[Federal Register Volume 65, Number 133 (Tuesday, July 11, 2000)]
[Rules and Regulations]
[Pages 42598-42615]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17289]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 929

[Docket No. FV00-929-2 FR]


Cranberries Grown in States of Massachusetts, Rhode Island, 
Connecticut, New Jersey, Wisconsin, Michigan, Minnesota, Oregon, 
Washington, and Long Island in the State of New York; Establishment of 
Marketable Quantity and Allotment Percentage and Other Modifications 
Under the Cranberry Marketing Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule establishes the quantity of cranberries that 
handlers may purchase from, or handle for, growers during the 2000-2001 
crop year, which begins on September 1, 2000, and ends on August 31, 
2001. The order regulates the handling of cranberries grown in 10 
States and is administered locally by the Cranberry Marketing Committee 
(Committee). This rule establishes a marketable quantity of 5.468 
million barrels, allows for some adjustment of this figure based on 
final calculations of sales histories, and establishes an allotment 
percentage of 85 percent. This action is designed to stabilize 
marketing conditions and improve grower returns. Fresh and organically-
grown cranberries are exempt from the volume limitations to facilitate 
marketing of these products. This rule also revises the method in which 
growers' sales histories are computed and suspends certain dates in the 
order which are impractical.

EFFECTIVE DATE: This final rule becomes effective July 12, 2000.

FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Kenneth G. 
Johnson, DC Marketing Field Office, Fruit and Vegetable Programs, AMS, 
USDA, Suite 2A04, Unit 155, 4700 River Road, Riverdale, Maryland 20737, 
telephone: (301) 734-5243; Fax: (301) 734-5275; or Anne M. Dec, 
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: [email protected].

SUPPLEMENTARY INFORMATION: This final rule is issued under Marketing 
Order No. 929 [7 CFR Part 929], as amended, regulating the handling of 
cranberries grown in Massachusetts, Rhode Island, Connecticut, New 
Jersey, Wisconsin, Michigan, Minnesota, Oregon, Washington, and Long 
Island in the State of New York. The 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.''

Question and Answer Overview

When Will This Final Rule Be Effective?

    The final rule is effective on July 12, 2000, and the volume 
regulation will apply to the 2000-2001 crop year which begins on 
September 1, 2000, and ends on August 31, 2001.

Who Will Be Affected by This Action?

    Cranberry growers and handlers/processors located in the 10-State 
production area will be affected by this action. The 10-State 
production area covers cranberries grown in Massachusetts, Rhode 
Island, Connecticut, New Jersey, Wisconsin, Michigan, Minnesota, 
Oregon, Washington, and Long Island in the State of New York.

Why Is Volume Control Being Implemented This Year?

    The Committee recommended volume control this year in order to 
address the serious oversupply situation being experienced by the 
industry. For the 1999 crop year, industry reports show that continued 
low grower prices will accompany record high production and 
inventories. Many cranberry growers are experiencing difficulties 
dealing with these extreme market conditions.
    The Committee determined the best method of volume control would be 
the producer allotment program which provides for an annual marketable 
quantity and allotment percentage.
    The use of volume control is not the only avenue that could be used 
to address the oversupply situation being experienced by the industry. 
The industry is also looking into methods of increasing demand by 
developing new markets, both domestic and foreign, by developing new 
products and by increasing promotional efforts.

What Is Marketable Quantity and Allotment Percentage?

    Marketable quantity is defined as the number of pounds of 
cranberries needed

[[Page 42599]]

to meet total market demand and to provide for an adequate carryover 
into the next season. The marketable quantity for the 2000-2001 crop 
year has been established at 5.468 million barrels. This figure is 
subject to some change based on final calculations of sales histories. 
This is approximately equal to the expected demand for fruit for 
processing.
    The allotment percentage equals the marketable quantity divided by 
the total of all growers' sales histories. Total growers' sales 
histories were set by the Committee at 6.432 million barrels. Using the 
formula established under the order (5.468 million barrels divided by 
6.432 million barrels), the annual allotment percentage is 85 percent.
    Sales of fresh and organically-grown fruit are exempt from the 
volume regulation. In addition, other modifications have been made to 
implement volume regulation.

How Are Growers' Annual Allotments Calculated?

    A grower's annual allotment is the result of multiplying the 
individual grower's sales history by the 85% allotment percentage.

How Are Sales Histories Calculated for the 2000-2001 Season?

    The Committee is responsible for calculating each grower's sales 
history on an annual basis. A new grower with no sales history will be 
issued allotment based on the State average yield per acre or total 
estimated commercial sales, whichever is greater. For the 2000-2001 
crop, the State average yield is defined as the average State yield for 
the year 1997 or the average of the best four years out of the last six 
years, whichever is greater.
    For growers with existing cranberry acreage, sales history for 
growers with six or more years of sales history is established by 
computing an average of the highest four of the most recent six years 
of sales. For growers with five years of sales history, the average of 
the best four out of the last five years is used. For growers with four 
years or less of commercial sales history, the sales history is 
calculated by using the best single sales year. The sales history of 
newly planted acreage belonging to existing growers which has no 
commercial sales history (including those with four years or less of 
sales history) is calculated the same way as the sales history of a new 
grower with no sales history. If growers with existing acreage also 
have newer acreage with four years of sales history or less, and such 
grower can provide the Committee with credible information which would 
allow the Committee to segregate the sales history of the newer 
acreage, then that acreage will be treated in the same way as acreage 
of a grower with four years or less of sales history.

Do Growers Have Recourse if They Are Not Satisfied With Their Sales 
History Calculation?

    If growers are dissatisfied with their sales history calculation as 
determined by the Committee, they can appeal to the appeals 
subcommittee appointed by the Committee. If growers are not satisfied 
with the decision by the appeals subcommittee, two other levels of 
appeal are available--the full Committee and the Secretary. All 
decisions by the Secretary will be final.
    The appeals subcommittee is in the process of developing specific 
criteria to follow in making its decisions.
    Appeals should be filed with David N. Farrimond, General Manager, 
Cranberry Marketing Committee, 266 Main Street, Wareham, Massachusetts 
02571; Telephone: (800) 253-0862; or Fax (508) 291-1511.

Executive Orders 12866 and 12998

    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 provisions now in 
effect, a marketable quantity and allotment percentage may be 
established for cranberries during any crop year. This rule establishes 
a marketable quantity and allotment percentage for cranberries for the 
2000-2001 crop year beginning September 1, 2000, through August 31, 
2001. This rule will not preempt any State or local laws, regulations, 
or policies, unless they present an irreconcilable conflict with this 
rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with the Secretary a 
petition stating that the order, any provision of the order, or any 
obligation imposed in connection with the order is not in accordance 
with law and request a modification of the order or to be exempted 
therefrom. A handler is afforded the opportunity for a hearing on the 
petition. After the hearing the Secretary would rule on the petition. 
The Act provides that the district court of the United States in any 
district in which the handler is an inhabitant, or has his or her 
principal place of business, has jurisdiction to review the Secretary's 
ruling on the petition, provided an action is filed not later than 20 
days after date of the entry of the ruling.

Introduction

    As discussed in detail later in this document, the U.S. cranberry 
industry is experiencing an oversupply situation. Recent increases in 
acreage and yields have resulted in greater supplies, while demand has 
remained fairly constant. The result has been building inventories and 
reduced grower returns.
    The Committee has been considering ways to cope with this 
oversupply situation in recent years. On March 30, 2000, the Committee 
recommended using volume controls (in the form of producer allotments) 
for the 2000-2001 crop year. Based on the Committee's recommendation 
and other available information, a proposed rule was issued and 
published in the May 30, 2000, Federal Register [65 FR 34411]. That 
rule proposed three alternative levels of volume regulation. The 
Committee met again on June 6, 2000, and revised its initial 
recommendation in several respects.
    This final rule establishes a marketable quantity and allotment 
percentage for the 2000-2001 crop year. This action also revises 
procedures for calculating growers' sales histories, exempts fresh and 
organically-grown cranberries from volume regulation, defines State 
average yield per acre, increases the barrels per acre for determining 
a commercial crop, revises the Committee review procedures for re-
determination of sales histories, and suspends the date by which the 
Committee notifies growers of their annual allotment. These actions are 
based primarily upon the recommendations made by the Committee and 
comments received in response to the May 30, 2000, proposed rule. The 
volume regulation will be effective September 1, 2000, through August 
31, 2001.

Marketable Quantity, Allotment Percentage and Sales Histories

    Section 929.49 of the order currently provides that if the 
Secretary finds from the recommendation of the Committee or from other 
available information, that limiting the quantity of cranberries 
purchased from or handled on behalf of growers during a crop year would 
tend to effectuate the declared policy of the Act, the Secretary shall 
determine and establish a marketable quantity for that year. In 
addition, the Secretary would establish an allotment percentage which 
shall equal the marketable quantity divided by the total of all 
growers' sales histories. The allotment percentage

[[Page 42600]]

would be applied to each grower's individual sales history to derive 
each grower's annual allotment. Handlers cannot handle cranberries 
unless they are covered by a grower's annual allotment.
    Section 929.48 of the order provides for computing growers' sales 
histories to be used in calculating marketable quantities and allotment 
percentages under Sec. 929.49. Sales history is defined in section 
929.13 as the number of barrels of cranberries established for a grower 
by the Committee. The Committee has been updating growers' sales 
histories each season. The Committee accomplishes this by using 
information submitted by the grower on a production and eligibility 
report filed with the Committee. The order sets forth that a grower's 
sales history is established by computing an average of the best four 
years' sales out of the last six years' sales for those growers with 
existing acreage. For growers with four years or less of commercial 
sales history, the sales history has been calculated by averaging all 
available years of such grower's sales. A new sales history for acreage 
with no sales history is calculated by using the State average yield 
per acre or the total estimated commercial sales, whichever is greater. 
This is done for new growers, as well as those that also have acreage 
with sales history.
    Section 929.46 of the order requires the Committee to develop a 
marketing policy each year prior to May 1. In its marketing policy, the 
Committee projects expected supply and market conditions for the 
upcoming season, including an estimate of the marketable quantity 
(defined as the number of pounds of cranberries needed to meet total 
market demand and to provide for an adequate carryover into the next 
season).

Committee's Initial Recommendation--March 30, 2000

    At a March 30, 2000 meeting, the Committee estimated the 2000-2001 
domestic production of cranberries at 5.89 million barrels. Carryover 
as of September 1, 2000, was estimated at 4.6 million barrels. Foreign 
production (primarily Canada) was projected at 800,000 barrels. 
Allowing for shrinkage of 2 percent for carryover and 4 percent for 
domestic and foreign production, the total adjusted available supply of 
cranberries was projected at 10,930,000 barrels.
    Based in large part on historical sales figures, the Committee 
estimated utilization of processing fruit at 5.4 million barrels and of 
fresh fruit at 280,000 barrels.
    A summary of the marketing policy follows:

          Cranberry Marketing Policy, 2000 Crop Year Estimates
Carryover as of 9/1/2000..................  4,600,000 barrels.
Domestic production.......................  5,890,000 barrels.
Foreign production........................  800,000 barrels.
Available supply (sum of the above).......  11,290,000 barrels.
Minus shrinkage...........................  360,000 barrels.
Adjusted Supply...........................  10,930,000 barrels.
------------------------------------------------------------------------
 
 
Fresh Fruit...............................  280,000 barrels.
Processing fruit..........................  5,400,000 barrels.
Total Sales and Usage.....................  5,680,000 barrels.
Carryover as of 8/31/2001.................  5,250,000 barrels.
 

    The Committee determined that the marketable quantity for the 2000-
2001 crop year should be established at 5.4 million barrels. This was 
equal to the expected demand for processing fruit. Fresh fruit sales 
were not included because (as discussed later in this document) fresh 
fruit would not be covered by the allotment percentage. Using a 
marketable quantity equal to processed fruit demand should result in a 
more stable level of inventories. Supplies in inventory could easily 
cover any unexpected increases in market demand.
    Section 929.49(b) of the order provides that the marketable 
quantity be apportioned among growers by applying the allotment 
percentage to each grower's sales history. The allotment percentage 
equals the marketable quantity divided by the total of all grower's 
sales histories. No handler can purchase or handle cranberries on 
behalf of any grower not within the grower's annual allotment.
    Total growers' sales histories were set at 6.35 million barrels. 
Using the formula established under the order in Sec. 929.49 (5.4 
million barrels divided by 6.35 million barrels), the annual allotment 
percentage was 85 percent.

