[Federal Register Volume 65, Number 164 (Wednesday, August 23, 2000)]
[Notices]
[Pages 51280-51283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21490]


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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

RIN 0560-AG27


Sugar Payment-In-Kind (PIK) Diversion Program

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Notice of program implementation.

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SUMMARY: This notice implements section 1009(e) of the Food Security 
Act of 1985 with respect to existing Commodity Credit Corporation (CCC) 
inventories of sugar. Based on the combination of market prices below 
forfeiture levels, forfeitures expected this year, a greater excess 
supply outlook for the next crop, CCC holding sugar inventory with no 
other specific disposal plan, and U.S. sugar producers' growing 
realization of the major market problems facing the sugar sector, CCC 
is implementing a Sugar Payment-In-Kind (PIK) Diversion Program to help 
reduce the amount of forfeitures otherwise expected, and eliminate 
CCC's sugar inventory, thereby also eliminating storage costs.

EFFECTIVE DATE: This notice becomes effective on August 18, 2000.

FOR FURTHER INFORMATION CONTACT: Daniel Colacicco, Group Leader, Dairy 
and Sweetener Analysis, Farm Service Agency, USDA, STOP 516, 1400 
Independence Avenue, SW, Washington, DC 20250-0516.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This program has been determined to be significant under Executive 
Order 12866 and has been reviewed by the Office of Management and 
Budget (OMB). A cost-benefit assessment was completed and is summarized 
in this notice.

Federal Assistance Programs

    The titles and numbers of the Federal assistance programs, as found 
in the Catalog of Federal Domestic Assistance, to which this notice 
applies are: Commodity Loan and Loan Deficiency Payments--10.051.

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this notice because USDA is not required by 5 U.S.C. 553 
or any other provision of law to publish a notice of proposed 
rulemaking with respect to the subject matter of this notice.

Environmental Evaluation

    It has been determined by an environmental evaluation that this 
action will have no significant impact on the quality of the human 
environment. Therefore, neither an environmental assessment nor an 
Environmental Impact Statement is needed.

Executive Order 12372

    The program set forth in this notice is not subject to the 
provisions of Executive Order 12372, which require intergovernmental 
consultation with State and local officials. See the notice related to 
7 CFR part 3015, subpart V, published at 48 FR 29115 (June 24, 1983).

Unfunded Mandates

    The provisions of Title II of the Unfunded Mandates Reform Act of 
1995

[[Page 51281]]

are not applicable to this notice because the USDA is not required by 5 
U.S.C. 553 or any other provision of law to publish a notice of 
proposed rulemaking with respect to the subject matter of this notice 
and because this notice does not impose any unfunded mandates.

Small Business Regulatory Enforcement Act of 1996

    Provisions of 5 U.S.C. 808 (the Small Business Regulatory 
Enforcement Act (SBREFA)) provide that a rule may take effect at such 
time as the agency may determine if the agency finds for good cause 
that public notice is impracticable, unnecessary, or contrary to the 
public purpose. Upon such a finding, the statute provides the agency 
action does not have to meet the requirements of section 801 of SBREFA, 
which requires a 60-day delay for Congressional review of a major 
regulation before the regulation can go into effect. This notice is 
considered to involve an action which would be considered major for the 
purposes of SBREFA. However, because this notice involves a cost-
savings measure which would be lost with the passage of time, delay 
would be contrary to the public interest. Hence, this notice is made 
effective immediately on August 18, 2000.

Authority for a Sugar PIK Diversion Program

    Authority for CCC to conduct a Sugar PIK Diversion Program is based 
on section 1009(e) of the Food Security Act of 1985 (``1985 Act''), 
which provides that when a loan program is in effect, the Secretary 
may, at any time before harvest, accept bids from producers to convert 
planted acreage to diverted acreage in return for payment in kind from 
CCC surplus stocks of the commodity to which the acreage was planted, 
i.e., offer a paid land diversion program. Subsection (e) also states 
that no producer may receive over $20,000 worth of in-kind payments. 
Such action can be taken only if there has been: (1) Changes in 
domestic or world supply for demand conditions have occurred after the 
announcement of the loan program for the crop and (2) without further 
action, the Government and producers will be faced with a burdensome 
and costly surplus. Overall, the measures addressed in section 1009(e) 
and other subsections can be taken under the terms of the statute only 
if they would reduce direct and indirect costs to the Government 
without adversely affecting the income of participating small and 
medium-size producers.

