[Federal Register Volume 64, Number 211 (Tuesday, November 2, 1999)]
[Rules and Regulations]
[Pages 59107-59113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28301]



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  Federal Register / Vol. 64, No. 211 / Tuesday, November 2, 1999 / 
Rules and Regulations  

[[Page 59107]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 981

[Docket No. FV99-981-3 FR]


Almonds Grown in California; Salable and Reserve Percentages for 
the 1999-2000 Crop Year

AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.

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SUMMARY: This rule establishes salable and reserve percentages for 
California almonds received by handlers during the 1999-2000 crop year. 
The almond marketing order (order) regulates the handling of almonds 
grown in California and is administered locally by the Almond Board of 
California (Board). The percentages are 77.64 percent salable and 22.36 
percent reserve. Salable almonds may be sold by handlers to any market 
at any time. Reserve almonds must be withheld by handlers or disposed 
of in authorized outlets. The 1999-2000 crop is estimated to be the 
largest crop on record. Volume regulation is intended to promote 
orderly marketing conditions and avoid unreasonable fluctuations in 
supplies and prices.

DATES: Effective Date:  This final rule is effective December 2, 1999 
through July 31, 2000. Applicability Date: This final rule applies 
during the period August 1, 1999, through July 31, 2000.

FOR FURTHER INFORMATION CONTACT: Martin Engeler, Assistant Regional 
Manager, California Marketing Field Office, Marketing Order 
Administration Branch, F&V, AMS, USDA, 2202 Monterey Street, suite 
102B, Fresno, California 93721; telephone: (559) 487-5901, Fax: (559) 
487-5906; or George Kelhart, Technical Advisor, Marketing Order 
Administration Branch, Fruit and Vegetable Programs, AMS, USDA, room 
2525-S, P.O. Box 96456, Washington, DC 20090-6456; telephone: (202) 
720-2491, Fax: (202) 720-5698. Small businesses may request information 
on complying with this regulation by contacting Jay Guerber, Marketing 
Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 
P.O. Box 96456, room 2525-S, Washington, DC 20090-6456; telephone (202) 
720-2491, Fax: (202) 720-5698, or E-mail: Jay.G[email protected].

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing 
Order No. 981, as amended (7 CFR part 981), regulating the handling of 
almonds grown in California, hereinafter referred to as the ``order.'' 
The marketing order is effective under the Agricultural Marketing 
Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter 
referred to as the ``Act.''

    The Department of Agriculture (Department) is issuing this rule in 
conformance with Executive Order 12866.
    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. Under the marketing order now in effect, salable 
and reserve percentages may be established for almonds handled by 
handlers during the crop year. This rule establishes salable and 
reserve percentages for almonds received by handlers during the 1999-
2000 crop year which runs from August 1, 1999, through July 31, 2000. 
This rule will not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with the Secretary a 
petition stating that the order, any provision of the order, or any 
obligation imposed in connection with the order is not in accordance 
with law and request a modification of the order or to be exempted 
therefrom. A handler is afforded the opportunity for a hearing on the 
petition. After the hearing the Secretary would rule on the petition. 
The Act provides that the district court of the United States in any 
district in which the handler is an inhabitant, or has his or her 
principal place of business, has jurisdiction to review the Secretary's 
ruling on the petition, provided an action is filed not later than 20 
days after the date of the entry of the ruling.
    This final rule establishes salable and reserve percentages for 
California almonds received by handlers during the 1999-2000 crop year. 
The percentages are 77.64 percent salable and 22.36 percent reserve. 
Salable almonds may be sold by handlers to any market at any time. 
Reserve almonds must be withheld by handlers or disposed of in 
authorized outlets. The 1999-2000 crop is estimated to be the largest 
crop on record. Volume regulation is intended to promote orderly 
marketing conditions and avoid unreasonable fluctuations in supplies 
and prices. This action was recommended by the Board at a meeting on 
July 12, 1999, by a vote of seven in favor and three opposed. Volume 
regulation was last implemented for California almonds during the 1994-
95 crop year.
    Section 981.47 of the order provides authority for the Secretary, 
based on recommendations by the Board and analysis of other available 
information, to establish salable and reserve percentages for almonds 
received by handlers during a crop year. The crop year runs from August 
1 through July 31. To aid the Secretary in fixing the salable and 
reserve percentages, Sec. 981.49 of the order requires the Board to 
submit information to the Department on estimates of the marketable 
production of almonds, combined domestic and export trade demand needs 
for the year, carryin inventory at the beginning of the year, and the 
desirable carryout inventory at the end of the crop year. Section 
981.66 authorizes the disposition of reserve almonds to certain outlets 
such as almond oil, almond butter, and animal feed.
    The Board met on May 12, 1999, to review the projected crop 
estimate and marketing conditions for the 1999-2000 season. The day 
before the Board's meeting, the California Agricultural Statistics 
Service (CASS) issued its initial forecast for the 1999 almond crop at 
760 million kernelweight pounds. Based on that estimate, the Board 
recommended salable and reserve percentages of 84.79 percent and 15.21 
percent, respectively, by a vote of seven in favor to three opposed. 
The CASS revised its crop estimate upwards to 830 million pounds on 
July 8, 1999. Based on the updated crop estimate, the Board met on July 
12 and revised its

