[Federal Register Volume 67, Number 51 (Friday, March 15, 2002)]
[Proposed Rules]
[Pages 11616-11622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6136]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV02-930-1 PR]


Tart Cherries Grown in the States of Michigan, et al.; Final Free 
and Restricted Percentages for the 2001-2002 Crop Year for Tart 
Cherries

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposal invites comments on the establishment of final 
free and restricted percentages for the 2001-2002 crop year. The 
percentages are 59 percent free and 41 percent restricted and would 
establish the proportion of cherries from the 2001 crop which may be 
handled in commercial outlets. The percentages are intended to 
stabilize supplies and prices, and strengthen market conditions and 
were recommended by the Cherry Industry Administrative Board (Board), 
the body which locally administers the marketing order. The marketing 
order regulates the handling of tart cherries grown in the States of 
Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and 
Wisconsin.

DATES: Comments must be received by April 1, 2002.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this action. Comments must be sent to the Docket Clerk, 
Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue, SW 
Stop 0237, Washington, DC 20250-0237; Fax: (202) 720-8938, or E-mail: 
[email protected]. All comments should reference the docket 
number and the date and page number of this issue of the Federal 
Register and will be made available for public inspection in the Office 
of the Docket Clerk during regular business hours or can be viewed at: 
http://www.ams/usda.gov/fv/moab/html.

FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Kenneth G. 
Johnson, Marketing Order Administration Branch, Fruit and Vegetable 
Programs, AMS, USDA, Suite

[[Page 11617]]

2A04, Unit 155, 4700 River Road, Riverdale, MD 20737, telephone: (301) 
734-5243, or Fax: (301) 734-5275; or George Kelhart, Technical Advisor, 
Marketing Order Administration Branch, Fruit and Vegetable Programs, 
AMS, USDA, 1400 Independence Avenue, SW Stop 0237, Washington, DC 
20250-0237; telephone: (202) 720-2491, or Fax: (202) 720-8938.
    Small businesses may request information on complying with this 
regulation, or obtain a guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders by contacting Jay 
Guerber, Marketing Order Administration Branch, Fruit and Vegetable 
Programs, AMS, USDA, 1400 Independence Avenue SW Stop 0237, Washington, 
DC 20250-0237; telephone: (202) 720-2491, Fax: (202) 720-8938, or E-
mail: [email protected].

