[Federal Register Volume 66, Number 124 (Wednesday, June 27, 2001)]
[Rules and Regulations]
[Pages 34332-34352]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16109]



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Part II





Department of Agriculture





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Agricultural Marketing Service



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7 CFR Part 929



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; 
Final Rule

  Federal Register / Vol. 66, No. 124 / Wednesday, June 27, 2001 / 
Rules and Regulations  

[[Page 34332]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 929

[Docket Nos. FV01-929-2 FR and FV00-929-7 FR]


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: Final rule.

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SUMMARY: This rule establishes a marketable quantity of 4.6 million 
barrels and an allotment percentage of 65 percent for the 2001-02 
cranberry season which begins September 1. The marketable quantity is 
the total amount of fruit that handlers may purchase from, or handle 
for, growers during the season. Fresh and organically-grown cranberries 
are exempt from the volume limitations to facilitate marketing of these 
products. This final rule also modifies the way growers' sales 
histories are calculated (including deducting fresh sales), streamlines 
the sales history appeals procedure, adds a deadline for transfers of 
sales histories, clarifies the outlets for excess cranberries, and 
withdraws a proposed reinstatement of the June 1 allotment notification 
date. These actions are designed to stabilize cranberry market 
conditions, improve grower returns, provide for a more equitable 
allocation of the marketable quantity among growers, and improve the 
administration of the cranberry producer allotment program.

EFFECTIVE DATE: This final rule becomes effective June 28, 2001.

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 Kathleen M. Finn, 
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 final rule is issued under Marketing 
Order No. 929 (7 CFR part 929), as amended, regulating the handling of 
cranberries grown in Massachusetts, Rhode Island, Connecticut, New 
Jersey, Wisconsin, Michigan, Minnesota, Oregon, Washington, and Long 
Island in the State of New York. The order is effective under the 
Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-
674), hereinafter referred to as the ``Act.''

Question and Answer Overview

When Will This Final Rule Be Effective?

    The final rule is effective on June 28, 2001, and the volume 
regulation will apply to the 2001-2002 crop year which begins on 
September 1, 2001, and ends on August 31, 2002.

Who Will Be Affected by This Action?

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

Why Is Volume Control Being Implemented This Year?

    In recent years, cranberry production has exceeded market demand, 
resulting in building inventories and dramatic declines in grower 
prices. In 2000, the Cranberry Marketing Committee (Committee) 
recommended the use of volume regulation to bring supplies more in line 
with demand. The Committee recommended using regulation again in the 
upcoming season to continue the effort to restore economic health to 
the cranberry industry.
    The use of volume control is not the only avenue that is being used 
to address the current oversupply situation. The industry is also 
looking into methods of increasing demand by developing new markets, 
both domestic and foreign, developing new products, and increasing 
promotion efforts.

What Is Marketable Quantity and Allotment Percentage?

    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 marketable quantity for 
the 2001-2002 crop year is being established at 4.6 million barrels. 
Sales of fresh and organically-grown fruit are exempt from the volume 
regulation.
    The allotment percentage equals the marketable quantity divided by 
the total of all growers' sales histories. Total growers' sales 
histories were set by the Committee at 7.1 million barrels. Using the 
formula established under the order (4.6 million barrels divided by 7.1 
million barrels), the annual allotment percentage is 65 percent.

How Are Growers' Annual Allotments Calculated?

    A grower's annual allotment is the result of multiplying the 
individual grower's sales history by the 65 percent allotment 
percentage.

How Will Sales Histories Be Calculated This Year?

    The Committee is responsible for calculating each grower's sales 
history on an annual basis. The way sales histories are being 
calculated for the 2001-2002 season is modified so that the marketable 
quantity is apportioned more equitably among producers.
    For growers with 7 or more years of sales history, a new sales 
history will be computed using an average of the highest 4 of the most 
recent 7 years of sales. For growers with 6 years of sales history, a 
new sales history shall be computed by averaging the highest 4 of the 
most recent 6 years.
    For growers with 5 years of sales history, a new sales history will 
computed by averaging the highest 4 of the 5 years. Additional sales 
history will be added for acreage planted in 1995 or later in 
accordance with a formula developed by the Committee.
    For growers whose acreage has 5 years of sales history and was 
planted in 1995 or later, the sales history will be computed by 
averaging the highest 4 of the 5 years and adjusting in accordance with 
the established formula. For growers whose acreage has 4 years of sales 
history, the sales history will be computed by averaging all 4 years 
and adjusting in accordance with the established formula. For growers 
whose acreage has 1 to 3 years of sales history, the sales history will 
be computed by dividing the total years' sales by 4 and adjusting in 
accordance with the established formula.
    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 replanted in 2000 and first harvested in 
2001, and 156 barrels per acre for acres

[[Page 34333]]

planted or replanted in 1999 and first harvested in 2001.
    In addition, fresh sales will be deducted from each grower's sales 
history. This is because fresh fruit sales are exempt from volume 
regulation.

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

    If growers are dissatisfied with their sales history as calculated 
by the Committee, they can appeal to the appeals subcommittee appointed 
by the Committee. If growers are not satisfied with the decision by the 
appeals subcommittee, they may further appeal to the Secretary of 
Agriculture. All decisions by the Secretary will be final.
    Growers may appeal if they believe the figures used in the sales 
history calculation are incorrect or if they believe the calculation 
was incorrectly performed by the Committee staff.
    Appeals should be filed with David N. Farrimond, General Manager, 
Cranberry Marketing Committee, 266 Main Street, Wareham, Massachusetts 
02571; Telephone: (800) 253-0862; or Fax (508) 291-1511.

Executive Orders 12866 and 12988

    The Department of Agriculture (Department) is issuing this final 
rule in conformance with Executive Order 12866.
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. Under the marketing order provisions now in effect, a 
marketable quantity and allotment percentage may be established for 
cranberries during a crop year. This rule establishes the quantity 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 rule also modifies the way growers' sales 
histories are calculated; streamlines the sales history appeal process; 
adds a deadline for transfers of sales histories; clarifies provisions 
pertaining to the use of excess cranberries; and withdraws a proposed 
reinstatement of the June 1 allotment notification date. This action 
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.

Introduction

    The U.S. cranberry industry is experiencing an oversupply 
situation. Recent increases in acreage and yields have resulted in 
greater supplies, while demand has remained fairly constant. The result 
has been building inventories and reduced grower returns.
    In recent years, the Committee has been considering ways in which 
the marketing order could be used to address this situation. After much 
debate, the Committee recommended the use of volume regulation (in the 
form of producer allotments) during the 2000-01 season for the first 
time in over 30 years.
    Based on industry experience during the 2000-01 season, the 
Committee recommended late last year to change some provisions of the 
order's rules and regulations pertaining to the producer allotment 
program. This was done to prepare for the possibility that volume 
regulation would be needed again in the 2001-02 season. The changes 
recommended were to modify the way in which growers' sales histories 
are calculated, clarify the fresh fruit exemption, modify the outlets 
for excess cranberries, and reinstate the June 1 allotment notification 
date. These changes were proposed in a rule published in the Federal 
Register on January 12, 2001 [66 FR 2838]. Comments on that proposed 
rule were due on February 12, 2001.
    Subsequently, in a meeting held March 4-5, 2001, the Committee 
recommended establishing a marketable quantity of 4.7 million barrels 
and an allotment percentage of 67 percent for the 2001-02 season (with 
an exemption for fresh and organically-grown fruit). At that meeting, 
the Committee also recommended a further revision in the way sales 
histories are calculated, establishing a deadline for transfers of 
sales histories, and streamlining the sales history appeals procedure. 
These recommendations were included in a proposed rule published in the 
Federal Register on May 14, 2001 [66 FR 24291]. Also included in that 
rule were alternative proposals to establish a marketable quantity of 4 
million barrels with an allotment percentage of 54 percent and no 
exemptions for fresh or organically-grown fruit; and to establish no 
volume restrictions for the upcoming season. In that rule, the 
Department also proposed withdrawing the reinstatement of the June 1 
allotment notification date. Comments on the second proposed rule were 
due May 29, 2001.
    This rule finalizes the actions proposed in both the January 12 and 
May 14 proposed rules.

History of the Marketing Order

    The cranberry industry has operated under a Federal marketing order 
since 1962. The order's primary regulatory authority is volume 
regulation. At that time, production was trending sharply upward, due 
primarily to improving yields, and demand was not keeping pace. The 
intent of the program was to limit the volume of cranberries available 
for marketing in fresh market outlets in the United States and Canada, 
and in all processing outlets, to a quantity reasonably in balance with 
the demand in such outlets. This method of controlling volume was the 
``withholding'' provisions whereby ``free'' and ``restricted'' 
percentages would be established. Growers would deliver all contracted 
cranberries to their respective handlers. Free cranberries could be 
marketed by handlers in any outlet, while restricted berries would have 
to be withheld from handling and, if possible, diverted by handlers to 
noncompetitive markets. The withholding program has not been used since 
1971.
    The order was amended in 1968 to authorize another form of volume 
regulation--producer allotments. The intent was to discourage new 
plantings and allow growers to remove surplus berries in a more 
economical manner, by reducing their production to approximate the 
marketable quantity or by leaving excess berries unharvested.
    Production had continued to increase, and the industry was 
reluctant to recommend a sufficient restricted percentage under the 
withholding regulations. Under the producer allotment program, growers 
were issued base quantities. Base quantity was the quantity of 
cranberries equal to a grower's established cranberry acreage 
multiplied by such grower's average per acre sales made from the 
acreage during a representative period. If the allotment base program 
were activated, each handler would be allowed to acquire for normal 
marketing only a certain

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percentage of each grower's base quantity. This authority was used to 
establish a regulation for the 1977-78 season, but that regulation was 
subsequently rescinded.
    In 1992, the producer allotment provisions were amended to change 
the method of calculating growers' annual allotments from the base 
quantity method to a sales history method. Under this amendment, a 
grower's sales history is calculated based on a grower's actual sales, 
expressed as an average of the best 4 of the previous 6 years of sales. 
There were concerns that base quantities did not accurately reflect 
actual levels of sales because as growers' acreage increased or 
decreased, the base quantity did not change. It was concluded that 
basing allotments on actual sales off acreage would be a more realistic 
and practical way to determine annual allotments. These provisions were 
first used in the 2000-2001 season.

