[Federal Register Volume 66, Number 7 (Wednesday, January 10, 2001)]
[Proposed Rules]
[Pages 1909-1914]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-240]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 66, No. 7 / Wednesday, January 10, 2001 / 
Proposed Rules  

[[Page 1909]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV01-930-2 PR]


Tart Cherries Grown in the States of Michigan, et al.; Final Free 
and Restricted Percentages for the 2000-2001 Crop Year for Tart 
Cherries

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposal invites comments on the establishment of final 
free and restricted percentages for the 2000-2001 crop year. The 
percentages are 50 percent free and 50 percent restricted and would 
establish the proportion of cherries from the 2000 crop which may be 
handled in normal commercial outlets. The percentages are intended to 
stabilize supplies and prices, and strengthen market conditions and 
were recommended by the Cherry Industry Administrative Board (Board), 
the body which locally administers the marketing order. This action 
would also authorize the release of reserve pool cherries to replace 
those purchased for government sales. The marketing order regulates the 
handling of tart cherries grown in the States of Michigan, New York, 
Pennsylvania, Oregon, Utah, Washington, and Wisconsin.

DATES: Comments must be received by January 25, 2001.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this action. Comments must be sent to the Docket Clerk, 
Fruit and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 96456, 
Washington, DC 20090-6456; Fax: (202) 720-5698, or E-mail: 
[email protected]. All comments should reference the docket 
number and the date and page number of this issue of the Federal 
Register and will be made available for public inspection in the Office 
of the Docket Clerk during regular business hours or can be viewed at: 
http://www.ams/usda.gov/fv/moab/html.

FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Dawana R. 
Johnson, Marketing Order Administration Branch, Fruit and Vegetable 
Programs, AMS, USDA, Suite 2A04, Unit 155, 4700 River Road, Riverdale, 
MD 20737, telephone: (301) 734-5243, or Fax: (301) 734-5275; or George 
Kelhart, Technical Advisor, Marketing Order Administration Branch, 
Fruit and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 96456, 
Washington, DC 20090-6456; telephone: (202) 720-2491, or Fax: (202) 
720-5698.
    Small businesses may request information on complying with this 
regulation, or obtain a guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders 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 proposal is issued under marketing 
agreement and Order No. 930 (7 CFR part 930), regulating the handling 
of tart cherries produced in the States of Michigan, New York, 
Pennsylvania, Oregon, Utah, Washington, and Wisconsin, hereinafter 
referred to as the ``order.'' 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.''
    The Department of Agriculture (Department) is issuing this rule in 
conformance with Executive Order 12866.
    This proposal has been reviewed under Executive Order 12988, Civil 
Justice Reform. Under the marketing order provisions now in effect, 
final free and restricted percentages may be established for tart 
cherries handled by handlers during the crop year. This rule would 
establish final free and restricted percentages for tart cherries for 
the 2000-2001 crop year, beginning July 1, 2000, through June 30, 2001. 
This rule would 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 exempt 
therefrom. Such 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 in equity to review 
the Secretary's ruling on the petition, provided an action is filed not 
later than 20 days after the date of the entry of the ruling.
    The order prescribes procedures for computing an optimum supply and 
preliminary and final percentages that establish the amount of tart 
cherries that can be marketed throughout the season. The regulations 
apply to all handlers of tart cherries that are in the regulated 
districts. Tart cherries in the free percentage category may be shipped 
immediately to any market, while restricted percentage tart cherries 
must be held by handlers in a primary or secondary reserve, or be 
diverted in accordance with section 930.59 of the order and section 
930.159 of the regulations, or used for exempt purposes (and obtaining 
diversion credit) under section 930.62 of the order and section 930.162 
of the regulations. The regulated Districts for this season are: 
District one--Northern Michigan; District two--Central Michigan; 
District three--Southwest Michigan; and District seven--Utah. Districts 
four, five, six, eight, and nine (New York, Oregon, Pennsylvania, 
Washington, and Wisconsin, respectively) would not be regulated for the 
2000-2001 season.
    The order prescribes under section 930.52 that, upon adoption of 
the order, those districts to be regulated shall be those districts in 
which the average annual production of cherries over the prior three 
years has exceeded 15 million pounds. A district not meeting the 15 
million-pound requirement shall not be regulated in such crop year. 
Because this requirement was not met in the districts of New York, 
Oregon,