[[Page 59108]]

recommendation for salable and reserve percentages to 77.64 and 22.36 
percent, respectively, again by a seven to three vote. The 830 million 
pound crop estimate represents a 60 percent increase over 1998-99 
production, and is 10 percent larger than the previous record crop of 
756 million pounds produced in 1997-98. According to the CASS, although 
freezing temperatures in early April caused locally variable production 
losses, average yields are expected to be high due to excellent bloom 
and good weather during the pollination period. If realized, this will 
be the largest almond crop on record to date.
    A tabulation of the estimates and calculations used by the Board as 
it considered recommending volume regulation for the 1999-2000 almond 
crop follows:

       Marketing Policy Estimates--1999 Crop (Kernelweight Basis)
------------------------------------------------------------------------
                                                  Million
                                                   Pounds      Percent
------------------------------------------------------------------------
Estimated Production:
  1. 1999 Production..........................        830.0
  2. Loss and Exempt--4.0% (Resulting from the         33.2
   removal of inedible kernels by handlers and
   losses during manufacturing)...............
  3. Marketable Production....................        796.8
Estimated Trade Demand:
  4. Domestic.................................        190.0
  5. Export...................................        459.0
  6. Total....................................        649.0
Inventory Adjustment:
  7. Carryin 8/1/99...........................        100.4
  8. Desirable Carryover 7/31/00 (available            70.0
   for early season shipments during 2000-
   2001)......................................
  9. Adjustment (No. 8 minus no. 7)...........        -30.4
Salable/Reserve:
10. Adjusted Trade Demand (Item 6 plus item 9)        618.6
 (quantity of almonds from the marketable
 production necessary to meet trade demand
 needs)
  11. Reserve (No. 3 minus no. 10)............        178.2
  12. Salable % (Item 10 divided by item 3 x    ...........       77.64%
   100).......................................
  13. Reserve % (100% minus item 12)..........  ...........        22.36
------------------------------------------------------------------------

    As specified in the marketing order, the Board considered the 
factors set forth in the preceding table in its deliberations. The 
available data indicate a supply for the 1999-2000 crop year of 827.2 
million kernelweight pounds (marketable production adjusted for carryin 
and desired carryout), which exceeds estimated trade demand by 178.2 
million kernelweight pounds. The estimated trade demand of 649 million 
kernelweight pounds represents 110 percent of the estimated shipments 
for the current crop year, and exceeds the record high shipments of 
1997-98 by 36 million kernelweight pounds, or 6 percent.
    In addition to the factors included in the table, the Board 
considered additional information such as the weather-related variation 
in production from year to year, significant increases in recent almond 
plantings, and increased yields. These are the primary factors 
contributing to the projected oversupply situation. The Board also 
considered recent price fluctuations in its deliberations. In 1997, 
grower prices averaged $1.55 per pound; during the 1998-99 season, 
prices reportedly dropped significantly. This was attributed to larger 
than anticipated 1998 supplies, speculation within the marketplace, and 
the anticipated large 1999-2000 crop.
    The salable percentage of 77.64 percent will make 618.6 million 
kernelweight pounds of the marketable production available to handlers 
for sale to any market. Combining this figure with the carryin 
inventory from the 1998-99 crop year (100.4 million kernelweight 
pounds) and deducting the desired carryout inventory at the end of the 
1999-2000 crop year (70.0 million kernelweight pounds) will result in a 
supply of 649 million kernelweight pounds. This supply will allow the 
industry to meet its trade demand needs of 649 million kernelweight 
pounds and allow for market growth. The remaining 22.36 percent, or 
178.2 million kernelweight pounds, of the marketable production will be 
withheld by handlers to meet their reserve obligation.
    All or part of the reserve almonds may be released to the salable 
category if it is found that the supply made available by the salable 
percentage is insufficient to satisfy 1999-2000 trade demand needs or 
desirable carryover for use during the 2000-2001 crop year. The Board 
is required to make any recommendations to the Secretary to increase 
the salable percentage prior to May 15, 2000, pursuant to Sec. 989.48 
of the order. Alternatively, all or a portion of the reserve almonds 
may be sold by the Board, or by handlers under agreement with the 
Board, to governmental agencies or charitable institutions or for 
diversion into almond oil, almond butter, animal feed, or other outlets 
which the Board finds are noncompetitive with existing normal outlets 
for almonds.
    As previously stated, 3 of the 10 Board members opposed the 
recommendation for volume regulation at both meetings where the 
percentages were recommended, with those in opposition commenting that 
this year's projected ``large'' crop will ultimately be considered 
average in size, and that next year's crop may be even larger due to 
new plantings, or expressing a preference for the industry to 
concentrate on building demand rather than imposing a reserve. 
Observers at the Board meetings who were opposed to volume regulation 
commented that the industry should deal with increasing supplies by 
building demand through its promotional activities, rather than 
implementing reserves. Others suggested that it is more appropriate to 
manage market risks at the individual handler level through marketing 
tools such as forward contracting, rather than controlling supplies at 
the industry level.
    After much discussion, the majority of Board members supported the 
establishment of a reserve to help maintain orderly marketing 
conditions