Producer Allotment Order Provisions

    Section 929.49 of the order currently provides that if the 
Secretary finds from the recommendation of the Committee or from other 
available information, that limiting the quantity of cranberries 
purchased from or handled on behalf of growers during a crop year would 
tend to effectuate the declared policy of the Act, the Secretary shall 
determine and establish a marketable quantity for that year. In 
addition, the Secretary would establish an allotment percentage which 
shall equal the marketable quantity divided by the total of all 
growers' sales histories. The allotment percentage would be applied to 
each grower's individual sales history to derive each grower's annual 
allotment. Handlers cannot handle cranberries unless they are covered 
by a grower's annual allotment.
    Section 929.48 of the order provides for computing growers' sales 
histories. Sales history is defined in Sec. 929.13 as the number of 
barrels of cranberries established for a grower by the Committee. The 
Committee updates growers' sales histories each season. The Committee 
accomplishes this by using information submitted by the grower on a 
production and eligibility report filed with the Committee. The order 
sets forth that a grower's sales history is established by computing an 
average of the best 4 years' sales out of the last 6 years' sales for 
those growers with existing acreage. For growers with 4 years or less 
of commercial sales history, the sales history would be calculated 
(prior to the 2000-01 volume regulation) by averaging all available 
years of such grower's sales. A new sales history for a grower with no 
sales history is calculated by using the State average yield per acre 
or the total estimated commercial sales, whichever is greater. This 
section also provides the authority for calculating new sales histories 
for growers after each crop year where a volume regulation was 
established using a formula recommended by the Committee and approved 
by the Secretary.
    Section 929.49 provides that the Committee must notify each grower 
of his or her annual allotment, and must notify 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 to 
more than one handler, the annual allotment will be apportioned among 
those handlers.
    The order provides for the transfer of any unused grower allotment 
to the 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 who have excess cranberries.
    Section 929.59 defines excess cranberries as cranberries withheld 
by handlers after all unused allotment has been allocated. This 
provision also provides for handlers to notify the Committee by January 
1 of a written plan to dispose of excess cranberries and to dispose of 
them by March 1. Section 929.61 of the order provides the authority for 
establishing outlets for excess cranberries.
    Section 929.58 of the order provides for relieving from any or all 
requirements of the order the handling of cranberries in such minimum 
quantities as the Committee, with the approval of the Secretary, may 
prescribe. The exemption for fresh and organically-grown cranberries 
was implemented in 2000 under the authority in this section.

Marketable Quantity, Allotment Percentage and Sales Histories

    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).

The Committee's Marketing Policy for the 2001 Crop

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

Summary of Options

    The rule published on May 14, 2001, proposed three options of 
volume regulation. The first option was recommended by the Committee to 
establish a marketable quantity of 4.7 million barrels and an allotment 
percentage of 67 percent. This percentage would be applicable to 
processed sales only since fresh fruit

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and organically grown cranberries would be exempt.
    The second option was recommended by a volume regulation 
subcommittee and supported by a number of mostly independent growers. 
This option would establish a marketable quantity of 4.0 million 
barrels and an allotment percentage of 54 percent. This percentage 
would be applied to all sales of cranberries.
    Finally, a third option proposed by USDA would establish no volume 
regulation for the upcoming season. Cranberry growers and handlers 
would voluntarily and individually decide how much fruit to market.

Volume Regulation for the 2001-2002 Season

    The Committee met on February 5, 2001, to discuss implementing a 
volume regulation to restrict the marketing of the 2001 cranberry crop. 
The Committee 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 
growing production, resulting in mounting carryover inventories.
    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 
approximately 46 percent of their sales history off the market.
    The econometric model shows that grower prices would increase to 
$31 per barrel. Under this scenario, inventories would decline to 2.325 
million barrels. 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. The Committee 
indicated that it was supportive of improving grower returns 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, most independent handlers oppose a regulation of this 
magnitude. There is concern that under a 4.0 million barrel marketable 
quantity, there would not be enough 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 to 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.
    Based upon an initial review of these alternative levels of 
regulation, the Department concluded that both could tend to effectuate 
the goals of the Act, which are to improve grower prices and establish 
more orderly marketing conditions. Additionally, the Department 
considered the possibility of having no volume restriction for the 
upcoming cranberry season, and allowing growers and handlers to 
individually and voluntarily decide how much fruit to market. 
Therefore, a proposed rule was issued which solicited comments on both 
levels of regulation as well as on the possibility of no regulation.
    During the comment period, hundreds of comments were filed by 
cranberry growers, handlers and other interested parties. After 
analyzing all available information, including that received in 
response to the proposed rule, USDA has concluded that a volume 
regulation for the 2001-02 crop would be consistent with the purposes 
of the Act and the order. In addition, we have concluded that the 
regulation likely to provide more benefits to the industry in the short 
and long term is that which establishes a marketable quantity of 4.6 
million barrels, an allotment percentage of 65, and an exemption for 
fresh and organically-grown fruit. The bases for these conclusions are 
set forth in detail later in this document.
    It should be noted that the allotment percentage of 65 percent 
established by this rule is two percent below the 67 percent contained 
in the proposed rule. There are two reasons for this. First, the 
Department has determined that the marketable quantity recommended by 
the Committee should be reduced from 4.7 to 4.6 million barrels. At the 
time the Committee made its recommendation, USDA purchases during the 
current season (2000-01) were expected to reach 1.0 million barrels. It 
currently appears that this level will not be attained, resulting in 
more inventories being carried into the 2001-02 season. Estimates of 
total purchases to be made have been as low as 500,000 barrels. While 
it is not possible to project the exact level of USDA purchases, we 
need to be careful not to underestimate the shortfall because it would 
result in a lower volume of fruit available for sale in the upcoming 
season, which could impede

[[Page 34336]]

market growth efforts. Therefore, we are estimating that USDA purchases 
of cranberries will be at least 100,000 barrels below what was 
anticipated. For this reason, we are reducing the marketable quantity 
for the 2001 crop by that amount.
    Additionally, at the time the proposed rule was issued, total sales 
histories were estimated at 7.0 million barrels. The current sales 
history total is 7.1 million barrels. The allotment percentage equals 
the marketable quantity divided by the total sales history. Reducing 
the marketable quantity and increasing the sales history total yields a 
slightly lower allotment percentage of 65 percent.

Exemption for Fresh and Organically-Grown Fruit

    Fresh fruit and organically-grown cranberries are exempt from 
regulation this season. Fresh and organically-grown fruit are 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. The provisions of the regulations concerning 
the fresh fruit exemption are also clarified by this action so that 
fresh fruit is handled as it was intended by the Committee.
    Under current production and marketing practices, there is a 
distinction between cranberries for fresh market and those for 
processing markets. Cranberries intended for fresh fruit outlets are 
grown and harvested differently. Fresh cranberries are dry picked 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 for this season.
    More specific provisions concerning the fresh fruit exemption are 
also being adopted under this action so that the intent of the fresh 
exemption is clear. The exemption provision specifies that only sales 
of packed-out cranberries intended for sale to consumers in fresh form 
are exempt from volume regulations. It is further clarified to state 
that fresh cranberries are also sold dry (either dry picked or dried 
after water picking) in bulk boxes, generally weighing less than 30 
pounds. If fresh cranberries are diverted into processing outlets, the 
exemption does not apply.
    Although the intent of the fresh fruit exemption in the 2000-01 
volume regulation was to only exempt cranberries going to retail 
outlets as fresh cranberries, questions arose as to what constituted 
``fresh'' under the regulations. For example, some growers expressed 
the desire to sell large bulk bins of wet cranberries to supermarkets. 
There was at least one report in 2000 of bulk wet cranberry sales to a 
retail outlet. This is not what was intended by the Committee. The 
Committee was concerned that wet cranberries sold in bulk bins would 
experience serious quality problems for retailers and consumers and 
thus, have a negative impact on the fresh marketplace. Another example 
is that some growers wanted to sell their excess cranberries as fresh 
cranberries to foreign markets, and it was thought that foreign 
customers could have an economic incentive to process the berries and 
sell them in direct competition with regulated cranberries in foreign 
markets. This also was not the intent of the exemption.
    This action also establishes that growers be required to notify the 
Committee of their intent to sell fresh fruit in quantities over 300 
barrels. It is important for the Committee to collect data on sales of 
fresh cranberries. However, it is not intended that small quantities be 
subject to reporting requirements.
    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.
    Organically grown cranberries are exempt from the 2001-2002 volume 
regulation. Such cranberries must be certified as organic by a third 
party organic certifying organization acceptable to the Committee. 
Handlers qualify for the exemptions by filing the amount of fresh and 
organic cranberry sales on the grower acquisition listing form.
    In addition, fresh and processed fruit sales histories will be 
calculated separately by the Committee. This action is discussed in 
detail in the following portion of this document relating to sales 
history calculations.