[[Page 1910]]

Pennsylvania, Washington, and Wisconsin, handlers in those districts 
would not be subject to volume regulation during the 2000-2001 crop 
year. Production from New York was regulated last year. Production from 
the other four States was not subject to regulation.
    Demand for tart cherries at the farm level is derived from the 
demand for tart cherry products at retail. Demand for tart cherries and 
tart cherry products tends to be relatively stable from year to year. 
The supply of tart cherries, by contrast, varies greatly from crop year 
to crop year. The magnitude of annual fluctuations in tart cherry 
supplies are one of the most pronounced for any agricultural commodity 
in the United States. In addition, since tart cherries are processed 
either into cans or frozen, they can be stored and carried over from 
crop year to crop year. This creates substantial coordination and 
marketing problems. The supply and demand for tart cherries is rarely 
balanced. The primary purpose of setting free and restricted 
percentages is to balance supply with demand and reduce large surpluses 
that may occur.
    Section 930.50(a) of the order describes procedures for computing 
an optimum supply for each crop year. The Board must meet on or about 
July 1 of each crop year, to review sales data, inventory data, current 
crop forecasts and market conditions. The optimum supply volume shall 
be calculated as 100 percent of the average sales of the prior three 
years to which is added a desirable carryout inventory not to exceed 20 
million pounds or such other amount as may be established with the 
approval of the Secretary. The optimum supply represents the desirable 
volume of tart cherries that should be available for sale in the coming 
crop year.
    The order also provides that on or about July 1 of each crop year, 
the Board is required to establish preliminary free and restricted 
percentages. These percentages are computed by deducting the actual 
carryin inventory from the optimum supply figure (adjusted to raw 
product equivalent--the actual weight of cherries handled to process 
into cherry products) and subtracting that figure from the current 
year's USDA crop forecast. If the resulting number is positive, this 
represents the estimated over-production, which would be the restricted 
percentage tonnage. The restricted percentage tonnage is then divided 
by the sum of the USDA crop forecast for the regulated districts to 
obtain percentages for the regulated districts. The Board is required 
to establish a preliminary restricted percentage equal to the quotient, 
rounded to the nearest whole number, with the complement being the 
preliminary free tonnage percentage. If the tonnage requirements for 
the year are more than the USDA crop forecast, the Board is required to 
establish a preliminary free tonnage percentage of 100 percent and a 
preliminary restricted percentage of zero. The Board is required to 
announce the preliminary percentages in accordance with paragraph (h) 
of section 930.50.
    The Board met on June 22, 2000, and computed, for the 2000-2001 
crop year, an optimum supply of 275 million pounds. The Board 
recommended that the desirable carryout figure be zero pounds. 
Desirable carryout is the amount of fruit required to be carried into 
the succeeding crop year and is set by the Board after considering 
market circumstances and needs. This figure can range from zero to a 
maximum of 20 million pounds. The Board calculated preliminary free and 
restricted percentages as follows: The USDA estimate of the crop was 
245 million pounds; an 88 million pound carryin added to that estimate 
results in a total available supply of 333 million pounds. The carryin 
figure reflects the amount of cherries that handlers actually have in 
inventory. Subtracting the optimum supply of 275 million pounds from 
the total estimated available supply results in a surplus of 58 million 
pounds of tart cherries. An adjustment for changed economic conditions 
of 35 million pounds was added to the surplus, pursuant to section 
930.50 of the order. This adjustment is discussed later in this 
document. After the adjustment, the resulting total surplus is 93 
million pounds of tart cherries. The surplus was divided by the 
production in the regulated districts (195 million pounds) and resulted 
in a restricted percentage of 48 percent for the 2000-2001 crop year. 
The free percentage was 52 percent (100 percent minus 48 percent). The 
Board unanimously established these percentages and announced them to 
the industry as required by the order.
    The preliminary percentages were based on the USDA production 
estimate and the following supply and demand information available at 
the June meeting for the 2000-2001 year:

------------------------------------------------------------------------
                                                                Millions
                                                                   of
                                                                 pounds
------------------------------------------------------------------------
Optimum Supply Formula:
  (1) Average sales of the prior three years..................   275
  (2) Plus desirable carryout.................................     0
  (3) Optimum supply calculated by the Board at the June         275
   meeting....................................................
Preliminary Percentages:
  (4) USDA crop estimate......................................   245
  (5) Plus carryin held by handlers as of July 1, 2000........    88
  (6) Total available supply for current crop year............   333
  (7) Surplus (item 6 minus item 3)...........................    58
  (8) Economic adjustment to surplus..........................    35
  (9) Adjusted surplus (item 7 plus item 8)...................    93
  (10) USDA crop estimate for regulated districts.............   195


------------------------------------------------------------------------
                    Percentages                        Free   Restricted
------------------------------------------------------------------------
(11) Preliminary percentages (item 9 divided by           52         48
 item 10 x 100 equals restricted percentage; 100
 minus restricted percentage equals free
 percentage).......................................
------------------------------------------------------------------------

    Between July 1 and September 15 of each crop year, the Board may 
modify the preliminary free and restricted percentages by announcing 
interim free and restricted percentages to adjust to the actual pack 
occurring in the industry.
    Section 930.50(d) of the order requires the Board to meet no later 
than September 15 to recommend final free and restricted percentages to 
the Secretary for approval. The Board met on September 8, 2000, and 
recommended final free and restricted percentages of 50 percent. The 
Board recommended that the interim percentages and final percentages be 
the same. At that time, the Board had available actual production, 
sales, and carryin inventory amounts to review and made adjustments to 
the percentages.
    The Secretary establishes final free and restricted percentages 
through the informal rulemaking process. These percentages would make 
available the tart cherries necessary to achieve the optimum supply 
figure calculated by the Board. The difference between any final free 
percentage designated by the Secretary and 100 percent is the final 
restricted percentage.
    The Board used an updated optimum supply figure in determining the 
final free and restricted percentages. The revised optimum supply is 
277 million pounds, instead of 275 million pounds used in June. The 3-
year average sales figure computed in June included an estimate of June 
2000 sales because actual June sales were not yet available. The 3-year 
average sales figure used in the final calculations reflects actual

[[Page 1911]]

sales for each month of the 3-year period.
    The actual production reported by the Board was 284 million pounds, 
which is a 39 million pound increase from the USDA crop estimate of 245 
million pounds. The increase in production was due to higher yields in 
the major producing States (Michigan, New York, Utah, Washington, and 
Wisconsin). For 2000-2001, production in the regulated districts 
totaled 232 million pounds, 37 million pounds greater than the USDA 
estimate of 195 million pounds.
    An 87 million pound carryin (actual carryin as opposed to the 88 
million pounds originally estimated in June) was added to the Board's 
reported production of 284 million pounds, yielding a total available 
supply for the current crop year of 371 million pounds. The optimum 
supply of 277 million pounds was subtracted from the total available 
supply which resulted in a 94 million pound surplus. An adjustment of 
22 million pounds for changed economic conditions was added to the 
surplus, pursuant to section 930.50 of the order. This adjustment is 
discussed later in this document. After the adjustment, the resulting 
total surplus is 116 million pounds of tart cherries. The total surplus 
of 116 million pounds is divided by the 232 million-pound volume of 
tart cherries produced in the regulated districts. This results in a 50 
percent restricted percentage and a corresponding 50 percent free 
percentage for the regulated districts.
    The final percentages are based on the Board's reported production 
figures and the following supply and demand information available in 
September for the 2000-2001 crop year:

------------------------------------------------------------------------
                                                                Millions
                                                                   of
                                                                 pounds
------------------------------------------------------------------------
Optimum Supply Formula:
  (1) Average sales of the prior three years..................       277
  (2) Plus desirable carryout.................................         0
  (3) Optimum supply calculated by the Board at the September        277
   meeting....................................................
Final Percentages:
  (4) Board reported production...............................       284
  (5) Plus carryin held by handlers as of July 1, 2000........        87
  (6) Tonnage available for current crop year.................       371
  (7) Surplus (item 6 minus item 3)...........................        94
  (8) Economic adjustment to surplus..........................        22
  (9) Adjusted surplus (item 7 plus item 8)...................       116
  (10) Production in regulated districts......................       232


------------------------------------------------------------------------
                    Percentages                        Free   Restricted
------------------------------------------------------------------------
(11) Final Percentages (item 9 divided by item 10 x       50         50
 100 equals restricted percentage; 100 minus
 restricted percentage equals free percentage).....
------------------------------------------------------------------------