[[Page 59109]]

so that the industry can successfully manage the projected large 1999 
almond crop. The long-term goal of the almond industry is to increase 
almond consumption and demand, and the supporting Board members believe 
this can be best achieved in the presence of stable and orderly 
marketing conditions. These members believe that use of the reserve 
provisions of the order as a supply management tool, in conjunction 
with other marketing tools available in the order, can assist in 
accomplishing the industry's goals.
    The ``Guidelines for Fruit, Vegetable, and Specialty Crop Marketing 
Orders'' (Guidelines) issued by the Department in 1982 specify that 110 
percent of recent years' sales be made available to primary markets 
each season for marketing orders using volume regulation. This rule 
will provide an estimated 719 million kernelweight pounds of California 
almonds for unrestricted sales (1999 crop salable production plus 
carryin from the 1998 crop) to meet increasing domestic and world 
almond consumption demand. This amount exceeds the estimated delivered 
sales for 1998-99 California almonds by about 22 percent. Thus, the 
Guidelines' goals are met.
    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA), the Agricultural Marketing Service (AMS) has considered the 
economic impact of this action on small entities. Accordingly, AMS has 
prepared this final regulatory flexibility analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and rules issued thereunder, are unique in that 
they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility.
    There are approximately 105 handlers of California almonds who are 
subject to regulation under the order and approximately 6,000 almond 
producers in the regulated area. Small agricultural service firms have 
been defined by the Small Business Administration (13 CFR 121.601) as 
those having annual receipts of less than $5,000,000, and small 
agricultural producers are defined as those having annual receipts of 
less than $500,000.
    Based on the most current data available, about 54 percent of the 
handlers ship under $5,000,000 worth of almonds and 46 percent ship 
over $5,000,000 worth on an annual basis. In addition, based on 
acreage, production, and grower prices reported by the National 
Agricultural Statistics Service (NASS), and the total number of almond 
growers, the average annual grower revenue is approximately $195,000. 
In view of the foregoing, it can be concluded that the majority of 
handlers and producers of California almonds may be classified as small 
entities.
    Pursuant to Sec. 981.47 of the order, this rule establishes salable 
and reserve percentages applicable to California almonds received by 
handlers during the 1999-2000 crop year. The volume regulation 
percentages are 77.64 percent salable and 22.36 percent reserve. 
Salable almonds may be sold by handlers to any market at any time. 
Reserve almonds must be withheld by handlers or disposed of in 
authorized outlets such as almond oil, almond butter, and animal feed. 
Volume regulation is warranted this season because the marketable 
production estimate of 796.8 million kernelweight pounds combined with 
the 1998-99 carryin inventory of 100.4 million kernelweight pounds 
results in an available supply of about 897 million kernelweight 
pounds. After subtracting the desirable carryout of 70 million 
kernelweight pounds, the remaining supply of 827 million kernelweight 
pounds would be 178 million kernelweight pounds higher than the trade 
demand of 649 million kernelweight pounds. Volume regulation is 
intended to promote orderly marketing conditions and avoid unreasonable 
fluctuations in supplies and prices, and should ultimately improve 
grower returns.
    Regarding the impact of this rule on affected entities, the salable 
and reserve percentages will apply uniformly to all handlers in the 
industry, regardless of size. There were some concerns expressed at the 
Board's meeting regarding the impact of a reserve on small handlers, 
specifically, that small handlers who do not have adequate storage 
facilities may have to rent such facilities to hold their reserve 
almonds. These are costs they would not otherwise incur. However, the 
costs of holding almonds in reserve would be borne proportionately 
throughout the industry. All handlers would be required to store 
reserve almonds in varying quantities, depending upon the total amount 
of almonds handled. Those with existing facilities would also incur 
storage costs, although those costs may be fixed costs spread over a 
longer period of time. In any event, costs associated with storing 
reserve product are expected to be more than offset by the benefits of 
orderly marketing. In addition, the order was amended in 1996 to allow 
handlers to transfer their reserve obligation to other handlers. Thus, 
handlers with no storage facilities will now have the option to 
transfer their reserve withholding obligation to other handlers who can 
store the reserve almonds.
    Furthermore, almond production, like that of many agricultural 
commodities, can vary significantly from season to season due to a 
variety of factors. This in turn can contribute to wide fluctuations in 
prices. For example, California almond production over the past 10 
years has varied from a low of 366.7 million kernelweight pounds in 
1995 to a high of 756.5 million kernelweight pounds in 1997. Grower 
prices for the past 10 years, as reported by the NASS, have varied from 
a low of $.93 per pound in 1990 to $2.48 per pound in 1995.
    In addition, returns to growers have reportedly decreased by as 
much as $1.00 per pound since the beginning of the 1998-99 crop year. 
It is believed that a larger than anticipated 1998 crop, market 
speculation, and an estimated record 1999 crop have contributed to the 
depressed grower prices. Such swings in supplies and price levels can 
result in market instability and uncertainty for growers, handlers, 
buyers and consumers. While the benefits of this rulemaking may be 
difficult to quantify, any stabilizing effects of volume regulation 
will impact both small and large handlers positively by helping them 
maintain orderly marketing conditions through supply management.
    Regarding alternatives, the Board considered not recommending 
volume regulation this season. As previously mentioned, three Board 
members and some observers at the Board's meetings expressed their view 
that the industry should continue to focus on increasing the demand for 
almonds rather than implementing a reserve. It was expressed that 
market risk can be managed by individual handlers through marketing 
tools such as forward contracting, rather than managing supply at the 
industry level. However, the majority of Board members supported the 
establishment of a reserve to help maintain orderly marketing 
conditions so that the industry can successfully manage the projected 
large 1999 almond crop. The Board also deliberated the merits of 
allocating the reserve to noncompetitive outlets or ultimately 
releasing part or all of the reserve as salable. The Board decided to 
delay this decision until next spring when additional information, 
including an estimate of the 2000-2001 crop, is available. However, 
handlers may sell