Sales History Calculations

    This rule modifies the way sales histories are calculated for the 
2001-2002 season to apportion the marketable quantity more equitably 
among producers.
    For growers with 7 or more years of sales history, a new sales 
history will be computed using an average of the highest 4 of the most 
recent 7 years of sales. For growers with 6 years of sales history, a 
new sales history will be computed by averaging the highest 4 of the 
most recent 6 years. For growers with 5 years of sales history, a sales 
history will computed by averaging the highest 4 of the 5 years. 
Additional sales history will be assigned to acreage planted in 1995 or 
later in accordance with the following table:

[[Page 34337]]



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

    For growers whose acreage has 5 years of sales history and was 
planted in 1995 or later, the sales history will 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 will 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 will be computed by dividing the 
total years' sales by 4 and adjusting in accordance with Table 1.
    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 replanted in 2000 and first harvested in 
2001, and 156 barrels per acre for acres planted or replanted in 1999 
and first harvested in 2001.
    The Committee discussed equity concerns that resulted when 
calculating sales histories during the 2000 volume regulation. Because 
sales histories are based on an average of past years' sales, newer 
growers could be restricted to a greater extent than more established 
growers. This is because a cranberry bog does not reach full capacity 
until several years after being planted. Using an average of early 
years' sales (which are low) can result in sales histories below future 
sales potential. A more established grower, on the other hand, would 
have a sales history more reflective of his or her production capacity.
    The Committee and the Department gave much thought to the most 
equitable method of determining sales histories within the scope of the 
order. The final rule on volume regulation for the 2000 crop year was 
as flexible as the order would allow in alleviating the differential 
impact of the volume regulation on growers.
    Section 929.48(a)(3) of the order provides for recalculating the 
method for determining sales histories for growers after a crop year 
during which a volume regulation has been established using a formula 
determined by the Committee with the approval of the Secretary. In 
light of this authority, the amendment subcommittee met several times 
and developed an improved method of assigning sales histories for newer 
acreage in the event volume regulations were implemented for the 2001-
2002 season.
    The modified method of calculating sales histories is expected to 
address concerns associated with using a grower's actual sales history 
without taking into account anticipated production when calculating 
annual allotments. Ideally, in a year of volume regulation, all 
growers' actual crops would be reduced by the same percentage. Because 
of uncertainties in making crop predictions, annual allotment 
calculations based on averaging growers' sales histories alone does not 
provide any adjustment for new acres as they rapidly increase 
production during the first several harvests. Therefore, growers can be 
impacted differently depending upon their particular situation. The 
result is that sales histories for growers with a significant number of 
acres being harvested for the first, second, third, or fourth time can 
be below what the average crop for these growers is expected to be 
during the next harvest. The restriction percentages for these growers 
in a year of volume regulation could therefore exceed the average 
allotment restriction percentage. The method being implemented by this 
rule addresses that issue by minimizing the differential impact among 
growers with newer acreage.
    The revised formula provides a specified amount of additional sales 
history for newer acreage based on USDA and industry analysis of 
cranberry production. The amount of such additional sales history 
depends on the year of planting. Also, the formula takes into account 
different harvesting times for first year harvests by basing first year 
averages on the year planted.
    The subcommittee recommended the new method of calculating sales 
histories to the full Committee. The Committee recommended this method 
at its August 28, 2000, Committee meeting. This recommendation was set 
forth in a proposed rule published in the Federal Register on January 
12, 2001, (66 FR 2838) with a comment period ending February 12, 2001.
    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 for adjusting sales history.
    The Committee's February 5 recommended modification to the sales 
history calculations was incorporated into the proposed rule for volume 
regulation published in the Federal Register on May 14, 2001 (66 FR 
24291).
    The revised method of calculating sales histories addresses the 
concerns of equity with the way sales histories were assigned under the 
2000 volume regulation. The revised formula provides a specified amount 
of additional sales history based on USDA and industry analysis of 
cranberry production depending upon the year of planting. This formula 
provides additional sales histories for acreage planted in 1995 or 
later to reflect expected future production on newer or replanted 
acreage.
    The modification recommended by the Committee in February does not 
change the formula that provides the additional sales history. The 
additional sales history will still be calculated using the figures in 
Table 1. Actual sales

[[Page 34338]]

histories for growers with only 1 to 3 years of sales history (and no 
mature acres) will be computed by dividing the total years' sales by 4 
before the new acreage adjustment is added, just as every other 
grower's sales history is calculated. 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.
    Therefore, Sec. 929.149 is modified as follows: For growers whose 
acreage has 5 years of sales history and was planted in 1995 or later, 
the sales history is 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 is 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 is 
computed by dividing the total years sales by 4 and adjusting in 
accordance with Table 1.

Segregation of Fresh Fruit From Sales History Calculations

    Fresh fruit sales will be deducted from sales histories and each 
grower's sales history will represent processed sales only. Fresh fruit 
was exempt from the 2000-2001 volume regulation and concerns were 
raised that sales histories were not reflective of actual sales. The 
Committee recommended that if fresh fruit was exempt from volume 
regulation, this action be implemented to ensure that sales histories 
reflect actual sales. As stated previously in this document, fresh 
fruit is again exempted from the 2001-2002 volume regulation.
    The Committee recommendation intended that there be separate sales 
histories for fresh and processed fruit. The recommendation also 
specified that fresh fruit sales may be added to processed 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. The 
Committee staff indicated that since fresh fruit was exempt from volume 
regulation, it would be administratively easier to simply deduct fresh 
sales from each grower's sales history rather than to provide two sales 
histories. With the fresh fruit exemption, there is no need for a sales 
history for fresh fruit. Also, since there will be no fresh fruit sales 
history, there is no need to specify that fresh fruit sales may be 
added to processed fruit sales histories. Also, a provision is being 
implemented covering growers whose fresh fruit is rejected upon 
delivery. The regulatory text has been modified to reflect this change. 
Therefore, a new paragraph (e) will be added to Sec. 929.149 specifying 
that fresh fruit will be deducted from sales history calculations.
    The Committee addressed the impacts of having a sales history that 
includes only processed fruit, and how the allotment percentage will 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 converted to 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 will allow the grower to deliver the rejected fruit for 
processing. This action is being implemented by adding a new paragraph 
(f) to Sec. 929.149 of the order's rules and regulations.
    Section 929.62(c) of the order specifies that handlers must file 
certified reports with the Committee as to the quantities of 
cranberries handled during designated periods. Handlers have been 
reporting this information and would continue to report this 
information in accordance with that provision.

Change in Number of Years Used in Computing Sales Histories

    Sales histories will be computed using an average of the highest 4 
of the most recent 7 years of sales. Paragraph (a)(1) of Sec. 929.48 of 
the order sets forth that sales histories are computed using the best 4 
out of 6 years of growers' sales. Paragraph (a)(2) of the same section 
states that the Committee, with the approval of the Secretary, may 
alter the number and identity of years to be used in computing 
subsequent sales histories.
    At amendment subcommittee meetings and full Committee meetings, the 
impact of using the year of volume regulation in future calculations of 
sales histories was discussed. The Committee was concerned that sales 
off acreage in a year of volume regulation could be unusually low and 
if that year was used in calculating sales histories for the next year, 
it could lower some growers' sales histories to unrealistic levels.
    This change allows the year of volume regulation (2000-01) to be 
dropped from sales history calculations. Adding an additional year from 
which growers' highest 4 years of sales can be chosen provides a 
greater opportunity for growers to maintain a sales history more 
reflective of their actual sales.
    Paragraph (a) of Sec. 929.149 is modified to indicate that sales 
histories will be computed using an average of the highest 4 of the 
most recent 7 years of sales.

State Average Yield Provisions

    The definition of State average yield is being removed from the 
rules and regulations. Section 929.48(a)(5) of the order sets forth 
that a new sales history for a grower with no sales history is 
calculated by using the State average yield per acre or the total 
estimated commercial sales, whichever is greater.
    For the 2000-2001 crop year, the State average yield was defined as 
the average State yields for the year 1997 or the average of the best 4 
years out of the last 6 years, whichever was greater. This calculation 
was similar to that used to compute sales history for more established 
growers (an average of the best 4 years out of the last 6 years), and 
averaged out seasonal variations in yields. However, if estimated 
commercial sales were greater than what was computed above, the 
Committee used the estimated commercial sales.
    The formula for recalculating sales histories being implemented 
with this action provides a yield for acres with no sales history based 
on analysis of industry data. For acreage expected to be harvested for 
the first time in the year of a volume regulation, the sales history 
will be 75 barrels for acres harvested the first year after planting 
and 156 barrels for acres harvested the second year after planting. 
These yields are based on averages of expected yields from acreage of 
that age plus an additional 25 barrels and are more in line with actual 
yields than providing the State average yield, which is considered high 
for first harvests. Under the State average yield provisions for the 
2000 volume regulation, growers forfeited any unused allotment. The 
modified method provides a simpler, more realistic approach to acreage 
with no sales history.
    Since, under the new formula, a definition of State average yield 
is unnecessary, Sec. 929.148 is removed from the rules and regulations.

Definition of Commercial Crop

    The definition of commercial crop is being removed from the rules 
and regulations. The final rule on volume regulation for the 2000 crop 
changed the number of barrels that defined a commercial crop under the 
marketing order from 15 to 50 barrels per acre. Calculations of sales 
histories were based on ``commercial'' cranberry sales. Section 929.107 
defined commercial crop as acreage that has a sufficient

[[Page 34339]]

density of growing vines to produce at least 50 barrels per acre 
without replanting or renovation. Acreage that produced less than 50 
barrels per acre was not considered to produce a commercial crop.
    The intent of this provision was to assist growers who harvested 
cranberries for the first time in 1999. These growers qualified for a 
new sales history determination for the 2000 crop year if they produced 
less than 50 barrels per acre in 1999.
    A full commercial cranberry crop is usually not harvested until 3 
or 4 years after being planted. Production is usually limited during 
the first year, with increases in subsequent years until full capacity 
is reached. This rule change allowed growers who produced less than 50 
barrels per acre in 1999, to be eligible to receive as a sales history 
the determination for growers with no sales history on such acreage 
(which was the State average yield or the grower's estimated commercial 
sales, whichever was greater) for the 2000 volume regulation. This 
change was intended to benefit growers who had very low yields per acre 
for their first year of production.
    The new calculation of sales histories being implemented in this 
action makes this provision unnecessary. For acreage expected to be 
harvested for the first time in 2001, the sales history will be 75 
barrels per acre for acres planted in 2000 and 156 barrels per acre for 
acres planted in 1999. No determinations are necessary as to how many 
barrels were produced on the acreage in previous years.
    The Committee will still need to determine that acreage reported as 
first coming into production in the year of volume regulation is viable 
planted acreage. For example, if a grower reports that 50 acres of 
cranberries planted in 1999 are going to be harvested for the first 
time in 2001, the Committee needs to verify that this acreage exists 
and that the vines are sufficient enough to provide a crop. Since the 
definition of commercial crop is no longer necessary, Sec. 929.107, 
Basis for determining cranberry acreage, is removed from the rules and 
regulations.