    As previously mentioned, the Board recommended an economic 
adjustment in computing both the preliminary and final percentages for 
the 2000-2001 crop year. This is authorized under section 930.50. These 
provisions provide that in its deliberations of volume regulation 
recommendations, the Board consider, among other things, the expected 
demand conditions for cherries in different market segments and an 
analysis of economic factors having a bearing on the marketing of 
cherries. Based on these considerations, the Board may modify its 
marketing policy calculations to reflect changes in economic 
conditions.
    The order provides that the 3-year average of all sales be used in 
determining the optimum supply of cherries. The industry wants to 
export diversion cherries to foreign markets, excluding Canada and 
Mexico. Exports are used by handlers to meet their diversion 
requirements. Including this volume of sales in the optimum supply 
formula, however, results in an overestimate of the volume of tart 
cherries that can be profitably marketed in unrestricted markets. Thus, 
the Board recommended adjusting its estimate of surplus cherries by 
adding exempt export sales (all exports except those going to Canada 
and Mexico).
    This season the Board also recommended that the adjustment reflect 
the impact that USDA purchases for school lunch and other purposes 
might have on the sales component of the optimum supply formula. 
Purchases by USDA are part of the average sales history for the 
industry. In recent years, USDA has purchased about 17 million pounds 
of tart cherry products and this has been factored into the optimum 
supply formula. During the 2000-2001 crop year, USDA expects to 
purchase about 10 million pounds of frozen and hot pack cherries, and 
20 million pounds of dried cherries. The Board determined that the 
difference between the expected purchases (30 million pounds) during 
the 2000-2001 crop year and the average purchases of 17 million pounds 
should not be included in the optimum supply figure. Therefore, the 
Board adjusted the expected surplus to 22 million pounds (35 million 
pounds of exports minus 13 million pounds of USDA purchases). Without 
this adjustment, the surplus for the 2000-2001 crop year would have 
been 129 million pounds. Dividing this figure by the Board reported 
production in the regulated districts (232 million pounds) would have 
resulted in a 56 percent restricted percentage. Hence, this adjustment 
resulted in a reduction in the restricted percentage from 56 percent to 
50 percent. The 50 percent restricted percentage would allow growers to 
deliver more of their crop to handlers. This reduction should provide 
some benefits to growers in Michigan and Utah which are the only States 
restricted for the 2000-2001 crop year.
    By recommending this marketing policy modification, the Board 
believes that it will provide stability to the marketplace and the 
industry will be in a better situation in future years. This 
modification is intended to further facilitate and encourage market 
expansion. Board members were of the opinion that, if this adjustment 
is not made, growers could be paid less than their production costs, 
because handlers would suffer financial losses that would probably be 
passed on to the growers. In addition, the value of cherries already in 
inventory could be depressed due to the overabundant supply of 
available cherries, a result inconsistent with the intent of the order 
and the Act.
    The Board also recommended that a like quantity of cherries be 
released from the reserve to replace cherries that are purchased by the 
USDA. This would provide an adequate supply of cherries throughout the 
season. The release would be based on the USDA's intention to purchase 
tart cherries and not on actually what is purchased. According to the 
Board, releasing a like quantity of tart cherries from the reserve to 
replace cherries that are purchased by USDA would remove the 
variability and irregularity of USDA purchase patterns and thereby make 
the optimum supply formula more stable and predictable. The Board 
believes that this release would spread the benefit of the USDA 
purchase throughout the industry. The Board believes that a release 
equal to the amount of the USDA purchase would be an equitable 
distribution of the purchase since all handlers regulated under the 
order, and not just those handlers who successfully bid and sold 
product to USDA, would benefit from the bonus USDA tart cherry 
purchase.
    The Department's ``Guidelines for Fruit, Vegetable, and Specialty 
Crop Marketing Orders'' specify that 110 percent of recent years' sales 
should be made available to primary markets each season before 
recommendations for volume regulation are approved. This

[[Page 1912]]

goal would be met by the establishment of a preliminary percentage 
which releases 100 percent of the optimum supply and the additional 
release of tart cherries provided under section 930.50(g). This release 
of tonnage, equal to 10 percent of the average sales of the prior three 
years sales, is made available to handlers each season. The Board 
recommended that such release should be made available to handlers the 
first week of December and the first week of May. Handlers can decide 
how much of the 10 percent release they would like to receive during 
the December and May release dates. Once released, such cherries are 
released for free use by such handler. Approximately 27 million pounds 
would be made available to handlers this season in accordance with 
Department Guidelines. This release would be made available to every 
handler and released to such handler in proportion to its percentage of 
the total regulated crop handled. If a handler does not take his/her 
proportionate amount, such amount shall remain in the inventory 
reserve.