Proposed Rule Published on May 30, 2000

    The Committee has been discussing the possible use of volume 
regulation for over a year. In its deliberations, concerns were voiced 
about the potential inequities that could result from the current 
process used to calculate sales histories. Because sales histories are 
based on an average of past years' sales, newer growers could be 
restricted to a greater extent than more established growers. This is 
because a cranberry bog does not reach full capacity until several 
years after being planted. Using an average of early years' sales 
(which are low) would likely result in a sales history below future 
sales potential. A more established grower, on the other hand, would 
have a sales history more reflective of his or her production capacity.
    The Committee's March 30, 2000, recommendation concerning the 
definition of ``commercial crop'' (explained later in this document) 
was intended to mitigate potential inequities. Based upon information 
received from cranberry growers and handlers subsequent to the March 30 
meeting, the Department believed a further modification might be needed 
to lessen the differential impact a volume regulation could have on 
individual cranberry growers. For this reason, the Department proposed 
that a sales history for each existing grower be calculated using the 
best single sales year in the past six years. For a grower with less 
than six years of sales, the sales history would be the highest year of 
sales available. This type of change is contemplated under 
Sec. 929.48(a)(2) of the order, which provides that the number and 
identity of the years used to compute sales histories may be altered by 
regulation. The Department did not propose a change in the way sales 
histories are computed for brand new acreage (acreage without any 
history of sales).
    The Department's proposal would have changed the way most growers' 
sales histories were computed. If this change were adopted, each 
affected grower's sales history would be recalculated. The Committee 
staff reported that this would have resulted in a new industry total 
sales history of 7.6 million barrels (about 20% above the 6.35 million 
barrels used by the Committee). Retaining the 5.4 million barrel 
marketable quantity recommended by the Committee would require an 
allotment percentage of 71 percent. To retain the 85% allotment 
percentage recommended by the Committee, the marketable quantity would 
need to be increased to 6.46 million barrels (almost 20% above the 5.4 
million barrels of expected demand for processing fruit as calculated 
by the Committee). In the May 30 proposed rule, the Department 
solicited comments on the Committee's original recommendation of 
marketable quantity and allotment percentage, as well as on two 
alternatives proposed by the Department. To summarize, the three 
options proposed in the May 30 rule

[[Page 42601]]

were as follows (the marketable quantity and total sales histories 
figures are all in million barrel units):

------------------------------------------------------------------------
                                  Marketable    Total sales   Allotment
                                   quantity      histories    percentage
------------------------------------------------------------------------
Committee Recommendation.......          5.4           6.35           85
USDA Option 1..................          5.4           7.6            71
USDA Option 2..................          6.46          7.6            85
------------------------------------------------------------------------

    The proposed rule solicited comments on these three options or 
appropriate modifications of them. Comments were due on June 14, 2000.

Committee's Recommendation of June 6, 2000

    During the comment period, the Committee met again on June 6, 2000. 
The primary reason the meeting was held was to consider the various 
options contained in the proposed rule.
    The Committee discussed the two options proposed by USDA. In order 
to lessen the differential impact a volume regulation would have on 
individual growers, the sales history calculation was proposed to be 
modified by USDA so that each existing grower would use the best single 
sales year in the past six years. A grower with less than six years of 
sales would use the highest year of sales available. The computation 
for all growers with brand new acreage was not modified from the 
Committee's first recommendation (using the State average yield or the 
total estimated commercial sales, whichever is greater). Using the 
revised calculation, total sales histories would be increased to 7.6 
million barrels. The Committee believed that this calculation 
artificially inflates the total sales histories. For example, the new 
total exceeds the record-high 1999 production of 6.39 million barrels 
by 19 percent, and it exceeds the projected 2000 production (5.89 
million barrels) by almost 30 percent.
    The Committee also believes that the revised calculation favors 
production regions with more variability in yield from year to year 
over those with more consistent production. A Committee member at the 
June 6, 2000, meeting stated that the standard deviation of yields in 
Massachusetts is less than 15 barrels per acre, compared with more than 
30 barrels per acre in Oregon. Using the best year out of the last six 
would benefit those States with higher variation, introducing more 
inequities rather than diminishing them. The proposed change would also 
favor growers who have planted new acreage over growers who have a more 
consistent record of production.
    Discussion at the June 6 meeting also indicated that the proposed 
change would favor growers who have planted new acreage in recent years 
over growers who have a more consistent record of production. (No 
concerns were expressed about the method used for computing sales 
histories for new acreage with no sales history.) The Committee 
concluded that the proposed change in the calculation of sales 
histories would give undue advantages to growers who have expanded 
acreage considerably in recent years, and would penalize growers who 
maintained a consistent production base. This would, again, introduce 
additional inequities.
    Under USDA's option 1, the marketable quantity would remain at 5.4 
million barrels, as recommended by the Committee on March 30, 2000. 
Using the higher sales history figure of 7.6 million barrels would 
reduce the allotment percentage to 71 percent (5.4 million barrels 
divided by 7.6 million barrels). This would increase the restricted 
percentage from 15 to 29 percent. The consensus of the Committee was 
that volume regulation should not be more restrictive than an 85 
percent producer allotment. Although a 15 percent restriction may not 
have a great immediate impact on grower returns because of the expected 
large crop and carryover inventories, the Committee believes that an 85 
percent allotment percentage would be a good place to start for the 
industry to address the oversupply situation. The Committee recognizes 
that the market cannot be stabilized (under the marketing order) in a 
single year.
    More importantly, many growers have been anticipating an allotment 
percentage not less than 85 percent and have been modifying their 
cultural practices accordingly. Any dramatic increase in the restricted 
percentage would likely be met with great opposition from the grower 
community. The Committee therefore concluded that an allotment 
percentage of 71 percent was unacceptable and rejected USDA's option 1.
    Under its second option, USDA again used the higher sales history 
figure of 7.6 million barrels. To retain the 85% allotment percentage 
recommended by the Committee on March 30, the marketable quantity was 
raised from the 5.4 million barrels recommended by the Committee to 
6.46 million barrels, an increase of almost 20 percent. The Committee 
believed that raising the marketable quantity to 6.46 million barrels 
would result in adding more fruit to the oversupply, further 
destabilizing the industry and lowering prices. The Committee therefore 
did not support USDA's option 2.
    Concerns were expressed at the June 6 meeting involving growers 
with 4 years or less of sales histories. It was expressed that these 
growers could be impacted more greatly by a volume regulation than 
other growers because of the way the sales histories would be computed. 
This is because, as previously discussed, yields are increasing on 
younger acreage. Using an average of past years' sales, as the order 
provides, would result in a sales history lower than that acreage's 
future production capacity. To mitigate this problem, the Committee 
recommended adopting, in part, the change in sales history calculation 
proposed by USDA. Specifically, it voted to recommend, for a grower 
with four years or less of sales history, the best year of sales 
available as that grower's sales history.
    Concern was also expressed that the sales history for a grower with 
only acreage that is 4 years old or younger (who would use the highest 
year as his or her sales history), would be calculated differently than 
the sales history for a grower with a combination of both older and 
younger acreage. For the more established grower, all sales off all 
acreage is combined, regardless of the age of the acreage. Then the 
average of the best four years of sales out of the last six years is 
used as that grower's sales history. Thus, the more established grower 
would not get the same adjustment for new acreage that the grower with 
all new acreage does. It was discussed at the meeting that the 
Committee does not collect information that would allow such an 
adjustment. Growers' sales are not segregated by the age of individual 
bogs, so based on the information available, an adjustment for acreage 
with 4 years of sales or less cannot be made. Such information could be 
collected by the Committee in the future.

[[Page 42602]]

    The Committee ultimately recommended a fourth option. The Committee 
recommended that growers with only acreage that is 4 years old or less 
use the best single sales year to calculate a sales history. Growers 
with 5 years of sales history would use an average of their highest 4 
years of sales. Growers with 6 or more years would use an average of 
their highest 4 years of sales of the most recent six years. New 
acreage for both brand new and existing growers would continue to 
receive a sales history using the State average yield or the total 
estimated commercial sales from that acreage, whichever is greater.
    The Committee's recommended change in the calculation of sales 
histories revised the total industry sales history to 6.432 million 
barrels. The Committee recommended a small increase in its marketable 
quantity (from 5.4 to 5.468 million barrels) to retain an allotment 
percentage of 85 percent. The vote on this recommendation was 
unanimous. A summary of the various options under consideration follows 
(again, the marketable quantity and sales history figures are in 
million barrel units):

------------------------------------------------------------------------
                                  Marketable    Total sales   Allotment
                                   quantity      histories    percentage
------------------------------------------------------------------------
Initial Committee                       5.4           6.35            85
 Recommendation................
USDA Option 1..................         5.4           7.6             71
USDA Option 2..................         6.46          7.6             85
Revised Committee                       5.468         6.432           85
 Recommendation................
------------------------------------------------------------------------

    This rule implements the Committee's June 6, 2000, recommendation, 
with a change, by adding a new Sec. 929.149 to the order's rules and 
regulations pertaining to determination of sales history. This section 
is modified from what appeared in the May 30, 2000, proposed rule by 
providing that a sales history for each grower with 5 years of sales 
history shall be computed by using an average of the highest four years 
of such grower's sales history. For a grower with six or more years of 
sales history, the sales history shall be computed using an average of 
the highest four of the most recent six years of sales. For a grower 
with four years or less of commercial sales history, the sales history 
will be computed using the highest year (the same as in the proposed 
rule). Sales histories for new acreage with no previous sales will be 
computed using the State average yield or estimated production, 
whichever is greater (again, the same as in the proposed rule). This 
rule clarifies the regulatory language pertaining to sales history for 
new acreage. As discussed in the proposal (65 FR 34414), sales 
histories for newly planted acreage by existing growers are computed in 
the same way as for newly planted acreage by new growers without any 
sales history. Finally, under this rule, if an established grower has 
newer acreage with four years of sales history or less, and such grower 
can provide the Committee with credible information which would allow 
the Committee to segregate the sales history of the newer acreage, then 
that acreage will be treated in the same manner as acreage of a grower 
with four years or less of sales history.
    This change in the way sales histories are calculated was made by 
the Department based on the concerns and comments regarding fairness 
and equity which were raised during this rulemaking. This change will 
likely result in a slight increase in the marketable quantity 
recommended by the Committee to maintain the allotment percentage at 85 
percent. The Department believes that this change is needed to most 
equitably allocate allotment among growers, consistent with the 
requirements of the Act. Additionally, it is apparent that the industry 
will not support any restricted percentage greater than 15 percent. 
Although the level of restriction imposed under this rule will not 
likely resolve the surplus situation facing the cranberry industry in a 
single year, we conclude that this rule is the best course of action 
given the economic crisis facing the industry.
    This rule also adds a new Sec. 929.250 to set a marketable quantity 
of 5.468 million barrels and an allotment percentage of 85 percent. The 
marketable quantity is within the range proposed in the May 30 rule, 
and the allotment percentage is equal to that under two of the three 
options contained in that proposed rule. The additional change to 
accommodate established growers with new acreage having four years of 
sales history or less will result in a change in marketable quantity, 
but not enough to undermine this regulation. This conclusion is based 
on the Department's belief that sales histories of growers in this 
category would be increased by a relatively small amount.