[[Page 59110]]

reserve almonds to authorized reserve outlets at any time pursuant to 
an agency agreement as authorized in Sec. 981.67 of the order, and 
receive credit against their withholding obligation.
    This rule may impose some additional reporting, recordkeeping and 
other compliance requirements on both small and large handlers. 
Handlers who choose to divert their reserve almonds to authorized 
outlets will have to file certain reports with the Board. This 
requirement is the same as that applied during the 1991-92 and 1994-95 
crop years when almond reserves were last established. Most of the 
industry's handlers handled almonds during those years and are thus 
familiar with the required reports. These reports have been previously 
approved by the Office of Management and Budget (OMB) under OMB Control 
No. 0581-0071. As with all Federal marketing order programs, reports 
and forms are periodically reviewed to reduce information requirements 
and duplication by industry and public sector agencies. As noted in the 
initial regulatory flexibility analysis, the Department has not 
identified any relevant Federal rules that duplicate, overlap or 
conflict with this rule.
    In addition, the Board's meetings were widely publicized throughout 
the almond industry and all interested persons were invited to attend 
and participate in Board deliberations. Like all Board meetings, the 
May 12 and July 12, 1999, meetings were public meetings and all 
entities, both large and small, were able to express their views on 
this issue. The Board itself is composed of 10 members, of which 5 are 
producers and 5 are handlers.
    Also, the Board has a number of appointed committees to review 
certain issues and make recommendations to the Board. The Board's 
Reserve Committee met on April 1, May 11, and July 12, 1999, and 
presented its recommendations to the Board at meetings on May 12 and 
July 12, 1999. All of these meetings were open to the public, and both 
large and small entities were able to participate and express their 
views.
    A proposed rule concerning this action was published in the Federal 
Register on August 10, 1999 (64 FR 43298). Copies of the rule were also 
sent to all almond handlers in the industry. Finally, the rule was made 
available through the Internet by the Office of the Federal Register. A 
30-day comment period ending September 9, 1999, was provided to allow 
interested persons to respond to the proposal.
    Six comments were received during the comment period in response to 
the proposal. Five comments were opposed to the proposal and one was in 
favor.
    The first commenter, an almond handler, was opposed to the reserve, 
stating that reserves do nothing to stabilize prices, and that based on 
historical data, prices are higher when reserves are not utilized. 
Using the current year as an example, the commenter noted that price 
levels have fallen since the Almond Board recommended implementing a 
reserve. The commenter also stated the almond industry ships less 
almonds in years of oversupply. Finally, the commenter stated that a 
study conducted by the University of California, Davis concludes that 
``unallocated'' reserves do not work.
    A review of historical data pertaining to almond prices and 
shipments indicates that price levels tend to be higher in years when 
reserves are not utilized, and lower in years when reserves are 
implemented. For instance, during the period from crop years 1990 
through 1997, the average grower price for years when reserves were not 
implemented was $1.87 per pound. During the same period, when reserves 
were implemented, the grower price averaged $1.15 per pound. However, 
contrary to the commenter's assertions, the data also indicate that in 