The Regulatory Flexibility Act and Effects on Small Businesses

    The Agricultural Marketing Service (AMS) has considered the 
economic impact of this action on small entities and has prepared this 
initial regulatory flexibility analysis. The Regulatory Flexibility Act 
(RFA) would allow AMS to certify that regulations do not have a 
significant economic impact on a substantial number of small entities. 
However, as a matter of general policy, AMS' Fruit and Vegetable 
Programs (Programs) no longer opt for such certification, but rather 
perform regulatory flexibility analyses for any rulemaking that would 
generate the interest of a significant number of small entities. 
Performing such analyses shifts the Programs' efforts from determining 
whether regulatory flexibility analyses are required to the 
consideration of regulatory options and economic or regulatory impacts.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and rules issued thereunder, are unique in that 
they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility.
    There are approximately 40 handlers of tart cherries who are 
subject to regulation under the tart cherry marketing order and 
approximately 900 producers of tart cherries in the regulated area. 
Small agricultural service firms, which includes handlers, have been 
defined by the Small Business Administration (13 CFR 121.201) as those 
having annual receipts of less than $5,000,000, and small agricultural 
producers are defined as those having annual receipts of less than 
$500,000.
    Board and subcommittee meetings are widely publicized in advance 
and are held in a location central to the production area. The meetings 
are open to all industry members (including small business entities) 
and other interested persons who are encouraged to participate in the 
deliberations and voice their opinions on topics under discussion. 
Thus, Board recommendations can be considered to represent the 
interests of small business entities in the industry.
    The principal demand for tart cherries is in the form of processed 
products. Tart cherries are dried, frozen, canned, juiced, and pureed. 
During the period 1995/96 through 1999/00, approximately 91 percent of 
the U.S. tart cherry crop, or 280.5 million pounds, was processed 
annually. Of the 280.5 million pounds of tart cherries processed, 62 
percent was frozen, 29 percent was canned, and 9 percent was utilized 
for juice.
    Based on National Agricultural Statistics Service data, acreage in 
the United States devoted to tart cherry production has been trending 
downward. In the ten-year period, 1987/88 through 1997/98, the tart 
cherry area decreased from 50,050 acres, to less than 40,000 acres. In 
1999/00, approximately 90 percent of domestic tart cherry acreage was 
located in four States: Michigan, New York, Utah and Wisconsin. 
Michigan leads the nation in tart cherry acreage with 70 percent of the 
total. Michigan produces about 75 percent of the U.S. tart cherry crop 
each year. In 1999/00, tart cherry acreage in Michigan decreased to 
28,100 acres from 28,400 acres the previous year.
    In crop year's 1987/88 through 1999/00, tart cherry production 
ranged from a high of 359.0 million pounds in 1987/88 to a low of 189.9 
million pounds in 1991/92. The price per pound received by tart cherry 
growers ranged from a low of 7.3 cents in 1987 to a high of 46.4 cents 
in 1991. These problems of wide supply and price fluctuations in the 
tart cherry industry are national in scope and impact. Growers 
testified during the order promulgation process that the prices they 
received often did not come close to covering the costs of production. 
They also testified that production costs for most growers range 
between 20 and 22 cents per pound, which is well above average prices 
received during the 1993-1995 seasons.
    The industry demonstrated a need for an order during the 
promulgation process of the marketing order because large variations in 
annual tart cherry supplies tend to lead to fluctuations in prices and 
disorderly marketing. As a result of these fluctuations in supply and 
price, growers realize less income. The industry chose a volume control 
marketing order to even out these wide variations in supply and improve 
returns to growers. During the promulgation process, proponents 
testified that small growers and processors would have the most to gain 
from implementation of a marketing order because many such growers and 
handlers had been going out of business due to low tart cherry prices. 
They also testified that, since an order would help increase grower 
returns, this should increase the buffer between business success and 
failure because small growers and handlers tend to be less capitalized 
than larger growers and handlers.
    Aggregate demand for tart cherries and tart cherry products tends 
to be relatively stable from year-to-year. Similarly, prices at the 
retail level show minimal variation. Consumer prices in grocery stores, 
and particularly in food service markets, largely do not reflect 
fluctuations in cherry supplies. Retail demand is assumed to be highly 
inelastic which indicates that price reductions do not result in large 
increases in the quantity demanded. Most tart cherries are sold to food 
service outlets and to consumers as pie filling; frozen cherries are 
sold as an ingredient to manufacturers of pies and cherry desserts. 
Juice and dried cherries are expanding market outlets for tart 
cherries.
    Demand for tart cherries at the farm level is derived from the 
demand for tart cherry products at retail. In general, the farm-level 
demand for a commodity consists of the demand at retail or food service 
outlets minus per-unit processing and distribution costs incurred in 
transforming the raw farm commodity into a product available to 
consumers. These costs comprise what is known as the ``marketing 
margin.''
    The supply of tart cherries, by contrast, varies greatly. The 
magnitude of annual fluctuations in tart cherry supplies are one of the 
most pronounced for any agricultural commodity in the United States. In 
addition, since tart cherries are processed either into cans or frozen, 
they can be stored and carried over from year-to-year. This creates 
substantial