Definition of Commercial Crop

    The Committee unanimously recommended on March 30, 2000, that the 
number of barrels that defines a commercial crop under the marketing 
order be increased from 15 to 50 barrels per acre. Calculations of 
sales histories are based on ``commercial'' cranberry sales. Currently, 
section 929.107 defines a commercial crop as acreage that has a 
sufficient density of growing vines to produce at least 15 barrels per 
acre without replanting or renovation. This rule increases the 15 
barrels per acre to 50 barrels per acre. Acreage producing less than 50 
barrels per acre will not be considered to produce a commercial crop. 
This increase brings the order more in line with current growing 
conditions.
    This action will assist growers who harvested cranberries for the 
first time in 1999. These growers will qualify for a new sales history 
determination if they produced less than 50 barrels per acre.
    A full commercial cranberry crop is usually not harvested until 3 
or 4 years after being planted. Production is usually limited during 
the first year, with increases in subsequent years until full capacity 
is reached. Under the current rule, if a grower harvested a bog for the 
first time in 1999, and achieved a yield of 25 barrels per acre, such 
grower's sales history would be calculated by using the determination 
for a grower with four years or less of production. This would be the 
actual production for that year. Therefore, in this example, for the 
2000-2001 crop year the grower's sales history would be 25 barrels 
multiplied by the number of acres such grower harvested. The 25 barrels 
would be used in the calculation since it is greater than the 15 
barrels per acre used to define commercial cranberry acreage.
    Under this rule change, such grower's first year of sales harvested 
from that acreage will not count since it is less than 50 barrels per 
acre. Therefore, the grower will be eligible to receive the 
determination for growers with no sales history on such acreage (which 
is the State average yield or the grower's

[[Page 42603]]

estimated commercial sales, whichever is greater). This should benefit 
growers who had very low yields per acre for their first year of 
production.
    This rule revises Sec. 929.107 of the order's rules and 
regulations, consistent with the proposed rule published on May 30, 
2000.

Determination of Sales History for Growers With No History on Their 
Acreage

    As previously discussed, a new sales history for a grower with no 
sales history is calculated by using the State average yield per acre 
or the total estimated commercial sales, whichever is greater. Existing 
growers who have newly planted acreage will also use this calculation 
for their new acreage.
    The Committee recommended that for the 2000-2001 crop year, the 
State average yield be defined as the average State yields for the year 
1997 or the average of the best four years out of the last six years, 
whichever is greater. This calculation is similar to that used to 
compute sales history for more established growers (an average of the 
best four years out of the last six years), and would average out 
seasonal variations in yields. However, if estimated commercial sales 
are greater than what is computed above, the Committee will use the 
commercial sales estimated by the grower.
    To take into account the differences among the States, the 
Committee recommended calculating the average yield for each State 
using the best four of the last six years, and comparing it to the 
average yield for that State in 1997. The higher of the two figures for 
each State will be used to calculate new sales histories for new 
growers.
    A new Sec. 929.148 is added to the order's rules and regulations to 
set forth the calculation of the State average yield. This is 
consistent with the proposed rule published on May 30, 2000.

Fresh and Organic Fruit Exemption

    The Committee also recommended on March 30, 2000, that fresh and 
organically-grown cranberries be exempt from volume regulation during 
the upcoming season. This exemption is authorized under Sec. 929.58 of 
the order, which provides that the Committee may relieve from any or 
all requirements cranberries in such minimum quantities as the 
Committee, with the approval of the Secretary, may prescribe.
    Fresh fruit accounts for about 4.7 percent of the total production. 
The Committee estimated that about 280,000 barrels will be sold fresh 
this year, compared to 260,000 barrels sold last season.
    Under current growing and marketing practices, there is a 
distinction between cranberries for fresh market and those for 
processing markets. Cranberries intended for fresh fruit outlets are 
grown and harvested differently. Fresh cranberries are dry picked (in 
most cases) while cranberries used for processing are water picked. 
When cranberries are water picked, the bog is flooded and the 
cranberries that rise to the top are harvested. Dry picking is a more 
labor intensive and expensive form of harvesting. Cranberry bogs are 
designated as ``fresh fruit'' bogs and are grown and harvested 
accordingly to produce fruit that is of the quality needed for fresh 
fruit. Only the lower quality fruit from a fresh bog goes to processing 
outlets. Yields of fresh fruit growers are typically reduced from those 
of processed growers. Productions costs are higher, although a premium 
price over fruit delivered for processing is anticipated.
    Fresh cranberry sales constitute less than 5 percent of the 
cranberry market. All fresh cranberries can be marketed and do not 
compete with processing cranberries. Fresh cranberries are seasonal 
(due to their limited shelf life) and are not part of the growing 
industry inventories.
    The Committee concluded that fresh supplies do not contribute 
significantly to the current cranberry surplus. Thus, the Committee 
recommended that such cranberries be exempt from the volume regulation 
implemented by this rule.
    Organically-grown cranberries comprise an even smaller portion of 
the total crop than fresh cranberries do. The Committee estimated that 
about 1,000 barrels of organic fruit will be sold this season, compared 
to 450 barrels last season. Organic cranberries are a growing niche 
market and regulating them could have an adverse effect on marketing 
this product. Demand for organic cranberries is in line with the 
current limited production. Thus, all organic cranberries can be 
marketed, and they do not contribute in any meaningful way to the 
current oversupply experienced with processing fruit. The Committee 
therefore recommended that organically-grown cranberries be exempt from 
volume regulation during the upcoming season. In order to be exempt, 
organic cranberries will have to be certified as such by a third party 
organic certifying organization that is acceptable to the Committee.
    The fresh fruit exemption was further discussed at the Committee's 
June 6, 2000, meeting. Concerns were expressed that this exemption 
would give an unfair advantage to some cranberry processors (those that 
do not handle fresh fruit) and to their growers. It was suggested that 
any unused allotment earned by a fresh fruit grower be forfeited, 
similar to what happens to unused allotment received by growers with 
new acreage (based on the State average yield).
    The Committee considered this suggestion, but continued to support 
its recommendation to exempt fresh fruit from volume regulation. It was 
concerned that any substantive departure from the requirements proposed 
in the May 30 rule would require a second proposed rule to be issued 
and an opportunity for additional comments to be made available. In any 
event, the effect of the fresh fruit exemption on the market would 
probably be minor. The Committee stated that the way in which fresh 
fruit is handled in future years will be given additional 
consideration.
    Moreover, encouraging growth in organic and fresh markets for 
cranberries is consistent with the Committee's (and industry) 
objectives to develop additional market outlets for cranberries. Future 
industry growth depends on expanding market outlets for cranberries and 
should not be discouraged.
    This rule provides an exemption from volume regulation for fresh 
and organically-grown cranberries by adding a new Sec. 929.158, as 
included in the May 30, 2000, proposed rule.

Outlets for Excess Cranberries

    The purpose of the producer allotment program implemented by this 
rule is to limit the amount of the total crop that can be marketed for 
normal commercial uses. There is no need to limit the volume of 
cranberries that may be marketed in noncommercial or noncompetitive 
outlets. Thus, in accordance with Sec. 929.61, handlers will be able to 
dispose of excess cranberries in certain designated outlets. That 
section of the order provides that noncommercial outlets may include 
charitable institutions and research and development projects for 
market development purposes. Noncompetitive outlets may include any 
nonhuman food use (animal feed) and foreign markets, except Canada. 
Canada is excluded because significant sales of cranberries to Canada 
could result in transshipment back to the United States of the 
cranberries exported there. This could disrupt the U.S. market, 
contrary to the intent of the volume regulation.
    To ensure that excess cranberries diverted to the specified outlets 
do not

[[Page 42604]]

enter normal market channels, certain safeguard provisions are 
established under Sec. 929.61. These provisions require handlers to 
provide documentation to the Committee to verify that the excess 
cranberries were actually used in a noncommercial or noncompetitive 
outlet. In the case of nonhuman food use, a handler would be required 
to notify the Committee at least 48 hours prior to disposition so that 
the Committee staff would have sufficient time to be available to 
observe the disposition of the cranberries.
    The proposed rule published on May 30, 2000, proposed revising 
Sec. 929.104 of the order's rules and regulations to list the outlets 
in which handlers can divert excess cranberries. That section currently 
lists outlets for ``restricted cranberries.'' ``Restricted 
cranberries'' is a term used in connection with withholding 
requirements--another type of volume regulation authorized under the 
order. While the specific outlets listed were not proposed for 
revision, changes were proposed in the regulatory text to provide that 
these outlets are authorized for excess cranberries under a producer 
allotment program. The outlets listed included all those mentioned in 
Sec. 929.61 of the order.
    At its June 6, 2000, meeting, the Committee recommended that 
foreign markets be excluded as outlets for excess cranberries.
    When foreign markets were listed as potential outlets for excess 
cranberries, cranberry exports were not as significant to the industry 
as they are today. Exports of fresh cranberries for 1998 were 51,615 
barrels, and for processed cranberries, 516,667 barrels. This 
represents about 10 percent of total sales.
    The Committee indicated that the industry is actively selling 
cranberries in at least 54 foreign countries. The Committee concluded 
that it would be difficult to list all the countries that are not 
currently receiving U.S. cranberries (and therefore would be defined as 
``noncompetitive'') and to monitor the sales activity in each such 
country.
    Moreover, the Committee intends to continue foreign promotion 
activities to encourage cranberry export sales. These activities are 
financed, in part, by funds from USDA's Foreign Agricultural Service, 
which are matched by industry funds for promotional activities in 
foreign markets. Currently, funds are being used for promotional 
activities in Germany and Japan.
    Additionally, individual handlers are working on developing markets 
in many foreign countries. Encouraging disposal of excess cranberries 
in countries where the Committee and individual handlers are attempting 
to build cranberry markets could undermine these individual efforts to 
develop commercial markets. Therefore, the Committee unanimously 
recommended that foreign countries be excluded as eligible outlets for 
excess cranberries.
    The Department has concluded that the Committee's June 6, 2000, 
recommendation is unnecessary. Excess cranberries cannot be 
``handled,'' which means they cannot be processed. Therefore, under 
current requirements, excess cannot be processed and then exported. 
Fresh sales are exempt from volume regulation, so fresh cranberries can 
be exported free from regulation. We have, however, revised 
Sec. 929.104 of the regulations to clarify that excess cranberries 
cannot be processed and sent to foreign markets.

Appeal Procedures

    Section 929.125 of the order's rules and regulations establishes an 
appeal procedure for growers who are dissatisfied with their sales 
histories as determined by the Committee pursuant to Sec. 929.48 of the 
order. Under procedures which have been used, a grower may submit to 
the Committee a written argument within 30 days after receiving the 
Committee's determination of that grower's sales history, if such 
grower disagrees with the determination. The Committee must review its 
determination within a reasonable time, reviewing all the material 
submitted by the grower, and notify the grower of its decision. If the 
grower is not satisfied with the Committee's decision, that grower may 
appeal to the Secretary, through the Committee, within 30 days after 
being notified of the Committee's decision. The Secretary must review 
all pertinent information and render a decision. The Secretary's 
decision is final.
    On March 30, 2000, the Committee recommended revising the process. 
The Department concurs with the Committee recommendation. Specifically, 
this rule provides than an appeals subcommittee be established and that 
the full Committee be provided with 15 days to further review appeals 
by growers. This process should be more efficient in handling grower 
appeals. The subcommittee, appointed by the Committee Chairman, will be 
comprised of two independent and two cooperative representatives, as 
well as a public member. Although an additional level of review is 
being established, it should be more efficient for a smaller 
subcommittee to consider grower appeals. The subcommittee will have 30 
days to render a decision on each appeal.
    If a grower is not satisfied with the appeal subcommittee's 
decision, that grower could further appeal to the full Committee. The 
grower would submit his or her written argument to the Committee along 
with any pertinent information for the Committee's review within 15 
days after being notified of the subcommittee's determination. The 
Committee will have 15 days from the receipt of the grower's appeal to 
respond. The Committee will promptly inform the grower of its decision, 
including the reasons for its decision.
    The grower may further appeal to the Secretary within 15 days after 
notification of the Committee's findings, if the grower is not 
satisfied with the Committee's decision. The Committee will forward a 
file with all pertinent information related to the grower's appeal. The 
Secretary will inform the grower and Committee staff of the Secretary's 
decision. All decisions by the Secretary will be final.
    This rule revises Sec. 929.125 of the order's rules and regulations 
to implement the Committee's recommendation, consistent with the 
proposed rule published on May 30, 2000.