reserve years, shipment levels and total supplies tend to be higher in 
reserve years than in non-reserve years. For example, during the same 
time period discussed above, in reserve years, shipments averaged 567 
million pounds, while in non-reserve years, shipments averaged 529 
million pounds. Lower price levels have occurred when supplies are 
higher, consistent with the inverse relationship between supplies and 
prices. In years of high production, if reserves were not implemented, 
it would be expected that the resulting larger available supplies would 
put further downward pressure on prices.
    In addition, the commenter appears to attribute recent declines in 
price levels to the Board recommendation for salable and reserve 
percentages. The crop was initially estimated at 760 million pounds on 
May 9 of this year, leading to a Board recommendation for a reserve. 
The crop estimate was revised upwards to 830 million pounds on July 12, 
confirming the earlier projections, leading to a revised Board 
recommendation for a higher reserve percentage. Regardless of the 
Board's recommendations, it would be expected that price levels would 
decline as updated information confirming the existence of a record 
large crop becomes available.
    Regarding the reference to a University of California, Davis study 
concerning ``unallocated reserves,'' a 1994 study conducted by 
economists from that university does indicate reserves are most 
effective if a portion of the crop is permanently removed from normal 
consumption channels. This is due to the fact that the demand for 
almonds is inelastic. Thus, removing a portion of the crop causes a 
reduction in the supply, resulting in a larger percentage increase in 
price than the decreased quantity demanded. The marketing order 
authorizes implementing a requirement to dispose of reserve product to 
non-competitive outlets. However, the order also provides for carrying 
forward reserve product into the following crop year in the event of a 
crop shortfall or increased trade demand needs. The order provides this 
flexibility to allow the industry to obtain additional information 
regarding the following year's crop size and trade demand needs prior 
to making a recommendation concerning the ultimate disposition of the 
reserve.
    Two other comments submitted by growers/handlers of almonds are 
identical in content. These comments are opposed to implementing a 
reserve. The commenters indicate that they are currently selling 
almonds at, or less than, the cost of production and handling. Further, 
they stated that maintaining reserves adds costs and risks beyond those 
normally incurred in producing and marketing almonds. The commenters 
stated that large crops will continue in the future due to increased 
acreage and yields; thus, carrying forward reserve product into a 
future large crop year will compound the oversupply problem. The 
commenters believe handlers should individually deal with crop size, 
and that growers can adjust by pulling out orchards and planting 
something else. Finally, the commenters contend that the Board 
recommendation regarding the reserve was representative of only two 
handlers, while there are approximately 100 handlers in the industry. 
In response to these comments, the intent of a reserve is to maintain 
orderly marketing conditions in an attempt to stabilize supplies and 
prices. Profitably marketing a crop can best be achieved under stable 
conditions. Although there may be costs associated with maintaining a 
reserve, the anticipated benefits of more stable and orderly marketing 
conditions are expected to outweigh those costs.
    Based on a review of historical data concerning almond acreage and 
yields, future crops are likely to continue to be large. Bearing 
acreage increased from

