[Federal Register Volume 67, Number 144 (Friday, July 26, 2002)]
[Rules and Regulations]
[Pages 48745-48752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18701]


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DEPARTMENT OF AGRICULTURE

Animal and Plant Health Inspection Service

9 CFR Part 50

[Docket No. 00-105-1]
RIN 0579-AB36


Payments for Cattle and Other Property Because of Tuberculosis

AGENCY: Animal and Plant Health Inspection Service, USDA.

ACTION: Interim rule and request for comments.

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SUMMARY: We are amending the regulations regarding payments made in 
connection with animals and other property disposed of because of 
bovine tuberculosis to provide that the Animal and Plant Health 
Inspection Service will make payments to owners of dairy cattle and 
other property used in connection with a dairy business, and a dairy 
processing plant in the area of El Paso, TX, provided the owners agree 
to dispose of their herds, close their existing dairy operations, and 
refrain from establishing new cattle breeding operations in the area. 
This action is necessary to further tuberculosis eradication efforts in 
the United States and protect livestock not affected with bovine 
tuberculosis from the disease.

DATES: This interim rule is effective July 26, 2002. We will consider 
all comments that we receive on or before September 24, 2002.

ADDRESSES: You may submit comments by postal mail/commercial delivery 
or by e-mail. If you use postal mail/commercial delivery, please send 
four copies of your comment (an original and three copies) to: Docket 
No. 00-105-1, Regulatory Analysis and Development, PPD, APHIS, Station 
3C71, 4700 River Road Unit 118, Riverdale, MD 20737-1238. Please state 
that your comment refers to Docket No. 00-105-1. If you use e-mail, 
address your comment to [email protected]. Your comment must 
be contained in the body of your message; do not send attached files. 
Please include your name and address in your message and ``Docket No. 
00-105-1'' on the subject line.
    You may read any comments that we receive on this docket in our 
reading room. The reading room is located in room 1141 of the USDA 
South Building, 14th Street and Independence Avenue, SW., Washington, 
DC. Normal reading room hours are 8 a.m. to 4:30 p.m., Monday through 
Friday, except holidays. To be sure someone is there to help you, 
please call (202) 690-2817 before coming.
    APHIS documents published in the Federal Register, and related 
information, including the names of organizations and individuals who 
have commented on APHIS dockets, are available on the Internet at 
http://www.aphis.usda.gov/ppd/rad/webrepor.html.

FOR FURTHER INFORMATION CONTACT: Dr. Joseph Van Tiem, Senior Staff 
Veterinarian, National Animal Health Programs, VS, APHIS, 4700 River 
Road Unit 43, Riverdale, MD 20737-1231; (301) 734-7716.

SUPPLEMENTARY INFORMATION:

Background

    Bovine tuberculosis (tuberculosis) is a contagious, infectious, and 
communicable disease caused by Mycobacterium bovis. It affects cattle, 
bison, deer, elk, goats, and other warm-blooded species, including 
humans. Tuberculosis in infected animals and humans manifests itself in 
lesions of the lung, bone, and other body parts, causes weight loss and 
general debilitation, and can be fatal. At the beginning of the past 
century, tuberculosis caused more losses of livestock than all other 
livestock diseases combined. This prompted the establishment of the 
National Cooperative State/Federal Bovine Tuberculosis Eradication 
Program for tuberculosis in livestock. Through this program, the Animal 
and Plant Health Inspection Service (APHIS) works cooperatively with 
the national livestock industry and State animal health agencies to 
eradicate tuberculosis from domestic livestock in the United States and 
prevent its recurrence.
    Federal regulations implementing this program are contained in 9 
CFR part 77, ``Tuberculosis'' and in the ``Uniform Methods and Rules--
Bovine Tuberculosis Eradication'' (UMR), January 22, 1999, edition, 
which is incorporated by reference into the regulations in part 77. 
Additionally, the regulations in 9 CFR part 50 (referred to below as 
the regulations) provide for the payment of indemnity to owners of 
certain animals destroyed because of tuberculosis, in order to 
encourage destruction of animals that are infected with, or at 
significant risk of being infected with, the disease.

