveillance area will be found to be infected with
Karnal bunt, and that the value of such Karnal bunt positive wheat is
reduced by $0.60 per bushel. Thus, under the October 1996 final rule,
which included 207,670 acres of

[[Page 29549]]

surveillance area, there was a potential economic loss, due to the
$0.60 per-bushel decline in market value, of $1.9 million. With the
interim rule's reduction of surveillance areas to 9,806 acres, this
potential loss is reduced to under $100,000.

Summary of Potential Economic Losses in the Regulated Area in 1996-1997

Planted wheat acreage in the regulated areas in 1997 showed a drop
of over 70 percent from 1996. Growers cut back wheat production due to
a host of factors, including expected lower prices, the presence of
Federal regulations, and the threat of Karnal bunt. Standard economic
models correlating acreage changes to price changes explain only about
22 percent of the actual acreage reduction from 1995-96 in the
regulated area. It is assumed that the remaining 178,897 acres were
dropped from wheat production due to nonprice factors. One of these
factors was the prohibition on planting wheat in fields designated as
restricted areas for regulated articles other than seed. This drop in
grain production and its associated seed acreage produced an estimated
net income loss to growers of about $0.35 million in 1996-
97.⁷ However, much of this loss would have been incurred
with or without the interim rule, as the number of fields in which
wheat could not be grown was largely unchanged by the interim rule.
---------------------------------------------------------------------------

\7\ These losses assume that a large part of the reduced wheat
acreage was planted into barley in 1997 so that barley receipts
offset gross and net wheat income losses by almost 80 percent.
---------------------------------------------------------------------------

Reductions in grain demand ($7.3 million) and its associated seed
acreage ($3.7 million) generated net losses to growers of about $11
million, even with the reduction in the size of the regulated area
resulting from the interim rule (see table 4). It should be noted that
these losses are estimated annual losses in the 1996-1997 crop season.
The amount of losses that may be incurred in the future will be
affected by changes in the size of the regulated areas and the presence
or absence of regulatory restrictions on the planting and movement of
Karnal bunt host crops within the regulated areas.

Table 4.--Potential Economic Losses in the 1996-1997 Crop Season Due to
Reduced Planted Acreage
------------------------------------------------------------------------
Gross value
Loss in value associated with: ($ Net value
million) ($ million)
------------------------------------------------------------------------
Prohibition on wheat planting in restricted 0.6 0.35
areas for regulated articles other than seed
Reduced wheat grain acreage.................. 14.6 7.3
Reduced seed planting and sales.............. 7.6 3.7
Total.................................. 22.8 11.35
------------------------------------------------------------------------

The area in which the interim rule may have reduced losses is in
its reduction in the acreage designated as surveillance areas. As
explained previously in this analysis, the reduction in the acreage
designated as surveillance areas could be expected to lower potential
Karnal bunt-positive wheat value losses from $1.9 million to $0.1
million.⁸ The reduction in the acreage designated as
surveillance areas may cause some price strengthening in the short run,
but most likely this change will be more beneficial in the future. The
same is true for the reduction in the acreage designated as restricted
areas for seed--little short-run relief was expected, but future
production shifts may significantly reduce the effect of regulations.
No quantitative estimate for 1997 is made on either of these two
possible market adjustments.
---------------------------------------------------------------------------

\8\ Compensation in these areas could further reduce the
economic effect on producers and handlers.
---------------------------------------------------------------------------

Federal Compensation To Mitigate Losses

In order to alleviate some of the economic hardships and to ensure
full and effective compliance with the regulatory program, compensation
to mitigate certain losses described above was offered to producers and
other affected entities in the regulated area. The rationale for the
use of compensation was that the emergency actions taken by the Agency
to prevent further spread of Karnal bunt disrupted normal production
and marketing activities in regulated areas. Producers and other
affected individuals had little time or ability to avoid the unexpected
costs or pass those costs on to others in the marketing chain. The
impact was particularly severe on the wheat industry in the regulated
area because much of the crop was grown under contract at specified
amounts and prices.
The Agency compensation plan reflected the fact that while
significant benefits of regulation (in terms of the avoidance of
greater losses in the export market) accrue to producers outside the
regulated areas, the regulatory burden fell disproportionately on those
within the regulated area. Compensation would therefore be appropriate
where a small number of parties necessarily bear a disproportionate
share of the burden of providing such benefits.
For comparison purposes, when Karnal bunt was first detected in the
1995-1996 crop season, compensation was paid for the plow-down of
fields in New Mexico and Texas that were planted with seed containing
bunted wheat kernels, loss in value of wheat testing positive for
Karnal bunt to producers and handlers, loss in value of wheat testing
negative for Karnal bunt to producers and handlers, cost of millfeed
treatment, cleaning and disinfecting of grain storage facilities, and
wheat inventories from past crop season (for further details, see
docket No. 96-016-20, published in the Federal Register on May 6, 1997,
62 FR 24753-24765). Compensation funding of nearly $40 million was made
available to the Agency through budget apportionment for losses
suffered in the 1995-96 crop year. As of December 31, 1998, about $33
million has been paid in compensation: $18.5 million to producers and
handlers who suffered losses from the sale of their 1996 wheat crop,
$8.5 million to seed and straw producers and handlers, and $3 million
in claims for custom harvesters, millfeed treatment, storage facility
decontamination).⁹
---------------------------------------------------------------------------