[[Page 59111]]

411,000 acres in 1990 to 460,000 acres in 1998, and non-bearing acreage 
increased from 32,400 acres to 113,000 acres during the same period. In 
addition, average yields have also increased over time due to improved 
varieties and production practices. During the 5-year period from 1980-
1985, almond yields averaged 1,094 pounds per acre, while during the 
period from 1993-1998, the average yield was 1,405 pounds per acre. 
While production and yields can vary significantly from year to year 
due to weather and other factors, both are trending upwards.
    With respect to compounding oversupply problems in the future, it 
was noted earlier that reserve product may either be disposed of in 
non-competitive markets or carried over to augment supplies during the 
following year. Decisions regarding ultimate disposition of the reserve 
will be made as additional market information and information on the 
following year's crop becomes available.
    In response to the comments that growers can respond to oversupply 
conditions by pulling out orchards, the use of the authorized supply 
control features under the marketing order, combined with demand 
building activities, provides an alternative to such drastic measures. 
Unlike other crops where planting decisions can be made on an annual 
basis, tree crops require long-term commitment of resources and long-
term investment.
    Finally, in response to the comment concerning the Almond Board 
action, the Board is comprised of five grower members and five handler 
members. The Board is the constituted body under the marketing order 
charged with administering the provisions of the order and making 
recommendations to the Department. The Board is nominated by growers 
and handlers in the industry and represents the industry as a whole. 
Further, one of the purposes of Federal marketing orders is to benefit 
producers. Consistent with the provisions of the order, a majority of 
the members of the Board voted in favor of the recommendation.
    Another comment was received from a grower of almonds on behalf of 
several family members who are also almond growers. This commenter 
claims that the current marketing situation is the worst in the almond 
industry since 1910, and projects a $500,000 to $600,000 loss for the 
family almond farming operations during the coming season. The 
commenter also stated that the anticipated reserve is not achieving the 
desired effect of promoting orderly marketing conditions.
    The commenter offered several alternatives to correct the current 
industry situation, including requiring destruction of a certain 
percentage of each grower's acreage, restricting new plantings, 
government purchase of reserve almonds, and issuance of nonrecourse 
loans.
    Taking into account the current marketing conditions in the almond 
industry, it would be premature to judge the effects of a reserve on 
the market situation at this time, as a reserve is just now being 
established and the ultimate disposition of the reserve will be 
determined in accordance with the provisions of the order.
    Regarding the alternatives offered by the commenter, except for the 
option of a sale of reserve almonds to an agency, the proposals offered 
by the commenter are not authorized under the almond marketing order. 
The marketing order provides for a comprehensive regulatory scheme 
which comes in effect when a reserve percentage is fixed for a crop 
year. Accordingly, the alternatives, with one exception, exist outside 
of the marketing order program. Regarding a sale of reserve almonds to 
a government agency, as stated above, the ultimate disposition of the 
reserve will be determined in accordance with the provisions of the 
order.
    Another comment from a grower of almonds opposed to the 
establishment of a reserve for the 1999-2000 crop year was received. 
This comment raised numerous issues. The commenter contends that the 
proposed rule either violates or does not meet the requirements of the 
Act and is inconsistent with or violates a number of other Federal 
statutes, regulations, and policies.
    Next, the commenter stated that the same rationale for establishing 
a reserve was used in the proposed rule that has been used in past 
seasons. The commenter claims that there has been no analysis of the 
impact of reserves on the industry, including pricing effects, no 
analysis of the decreased variability of the alternating production 
cycles, and no correlation of variability data with acreage statistics 
and long range weather forecasts.
    The commenter also stated that current low price levels are not 
indicative of disorderly marketing, but rather are a reflection of 
industry structure and the conduct of handlers with regard to open 
price contracting. The commenter is of the view that the open price 
system has allowed handlers to take full advantage of smaller growers. 
The commenter further stated that current low prices are a function of 
lack of market price information to the industry. The comment asserted 
there has been no evaluation of non-bearing almond acreage and improved 
yields and speculated whether the Department was ignoring this impact 
or merely giving special treatment to handlers interests in the 
industry that would give the handlers increased profits while 
furthering the problems of small growers. In addition, the commenter 
claims that crop forecasting models indicate there is a 98 percent 
chance that next year's crop will be larger than the current year's 
crop, and this has not been considered. Also, there has been no 
analysis conducted concerning the impact of reserves stimulating 
production.
    The commenter stated that establishment of a reserve would preempt 
and conflict with Sections 58301 and 58302 of the California Food and 
Agricultural Code because it will enable handlers to withhold payment 
to growers on product held in reserve. Further, section 608c(7) of the 
Act is cited as a statutory requirement that a reserve cannot be 
established unless it declares that failure to pay a grower for the 
reserve portion of his or her crop is an unfair trade practice and is 
prohibited.
    The commenter stated that if a reserve is established, it should 
require that the reserve be held within the State of California. The 
commenter adds that a reserve would be unfair to growers who incurred a 
crop loss due to frost. Growers, some of which lost up to 70 percent of 
their crop, should be exempt from reserve requirements if they suffered 
30 percent or more crop loss. Furthermore, a reserve would be unfair to 
growers who withheld their 1998-99 crop from delivery to handlers until 
the 1999-2000 crop year in anticipation of improved prices or to guard 
against reduced production in 1999-2000.
    Finally, the commenter stated that the almond marketing order was 
recently approved by only 27 percent of the State's producers in a 
continuance referendum, and that there would have been stronger support 
if the ballot in the continuation referendum would have been split to 
have the reserve provisions voted on separately.
    In response to these comments, the Department disagrees that 
establishment of salable and reserve percentages do not meet the 
requirements of the Act and are in conflict with other Federal 
statutes, regulations, and policies. The establishment of salable and 
reserve percentages in the action is consistent with applicable law, 
including the provisions of the Act, order, and regulations governing 
this program.