Supply-Demand Situation

    The 1999-crop stocks-to-use ratio is projected to reach 18.4 
percent--up 2.4 percentage points from the 1998-crop level. Refined 
beet sugar prices (Midwest) are in the 19 to 20-cent-per-pound range--4 
cents below forfeiture levels. For raw cane sugar, the September 
contract has recently been trading between 17 and 18 cents per pound. 
The 2000-crop production forecast is 8.973 million tons--slightly below 
the previous production record of 9.035 million tons that was set last 
year.

CCC Sugar Purchase and Inventory

    In response to the current depressed domestic sugar market on May 
11, 2000, it was announced that CCC would buy U.S. sugar to reduce the 
cost of expected loan forfeitures, support sugar growers, and boost 
market prices. The purchase authority is based on section 1009(c) of 
the 1985 Act. On May 26, 2000, CCC issued a purchase invitation to buy 
approximately 150,000 tons of sugar. On June 6, 2000, CCC announced 
that it had purchased 132,000 tons of refined sugar at an average price 
of 20.5 cents per pound. Beginning with September 2000, CCC will begin 
incurring storage charges of $0.10 per hundredweight per month on this 
purchased sugar, i.e., $264,000 per month. On August 1, 2000, 42,000 
additional tons of refined beet sugar loan collateral were forfeited to 
CCC, with an associated storage cost of $84,000 per month.

Basis for Implementing a Sugar PIK Diversion Program

    Based on the combination of: (1) Market prices well below 
forfeiture levels, (2) forfeitures expected this year, (3) a greater 
excess supply outlook for the next crop, and (4) CCC holding sugar 
inventory with no other specific disposal plan, CCC is implementing a 
Sugar PIK Diversion Program to reduce Government costs by helping to 
reduce the amount of forfeitures otherwise expected, and eliminate much 
of CCC's sugar inventory, thereby also eliminating Government storage 
costs.

Outline of How the Sugar PIK Diversion Program Will Work

    Under the Sugar PIK Diversion Program, producers must agree not to 
harvest sugar beets for commercial use in return for sugar from CCC's 
existing inventory. Producers submit bids indicating the dollar value 
of CCC sugar that they are willing to accept to divert acres, in an 
amount specified by the producers, from production. The Program will be 
limited to sugar beet producers because of the marketing complexities 
that would arise with such a program for the cane sector.
    Sugar beet producers wanting to participate will be required to 
provide data on (1) the number of acres that the producer will divert, 
(2) the dollar equivalent of the number of pounds of sugar wanted as 
payment, and (3) the producer's previous 3-year simple average per acre 
production of sugar, which will require data from the grower's beet 
processor. Some of this information will be used to determine the value 
to CCC of the diversion.
    Selection of participants will be based on the objective of getting 
the most sugar production diverted in return for the least amount of 
CCC inventory. To do this, CCC will rank the bids and not accept any 
bids that, in effect, request more sugar in payment for diverting 
acreage than would be expected to be produced from the diverted 
acreage. To facilitate the effort to obtain attractive bids, a bid cap 
will be established, in advance, based upon the submitted data and the 
production expectations. The bid cap will equal the dollar value of 
refined beet sugar historically produced by that acreage. To assure 
that a real reduction is obtained, the sugar removed from production 
must be under contract to a processor. Returns under the program will 
likely have to be enough to allow the producer to obtain a contract 
waiver from the processor who could then take an assignment of the 
sugar to be obtained from CCC.