Scope of This Interim Rule

    In this interim rule, we are adding provisions to part 50 of the 
regulations to allow APHIS to make payments to owners of dairy cattle 
and other property in the area of El Paso, TX, in connection with the 
disposal of their herds and dairy operations, under the condition that 
the owners agree to dispose of their herds, close their existing 
dairies and refrain from establishing new cattle breeding operations in 
the area. The provisions of this interim rule apply to owners of dairy 
herds and other property only within a specified area in Texas. All 
other animals in the United States destroyed because of tuberculosis 
will continue to be eligible for indemnity in accordance with the 
existing regulations. To make this clear, we are designating the 
existing regulations in part 50 as subpart A, and are designating the 
provisions we are adding in this interim rule (new Secs. 50.17 through 
50.22) as subpart B of part 50. Additionally, we are adding language to 
Sec. 50.2 to make clear our intent.
    The action we are taking in this interim rule is part of a 
cooperative plan with the State of Texas to create a buffer zone along 
the United States-Mexico border that will contain no cattle that are at 
significant risk of being infected with tuberculosis. Since 1985, State 
animal health officials in Texas, along with APHIS, have been taking 
measures to eliminate tuberculosis in dairy herds in the El Paso area. 
(Tuberculosis has been diagnosed in only one herd of beef cattle in the 
area, and that infection was due to an infected steer from Mexico that 
was added to the herd. We believe the lack of tuberculosis infection in 
beef cattle is due to the relatively short time such cattle remain on a 
premises, compared to dairy cattle.) As a result of these eradication 
efforts, dairy herds in the El Paso area have become free of 
tuberculosis, only to be reinfected despite the application of sound 
agricultural practices designed to prevent reintroduction of the 
disease.

[[Page 48746]]

    Recent epidemiological findings, including the DNA fingerprinting 
of tuberculosis isolates, have indicated that the reinfection of the 
dairy herds near El Paso is strongly correlated with the proximity of 
tuberculosis-infected herds in the area of Ciudad Juarez, Mexico. Based 
on this evidence, we consider it likely that any dairy herds that 
remain in the El Paso area will continue to be reinfected with 
tuberculosis, despite U.S. efforts to eradicate the disease.
    Because of this situation, APHIS, in conjunction with State animal 
health officials in Texas, has determined that, in order to further the 
eradication of tuberculosis in the United States, it is necessary to 
remove all bovine dairy herds from the El Paso area. To make this 
possible, APHIS has secured funding to make payments to the owners of 
those dairy operations, including payments to owners for the loss of 
their animals and other property, for the cessation of their dairy 
operations, for the cessation of the use of their dairy properties for 
dairy operations, and for relocation of a dairy facility.

Eligibility for Payment

    New Sec. 50.17(a) provides that owners of dairy operations, 
including owners of dairy herds and other property, will be eligible 
for payment under the provisions of this rule if they meet all 
applicable requirements of the regulations and if their herds are 
located in the area in Texas circumscribed by the following boundaries: 
Beginning at the point where the Hudspeth-El Paso County line 
intersects U.S. Highway 62; then west along U.S. Highway 62 to the El 
Paso Toll Bridge; then southeast along the Rio Grande River to the Fort 
Hancock-El Porvenir Bridge; then northeast along spur 148 to Interstate 
10; then northwest along Interstate 10 to the Hudspeth-El Paso County 
line; then north along the Hudspeth-El Paso County line to the point of 
beginning.
    New Sec. 50.17(b) provides that, to be eligible for payment under 
this interim rule, all owners of dairy operations, including owners of 
dairy herds and other property, within the area described above under 
the heading ``Eligibility for Payment'' must sign and adhere to an 
agreement with APHIS to do the following:
     Cease all dairy operations within the described area, and 
dispose of all sexually intact cattle on the dairy operation premises, 
no later than 2 years after all eligible owners have signed their 
respective agreements;
     Conduct no dairy farming or other dairy activity, 
including the rearing of any breeding cattle, but not including the 
grazing or feeding of steers and spayed heifers intended for terminal 
market, within the area described above until the described area and 
the adjoining area of Mexico have been declared free of bovine 
tuberculosis, as determined epidemiologically by APHIS, but in any 
event for a period of not less than 20 years after all eligible owners 
have signed their respective agreements;
     Allow a covenant to be placed on the property where the 
dairy operations were conducted that will prevent the establishment of 
any cattle breeding operations (not including the grazing or feeding of 
steers and spayed heifers intended for terminal market) on the premises 
until the described area and the adjoining area of Mexico have been 
declared free of bovine tuberculosis, as determined epidemiologically 
by APHIS, but in any event for a period of not less then 20 years after 
all eligible owners have signed their respective agreements;
     Maintain responsibility for all cattle on the premises 
used in the dairy operation until those animals are removed from the 
premises;
     Make all arrangements for the removal of all sexually 
intact cattle from the premises; and
     Notify APHIS officials of the intended removal of all 
sexually intact cattle from the premises and provide APHIS officials 
with the opportunity to monitor and evaluate the removal operations.
     Such other terms, provisions, and conditions as agreed by 
each owner and APHIS.