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 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 Department concludes that the Committee review of 
sales history appeals is not needed and is therefore, being removed 
from the appeal procedures.

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 is being implemented for the 2001-2002 season, which 
begins September 1, 2001. All paperwork for transfers must be received 
by the Committee staff by July 31, 2001. This will allow sales 
histories to be distributed in a more timely manner and also allow the 
Committee to complete the transfers prior to the busy harvest season. 
This change is being implemented by adding a new paragraph (d) to 
Sec. 929.110 of the order's rules and regulations.

Outlets for Excess Cranberries

    This action modifies the provisions on outlets for excess 
cranberries to broaden the scope of research and development projects 
authorized as outlets for excess cranberries.
    The purpose of the producer allotment program is to limit the 
amount of the total crop that can be marketed for normal commercial 
uses. There is no need to limit the volume of cranberries that may be 
marketed in noncommercial or noncompetitive outlets. Thus, in 
accordance with Sec. 929.61, handlers are allowed to dispose of excess 
cranberries in certain designated noncommercial outlets. That section 
of the order provides that noncommercial outlets may include charitable 
institutions and research and development projects for market 
development purposes. Noncompetitive outlets may include any nonhuman 
food use (animal feed) and foreign markets, except Canada. Canada is 
excluded because significant sales of cranberries to Canada could 
result in transshipment back to the United States of the cranberries 
exported there. This could disrupt the U.S. market, contrary to the 
intent of the volume regulation. To ensure that excess cranberries 
diverted to the specified outlets do not enter normal marketing 
channels, certain safeguard provisions are established under 
Sec. 929.61. These provisions require handlers to provide documentation 
to the Committee to verify that the excess cranberries were actually 
used in a noncommercial or noncompetitive outlet. In the case of 
nonhuman food use, a handler is required to notify the Committee at 
least 48 hours prior to disposition so that the Committee staff will 
have sufficient time to be available to observe the disposition of the 
cranberries.

[[Page 34340]]

    In the final rule establishing the 2000-2001 volume regulation, 
Sec. 929.104 specified the noncommercial and noncompetitive outlets for 
excess cranberries as: (1) Foreign countries, except Canada; (2) 
Charitable institutions; (3) Any nonhuman food use; and (4) Research 
and development projects dealing with dehydration, radiation, freeze 
drying, or freezing of cranberries, for the development of foreign 
markets. This regulation also specified that excess cranberries cannot 
be handled, i.e. converted into canned, frozen, or dehydrated 
cranberries or other cranberry products by any commercial process.
    The amendment subcommittee concluded that the provision regarding 
research and development projects was too restrictive and could exclude 
some outlets for excess cranberries that could be deemed noncommercial 
and noncompetitive. The Committee unanimously recommended to modify 
paragraph (a)(4) of Sec. 929.104 to state that any research and 
development projects approved by the Committee will be eligible as 
outlets for excess cranberries. This will provide more flexibility in 
determining if a specific project could be considered noncompetitive or 
noncommercial. The Committee will review the activity and make that 
determination. Research and development projects will not be limited to 
dehydration, radiation, freeze drying, or freezing of cranberries for 
the development of foreign markets.
    Therefore, Sec. 929.104 is modified to broaden the scope of 
research and development projects authorized for excess cranberries.

Allotment Notification Date

    This action withdraws the proposed reinstatement of the June 1 
deadline for the Committee to notify growers and handlers of their 
annual allotments.
    The rule 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 volume regulation. Therefore, the proposal to reinstate the 
June 1 deadline date is withdrawn.

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 final regulatory flexibility analysis.
    According to the Small Business Administration (13 CFR 121.201) 
small handlers are those having annual receipts of less than $5,000,000 
and small agricultural producers are defined as those with annual 
receipts of less than $500,000. 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 final rule will 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 action makes the following amendments to the regulations under 
the cranberry marketing order: (1) Establishes a marketable quantity 
and an allotment percentage for cranberries in a 10-State production 
area for the crop year from September 1, 2001, through August 31, 2002; 
(2) exempts fresh and organically grown cranberries from the volume 
regulation; (3) changes the way in which sales histories are 
calculated; (4) deletes the Committee review step in the sales history 
appeal process; (5) adds a deadline date by which requests for 
transfers of sales histories on leased acreage must be filed with the 
Committee; (6) broadens the scope of research and development projects 
authorized as outlets for excess cranberries; and (7) withdraws a 
proposal to reinstate a June 1 allotment notification date. These 
actions are designed to establish more orderly marketing conditions for 
cranberries, improve grower returns, provide for a more equitable 
allocation of the marketable quantity among growers, and improve the 
administration 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

[[Page 34341]]

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 
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 3.325 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. A marketable quantity of 5.468 
million barrels was established for the 2000-01 season, implemented 
through an allotment percentage of 85 percent. 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 are 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 were included in the proposed rule. Also included was 
a proposal to have no volume regulation. The Department believed that 
both levels of volume regulation 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 those levels proposed to 
establish a marketable quantity of 4.7 million barrels and an allotment 
percentage of 67, with an exemption for fresh and organically-grown 
fruit. The second proposed to establish a marketable quantity of 4.0 
million barrels and an allotment percentage of 54, applicable to all 
fruit.
    In its initial analysis of these options, the Department relied in 
part upon an econometric model developed by the University of Wisconsin 
and widely discussed within the 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 
was estimated at 3.325 million barrels, domestic production was 
estimated at 5.675 million barrels, imports were projected at 0.835 
million barrels, and total sales for the 2001-02 crop year were 
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.

[[Page 34342]]



                                              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
    Carryin 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           7.833           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              56              66
----------------------------------------------------------------------------------------------------------------
Estimated Price per Barrel......................................         $10.00          $31.00          $19.50
----------------------------------------------------------------------------------------------------------------
Estimated Total Revenue (in millions)...........................         $56.750        $124.000         $97.500
----------------------------------------------------------------------------------------------------------------

    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 an estimated $56.75 million, and 
ending inventories would grow to 4 million barrels. Heavy inventories 
will continue to put downward pressure on grower prices for ensuing 
seasons.
    The second column of the table shows that a 4.0 million barrel 
marketable quantity will result in inventories declining to 2.325 
million barrels, and the grower price increasing to an estimated $31 
per barrel. Total grower revenue under this option is projected to 
reach $124 million. Under this option, sales will 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 56 percent.
    As shown in the last column, the 4.7 million barrel alternative 
will result in carryout inventories remaining at 3.325 million barrels. 
The grower price will be an estimated $19.50 per barrel, and revenues 
will total $97.5 million. With a marketable quantity of 4.7 million 
barrels, sales will 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 7.1 million 
barrels of processed sales. Using the formula established under the 
order (4.7 million barrels divided by 7.1 million barrels), the annual 
allotment percentage would be 66 percent.
    As previously discussed, the Department believes carryin 
inventories will be higher than originally projected because USDA 
purchases during the 2000-01 crop year are likely to be less than 
anticipated. An increase in the carryin level (100,000 barrels) would 
be offset by a like reduction in the marketable quantity. Thus, total 
available supplies would remain the same as in the above table, and the 
impact on grower prices and sales would be as estimated above.
    The econometric model provides a framework for estimating the 
short-term price impacts 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 will 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. In the proposed rule, we solicited comments on all three 
alternatives, including the longer range impacts of these alternatives 
at the grower, handler and consumer levels. Based on current 
information, including the comments received (which are analyzed in the 
subsequent portion of this document), we have reached the following 
conclusions.
    Given the anticipated size of the 2001 cranberry crop in addition 
to current inventory levels, volume regulation appears to be the 
favorable market stabilization technique over no volume regulation. A 
no volume regulation adjustment could easily result in a loss of a 
substantial number of smaller to mid-sized cranberry producers, as 
market prices without any form of market intervention would remain 
below the cost of production until market supply fell to the level of 
market demand. In addition to a loss of a profitable return on 
commodity production, which is a mainstay for many of the producers 
likely to be negatively impacted, investments in land and production 
start-up costs would also be lost as much of the potentially affected 
acreage has no alternative agricultural uses. Cranberry production is a 
key agricultural industry in various regions of the major producing 
states, including Wisconsin, Massachusetts, New Jersey, Oregon, and 
Washington. Failure of cranberry farms in these regions would have 
major implications for the vitality of these economies.
    Volume regulation is a market stabilization technique whereby a 
portion of annual production is withheld from the market, thereby 
reducing the flow of supply to market and improving producer prices. 
Depending on the amount of production

[[Page 34343]]

impacted by volume control regulation, short- and long-term effects on 
the market vary. Some proponents of volume regulation advocate a more 
significant reduction in market supply, indicating that such action 
would result in a bigger jump in market prices, a quicker improvement 
in grower returns, and a necessary reduction in inventories. In 
addition, these advocates intimate that any increases in demand could 
be met by drawing down surplus inventories, thereby simultaneously 
reducing price-depressing affects of large stocks in a time of ample 
production. While this argument may be well grounded in economic 
theory, there are many externalities which are not given due attention, 
as well as producers' inclinations to increase production as market 
prices increase. In other words, too large of a volume control 
regulation leaves little margin for unforeseen market events and may 
result in misleading market signals to producers as a result of an 
overly adjusted price.
    A less stringent volume regulation would reduce market supply and 
improve market prices while allowing for a more gradual market supply-
demand adjustment. While the short-term affect of a less stringent 
volume regulation would result in relatively lower market prices than 
with a greater reduction, as described above, prices would likely offer 
a greater return than if no volume control existed. A more conservative 
approach is also less likely to result in a surge of production 
triggered by higher prices and allow for a greater margin of supply to 
address any unforeseen market complications in subsequent production 
years.
    In weighing the relative benefits of differing volume regulation, 
it is important to consider impacts on handler competition for product 
to fill sale orders, and consumer demand elasticity relative to 
fluctuating prices. A more restrictive volume control would result in a 
smaller volume of product available to handlers to satisfy sale orders 
or promote market growth. Handlers who do not maintain inventories of 
cranberries may be unable to effectively compete for supplies, thus 
resulting in their inability to fill sale orders and a loss of 
business. Such a result would have a negative impact on producers, as 
some market outlets (demand) may be lost to substitution of like 
products for cranberries. Rapid fluctuations in price could have 
similar results, as consumers, especially food manufacturers using 
cranberries to enhance processed products, are likely to respond 
negatively to market inconsistencies in price as well as supplies. A 
more gradual reduction in supply could ease market tensions and allow 
suppliers to maintain strong market relations with industry consumers.
    Furthermore, while it has been demonstrated that end-market 
consumer demand is inelastic to price reductions, demand may decrease 
if prices were to rise. In other words, end-market consumers are more 
likely to consume less cranberries when prices increase drastically 
than they are to consume more when prices drop.
    For the above reasons, we conclude that establishing a marketable 
quantity of 4.6 million barrels for the 2001-02 cranberry season is the 
best course of action. This represents the Committee's recommended 
marketable quantity adjusted for the increased carryin due to lower 
than anticipated USDA purchases during the current season.