Suspension of Deadline for Notifying Growers of Their Annual 
Allotment

    Section 929.49 of the order provides that in any year in which an 
allotment percentage is established by the Secretary, the Committee 
must notify growers of their annual allotment by June 1. That section 
also requires the Committee to notify each handler of the annual 
allotments for that handler's growers by June 1.
    The May 30 proposed rule proposed establishing a marketable 
quantity and allotment percentage for the 2000 cranberry crop. To allow 
adequate time for interested parties to comment on the proposal and for 
the Department to give due consideration to the comments received, it 
was determined that a final decision on the proposed rule would not be 
reached before June 1. Therefore, the Department proposed that the June 
1 deadline be suspended for the 2000-2001 crop year.
    This rule suspends the June 1 date appearing in Sec. 929.49 of the 
order as proposed on May 30, 2000.

Removal of Two Obsolete Regulations

    At its June 6, 2000, meeting, the Committee discussed two of the 
order's rules and regulations that are now obsolete, and unanimously 
recommended that they be deleted. Those sections are Sec. 929.109 
Unusual

[[Page 42605]]

circumstances as used in determining base quantities and Sec. 929.151 
Allotment transfers and disposition of the growers annual allotment 
certificate.
    Both of these sections pertain to the ``base quantity'' method of 
producer allotment, which was replaced in 1992 with the sales history 
method of producer allotment. These sections were inadvertently left in 
the regulations and do not apply to the sales history program.
    Removing these sections from the order's rules and regulation will 
reduce confusion to the cranberry industry. Therefore, this rule 
removes Secs. 929.109 and 929.151 from the rules and regulations in 
effect under the order.

Regulatory Flexibility Act & Effects on Small Businesses

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA), the Agricultural Marketing Service (AMS) has considered the 
economic impact of this action and alternatives considered on small 
entities. The purpose of the RFA is to fit regulatory actions to the 
scale of business subject to such actions, in order that small 
businesses are not unduly or disproportionately burdened. Marketing 
orders issued pursuant to the Act, and rules thereunder, are unique in 
that they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility. Accordingly, AMS has prepared 
this final regulatory flexibility analysis.
    According to the Small Business Administration (13 CFR 121.201) 
small handlers are those having annual receipts of less than $5,000,000 
and small agricultural producers are defined as those with annual 
receipts of less than $500,000. Because prices have declined 
significantly in the past year, and because the small farm definition 
is based on estimated sales, nearly all producers and some handlers are 
considered small under the SBA definition. Therefore, this RFA analysis 
is properly applicable for the entire industry. Of the 1,100 cranberry 
growers, between 86 and 95 percent are estimated to have sales equal to 
or less than $500,000. Fewer than 60 growers are estimated to have 
sales that would have exceeded this threshold in 1999. Thus, the 
consequences of this final action apply to virtually all growers.
    Over two-thirds of the U.S. cranberry crop is handled by a grower-
owned marketing cooperative. Five other major processors, together with 
the cooperative, handle over 97 percent of the crop. Using Committee 
data on volumes handled, AMS has determined that none of these handlers 
qualify as small businesses under SBA's definition. The remainder of 
the crop is marketed by about a dozen grower-handlers who handle their 
own crops. Dividing the remaining 3 percent of the crop by these 
grower-handlers, all would be considered small businesses.
    This action makes the following amendments to the regulations under 
the cranberry marketing order: (1) revises the calculation of sales 
histories; (2) exempts fresh and organic fruit; (3) includes a 
definition of State average yields; (4) changes volume needed to 
qualify as commercial production; (5) revises Committee review 
procedure for determination of sales history; (6) suspends that annual 
allotment notification date; and (7) establishes levels of marketable 
quantity and allotment percentage to determine the level of volume 
control.
    Most of the changes as a result of this final rule are expected to 
have little or no regulatory burden on industry, or are made expressly 
to acknowledge problems faced by new producers and producers with new 
acreage. The revisions to calculating sales histories will benefit new 
growers or those who want to enter cranberry production. The exemption 
for fresh and organic cranberry sales should help those two niche 
markets continue to develop. Recalculating the number of barrels needed 
to qualify for commercial production will enable new growers to use the 
revised sales history calculation to obtain a higher sales history. 
Before assessing the impact of volume control on the industry, an 
economic profile of the cranberry market conditions is provided.

Industry Profile

    Cranberries are produced in 10 States, but the vast majority of 
farms and production is concentrated in Massachusetts, New Jersey, 
Oregon, Washington, and Wisconsin. Massachusetts was the number one 
producing State until 1990, when Wisconsin took over the lead. Since 
1995, Wisconsin has been the top producing State. Both States account 
for over 80 percent of cranberry production. The industry has operated 
under a Federal marketing order since 1962.
    Average farm size for cranberry production is very small. The 
average across all producing States is about 33 acres. Wisconsin's 
average is twice the U.S. average, at 66.5 acres, and New Jersey 
averages 83 acres. Average farm size is below the U.S. average for 
Massachusetts (25 acres), Oregon (17 acres) and Washington (14 acres).
    Small cranberry growers dominate in all States: 84 percent of 
growers in Massachusetts harvest 10,000 or fewer barrels of 
cranberries, while another 3.8 percent harvest fewer than 25,000 
barrels. In New Jersey, 62 percent of growers harvest less than 10,000 
barrels, and 10 percent harvest between 10,000 and 25,000 barrels. More 
than half of Wisconsin growers raise less than 10,000 barrels, while 
another 29 percent produce between 10,000 and 25,000 barrels. Similar 
production patterns exist in Washington and Oregon.
    Over 90 percent of the cranberry crop is processed, with the 
remainder sold as fresh fruit. In the 1950s and early 1960s, fresh 
production was considerably higher than it is today, and in many years, 
constituted as much as 25-50 percent of total production. Fresh 
production began to decline in the 1980s, while processed utilization 
and output soared as cranberry juice products became popular. Today, 
fresh fruit claims only about 5-6 percent of total production. 
(Typically, ``shrinkage'' absorbs the remaining 3 percent of 
production.) Three of the top five States produce cranberries for fresh 
sales. New Jersey and Oregon produce fruit for processed products only.

Historical Trends and Near Term Outlook

    Production has risen steadily since the early 1950s, as more 
acreage was brought into production and yields increased. Cranberry 
output first exceeded 1.5 million barrels in 1966, 3 million barrels in 
1982, 4 million in 1988, and hit a record 6.4 million barrels in 1999. 
Acreage rose 62 percent since 1954, from just under 23,000 acres to 
37,200 acres. Output growth was also fed by soaring yields--a 288-
percent increase from 44.3 barrels per acre in 1954 to almost 172 
barrels in 1999.
    The industry enjoyed healthy increases in demand as a result of new 
juice drink products, which in turn prompted expansion in acreage and 
output. Demand peaked in 1994 with per capita consumption of processed 
berries at 1.7 pounds and has since declined, to 1.6 pounds in 1998. 
Prices above $60 per barrel in 1996 and 1997 continued to stimulate 
output. As a result, inventories began building. Over the period 1954-
1969, carryover averaged 222,179 barrels, about 19 percent of annual 
average production. During the 1970s, annual production rose nearly 90 
percent from 1954-69, and carryover stocks rose to about 29 percent of 
annual average production during the decade. Carryover as a percent of 
output fell back to 19 percent during the 1980s. The 1990s have seen

[[Page 42606]]

both large output increases and carryover stocks. For 1990-99, 
beginning inventories rose to a level equal to nearly a third of annual 
production over the decade. In 1999 alone, carryover swelled to more 
than 3.1 million barrels, equivalent to 49 percent of the year's crop. 
Current estimates of beginning stocks are for a record 4.6 million 
barrels at the start of the 2000/2001 marketing year--equivalent to 78 
percent of anticipated production. With no significant increases in 
demand or cutbacks in production, at the end of the 2000/2001 marketing 
year, there could be nearly a full year's production in storage (5.25 
million barrels) to start the 2001 marketing season. Table 1 provides 
indicators of average annual carryover, production, and prices.
    The value of utilized production increased steadily from 1974 to 
1986, dipped 9 percent in 1987, then began a more volatile but still 
upward trend through 1997 before plunging 40 percent in 1998. Prices 
per barrel over the 1979-98 period averaged $44.375, but dropped below 
$40 a barrel for 1998 crop berries, and could fall below $20 for the 
1999 crop. For the 2000/2001 marketing year, some handlers have 
indicated they may only offer $9-$10 per barrel. If prices do not 
exceed $20 per barrel in 1999, the value of utilized production will 
decline again by half--from $211 million estimated for the 1998 crop to 
less than $110 million in 1999. This would be the lowest crop value 
since 1981.

Impact of Volume Control

    The volume control for cranberries imposes no restrictions on entry 
into production. For example, there is no quota such as used in the 
tobacco industry that a new entrant would have to acquire from an 
existing quota holder. The impact of volume control is evaluated 
relative to the income effect that excessive inventories would 
otherwise exert on growers and the likelihood that, without significant 
improvement in either prices or sales or both, many growers will not be 
able to remain in business.
    Because inventories are large and cranberries may be stored for 
long periods without deterioration, producers may not receive full 
payment for cranberries delivered to storage for several years; and 
storage costs are deducted from their final payment. In addition, 
reports from various growers estimate current total costs of production 
at approximately $30-$35 per barrel. With expectations of prices 
declining well below this range in the 1999 marketing year, most 
producers are not expected to cover variable costs of production, thus 
increasing the likelihood they will either exit the industry or abandon 
bogs until the market situation improves.
    The effect of the Committee's revised volume control recommendation 
(CMC2) contained in this final action may be evaluated in terms of the 
loss of sales that producers incur as a result of volume control, 
compared with the extent to which price increases due to volume control 
offset that sales loss.
    For the 15-percent volume control to be revenue-neutral--that is, 
to leave producers on average no worse off with respect to revenue 
realized from lower production--prices would need to rise by 17.7 
percent in 2000/01. An alternative allotment percentage that was 
considered by the Committee would have resulted in a volume control of 
29 percent. A 29-percent volume control would require prices to rise by 
40.8 percent to remain revenue-neutral. In both cases, a lesser price 
increase results in a gross revenue loss to producers. In and of 
itself, this would not necessarily mean that volume control should be 
rejected as a marketing tool. Even if prices do not rise, producers 
realize some savings from production costs not incurred and from higher 
prices that may result in subsequent marketing years as a result of 
lower inventories.
    Economic analyses of factors affecting cranberry prices have been 
conducted by Sexton, Jesse, and USDA in 1999 and 2000. All of the 
analyses reported positive price impacts associated with a 100,000 
barrel change in supply, ranging from $0.49-$1.26 per barrel for each 
100,000 barrel change. Because inventories are so large, this analysis 
uses the lowest reported price impact, of $0.49 for each 100,000 barrel 
change, or $4.89 per barrel for a change of 1 million barrels. Thus, if 
inventories decrease (increase) by 1 million barrels, prices are 
estimated to increase (decrease) by $4.89 per barrel. In the 
aforementioned economic analysis, prices averaged $27.695 per barrel 
over the period analyzed from 1954 to 1998. The estimated price impact 
of $4.89 per barrel represents a 17.7 percent change in prices compared 
with the average over the 45-year period.
    The 15-percent volume control is estimated to lead to a reduction 
in inventories by 884,000 barrels, based on a 2000/2001 domestic 
production forecast of 5.89 million barrels (prior to the 15-percent 
volume control). This reduction in inventory is estimated to increase 
prices by $4.32 per barrel (.884  x  4.89). Using a projected 2000/01 
average price of $20 per barrel, prices are estimated to increase to 
$24.32 per barrel. Thus, a grower who reduced output from 1,000 to 850 
barrels would realize a gain in revenue from $20,000 to $20,672 or 3.4 
percent. Some additional gain would be realized from cost savings from 
150 barrels that were not produced. And, the volume reduction would be 
expected to generate price increases in future years, providing 
cumulative positive effects from the volume control.
    The results of econometric analyses are subject to some level of 
uncertainty. Results are generally reported as estimates subject to a 
specified error. Assuming a 5 percent error to illustrate the 
sensitivity of the results, the $4.89 per barrel price change estimate 
could range from $4.65 to $5.14 per barrel. Then, a reduction in 
inventory of 884,000 barrels would lead to higher prices ranging from 
$4.11 to $4.54 per barrel. Table 2 illustrates these estimated price 
increases and their effect on producer revenue, using a forecast price 
for 2000/01 of $20 per barrel.
    We conclude that the 15 percent volume control would not unduly 
burden producers, particularly smaller growers. While there would be a 
loss of salable product, producers are likely to benefit from the 
price-enhancing effect of the reduced inventories in 2000/01. If 
producers do not benefit in 2000/01, the reduction in inventory is 
expected to raise prices in future years which would provide cumulative 
annual effects. The estimated price increases reported here would mean 
higher prices for consumers. However, recent prices have been 
significantly higher than these estimated prices; thus the consumer 
price effect is still well below previous years' prices.

