[Federal Register Volume 66, Number 84 (Tuesday, May 1, 2001)]
[Rules and Regulations]
[Pages 21836-21842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-10664]



[[Page 21835]]

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Part III





Department of Agriculture





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Agricultural Marketing Service



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7 CFR Part 930



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

  Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Rules and 
Regulations  

[[Page 21836]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV01-930-2 FR]


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: Final rule.

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SUMMARY: This rule establishes final free and restricted percentages 
for the 2000-2001 crop year. The percentages are 50 percent free and 50 
percent restricted and will 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 will 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.

EFFECTIVE DATE: This final rule is effective May 2, 2001 through June 
30, 2001.

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, PO 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, PO 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 
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 final rule 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 will 
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 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 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, the 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, Pennsylvania, Washington, and Wisconsin, handlers in those 
districts will 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 is 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

[[Page 21837]]

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 Sec. 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 Sec. 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
                 Optimum supply formula                       pounds
------------------------------------------------------------------------
(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                  52              48
 divided by 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 will 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 
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)

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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 Sec. 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
                 Optimum supply formula                       pounds
------------------------------------------------------------------------
(1) Average sales of the prior three years..............             277
(2) Plus desirable carryout.............................               0
(3) Optimum supply calculated by the Board at the                    277
 September 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                50              50
 by item 10  x  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 Sec. 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 will 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 will 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 supplementary information section of the proposed rule stated 
that the Board also recommended that a like quantity of cherries be 
released from the reserve to replace cherries that the USDA and other 
governmental agencies offer to purchase for surplus removal purposes. 
Based on a comment filed on behalf of the Board, purchases by other 
government agencies will also be included. The comment, discussed in 
full later, clarifies that the Board intended that such releases only 
be made for surplus removal type purchases, and that all government 
purchases, not only USDA purchases for such purposes should trigger 
releases.
    Simply put, the procurement process consists of three stages. The 
offer to buy stage, the invitation to bid stage, and the awarding of 
contracts stage. Such releases will be based on USDA and other 
government agency announced

[[Page 21839]]

offers to purchase tart cherries for surplus removal. The quantities 
purchased are sometimes less than the quantities mentioned in the 
announced offers. Actual purchases depend on the prices and quantities 
offered as well as possible adjustments in user requirements.
    Because of the potential difference between the offer and the 
actual quantity purchased, and the timing of the offer and the 
invitation to bid and awarding of contracts by the government agency, 
the Board indicated, in its comment, that the quantity of reserve 
tonnage released on the basis of surplus removal offers should not be 
considered as carryover at the first stage of the procurement process. 
If at the second stage, the quantity for which bids are invited is less 
than the initial quantity offered, the difference between the two 
amounts will be considered carryover tonnage. If at the third stage the 
quantity for which contracts have been awarded and the quantity 
initially offered to be purchased is less, the difference between the 
two amounts will be considered carryover for the purpose of computing 
marketing percentages.
    According to the Board, releasing a like quantity of tart cherries 
from the reserve to replace cherries that are offered to be purchased 
by USDA and other government agencies for surplus removal, together 
with the previously mentioned carryover adjustments, will remove the 
variability and irregularity of such purchases and thereby make the 
computation of volume regulation percentages more stable and 
predictable. The Board believes that such releases will equitably 
spread the benefit of these planned purchases throughout the industry 
because all handlers regulated under the order, and not just those 
handlers who successfully bid and sold product to USDA and other 
government agencies, will benefit from the surplus removal tart cherry 
purchases.
    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 goal will 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 Sec. 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 will be made available 
to handlers this season in accordance with Department Guidelines. This 
release will 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 
final regulatory flexibility analysis. The Regulatory Flexibility Act 
(RFA) will 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 opts for such certification, but rather 
performs regulatory flexibility analyses for any rulemaking that will 
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 include 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 years' 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

[[Page 21840]]