SUPPLEMENTARY INFORMATION: This proposal is issued under Marketing 
agreement and Order No. 930 (7 CFR part 930), regulating the handling 
of tart cherries produced in the States of Michigan, New York, 
Pennsylvania, Oregon, Utah, Washington, and Wisconsin, hereinafter 
referred to as the ``order.'' The order is effective under the 
Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-
674), hereinafter referred to as the ``Act.''
    The Department of Agriculture (USDA) is issuing this rule in 
conformance with Executive Order 12866.
    This proposal has been reviewed under Executive Order 12988, Civil 
Justice Reform. Under the marketing order provisions now in effect, 
final free and restricted percentages may be established for tart 
cherries handled by handlers during the crop year. This rule would 
establish final free and restricted percentages for tart cherries for 
the 2001-2002 crop year, beginning July 1, 2001, through June 30, 2002. 
This rule would not preempt any State or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under Sec. 608c(15)(A) of the 
Act, any handler subject to an order may file with USDA a petition 
stating that the order, any provision of the order, or any obligation 
imposed in connection with the order is not in accordance with law and 
request a modification of the order or to be exempt therefrom. Such 
handler is afforded the opportunity for a hearing on the petition. 
After the hearing, USDA would rule on the petition. The Act provides 
that the district court of the United States in any district in which 
the handler is an inhabitant, or has his or her principal place of 
business, has jurisdiction in equity to review USDA's ruling on the 
petition, provided an action is filed not later than 20 days after the 
date of the entry of the ruling.
    The order prescribes procedures for computing an optimum supply and 
preliminary and final percentages that establish the amount of tart 
cherries that can be marketed throughout the season. The regulations 
apply to all handlers of tart cherries that are in the regulated 
districts. Tart cherries in the free percentage category may be shipped 
immediately to any market, while restricted percentage tart cherries 
must be held by handlers in a primary or secondary reserve, or be 
diverted in accordance with Sec. 930.59 of the order and Sec. 930.159 
of the regulations, or used for exempt purposes (and obtaining 
diversion credit) under Sec. 930.62 of the order and Sec. 930.162 of 
the regulations. The regulated Districts for this season are: District 
one--Northern Michigan; District two--Central Michigan; District 
three--Southwest Michigan; District four--New York; and District 
eight--Washington. Districts five, six, seven, and nine (Oregon, Utah, 
Pennsylvania, and Wisconsin, respectively), would not be regulated for 
the 2001-2002 season.
    The order prescribes under Sec. 930.52 that, upon adoption of the 
order, those districts to be regulated shall be those districts in 
which the average annual production of cherries over the prior three 
years has exceeded 15 million pounds. A district not meeting the 15 
million-pound requirement shall not be regulated in such crop year. 
Because this requirement was not met in the districts of Oregon, 
Pennsylvania, and Wisconsin, handlers in those districts would not be 
subject to volume regulation during the 2001-2002 crop year. Section 
930.52 also prescribes that any district producing a crop which is less 
than 50 percent of the average annual processed production in that 
district in the previous five years would be exempt from any volume 
regulation if, in that year, a restricted percentage is established. 
Because Utah's production is less than the 50 percent of the previous 
5-year production average, handlers in Utah also would not be subject 
to volume regulation during the 2001-2002 crop year. Production from 
District four (New York) was not regulated last crop year, but, as 
mentioned above, will be regulated in 2001-2002. This would be the 
first year of regulation for District eight (Washington), since the 
order was promulgated.
    Demand for tart cherries at the farm level is derived from the 
demand for tart cherry products at retail. Demand for tart cherries and 
tart cherry products tends to be relatively stable from year to year. 
The supply of tart cherries, by contrast, varies greatly from crop year 
to crop year. The magnitude of annual fluctuations in tart cherry 
supplies are one of the most pronounced for any agricultural commodity 
in the United States. In addition, since tart cherries are processed 
either into canned or frozen products, they can be stored and carried 
over from crop year to crop year. This creates substantial coordination 
and marketing problems. The supply and demand for tart cherries is 
rarely balanced. The primary purpose of setting free and restricted 
percentages is to balance supply with demand and reduce large surpluses 
that may occur.
    Section 930.50(a) of the order describes procedures for computing 
an optimum supply for each crop year. The Board must meet on or about 
July 1 of each crop year, to review sales data, inventory data, current 
crop forecasts and market conditions in order to establish an optimum 
supply level for the crop year. The optimum supply volume is calculated 
as 100 percent of the average sales of the prior three years to which 
is added a desirable carryout inventory not to exceed 20 million pounds 
or such other amount as may be established with the approval of the 
Secretary. The optimum supply represents the desirable volume of tart 
cherries that should be available for sale in the coming crop year.
    The order also provides that on or about July 1 of each crop year, 
the Board is required to establish preliminary free and restricted 
percentages. These percentages are computed by deducting the actual 
carryin inventory from the optimum supply figure (adjusted to raw 
product equivalent--the actual weight of cherries handled to process 
into cherry products) and subtracting that figure from the current 
year's USDA crop forecast. If the resulting number is positive, this 
represents the estimated over-production, which would be the restricted 
percentage tonnage. The restricted percentage tonnage is then divided 
by the sum of the USDA crop forecast for the regulated districts to 
obtain percentages for the regulated districts. The Board is required 
to establish a preliminary restricted percentage equal to the quotient, 
rounded to the nearest whole number, with the complement being the 
preliminary free tonnage percentage. If the tonnage requirements for 
the year are more than the USDA crop forecast, the Board is required to 
establish a