Sales History Recalculations

    The amendments to the sales history calculations will benefit a 
majority of growers, especially growers who planted some or all of 
their acreage 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 acres who also have newer acreage and growers with 
only newer acres are treated equitably.
    The amendment also provides that the Committee deduct fresh sales 
from growers' sales histories. The amendment also provides that sales 
histories be computed using an average of the highest 4 of the most 
recent 7 years of sales. Changing the total number of years from 6 to 7 
allows the year of volume regulation (2000-01) to be dropped from sales 
history calculations.
    Regarding the 2000 volume regulation, many growers, particularly 
those with acreage 4 years old or less, indicated that the method of 
sales history calculation placed them at a disadvantage because they 
realized more production on their acreage than their sales history 
indicated. Approximately 30 percent of all cranberry acreage was 
planted in 1995 or later and will be impacted by this amendment. With 
the volume of new acres within the industry, this would affect many 
growers.
    The Committee determined that something needed to be done to 
address the concerns associated in the 2000 crop year with growers with 
newer acreage. The Committee discussed other alternatives to this 
method. One suggestion was to allow growers with newer acreage to add a 
percentage of the State average yield to their sales history each year 
up to the fourth year. The example presented was that acreage being 
harvested for the second time during a year of volume regulation would 
receive a sales history that was 25 percent of the State average yield, 
a third year harvest would receive 50 percent of State average yield, 
and a fourth year harvest would receive 75 percent of State average 
yield. Although this method would address some of the problems 
experienced last year, it was determined that the method established by 
this action is a simpler and more practical method for growers to 
obtain the most realistic sales history.
    The Committee and the Department gave much thought to the most 
equitable method of determining sales histories and the method 
established by this action specifically addresses growers' concerns by 
providing a more equitable determination of their sales histories. The 
method provides additional sales history for growers with newer acres 
to account for increased yields for each growing year up to the fifth 
year by factoring in appropriate adjustments to reflect rapidly 
increasing production during initial harvests. The adjustments are in 
the form of additional sales histories based on the year of planting.
    As discussed previously, an appeals process is in place for growers 
to request a redetermination of their sales histories. For the 2000-
2001 volume regulation, over 250 appeals were received by the appeals 
subcommittee (the first level of review for appeals) and these appeals 
demonstrated the majority of issues that impacted growers during the 
volume regulation. This action provides more growers with realistic 
sales histories. Therefore, fewer appeals are likely to be filed. The 
appeals subcommittee chairman estimated that over 80 percent of the 
appeals filed last year would not have been filed if the Committee was 
able to implement this formula for the 2000-01 season.
    These changes will have a positive effect on all growers and 
handlers because they will result in a more equitable allocation of the 
marketable quantity among growers.

Revision in the Appeals Process

    Currently, Sec. 929.125 provides a three-tiered appeal procedure 
for growers who are dissatisfied with the computation of their sales 
history pursuant to Sec. 929.48 of the order. First, a grower may 
appeal to an appeals subcommittee. The grower may then further appeal 
to the full Committee. Finally, the grower may

[[Page 34344]]

appeal to the Secretary. All decisions by the Secretary are final.
    This rule eliminates the full Committee review from the procedure 
to shorten the process. Thus, growers can take their appeals directly 
to the Secretary for a final decision if they are not satisfied with 
the appeals subcommittee's determinations. This change shortens the 
appeal process, which should benefit growers who disagree with their 
sales history determination. The earlier growers have a final decision, 
the more able they are to decide how to adjust to their annual 
allotment.

Establishment of a July 31 Deadline for Transfers of Sales History

    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. This rule establishes 
a July 31 deadline for receipt of such paperwork. This action should 
assist in the efficient administration of the program by having 
transfers recorded before the busy harvest season without unduly 
reducing grower flexibility in transferring acreage and sales 
histories.

Outlets for Excess Cranberries

    This action modifies paragraph (a)(4) of Sec. 929.104 to provide 
that any research and development projects approved by the Committee 
are eligible as outlets for excess cranberries. Currently, such 
projects are limited to those associated with the development of 
foreign markets. This action will have a positive impact on growers and 
handlers because it broadens the scope of projects eligible for the use 
of excess berries. This could encourage more market development 
activities, which could expand the overall cranberry market to the 
benefit of the industry as a whole.

Allotment Notification Date

    Section 929.49 requires the Committee to notify growers and 
handlers of their annual allotments by June 1. This date was suspended 
prior to the 2000-01 crop year to allow adequate time to complete the 
rulemaking process for that season. The proposal to reinstate the June 
1 notification date is withdrawn because USDA has decided that 
additional time is again needed this year. While it would be beneficial 
to growers to have an earlier notification of their annual allotments, 
any hardship incurred by delays should be outweighed by the benefits 
expected to be accrued by the use of volume regulation during the 2001-
02 crop year.

Analysis of Comments Pertaining to Volume Restrictions for the 2001 
Cranberry Crop

    The proposed rule published in the May 14, 2001, Federal Register 
solicited comments on three options for restricting the 2001 cranberry 
crop. A total of 436 comments were filed during the comment period 
which ended May 29, 2001. By far, the majority of comments were filed 
by cranberry growers (almost 90 percent of the total). In addition, all 
six major cranberry handlers commented, as did the Cranberry Marketing 
Committee, several U.S. Congressmen and Senators, the Wisconsin State 
Cranberry Growers Association, the New Jersey Department of 
Agriculture, two agricultural economists, an industry attorney, 
employees of growers and handlers, and other interested parties.
    Of the comments filed, 294 favored the 4.7 million barrel 
marketable quantity, 59 favored the 4.0 million barrel marketable 
quantity, and 72 favored no volume regulation at all for the upcoming 
season. The remaining comments generally supported volume regulation 
but not either of the specific levels contained in the proposed rule. 
Some comments also addressed the issue of whether fresh and 
organically-grown fruit should be exempt from any established volume 
restriction.
    In addition to the 436 timely comments, 64 comments were received 
after the comment period ended. These late comments were reviewed and 
it was determined that no substantive issues raised by these commenters 
that were not already known to the Department or raised by those who 
filed in a timely manner and given due consideration. Therefore, even 
if these comments were timely filed, the outcome of this final action 
would not be changed.
    The main arguments raised in the comments are addressed below.

Potential Impact of the Various Options on Grower Returns

    As expressed by the large number of comments received, it is widely 
accepted that the cranberry industry's current oversupply situation has 
caused severe financial hardships for a majority of cranberry 
producers. Due to the oversupply's price-deflationary affects, grower 
returns have suffered sharp declines, frequently resulting in market-
clearing prices below the cost of production. Since low prices have 
plagued the industry for more than two crop years, many growers are now 
at the point of facing foreclosure and bankruptcy. A financial lending 
institution, commenting on the financial hardships faced by many 
cranberry producers, indicated that the U.S. cranberry industry has 
lost an estimated $160 to $200 million, cumulatively, in recent growing 
seasons.
    This comment was supported by many growers, stressing that 
immediate action is needed to bring about a market correction and begin 
the process of returning growers to financial stability. Absent any 
improvement in the current situation, growers will continue to operate 
under financial stress and will find it difficult to obtain financing 
for their farms. Financial institutions have already had to make 
arrangements for loan deferrals for many cranberry growers. Commenters 
asserted that if grower prices continue at the levels received during 
past seasons ($15 to $20 per barrel estimated for 2000), the result 
could be a significant loss of smaller to mid-sized producers.
    In addition to producer financial distress, many commenters brought 
to light corollary impacts. Cranberry growers maintain a national 
average of five acres of open space for every acre of farm. Much of 
this acreage is located in States where land is under pressure for 
development. Loss of cranberry farms in these areas will carry with it 
the loss of open space, which will not be regained.
    Communities in which cranberries are grown will also suffer as 
local resources will be strained. Cranberry production is a key 
agricultural industry in various regions of Wisconsin, Massachusetts, 
New Jersey, Oregon, and Washington. Failure of cranberry farms in these 
regions would have major implications for the economic vitality of 
smaller farming communities. Moreover, a potential loss of these 
cranberry growing communities would also represent a loss of long-
standing cranberry heritage in these producing regions.
    While divided on which form of volume control would be most 
effective, most commenters agreed that some level of volume regulation 
is necessary to increase grower returns in the upcoming 2001 season. 
Results from independently circulated grower surveys recently conducted 
by the cranberry industry also demonstrate an overwhelming support for 
some level of volume regulation. The two volume regulation options 
considered would limit the supply of marketable cranberries to either 
4.0 million or 4.7 million barrels.
    Those in favor of the 4.0 million barrel marketable quantity 
commented that a volume control at this level would significantly 
decrease inventory