Time Limit for Disposal of Cattle and Future Restrictions

    There are approximately 12,200 dairy cattle in the described El 
Paso area. We are providing up to 2 years for owners to dispose of all 
cattle from dairy operations in the area to minimize any economic 
effects such disposal might otherwise have on the beef industry in that 
region.
    We are requiring a minimum 20-year period without cattle breeding 
operations because reinfection of herds in the El Paso area has been 
linked to the existence of tuberculosis in nearby regions of Mexico, 
and we consider 20 years to represent a minimum reasonable time frame 
for the eradication of tuberculosis from those Mexican regions. 
Additionally, we believe it will take at least 20 years of heightened 
surveillance in the United States to confirm what we anticipate to be 
the complete eradication of tuberculosis in livestock in the United 
States in the next several years. Until that eradication is confirmed, 
we believe it is necessary to continue to prohibit the breeding of 
cattle in the El Paso region.

Amount of Payment

    New Sec. 50.17(c) provides that we will make payments for cattle 
and other property based on the following rates:
     For milking cows, an amount not to exceed $2,922 per 
animal; and
     For heifers, an amount not to exceed $834 per animal.
    We used the income approach to determine the value to be paid for 
disposal of the herds and the cessation of dairy operations and the 
cessation of use of the properties for dairy operations. We calculated 
the net present value (NPV) of a milking cow. To calculate the NPV, we 
used discounted cash flow analysis, which takes into account the 
quantity, variability, and duration of the forecasted income stream 
over a specified income projection period, assuming 15 years' worth of 
expected remaining life of the dairy facility.
    The valuation model can be expressed in the following equation 
form, where r = discount rate, I = annual income per cow, and y = 
number of years in the discount period:

NPV = (1-1/((1 + r)y))/r*I

    To calculate NPV using the above equation, we had to determine the 
annual income per cow, the discount rate, and the number of years 
income is paid. We discuss each of these factors below. For more 
information regarding our analysis, please contact Terry Disney, APHIS 
Center for Epidemiology and Animal Health, at 970-490-8000.
    Annual income per milking cow. There was some variation in the 
actual annual net income per milking cow over the past several years 
among the dairy operations in the El Paso area. Taking this variation 
into account, we used $320 as the annual net income per milking cow.
    Discount rate. The discount rate used in the present value 
calculation is 7 percent, which is the risk-adjusted rate estimated to 
be appropriate in this situation.
    Number of years income is paid. For the purposes of our equation, 
we used a term of 15 years.
    Difference between discounted fair market value and salvage value. 
We added a small differential (just under $8 per head) to the NPV to 
account for the difference between the fair market value of the milking 
cow discounted over 15 years (because our income calculations assumed 
that the size of the milking

[[Page 48747]]

cow herd would remain constant for 15 years) and the amount we 
estimated the owner would receive as salvage for a dairy cow that was 
sent to slaughter.
    Value of heifers. Some of the dairy operations in the El Paso area 
include heifers that are not yet being used for milk production. We 
calculated the value of such heifers by subtracting from the present 
fair market value of each heifer the amount an owner could expect to 
receive if the heifer were sold for slaughter.
    New Sec. 50.17(d) provides that any dairy cattle added to a 
premises after the date an owner has signed the agreement discussed 
above will not be eligible for payment and must be disposed of within 2 
years after all eligible owners have signed the agreement.

Amount of Additional Payments

    New Sec. 50.17(e) provides amounts for additional payments for two 
dairy facilities located within the geographic area covered by this 
interim rule.
    Paragraph (e)(1) of Sec. 50.17 provides for payment for relocating 
the equipment of a reverse osmosis plant. This plant removes water from 
milk. The plant was located on the premises of one of the dairy farms 
within the area covered by this interim rule. It would no longer be a 
viable operation at that location because of the removal of all dairy 
herds in the area. APHIS will pay the documented costs of relocating 
the plant's equipment to a location outside the area covered by this 
interim rule, up to a maximum of $675,000.
    Paragraph (e)(2) of Sec. 50.17 provides for payment for the 
permanent closure of a fluid milk processing plant that is located 
within the area covered by this interim rule. The fluid milk processing 
plant processes fresh milk. In determining the amount of payment that 
will be made for the processing plant, we used the following formula, 
where CostG = amount to be paid by APHIS; ebitd = annual 
earnings before interest, taxes, and depreciation; and x = the industry 
standard multiple that is paid for similar businesses (an industry 
standard multiple takes into account the potential effects on the sale 
of a company of factors such as the age of the facility, its 
profitability, and the desirability of markets):