[[Page 11618]]

preliminary free tonnage percentage of 100 percent and a preliminary 
restricted percentage of zero. The Board must announce the preliminary 
percentages in accordance with paragraph (h) of Sec. 930.50.
    The Board met on June 21, 2001, and computed, for the 2001-2002 
crop year, an optimum supply of 219 million pounds. The Board 
recommended that the desirable carryout figure be zero pounds. 
Desirable carryout is the amount of fruit required to be carried into 
the succeeding crop year and is set by the Board after considering 
market circumstances and needs. This figure can range from zero to a 
maximum of 20 million pounds. The Board calculated preliminary free and 
restricted percentages as follows: The USDA estimate of the crop was 
356 million pounds; a 33 million pound carryin added to that estimate 
results in a total available supply of 389 million pounds. The carryin 
figure reflects the amount of cherries that handlers actually have in 
inventory. Subtracting the optimum supply of 219 million pounds from 
the total estimated available supply results in a surplus of 170 
million pounds of tart cherries. An adjustment for changed economic 
conditions of 50 million pounds was subtracted from the surplus, 
pursuant to Sec. 930.50 of the order. This adjustment is discussed 
later in this document. After the adjustment, the resulting total 
surplus is 120 million pounds of tart cherries. The surplus was divided 
by the production in the regulated districts (338 million pounds) and 
resulted in a restricted percentage of 36 percent for the 2001-2002 
crop year. The free percentage was 64 percent (100 percent minus 36 
percent). The Board unanimously established these percentages and 
announced them to the industry as required by the order.
    The preliminary percentages were based on the USDA production 
estimate and the following supply and demand information available at 
the June meeting for the 2001-2002 year:

------------------------------------------------------------------------
                                                             Millions of
                                                                pounds
------------------------------------------------------------------------
Optimum Supply Formula:
    (1) Average sales of the prior three years.............          219
    (2) Plus desirable carryout............................            0
    (3) Optimum supply calculated by the Board at the June           219
     meeting...............................................
Preliminary Percentages:
    (4) USDA crop estimate.................................          356
    (5) Plus carryin held by handlers as of July 1, 2000...           33
    (6) Total available supply for current crop year.......          389
    (7) Surplus (item 6 minus item 3)......................          170
    (8) Economic adjustment to surplus.....................           50
    (9) Adjusted surplus (item 7 minus item 8).............          120
    (10) USDA crop estimate for regulated districts........          338
------------------------------------------------------------------------


 
                  Percentages                       Free      Restricted
------------------------------------------------------------------------
(11) Preliminary percentages (item 9 divided             64           36
 by item 10  x  100 equals restricted
 percentage; 100 minus restricted percentage
 equals free percentage)......................
------------------------------------------------------------------------

    Between July 1 and September 15 of each crop year, the Board may 
modify the preliminary free and restricted percentages by announcing 
interim free and restricted percentages to adjust to the actual pack 
occurring in the industry.
    On September 17, 2001, the Board conducted a telephone meeting and 
voted unanimously to establish interim percentages since the September 
13, 2001, meeting was postponed until October due to the tragic events 
on September 11, 2001. The Board recommended an interim free percentage 
of 57 percent and an interim restrictive percentage of 43 percent. 
These percentages were based on the actual production for the 2001-2002 
crop year of 366 million pounds, and more up-to-date sales and carryin 
inventory amounts.
    Section 930.50(d) of the order requires the Board to meet no later 
than September 15 to recommend final free and restricted percentages to 
the Secretary for approval. Because of the events of September 11, 
2001, and subsequent flight delays, the Board met on October 12, 2001, 
and recommended final free and restricted percentages of 59 percent and 
41 percent, respectively. At that time, the Board had available actual 
production, sales, and carryin inventory amounts to review and made 
adjustments to the interim percentages.
    The Secretary establishes final free and restricted percentages 
through the informal rulemaking process. These percentages would make 
available the tart cherries necessary to achieve the optimum supply 
figure calculated by the Board. The difference between any final free 
percentage designated by the Secretary and 100 percent is the final 
restricted percentage.
    The Board used an updated optimum supply figure in determining the 
final free and restricted percentages. The revised optimum supply is 
217 million pounds, instead of 219 million pounds used in June. The 3-
year average sales figure computed in June included an estimate of June 
2001 sales because actual June sales were not yet available. The 3-year 
average sales figure used in the final calculations reflects actual 
sales for each month of the 3-year period.
    The actual production reported by the Board was 366 million pounds, 
which is a 10 million pound increase from the USDA crop estimate of 356 
million pounds. The increase in production was due to higher yields in 
the major producing States (Michigan, New York, Washington). For 2001-
2002, production in the regulated districts totaled 336 million pounds, 
2 million pounds less than the USDA estimate of 338 million pounds.
    A 39 million pound carryin (actual carryin as opposed to the 33 
million pounds originally estimated in June) was added to the Board's 
reported production of 366 million pounds, yielding a total available 
supply for the current crop year of 405 million pounds. The optimum 
supply of 217 million pounds was subtracted from the total available 
supply which resulted in a 188 million pound surplus. An adjustment of 
50 million pounds for changed economic conditions was subtracted from 
the surplus, pursuant to Sec. 930.50 of the order. This adjustment is 
discussed