Impact on Production

    As of August 1, 2000, CCC owns 174,000 tons of refined sugar in 
inventory (186,180 tons, raw value). This amount is equivalent to 3.94 
percent of the 2000-crop refined beet sugar production forecast, 4.28 
percent of the raw cane sugar production forecast, and 2.05 percent of 
the total sugar production forecast. Removing 186,180 tons, raw value, 
from next year's supply would have only a slight effect on the expected 
excess supply situation. The stocks-to-use ratio may still be around 
18.6 percent--near the current 1999-crop level of 18.4 percent.
    Using the 186,180 tons, raw value, as a basis for analysis, the 
actual impact of a Sugar PIK Diversion Program for this amount of CCC 
inventory may be slightly higher than this quantity. For example, using 
the 2000-crop national average yield forecast, 2.9 tons of refined 
sugar are produced from 1 acre of sugar beets. The beets on diverted 
acreage will simply be left unharvested, disked under, or, in any case, 
may not be harvested for commercial use. Thus, a participating producer 
will forgo all, or most, of the harvest costs on each of

[[Page 51282]]

these acres--around $100 per acre. Bidders will likely concentrate on 
these forgone harvest costs in determining their competitive bid 
strategy. Using the current 19-cent estimate of Midwest refined sugar 
prices as a proxy value of the sugar, the $100 per acre forgone harvest 
cost would be the equivalent of around 526 pounds of refined sugar. If 
producers would try to retain only half that amount in their bids in 
order to gain acceptance into the program, they would give up around 
260 pounds worth of normal production per acre, i.e., the equivalent of 
reducing their per acre yield from 2.9 tons per acre to about 2.8 tons 
per acre. Thus, the 174,000 tons of CCC refined sugar inventory could 
result in the equivalent of a 180,215-ton decrease in refined beet 
sugar production (192,030 tons, raw value). This is equivalent to a 
62,143-acre decrease in production--4 percent of 1999-crop sugar beet 
plantings.
    Factory throughput will be affected. Also, diverting acres from 
production will result in forgone revenue that would have been 
generated from the production of such by-products as molasses and beet 
pulp.

Effect of $20,000 Payment Limit

    Based on the 2000-crop national average yield forecast of 2.9 tons 
of refined beet sugar per acre and valuing CCC's sugar inventory at the 
current estimate of Midwest refined sugar prices of 19 cents per pound, 
an individual beet producer could receive up to 52.6 tons as a 
payment--the equivalent of only 18.1 acres of production because of the 
$20,000 payment limit. The 1999-crop average acreage per farm was 129 
acres. At that rate, at least 3,308 beet producers would have to 
participate in the program in order to utilize CCC's current sugar 
inventory. The Farm Service Agency's (FSA) 1999 farm acreage report 
indicates that there were 12,474 sugar beet farms. Even after 
accounting for possible decreases in sugar beet farm numbers in the 
Oregon and Washington areas, at least 12,000 farms likely planted sugar 
beets this year. Based on the apparent sugar sector interest in a Sugar 
PIK Program, CCC's 174,000-ton refined sugar inventory should easily be 
utilized in a Sugar PIK Diversion Program.

Potential Cost Savings

    CCC savings will result from the elimination of monthly storage 
payments and the potential for reduced 2000-crop forfeitures of loan 
collateral. On August 1, 2000, 42,000 tons of refined beet sugar loan 
collateral were forfeited to CCC. Adding this amount to the 132,000 
tons purchased on June 6, 2000, CCC's total inventory now stands at 
174,000 tons of refined sugar. Total 1999-crop forfeitures are expected 
to reach 500,000 to 550,000 tons, in addition to the 42,000 tons 
already forfeited.
    From 300,000 to 400,000 tons of refined sugar are expected to be 
paid out to participants under the Sugar PIK Program. Assuming 350,000 
tons of refined sugar are paid out under the Sugar PIK Program, this 
would be equivalent to 7.8 percent of the current 2000-crop refined 
beet sugar production forecast and a 120,437-acre decrease in 
production--7.7 percent of plantings. At least 6,654 producers would 
have to participate in the program to utilize this amount of refined 
sugar.
    This will impact CCC's monthly storage outlays and expected 
forfeitures. Monthly storage savings will total $700,000, and CCC could 
potentially avoid around $160 million worth of 2000-crop forfeitures.