CostG = ebitd * x - Salvage - Goodwill

    In applying this formula to the fluid milk processing plant, we 
considered ebitd to be the average of the plant's last 4 years' 
earnings, as shown on the company's tax records. We estimated the 
industry standard multiple in this case to range from 4.5 to 5.25. We 
based salvage value on appraisals, and we also estimated goodwill 
(e.g., the value of name recognition and customer base and loyalty). 
Using these figures, we determined that an amount not to exceed 
$950,000 was appropriate for the permanent closure of the milk 
processing plant.
    APHIS will make payment to the owners of the fluid milk processing 
plant in the same manner and at the same times, on a pro rata basis, as 
we make payments to such owners for their dairy cattle and other 
property.

Identification and Disposal of Cattle

    In order to allow for traceback, if necessary, of cattle disposed 
of under this interim rule, we are providing in new Sec. 50.18(a) that 
all cattle so disposed of must travel from the premises of origin to 
their final destination with an approved metal eartag, supplied by 
APHIS or the State representative, bearing a serial number and attached 
to each animal's left ear.
    New Sec. 50.18(b) provides that cattle disposed of in accordance 
with this interim rule must be shipped under permit either (1) directly 
to slaughter at a Federal or State inspected slaughtering establishment 
or (2) directly to a livestock market and, under the supervision of an 
APHIS representative or State representative, through a livestock 
market pen that is dedicated to and marked exclusively for use for 
animals moved to slaughter, and then directly to slaughter at a Federal 
or State inspected slaughtering establishment.

Report of Salvage Proceeds

    In order to confirm that dairy cattle affected under this interim 
rule are disposed of in some way, we are requiring in new Sec. 50.19 a 
report of the salvage derived from the sale of each animal for which a 
claim for payment is made. We are requiring that the salvage form be 
one that is acceptable to APHIS and that is signed by the purchaser or 
by the selling agent handling the animals. If the cattle are sold by 
the pound, the salvage form must show the weight, price per pound, 
gross receipts, expenses if any, and net proceeds. If the cattle are 
not sold on a per-pound basis, the salvage form must show the net 
purchase price of each animal, accompanied by an explanation showing 
how that amount was derived. If the animals are not disposed of through 
regular slaughterers or through selling agents, the owner must furnish, 
in lieu of the salvage form, an affidavit showing the amount of salvage 
obtained by him or her and must certify that the amount is all he or 
she has received or will receive as salvage for the animals. The 
original of the salvage form or the affidavit of the owner must be 
furnished to the veterinarian in charge within 3 months of the 
destruction of the animals, if it is not already in his or her 
possession. Disposal of cattle by burial, incineration, or other means 
must (1) be supervised by an APHIS or State representative, who will 
prepare and transmit to the veterinarian in charge a report identifying 
the animals and showing their disposition; or (2) be documented by an 
affidavit of the owner identifying the animals and describing their 
disposition, a copy of which must be provided to the veterinarian in 
charge within 3 months of the destruction of the animals. The salvage 
form, disposal certificate, or affidavit will be for information 
purposes only and will have no effect on the amount of any payment due.

Claims for Payment

    New Sec. 50.20 sets forth procedures an owner must follow to submit 
a claim for payment. In order to coordinate claims, the timing for all 
claims for payment is based upon disposal of cattle, regardless of 
whether the payments are attributable to cattle or other property as 
agreed to by APHIS and the owner. These provisions are largely the same 
as those set forth in Sec. 50.12 of the existing regulations for 
claiming indemnity for cattle, bison, captive cervids, or swine 
destroyed because of tuberculosis.
    Under subpart B of part 50, claims for payment must be presented on 
payment claim forms furnished by APHIS. The payment claim forms may be 
obtained from the APHIS veterinarian in charge. On the claim form, the 
owner of the animals or other property must certify that the animals or 
other property are, or are not, subject to any mortgage. If the owner 
states that there is a mortgage, the claim form must be signed by the 
owner and by each person holding a mortgage, who must agree that the 
person specified on the claim form may receive any payment due. The 
APHIS veterinarian in charge or the official designated by the 
veterinarian in charge will record on the claim form the amount of 
payment that appears to be due the owner, and the owner will be 
furnished a copy of the APHIS payment claim form. The veterinarian in 
charge or official designated by the veterinarian in charge will then 
forward the APHIS payment claim form to the appropriate APHIS official 
for further action on the claim. Section 50.20 provides that the 
Department will not pay any costs arising from the holding of the 
animals pending slaughter or for trucking or other transportation 
costs, yardage, commission, slaughtering charges, or for

[[Page 48748]]

any other costs related to having the cattle slaughtered.