[[Page 11619]]

later in this document. After the adjustment, the resulting total 
surplus is 138 million pounds of tart cherries. The total surplus of 
138 million pounds is divided by the 336 million-pound volume of tart 
cherries produced in the regulated districts. This results in a 41 
percent restricted percentage and a corresponding 59 percent free 
percentage for the regulated districts.
    The final percentages are based on the Board's reported production 
figures and the following supply and demand information available in 
October for the 2001-2002 crop year:

 
                                                             Millions of
                                                                pounds
------------------------------------------------------------------------
Optimum Supply Formula:
    (1) Average sales of the prior three years.............          217
    (2) Plus desirable carryout............................            0
    (3) Optimum supply calculated by the Board at the                217
     October meeting.......................................
Final Percentages:
    (4) Board reported production..........................          366
    (5) Plus carryin held by handlers as of July 1, 2001...           39
    (6) Tonnage available for current crop year............          405
    (7) Surplus (item 6 minus item 3)......................          188
    (8) Economic adjustment to surplus.....................           50
    (9) Adjusted surplus (item 7 minus 8)..................          138
    (10) Production in regulated districts.................          336
------------------------------------------------------------------------


 
                  Percentages                       Free      Restricted
------------------------------------------------------------------------
(11) Final Percentages (item 9 divided by item           59           41
 10  x  100 equals restricted percentage; 100
 minus restricted percentage equals free
 percentage)..................................
------------------------------------------------------------------------