[[Page 34345]]

supplies and bolster grower prices to a level close to or above the 
cost of production. The cost of production ranges from $15 to $45 per 
barrel, depending on the efficiency and economies of scale of the 
producer.
    An industry economist in favor of a 4.0 million barrel volume 
restriction estimated that, based on his calculations, limiting the 
marketable quantity to this level would yield a 2001 season-average 
price of $25 to $35 per barrel. Moreover, a constant marketable 
quantity level of 4.0 million barrels in subsequent years would 
gradually elevate prices to over $40 per barrel by 2003 or 2004. Any 
increases in demand would be met by drawing down surplus inventories, 
thereby simultaneously reducing price-depressing affects of large 
stocks. Carryover inventories at this level would be approximately 2.3 
million barrels while at the 4.7 million barrel level, carryover 
inventory would be in the range of 2.5 to 2.7 million barrels.
    It was further argued that, at this level, fewer growers would be 
forced to exit the industry because recovery would be achieved more 
rapidly than under the alternative 4.7 million barrel scenario. Many 
commenters agreed with the assumptions and conclusions made in this 
argument and voiced their opinion in favor of a more restrictive 
regulation, acknowledging that, while more severe in action, this 
approach would result in higher prices faster.
    Commenters in favor of the alternative option to the above, 
establishing a marketable quantity at 4.7 million barrels, stressed the 
need for a more gradual, cautionary return to market stability and 
grower profitability. Most commenters supporting this option believe 
that a more gradual correction in inventory supplies and grower prices 
is necessary rather than the severe cut proposed with the 4.0 million 
barrel marketable quantity level. A more conservative approach to 
volume regulation would reduce market supply and improve market prices 
while allowing for a more gradual market supply-demand adjustment. A 
more conservative approach is also less likely to result in a surge of 
production triggered by artificially high prices and allow for a 
greater margin of supply to address any unforeseen market complications 
in subsequent crop years. It is estimated that under the 4.7 million 
barrel volume control scenario, 2001-02 grower returns would be 
approximately $20 per barrel, as compared to returns of $15 to $20 in 
2000. One handler's comment included estimated crop returns of $20 to 
$25 per barrel for the 2001 crop, $22 to $30 for the 2002 crop, and 
higher returns for the 2003 crop.
    A third option considers no volume regulation and would allow 
market forces to address market supply and demand imbalances. 
Commenters in favor of no regulation stated that this is the only 
option that supports fairness to all growers and handlers involved in 
the cranberry industry.
    As discussed above, while divided on which form of volume control 
would be most effective, most commenters agreed that some level of 
volume regulation is necessary to increase grower returns in the 
upcoming 2001 season. Those in favor of volume control, for the most 
part, view no volume regulation as potentially detrimental to the 
cranberry industry.
    In a separate comment filed in favor of the 4.7 million barrel 
marketable quantity limit, another industry economist asserted that 
allowing the market forces to correct demand-supply imbalances would 
not be effective in the case of cranberries due to the nature of this 
industry's crop production cycle and high start-up costs. A supply-
demand adjustment in production of a perennial crop such as cranberries 
does not occur as quickly as traditional economic theory would imply, 
and others have argued. Moreover, investment in land and bog 
preparation represents a significant share of cranberry production 
costs that can not be re-captured or transferred to alternate 
agriculture crop production. For these reasons, the current conditions 
in the cranberry industry strongly justify implementation of some form 
of volume control for the 2001-02 season.
    Another commenter opposing the option of no volume regulation 
stated that prices would be far below production costs if no regulation 
were implemented for the 2001-02 season. Marginal acreage would be 
driven out of production as less efficient producers and operations of 
smaller economies of scale would not be economically able to survive.
    Other comments opposing the no volume regulation option claimed 
that this approach to market stabilization could easily result in a 
loss of a substantial number of smaller to mid-sized cranberry 
producers, as market prices without any form of market intervention 
would remain below the cost of production until market supply fell to 
the level of market demand. In addition to a loss of a profitable 
return on commodity production, which is a mainstay for many of the 
producers likely to be negatively impacted, investments in land and 
production start-up costs would also be lost as much of the potentially 
affected acreage has no alternative agricultural uses.
    Given the anticipated large size of the 2001 cranberry crop in 
addition to currently existing inventory levels, volume regulation is 
the preferable market stabilization technique.

Availability of Sufficient Supplies to Support Market Expansion Efforts

    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 is to increase demand. 
Comments filed to this effect noted that a volume regulation at the 4.7 
million barrel level would allow a more gradual correction in prices, 
thereby affording market participants the time needed to increase 
demand through the introduction of new products and export market 
development. These comments also stated that a 4.0 million barrel 
marketable quantity limit would result in too drastic, and too 
substantial, of an increase in product cost from one season to the 
next. They argue that erratic price fluctuations could hinder expansion 
efforts and be counterproductive, resulting in a loss of current 
customers, as was experienced in 1995.
    Citing the 1995 industry price increase, commenters in favor of a 
more conservative approach to volume regulation recollected that 
industrial customers at that time turned away from using cranberries as 
an ingredient, reduced cranberry content in existing products, and 
substituted other fruits for baking and cereal applications, as well as 
in other processed products. The industry economist cited above further 
supported this argument by stating that historical evidence shows that 
food manufacturers respond adversely to wide swings in commodity 
prices, and especially the inability to source the commodity.
    Based on the comments, a large portion of the industry favors some 
form of volume control. Commenters in favor of the 4.7 million barrel 
marketable quantity limitation stated that it would more easily allow 
the development of new products and markets than if supplies were 
severely restricted. A commenter asserted that a 4.0 million barrel 
marketable quantity would dampen growth of the industry at a time when 
the industry cannot afford to cut back on market expansion. Another 
commenter added that a handler, who has announced the development of 
several new products, could launch new products only if reliable 
supplies existed in the industry.

[[Page 34346]]

    While recognizing the need for market expansion, commenters 
favoring a 4.0 million barrel marketable quantity limit argued that any 
short-fall in supplies between handlers could be easily avoided by a 
draw-down of product from storage, or a transfer of product between 
handlers. Counter to the argument of increased market prices having a 
negative impact on sales, those in favor of the 4.0 million barrel 
limitation believe it is necessary to expand markets at prices that 
will restore profitability to the grower. They do not consider that a 
price increase would have a negative impact on sales. Moreover, they 
argue that growers cannot afford to develop new markets while selling 
at below cost of production.
    The Department believes that any long-term solution to the 
industry's oversupply situation should include market expansion 
efforts, and that volume regulations should be used sparingly. The 
higher marketable quantity (4.6 million barrels) is consistent with 
this conclusion.

Impact of the Volume Restrictions at the Handler Level

    In weighing the relative benefits of differing volume regulation, 
it is important to consider impacts on handler competition for product 
to fill sale orders.
    The majority of handlers commenting, and others commenting on the 
handler supply issue, either favored no volume restriction or the more 
conservative, 4.7 million barrel marketable quantity option of volume 
control. To this effect, one commenter stated that a 4.0 million barrel 
marketable quantity would cause a severe reduction in inventories, 
which would result in an unreasonable fluctuation in supply and prices.
    Even though, in addition to establishing orderly marketing 
conditions, a major goal of the Act is to protect the interests of 
producers (farmers) and consumers, we also consider the impact of this 
regulation on handlers (both large and small). As we have already 
stated, in the case of cranberries, volume regulation as a market 
stabilization technique appears to be a better choice than a no volume 
regulation adjustment. One of the reasons is because market adjustment 
could easily result in the loss of a substantial number of smaller to 
mid-sized producers. In weighing the relative benefits of the two 
levels of volume regulation under consideration, we also considered the 
impacts they would have on handlers and product needed to fill sale 
orders.
    From the comments received, and other available information, it was 
apparent that the more restrictive volume control would result in a 
smaller volume of product available to handlers to satisfy sale orders 
or promote market growth. Therefore, handlers who maintain a less 
competitive position in the market might be unable to effectively 
compete for supplies, thus resulting in their inability to fill sale 
orders and a loss of business.
    While the Committee estimates carry-in inventories at 3.325 million 
barrels, it has been argued by a number of commenters that these 
supplies will be concentrated among only a few of the major handlers. 
Control over a potentially limited supply of surplus cranberries could 
put smaller, less competitive handlers at a disadvantage. Smaller 
handlers would be forced to purchase cranberries at a price set by the 
larger handlers holding excess inventory or forego filling their sales 
demand. These smaller handlers have also expressed concerns that such a 
position of control within the market could be used as a predatory tool 
to consolidate market power by the larger handlers.
    One handler commented that supply constricting regulation could 
result in some handlers turning to low-cost growing regions outside of 
the United States in order to obtain supplies. Overall, commenters 
opposed to restrictive volume control conveyed that any negative 
effects resulting from such regulation (any losses incurred), would be 
passed on to their growers.
    Those in favor of a more conservative, gradual reduction in supply 
state that this approach could ease market tensions regarding price 
while allowing suppliers to maintain strong market relations with 
industry consumers. Commenters in favor of the 4.7 million barrel 
marketable quantity stated that, at this level, cranberries will be 
available to those independent handlers who do not have inventories. 
Moreover, one handler indicated that the industry is willing to ensure 
that independent handlers without inventories have access to an 
adequate supply of fruit if a volume regulation is established. It is 
common practice within the cranberry industry for handlers lacking 
adequate contracted supplies to purchase cranberries from other 
handlers. While those in favor of some form of volume control realize 
that adequate supply cannot be guaranteed, a marketable quantity of 4.7 
million barrels would more likely ensure a stable supply to smaller 
handlers.
    In addition to the above, commenters raised the issue of USDA 
cranberry purchases. Commenters are concerned that USDA may purchase 
less than previously expected and, therefore, the marketable quantity 
should be adjusted accordingly. A lower level of purchases would result 
in a higher carryin, thus making more supplies available than 
anticipated. It is not possible to anticipate at this time the exact 
number of barrel equivalents that will be purchased by USDA in 2001. 
However, we have estimated the shortfall in purchases at 100,000 
barrels, and adjusted the marketable quantity accordingly.
    Commenters also raised the issue of the establishment of a reserve 
pool in future years. The industry has been informed that such a 
concept would have to be implemented through the formal rulemaking 
process. This pooling mechanism could be used in years of a volume 
regulation in order to provide all handlers a supply of cranberries for 
their needs. Commenters urged the USDA to move forward on this issue.

