[Federal Register Volume 66, Number 93 (Monday, May 14, 2001)]
[Proposed Rules]
[Pages 24291-24303]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-11987]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 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.
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 

  Federal Register / Vol. 66, No. 93 / Monday, May 14, 2001 / Proposed 
Rules  

[[Page 24291]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 929

[Docket No. FV01-929-2 PR]


Cranberries Grown in the States of Massachusetts, et al.; 
Establishment of Marketable Quantity and Allotment Percentage; 
Reformulation of Sales Histories and Other Modifications Under the 
Cranberry Marketing Order

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: This rule invites comments on whether to establish volume 
regulation on cranberries and if so, at what level. If a volume 
regulation is implemented, it would limit the volume of cranberries 
handlers may purchase from, or handle for, growers during the 2001-2002 
crop year, which begins on September 1, 2001, and ends on August 31, 
2002. The Cranberry Marketing Committee (Committee), the agency 
responsible for local administration of the cranberry marketing order, 
recommended a marketable quantity of 4.7 million barrels, an allotment 
percentage of about 67 percent, and an exemption for fresh and 
organically-grown cranberries. An alternative, supported by a number of 
independent growers, includes a marketable quantity of 4.0 million 
barrels, an allotment percentage of about 54 percent, and no exemption 
for fresh and organically-grown cranberries.
    Both levels of regulation are intended to stabilize marketing 
conditions, help reduce burdensome inventories, and improve grower 
returns. A third option is to issue no volume regulation at all. This 
rule also proposes adding a date by which transfers of sales histories 
on leased acreage must be completed, deleting the Committee review 
process in the sales history appeal procedure, and giving fresh fruit 
growers whose fruit has to be used for processing priority in the 
allocation of excess allotments. Finally, this action proposes amending 
a proposed rule published on January 12 to revise the sales history 
reformulation calculation, and withdraw the proposed reinstatement of 
the June 1 allotment notification date. These additional actions are 
designed to improve the operation of the producer allotment provisions 
of the order.

DATES: Comments must be received by May 29, 2001.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this rule. 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) 720-8938 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 
the following website: www.ams.usda.gov/fv/moab.html.

FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Kenneth G. 
Johnson, DC Marketing Field Office, Fruit and Vegetable Programs, AMS, 
USDA, Suite 2A04, Unit 155, 4700 River Road, Riverdale, Maryland 20737; 
telephone: (301) 734-5243, Fax: (301) 734-5275; or Anne Dec or George 
Kelhart, Marketing Order Administration Branch, Fruit and Vegetable 
Programs, AMS, USDA, room 2525-S, P.O. Box 96456, Washington, DC 20090-
6456; telephone: (202) 720-2491, Fax: (202) 720-8938.
    Small businesses may request information on complying with this 
regulation by contacting Jay Guerber, Marketing Order Administration 
Branch, Fruit and Vegetable Programs, AMS, USDA, P.O. Box 96456, room 
2525-S, Washington, DC 20090-6456; telephone: (202) 720-2491, Fax: 
(202) 720-8938, or E-mail: [email protected].

SUPPLEMENTARY INFORMATION: This proposal is issued under Marketing 
Order No. 929 (7 CFR Part 929), as amended, regulating the handling of 
cranberries grown in Massachusetts, Rhode Island, Connecticut, New 
Jersey, Wisconsin, Michigan, Minnesota, Oregon, Washington, and Long 
Island in the State of New York. The order is effective under the 
Agricultural Marketing Agreement Act of 1937, as amended [7 U.S.C. 601-
674], hereinafter referred to as the ``Act.''

Question and Answer Overview

What Does This Rule Propose?

    This rule invites comments on whether a volume regulation should be 
in place for the 2001 cranberry crop. Comments are requested on whether 
a volume regulation should be established and if so, at what level. 
This proposal includes two levels of regulation that have been widely 
discussed within the cranberry industry in recent months. It also 
proposes a number of administrative changes designed to improve the 
producer allotment program under the cranberry marketing order.

Who Would Be Affected by This Action?

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

Why Is Volume Control Being Recommended For This 2001 Crop?

    The Committee recommended volume control the 2001-02 crop year to 
address the oversupply situation being experienced by the industry. 
Specifically, the Committee recommended a marketable quantity of 4.7 
million barrels, an allotment percentage of about 67 percent, and an 
exemption for fresh and organically-grown fruit. For the 2001 crop 
year, continued low grower prices are expected to accompany high 
production and inventories. Many cranberry growers are experiencing 
difficulties dealing with current market conditions.

What Is The Marketable Quantity and Allotment Percentage?

    The marketable quantity is defined as the number of pounds of 
cranberries needed to meet total market demand and to provide for an 
adequate carryover into the next season. The Committee determined that 
the marketable quantity for the 2001-2002 crop year should be 
established at 4.7 million barrels. This proposed rule also contains a 
proposal

[[Page 24292]]

for a marketable quantity of 4.0 million barrels.
    The allotment percentage equals the marketable quantity divided by 
the total of all growers' sales histories. Total growers' sales 
histories were estimated by the Committee to be 7.4 million barrels 
including all sales, and 7.0 million barrels if it includes only 
processed sales. The latter figure is intended to be used if fresh 
fruit is exempt from volume regulation.

How Are Growers' Annual Allotments Calculated?

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

Why Is the Department Soliciting Comments on Alternative Proposals?

    A number of growers favor a marketable quantity of 4.0 million 
barrels because they expect that it will bring grower returns closer to 
the cost of production more quickly than the Committee's 4.7 million 
barrel recommendation. The Department is soliciting comments on both 
levels of regulation because both levels have been determined to have 
the potential to improve grower returns and establish more orderly 
conditions in the cranberry market. Comments are also being solicited 
on not establishing volume regulations and allowing growers and 
handlers to voluntarily and individually decide how much fruit to 
market.

Why Are Additional Comments Being Requested on the Proposal To 
Recalculate Sales Histories?

    A proposed rule to reformulate sales history calculations for the 
2001-2002 crop year was published in the Federal Register on January 
12, 2001, with a comment period ending February 12, 2001. The main 
feature of that proposal was to provide additional sales history for 
acres planted in 1995 or later. At the Committee meeting on February 5, 
2001, concerns were raised that the proposed formula would give an 
unfair advantage to growers who only have acres with 1 to 3 years of 
sales history (as opposed to growers with a combination of mature acres 
and new or replanted acres).
    Under the January 12 proposal, actual sales histories for growers 
with only newer (or replanted) acreage would be computed by dividing 
total sales by the actual number of years plus an adjustment based on 
the year planted. A grower with a combination of mature and newer acres 
would have his/her sales divided by 4 before the adjustment was added. 
At its meeting on February 5, the Committee recommended a modification 
of the sales history calculations so that all growers' sales histories 
would be divided by 4 before the new acreage adjustment is added. The 
January 12 proposal is proposed to be amended to include the sales 
history modification, to withdraw a proposal to reinstate the June 1 
annual allotment notification date, and to correct an inadvertent 
error.

How Can I Comment on This Action?

    Interested persons have 15 days from the date of publication of 
this proposed rule to file written comments. Such comments should be 
sent to: Docket Clerk, Fruit and Vegetable Programs, AMS, USDA, room 
2525-S, P.O. Box 96456, Washington, DC 20090-6456; Fax: (202) 720-8938 
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.

When Will This Action be Effective?

    After analyzing all comments received, the Department will make a 
final decision. We could choose to issue a final rule to set a 
regulation or withdraw this proposal and have no volume restriction in 
place for the 2001 crop. Any final rule issued would be effective for 
the 2001-2002 crop year, which begins on September 1, 2001.