    As previously mentioned, the Board recommended an economic 
adjustment of 50 million pounds in computing both the preliminary and 
final percentages for the 2001-2002 crop year. This is authorized under 
Sec. 930.50. These provisions provide that in its deliberations of 
volume regulation recommendations, the Board consider, among other 
things, the expected demand conditions for cherries in different market 
segments and an analysis of economic factors having a bearing on the 
marketing of cherries. Based on these considerations, the Board may 
modify its marketing policy calculations to reflect changes in economic 
conditions. The Board recommended the adjustment to reflect the impact 
of USDA surplus removal purchases might have on the sales component of 
the optimum supply formula.
    Purchases by USDA and other government agencies are part of the 
average sales history for the industry. In recent years, USDA and other 
government purchases of tart cherry products have averaged about 17 
million pounds and these have been factored into the optimum supply 
formula. In 2000-2001, USDA announced the acceptance of bids for a 
large surplus removal purchase. The amount of the purchases is expected 
to total 50 million pounds and be delivered during the 2001-2002 crop 
year. The Board discussed how this purchase should be accounted for in 
the optimum supply formula. The Board decided on a full 50-million 
pound economic adjustment because it results in a smaller restricted 
percentage than with no adjustment. With the adjustment, the restricted 
percentage is 41 percent. Without the adjustment, the restricted 
percentage would have been 56 percent.
    By recommending this marketing policy modification, the Board 
believes that fewer cherries would have to be diverted and more 
cherries would be available to meet market needs. This modification is 
intended to further facilitate and encourage market expansion. It is 
also expected to benefit growers who receive higher payments for free 
tonnage cherries.
    In May 2001, reserve release provisions were added to the 
administrative rules and regulations in Sec. 930.154. The provisions 
provide that if USDA or any other governmental agency initiates an 
invitation to purchase product for surplus removal (as a non-
entitlement purchase), the Board shall release a like quantity of 
cherries from the reserve pool to each handler who has a proportionate 
share in the reserve. These provisions were not effective prior to the 
initiation of the invitation to bid on USDA's planned 50 million pound 
surplus removal purchase. Therefore, reserve cherries could not be 
released from the inventory reserve pursuant to Sec. 930.154 and the 
cherries had to be supplied from free tonnage, not reserve tonnage. 
Consequently, the Board recommended the economic adjustment of 50 
million pounds to account for the free tonnage cherries delivered from 
the 2001-2002 crop to satisfy the purchase. If an invitation to bid on 
a surplus removal purchase is initiated by USDA or another government 
agency during the 2001-2002 crop year, or subsequent season, a like 
quantity of reserve tonnage would be released under Sec. 930.154 and no 
economic adjustment would be necessary to account for those cherries. 
The Board believes that such releases will equitably spread the benefit 
of such purchases throughout the industry because all handlers 
regulated under the order, and not just those handlers who successfully 
bid and sold product to USDA or other government agencies, will benefit 
from the surplus removal of tart cherry purchases.
    The Department's ``Guidelines for Fruit, Vegetable, and Specialty 
Crop Marketing Orders'' specify that 110 percent of recent years' sales 
should be made available to primary markets each season before 
recommendations for volume regulation are approved. This goal would be 
met by the establishment of a preliminary percentage which releases 100 
percent of the optimum supply and the additional release of tart 
cherries provided under Sec. 930.50(g). This release of tonnage, equal 
to 10 percent of the average sales of the prior three years sales, is 
made available to handlers each season. The Board recommended that such 
release should be made available to handlers the first week of December 
and the first week of May. Handlers can decide how much of the 10 
percent release they would like to receive during the December and May 
release dates. Once released, such cherries are released for free use 
by such handler. Approximately 22 million

[[Page 11620]]

pounds would be made available to handlers this season in accordance 
with Department Guidelines. This release would be made available to 
every handler and released to such handler in proportion to its 
percentage of the total regulated crop handled. If a handler does not 
take his/her proportionate amount, such amount shall remain in the 
inventory reserve.