                     Table 1.--Average Annual Cranberry Output, Carryover Stocks, and Prices
----------------------------------------------------------------------------------------------------------------
           Indicator               1954-59       1960-69       1970-79       1980-89       1990-99      1954-99
----------------------------------------------------------------------------------------------------------------
Production (barrels)..........  1,083,217     1,234,610     2,221,610     3,303,050     4,656,500      2,622,983
Carryover (barrels)...........    213,746       227,239       644,720       617,897     1,506,718        679,309

[[Page 42607]]

 
Carryover/Production (%)......         19.7          18.4          29.0          18.7          32.4         25.9
Price per barrel ($)..........         10.74         13.09         15.13         43.16         46.80      27.695
----------------------------------------------------------------------------------------------------------------


                    Table 2.--Estimated Impacts of Price Changes on a Representative Producer
----------------------------------------------------------------------------------------------------------------
                                                                   Average price   Total output
                         Price estimates                            ($/barrel)       (barrels)     Gross revenue
----------------------------------------------------------------------------------------------------------------
Base Case.......................................................          $20.00           1,000         $20,000
Volume Control Cases:
    --$4.32 price rise ($4.89  x  .884).........................          $24.32             850         $20,672
    --$4.11 price rise ($4.89 reduced by 5% error,  x  .884)....          $24.11             850         $20,494
    --$4.54 price rise ($4.89 increased by 5% error,  x  .884)..          $24.54             850         $20,859
----------------------------------------------------------------------------------------------------------------

Summary of Rule

    In accordance with Sec. 929.49 of the order, this rule establishes 
a marketable quantity of 5.468 million barrels and an allotment 
percentage of 85 percent for cranberries in the 10-State production 
area during the 2000-2001 crop year. Because the Department is making 
allowances for established growers with acreage with four years of 
sales histories or less, this rule also provides for an increase in the 
marketable quantity which may be needed to maintain the 85 percent 
allotment percentage. This action also revises procedures for 
calculating growers' sales histories, defines the State average yield, 
increases the barrels per acre for determining a commercial crop, 
exempts fresh and organic cranberries from volume regulation, and 
revises Committee review procedures. These actions are designed to 
improve cranberry marketing conditions and the operation of the volume 
regulation program.
    The marketable quantity for the 2000-2001 crop year is established 
at 5.468 million barrels with an allowance for an adjustment to allow 
for the additional sales history calculation provision. This is equal 
to the expected demand for processing fruit. Fresh fruit sales were not 
included because fresh fruit is exempt from volume regulation. 
Organically-grown cranberries are also exempt because projected sales 
are only about 1,000 barrels. Using a marketable quantity equal to 
processed fruit demand should result in a more stable level of 
inventories. Supplies in inventory could easily cover any unexpected 
increases in market demand.
    Section 929.49(b) provides that the marketable quantity be 
apportioned among growers by applying the allotment percentage to each 
grower's sales history. The allotment percentage equals the marketable 
quantity divided by the total of all grower's sales histories. No 
handler can purchase or handle cranberries on behalf of any grower not 
within the grower's annual allotment.
    Total growers' sales histories were established by the Committee at 
6.432 million barrels. Using the formula established under the order 
(5.468 million barrels divided by 6.432 million barrels), the annual 
allotment percentage is 85 percent. The order provides that a grower's 
sales history is established by computing an average of the best four 
years' sales out of the last six years' sales for those growers with 
existing acreage. Under this rule, growers with 5 years of sales 
history will use an average of their highest 4 years of sales. Growers 
with 6 or more years will use an average of their highest 4 of the most 
recent 6 years of sales. For growers with four years or less of 
commercial sales history, the sales history is calculated by using the 
highest single year of all available years of such growers' sales. New 
acreage with no sales history for both brand new and existing growers 
would receive a sales history using the State average yield or the 
total estimated commercial sales from that acreage, whichever is 
greater. If these growers also have newer acreage with four years of 
sales history or less, and such growers can provide the Committee with 
credible information which would allow the Committee to segregate the 
sales history of the newer acreage, then that acreage shall be treated 
in the same manner as acreage of a grower with four years or less of 
sales history.
    This rule changes the method of calculating sales histories for 
acreage with four years or less of sales. This rule should increase the 
amount of allotment available to growers with newer plantings. This is 
because a cranberry bog does not reach full capacity until several 
years after being planted. Using an average of early years' sales 
(which are low) normally results in a sales history below current sales 
potential. A more established bog, on the other hand, would have a 
sales history more reflective of his or her production capacity. The 
Committee recommended this adjustment be allowed only for growers who 
have no acreage with more than four years of sales. However, the 
Department is accommodating more established growers by making this 
calculation available to them as well.
    Calculations of sales histories are made on ``commercial'' 
cranberry acreage. This rule raises the amount of barrels that defines 
a commercial crop under the order from 15 to 50 barrels. This action 
will assist growers who harvested cranberries for the first time in 
1999. Such grower's first year of sales will not count if it was less 
than 50 barrels per acre. Instead, the grower will receive the same 
sales history as is provided to a grower with no sales history on his 
or her acreage (which is the State average yield or the grower's 
estimated commercial sales, whichever is greater). This will benefit 
growers who had very low yields per acre for their first year of 
production.
    Growers with no sales history on their acreage receive the State 
average yield. This applies to both brand new growers and growers with 
sales history on some of their acreage. This rule defines the State 
average yield for the 2000-2001 crop as the average yields during the 
year 1997 or the average of the best four years out of the last six 
years, whichever is greater. This calculation is similar to that used 
to compute sales history (an average of the best four years out of the 
last six years), and should average out seasonal variations in yields. 
However, if estimated commercial sales are greater than what is 
computed above, the Committee will use the commercial sales estimated 
by the grower.

[[Page 42608]]

    There is no need to limit the volume of cranberries that may be 
marketed in these noncommercial and noncompetitive outlets. Thus, this 
rule provides that handlers may dispose of excess cranberries in such 
outlets. Noncommercial outlets are charitable institutions and research 
and development projects for market development purposes. 
Noncompetitive outlets are non-human food use and foreign markets, 
except Canada.
    This rule exempts fresh and organically-grown fruit from the volume 
regulation. This exemption is provided pursuant to section 929.58 of 
the order which provides that the Committee may relieve from any or all 
requirements, cranberries in such minimum quantities as the Committee, 
with the approval of the Secretary, may prescribe.
    Fresh fruit accounts for about 4.7 percent of the total production. 
The Committee estimated that about 280,000 barrels will be sold fresh 
this year, compared to 260,000 barrels sold last season. Sales of 
organically-grown fruit are projected at only 1,000 barrels. These 
relatively small volumes of fruit do not contribute in any significant 
way to the current oversupply or inventory build-up. Therefore, there 
is no need to cover them under the volume regulation.
    The sales history re-determination procedures are being modified by 
appointing a subcommittee composed of two independent and two 
cooperative representatives and one public member to be the first level 
of review.
    Currently, section 929.125 provides an appeal procedure for growers 
with their sales history determinations. A grower may submit to the 
Committee a written argument within 30 days of receiving the 
Committee's determination for sales history, if such grower disagrees 
with the determination.
    This rule establishes an appeals subcommittee as a more efficient 
way to consider grower appeals. Although an additional level of review 
is being established, it will be more efficient for a subcommittee 
composed of 5 members to discuss and decide on appeals. Scheduling a 
meeting of the entire Committee to discuss and make determinations of 
grower appeals is more cumbersome and time consuming.
    Finally, this rule suspends the June 1 deadline for notifying 
growers and handlers of their annual allotments. This will allow for 
adequate time to complete this rulemaking proceeding, without unduly 
impacting the cranberry industry.

Alternatives Considered

1. Different Methods of Volume Regulation

    Eight months ago, the Committee established a volume regulation 
subcommittee that researched the two methods of volume regulation 
available under the order. Those two methods are a producer allotment 
program and handler withholding program. The subcommittee's primary 
mission was to determine what method of volume control would be best 
for the industry if volume regulations were recommended. After holding 
several meetings, the subcommittee concluded that a producer allotment 
is the best method available to the industry at this time.
    The withholding program has not been used since 1971. The 
provisions of the producer allotment program were amended in 1992, but 
never used. Under the withholding program, growers deliver all their 
cranberries to their respective handlers. The handler is responsible 
for setting aside restricted cranberries and ultimately disposing of 
the cranberries in authorized noncommercial and noncompetitive outlets. 
This could result in a large volume of cranberries being disposed of 
and perhaps destroyed. In addition, the withholding provisions require 
that all withheld cranberries be inspected by the Federal or Federal-
State Inspection Service, which could be costly.
    The producer allotment program allows cultural practices to be 
changed at the grower level prior to harvest. This could result in less 
fruit being produced and will not require the disposal of as many 
cranberries as with the withholding provisions. In addition, 
inspections are not required under the producer allotment method, which 
is more cost effective and simpler to administer. For these reasons, we 
conclude that the producer allotment program is the preferred method of 
volume regulation at the current time.

2. Other Alternatives Considered

    One alternative to this regulation discussed at length by the 
Committee and the industry was not regulating at all. Economic reports 
of the condition of the cranberry industry indicate that if supplies 
are not controlled, grower prices will continue to drop. It will be 
difficult for small growers as well as large ones to sustain further 
price declines. Thus, the Committee discarded this alternative. AMS 
concurs.
    Another alternative to regulation was to increase demand through 
market development activities rather than control supplies through 
regulation. A domestic promotion program is being considered by the 
Committee, in addition to the export promotion activities already 
underway. These efforts in market development and new product 
development can increase demand for cranberries and assist in 
addressing the oversupply situation. This, in conjunction with volume 
regulation, was determined to be the best course of action for the 
cranberry industry at this time. AMS concurs.