[[Page 59112]]

    The Department has considered and evaluated economic data regarding 
the potential impact of reserves on the almond industry, as well as 
information pertaining to acreage statistics and production cycles. In 
accordance with the provisions of the order, the Board is required to 
provide to the Department specific information to aid the Department in 
fixing salable and reserve percentages. Economic studies indicate that 
the demand for almonds is inelastic. Therefore, a reduction in supply 
would result in a proportionately larger increase in price levels for 
the product. This would result in an increase in total revenue to the 
industry. With respect to acreage statistics, as previously stated, the 
Department is aware that both bearing and non-bearing almond acreage 
has increased significantly in recent seasons, and, therefore, future 
production levels may be expected to continue to increase. This is not 
an unusual response to a pattern of high price levels as experienced in 
recent years in the almond industry.
    Further, regarding production cycles, a review of historical data 
indicates that almond production patterns do not display a true pattern 
of an alternate bearing characteristic. While there appears to be a 
general pattern of short crops followed by large crops and vice-versa, 
instances of two consecutive short or large crops have occurred.
    The commenter refers to a purported ``crop projection model'' that 
indicates there is a 98 percent or greater chance that the 2000-2001 
California almond crop will equal or exceed the 1999-2000 crop. Thus, a 
large carryin of reserve product from the 1999 crop, when combined with 
a large crop the following year, will put further downward pressure on 
prices. The Department is unaware of any study that contains such 
findings regarding the probability of the 2000-2001 crop size. In 
addition, even if this assertion is assumed to be valid, reserve 
product from the 1999 crop reserve will not necessarily increase the 
supply the following year. As previously discussed, under the almond 
marketing order, reserve may be carried into the following crop year, 
or removed permanently from normal market channels. If the latter 
course is taken, that reserve product would not add to the following 
year's supply. A decision regarding ultimate disposition of reserve 
product does not need to be made until information concerning the 
following year's crop is known.
    In response to the commenter's claims that low price levels are the 
result of handler pricing practices and lack of market price 
information, there may be indeed other factors that can contribute to 
disorderly marketing. The commenter believes that the combination of 
poor prices for other crops, the flow of dollars from the Freedom to 
Farm Act, the lack of information of prices on movement by variety, 
grade, size, and terms of sale are elements of disorder. The commenter 
also raises the issue of foreign plantings in connection with an 
analysis of the production stimulation effects of implementing 
reserves. However, the Department is not aware of any studies conducted 
which have attempted to address that issue. While the marketing order 
and its provisions may not be able to address every possible 
contingency in the almond industry, it does, however, authorize use of 
volume control as a means of helping to foster orderly marketing 
conditions. By establishing a reserve, the industry would be utilizing 
a tool available to it in an attempt to achieve its goals.
    The commenter contends that establishment of a reserve conflicts 
with California State law. The issue of grower-handler payments, and 
open price contracts is raised again; however, the almond marketing 
order does not regulate grower-handler payments or such contracts. If 
State laws regarding grower-handler payments are in some way violated, 
then one could look to those statutes for appropriate remedies.
    In response to the comment regarding holding reserve product within 
the State of California, when salable and reserve percentages are in 
effect, the marketing order requires handlers to withhold from handling 
a certain percentage of the product received from growers. By 
definition, shipping product outside the State of California 
constitutes handling under the almond marketing order.
    The marketing order contains no provisions to protect growers from 
losses due to freeze damage or other natural disasters. Establishment 
of a reserve is based on collective industry data, and is applied to 
all handlers equally. While there may be growers who suffered crop 
losses during the season, other government sponsored programs may be 
available to recompense growers for such losses, such as crop insurance 
programs.
    If growers withheld product from delivery to handlers during the 
1998 season and deliver the product to handlers in the current season, 
that product will be subject to reserve requirements in accordance with 
provisions of the order. While growers may have taken such action in 
anticipation of improved prices or reduced production levels in 1999, 
they did so based upon their own initiative.
    In response to the comment regarding continuation referendum 
results, 90 percent of the almond growers voting in the February 1999 
referendum voted to continue the order. In addition, 88 percent of the 
volume represented in the referendum voted for continuance. 
Approximately 27 percent of the State's almond producers voted in the 
referendum. The Department cannot control this aspect of the voting 
process and tabulates the results based on the voters who participate 
in the process, consistent with the requirements of the Act. Finally, 
continuance referendums have been and are conducted to determine the 
support of an industry as to the marketing order program established 
for that commodity. To look at individual provisions is more a function 
of the marketing order amendatory process.
    One comment was received in support of establishing salable and 
reserve percentages for the 1999-2000 crop year. The commenter 
presented data regarding world almond supplies and consumption over the 
most recent 5-year period, and projections for the current year. Also 
summarized were the high price levels for almonds experienced in the 
mid-1990's, which was attributed to world demand chasing limited 
supplies.
    The commenter pointed out that reserves have been used in the 
almond industry in ten of the years during the period from 1980 through 
1998, and attributed the use of reserves as a successful tool to manage 
supplies while increasing demand for almonds. Stable supplies resulted 
in less market volatility, thus encouraging new product development and 
expansion of markets for existing products.
    The commenter indicated that in reserve years, the industry 
actually shipped more than the trade demand figure established by the 
Board.
    The commenter also referenced a study conduced by the University of 
California, Davis indicating that the demand for almonds is inelastic. 
A practical application of the effect of inelastic demand on prices and 
supplies of almonds was presented.
    Concluding remarks in the comment support the use of supply 
management as a short-term tool while building long-term consumption 
and demand for the product.
    Members within the industry may have differences of opinion 
regarding the concept of volume control under the marketing order, as 
well as its effectiveness and these differences can be and are 
reflected in Board and