Program Design

Administration

    This program will be administered by the Executive Vice President, 
CCC.
1. Bid Submission Procedures
    (a) Producers wishing to participate in the program must submit a 
bid, on a form prescribed by CCC, to CCC for a contract with CCC that 
provides for the conversion of acreage planted to sugar beets, under 
contract for delivery to a processor, to diverted acreage that will not 
be harvested for sugar or used for any other commercial purposes in 
return for payments in sugar from CCC's inventory of refined sugar or 
raw cane sugar.
    (b) The bid must provide information that CCC deems necessary for 
conducting the program, including but not limited to, the number of 
acres that the producer will divert; the producer's previous 
consecutive 3-year simple average sugar beet yield (years with no 
production will not be considered; for first time producers, however, 
the previous consecutive 3-year simple average sugar beet yield for all 
the producers who delivered to the applicable factory will be used), 
the previous 3-year simple average sugar content of the producer's 
beets (for first time producers, the previous 3-year simple average 
sugar content for all beets delivered to that factory will be used), 
the processor's previous 3-year simple average recovery rate (for 
processors that have not been fully operational during the last 3 
years, the simple average for those years that they were fully 
operational), the value of CCC sugar to be received as payment, and 
other information CCC deems necessary for administering the program.
    (c) The following acreage is ineligible for the Sugar PIK Program:
    (1) Acreage not currently under contract for delivery of sugar 
beets to a sugar beet processor for the production of sugar,
    (2) Acreage on which a crop insurance indemnity or replant payment 
was received for the 2000-crop year or for which a claim has been, or 
will be, filed to receive a crop insurance indemnity or replant payment 
for the 2000-crop year,
    (3) Acreage which is not harvestable, or
    (4) Acreage devoted to roads or other non-producing areas.
    (d) The diverted acres cannot be grazed, until after the sugar 
beets are destroyed by disking, plowing, or other means of mechanical 
destruction. In addition, the sugar beets on the diverted acres may not 
be used for any commercial purpose.
    (e) If the total number of acres a producer bids is:
    (1) Less than or equal to 15 acres, then the acreage bid must 
consist of one of the following:
    (i) One area of contiguous land,
    (ii) One or more entire permanent fields, or
    (iii) One or more entire permanent fields and one area of 
contiguous land to complete the balance;
    (2) More than 15 acres, then the acreage bid must consist of one of 
the following:
    (i) One or more areas of land of at least 15 contiguous acres each 
with one remaining area of land of less than 15 contiguous acres to 
complete the balance,
    (ii) One or more entire permanent fields, or
    (iii) One or more entire permanent fields and one area of 
contiguous land to complete the balance.
2. Bid Selection Procedures
    (a) CCC will rank the bids on the basis of the bid amount as a 
percentage of the bid cap, as determined by CCC. Those bids with the 
lowest of such percentages are expected to be selected first. In the 
case of identical bids, selection may be based on random selection or 
pro rata shares, as CCC deems appropriate.
    (b) CCC will reject bids for which the bid amount exceeds the bid 
cap.
3. In-Kind Payments
    (a) CCC will, through such methods as CCC deems appropriate, make 
payments in the form of refined sugar or raw cane sugar held in CCC 
inventory.

[[Page 51283]]

    (b) To the maximum extent practicable, CCC will use its inventory 
in making an in-kind payment in the follow priority:
    (1) CCC-owned refined sugar held in storage by the processor with 
whom the producer has a 2000-crop sugar contract which is stored in a 
region used by CCC in administering the CCC sugar loan program (region) 
in which the producer and processor are located;
    (2) CCC-owned refined sugar held in storage by the processor with 
whom the producer has a 2000-crop contract which is stored in a region 
in which the producer is not located;
    (3) CCC-owned refined sugar held in storage by any other processor 
which is in the same region as the producer;
    (4) CCC-owned refined sugar held in storage by any other processor 
which is not in the same region as the producer; and
    (5) CCC-owned raw cane sugar held in storage anywhere in the United 
States.
    (c) The value of CCC-owned inventory is dependent upon the storage 
location of the sugar and the type of sugar (raw or refined). CCC will 
value its inventory by using the values set forth in the following 
tables. Accordingly, the quantity of sugar to be paid by CCC as an in-
kind payment to a producer will be determined by dividing: (1) The 
total of the bid amount submitted by the producer and accepted by CCC, 
by (2) the value of CCC's inventory at the storage location where title 
will transfer from CCC to the producer, or the producer's assignee.