[[Page 1913]]

coordination and marketing problems. The supply and demand for tart 
cherries is rarely in equilibrium. As a result, grower prices fluctuate 
widely, reflecting the large swings in annual supplies.
    In an effort to stabilize prices, the tart cherry industry uses the 
volume control mechanisms under the authority of the Federal marketing 
order. This authority allows the industry to set free and restricted 
percentages. These restricted percentages are only applied to states or 
districts with a 3-year average of production greater than 15 million 
pounds. Currently, only the three districts in Michigan and Utah are 
subject to restricted percentages.
    The primary purpose of setting restricted percentages is an attempt 
to bring supply and demand into balance. If the primary market is over-
supplied with cherries, grower prices decline substantially.
    The tart cherry sector uses an industry-wide storage program as a 
supplemental coordinating mechanism under the Federal marketing order. 
The primary purpose of the storage program is to warehouse supplies in 
large crop years in order to supplement supplies in short crop years. 
The storage approach is feasible because the increase in price--when 
moving from a large crop to a short crop year--more than offsets the 
cost for storage, interest, and handling of the stored cherries.
    The price that growers' receive for their crop is largely 
determined by the total production volume and carrying inventories. The 
Federal marketing order permits the industry to exercise supply control 
provisions, which allow for the establishment of free and restricted 
percentages for the primary market, and a storage program. The 
establishment of restricted percentages impacts the production to be 
marketed in the primary market, while the storage program has an impact 
on the volume of unsold inventories.
    The volume control mechanism used by the cherry industry would 
result in decreased shipments to primary markets. Without volume 
control the primary markets (domestic) would likely be over-supplied, 
resulting in low grower prices.
    To assess the impact that volume control has on the prices growers 
receive for their product, an econometric model has been estimated. The 
estimated model provides a way to see what impacts volume control may 
have on grower prices. The three districts in Michigan and Utah are the 
only restricted areas for this crop year and their combined total 
production is 232 million pounds. A 50 percent restriction means 116 
million pounds is available to be shipped to primary markets from these 
two states. Production levels of 17 million pounds for New York, 4 
million pounds for Oregon, 5 million pounds for Pennsylvania, 17 
million pounds for Washington, and 10 million pounds for Wisconsin 
results in an additional 53 million pounds available for primary market 
shipments.
    In addition, USDA requires a 10% release from reserves as a market 
growth factor. This results in an additional 28 million pounds being 
available for the primary market. The 116 million pounds from Michigan 
and Utah, the 53 million pounds from the other producing states, and 
the 28 million pound release gives a total of 197 million pounds being 
available for the primary markets. This results in 88 million pounds 
being restricted and an effective restricted percent of 30.8 percent.
    The econometric model is used to estimate grower prices with and 
without regulation. Without the volume controls, the estimated grower 
price would be approximately $0.12 per pound. With volume controls, the 
estimated grower price would increase to approximately $0.20 per pound.
    The use of volume controls is estimated to have a positive impact 