3. Calculation of Sales Histories and Varying Levels of Volume 
Regulation

    In addition, the Committee considered alternative ways to calculate 
growers' sales histories and different levels of regulation. These are 
discussed in more detail in the section of this document entitled 
``Analysis of Comments.''
    A grower's annual allotment is established by applying the 
allotment percentage to that grower's sales history. Several 
alternative methods of calculating sales histories were considered, 
primarily to mitigate the situation where newer growers (those with few 
years of sales history) would be more dramatically impacted by volume 
regulation than more established growers.
    One change recommended by the Committee increases the number of 
barrels that defines commercial acreage. This change will allow growers 
who had a small initial crop in 1999 to market their entire 2000 crop 
(since they will receive as their sales history the State average 
yield). This should assist growers in their second year of production, 
without dramatically increasing the total industry sales history.
    The Committee also considered a change proposed by USDA to allow 
every grower to use his or her best single sales year out of the last 
six years as that grower's sales history. This change would have 
increased the industry total by a substantial amount (about 20 
percent), and would have resulted in either a much higher restricted 
percentage or marketable quantity (see the following discussion of USDA 
Options 1 and 2). This alternative was rejected as not being in the 
best interest of most cranberry growers.
    The Committee ultimately recommended that growers with four years 
or less of sales history receive their highest year of sales as their 
sales history. This rule adopts this recommendation. It will result in 
a higher allotment for these growers than would be obtained by 
averaging all their available sales years. This will mitigate

[[Page 42609]]

the impact of the restricted percentage on growers with relatively new 
acreage, without increasing the marketable quantity by a significant 
amount. In the case of growers with five years of sales, the Committee 
recommended their sales history be computed using an average of the 
highest four years of sales. For growers with six or more years of 
sales history, a sales history will be computed using an average of the 
highest four of the most recent six years of sales. Growers (both new 
and established growers) having new acreage with no sales history will 
get the State average yield or estimated commercial production, 
whichever is greater. This rule also adopts these recommendations. In 
addition, based on concerns expressed during the June 6 Committee 
meeting and in comments, the Department added a provision to this 
regulation which applies to established growers with newer acreage 
having four years of sales history or less.
    The following three levels of volume regulation were also 
considered (in addition to that finally recommended by the Committee).
    Initial Committee Recommendation (15% volume control; sales 
history--6.35 million barrels; marketable quantity--5.4 million 
barrels): This alternative was rejected because it does not take into 
account the additional sales histories being granted to newer cranberry 
growers as described above.
    USDA Option 1 (29% volume control; sales history--7.6 million 
barrels; marketable quantity--5.4 million barrels): This option was 
rejected because it almost doubled the restricted percentage (from 15 
to 29 percent) recommended by the Committee and anticipated by the 
industry. As previously stated, this would require prices to rise by 40 
percent to remain revenue-neutral for growers.
    USDA Option 2 (15% volume control; sales history--7.6 million 
barrels; marketable quantity--6.46 million barrels): This option 
dramatically increases the marketable quantity above anticipated market 
demand. Thus, it would have the same impact as no volume regulation and 
is therefore rejected.

Reporting and Recordkeeping Requirements

    As with all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sectors. In addition, the Department 
has not identified any relevant Federal rules which duplicate, overlap 
or conflict with this rule.
    In compliance with Office of Management and Budget (OMB) 
regulations (5 CFR Part 1320) which implement the Paperwork Reduction 
Act of 1995 (44 U.S.C. Chapter 35), the information collection and 
recordkeeping requirements imposed by this order have been previously 
approved by OMB and assigned OMB Number 0581-0103.
    There are some reporting and recordkeeping and other compliance 
requirements under the marketing order. The reporting and recordkeeping 
burdens are necessary for compliance purposes and for developing 
statistical data for maintenance of the program. The forms require 
information which is readily available from handler records and which 
can be provided without data processing equipment or trained 
statistical staff. This rule does not change those requirements.

Opportunity for Public Participation in the Rulemaking Process

    The Committee's meetings were widely publicized throughout the 
cranberry industry and all interested persons were invited to attend 
them and participate in Committee deliberations. Like all Committee 
meetings, the March 30 and June 6 meetings were public meetings. Press 
releases were issued announcing the meetings and setting forth the 
agenda. Meeting announcements were also placed on a website 
specifically designed for the cranberry industry. All interested 
parties were invited to attend. All entities, both large and small, 
were able to express their views on these issues by attending the 
meetings or contacting their Committee representatives about their 
concerns prior to the meetings. Subsequent to the publication of the 
proposed rule on May 30, AMS mailed a copy of that rule to every 
cranberry grower and handler of record. That mailing also invited 
interested parties to attend the June 6 meeting and express their 
views. Additionally, AMS posted a summary of what transpired at that 
meeting (as well as a full transcript of the meeting) on its website 
and included it in the rulemaking record. The Committee itself is 
composed of eight members, of which seven members are growers and one 
represents the public. Also, the Committee has a number of appointed 
subcommittees to review certain issues and make recommendations. The 
Committee manager also held several meetings with growers throughout 
the production area to discuss the methods of volume regulation and the 
procedures for regulation.
    A proposed rule concerning this action was published in the Federal 
Register on May 30, 2000 (65 FR 34411). Copies of the rule were mailed 
to all known cranberry growers in the production area. Also, the rule 
was made available on the Department's website. Finally, the rule was 
made available through the Internet by the Office of the Federal 
Register. A 15-day comment period ending June 14, 2000, was provided to 
allow interested persons to respond to the proposal.

Analysis of Comments

    A total of 131 comments were filed in response to the May 30, 2000, 
proposed rule by 125 individuals (4 persons submitted 2 and one 
individual submitted 3 comments). By far, the majority of commenters 
were cranberry growers. The six major cranberry handlers also 
commented, as did the Committee, three U.S. Congressmen, the New Jersey 
Department of Agriculture, and an attorney representing two cranberry 
processors. Sixty-nine comments were opposed to a volume regulation in 
general or opposed to a specific portion of the proposal. Fifty-six 
comments favored one of the options under consideration. A number of 
comments addressed the fresh fruit exemption. Also, James M. Talent, 
Chairman of the U.S. House of Representatives' Committee on Small 
Business commented that AMS did not prepare a sufficient regulatory 
flexibility analysis in the proposed rule published on May 30, 2000.

Main Arguments Against Establishing a Volume Regulation

    Sixty-nine comments opposed establishing a volume regulation for 
the 2000-2001 crop year. Following is a discussion of the six main 
arguments against volume regulation.

1. The 15 Percent Volume Control Will Have Little or No Impact on the 
Oversupply

    Many commenters believed that a 15 percent reduction will have 
little or no impact on improving the market or reducing the large 
inventories.
    The producer allotment program is a tool available to the cranberry 
industry to use in time of need. In their consideration of this issue, 
agricultural economists who have studied the program concluded that 
volume regulation is one avenue available to the industry that can help 
stabilize prices and shorten the period of oversupply. Economists have 
addressed the Committee and indicated that grower prices will further 
plummet if some type of action is not taken to decrease the

[[Page 42610]]

oversupply. It was also reported to the Committee that if volume 
regulation is implemented, a 100,000 barrel reduction in carryover 
inventory would result in a price increase ranging from $0.49 to $0.73 
per barrel, while a 1,000,000 barrel reduction in inventories would 
result in a price increase of $4.89 to $7.26 per barrel.
    It may be true that an 85 percent allotment percentage will not 
dramatically drive up grower prices. However, the Committee has 
communicated with a vast number of growers and determined that an 
allotment percentage lower than 85 percent would not be supported for 
the first year of volume regulation. By establishing a less restrictive 
percentage this year, growers will be eased into the mechanics of the 
program operations. Also, this volume regulation could be successful in 
stopping the decline of prices. The Committee and the industry are 
aware that the surplus situation cannot be resolved in one season or by 
volume regulation alone. It is possible that volume regulation may have 
to be instituted again in future years. However, that decision would be 
made on an annual basis.
    The marketing order is only one tool the Committee has decided to 
use to assist in reducing the oversupply. The establishment of a 
domestic generic promotion program to increase the awareness and 
consumption of cranberries has also been recommended. The Committee is 
currently in the developmental stage of implementing such a program. 
The Committee is also involved in an export program using Marketing 
Access Program funds with USDA's Foreign Agricultural Service. 
Individual handlers have also taken steps to develop new products and 
expand foreign and domestic markets.

2. It Is Too Late in the Year To Establish Volume Regulation

    Some commenters believed that the regulation is being implemented 
too late for the upcoming season, and growers do not have time to 
adjust cultural practices to reduce production and associated costs.
    Many growers have been aware for months that a volume regulation 
has been under consideration by the Committee and USDA. The Committee 
has been discussing the implementation of volume regulations for this 
season for more than eight months. In addition, all Committee meetings, 
including the March 30 and June 6, 2000, meetings were public meetings, 
widely publicized throughout the industry. All interested parties were 
encouraged to attend. The Committee manager also held several meetings 
with growers throughout the production area to discuss the possible 
implementation of volume regulation for the 2000 crop.
    In anticipation of a volume regulation, many growers have been 
taking steps to prepare for a 15 percent crop reduction. Information 
received by USDA indicates that there are still steps growers can take 
to minimize production costs. Some examples are that bogs can be 
flooded, and chemical applications and bee pollination can be 
curtailed. Also, as previously discussed, handler costs associated with 
the storage of excess inventories (which are ultimately passed on to 
growers) would be reduced.
    We agree that it would have been preferable for this rule to be 
recommended and implemented at an earlier date to provide more time for 
growers to prepare for a volume regulation. However, this did not 
happen for several reasons. The last time volume control was imposed 
under the order was approximately 30 years ago. Difficulties were 
encountered in arriving at the most fair method of calculating grower 
sales histories in order to achieve (within the order's current 
parameters) an equitable apportionment of allotments among producers. 
And finally, although the Committee recommended volume control and, 
along with USDA, proposed regulations to implement such control, the 
industry is not unified in its support of the proposals. Nevertheless, 
there is overall agreement that volume controls need to be implemented, 
and USDA concludes that the implementation of volume control as set 
forth in this regulation is an important step to take in addressing the 
oversupply situation and resultant low grower returns.

3. The Proposed Calculation of Sales Histories Does Not Treat Growers 
Equitably

    Many comments expressed concerns about the determination of sales 
histories, particularly that growers with four years or less of sales 
histories would be more dramatically impacted than others. The 
commenters stated that the reduction for these growers could exceed 15 
percent by a substantial amount. Some suggested that these growers 
receive the State average yield as their sales history, similar to the 
method used to provide sales histories for growers with new acreage.
    The Committee and the Department have been working for many months 
now to develop a way to calculate sales histories which would result in 
the most equitable allocation of allotment among growers in the 
cranberry industry as it exists today. The primary concern has been 
with growers with four years or less of sales history. In response to 
this concern, USDA's proposed recalculation of sales histories which 
modified the Committee's initial recommendation was intended to 
mitigate some of the perceived inequities that could arise. In its 
second recommendation, the Committee further recommended that the 
formula be changed so that growers with four years or less of sales be 
given their highest year of sales as their sales history. Growers with 
five years of sales or more would still have their sales history 
calculated by averaging the highest four years of sales during the most 
recent five or six years of sales, whichever is applicable.
    This Committee recommendation is expected to help some growers with 
newly planted acreage. Instead of using an average of all years' sales, 
which could be lower on newer acreage, these growers can use their best 
year as their sales history. Most likely, with newer acreage, the last 
year of production will be the best year and will raise such growers' 
sales histories (over the current method of averaging all available 
years of sales).
    Another concern was that the Committee's recommendation is not 
equitable for more established growers who have put in new acreage. Any 
grower who reports to the Committee that he or she has new acreage 
coming into production for the first time receives the State average 
yield as the sales history for that acreage. In that case, the 
established grower is treated in the same manner as a brand new grower. 
Once the new acreage starts producing cranberries, the grower reports 
to the Committee sales off all acres combined. Information reported to 
the Committee does not segregate sales by the age of the acreage. The 
combined sales are thus used in calculating the more established 
growers' sales histories (using an average of the best four years out 
of five or six). Since the sales are not separated, the Committee did 
not recommend making an adjustment for acreage belonging to an 
established grower that has been producing for four years or less. 
Nevertheless, based on concerns and comments expressed during this 
rulemaking proceeding, USDA has decided to allow such an adjustment if 
growers can produce credible records which would allow the Committee to 
segregate the newer acreage.
    The Committee and USDA have worked diligently to ensure that all 
growers would receive a sales history that accurately represents each 
grower's

[[Page 42611]]

capability to produce on such acreage while still being an effective 
regulation. The various recommendations, although not perfect, were 
intended to achieve the most fair method of computing sales histories, 
which would result in allotments being equitably apportioned among 
producers.
    The allotment calculation in this rule is based on prior years' 
histories. There are no barriers to entry into the cranberry growing or 
handling business under the marketing order nor should there be any. In 
the early 1990's, the order was amended to change the producer 
allotment program from the base quantity to the sales history method. 
The program amendments were put in place after a public hearing and 
grower and processor vote. However, this is the first time the sales 
history program has actually been implemented. The Committee and USDA 
have discovered some areas of the order provisions that could to be 
improved for future seasons. The Committee is currently considering 
needed order amendments, which would likely be necessary to make any 
substantive changes in the sales history provisions of the order.