Executive Orders 12866 and 12988

    The Department of Agriculture (Department) is issuing this proposed 
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, a marketable quantity and 
allotment percentage may be established for cranberries during the crop 
year. This proposed rule invites comments on the volume of cranberries 
that handlers may purchase from, or handle for, growers during the 
2001-2002 crop year beginning September 1, 2001, through August 31, 
2002. This proposal would also add a date by which transfers of sales 
histories must be made; streamline the sales history appeal process; 
and give fresh fruit handlers priority in allocating excess allotment. 
It would also modify a previously-issued proposed rule to revise the 
sales history calculations, withdraw a proposed reinstatement of the 
annual allotment notification date, and correct an inadvertent error. 
This proposal will not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with the Secretary a 
petition stating that the order, any provision of the order, or any 
obligation imposed in connection with the order is not in accordance 
with law and request a modification of the order or to be exempted 
therefrom. A handler is afforded the opportunity for a hearing on the 
petition. After the hearing the Secretary would rule on the petition. 
The Act provides that the district court of the United States in any 
district in which the handler is an inhabitant, or has his or her 
principal place of business, has jurisdiction to review the Secretary's 
ruling on the petition, provided an action is filed not later than 20 
days after the date of the entry of the ruling.
    The Committee met on February 5, 2001, to discuss implementing a 
volume regulation to restrict the marketing of the 2001 cranberry crop. 
Because the Committee was divided on the volume of cranberries that 
should be released to market, it established a subcommittee to consider 
volume regulation alternatives to help the industry overcome its 
oversupply situation. Since 1996, cranberry production has been greater 
than demand by increasing margins. Large carryover inventories and 
higher production yields have resulted in a market burdened by large 
supplies and low grower prices. Grower returns have fallen 73 percent 
from 1997 to 2000, dropping from $65.90 to $15-20 per barrel.
    During the 1999 crop year, production totaled 6.34 million barrels, 
a 17 percent increase over 1998. Market demand has not kept up with 
mounting carryover inventories and production.
    The subcommittee, comprised of independent and cooperative growers, 
and a representative of the public, explored various options for 
helping to stabilize market supply and demand conditions in 2001-02. 
After analyzing various alternatives, the subcommittee decided to 
recommend the establishment of a marketable quantity of 4.0 million 
barrels applicable to all sales. The public representative on the 
subcommittee developed an econometric model showing that a marketable 
quantity of 4.0 million barrels would eliminate excess inventories in a 
single year and bring grower prices closer to the cost of production. A 
marketable quantity at this level would permit growers to deliver an 
estimated 54 percent of their sales history to handlers, keeping

[[Page 24293]]

approximately 46 percent of their sales history off the market.
    The econometric model also shows that inventories would decline to 
2.2 million barrels, and that grower prices would increase to $31 per 
barrel. The estimated average cost of production is $35 per barrel, 
although the range in individual costs is quite broad, being as low as 
$15 and as high as $45 per barrel.
    The subcommittee presented its recommendation to the full Committee 
at a March 4-5, 2001, meeting. At that meeting, the full Committee 
discussed the 4.0 million barrel marketable quantity. It indicated that 
it is supportive of raising grower prices and reducing excessive 
inventories. However, it believed that a restriction this large would 
be harmful to the industry in the long run. The Committee believes that 
a more gradual correction in inventory and grower prices is necessary 
to allow efforts to expand demand through the introduction of new 
products and foreign market development. It further believes that a 
substantial price increase in a single season could result in buyers 
substituting other commodities for cranberries in their products. It is 
also the Committee's view that the more restrictive level of regulation 
could result in a less than desirable carryover into the 2002 season. 
It is preferable to freeze and store cranberries for several months 
after harvest in October before processing them. Sales for the first 3 
months of the season are estimated at about 2.0 million barrels.
    In addition, a large number of independent handlers oppose a 
regulation of this magnitude. There is concern that under a 4.0 million 
barrel marketable quantity there will not be enough excess fruit to 
fill their needs. If independent handlers were short of fruit, and not 
able to meet the needs of their customers, they could lose market 
share.
    While acknowledging that bringing grower prices to profitable 
levels is necessary as soon as possible, the Committee also believes 
that it is very important to provide enough fruit for market growth. 
The Committee ultimately recommended a marketable quantity of 4.7 
million barrels to be implemented through an allotment program that 
would permit producers to move about 67 percent of their sales history 
to handlers, applied to processed fruit only. This would result in 
about 33 percent of sales histories being held off the market as 
opposed to approximately 46 percent under the 4.0 million barrel 
proposal. Fresh and organic sales would be exempt under this 
recommendation and add about 300,000 barrels to the available 
marketable supply.
    The Committee believes that a 4.7 million barrel marketable 
quantity is a sustainable solution to eliminating the surplus, because 
it would contribute toward reducing supplies in the short term and 
provide enough fruit to increase demand in the long term. The Committee 
believes that supply reduction and market growth are important to the 
long term viability of the industry.
    After reviewing these alternative proposals, the Department 
believes that each could help the industry solve its oversupply 
problems and improve grower prices. Therefore, the Department is 
soliciting comments on both levels of regulation. The Department is 
also soliciting comments on not establishing volume regulations and 
allowing growers and handlers to voluntarily and individually decide 
how much fruit to market.
    At the March 4-5, 2001, meeting, the Committee also recommended 
adding a date by which transfers of sales histories on leased acreage 
must be completed, deleting the Committee review process from the sales 
history appeals procedures, and giving fresh fruit growers priority in 
the allocation of excess allotment. The Committee also recommended 
revising a sales history reformulation calculation contained in a 
proposed rule published on January 12. The Department is proposing 
withdrawing a proposal to reinstate a June 1 grower allotment 
notification date.

Introduction

    Section 929.49 of the order currently provides that if the 
Secretary finds from the recommendation of the Committee or from other 
available information, that limiting the quantity of cranberries 
purchased from or handled on behalf of growers during a crop year would 
tend to effectuate the declared policy of the Act, the Secretary shall 
determine and establish a marketable quantity for that year. In 
addition, the Secretary would establish an allotment percentage which 
shall equal the marketable quantity divided by the total of all 
growers' sales histories.
    Section 929.49(b) of the order provides that the marketable 
quantity be apportioned among growers by applying the allotment 
percentage to each grower's sales history. Handlers can only purchase 
or handle cranberries that are covered by the grower's annual 
allotment.
    Total growers' sales histories have been estimated by the Committee 
to be about 7.0 million barrels if they include only processed sales, 
and 7.4 million barrels if they include all sales (fresh and 
processed). If fresh fruit sales are exempt from volume regulation, it 
is intended that the 7.0 sales history figure be used. Otherwise, the 
7.4 million barrel sales history would be used.
    Growers are required to file a form with the Committee by April 15 
each year if they wish to receive an annual allotment. Among other 
things, growers also must notify the Committee of any new acreage that 
will be coming into production for the upcoming crop year. The 
Committee notifies each grower of his or her annual allotment and 
notifies each handler of the annual allotment that can be handled for 
each grower whose total crop will be delivered to such handler. In 
cases where a grower delivers a crop to more than one handler, the 
grower may determine how to apportion the annual allotment among those 
handlers.
    A grower who does not produce cranberries equal to his or her 
annual allotment must transfer any unused allotment to such grower's 
handler(s). The handlers are then required to equitably allocate the 
unused allotment to growers with excess cranberries (those not covered 
by allotment) who deliver to those handlers. Unused allotment remaining 
after all such transfers have taken place are transferred to the 
Committee.
    Handlers who receive more cranberries than are covered by their 
growers' annual allotments have excess cranberries. The Committee is 
required to equitably distribute any unused allotment it receives to 
those handlers that have excess cranberries.

The Committee's Marketing Policy for the 2001 Crop

    Section 929.46 of the order requires the Committee to develop a 
marketing policy each year prior to May 1. In its marketing policy, the 
Committee projects expected supply and market conditions for the 
upcoming season, including an estimate of the marketable quantity 
(defined as the number of pounds of cranberries needed to meet total 
market demand and to provide for an adequate carryover into the next 
season).
    At its February 2001 meeting, the Committee estimated 2001-2002 
domestic production of cranberries at 5,675,000 barrels. Carryin as of 
September 1, 2001, is estimated at 3,325,000 barrels. Foreign 
production (primarily Canada) is projected at 835,000 barrels. Allowing 
for shrinkage of approximately 2 percent on carryin and 4 percent on 
production (327,000 barrels), the total adjusted available

[[Page 24294]]

supply of cranberries is expected to be 9,508,000 barrels. Based in 
large part on historical sales figures, the Committee estimated 
utilization of processing fruit at 5,198,000 barrels and of fresh fruit 
at 310,000 barrels. The carryout as of August 31, 2002, is projected to 
be 4 million barrels.
    A summary of the marketing policy follows:

                       Cranberry Marketing Policy
                       [2001 crop year estimates]
------------------------------------------------------------------------
                                                                Barrels
------------------------------------------------------------------------
Carryin as of 9/1/2001......................................   3,325,000
Domestic production.........................................   5,675,000
Foreign production..........................................     835,000
Available supply (sum of the above).........................   9,835,000
Minus shrinkage.............................................     327,000
Adjusted Supply.............................................   9,508,000
Fresh Fruit.................................................     310,000
Processing fruit............................................   5,198,000
Total Sales and Usage.......................................   5,508,000
Carryout as of 8/31/2002....................................   4,000,000
------------------------------------------------------------------------

    The industry is expected to enter the 2001-2002 crop year with 
inventories estimated at about 3,325,000 barrels (assuming USDA 
purchases 1.0 million barrels). This level of inventory, coupled with 
the industry's current capacity to produce in excess of estimated 
demand, has resulted in the industry debating two volume regulation 
levels for the 2001-2002 crop year. These alternatives are discussed 
below.