The Regulatory Flexibility Act and Effects on Small Businesses

    The Agricultural Marketing Service (AMS) has considered the 
economic impact of this action on small entities and has prepared this 
initial regulatory flexibility analysis. The Regulatory Flexibility Act 
(RFA) would allow AMS to certify that regulations do not have a 
significant economic impact on a substantial number of small entities.
    However, as a matter of general policy, AMS' Fruit and Vegetable 
Programs (Programs) no longer opt for such certification, but rather 
perform regulatory flexibility analyses for any rulemaking that would 
generate the interest of a significant number of small entities. 
Performing such analyses shifts the Programs' efforts from determining 
whether regulatory flexibility analyses are required to the 
consideration of regulatory options and economic or regulatory impacts.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and rules issued thereunder, are unique in that 
they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility.
    There are approximately 40 handlers of tart cherries who are 
subject to regulation under the tart cherry marketing order and 
approximately 900 producers of tart cherries in the regulated area. 
Small agricultural service firms, which includes handlers, have been 
defined by the Small Business Administration (13 CFR 121.201) as those 
having annual receipts of less than $5,000,000, and small agricultural 
producers are defined as those having annual receipts of less than 
$750,000. A majority of the producers and handlers are considered small 
entities under SBA's standards.
    Board and subcommittee meetings are widely publicized in advance 
and are held in a location central to the production area. The meetings 
are open to all industry members (including small business entities) 
and other interested persons who are encouraged to participate in the 
deliberations and voice their opinions on topics under discussion. 
Thus, Board recommendations can be considered to represent the 
interests of small business entities in the industry.
    The principal demand for tart cherries is in the form of processed 
products. Tart cherries are dried, frozen, canned, juiced, and pureed. 
During the period 1995/96 through 1999/00, approximately 91 percent of 
the U.S. tart cherry crop, or 280.5 million pounds, was processed 
annually. Of the 280.5 million pounds of tart cherries processed, 62 
percent was frozen, 29 percent was canned, and 9 percent was utilized 
for juice.
    Based on National Agricultural Statistics Service data, acreage in 
the United States devoted to tart cherry production has been trending 
downward. In the ten-year period, 1987/88 through 1997/98, the tart 
cherry area decreased from 50,050 acres, to less than 40,000 acres. In 
1999/00, approximately 90 percent of domestic tart cherry acreage was 
located in four States: Michigan, New York, Utah and Wisconsin. 
Michigan leads the nation in tart cherry acreage with 70 percent of the 
total. Michigan produces about 75 percent of the U.S. tart cherry crop 
each year. In 1999/00, tart cherry acreage in Michigan decreased to 
28,100 acres from 28,400 acres the previous year.
    The 2001 crop is the second largest ever harvested in the United 
States at 366.3 million pounds. The largest crop occurred in 1995 with 
production in the regulated districts reaching a record 395.6 pounds. 
The price per pound received by tart cherry growers ranged from a low 
of 7.3 cents in 1987 to a high of 46.4 cents in 1991. These problems of 
wide supply and price fluctuations in the tart cherry industry are 
national in scope and impact. Growers testified during the order 
promulgation process that the prices they received often did not come 
close to covering the costs of production. They also testified that 
production costs for most growers range between 20 and 22 cents per 
pound, which is well above average prices received during the 1993-1995 
seasons.
    The industry demonstrated a need for an order during the 
promulgation process of the marketing order because large variations in 
annual tart cherry supplies tend to lead to fluctuations in prices and 
disorderly marketing. As a result of these fluctuations in supply and 
price, growers realize less income. The industry chose a volume control 
marketing order to even out these wide variations in supply and improve 
returns to growers. During the promulgation process, proponents 
testified that small growers and processors would have the most to gain 
from implementation of a marketing order because many such growers and 
handlers had been going out of business due to low tart cherry prices. 
They also testified that, since an order would help increase grower 
returns, this should increase the buffer between business success and 
failure because small growers and handlers tend to be less capitalized 
than larger growers and handlers.
    Aggregate demand for tart cherries and tart cherry products tends 
to be relatively stable from year-to-year. Similarly, prices at the 
retail level show minimal variation. Consumer prices in grocery stores, 
and particularly in food service markets, largely do not reflect 
fluctuations in cherry supplies. Retail demand is assumed to be highly 
inelastic which indicates that price reductions do not result in large 
increases in the quantity demanded. Most tart cherries are sold to food 
service outlets and to consumers as pie filling; frozen cherries are 
sold as an ingredient to manufacturers of pies and cherry desserts. 
Juice and dried cherries are expanding market outlets for tart 
cherries.
    Demand for tart cherries at the farm level is derived from the 
demand for tart cherry products at retail. In general, the farm-level 
demand for a commodity consists of the demand at retail or food service 
outlets minus per-unit processing and distribution costs incurred in 
transforming the raw farm commodity into a product available to 
consumers. These costs comprise what is known as the ``marketing 
margin.''
    The supply of tart cherries, by contrast, varies greatly. The 
magnitude of annual fluctuations in tart cherry supplies are one of the 
most pronounced for any agricultural commodity in the United States. In 
addition, since tart cherries are processed either into cans or frozen, 
they can be stored and carried over from year-to-year. This creates 
substantial coordination and marketing problems. The supply and demand 
for tart cherries is rarely in equilibrium. As a result, grower prices 
fluctuate widely, reflecting the large swings in annual supplies.
    In an effort to stabilize prices, the tart cherry industry uses the 
volume control mechanisms under the authority of the Federal marketing 
order. This authority allows the industry to set free and restricted 
percentages. These restricted percentages are only applied to states or 
districts with a 3-year average of production greater than 15 million