4. Only Two Handlers Are Responsible for the Surplus

    Many growers commented that their handlers are not responsible for 
the surplus, since two of the largest handlers maintain the largest 
inventories.
    Review of this available information shows that the volume of 
inventories of these two handlers is directly proportional to the 
volume of cranberries handled. In addition, the increased plantings 
over the last few years, which have contributed to the surplus, was 
industry-wide. Regardless, the cranberry surplus is an industry 
problem, since large inventories depress overall grower prices. The 
marketing order's volume regulation features are designed to help all 
growers in the industry by stabilizing grower returns.

5. Handlers With No Inventories May Have To Purchase Cranberries From 
Their Competitors To Fill Orders

    Some handler commenters said that with a restriction in place, they 
would have to purchase cranberries from their competitors to supply 
their customers since they do not have inventories like other handlers. 
Purchases among handlers is a standard practice in the cranberry 
business. With the surplus, there should be an abundance of fruit 
available for sale at a reasonable rate in the event handlers need 
additional product. In addition, one such commenter stated that they 
routinely purchase a large percentage (20-30%) of their cranberries 
from other handlers rather than directly from growers. The purpose of 
the volume regulation is to benefit the grower by stabilizing the 
marketplace. If handlers must purchase cranberries from other handlers, 
and inventories are reduced, the volume regulation is working. In 
addition, if a handler has excess cranberries, any unused allotment 
forfeited to the Committee will be equitably distributed among the 
remaining handlers.

6. The Regulation Will Encourage Plantings and Exports From Canada

    Some commenters were concerned that Canada's cranberry industry 
could have a dampening effect on any volume regulation implemented in 
the United States. The marketing order regulates domestic cranberry 
handlers. Although any volume regulation implemented cannot extend to 
Canada, the British Columbia Cranberry Committee has voted to reduce 
their 2000 crop by 15 percent if volume regulations are implemented in 
the United States.
    The Committee reported 1999 Canadian fruit production at 634,000 
barrels of cranberries. A substantial portion of the Canadian fruit is 
grown in British Columbia. If volume regulation is instituted in 
Canada, growers will not be encouraged to plant new vines. Also, with 
the current U.S. surplus of cranberries, there are ample domestic 
supplies of fruit, which, along with current low grower prices, should 
discourage the importation of foreign fruit.

Discussion of Alternative Levels of Volume Regulation

    Fifty-six of the comments supported volume regulation in general, 
many of those favoring one of the options under consideration over the 
others. Some of those who opposed volume regulation indicated which 
option they preferred if USDA does implement a regulation.
    Initial Committee Recommendation (15% volume control; sales 
history--6.35 million barrels; marketable quantity--5.4 million 
barrels): Few comments were received in support of this option. Those 
in support commented that this was the most equitable option and the 
Committee's original recommendation should be adhered to. One commenter 
favored the initial Committee recommendation because he believed that 
the two alternatives offered by USDA favored certain growers over 
others. The calculation of sales histories using the average of the 
best four out of six years was favored by these commenters.
    USDA Option 1 (29% volume control; sales history--7.6 million 
barrels; marketable quantity--5.4 million barrels): Some commenters who 
discussed this option were against volume regulation but believed this 
would be the best if volume regulation were implemented. This option 
would have established a restricted percentage of 29 percent. Those 
supporting this option believed that a 15 percent reduction does not go 
far enough and will not have an impact on the surplus. One commenter 
stated that the volume regulation should be restrictive enough to make 
a difference. Some commenters believed that a 29 percent reduction is 
necessary if the oversupply situation is to be seriously addressed. One 
commenter stated that this is the best opportunity to return market 
prices to a level that will allow growers to break even this year, 
after heavy losses in 1998. This commenter further stated that this 
regulation will not raise consumer prices but will allow the industry 
to avoid incurring costs of delivering, cleaning, freezing, and storing 
cranberries only to have them be sold at a loss. Others commented that 
allowing all growers to use the best single sales year out of the last 
6 years as a sales history was preferable to using an average.
    Those opposed to USDA Option 1 stated that it would cause hardships 
for growers. Most of those commented on the negative impact a volume 
reduction exceeding 15 percent would have on many growers. One 
commenter stated that growers will be unduly disadvantaged by a 71 
percent producer allotment because many growers have already incurred 
production costs at levels designed to target a reduction of 15 percent 
of the average of the best 4 out of 6 years. This commenter further 
stated that growers who have produced consistent crops for six years 
would see their volume reduction double. According to this commenter, 
this option overinflates sales histories to 7.6 million barrels, which 
would cause a doubling of the restriction in order to maintain a 
reasonable marketable quantity. Using the best year of 6 will alter the 
sales histories of virtually all growers.
    Many commenters did not support using the best year of the last 6 
to calculate sales histories for all growers (except those with new 
acreage) because it rewards growers who have contributed most to the 
current oversupply. Some felt this method of calculating sales 
histories was too advantageous for newer growers, and those who have 
expanded their acreage in recent years.

[[Page 42612]]

    USDA Option 2 (15% volume control; sales history--7.6 million 
barrels; marketable quantity--6.46 million barrels): Comments in 
support of this option believed that it was the most equitable of all 
options. Some commented, however, that it still did not go far enough 
on how newer growers will be allocated allotment. One comment in 
support of the option stated handlers should not be allowed to transfer 
unused allotments to other growers.
    One supporter believed that unlike the Committee option, this was a 
good faith attempt to determine grower sales histories in an equitable 
fashion. This supporter further stated this option will have a similar 
impact on the entire industry, whereby most growers' actual crop 
reduction will be closer to 15 percent. This commenter added that 
because it does not result in significant differences in allotments, it 
better complies with the Act regarding equitable apportionment of 
allotments.
    Those opposed to this option were generally opposed to both USDA 
options as they relate to the calculation of sales histories. As with 
USDA option 1, some commenters believed the method of calculating sales 
histories under this option was too advantageous for newer growers. One 
commenter believed that raising the marketable quantity to 6.35 million 
barrels (USDA Option 1) was unrealistic and, therefore, the volume 
regulation would have no effect on reducing supply.
    Revised Committee Recommendation (CMC2) (15% volume control; sales 
history--6.432 million barrels; marketable quantity--5.468 million 
barrels): Comments submitted on CMC2 (following the June 6 public 
hearing) in support of this option believed that this was the best 
option to bring market stability and reduce costs. While it would not 
have an equal impact on each individual grower, it would help the 
industry overall. Some stated that a 15% restriction will not eliminate 
the surplus, but believed that it will allow handlers to begin the 
process of balancing supply and demand. Many commented that the 
marketable quantity should be near 5.4 million barrels to be effective. 
Some were supportive of any proposal that limits the marketable 
quantity to approximately 5.4 million barrels, and believed calculating 
sales histories for established growers using the best 4 years out of 6 
was the best method. Some supported CMC2 even though USDA option 1 
would have a greater impact on reducing the surplus. They believed CMC2 
would be best for the long-term interests of the industry.
    One commenter stated that he could deliver 3000 more barrels under 
USDA option 2, but still supported CMC2 as being best for the industry 
overall.
    Those opposed to CMC2 stated that this option is grossly 
inequitable. One commenter stated that under both Committee 
recommendations, some growers would see a small reduction but others 
would be forced to dump up to 50 percent of this year's crop. This 
commenter stated that the Committee presented CMC2 as a compromise, but 
it is not. The commenter stated that this option does nothing to remedy 
the inequities of the first Committee recommendation, and only creates 
additional inequities. This commenter further stated that this option 
would reward growers growing for 4 years or less and punish established 
growers that have added new acreage.
    Conclusions: Since the Committee's meeting on March 30, 2000, the 
Department received additional information from cranberry growers and 
handlers pertaining to the way in which sales histories are computed. 
Of primary concern were the potential inequities that could result from 
the Committee's initial recommendation. Specifically, some were 
concerned about growers with four years or less of sales histories on 
some or all of their acreage. The Department suggested two alternative 
levels of volume regulation in an attempt to address those concerns, 
with the expectation that the Committee would meet and discuss all 
options and recommend any needed revisions prior to finalization of the 
rule. The Department looked for flexibility in the marketing order that 
would assist this segment of the industry while still providing for an 
effective volume regulation.
    The Department's options changed the way in which nearly all 
growers would calculate their sales histories. Under USDA Option 1, the 
sales histories would have increased to 7.6 million barrels (as opposed 
to the Committee's established sales histories of 6.35 million 
barrels). Using the Committee's recommended marketable quantity of 5.4 
million barrels resulted in an allotment percentage of 71 percent. USDA 
Option 2 increased the marketable quantity to 6.46 million barrels (as 
opposed to the Committee's established marketable quantity of 5.4 
million barrels) to stay within the Committee's original recommendation 
to establish an allotment percentage no lower than 85 percent. The 
Department recognized that the proposed rule provided a wide range of 
possible methods of implementing volume regulation for the industry to 
consider.
    At the June 6 meeting and in written comments, it was expressed 
that both USDA options dramatically inflate the sales histories and 
USDA option 2 further provides an unrealistic marketable quantity. To 
demonstrate the unrealistic marketable quantity in USDA option 2, a 
commenter stated that the marketable quantity established in CMC2 
(5.468 million barrels) represents a 10 percent increase in demand in 
one year. The largest increase in annual demand in recent years has 
been only about 5 percent. Further, the 6.46 million barrel marketable 
quantity in USDA option 2 exceeds anticipated production by over a half 
a million barrels. USDA Option 2 would, therefore, result in no 
reduction of available supplies. It would thus be an ineffective 
regulation and would provide no benefits to cranberry growers. We 
therefore concur with the Committee and comments received that USDA 
Option 2 should not be implemented.
    Also, based on Committee meetings and comments received, we agree 
that USDA Option 1, which would establish an allotment percentage of 71 
percent, would not be prudent at this time. For months, many growers 
have anticipated a volume regulation and believed it would not entail a 
reduction of more than 15 percent. Many growers altered their cultural 
practices accordingly. Establishing a reduction of more than 15 percent 
so close to the beginning of the season would cause too many hardships 
on too many growers. Although an 85 percent allotment percentage would 
have a lesser impact on supplies and prices than a 71 percent allotment 
percentage, we conclude that doubling the restriction from what was 
anticipated would be too costly to growers.
    Both USDA options changed the way sales histories are calculated by 
allowing virtually all growers to use the best year of production. The 
primary concern of the Committee and industry was the method of 
establishing sales histories for growers with new acreage. We agree 
with the Committee that this method would overinflate total industry 
sales histories. The calculation for more established growers (using 
the average of the best four out of six years) has been in effect for 
many years and provides a reasonable and accurate sales history for 
these growers.
    Additionally, the Committee is continuing its work on amending the 
order to address some of the problems it has encountered while 
considering volume regulation for the 2000-2001 crop year.

[[Page 42613]]

    For these reasons, the Department has concluded that implementing 
CMC2, the Committee's recommendation of June 6, 2000, is the best 
course of action. It provides the most equitable means of allocating 
producer allotments available at this time, and should provide benefits 
to growers in excess of its costs. The only change the Department is 
making is allowing established growers who also have newer acreage with 
four years of sales history or less to receive the highest sales season 
on that acreage. Because this change will cause an increase in the 
marketable quantity if established growers can segregate production 
from their newer acreage, a change has also been made in Sec. 929.250 
of the regulations to reflect this adjustment.