Option 1

Proposed Establishment of a Marketable Quantity of 4.0 Million Barrels 
and an Allotment Percentage Applicable to All Sales

    As mentioned earlier, in early February 2001, the Committee 
established a volume regulation subcommittee to discuss volume 
regulation methods available under the order. This subcommittee was 
comprised of growers. The subcommittee discussed several issues 
involving the upcoming season and how the order could be used to 
address industry needs. One of the subcommittee's main concerns was 
that grower prices be increased to cover production costs.
    The subcommittee met with handlers in the industry to also try and 
address their concerns for the upcoming season. Some handlers, who do 
not have a large inventory of cranberries, expressed that if there were 
a very restrictive volume regulation, they would not have adequate 
supplies of cranberries to meet their market needs and would have to 
purchase cranberries from their competitors. Moreover, these handlers 
were concerned about availability and about the prices they would have 
to pay for such cranberries.
    The subcommittee also discussed the idea of a buy-back provision in 
a producer allotment program which would allow a handler to buy back 
cranberries from the Committee to fulfill his/her needs. The Committee 
in turn would purchase free cranberries from another handler to replace 
those that were bought back. The subcommittee also discussed the 
possibility of using both of the volume control programs under the 
order, the producer allotment program and handler withholding program, 
in the same crop year. However, buyback is not authorized under an 
allotment program, and the simultaneous use of producer allotments and 
handler withholding is not authorized under current order provisions.
    The subcommittee recommended to the full Committee on March 4, 
2001, by a 6 to 2 vote, that a marketable quantity be set at 4.0 
million barrels for the upcoming season with no exemption for fresh or 
organically-grown fruit. In recommending this level of regulation, the 
subcommittee stated that it would like to decrease excessive industry 
inventories to desirable levels in one year. It believes that by 
reducing inventories, grower prices and revenues will increase. It 
further believes that this level of marketable quantity balances supply 
with demand with a 2.325 million barrel carryout inventory which should 
sufficiently meet the next year's demand until the new crop is properly 
frozen and stored. The subcommittee also believes that this level of 
regulation would bring grower prices closer to the average cost of 
production, and that this would allow growers, both large and small, to 
more easily obtain loans which are used to cover operating and planting 
expenses during the course of the season. Prices have been below the 
average cost of production for several years. Some in the industry have 
informed the Department that lenders are becoming reluctant to fund 
these losses.
    A 4.0 million barrel marketable quantity would result in an 
allotment percentage of about 54 percent based on sales histories of 
about 7.4 million barrels. Sales histories would be set at 7.4 million 
barrels instead of 7.0 million barrels because fresh fruit and organic 
sales would not be deducted from sales histories. The subcommittee 
expects that a marketable quantity at this level would increase grower 
returns to about $31 per barrel. The estimated average cost of 
production is $35 per barrel, although the range in individual costs is 
quite broad, being as low as $15 and as high as $45. The subcommittee 
also felt that a fresh fruit exemption was not necessary, and that it 
could lead to an oversupply of fresh fruit and decrease the value of 
such product.
    The Committee believes that under a 4.0 million barrel marketable 
quantity, there would not be enough carryover fruit in inventory to 
meet market demand early next season (2002-2003). They also expressed 
the belief that a significant increase in grower returns in one season 
may make growers more reluctant to reduce production at this time.

Option 2

Establishment of a Marketable Quantity of 4.7 Million Barrels and an 
Allotment Percentage Applicable to Processed Sales Only

    The subcommittee's recommendations were not adopted by the 
Committee. Instead, the Committee chose to recommend a higher 
marketable quantity of 4.7 million barrels applicable to processed 
sales only. This would add an estimated 300,000 barrels to the 
available marketable supply and set a less restrictive allotment 
percentage (67 percent instead of 54 percent).
    Most independent handlers have indicated that they do not have 
inventories of cranberries to carry into the 2001 season. The Committee 
felt that a restriction based on a marketable quantity of 4.7 million 
barrels applicable to processed sales only would allow handlers to 
purchase additional cranberries if they needed them from other 
handlers, while having adequate supplies to expand markets with new 
products. Some handlers have indicated that they cannot support volume 
regulation unless they have assurances that they will have sufficient 
supplies to meet their customers' needs. They contend that a 4.0 
marketable quantity applicable to all sales would not allow them to 
meet their customers' needs, which could result in giving up market 
share. However, there is no mechanism in the order which could provide 
such assurances.
    The Committee determined that the marketable quantity for the 2001-
2002 crop year should be established at 4.7 million barrels. The 
Committee recommended this volume regulation level by a 6 to 2 vote. 
With sales history estimated at 7 million barrels of processed fruit, 
the allotment percentage would be about 67 percent. Fresh fruit sales 
are not included in the

[[Page 24295]]

sales history figure because fresh fruit would not be covered by the 
allotment percentage. The fresh fruit exemption would add about 300,000 
barrels to the available marketable supply. The Committee determined 
that a 5.0 million barrel available marketable supply (4.7 million-
barrel marketable quantity plus about 300,000 barrels of fresh fruit) 
is an appropriate amount to deplete some of the existing inventory but 
not short the handlers from supplying market needs. Exports are 
expected to increase and enough marketable quantity must be available 
to meet this demand.
    Those voting against this level of regulation wanted a more 
restrictive volume regulation. Those Committee members were also of the 
opinion that cheap and abundant cranberries allow handlers to undercut 
product prices in order to build market share without increasing total 
industry sales or grower returns.
Fresh and Organic Fruit Exemption Recommended by the Committee
    The Committee also recommended that fresh fruit and organically-
grown cranberries be exempted from regulation this season. Fresh and 
organically-grown fruit would be exempt pursuant to Sec. 929.58 of the 
order which provides that the Committee may relieve from any or all 
order requirements cranberries in such minimum quantities as the 
Committee, with the approval of the Secretary, may prescribe.
    Under current marketing practices, there is a distinction between 
cranberries for fresh market and those for processing markets. 
Cranberries intended for fresh fruit outlets are grown and harvested 
differently. Fresh cranberries are dry picked while cranberries used 
for processing are water picked. When cranberries are water picked, the 
bog is flooded and the cranberries that rise to the top are harvested. 
Dry picking is a more labor intensive and expensive form of harvesting. 
Cranberry bogs are designated as ``fresh fruit'' bogs and are grown and 
harvested accordingly. Only the lower quality fruit from a fresh bog 
goes to processing outlets.
    Fresh fruit accounts for less than 6.0 percent of total production. 
The Committee estimated that about 310,000 barrels will be sold fresh 
this year, compared to 280,000 barrels sold last season. All fresh 
cranberries can be marketed and do not compete with processing 
cranberries. Fresh cranberries are seasonal (due to their limited shelf 
life) and are not a part of the growing industry inventories. The 
Committee concluded that fresh supplies do not contribute in any 
meaningful way to the current cranberry surplus. Therefore, the 
Committee recommended that such cranberries be exempt from the 
allotment percentage this rule proposes.
    The Committee addressed the impacts of having a sales history that 
includes only processed fruit, and how the allotment percentage would 
be applied. In the fresh fruit industry, there are instances when 
growers deliver fresh fruit that fails the handler's fresh fruit 
specifications and therefore is used as processing fruit. In this case, 
if a grower has an inadequate processing fruit allotment to cover the 
rejected fruit, the handler can allocate unused allotment from other 
growers to cover the excess. Each handler should give priority to these 
growers when allocating unused allotment to cover excess cranberries. 
This would allow the grower to deliver the rejected fruit for 
processing. This proposal would be implemented by adding a new 
paragraph (f) to Sec. 929.149 of the order's rules and regulations.
    Organically-grown cranberries comprise an even smaller portion of 
the total crop than fresh cranberries. The Committee estimated that 
about 1,000 barrels of organic fruit will be sold this season, compared 
to 450 barrels last season. Organic cranberries are a growing niche 
market and regulating them could have an adverse effect on the 
production and marketing of this product. Like fresh cranberries, 
demand for organic cranberries is in line with the current limited 
production. Thus, organic cranberries do not contribute in any 
meaningful way to the current oversupply experienced with processing 
fruit. The Committee, therefore, recommended that organically-grown 
cranberries be exempt from volume regulation during the upcoming 
season. To be exempt, organic cranberries would have to be certified as 
such by a certifying organization acceptable to the Committee, as 
required under Sec. 929.158 of the order's rules and regulations.

Option 3

Establish No Volume Regulation for the 2001-2002 Crop

    USDA is also soliciting comments on issuing no volume regulation. 
Under this third option, cranberry growers and handlers would 
voluntarily and individually decide how much fruit to market.
    Although this rule proposes two levels of regulation discussed 
within the industry, it is still possible that no volume regulations 
will be implemented for the 2001 crop.
    To fully analyze the issue of an appropriate volume restriction for 
the 2001 cranberry crop, the Department has decided to solicit comments 
on both levels of regulation as well as issuing no volume regulation. 
Comments are invited on which option would be more feasible and why, in 
view of current demand in foreign and domestic markets, and which 
option would be more consistent with the short and long term goals of 
the industry to correct the oversupply situation in the interest of the 
industry and the public, and why.