Payments

    New Sec. 50.21 provides that we will make payments at 90-day 
intervals, with the first payment to be made no earlier than 30 days 
after all owners eligible for payment have signed their respective 
agreements as required under Sec. 50.17(b) of this interim rule. The 
Department will determine the amount to be paid to each owner in each 
payment by multiplying the total agreement amount for that owner by a 
fraction arrived at by dividing the initial census number of dairy 
cattle for the respective owner into the number of dairy cattle that 
have been removed from the owner's herd during that payment period. 
From this amount, 10 percent will be withheld until all animals in the 
herd have been disposed of and the requirements of this subpart have 
been met. The payments to owners of property other than animals will be 
determined by multiplying the total agreement amount for that other 
property times the same ratio that is used for the herd that is related 
to that other property, minus the 10 percent withholding.
    We will not make final payments until the premises used for dairy 
operations have been without sexually intact cattle for at least 30 
days and have been inspected by APHIS officials and been found to be 
free of manure, except for non-solid areas such as lagoons, and free of 
all feedstuffs that are not in barns, containers or feeders.

Claims Not Allowed

    New Sec. 50.22 provides that we will not allow claims for payment 
under this interim rule if the claimant has failed to comply with any 
of the requirements established by this interim rule, or if there is 
substantial evidence, as determined by the Administrator, that the 
claimant has in any way been responsible for any attempt to obtain 
payment unlawfully or improperly.

Definitions

    We are adding definitions of heifer and milking cow to Sec. 50.1 to 
read as follows:
    Heifer. A female dairy cow that has not given birth.
    Milking cow. A female dairy cow that has given birth and is being 
used for milk production.

Emergency Action

    This rulemaking is necessary on an emergency basis to ensure that 
dairy cattle in the El Paso, TX, area, which are at significant risk of 
being infected with tuberculosis, are removed from that area as soon as 
possible. This prompt removal is necessary to help prevent the spread 
of bovine tuberculosis in the United States. Under these circumstances, 
the Administrator has determined that prior notice and opportunity for 
public comment are contrary to the public interest and that there is 
good cause under 5 U.S.C. 553 for making this rule effective less than 
30 days after publication in the Federal Register.
    We will consider comments we receive during the comment period for 
this interim rule (see DATES above). After the comment period closes, 
we will publish another document in the Federal Register. That document 
will include a discussion of any comments we receive and any amendments 
we are making to the rule as a result of the comments.

Executive Order 12866 and Regulatory Flexibility Act

    This rule has been reviewed under Executive Order 12866. The rule 
has been determined to be significant for the purposes of Executive 
Order 12866 and, therefore, has been reviewed by the Office of 
Management and Budget.
    For this rule, we have prepared an economic analysis that provides 
a cost-benefit analysis as required by Executive Order 12866 and an 
analysis of the potential effects on small entities as required by the 
Regulatory Flexibility Act. The analyses are set forth below.

Cost-Benefit Analysis: Background

    This interim rule provides for specified owners of dairy operations 
in the area of El Paso, TX, to be paid for the disposal of their herds 
and the cessation of their operations and the cessation of the use of 
their dairy properties for dairy operations. Past efforts to 
permanently eliminate tuberculosis from the El Paso milkshed dairies 
have been unsuccessful due to the proximity of this area to known 
tuberculosis-infected dairies in Ciudad Juarez, Mexico. Elimination of 
the Texas El Paso milkshed dairies would provide a benefit in the form 
of a permanent buffer zone that would serve to prevent the 
reintroduction of bovine tuberculosis from the Ciudad Juarez area into 
U.S. dairy herds. Ten dairy farms with 12,203 milking cows are located 
in the proposed buffer zone. Payment is needed to obtain producers' 
voluntary cooperation to cease their dairy operations permanently. With 
this payment, these producers are expected to neither gain nor lose 
financially, and the economic impact upon them can be considered 
neutral.
    Additionally, payment will also be offered to one dairy entity in 
connection with the closure of its fluid milk processing operation, and 
to another for the relocation of its reverse osmosis equipment. These 
operations are located on or associated with two of the affected farms 
in the buffer zone. The discussion below describes how payment for 
these items is calculated, the total amount of payment expected to be 
paid to affected owners in El Paso, and impacts of the interim rule.