[[Page 11621]]

pounds. Currently, only the three districts in Michigan, New York, and 
Washington are subject to restricted percentages.
    The primary purpose of setting restricted percentages is an attempt 
to bring supply and demand into balance. If the primary market is over-
supplied with cherries, grower prices decline substantially.
    The tart cherry sector uses an industry-wide storage program as a 
supplemental coordinating mechanism under the Federal marketing order. 
The primary purpose of the storage program is to warehouse supplies in 
large crop years in order to supplement supplies in short crop years. 
The storage approach is feasible because the increase in price--when 
moving from a large crop to a short crop year--more than offsets the 
cost for storage, interest, and handling of the stored cherries.
    The price that growers' receive for their crop is largely 
determined by the total production volume and carryin inventories. The 
Federal marketing order permits the industry to exercise supply control 
provisions, which allow for the establishment of free and restricted 
percentages for the primary market, and a storage program. The 
establishment of restricted percentages impacts the production to be 
marketed in the primary market, while the storage program has an impact 
on the volume of unsold inventories.
    The volume control mechanism used by the cherry industry results in 
decreased shipments to primary markets. Without volume control the 
primary markets (domestic) would likely be over-supplied, resulting in 
low grower prices.
    To assess the impact that volume control has on the prices growers 
receive for their product, an econometric model has been developed. The 
model provides a way to see what impacts volume control may have on 
grower prices. The three districts in Michigan, New York and Washington 
are the only restricted areas for this crop year and their combined 
total production is 336 million pounds. A 41 percent restriction means 
198 million pounds is available to be shipped to primary markets from 
these three states. Production levels of 2 million pounds for Oregon, 4 
million pounds for Pennsylvania, 12 million pounds for Utah, and 13 
million pounds for Wisconsin results in an additional 31 million pounds 
available for primary market shipments.
    In addition, USDA requires a 10 percent release from reserves as a 
market growth factor. This results in an additional 22 million pounds 
being available for the primary market. The 198 million pounds from 
Michigan, New York and Washington, the 31 million pounds from the other 
producing states, and the 22 million pound release gives a total of 251 
million pounds being available for the primary markets.
    The econometric model is used to estimate grower prices with and 
without regulation. Without the volume controls, the estimated grower 
price would be approximately $0.10 per pound. With volume controls, the 
estimated grower price would increase to approximately $0.15 per pound.
    The use of volume controls is estimated to have a positive impact 
on grower's total revenues. Without regulation, growers' total revenues 
from processed cherries are estimated to be $36.6 million in 2001/02. 
In this scenario, production is 366 million pounds and price, without 
regulation, is estimated to be $0.10 per pound. With regulation, 
growers' revenues from processed cherries are estimated to be $46.5 
million. In this scenario, 251 million pounds are available for the 
primary markets with an estimated price of $0.15 per pound. Over the 
past several seasons, growers received approximately $0.10 cents for 
restricted (diverted) cherries.
    The results of econometric analysis are subject to some level of 
uncertainty. As long as grower prices are greater than $0.11 per pound, 
then growers' are better off with the regulation. With a price of $0.11 
per pound, the estimated revenues under no regulation would be similar 
to the revenues with a 41 percent restricted regulation.
    It is concluded that the 41 percent volume control would not unduly 
burden producers, particularly smaller growers. The 41 percent 
restriction is only applied to the growers in Michigan, New York, and 
Washington. The growers in the other 4 regulated states will benefit 
from this restriction. Michigan, New York, and Washington produced over 
91 percent of the tart cherry crop during the 2001/02 crop year.
    Recent grower prices have been as high as $0.21 per pound. At 
current production levels, the cost of production is reported to be 
$0.25 per pound. Thus, the estimated $0.15 per pound received by 
growers remains below the cost of production. The use of volume 
controls is believed to have little or no effect on consumer prices and 
will not result in fewer retail sales or sales to food service outlets.
    Without the use of volume controls, the industry could be expected 
to continue to build large amounts of unwanted inventories. These 
inventories have a depressing effect on grower prices. The econometric 
model shows for every 1 million-pound increase in carryin inventories, 
a decrease in grower prices of $0.0029 per pound occurs. The use of 
volume controls allows the industry to supply the primary markets while 
avoiding the disastrous results of over-supplying these markets. In 
addition, through volume control, the industry has an additional supply 
of cherries that can be used to develop secondary markets such as 
exports and the development of new products.
    In discussing the possibility of marketing percentages for the 
2001-2002 crop year, the Board considered the following factors 
contained in the marketing policy: (1) The estimated total production 
of tart cherries; (2) the estimated size of the crop to be handled; (3) 
the expected general quality of such cherry production; (4) the 
expected carryover as of July 1 of canned and frozen cherries and other 
cherry products; (5) the expected demand conditions for cherries in 
different market segments; (6) supplies of competing commodities; (7) 
an analysis of economic factors having a bearing on the marketing of 
cherries; (8) the estimated tonnage held by handlers in primary or 
secondary inventory reserves; and (9) any estimated release of primary 
or secondary inventory reserve cherries during the crop year.
    The Board's review of the factors resulted in the computation and 
announcement in October 2001 of the restricted percentages proposed in 
this rule (59 percent free and 41 percent restricted).
    A positive factor for the cherry industry this year is the 
unusually large USDA purchases of cherries during this crop year. These 
USDA sales include a significant amount of frozen cherries and large 
quantities of dried cherries.
    One alternative to this action would be not to have volume 
regulation this season. Board members stated that no volume regulation 
would be detrimental to the tart cherry industry due to the size of the 
2001-2002 crop. Returns to growers would not cover their costs of 
production for this season which might cause some to go out of 
business.
    As mentioned earlier, the Department's ``Guidelines for Fruit, 
Vegetable, and Specialty Crop Marketing Orders'' specify that 110 
percent of recent years' sales should be made available to primary 
markets each season before recommendations for volume regulation are 
approved. The quantity available under this rule is 110