Appeal Procedures

    The Committee unanimously recommended that the Committee review 
step be removed from the sales history appeals process. Currently, 
Sec. 929.125 provides that a grower may appeal to an appeals 
subcommittee within 30 days of receipt of the Committee's determination 
of his/her sales history. If the grower is not satisfied with the 
subcommittee's decision, the grower may further appeal to the full 
Committee. Such grower must notify the full Committee of his or her 
appeal within 15 days after notification of the subcommittee's 
decision. The Committee has 15 days to review the appeal. The grower 
may further appeal to the Secretary, within 15 days after notification 
of the full Committee's findings, if the grower is not satisfied with 
the Committee's decision. All decisions by the Secretary are final.
    The appeals procedure as described above could take 60 or more days 
to complete. Last season, the Committee recommended and the Department 
approved, removing the Committee's review from the procedures to 
shorten the process. Growers were able to take their appeals directly 
to the Secretary for a final decision if they were not satisfied with 
the appeals subcommittee's determinations.
    The Committee recommended for this season and future seasons that 
the full Committee review step of the appeals process described in the 
rules and regulations be removed in order to expedite the process. The 
appeals subcommittee reviewed over 250 appeals for the 2000-2001 crop 
year. This required many hours of meetings and recalculations of 
appealed sales histories, when warranted. The Committee determined that 
the appeal process, absent Committee review, was efficient and provided 
the grower with a quicker response than would have otherwise occurred. 
Therefore, the Committee recommended that the Committee review of sales 
history appeals is not needed and should be removed from the 
procedures.

[[Page 24296]]

Transfers of Sales Histories on Leased Acreage

    The Committee also unanimously recommended that, during a year of 
volume regulation, transfers of sales histories through partial or 
total leases of acreage only be recognized by the Committee during the 
period January 1 through July 31 of each crop year. The appropriate 
paperwork would have to be received in the Committee's office by close 
of business on July 31.
    Currently, Sec. 929.50 provides that, during a year of regulation, 
no transfer or lease of cranberry producing acreage, without 
accompanying sales history, shall be recognized until the Committee is 
in receipt of a completed transfer or lease form. The Committee has 
found through experience last season that many growers were delaying 
these adjustments until the busy harvest season. The review and 
approval of such transfers required a great deal of time and this 
placed an added burden on the Committee's staff, especially during the 
busy harvest season. Therefore, the Committee recommended that all 
transfers must be received by close of business on July 31 during a 
year of volume regulation. This change would be implemented for the 
2001-2002 season, which begins September 1, 2001. This would allow 
sales histories to be distributed in a more equitable manner and also 
allow the Committee to complete the transfers prior to the busy harvest 
season. All forms associated with this issue have been previously 
approved by the Office of Management and Budget under OMB No. 0581-
0103.
    This proposal would be implemented by adding a new paragraph (d) to 
Sec. 929.110 of the order's rules and regulations.

Amendment of Proposed Rule Published on January 12, 2001

    A proposed regulation to reformulate sales history calculations for 
the 2001-2002 crop year was published in the Federal Register on 
January 12, 2001 (66 FR 2838), with a comment period ending February 
12, 2001. The January proposal would modify the current sales history 
formula to apportion sales histories more equitably among producers. 
The January proposal also would clarify the exemption provisions for 
fresh cranberries under the volume regulation provisions, modify the 
outlets for excess cranberries and reinstate the dates for the 
Committee to notify growers and handlers of their allotments. The final 
rule will include a determination on the January proposals as well as 
the proposals contained in this rule.
    This action proposes amending the January proposal to revise the 
sales history reformulation, and withdraw the proposed reinstatement of 
the June 1 allotment notification date. This action also corrects an 
inadvertent error in the January proposal regarding the definition of 
commercial crop.

Reformulation of Sales History Calculations for the 2001-2002 Crop Year

    Under the January proposal, actual sales histories for growers with 
only newer or replanted acreage were proposed to be computed by 
dividing the total sales by the actual number of years plus an 
adjustment based on the year planted. A grower with a combination of 
mature and newer acreage would have his/her sales divided by 4 before 
the adjustment was added.
    At a Committee meeting on February 5, 2001, concerns were raised 
that the proposed formula would give an unfair advantage to growers who 
only had acres with 1 to 3 years of sales history (as opposed to 
growers with mature acres combined with new or replanted acres). The 
Committee believed that these growers would be provided an adjusted 
sales history in excess of average yields. The Committee recommended 
that the proposal be modified to be more equitable to all growers by 
providing that growers with acreage with 1 to 3 years of sales 
histories divide their total sales by 4 instead of all available years 
and then be provided additional sales history in accordance with the 
formula which is provided in the proposed rule for adjusting sales 
history.
    The Committee's recommendation to modify how sales histories are 
calculated would not change the formula that provides the additional 
sales history. The additional sales history would still be calculated 
using the figures in Table 1.

                             Table 1.--Additional Sales History Assigned to Acreage
----------------------------------------------------------------------------------------------------------------
                                                                              Average sales     Additional 2001
                                                           Expected 2001      history  (bbl/   sales history per
                                                         yield  (bbl/acre)        acre)         acre  (bbl/acre)
----------------------------------------------------------------------------------------------------------------
Date Planted:
    1995...............................................                275                226                 49
    1996...............................................                275                158                117
    1997...............................................                252                 95                157
    1998...............................................                222                 39                183
    1999...............................................                156                  0                156
    2000...............................................                 75                  0                 75
----------------------------------------------------------------------------------------------------------------

    The Committee recommended changing the way the actual sales 
histories are calculated. The January proposal states that for growers 
with 7 or more years of sales a new history would be computed using an 
average of the highest 4 of the most recent 7 years of sales. If the 
growers have acreage with 6 years of sales history, a new sales history 
would be computed by averaging the highest 4 of the 6 years. For 
growers with acreage with 5 years of sales history which was planted 
prior to 1995, a new sales history would be computed by averaging the 
highest 4 of the 5 years.
    For growers with acreage of 5 years or less of sales history 
planted in 1995 or later, the sales history is proposed to be computed 
using the average of all available years and adjusting it by providing 
additional sales history in accordance with the formula. For growers 
with acreage with no sales history or for the first harvest of 
replanted acres, the sales history was proposed to be 75 barrels per 
acre for acres planted or re-planted in 2000 and first harvested in 
2001, and 156 barrels per acre for acres planted or re-planted in 1999 
and first harvested in 2001.
    The portion of the proposal that the Committee is concerned with is 
the calculation for growers with 1 to 3 years of sales history (and no 
mature acres)

[[Page 24297]]

whose total sales from that acreage are divided by all available years. 
The Committee believes that the formula already compensates these 
growers by providing additional sales history as if the grower also had 
mature acres and divided the sales history by 4. The recommendation of 
February 5 proposed that these growers also divide by 4, like every 
other grower is expected to do under this scenario. At the meeting, the 
following examples were used to explain the situation:

Example 1

    A grower with two acres has the following sales history:

 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Sales history
                                                              ------------------------------------------------------------------------------------------
                                                                   1994         1995         1996         1997         1998         1999         2000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Planted 1992.................................................          156          222          252          275          275          275          275
Planted 1996.................................................  ...........  ...........  ...........  ...........          156          222          252
                                                              ------------------------------------------------------------------------------------------
    Total Sales..............................................          156          222          252          275          431          497          527
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Under the proposal of January 12, 2001, this grower's sales history 
would be calculated by totaling the highest 4 years of sales and 
dividing by 4 (275+431+497+527/4) or 432.5 barrels. Using the table for 
assigning additional sales history, this grower would be provided an 
additional 117 barrels for the one acre planted in 1996 for a total 
sales history of 549.5 barrels. This grower's sales history represents 
approximately 275 barrels per acre for each of the two acres, which is 
a reasonable average for acreage of that age.