Milk Production in El Paso

    El Paso is one of the top five milk producing counties in Texas and 
is located in the milkshed of the Southwest Federal Milk Marketing 
Order, which includes all of New Mexico and Texas. In El Paso County, 
milk production yielded more cash than any other agricultural product, 
accounting for about 27 percent of total sales in 2000. The 10 affected 
El Paso dairies produced about 258 million pounds of milk in 2000 (or a 
5 percent share of the milk production of the State of Texas), valued 
at about $34 million.

Payment Calculation

    In order to determine the value to be paid, an appraisal method was 
utilized by which the future earnings of the 10 affected dairy farms 
are estimated. These contributions are then discounted to present value 
over a period of 15 years, the assumed useful life of these profitable 
dairy farms.\1\
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    \1\ Armstrong, Dennis. Arizona Dairy Feasibility Study for 
Southeast Arizona, University of Arizona, Department of Animal 
Science, 1999. This report suggests that modern dairies are obsolete 
10 to 15 years after after establishment due to urban encroachment, 
or technical obsolescence.
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    A discount rate of 7 percent was applied to estimates of future 
producer returns to risk, management, and capital investment. This rate 
is higher than the risk-free rate (approximately 4.9 percent) that the 
U.S. Government pays on Series I bonds, reflecting some degree of risk 
and uncertainty.
    Future farm earnings are based on the returns per milking cow. Some 
of the 10 dairy herds have only milking cows and replacement animals 
(calves and heifers). Others have additional calves and heifers in 
excess of replacement needs. APHIS has historically used the fair 
market value (FMV) appraisal approach to evaluate the value of animals 
to be indemnified. With this approach, the market value of assets is 
evaluated by an appraiser(s) and the amount reimbursable to the 
producer is based on this appraisal. This method is suited to 
situations where established markets are available and animals are

[[Page 48749]]

being removed and replaced with other animals on the farm. In the 
current situation, APHIS is requiring permanent cessation of dairying 
operations on the premises. Therefore, payment is being made for the 
value of animals plus the value of the cessation of dairy operations 
plus the value of the cessation of use of the dairy properties for 
dairy operations. The appraisal methodology used to determine the value 
is based on documented production records of annual earnings before 
interest, taxes, and depreciation (ebitd) generated per milking cow. 
Using this method, the ebitd value of a milking cow is estimated to be 
$320 per year, or a present value of $2,915 per animal over 15 years. 
The same valuation method is applied to each farm.
    In addition, this interim rule requires each affected producer to 
sell all animals in the dairy herd to a terminal market for slaughter. 
The proceeds from this sale are commonly referred to as the salvage 
value. However, assuming that herd size and structure would be the same 
15 years from now (individual animals may change, but the distribution 
remains the same), most of the animals would still have remaining 
milking value. The determination of the value should, therefore, be 
based on the difference between the present value of his herd's FMV 
(productive worth) 15 years from now and the herd's current salvage 
value. In sum, the value is composed of the present value of the net 
income stream per cow ($2,915), plus the difference between the 
discounted fair market value per cow (about $508) and the assumed 
salvage value per cow ($500).
    Seven of the ten affected dairy operations have heifers beyond the 
number needed as replacement animals. A portion of the value is, 
therefore, determined by subtracting from the current FMV of each 
heifer the amount an owner could expect to receive if the heifer were 
sold for slaughter. Thus, that portion of the value is estimated at 
about $834 per head.
    The total payment amount to be paid to owners of dairy cattle and 
other property based upon 12,203 milking cows and 7,190 additional 
heifers is estimated at nearly $42 million. Eighty-six percent of this 
total payment is determined by milking cows, and the remaining 14 
percent is determined by heifers in excess of replacement needs. 
Approximately 85 percent of the payments is allocable to 5 farms. The 
largest payment to an owner is over $12 million. Three owners receive 
less than $1 million each.
    In addition to the 10 dairy farms that are being closed, two 
additional dairy operations are considered for payment on a case-by-
case basis as part of the El Paso buffer zone payment package. The 
first case involves a reverse osmosis plant that is located on one of 
the affected farms. The plant, owned by a producer cooperative, would 
cease operation in its current location and be moved to an area outside 
the buffer zone. Payments would cover the cost of relocating the 
equipment and would be limited to qualifying expenditures submitted 
with receipts. It is estimated that these expenditures would include 
costs of a reverse osmosis milk unit, silos, boiler and refrigeration 
equipment, and transport expense. The total amount eligible for payment 
is estimated at $675,000. This amount does not include the cost of a 
new building (estimated at $300,000), which will be absorbed by the 
cooperative.
    The second case involves the closure of a dairy processing plant 
that has been in business for nearly 60 years. This plant processes 
fresh milk exclusively from one of the affected dairy farms, and with 
the closing of the latter, this niche market would no longer be 
commercially maintainable.
    The model used to calculate payment for the closure of the 
processing plant relies on the industry standard framework for 
purchasing dairy facilities. The framework typically follows the 
following formula:

(1) FMV = ebitd * x,

where FMV represents the fair market value of the dairy plant, ebitd 
represents annual earnings before interest, taxes, and depreciation are 
removed, and x reflects the industry standard multiple that is paid for 
similar businesses.
    As APHIS will not be taking possession of the processing plant, the 
initial formula (1) is therefore modified to reflect the ability of the 
plant owner to salvage any value remaining in the physical facilities 
once the plant no longer processes milk. The payment amount will be 
based on the following formula:

(2) CostG = ebitd * x - Salvage,

where costG is the payment amount. The term salvage (salvage 
value) can be broken down into two parts: Traditional salvage value of 
buildings and equipment and the goodwill value that may or may not be 
marketable independently of the farm's brand name. The final formula 
for payment can be rewritten as:

(3) CostG = ebitd * x - Salvage - Goodwill.

    In applying formula (3) to the processing plant, ebitd is the 
average earnings over the last 4 years, obtained directly from tax 
records. The value of the multiple x was determined based on extensive 
conversations with industry contacts experienced with similar dairy 
plant buyouts. Estimates of salvage value of the building and equipment 
were obtained from an auction house. Goodwill is a difficult concept to 
quantify, but estimates were made using information from various 
industry contacts.
    Several scenarios for payment were calculated for the processing 
plant. These scenarios resulted in similar overall estimates of 
payment. The average compensation estimate was $950,000 for the closure 
of the processing plant.
    In sum, the total amount to be paid by APHIS for the closure of 10 
El Paso dairy farm operations and an associated processing plant, and 
the relocation of a reverse osmosis plant, is almost $44 million.

Impact of the Interim Rule

    The impact of the rule on the 10 affected El Paso dairy farms is 
expected to be economically neutral as owners of the farms will be paid 
for their animals and other property and the cessation of operations. 
However, closure of these farms may indirectly affect interrelated 
activities in the county and/or State such as bottling plants and dairy 
products manufacturing plants in the area. These effects are expected 
to be small whether farms move away from Texas or relocate to other 
areas within Texas.
    If the affected farms were to move away from Texas, bottling and 
dairy plants would likely be minimally impacted due to the close 
proximity of the affected area to milk-abundant counties of New Mexico. 
The lost milk production in El Paso will probably be offset over time 
by increases in milk production in the rest of Texas and New Mexico.
    According to discussions with area market economists and with 
representatives of the Southwest Federal Milk Marketing Order, the 
farmers are likely to remain in the dairy business and would prefer to 
relocate to other areas of the State. In this case, the impact on the 
local economy would be similarly small over time. Therefore, we do not 
anticipate any long-term increases in milk prices paid by milk 
processors or retail prices paid by consumers due to the buyout. 
Furthermore, the impact on beef prices of sending 12,200 dairy cattle 
to slaughter under this interim rule will be mitigated by the 2-year 
period allowed to complete depopulation.

[[Page 48750]]

    Texas has not been able to achieve Statewide tuberculosis 
accredited-free status because efforts to permanently eliminate 
tuberculosis from the El Paso dairies has been unsuccessful. The loss 
to Texas producers from not having accredited-free status, not only for 
the dairy enterprises, but for the beef cow and cattle-on-feed 
enterprises, was estimated to be $260 million for a 5-year time 
horizon. This loss was calculated according to the methodology adapted 
from Leefers et al. (1998) that estimated the economic impact on 
Michigan of losing its tuberculosis accredited-free status.\2\ The 
impact of the higher producer costs attributed to stricter tuberculosis 
testing regimen in that study is measured as the difference between the 
present value of sales with accreditation and without accreditation. 
The loss to Texas producers of not having accredited-free status is 
calculated by extrapolating from the percent decline in present value 
of sales for each of the three types of cattle enterprises (dairy 
enterprises, beef cow, and cattle-on-feed), as calculated by Leefers et 
al. for Michigan.
---------------------------------------------------------------------------

    \2\ Leefers, Larry, John Erris, and Dennis Propst. ``Economic 
Consequences Associated with Bovine Tuberculosis in Northeastern 
Michigan,'' Michigan State University, September 1977 (revised 
February 1998).
---------------------------------------------------------------------------

    Even without taking trade implications of tuberculosis into 
consideration, the costs associated with the El Paso buyout are 
relatively small compared to the benefits arising from reducing the 
risk of spreading tuberculosis to other dairy and livestock herds in 
other parts of Texas, New Mexico, and other States.