                  Valuation of Refined Sugar by Region
------------------------------------------------------------------------
                                                        Inventory value
          Region CCC                                   ($/hundredweight)
------------------------------------------------------------------------
Region 1......................  [MI IN OH KY TN WV]..             $19.99
Region 2......................  [IA IL MN SD WI                    19.00
                                 Eastern \1/2\ ND].
Region 3......................  [AR CO KS MO NE UT                 19.67
                                 Southeast \1/4\ WY].
Region 4......................  [NM OK TX LA MS].....              19.90
Region 5......................  [MT Western \1/2\ ND               18.53
                                 Northwest \1/4\ WY].
Region 6/7....................  [ID OR WA]...........              18.42
Region 8......................  [AK AZ CA HI NV AL &              20.07
                                 All Eastern
                                 Locations *].
------------------------------------------------------------------------
* Eastern locations include: AL DE FL GA MD NJ NY SC NC PA VA & New
  England.


                  Valuation of Raw Cane Sugar by Region
------------------------------------------------------------------------
                                                         CCC Inventory
                        Region                            value *  ($/
                                                         hundredweight)
------------------------------------------------------------------------
Florida..............................................             $15.57
Hawaii...............................................              14.27
Louisiana............................................              15.91
Texas................................................              16.25
Puerto Rico..........................................             17.00
------------------------------------------------------------------------
* 96 pol, adjusted by #14 contract.

    (d) Producers may assign their in-kind payments to the processor 
with whom the producer has a 2000-crop sugar contract.
4. Payment Limitation
    (a) The value of in-kind payments shall be limited to $20,000 per 
year per producer. For these purposes, a ``producer'' shall be 
determined by using the definition of a ``person'' set forth in 7 CFR 
part 1400.
    (b) This payment limitation is separate and distinct from all other 
CCC program payment limitations.
5. Current Limit to the 2000 Crop
    (a) Unless CCC announces otherwise, this Sugar PIK Program is 
limited to the 2000 crop.
    (b) If the program is expanded to other crop years, participation 
will, unless CCC determined otherwise, be limited to those producers 
who have not increased their contract acreage from the previous crop 
year, or, more generally, have not increased their sugar beet plantings 
from the previous crop year.
6. Miscellaneous Provisions
    (a) The contract shall provide for the payment of liquidated 
damages in the event that a producer fails to comply with the 
obligations specified in the CCC acreage diversion contract.
    (b) In those instances in which, prior to the issuance of this 
notice, a producer has signed a power of attorney on an approved FSA-
211 for a person or entity indicating that such power shall extend to 
all programs listed on the form, without limitation, such power will be 
considered to extend to this program unless by September 6, 2000 the 
person granting the power notifies the local FSA office for the control 
county that the grantee of the power is not authorized to handle 
transactions for this program for the grantor.
    (c) CCC will transfer title of the sugar to the producer, or the 
producer's assignee, no earlier than October 1, 2000, and no later than 
December 31, 2000, as determined by CCC, by notifying the producer or 
assignee that the sugar is available to them. CCC will stop storage 
payments on this sugar on the date of transfer.
    (d) The following provisions of Chapter 7 of the Code of Federal 
Regulations concerning general program administration will be applied 
in the administration of the Sugar PIK Program:
    (1) Part 707--Payments due persons who have died, disappeared, or 
have been declared incompetent.
    (2) Part 718--Provisions applicable to multiple programs.
    (3) Part 780--Appeal regulations.
    (4) Part 1403--Debt settlement policies and procedures.

    Signed in Washington, D.C., on August 18, 2000.
Parks Shackelford,
Acting Executive Vice President, Commodity Credit Corporation.
[FR Doc. 00-21490 Filed 8-18-00; 3:05 pm]
BILLING CODE 3410-05-P