Example 2

    A grower with one acre has the following sales history:

----------------------------------------------------------------------------------------------------------------
                                                                                    Planted
                                                             ---------------------------------------------------
                                                                  1996         1998         1999         2000
----------------------------------------------------------------------------------------------------------------
Sales.......................................................  ...........          156          222          252
----------------------------------------------------------------------------------------------------------------

    Under the proposal of January 12, 2001, this grower's sales history 
would be the total of the 3 years divided by all available years 
(156+222+252/3) or 210. Using the table for assigning additional sales 
history, this grower would be provided an additional 117 barrels for a 
total of 327 barrels of sales history for 1 acre. The amount of 327 
barrels is far in excess of the average yield for acreage of that age. 
If the total sales were divided by 4 (156+222+252/4), the actual sales 
history would be 157.5 barrels. Using the table for assigning 
additional sales history, this grower would be assigned the same 117 
barrels for a total of 274.5 barrels of sales history. The Committee 
believes this number is more in line with average yields.
    Therefore, the Committee's recommendation would require modifying 
Sec. 929.149 in the following manner: For growers whose acreage has 5 
years of sales history and was planted in 1995 or later, the sales 
history would be computed by averaging the highest 4 of the 5 years and 
adjusting in accordance with Table 1; For growers whose acreage has 4 
years of sales history, the sales history would be computed by 
averaging all 4 years and adjusting in accordance with Table 1; For 
growers whose acreage has 1 to 3 years of sales history, the sales 
history would be computed by dividing the total years sales by 4 and 
adjusting in accordance with Table 1.
    Since this recommendation directly relates to the 2001-2002 volume 
regulation, the Committee's recommendation to modify the sales history 
calculations is being incorporated into this proposal so that 
interested parties are provided the opportunity to comment on this 
modification. This proposed modification to the sales history formula 
should be more equitable to growers in the event volume regulations are 
implemented for the 2001-2002 season.
    Twenty-five comments were received on the January 12, 2001 proposed 
rule. Three comments supported the recalculation of sales history as 
proposed, five comments supported that proposal but recommended 
modifying the way sales histories are calculated as recommended by the 
Committee at its meeting on February 5, 2001, and three comments 
opposed the proposal on sales history reformulation. The remaining 
comments received concerned other changes proposed in the January 12, 
2001, issue of the Federal Register. These comments will be considered 
along with any additional comments received during this comment period 
prior to issuing a final rule.

Reinstatement of Allotment Notification Date

    The proposal of January 12, 2001, proposed reinstating the June 1 
deadline for the Committee to notify growers and handlers of their 
annual allotments. Section 929.49 of the order provides, that in any 
year in which an allotment percentage is established by the Secretary, 
the Committee must notify growers of their annual allotment by June 1. 
That section also requires the Committee to notify each handler of the 
annual allotments for that handler's growers by June 1. The June 1 date 
was indefinitely suspended in the final rule establishing a volume 
regulation for the 2000-2001 crop year (65 FR 42598) to allow adequate 
time for interested parties to comment on the volume regulation 
proposal for that season and for the Department to give due 
consideration to the comments received and issue a final rule.
    The Department has determined that this time is needed again for 
this year's proposed volume regulation. Therefore, the proposal to 
reinstate the June 1 deadline date is being withdrawn.

Definition of Commercial Crop

    The proposal to remove Sec. 929.107 from the rules and regulations 
is not being modified in any way from the proposed rule published 
January 12, 2001. However, in the proposed rule, the removal of this 
section was inadvertently not included in the amendatory text. This 
section would be removed, and that change is included in this document.

[[Page 24298]]

The Regulatory Flexibility Act and Effects on Small Businesses

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA), the Agricultural Marketing Service (AMS) has considered the 
economic impact of this action and alternatives considered on small 
entities. The purpose of the RFA is to fit regulatory actions to the 
scale of business subject to such actions, in order that small 
businesses are not unduly or disproportionately burdened. Marketing 
orders issued pursuant to the Act, and rules thereunder, are unique in 
that they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility. Accordingly, AMS has prepared 
this initial regulatory flexibility analysis.
    According to the Small Business Administration (13 CFR 121.201) 
small handlers are those having annual receipts of less than $5,000,000 
and small agricultural producers are defined as those with annual 
receipts of less than $500,000. Based on recent years' price and sales 
levels, AMS finds that nearly all of the cranberry producers and some 
of the handlers are considered small under the SBA definition. Of the 
1,100 cranberry growers, between 86 and 95 percent are estimated to 
have sales equal to or less than $500,000. Fewer than 60 growers are 
estimated to have sales that would have exceeded this threshold in 
2000. Thus, the consequences of this proposed rule would apply almost 
exclusively to small entities.
    Six handlers handle over 97 percent of the cranberry crop. Using 
Committee data on volumes handled, AMS has determined that none of 
these handlers qualify as small businesses under SBA's definition. The 
remainder of the crop is marketed by about a dozen grower-handlers who 
handle their own crops. Dividing the remaining 3 percent of the crop by 
these grower-handlers, all would be considered small businesses.
    This rule invites comments on whether to establish volume 
regulations and if so, at what level. Two alternatives for volume 
regulation contained in this document would establish a marketable 
quantity and an allotment percentage for cranberries in a 10-State 
production area during the crop year from September 1, 2001, through 
August 31, 2002. Handlers would only be allowed to handle those 
cranberries that are covered by annual allotment. This action proposes 
two levels of volume regulation with the requisite marketable 
quantities and allotment percentages as well as no volume regulation. 
One level of volume regulation includes an exemption for fresh and 
organic cranberries, and the other does not. This proposed rule would 
also add a deadline date by which requests for transfers of sales 
histories on leased acreage must be filed with the Committee, delete 
the Committee review step in the sales history appeal process, and give 
fresh fruit growers whose fruit had to be used for processing due to 
quality or other problems first priority over other growers when excess 
allotment is allocated. Finally, this rule would amend a previously 
issued proposed rule to change the way in which sales histories are 
reformulated, and withdraw a proposal to reinstate a June 1 allotment 
notification date. The RFA analysis in the previous proposal discussed 
the impacts and alternatives relevant to the previously proposed 
amendments. These actions are designed to improve grower returns, 
establish more orderly marketing conditions for cranberries, and 
improve the operation of the volume regulation program.

Industry Profile

    Cranberries are produced in 10 States, but the vast majority of 
farms and production are concentrated in Massachusetts, New Jersey, 
Oregon, Washington, and Wisconsin. Massachusetts was the number one 
producing State until 1990, when Wisconsin took over the lead. Since 
1995, Wisconsin has been the top producing State. Together, both States 
account for over 80 percent of cranberry production.
    Average farm size for cranberry production is very small. The 
average across all producing States is about 33 acres. Wisconsin's 
average is twice the U.S. average, at 66.5 acres, and New Jersey 
averages 83 acres. Average farm size is below the U.S. average for 
Massachusetts (25 acres), Oregon (17 acres) and Washington (14 acres).
    Small cranberry growers dominate in all States: 84 percent of 
growers in Massachusetts harvest 10,000 or fewer barrels of 
cranberries, while another 3.8 percent harvest fewer than 25,000 
barrels. In New Jersey, 62 percent of growers harvest less than 10,000 
barrels, and 10 percent harvest between 10,000 and 25,000 barrels. More 
than half of Wisconsin growers raise less than 10,000 barrels, while 
another 29 percent produce between 10,000 and 25,000 barrels. Similar 
production patterns exist in Washington and Oregon.
    About 94 percent of the cranberry crop is processed, with the 
remainder sold as fresh fruit. In the 1950's and early 1960's, fresh 
production was considerably higher than it is today, and in many years, 
constituted as much as 25 to 50 percent of total production. Fresh 
production began to decline in the 1980's, while processed utilization 
and output soared as cranberry juice products became popular. Today, 
fresh fruit claims only about 5 to 6 percent of total production. Three 
of the top five States produce cranberries for fresh sales. New Jersey 
and Oregon produce fruit for processed products only.

Historical Trends and Near Term Outlook

    The cranberry industry has operated under a Federal marketing order 
since 1962. For many years, the industry enjoyed increasing demand for 
cranberry products, primarily due to the success of cranberry juice-
based drinks. This situation encouraged additional production. Between 
1960 and 1999, production increased from 1.34 million barrels (one 
barrel equals 100 pounds of cranberries) to a record 6.3 million 
barrels. This represents a 370 percent increase from 1960 and a 17-
percent gain from the 1998 crop year. Production in the 2000 crop year 
declined to 5.5 million barrels, due to the use of volume control by 
the industry and a decrease in yields in some production areas due to 
adverse weather conditions during the growing season.
    While production capacity continues to rise, demand has leveled 
off. Over the past several years, per capita consumption of cranberries 
in the United States has averaged 1.69 pounds. Per capita consumption 
peaked in 1994 at 1.80 pounds and began trending downward. In 1999, per 
capita consumption was 1.68 pounds. Associated with these per capita 
consumption figures is the fact that total domestic sales also peaked 
in 1994 at 4,692,507 barrels but declined to 4,506,632 barrels in 1999.
    In 1998, sales totaled 5.1 million barrels, slightly above the 
prior 5-year average. In 1999, sales were 5.5 million barrels, and 
sales for 2000 are estimated at 5.9 million barrels. Most of the recent 
increase in sales can be attributed to stronger activity in export 
markets.
    Increased total supplies in excess of demand have resulted in large 
inventories. Carryin inventories have grown from 883,773 barrels in 
1988 to 3,058,921 barrels in 1999, to 4,273,067 barrels in 2000. From 
1988 through 1997, carryin as a percent of production ranged from 21 to 
36 percent. However, in 1998, carryin as a percent of production 
increased to 40 percent; in 1999 it increased to 49 percent. Carryin