on grower's total revenues. Without regulation, growers' total revenues 
from processed cherries are estimated to be $34.2 million in 2000/01. 
In this scenario, production is 284 million pounds and price, without 
regulation, is estimated to be $0.12 per pound. With regulation, 
growers' revenues from processed cherries are estimated to be $43.8 
million. In this scenario, 197 million pounds are available for the 
primary markets with an estimated price of $0.20 per pound. Over the 
past several seasons, growers received approximately $0.05 cents for 
restricted (diverted) cherries.
    The results of econometric analysis are subject to some level of 
uncertainty. As long as grower prices are $0.15 per pound or greater, 
then growers' are better off with the regulation. With a price of $0.15 
per pound, the estimated revenues under no regulation would be similar 
to the revenues with a 50 percent regulation.
    It is concluded that the 50 percent volume control would not unduly 
burden producers, particularly smaller growers. The 50 percent 
restriction is only applied to the growers in Michigan and Utah. The 
growers in the other 5 regulated states will benefit from this 
restriction. Michigan and Utah produced over 80 percent of the tart 
cherry crop during the 2000/01 crop year.
    Recent grower prices have been as high as $0.20 per pound. At 
current production levels, the cost of production is reported to be 
$0.20 to $0.22 per pound. Thus, the estimated $0.20 per pound received 
by growers is close to the cost of production. The use of volume 
controls is believed to have little or no effect on consumer prices and 
will not result in fewer retail sales or sales to food service outlets.
    Without the use of volume controls, the industry could be expected 
to continue to build large amounts of unwanted inventories. These 
inventories have a depressing effect on grower prices. The econometric 
model shows for every 1 million-pound increase in carryin inventories, 
a decrease in grower prices of $0.0033 per pound occurs. The use of 
volume controls allows the industry to supply the primary markets while 
avoiding the disastrous results of over-supplying these markets. In 
addition, through volume control, the industry has an additional supply 
of cherries that can be used to develop secondary markets such as 
exports and the development of new products.
    In discussing the possibility of marketing percentages for the 
2000-2001 crop year, the Board considered the following factors 
contained in the marketing policy: (1) The estimated total production 
of tart cherries; (2) the estimated size of the crop to be handled; (3) 
the expected general quality of such cherry production; (4) the 
expected carryover as of July 1 of canned and frozen cherries and other 
cherry products; (5) the expected demand conditions for cherries in 
different market segments; (6) supplies of competing commodities; (7) 
an analysis of economic factors having a bearing on the marketing of 
cherries; (8) the estimated tonnage held by handlers in primary or 
secondary inventory reserves; and (9) any estimated release of primary 
or secondary inventory reserve cherries during the crop year.
    The Board's review of the factors resulted in the computation and 
announcement in September 2000 of the restricted percentages proposed 
in this rule (50 percent free and 50 percent restricted).
    A positive factor for the cherry industry this year is the 
unusually large USDA purchases of cherries during this crop year. These 
USDA sales include a significant amount of frozen cherries and large 
quantities of dried cherries. It also appears likely that the USDA will 
offer to buy more cherries later this year using Congressionally 
appropriated

[[Page 1914]]