[[Page 59113]]

Committee discussions, as well as the comments received in response to 
the proposed rule. However, a majority of Board members favored the 
recommendation, and even those opposed indicated they would support the 
Board's recommendation.
    After reviewing the comments received and other available 
information, the Department has concluded that issuing this rule is 
appropriate. Accordingly, no changes will be made to the rule as 
proposed, based on the comments received.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at the 
following web site: http://www.ams.usda.gov/fv/moab.html. Any questions 
about the compliance guide should be sent to Jay Guerber at the 
previously mentioned address in the FOR FURTHER INFORMATION CONTACT 
section.
    After consideration of all relevant matter presented, including the 
information and recommendation submitted by the Board and other 
available information, it is hereby found that this rule, as 
hereinafter set forth, will tend to effectuate the declared policy of 
the Act.

List of Subjects in 7 CFR Part 981

    Almonds, Marketing agreements, Nuts, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, 7 CFR part 981 is 
amended as follows:

PART 981--ALMONDS GROWN IN CALIFORNIA

    1. The authority citation for 7 CFR part 981 continues to read as 
follows:

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

    Note: This section will not appear in the Code of Federal 
Regulations.

    2. In Part 981, Sec. 981.240 is added to read as follows:


Sec. 981.240  Salable and reserve percentages for almonds during the 
crop year beginning on August 1, 1999.

    The salable and reserve percentages during the crop year beginning 
on August 1, 1999, shall be 77.64 percent and 22.36 percent, 
respectively.

    Dated: October 22, 1999.
Robert C. Keeney,
Deputy Administrator, Fruit and Vegetable Programs.
[FR Doc. 99-28301 Filed 10-28-99; 3:22 pm]
BILLING CODE 3410-02-P