[[Page 24299]]

inventory for the 2000 season exceeded 4 million barrels for the first 
time in the industry's history. Carryin for the 2001 crop is estimated 
at 3.3 million barrels.
    When supply outpaces demand, resulting in high levels of carryover 
inventories, grower prices can be negatively impacted. Grower prices 
rose from $8.83 per barrel in 1960 to a peak level of $65.90 per barrel 
in 1996. These rising price levels provided an incentive for producers 
to expand planted acres and to increase yields. In recent seasons, 
prices have declined dramatically. In 1998, grower prices decreased to 
$36.60 per barrel. The returns for the 1999 crop year were $17.70 per 
barrel. Returns for the 2000 season are expected to be between $15 and 
$20 per barrel. The cost of production ranges from $15 to $45 per 
barrel.
    Similarly, grower revenues have dropped from a high of $350 million 
in 1997 to $112 million in 1999. Grower revenues declined by 68 percent 
in just two growing seasons. Grower revenues are expected to be less 
than $100 million for the 2000 crop year, potentially the first time 
that grower revenues will be less than $100 million since the 1980 crop 
year.

Impacts of Volume Control

    To help stabilize market supply and demand conditions, volume 
regulation was introduced in 2000, marking the first time in 30 years 
that such regulation was implemented. This, in addition to a planned 
government purchase of up to 1,000,000 barrels, assisted somewhat in 
relieving market pressures. Also, yields in parts of the production 
area were below normal due to adverse weather during the growing 
season.
    In an industry such as cranberries, where the product can be stored 
for long periods of time, volume control is a method that can be used 
to reduce supplies so that they are more in line with market needs. 
Large inventories are costly to maintain and, with the outlook for 
continued high production levels, these inventories would be difficult 
to market. Producers may not receive full payment for cranberries 
delivered to storage for several years, and storage costs are deducted 
from their final payment.
    The demand for cranberries is inelastic. A producer allotment 
program results in a decrease in supply because producers can only 
deliver a certain portion of their past sales history. With an 
inelastic demand, a small shift (decrease) in the supply curve results 
in relatively large impacts on grower prices. An allotment program 
results in increasing grower prices and grower revenues.
    The level of unsold inventory, the current capacity to produce in 
excess of expected demand, and continuing low grower prices have 
resulted in the industry debating various alternatives under their 
marketing order.

Level of Volume Restriction for the 2001 Crop

    As previously discussed, two levels of volume regulation for the 
2001 crop have been widely discussed within the cranberry industry in 
recent months and are included in this proposed rule. Also included is 
a proposal to have no volume regulation. The Department believes that 
the two levels of volume regulation proposed could tend to further the 
goals of the Act--that is, improve grower returns and establish more 
orderly conditions in the cranberry market. One of these levels would 
establish a marketable quantity of 4.0 million barrels and an allotment 
percentage of 54, applicable to all fruit. The second would establish a 
marketable quantity of 4.7 million barrels and an allotment percentage 
of 67, with an exemption for fresh and organically-grown fruit.
    To assist in our initial analysis of these options, the Department 
has relied upon an econometric model developed by the University of 
Wisconsin and widely discussed industry to project the impact of each 
on grower returns and revenues for the 2001 crop. We looked at both 
levels of regulation recommended by the industry as well as what might 
occur with no regulation. In making our projections, we used figures 
from the Committee's marketing policy. For example, carryin inventory 
is estimated at 3.325 million barrels, domestic production is estimated 
at 5.675 million barrels, imports are projected at 0.835 million 
barrels, and total sales for the 2001-02 crop year are projected at 
5.508 million barrels. We used a figure of 1.8 million barrels for the 
desirable carryout into the 2002 crop year. The following table 
summarizes our findings.

                                              Marketable Quantities
                                            [In millions of barrels]
----------------------------------------------------------------------------------------------------------------
                                                                                    4.0 with no     4.7 with a
                                                                     No volume      fresh fruit     fresh fruit
                                                                      control        exemption       exemption
----------------------------------------------------------------------------------------------------------------
Supply:
    Domestic production.........................................           5.675           4.000           5.000
    Carrying Inventory..........................................           3.325           3.325           3.325
    Imports.....................................................           0.835           0.835           0.835
    Shrink......................................................           0.327           0.327           0.327
                                                                 -----------------------------------------------
        Total Available Supply..................................           9.508            7.83           8.833
                                                                 ===============================================
Demand:
    Processed Domestic and Export Sales.........................           5.198           5.198           5.198
    Fresh Fruit.................................................           0.310           0.310           0.310
                                                                 -----------------------------------------------
        Total Sales.............................................           5.508           5.508           5.508
    Carryout Inventories........................................           4.000           2.325           3.325
    Desirable Carryout..........................................           1.800           1.800           1.800
    Surplus.....................................................           2.200           0.525           1.525
    Allotment Percentage........................................               0              54              67
                                                                 -----------------------------------------------
        Estimated Price per Barrell.............................          $10.00          $31.00          $19.50
                                                                 -----------------------------------------------
        Estimated Total Revenue (millions)......................         $56.750        $124.000         $97.500
----------------------------------------------------------------------------------------------------------------


[[Page 24300]]

    As shown above, ample supplies are expected to be available during 
the upcoming year, and prices will likely continue to fall in 2001 
without some form of market intervention. Absent any regulation in 
2001, the estimated grower price per barrel is projected to decline to 
$10, grower revenue would drop to $56.75 million, and ending 
inventories would grow to 4 million barrels. Heavy inventories would 
put downward pressure on grower prices for ensuing seasons.
    The second column of the table shows that a 4.0 million barrel 
marketable quantity would result in inventories declining to 2.325 
million barrels, and the grower price increasing to $31 per barrel. 
Total grower revenue under this option is projected to reach $124 
million. Under this option, sales would have to reach 6.0 million 
barrels to reach the desirable carry out level of 1.8 million barrels. 
A marketable quantity of 4.0 million barrels applicable to total sales 
history of an estimated 7.4 million barrels would result in an 
allotment percentage of about 54 percent.
    As shown in the last column, the 4.7 million barrel alternative 
would result in carryout inventories remaining at 3.325 million 
barrels. The grower price would be an estimated $19.50 per barrel, and 
revenues would total $97.5 million. With a marketable quantity of 4.7 
million barrels, sales would have to increase to 6,723,000 barrels to 
reach the desirable carry out inventory level of 1.8 million barrels. 
Under this option, total growers' sales histories are estimated at 7.0 
million barrels of processed sales. Using the formula established under 
the order (4.7 million barrels divided by 7.0 million barrels), the 
annual allotment percentage would be about 67 percent.
    The econometric model looks at the short-term impact of reducing 
supplies at the grower level. According to the above table, of the 
three options presented, the 4.0 million barrel marketable quantity 
alternative would result in the highest grower price for the upcoming 
season, and the lowest level of carry out inventories. However, in 
deciding whether to issue a volume regulation for the 2001 crop, and at 
what level, other factors need to be considered as well.
    As long as production capacity exceeds market demand, the cranberry 
industry will continue to be in a surplus situation. An alternative 
solution to reducing supply through regulation would be to increase 
demand. Supporters of the 4.7 million barrel proposal argue that a more 
restrictive regulation would thwart planned market expansion 
activities. They argue that a more gradual correction in prices is 
needed to increase demand through the introduction of new products and 
export market development. A substantial increase in product cost from 
one season to the next may hinder these expansion efforts, and result 
in a loss of current customers as well.
    Supporters of the 4.0 million barrel proposal argue that until 
inventories are reduced to more desirable levels, grower prices will 
remain low. With cheap cranberries, handlers destructively undercut 
prices to ingredient customers in an attempt to build market share 
without increasing the overall demand for cranberries.
    The probable impact of these alternatives at the handler level also 
needs to be considered. While carry-in inventories are estimated at 
3.325 million barrels, these supplies are expected to be concentrated 
in the hands of only some of the major handlers. The handlers without 
substantial inventories claim that a reduction of their growers' crops 
at the 46 percent level would leave them without enough fruit to supply 
their customers. Overly restricting this year's crop would therefore 
hurt their competitive position by requiring them to surrender market 
share to other handlers. They claim that any losses they incur will be 
passed on to their growers.
    Grower prices are a small component of the cost of finished 
cranberry products, and are not closely associated with movements in 
retail prices. Neither level of volume regulation is expected to have a 
meaningful impact on the retail price of cranberry products.
    We are soliciting comment on all three alternatives, including the 
short term and longer range impacts of these alternatives at the 
grower, handler, and consumer levels.