Fresh and Organic Fruit Exemption

    Fresh and organically-grown fruit are exempt from the volume 
regulation pursuant to Sec. 929.58 of the order which provides that the 
Committee may relieve from any or all requirements cranberries in such 
minimum quantities as the Committee, with the approval of the 
Secretary, may prescribe.
    Many comments were received regarding the fresh and organic 
cranberry exemption. Twenty-seven comments were against the exemption, 
primarily the fresh fruit exemption. Those in opposition were generally 
concerned that fresh fruit handlers are being given an unfair advantage 
as they will be in a position to make unused allotments from fresh 
growers available to their processed growers and virtually market all 
of their cranberries. Some commented that much of the fresh fruit 
excess would end up in the processed markets. In addition, some 
commented that the fresh market would be oversupplied with fresh 
cranberries and the quality would suffer, as well.
    Five of the 27 who oppose the exemption commented that if the fresh 
fruit exemption is part of the regulation, any unused allotment 
realized from fresh fruit acreage should be forfeited in the same 
manner as with new growers who use the State average yield as their 
sales history and forfeit unused allotment.
    Twelve comments supported the exemptions. In most cases, the 
commenters supported a specific option or volume regulation in general, 
including the fresh and organic exemption. One comment was against any 
volume regulation, but stated that if one is implemented, the fresh 
exemption should be a part of it.
    The supporting commenters expressed that fresh and organic 
cranberries are small, but important segments of the overall cranberry 
market, and do not contribute to the oversupply situation. Because 
there is adequate demand for these products, one commenter stated that 
it does not make sense to restrict the volume of fresh cranberries that 
can be sold profitably. Another commenter stated that fresh fruit 
production requires special cultural practices that need to be 
implemented over the course of several growing seasons to transition 
the cranberry vines from processed fruit production to fresh fruit 
production. For this reason, it is unlikely that growers who normally 
produce cranberries for the processed market will become fresh growers 
during the 2000-2001 crop year. In addition, this commenter expressed 
that it would be unlikely for growers to market their excess fruit as 
fresh product for logistical reasons.
    The Department supports the fresh and organic exemption. As stated 
previously, fresh fruit accounts for about 4.7 percent of the total 
production. Organically-grown cranberries comprise an even smaller 
portion of the total crop than fresh cranberries, about 1,000 barrels.
    Under current marketing practices, there is a distinction between 
cranberries for fresh market and those for processing markets. 
Cranberries intended for fresh fruit outlets are grown and harvested 
differently. Most fresh cranberries are dry picked while cranberries 
used for processing are water picked. When cranberries are water 
picked, the bog is flooded and the cranberries that rise to the top are 
harvested. During this proceeding, it was noted that in the State of 
Wisconsin, cranberries for fresh market are water picked much like 
cranberries for processing. Additional information revealed that 
although cranberries intended for fresh market can be water picked, the 
resulting yields are more similar to the labor intensive dry picked 
cranberries, than to cranberries that are water picked for processing. 
This is partially attributable to the fact that only the highest 
quality fruit is earmarked for the fresh market.
    Regarding the comments that many growers will become ``fresh 
growers'' and flood the market with fresh fruit, information received 
does not support that this will happen. Industry members advised that 
it takes many years to cultivate an acceptable ``fresh'' product. 
Handlers would not likely buy fresh cranberries from a first year fresh 
grower, as it would be expected the quality would not be acceptable. 
For these reasons, it would not be practical or economically feasible 
to convert from a processed grower to a fresh grower this season.
    Regarding the comments that fresh cranberries will be diverted into 
processing outlets, safeguards are established under the program to 
protect against this. The exemption for both fresh and organic 
cranberries applies to cranberries packed in consumer packaging, such 
as cellophane bags for supermarkets. Any sorted-out cranberries 
converted to processing will count against that grower's allotment.
    The Committee has deliberated for over eight months to arrive at a 
volume regulation recommendation that addresses the oversupply 
situation and is acceptable to most of the industry. The Committee 
recognizes that some improvements could be made in the way volume 
regulations are implemented, but it is impossible to make many more 
changes in time for the 2000-2001 crop year.
    One idea that has been discussed, for example, is to amend the 
marketing order to provide that fresh and organic sales be segregated 
from processed sales, and allotment only be earned on the processed 
sales. The suggestion that fresh and organic cranberry growers forfeit 
any unused allotment is also an idea that could be considered in the 
future. The formal rulemaking process, which involves a hearing and 
grower referendum, usually takes 12 to 18 months to complete.
    If the fresh or organic markets show significant growth in the 
coming years, and surplus becomes an issue, different measures can be 
taken at that time to include them in any volume regulation.
    The Department supports the decision to exempt fresh and 
organically-grown cranberries from volume regulation this year. It is 
concluded that fresh and organic supplies do not contribute 
significantly to the current cranberry surplus, and that such 
cranberries should therefore be exempt from the allotment percentage 
this rule imposes.

Initial Regulatory Flexibility Analysis

    James M. Talent, Chairman of the U.S. House of Representatives' 
Committee on Small Business commented that the proposed rule issued by 
AMS apparently did not comply with the Regulatory Flexibility Act. 
Specifically, he commented that our Initial Regulatory Flexibility 
Analysis did not find that the proposed rule would have a significant 
economic impact on small entities. Our initial analysis did conclude 
that cranberry growers and handlers (both large and small) would 
benefit from the establishment of volume regulation during the upcoming 
season. The Final Regulatory Flexibility

[[Page 42614]]

Analysis contained in this document provides further analysis to 
support this conclusion. Also, this document analyzes the impact of the 
various alternative levels of regulation offered in the proposed rule.
    Congressman Talent also stated that AMS eliminated opportunity for 
public comment on the Committee's revised recommendation for volume 
regulation (CMC2) that it made on June 6, 2000. Subsequent to the 
publication of the proposed rule on May 30, AMS mailed a copy of that 
rule to every cranberry grower and handler of record. That mailing also 
invited interested parties to attend the June 6 meeting and express 
their views. Additionally, AMS posted a summary of what transpired at 
that meeting (as well as a full transcript of the meeting) on its 
website and included it in the rulemaking record. Many of those who 
filed comments in response to the proposed rule specifically addressed 
the second Committee recommendation. More importantly, CMC2 falls 
within the scope of options contained in the proposed rule. The 
marketable quantity is slightly higher than in two of those options, 
and lower than in a third. The 85 percent allotment percentage 
established by this rule is the same as that contained in two of the 
three published options. The change in the way sales histories are 
computed is also within the scope of options proposed.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at the 
following website: 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 Committee 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.
    It is further found that good cause exists for not postponing the 
effective date of this rule until 30 days after publication in the 
Federal Register (5 U.S.C. 553). The crop year begins on September 1, 
2000. This rule should be effective prior to the beginning of the crop 
year so that the Committee can initiate its appeals procedures well in 
advance of the start of the volume regulation. Also, growers need time 
to adjust their cultural practices in preparation for the volume 
regulation. Further, handlers and growers are aware of this rule, which 
was recommended and modified based on public meetings. Also, a 15-day 
comment period was provided for in the proposed rule.

List of Subjects in 7 CFR Part 929

    Cranberries, Marketing agreements, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, 7 CFR Part 929 is 
amended as follows:

PART 929--CRANBERRIES GROWN IN THE STATES OF MASSACHUSETTS, RHODE 
ISLAND, CONNECTICUT, NEW JERSEY, WISCONSIN, MICHIGAN, MINNESOTA, 
OREGON, WASHINGTON, AND LONG ISLAND IN THE STATE OF NEW YORK

    1. The authority citation for 7 CFR Part 929 continues to read as 
follows:

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

    2. In paragraph (d) of Sec. 929.49, the phrase ``On or before June 
1'' is suspended.

    3. In paragraph (e) of Sec. 929.49, the phrase ``On or before June 
1 of any year in which an allotment percentage is established by the 
Secretary'' is suspended.

    4. Section 929.104 is revised to read as follows:


Sec. 929.104  Outlets for excess cranberries.

    (a) In accordance with Sec. 929.61, excess cranberries may be 
disposed of only in the following noncommercial or noncompetitive 
outlets, but only if the requirements in paragraph (b) of this section 
are complied with:
    (1) Foreign countries, except Canada.
    (2) Charitable institutions.
    (3) Any nonhuman food use.
    (4) Research and development projects dealing with dehydration, 
radiation, freeze drying, or freezing of cranberries, for the 
development of foreign markets.
    (b) Excess cranberries may not be converted into canned, frozen, or 
dehydrated cranberries or other cranberry products by any commercial 
process. Handlers may divert excess cranberries in the outlets listed 
in paragraph (a) of this section only if they meet the diversion 
requirements specified in Sec. 929.61(c).

    5. In Sec. 929.107, paragraphs (a) and (c) are amended by replacing 
the number ``15'' with the number ``50''.


Sec. 929.109  [Removed]

    6. Section 929.109 is removed.

    7. Section 929.125 is revised to read as follows:


Sec. 929.125  Committee review procedures.

    Growers may request, and the Committee may grant, a review of 
determinations made by the Committee pursuant to Secs. 929.48 and 
929.149, in accordance with the following procedures:
    (a) If a grower is dissatisfied with a determination made by the 
Committee which affects such grower, the grower may submit to the 
Committee within 30 days after receipt of the Committee's determination 
of sales history, a request for a review by an appeals subcommittee 
composed of two independent and two cooperative representatives, as 
well as a public member. Such appeals subcommittee shall be appointed 
by the Chairman of the Committee. Such grower may forward with the 
request any pertinent material for consideration of such grower's 
appeal.
    (b) The subcommittee shall review the information submitted by the 
grower and render a decision within 30 days of receipt of such appeal. 
The subcommittee shall notify the grower of its decision, accompanied 
by the reasons for its conclusions and findings.
    (c) If the grower is not satisfied with the subcommittee's 
decision, the grower may further appeal to the full Committee. The 
grower must submit its written argument to the Committee along with any 
pertinent information for the Committee's review within 15 days after 
notification of the subcommittee's decision. The Committee shall 
respond within 15 days of the receipt of the grower's appeal. The 
Committee shall inform the grower of its decision, accompanied by the 
reasons for its decision.
    (d) The grower may further appeal to the Secretary, within 15 days 
after notification of the Committee's findings, if such grower is not 
satisfied with the Committee's decision. The Committee shall forward a 
file with all pertinent information related to the grower's appeal. The 
Secretary shall inform the grower and all interested parties of the 
Secretary's decision. All decisions by the Secretary are final.

    8. A new Sec. 929.148 is added to read as follows:


Sec. 929.148  State average yield.

    The State average yield pursuant to section 929.48(a)(5)(ii) is 
defined as the yield per State for the year 1997 or the best four years 
out of the last six years whichever is greater. However, if the 
estimated commercial sales are greater than the volume computed by this 
method, the Committee will use the grower's estimated commercial sales.

[[Page 42615]]


    9. A new Sec. 929.149 is added to read as follows:


Sec. 929.149  Determination of sales history

    A sales history for each grower shall be computed by the Committee. 
For growers with five years of sales history, a sales history shall be 
computed using an average of the highest 4 years of sales. For growers 
with six or more years of sales history, a sales history shall be 
computed using an average of the highest four of the most recent six 
years of sales. If these growers also have newer acreage with four 
years of sales history or less, and such growers can provide the 
Committee with credible information which would allow the Committee to 
segregate the sales history of the newer acreage, then that acreage 
shall be treated in the same manner as acreage of a grower with four 
years or less of sales history. For a grower with four years or less of 
sales history, the sales history shall be computed using the highest 
sales season. Sales history for new acreage with no history of sales 
(for both new and existing growers) shall be computed according to 
Sec. 929.48 of the order.


Sec. 929.151  [Removed]

    10. Section 929.151 is removed.

    11. A new Sec. 929.158 is added to read as follows:


Sec. 929.158  Exemptions.

    Sales of organic and fresh cranberries shall be exempt from volume 
regulation provisions. Handlers shall qualify for such exemption by 
filing the amount of fresh or organic cranberry sales on the grower 
acquisition listing form. In order to receive an exemption for organic 
cranberry sales, such cranberries must be certified as such by a third 
party organic certifying organization acceptable to the Committee.

    12. A new Sec. 929.250 is added to read as follows:


Sec. 929.250  Marketable quantity and allotment percentage for the 
2000-2001 crop year.

    The marketable quantity for the 2000-2001 crop year is set at 5.468 
million barrels and the allotment percentage is designated at 85 
percent. The marketable quantity may be adjusted to retain the 85 
percent allotment percentage if the total industry sales history 
increases due to established growers receiving additional sales history 
on acreage with four years sales or less.

    Dated: July 3, 2000.
Robert C. Keeney,
Deputy Administrator, Fruit and Vegetable Programs.
[FR Doc. 00-17289 Filed 7-5-00; 4:00 pm]
BILLING CODE 3410-02-P