[[Page 11622]]

percent of the quantity shipped in the prior three years.
    The free and restricted percentages proposed to be established by 
this rule release the optimum supply and apply uniformly to all 
regulated handlers in the industry, regardless of size. There are no 
known additional costs incurred by small handlers that are not incurred 
by large handlers. The stabilizing effects of the percentages impact 
all handlers positively by helping them maintain and expand markets, 
despite seasonal supply fluctuations. Likewise, price stability 
positively impacts all producers by allowing them to better anticipate 
the revenues their tart cherries will generate.
    The Department has not identified any relevant Federal rules that 
duplicate, overlap, or conflict with this regulation.
    While the benefits resulting from this rulemaking are difficult to 
quantify, the stabilizing effects of the volume regulations impact both 
small and large handlers positively by helping them maintain markets 
even though tart cherry supplies fluctuate widely from season to 
season.
    In compliance with Office of Management and Budget (OMB) 
regulations (5 CFR part 1320) which implement the Paperwork Reduction 
Act of 1995 (Pub. L. 104-13), the information collection and 
recordkeeping requirements have been previously approved by OMB and 
assigned OMB Number 0581-0177.
    There are some reporting, recordkeeping, and other compliance 
requirements under the marketing order. The reporting and recordkeeping 
burdens are necessary for compliance purposes and for developing 
statistical data for maintenance of the program. The forms require 
information which is readily available from handler records and which 
can be provided without data processing equipment or trained 
statistical staff. As with other, similar marketing order programs, 
reports and forms are periodically studied to reduce or eliminate 
duplicate information collection burdens by industry and public sector 
agencies. This rule does not change those requirements.
    A 15-day comment period is provided to allow interested persons to 
respond to this proposal. Fifteen days is deemed appropriate because 
this rule needs to be in place as soon as possible to achieve its 
intended purpose of making the optimum supply quantity computed by the 
Board available to handlers marketing 2001-2002 crop year cherries. All 
written comments timely received will be considered before a final 
determination is made on this matter.

List of Subjects in 7 CFR Part 930

    Marketing agreements, Reporting and recordkeeping requirements, 
Tart cherries.

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

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

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

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

    2. Section 930.253 is added to read as follows:

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

Sec. 930.253  Final free and restricted percentages for the 2001-2002 
crop year.

    The final percentages for tart cherries handled by handlers during 
the crop year beginning on July 1, 2001, which shall be free and 
restricted, respectively, are designated as follows: Free percentage, 
59 percent and restricted percentage, 41 percent.

    Dated: March 11, 2002.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 02-6136 Filed 3-14-02; 8:45 am]
BILLING CODE 3410-02-P