Exemption for Fresh and Organically-Grown Fruit

    The Committee also recommended that organic cranberries be exempt 
from volume regulations. Fresh and organically-grown fruit would be 
exempt pursuant to ' 929.58 of the order which provides that the 
Committee may relieve from any or all requirements, cranberries in such 
minimum quantities as the Committee, with the approval of the 
Secretary, may prescribe.
    Fresh fruit accounts for about 6 percent of the total production. 
The Committee estimated that about 310,000 barrels will be sold fresh 
this year, compared to 280,000 barrels sold last season. All fresh 
cranberries can be marketed and do not compete with processing 
cranberries. Fresh cranberries are seasonal (due to their limited shelf 
life) and are not part of the growing industry inventories. The 
Committee recommended that such cranberries be exempt from the proposed 
allotment percentage.
    Organically-grown cranberries comprise an even smaller portion of 
the total crop than fresh cranberries do. The Committee estimated that 
about 1,000 barrels of organic fruit will be sold this season, compared 
to 450 barrels last season. Organic cranberries are a growing niche 
market and regulating them could have an adverse effect on marketing 
this product. Demand for organic cranberries is in line with the 
current limited production. Thus, all organic cranberries can be 
marketed, and they do not contribute in any meaningful way to the 
current oversupply experienced with processing fruit. The Committee 
therefore recommended that organically-grown cranberries be exempt from 
volume regulation during the upcoming season.
    The supporters of the 4.0 million barrel level of regulation felt 
that a fresh fruit exemption was not necessary and that it added 
administration problems for the Committee. Growers who delivered fresh 
and processed fruit last season were able to deliver all of their 
processed fruit since such grower's sales history contained processed 
and fresh fruit sales. They also believe that an exemption could result 
in an oversupply in the fresh fruit market.

Revision in the Appeals Process

    The Committee also unanimously recommended that the appeals process 
be shortened by removing the Committee's review. Currently, 
Sec. 929.125 provides an appeal procedure for growers that are 
dissatisfied with a determination made pursuant to Sec. 929.48(a) and 
(b) of the order which describes the computation of a grower's sales 
history.
    Currently, Sec. 929.125 provides that a grower may appeal to an 
appeals subcommittee within 30 days of receipt of the Committee's 
determination of his/her sales history. If the grower is not satisfied 
with the subcommittee's decision, the grower may further appeal to the 
full Committee. Such grower must notify the full Committee of his or 
her appeal within 15 days after notification of the subcommittee's 
decision. The Committee has 15 days to review the appeal. The grower 
may further appeal to the Secretary, within 15 days after notification 
of the full Committee's findings, if the grower is not satisfied with 
the Committee's decision. All decisions by the Secretary are final.

[[Page 24301]]

    The appeals procedure as described above could take 60 or more days 
to complete. Last season, the Committee recommended and the Department 
approved through rulemaking, the suspension of the Committee's review 
from the procedures to shorten the process. Thus, growers were able to 
take their appeals directly to the Secretary for a final decision if 
they are not satisfied with the appeals subcommittee's determinations. 
The Committee believes that this process would prove to be more 
efficient in considering grower appeals, and recommended that the 
Committee review be permanently removed from the appeals procedure.

Establishment of a July 31 Deadline for Transfers of Sales History

    The Committee also unanimously recommended that, during a year of 
volume regulation, transfers of annual allotments through partial or 
total leases of acreage would only be recognized by the Committee 
through July 31 of each crop year. The appropriate paperwork would have 
to be received in the Committee's office by close of business on July 
31.
    Currently, Sec. 929.50 provides that, during a year of regulation, 
no transfer or lease of cranberry producing acreage, without 
accompanying sales history, shall be recognized until the Committee is 
in receipt of a completed transfer or lease form. The Committee has 
found through experience last season that many growers were leasing 
acreage and transferring sales history many times throughout the season 
and even after harvest. Growers were able to take advantage of 
additional sales history through these transactions. In addition, such 
actions require a great deal of time on the part of Committee staff, 
and became particularly burdensome during the busy harvest season.
    Therefore, the Committee recommended that all transfers must be 
received by close of business on July 31 during a year of volume 
regulation. This would allow sales histories to be distributed in a 
more equitable manner and also allow the Committee to complete the 
transfer prior to the busy harvest season.

Amendments to January Proposed Rule

    The amendments to the sales history calculations proposed in this 
rule would benefit a majority of growers, and would be especially 
beneficial to growers who planted acreage in 1995 or later and growers 
who have a combination of mature acres and acreage planted in 1995 or 
later. Specifically, the amendment to the sales history calculation 
modifies the way growers' sales histories are calculated so that the 
additional sales history provided is more in line with average acreage 
yields. The amendment also ensures that growers with mature acreage who 
also have newer acreage and growers with only newer acreage are treated 
equitably. Approximately 30 percent of all cranberry acreage was 
planted in 1995 or later and would be impacted by this proposed 
amendment.
    The amendment to the January 12 proposal would also withdraw the 
proposed reinstatement of the June 1 allotment notification date. 
Reinstating this date would be impractical and therefore is being 
withdrawn from the proposal. The January proposal is also being amended 
to include the removal of the section on determining cranberry acreage 
which was inadvertently omitted from the January proposal. This 
amendment merely corrects that omission.
    In the event volume regulations are implemented for the 2001-2002 
crop year, these proposed further changes would have a positive effect 
on all growers and handlers because they would more equitably provide 
additional allotment for newer or replanted acreage, and clarify the 
present regulations.

Other Alternatives Considered

Withholding Volume Regulation
    The marketing order provides for two methods of volume controls, 
the producer allotment and the withholding programs. Prior to 
recommending a producer allotment program for the 2001-2002 crop, the 
Committee also considered the benefits of a withholding program.
    Unlike the producer allotment program which allows cultural 
practices to be changed at the grower level closer to harvest, growers 
deliver all their cranberries to their respective handlers under the 
withholding program. The handler is responsible for setting aside 
restricted cranberries and ultimately disposing of the cranberries in 
authorized noncommercial and noncompetitive outlets. This could result 
in a large volume of cranberries being disposed of and perhaps 
destroyed. In addition, the withholding provisions require that all 
withheld cranberries be inspected by the Federal or Federal-State 
Inspection Service, which would add costs. Although the benefits to 
growers under a withholding program are that all cranberries can be 
delivered to handlers, growers would generally only be paid by their 
handlers for unrestricted cranberries. In addition, it would be 
expected that costs associated with disposal of withheld cranberries 
would be deducted from grower returns, further reducing grower 
revenues. This could result in grower returns well below cost of 
production.
    As with the 2000-2001 volume regulation, the Committee again 
determined that the producer allotment method of volume regulation was 
preferable over the withholding method. The producer allotment program 
allows for less fruit to be produced and would not require the disposal 
of as many cranberries as with the withholding provisions. In addition, 
inspections are not required under the producer allotment method, which 
is more cost effective and would be simpler to administer. This helps 
growers reduce some of the variable costs associated with preparing and 
maintaining a bog for production and harvest.
Establishing a Cranberry Marketing Pool Under a Producer Allotment 
Program
    A group of independent handlers indicate that any volume regulation 
cannot be supported unless there are some assurances that sufficient 
supplies of cranberries would be made available to meet their customer 
needs. Most independent handlers claim that they do not have 
inventories of cranberries to carry into the new season. Although 
handler to handler purchases are a normal business practice (with or 
without a volume regulation), a producer allotment restriction 
increases the need for handlers to purchase from handlers with 
inventories to maintain market share. Some handlers believe this places 
them in a vulnerable position, needing more fruit than normal from 
their competitors.
    The marketing order does not contain a mechanism to provide the 
assurances some of the independent handlers are seeking. The amendment 
subcommittee is working towards amending the order to incorporate a 
handler marketing pool, whereby a specified amount of cranberries would 
be pooled to allow for handlers with little or no inventories to 
purchase cranberries at a price established by the Committee. However, 
amending the order in this manner cannot be accomplished prior to the 
2001 season.
Using All or Part of Both Methods of Volume Regulation in the Same Year
    Also considered by the Committee was utilizing both methods of 
volume regulation in the same year. Some growers and handlers believe 
that the producer allotment program does not adequately address all the 
concerns faced by the different segments of the