funds designated for purchases of specified commodities, including tart 
cherries.
    A number of industry leaders have suggested that the Board should 
consider alternative approaches for dealing with this challenging 
situation which has developed with this year's crop because of (a) the 
considerably larger actual crop size, (b) the resulting high regulation 
percentage, and the prospect of a significant secondary reserve, (c) 
the unusually large USDA purchases and (d) other factors.
    The Board discussed two alternatives. The first alternative was an 
economic adjustment component for the large USDA purchases. The Board 
added a separate component for the economic adjustment in the supply 
regulation calculations for the large USDA purchases.
    The average of USDA purchases during the last three years has been 
17 million pounds. This year USDA has purchased 10 million pounds of 
frozen cherries to be delivered during the 2000 crop-marketing year. 
USDA has also currently offered to buy another approximately 20 million 
pounds as dried cherries. If all of this is successfully awarded after 
the bids, this will be a total of 30 million pounds to be delivered 
this year. This is 13 million pounds more than USDA tart cherry 
purchases in recent years. Those who support this type of economic 
adjustment for the USDA demand agree that the additional 17 million 
pounds over the average could be used as a partial balance to the 35 
million pounds of the economic adjustment for the expected export 
diversion credit volume.
    The second alternative is that no change be made in the economic 
adjustment (with a reserve release if needed). The Board might decide 
to make no changes in the economic adjustment with the expectation 
that, if cherries are needed from the reserve to meet the unusually 
large USDA purchases, a reserve release will be made by the Board when 
needed during the coming marketing year. Some in the industry stated 
that even though the crop turned out to be considerably larger than 
expected in June, and despite the large USDA purchases, it is best to 
keep the economic adjustment factor at 35 million pounds. With the 
larger crop size, this would result in a regulation of 57 percent in 
the regulated districts. With this alternative, if more open market 
cherries are needed because of the large USDA purchases to date (and/or 
an expected additional purchase later this year), some of the reserve 
can be used to replace the free tonnage tart cherries.
    As mentioned earlier, the Department's ``Guidelines for Fruit, 
Vegetable, and Specialty Crop Marketing Orders'' specify that 110 
percent of recent years' sales should be made available to primary 
markets each season before recommendations for volume regulation are 
approved. The quantity available under this rule is 110 percent of the 
quantity shipped in the prior three years.
    The free and restricted percentages proposed to be established by 
this rule release the optimum supply and apply uniformly to all 
regulated handlers in the industry, regardless of size. There are no 
known additional costs incurred by small handlers that are not incurred 
by large handlers. The stabilizing effects of the percentages impact 
all handlers positively by helping them maintain and expand markets, 
despite seasonal supply fluctuations. Likewise, price stability 
positively impacts all producers by allowing them to better anticipate 
the revenues their tart cherries will generate.
    The Department has not identified any relevant Federal rules that 
duplicate, overlap, or conflict with this regulation.
    While the benefits resulting from this rulemaking are difficult to 
quantify, the stabilizing effects of the volume regulations impact both 
small and large handlers positively by helping them maintain markets 
even though tart cherry supplies fluctuate widely from season to 
season.
    In compliance with Office of Management and Budget (OMB) 
regulations (5 CFR part 1320) which implement the Paperwork Reduction 
Act of 1995 (Pub. L. 104-13), the information collection and 
recordkeeping requirements have been previously approved by OMB and 
assigned OMB Number 0581-0177.
    There are some reporting, 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. As with other, similar marketing order programs, 
reports and forms are periodically studied to reduce or eliminate 
duplicate information collection burdens by industry and public sector 
agencies. This rule does not change those requirements.
    A 15-day comment period is provided to allow interested persons to 
respond to this proposal. Fifteen days is deemed appropriate because 
this rule needs to be in place as soon as possible to achieve its 
intended purpose of making the optimum supply quantity computed by the 
Board available to handlers marketing 2000-2001 crop year cherries. All 
written comments timely received will be considered before a final 
determination is made on this matter.

List of Subjects in 7 CFR Part 930

    Marketing agreements, Reporting and recordkeeping requirements, 
Tart cherries.

    For the reasons set forth in the preamble, 7 CFR Part 930 is 
proposed to be amended as follows:

PART 930--TART CHERRIES GROWN IN THE STATES OF MICHIGAN, NEW YORK, 
PENNSYLVANIA, OREGON, UTAH, WASHINGTON, AND WISCONSIN

    1. The authority citation for 7 CFR part 930 continues to read as 
follows:


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

    2. Section 930.154 is added to read as follows:


Sec. 930.154  Reserve release.

    If USDA initiates an invitation to purchase product, the Board 
shall release a like quantity of cherries from the reserve pool to each 
handler who has a proportionate share in the reserve.
    3. Section 930.252 is added to read as follows:

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

Sec. 930.252  Final free and restricted percentages for the 2000-2001 
crop year.

    The final percentages for tart cherries handled by handlers during 
the crop year beginning on July 1, 2000, which shall be free and 
restricted, respectively, are designated as follows: Free percentage, 
50 percent and restricted percentage, 50 percent.

    Dated: December 28, 2000.
Robert C. Keeney,
Deputy Administrator, Fruit and Vegetable Programs.
[FR Doc. 01-240 Filed 1-1-01; 8:45 am]
BILLING CODE 3410-02-P