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

[[Page 29541]]


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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