\9\ The remaining $3 million of the $33 million total is
accounted for by outstanding claims that have been reviewed and
approved by the Farm Service Agency, but that are not reflected in
the three subtotals.
---------------------------------------------------------------------------

For the 1996-97 crop season, the crop year pertinent to the
regulatory changes addressed in this final rule, compensation was
limited to certain growers and handlers within the regulated area for
grain that tested positive for bunted wheat kernels, flour millers who
choose to handle positive wheat, and growers and handlers of grain or
seed in areas where Karnal bunt was discovered outside the regulated

[[Page 29550]]

area (63 FR 31593-31601, Docket No. 96-016-29, published June 10,
1998). Of the $3.6 million apportioned for compensation for 1997 crop
losses, less than $50,000 in compensation has been paid. Due to the
small number of positive finds, total losses are not expected to exceed
$200,000.
In conclusion, the lifting of certain restrictions as a result of
the interim rule was expected to only marginally reduce the 1997
economic effect on production and marketing for most wheat in the
regulated areas. Planting for the May/June 1997 harvest was already
complete when the interim rule was published, so growers could not
react to the change in regulations by making different planting
decisions. However, the reduction in the acreage designated as
surveillance areas could be expected to lower potential Karnal bunt-
positive wheat value losses from $1.9 million to $0.1 million. Thus,
benefits of $1.8 million in 1997 could be realized as a result of the
interim rule, based on a lower incidence of Karnal bunt-positive grain,
which reduces the losses associated with the lower value of Karnal
bunt-positive grain. Compensation in these areas could further reduce
the economic effect on producers and handlers. Payments for the 1996-
1997 crop season are not expected to exceed $200,000 due to the small
number of positive finds.

Alternatives Considered

The only significant alternative to the interim rule would have
been to retain the classification criteria provided by the Karnal bunt
regulations established in the October 1996 final rule. In that final
rule, levels of risk were assigned to areas based on their proximity to
fields in which Karnal bunt spores were detected during preharvest
samples or in which contaminated seed was planted. Under those
criteria, it is unlikely that any of the significant reductions in the
size of the regulated areas and the number of affected growers achieved
by the May 1997 interim rule could have been accomplished. In addition,
maintaining those criteria would likely have resulted in the placement
of regulatory restrictions in the States of Alabama, Florida, Georgia,
and Tennessee, where grain in a number of storage facilities had been
found to be contaminated with spores that appeared to be Karnal bunt
spores, and in South Carolina, where seed from a seed lot contaminated
with those Karnal bunt-like spores had been planted. However, given our
conclusion that the detection of spores alone does not allow us to make
a conclusive determination that Karnal bunt disease is present in an
area or article, that alternative was rejected. By rejecting that
alternative, APHIS was able to prevent the enormous cost impacts on
producers and eliminate the need for large compensation payments while
continuing to assure importing countries that U.S. wheat exports are
coming from areas where Karnal bunt is not known to exist.

List of Subjects in 7 CFR Part 301

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

Accordingly, the interim rule amending 7 CFR part 301 that was
published at 62 FR 23620-23628 on May 1, 1997, is adopted as a final
rule with the following change:

PART 301--DOMESTIC QUARANTINE NOTICES

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

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

Sec. 301.89-9 [Amended]

2. In Sec. 301.89-9, in paragraph (a), the text of footnote 5 is
amended by removing the words ``footnote 3'' and adding the words
``footnote 2'' in their place.

Done in Washington, DC, this 25th day of May 1999.
Joan M. Arnoldi,
Acting Administrator, Animal and Plant Health Inspection Service.
[FR Doc. 99-13793 Filed 6-1-99; 8:45 am]
BILLING CODE 3410-34-P