The Need for a Prompt Decision

    Many commenters were urging USDA to make an immediate decision 
regarding the issue of regulation for the upcoming crop. This is 
because a volume regulation would be more helpful to growers if they 
have time to save production costs. Growers can find ways to reduce 
costs throughout the year, however, the optimal time for growers to 
reduce the amount of cranberries to be harvested is during the bloom 
period. Growers can flood their bogs, which will eliminate the flowers 
and therefore the fruit. This can be done fairly inexpensively on most 
cranberry farms. Bloom usually occurs in the month of June but varies 
with the weather.

Initial Regulatory Flexibility Analysis

    One comment, submitted by a law firm, was filed on behalf of 
several Massachusetts growers and a handler. The commenter argued that 
one major handler has created the surplus and that smaller independent 
handlers do not have, and never had, a surplus. It was further argued 
that volume control will leave the smaller handlers without adequate 
supplies to fill orders. This situation, the commenter argued, is 
exacerbated by USDA's refusal to create a reserve pool under the order. 
The commenter further argued that imposing volume control would be 
disruptive to the market and that USDA's regulatory flexibility 
analysis is flawed. Specifically, the commenter disagreed with the 
Department's classification of

[[Page 34347]]

some handlers as large businesses and argued that the Department dealt 
inadequately with growers in its analysis of the economic impact of 
volume control. The commenter concluded that volume control will result 
in the destruction of 33 to 44 percent of the crop to maintain prices 
which would encourage the importation of foreign cranberries. American 
handlers would be forced to seek foreign cranberries or would be forced 
to buy from the handlers who caused the surplus.
    As we have already explained, in recent years, cranberry production 
has exceeded demand which has caused dramatic declines in grower 
prices. One of the major goals of the Act and the order is to protect 
the interests of growers and consumers. In 2000, the Committee (which 
represents the interests of the industry) recommended the use of volume 
control to bring supplies more in line with demand. This was the first 
time in over 30 years that volume control was imposed. Given the 
anticipated size of the 2001 crop, in March of 2001, the Committee 
again recommended volume regulation for the coming year. Based on its 
analysis of the problems faced by the cranberry growers and handlers, 
the comments received in response to the proposed rule, and other 
available information, the Department decided that volume regulation 
would be preferable to a no volume regulation adjustment as a market 
stabilization technique.
    In classifying businesses as to size for purposes of the regulatory 
flexibility analysis, AMS has used gross annual receipts. The analysis 
of the impacts of this rule was based on the premise that it would 
apply almost exclusively to small entities (both growers and handlers). 
Therefore, even if one of the handlers the commenter mentions were to 
be reclassified as to size, the analysis would not change.
    The commenter's assertion that USDA refuses to create a reserve 
pool disregards the fact that such a mechanism in the order can only be 
created through formal rulemaking (through testimony and evidence on 
the record). This process is normally initiated by a recommendation to 
the Department by members of the industry. The Department has not 
indicated that it would not entertain such a recommendation.
    Finally, it is clear that the cranberry industry is facing a number 
of economic problems, the main ones being oversupply and inelasticity 
of demand. We realize that there are numerous ways to go about 
resolving some of these. The marketing order with its volume control 
provisions is one which the industry has chosen to pursue. The 
Department has come to the conclusion (for reasons explained in this 
document) that the volume control provisions in this rule should be 
implemented in order to stabilize the industry and to bring available 
supplies of cranberries closer to market demand.
    Based on the Department's analysis of the economics of the 
cranberry industry and on the plight faced by many growers and 
handlers, it is our view that volume control is necessary and that the 
level of control contained in this rule will best tend to effectuate 
the purposes of the Act and order.

Exemption for Fresh and Organically-Grown Fruit

    The 4.7 million barrel option includes an exemption for fresh and 
organically-grown cranberries. The 4.0 million barrel option does not 
include a fresh and organically-grown fruit exemption.
    Most commenters who favored the 4.0 million barrel marketable 
quantity also agreed that there was no need for a fresh or organic 
fruit exemption. Those who specifically addressed this issue stated 
that such an exemption would create a glut of fresh fruit. Some of this 
fruit would be inferior in quality, and its presence would injure 
overall demand in the fresh fruit market. No one specifically opposed 
an exemption for organically-grown fruit. Some commented that the fresh 
fruit exemption last year provided incentives for abuse as some growers 
reportedly sold fruit as ``fresh'' that ultimately ended up in 
processing channels. Some commenters were also concerned that the 
exemption would give an unfair advantage to processors that handle 
fresh fruit and their growers. This is because (as occurred last year), 
allotments not used by fresh fruit growers (because their fruit was 
exempt) could be used to offset any excess cranberries delivered by 
processing fruit growers.
    Most commenters in favor of a 4.7 million barrel marketable 
quantity also supported a fresh and organically-grown fruit exemption. 
They stated that fresh and organically-grown fruit does not contribute 
in any meaningful way to the current cranberry surplus.
    The Department supports an exemption for fresh and organically-
grown cranberries because they do not contribute significantly to the 
current cranberry surplus. This conclusion is based on: (1) The 
relatively minor portion of total production these cranberries 
represent (fresh fruit--less than 6 percent and organically-grown 
fruit--about 1,000 barrels); (2) the distinction between fresh market/
organically-grown cranberries and cranberries for processing; (3) 
information relative to the production and marketing of fresh and 
organic cranberries; and (4) the steps that have been taken to improve 
compliance with the exemption and to make the exemption more equitable 
among handlers and growers. In addition, continued encouragement for 
growth in the fresh and organic markets is consistent with industry 
objectives to develop additional markets and expand existing markets.

Analysis of Comments Pertaining to Sales History Calculations and 
Other Administrative Rule Changes

    A proposed rule was published in the Federal Register on January 
12, 2001 (66 FR 2838), to change the way in which sales histories are 
calculated (including deducting fresh sales from growers' sales 
histories). That rule, among other things, also proposed a 
clarification of the fresh fruit exemption and expanding the outlets 
available for excess cranberries. Twenty-five comments were filed 
during the comment period ending February 12, 2001. Most of those 
comments expressed general opinions on the use of volume regulation 
under the cranberry marketing order, and did not address the specific 
changes in the proposal.
    During the comment period of this rule, the Committee met and 
recommended a further modification in sales history calculations. This 
modification was included in a proposed rule published on May 14, 2001. 
Eleven additional comments were received in response to the May 14 rule 
relative to amendment of sales history calculations.
    Three comments supported the reformulation of sales histories in 
general, stating that changes made to the sales history calculations 
make them more equitable than last year's calculations. Eight 
commenters (including one who commented during both comment periods) 
supported amending the sales histories calculations as proposed in the 
May 14 rule. Six commenters (one who commented during both comment 
periods) did not support the modifications to sales history 
calculations. One commenter (who commented during both comment periods) 
objected to the modification of sales history calculations as proposed 
in the May 14 rule. Three commenters said the January 12 proposal did 
not make it clear that replanted acres should be treated the same as 
new acres when calculating sales histories. Two

[[Page 34348]]

commenters who supported the recalculation suggested allowing greater 
flexibility in the appeals process regarding sales histories.
    Seven commenters supported the deduction of fresh fruit sales when 
calculating sales histories along with the clarification of the fresh 
fruit exemption. One commenter did not support the fresh fruit 
clarification. One commenter expressed support for the modifications to 
the excess cranberry provision, and one commenter suggested further 
modifications of that provision.

Reformulation of Sales History Calculations

    The comments in support of the new formula for calculating sales 
histories expressed that the new method would be more equitable to 
growers, especially newer growers, than the way sales histories were 
calculated last year. Regarding modifying the formula to divide all 
available years by 4, those in support indicated that this revision 
would provide growers with sales histories more in line with actual 
expected production from new and replanted acres.
    A comment in opposition to the formula expressed that growers with 
newly planted acres should not be rewarded for making poor business 
decisions. Growers had ample information available and should have 
known that production was increasing and sales were not. In addition, 
this commenter believed that giving additional sales histories to 
compensate these growers is unfair to growers with established acres 
who did not increase plantings and did not contribute to the current 
surplus.
    Another commenter in opposition to the new formula said that 
providing newer growers with additional sales histories would encourage 
new plantings.
    The Department does not agree that new plantings will be encouraged 
by implementation of this formula or that growers are being rewarded 
for making poor business decisions. The new method of calculating sales 
histories is intended to address equity concerns expressed last year 
with newer growers being impacted to a greater extent than established 
growers. The formula merely compensates growers for anticipated 
production on recently planted acres that do not have sales histories 
reflective of current production potential. The formula is based on 
data from all growing areas, from all sizes of growing operations and 
represents a higher than mid range of this data. The new method is an 
improved method from last year.
    Regarding the comment about established growers being treated 
unfairly by this action, the modification contained in the May 14 
proposed rule was specifically recommended to ensure that sales 
histories for established growers were calculated in the same way as 
those for newer growers.
    One commenter supported the new formula as proposed in the January 
12 rule, but did not support the revision which divides by 4 for all 
acreage to obtain an actual sales history prior to being assigned the 
adjustment for newer acres. This commenter indicated this change would 
again put new growers at a disadvantage, especially those growers with 
well managed new acreage with relatively high production. The commenter 
suggested that growers who are able, be allowed to segregate sales from 
older and newer acreage and divide by the appropriate number of years 
to obtain the actual sales history prior to adjusting the acreage with 
the formula.
    This commenter discussed the methodology to determine average 
yields per acre depending upon the year of planting. The data used was 
increased by 25 barrels to allow more growers to have satisfactory 
sales histories. The commenter believed this methodology was flawed in 
that it did not take into account the differences between efficient and 
non-efficient growers. This commenter provided examples showing how 
this formula would be detrimental. In one example, dividing by the 
available number of years of sales history and assigning additional 
barrels in accordance with the formula would provide the grower with an 
average 373.5 barrels per acre. Using an example with actual production 
with a specific percentage increase would give the grower an average of 
376.31 barrels per acre. Using the formula as revised by dividing by 4 
and assigning additional sales history would provide the grower with an 
average 271.75 barrels per acre.
    The Committee, along with the amendment subcommittee, gave much 
thought to improving the method of calculating sales histories to 
minimize the differential impact among growers with newer acreage. The 
data used to develop the formula was a result of a Department survey of 
average yields per acre depending upon the year of planting. The 
averages were adjusted up by 25 barrels per acre to include as many 
growers as possible. The survey indicated that the average yield for a 
full producing acre was 250 barrels per acre. With the 25 barrel 
adjustment, the formula recognizes an acre of full production to be 275 
barrels. This amount is consistent with the commenter's example that 
computed the sales history by dividing all years by 4 (an average of 
271.75 barrels per acre).
    The Committee was aware that some growers' yields exceeded the 
average. However, if the formula used the highest yields in its 
calculations, growers with lower yields would receive sales histories 
well above average. This would have raised the total sales histories to 
an unrealistic amount which would have reduced the effectiveness of a 
volume regulation. It was decided that increasing the yields by 25 
barrels over average yields brings more growers into the realm of 
realizing satisfactory sales histories without defeating the purpose of 
volume regulation. In addition, the simpler formula should result in 
fewer growers filing appeals.
    Therefore, the Department believes that the sales history 
calculations as proposed in the January 12 proposed rule and as 
modified in the May 14 rule are appropriate for the 2001 volume 
regulation.