[[Page 24302]]

industry. It was thought that using the most useful parts of each 
program would address a broader range of issues. For example, under the 
withholding program, handlers can apply to the Committee for a release 
of their restricted cranberries. To receive a release, they have to 
deposit with the Committee an amount equal to the fair market value of 
the cranberries they want to be released. The fair market value is 
determined by the Committee. The Committee uses these funds to purchase 
an equal amount of free cranberries from other handlers and to dispose 
of those cranberries. This provision of the withholding program is 
referred to as the ``buy-back'' provision.
    Some growers and handlers indicated if there were a buy-back 
provision under the producer allotment program, the concern of handlers 
without inventories having access to fruit would be specifically 
addressed. There is no authority in the marketing order to use both 
methods of volume control concurrently, and buy-back cannot be used 
under the producer allotment program. Additionally, the intent of a 
producer allotment program is to discourage production at the grower 
level so that less fruit is delivered to handlers. Establishing a 
``buy-back'' under a producer allotment program is problematic for that 
reason. If growers believed that some of their excess fruit could 
eventually be ``bought back'', increased production could be 
encouraged, defeating the purpose of the program. Also, it is unclear 
exactly what amount would be ``bought back'.
    Other growers and handlers have indicated that if a producer 
allotment and a withholding program were recommended in the same year, 
growers would still be encouraged to reduce growing and handlers would 
be in a position to buy-back berries to meet market needs. For example, 
if a 20 percent restriction under a producer allotment were recommended 
in February for the upcoming season, growers would be encouraged to 
reduce production. If a withholding provision were recommended in 
August of the same year with a restricted percentage of 10 percent, 
handlers would have the opportunity to buy back cranberries to meet 
their marketing needs.
    Section 929.52 of the order specifies that either a withholding or 
a producer allotment program may be implemented during any fiscal 
period, not both. Also, further discussion is needed to determine what 
problems would be associated with implementing both programs in one 
year, if authorized. The amendment subcommittee is considering this as 
an amendment to the order.
    The Committee recommendation for a 4.7 million barrel marketable 
quantity resulting in an allotment percentage of about 67 percent 
passed by a six to two vote. As discussed earlier, the persons voting 
against the recommendation wanted a more restrictive allotment 
percentage that would in turn increase returns to growers to cover 
production costs. All of the other recommendations were passed by 
unanimous votes. The other changes discussed in this document are 
designed to improve the operation of the volume regulation should 
volume regulation be implemented for the 2001-2002 season.
    The subcommittee's proposal of setting the marketable quantity at 
4.0 million barrels and an allotment percentage of about 54 percent 
passed by a 6 to 2 vote. Those voting against the recommendation 
favored a higher marketable quantity.
    As with all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sectors.
    As previously discussed in the proposed rule published on January 
12, 2001, that proposed rule would necessitate reconfiguring one form 
currently approved by OMB. The form is entitled CMC-AL 1, Growers 
Notice of Intent to Produce and Qualify for Annual Allotment. Growers 
are required to supply the Committee with information relative to their 
cranberry acreage in order to qualify for an annual allotment. The 
information includes how many existing and new acres would be producing 
cranberries in the following season and who would be handling the 
cranberries. The estimated time for 1,285 growers to complete this form 
is 20 minutes, once a year, for total annual burden hours of 424.05. If 
the relevant portion of that proposed rule were implemented, the 
Committee would reconfigure this form to ensure that information 
relative to this proposal would be included, particularly the date of 
planting of the acreage. The burden hours of the form would not change 
and the reconfigured form would be submitted to OMB to replace the 
current form.
    All of the forms associated with the transfer of sales histories 
associated with leases have been previously approved by OMB. There are 
also some other reporting and recordkeeping and other compliance 
requirements under the marketing order. The reporting and recordkeeping 
burdens are necessary for compliance purposes and for developing 
statistical data for maintenance of the program. The forms require 
information which is readily available from handler records and which 
can be provided without data processing equipment or trained 
statistical staff. This rule does not change those requirements.
    In compliance with Office of Management and Budget (OMB) 
regulations (5 CFR Part 1320) which implement the Paperwork Reduction 
Act of 1995 (44 U.S.C. Chapter 35), the information collection and 
recordkeeping requirements imposed by this order have been previously 
approved by OMB and assigned OMB Number 0581-0103.
    The Committee's meetings were widely publicized throughout the 
cranberry industry and all interested persons were invited to attend 
them and participate in Committee deliberations. Like all Committee 
meetings, the March 4-5, 2001, meeting was a public meeting and all 
entities, both large and small, were able to express their views on 
these issues.
    The Committee itself is composed of eight members, of which seven 
members are growers and one represents the public. Also, the Committee 
has a number of appointed subcommittees to review certain issues and 
make recommendations. The Committee manager also held several meetings 
with growers throughout the production area to discuss the methods of 
volume regulation and the procedures for regulation.
    The Department has not identified any relevant Federal rules which 
duplicate, overlap or conflict with this rule.
    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.
    A 15-day comment period is provided to allow interested persons to 
respond to this proposal. Fifteen days is deemed appropriate because 
this rule, if adopted, needs to be in place as soon as possible to 
allow growers to implement cultural practices that could curtail the 
production of the crop should volume regulation be implemented for the 
2001-2002 season. All written comments timely received will be 
considered before a final determination is made on this matter.

[[Page 24303]]

List of Subjects in 7 CFR Part 929

    Cranberries, Marketing agreements, Reporting and recordkeeping 
requirements.

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

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

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

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


Sec. 927.107  [Removed]

    2. Section 929.107 is removed.
    3. Section 929.110(d) is added to read as follows:


Sec. 929.110  Transfers or sales of cranberry acreage.

* * * * *
    (d) During a year of regulation, all transfers of growers' sales 
histories for partial or total leases of acreage shall be received in 
the Committee office by close of business on July 31.
    4. Section 929.125 is revised to read as follows:


Sec. 929.125  Committee review procedures.

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


Sec. 929.149  Determination of sales history.

    A sales history for each grower shall be computed by the Committee 
in the following manner.
    (a) For each grower with acreage with 7 or more years of sales 
history, a new sales history shall be computed using an average of the 
highest 4 of the most recent 7 years of sales. If the grower has 
acreage with 6 years sales history, a new sales history shall be 
computed by averaging the highest 4 of the 6 years. If the grower has 
acreage with 5 years of sales history and such acreage was planted 
prior to 1995, a new sales history shall be computed by averaging the 
highest 4 of the 5 years.
    (b) For growers whose acreage has 5 years of sales history and was 
planted in 1995 or later, the sales history shall be computed by 
averaging the highest 4 of the 5 years and shall be adjusted as 
provided in paragraph (d). For growers whose acreage has 4 years of 
sales history, the sales history shall be computed by averaging all 4 
years and shall be adjusted as provided in paragraph (d). For growers 
whose acreage has 1 to 3 years of sales history, the sales history 
shall be computed by dividing the total years sales by 4 and shall be 
adjusted as provided in paragraph (d).
    (c) For growers with acreage with no sales history or for the first 
harvest of replanted acres, the sales history will be 75 barrels per 
acre for acres planted or re-planted in 2000 and first harvested in 
2001 and 156 barrels per acre for acres planted or re-planted in 1999 
and first harvested in 2001.
    (d) In addition to the sales history computed in accordance with 
paragraphs (a) and (b) of this section, additional sales history shall 
be assigned to growers with acreage planted in 1995 or later. The 
additional sales histories depending on the date the acreage is planted 
are shown in Table 1.

         Table 1.--Additional Sales History Assigned to Acreage
------------------------------------------------------------------------
                                                              Additional
                                                              2001 sales
                        Date planted                         history per
                                                                 acre
------------------------------------------------------------------------
1995.......................................................           49
1996.......................................................          117
1997.......................................................          157
1998.......................................................          183
1999.......................................................          156
2000.......................................................           75
------------------------------------------------------------------------

    (e) Sales histories shall be calculated separately for fresh and 
processed cranberries. Fresh fruit sales history, in whole or in part, 
may be added to process fruit sales history with the approval of the 
Committee in the event that the grower's fruit does not qualify as 
fresh fruit at delivery because of quality reasons.
    (f) If a grower's fruit does not qualify as fresh fruit upon 
delivery to the handler, and it is converted to processed fruit, the 
handler shall give priority to this grower when allocating unused 
allotment if the grower does not have sufficient processed sales 
history to cover the converted fruit.
    6. A new section 929.251 is added to read as follows:

Option 1


Sec. 929.251  Marketable quantity and allotment percentage for the 
2001-2002 crop year.

    The marketable quantity for the 2001-2002 crop year is set at 4.7 
million barrels and the allotment percentage is designated at about 67 
percent. Fresh and organically grown fruit shall be exempt from the 
volume regulation provisions of this section.

Option 2


Sec. 929.251  Marketable quantity and allotment percentage for the 
2001-2002 crop year.

    The marketable quantity for the 2001-2002 crop year is set at 4.0 
million barrels and the allotment percentage is designated at about 54 
percent.

Option 3

    Issue no volume regulation for the 2001-2002 crop year.

    Dated: May, 8, 2001.
Kenneth C. Clayton,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 01-11987 Filed 5-9-01; 2:00 pm]
BILLING CODE 3410-02-P