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 is 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 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 carryin 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 results 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 growers' total revenues. Without regulation, growers' total revenues 
from processed cherries are estimated to be $34.2 million in 2000-2001. 
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 per pound 
for restricted (diverted) cherries.
    The results of econometric analysis are subject to some level of 
uncertainty. As long as the resulting grower prices are $0.15 per pound 
or greater, then growers' are better off with the regulation. If price 
with regulation is $0.15 per pound or less, 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 with regulation is close to the cost of production. The use 
of volume controls

[[Page 21841]]

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 free and restricted percentages 
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 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 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 proposed rule concerning this action was published in the Federal 
Register on January 10, 2001 (66 FR 1909). Copies of the rule were 
mailed or sent via facsimile to all Board members and handlers. 
Finally, the rule was made available through the Internet by the Office 
of the Federal Register. A 15-day comment period ending on January 25, 
2001, was provided to allow

[[Page 21842]]

interested persons to respond to the proposal.
    Two comments were received during the comment period in response to 
the proposal. One comment was received from a Michigan grower-handler 
who supported the Board's recommendation. A second comment was received 
on behalf of the Board, and recommended several clarifications to the 
proposal. The commenter stated that the Board intended that reserve 
releases should be made for USDA and other government intended 
purchases, not only USDA purchases. The commenter also stated that the 
intent of the Board was that reserve releases involving intended 
government purchases should be triggered only by bonus purchases (non-
entitlement purchases) of surplus tart cherries; i.e., purchase offers 
intended to remove surplus supplies from the marketplace. The Board 
believes that the benefits of purchases to remove surpluses should be 
shared by each handler in proportion to the quantities of reserve 
cherries held by the handlers. Purchases by government agencies for 
other purposes (referred to as entitlement purchases) should continue 
to be supplied with free tonnage, not reserve tonnage.
    The commenter also stated that any reserve inventory released based 
on surplus removal purchase offers should not adversely impact the 
Optimum Supply Formula and volume regulation percentages in the 
subsequent marketing season. If an offer to make a surplus removal 
purchase results in a reserve release in one crop year and an 
invitation to submit bids and an awarding of contracts the following 
year, the tonnage released during the previous year would be considered 
as carryover tonnage. This would increase the total available supply of 
cherries for the succeeding year even though most if not all of them 
will probably be purchased by the government agency, and make the 
volume regulation for the succeeding year more restrictive than needed. 
To prevent this from occurring, the commenter recommended various 
methods of handling the carryover during the procurement steps. If the 
tonnage offered and released is the same as the quantity purchased, 
none of the released tonnage should be considered as carryover. The 
same would be true if the offer had been made but the invitations to 
bid and the awarding of contracts had not been issued. If the offer to 
purchase and the amount released is more than the quantity for which 
contracts were awarded, the difference between the two amounts would 
not be considered as carryover tonnage. If the offer to purchase and 
the amount of tonnage released is more than the amount in the 
invitation to bid or the contracts awarded, the difference in the 
amounts would be considered carryover tonnage. This reflects how this 
aspect of the computation of volume regulations will be accomplished. 
They will help the Board properly administer the inventory releases and 
the volume control provisions of the marketing order. Supply management 
is a critical feature of the tart cherry marketing order and it is 
important that the percentages not be more restrictive than needed.
    In summary, it was the Board's intent to limit the types of 
purchases that would trigger inventory reserve releases to bonus (non-
entitlement) surplus removal purchases. Also, the Board did not intend 
to limit reserve releases to surplus removal purchases made by the 
USDA. It wanted all government purchases for such purposes to trigger 
releases of reserve cherries. These requested changes are made in the 
applicable provisions.
    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 material presented, including 
the information and recommendation submitted by the Board and other 
available information, and the comments received, 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 because handlers have already received 2000-2001 crop 
tart cherries from growers. Further, handlers are aware of this rule 
which was recommended at a public meeting. Also, a 15-day comment 
period was provided for in the proposed rule, and the comments received 
have been addressed.

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 
amended to read 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 or any other governmental agency initiates an invitation to 
purchase product as a non-entitlement purchase, 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:


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: April 24, 2001.
Kenneth C. Clayton,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 01-10664 Filed 4-30-01; 8:45 am]
BILLING CODE 3410-02-U