Replanted Acres

    Three commenters said that the January 12 rule did not make it 
clear that replanted acres should be treated the same as new acres when 
calculating sales histories. The Department agrees that replanted acres 
and new acres should be assigned sales histories in the same manner. 
Changes have been made where pertinent in the regulatory text for 
clarity.

Appeals of Sales History Calculations

    One commenter supported the revised sales history formula, but 
suggested that exceptions be authorized under the appeals process for 
growers to request higher sales histories than allowed under the 
formula. Specifically, growers could be required to submit evidence on 
yields from separate acreage to be successful in receiving sales 
history above and beyond that allowed under the formula.
    Last year, over 250 appeals were received by the appeals 
subcommittee (the first level of review for appeals). Many of the 
appeals were filed by growers who provided credible evidence to allow 
the Committee to segregate sales histories of newer acreage so that 
additional sales histories could be provided.
    The formula specifies certain amounts of sales histories that will 
be assigned to newer acreage. Appeals filed requesting higher sales 
histories than authorized under the provisions of the

[[Page 34349]]

reformulation of sales histories provisions will be denied.
    One of the intents of the reformulation of sales history 
calculations is to eliminate the need for appeals to be filed. 
Therefore, fewer appeals should be filed and the appeals process can be 
completed in time for growers to know what their sales histories are 
well before harvest.
    Accordingly, no change is made as a result of this comment.

Deduction of Fresh Sales From Sales History Calculations and 
Clarification of the Fresh Fruit Exemption Provision

    The commenters who supported the deduction of fresh sales when 
calculating sales histories expressed that this change will provide 
more fairness in the application of the fresh fruit exemption. One 
commenter stated that the fresh fruit exemption should not be supported 
unless fresh sales are deducted from a grower's sales history. Another 
commenter stated that growers who produce both fresh and processed 
fruit realized an advantage last year over growers who produced only 
processed fruit. As an example, growers who delivered more than 15 
percent of their crop as fresh during the 2000-01 crop year did not 
contribute to the crop reduction.
    Similar comments were made regarding the clarification of the fresh 
fruit exemption provision. One commenter stated that the provision was 
abused during the 2000-01 season as some growers allegedly sold 
processed fruit as fresh fruit to benefit from the exemption. The 
commenters in support of the clarification believe that this change 
will help to resolve this issue and ensure compliance with the volume 
regulation.
    One commenter was concerned about the container requirements for 
fresh fruit. Another commenter said that the fresh fruit clarification 
will make it difficult for growers to sell their own fruit.
    The clarification of the fresh fruit exemption provision is to 
ensure that fresh fruit does not make its way into processing outlets. 
The refinement of the requirements under the exemption better addresses 
the intent of the exemption and will assist in limiting its abuse. The 
clarification also allows for exceptions to the container requirement.
    Therefore, the Department is implementing the provisions to 
subtract fresh sales from growers' sales histories and to clarify the 
fresh fruit exemption provisions as proposed in the January 12, 2001, 
rule.

Excess Cranberries

    One commenter supported the modification to broaden the scope of 
research and development projects authorized for excess cranberries. 
Another commenter suggested that any outlet using less than 5 percent 
of a grower's crop be an authorized ``commercial'' use for excess 
cranberries.
    Excess cranberries should continue to be limited to 
``noncommercial'' and ``noncompetitive'' uses. Any other use would 
defeat the purpose of the volume regulation and add potential 
incentives for abuse. This comment is denied, and the change to the 
excess cranberry provisions shall remain as set forth in the January 12 
rule.

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 will 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 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

    During discussions of volume regulations, a group of independent 
handlers indicated that any volume regulation would not be supported 
unless there are some assurances that sufficient supplies of 
cranberries will 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. An 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 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

[[Page 34350]]

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. However, 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 
issue with an amendment to the order.

Reporting and Recordkeeping Requirements

    As with all Federal marketing order programs, reports and forms 
used under the cranberry order 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, this rule necessitates 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. 
The Committee will reconfigure this form to ensure that information 
relative to this rule will be included, particularly the date of 
planting of the acreage. The burden hours of the form will not change. 
Accordingly, the form does not have to be submitted to OMB.
    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.

Opportunity for Public Participation in the Rulemaking Process

    The Committee's meetings were widely publicized throughout the 
cranberry industry and all interested persons were invited to attend 
them and participate in Committee deliberations. Like all Committee 
meetings, the February 4 and March 4-5 meetings were public meetings. 
Meeting announcements were placed on websites specifically designed for 
the cranberry industry, and all interested parties were invited to 
attend. All entities, both large and small, were able to express their 
views on these issues by attending the meetings or contacting their 
Committee representatives about their concerns prior to the meetings. 
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. In addition, several grower meetings were held 
throughout the production area to discuss the methods of volume 
regulation and the procedures for regulation.
    A proposed rule on reformulating the sales history calculations for 
the 2001-2002 crop year was published in the Federal Register on 
January 12, 2001 (66 FR 2838). A proposed rule on whether to establish 
volume regulation was published in the Federal Register on May 14, 2001 
(66 FR 24291). The rules were made available on the Department's 
website. The rules were also made available through the Internet by the 
Office of the Federal Register. A 30-day comment period was provided in 
the January 12, 2001, rule, which ended on February 12, 2001. A 15-day 
comment period ending May 29, 2001, was provided on the volume 
regulation proposal. These comment periods allowed interested persons 
to respond to the proposals.
    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.
    After consideration of all relevant matter presented, including the 
information and recommendations submitted by the Committee and other 
available information, it is hereby found that this rule, as 
hereinafter set forth, will tend to effectuate the declared policy of 
the Act.
    It is further found that good cause exists for not postponing the 
effective date of this rule until 30 days after publication in the 
Federal Register (5 U.S.C. 553). The crop year begins on September 1, 
2001. This rule should be effective prior to the beginning of the crop 
year so that the Committee can initiate its appeals procedures well in 
advance of the start of the volume regulation. Also, growers need time 
to adjust their cultural practices in preparation for the volume 
regulation. Further, handlers and growers are aware of this rule, which 
was discussed and

[[Page 34351]]

recommended at public meetings and well-publicized within the cranberry 
industry. Also, appropriate public comment periods were provided in the 
two proposed rules relevant to this final rule.

List of Subjects in 7 CFR Part 929

  

    Cranberries, Marketing agreements, Reporting and recordkeeping 
requirements.

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

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

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

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

    2. Section 929.104 (a)(4) is revised to read as follows:


Sec. 929.104  Outlets for excess cranberries.

    (a)* * *
    (4) Research and development projects approved by the committee 
dealing with the development of foreign and domestic markets, 
including, but not limited to dehydration, radiation, freeze drying, or 
freezing of cranberries.
* * * * *


Sec. 929.107  [Removed]

    3. Section 929.107 is removed.

    4. 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.

    5. 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.


Sec. 929.148  [Removed]

    6. Section 929.148 is removed.

    7. 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) Fresh fruit sales shall be deducted from the sales histories. 
The sales history assigned to each grower shall represent processed 
sales only.
    (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.
    8. Section 929.158 is revised to read as follows:


Sec. 929.158  Exemptions.

    If fresh and organically-grown cranberries are exempted from the 
volume regulation as recommended by the Committee and approved by the 
Secretary, the following provisions to these exemptions shall apply:
    (a) Sales of packed-out cranberries intended for sales to consumers 
in fresh form shall be exempt from volume regulation provisions. Fresh 
cranberries are also sold dry in bulk boxes generally weighing less 
than 30 pounds. Fresh cranberries intended for retail markets are not 
sold wet. If any such fresh cranberries are diverted into processing 
outlets, the exemption no longer applies. Growers who intend to handle 
fresh fruit shall notify the committee of their intent to sell over 300 
barrels of fresh fruit.

[[Page 34352]]

    (b) Sales of organically-grown cranberries are exempt from volume 
regulation provisions. In order to receive an exemption for organic 
cranberry sales, such cranberries must be certified as such by a third 
party organic certifying organization acceptable to the committee.
    (c) Handlers shall qualify for the exemptions in paragraphs (a) and 
(b) of this section by filing the amount of packed-out fresh or organic 
cranberry sales on the grower acquisition form.

    9. A new Sec. 929.251 is added to read as follows:


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 4.6 
million barrels and the allotment percentage is designated at 65 
percent. Fresh and organically grown fruit shall be exempt from the 
volume regulation provisions of this section.

    Dated: June 22, 2001.
Kenneth C. Clayton,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 01-16109 Filed 6-22-01; 2:06 pm]
BILLING CODE 3410-02-P