Regulatory Flexibility Analysis

    The Small Business Administration defines small dairy cattle and 
milk production facilities (North American Industry Classification 
System code 112120) as those earning $750,000 or less in annual 
receipts. The 10 dairies affected by this rule produced about 258 
million pounds of milk in 2000, valued at about $34 million. Assuming 
an annual milk production per cow of 20,000 pounds, only 1 of the 10 
dairy farms has annual gross revenues of less than $750,000. In any 
event, all 10 dairy farms will be fully paid for the disposal of their 
herds and other property and cessation of operation.
    Under these circumstances, the Administrator of the Animal and 
Plant Health Inspection Service has determined that this action will 
not have a significant economic impact on a substantial number of small 
entities.

Executive Order 12372

    This program/activity is listed in the Catalog of Federal Domestic 
Assistance under No. 10.025 and is subject to Executive Order 12372, 
which requires intergovernmental consultation with State and local 
officials. (See 7 CFR part 3015, subpart V.)

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule: (1) Preempts all State and local laws and 
regulations that are in conflict with this rule; (2) has no retroactive 
effect; and (3) does not require administrative proceedings before 
parties may file suit in court challenging this rule.

Paperwork Reduction Act

    In accordance with section 3507(j) of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.), the information collection and 
recordkeeping requirements included in this interim rule have been 
submitted for emergency approval to the Office of Management and Budget 
(OMB). OMB has assigned control number 0579-0193 to the information 
collection and recordkeeping requirements.
    We plan to request continuation of that approval for 3 years. 
Please send written comments on the 3-year approval request to the 
following addresses: (1) Office of Information and Regulatory Affairs, 
OMB, Attention: Desk Officer for APHIS, Washington, DC 20503; and (2) 
Docket No. 00-105-1, Regulatory Analysis and Development, PPD, APHIS, 
Station 3C71, 4700 River Road Unit 118, Riverdale, MD 20737-1238. 
Please state that your comments refer to Docket No. 00-105-1 and send 
your comments within 60 days of publication of this rule.
    Under this interim rule, owners of dairy cattle herds and dairy 
operations in the area of El Paso, Texas, will be eligible for payment 
from the Department for disposal of their herds and other property and 
for cessation of their dairy operations and relocation of a dairy 
plant's equipment. Implementing this payment program will entail the 
use of a number of information collection activities, including an 
agreement to cease operations, metal eartags, movement permits, salvage 
reports, salvage and disposal affidavits, and payment claim forms. We 
are soliciting comments from the public, as well as from affected 
agencies, concerning our information collection and recordkeeping 
requirements. These comments will help us:
    (1) Evaluate whether the information collection is necessary for 
the proper performance of our agency's functions, including whether the 
information will have practical utility;
    (2) Evaluate the accuracy of our estimate of the burden of the 
information collection, including the validity of the methodology and 
assumptions used;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the information collection on those who 
are to respond (such as through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology; e.g., permitting electronic 
submission of responses).
    Estimate of burden: Public reporting burden for this collection of 
information is estimated to average 1.483 minutes per response.
    Respondents: Owners of dairy operations, owners and operators of 
livestock markets and slaughtering plants, cattle purchasers and 
selling agents, State animal health authorities, and accredited 
veterinarians.
    Estimated annual number of respondents: 95.
    Estimated annual number of responses per respondent: 6.210526.
    Estimated annual number of responses: 590.
    Estimated total annual burden on respondents: 875 hours. (Due to 
averaging, the total annual burden hours may not equal the product of 
the annual number of responses multiplied by the reporting burden per 
response.)
    Copies of this information collection can be obtained from Mrs. 
Celeste Sickles, APHIS' Information Collection Coordinator, at (301) 
734-7477.

List of Subjects in 9 CFR Part 50

    Animal diseases, Bison, Cattle, Hogs, Indemnity payments, Reporting 
and recordkeeping requirements, Tuberculosis.

    Accordingly, we are amending 9 CFR part 50 as follows:

PART 50--ANIMALS DESTROYED BECAUSE OF TUBERCULOSIS

    1. The authority citation is revised to read as follows:

    Authority: 7 U.S.C. 8304-8306, 8308, 8310, and 8315; 7 CFR 2.22, 
2.80, and 371.4.


    2. Section 50.1 is amended by revising the introductory text and 
adding definitions of heifer and milking cow, in alphabetical order, to 
read as follows:

[[Page 48751]]

Sec. 50.1  Definitions.

    For the purposes of this part, the following terms mean:
* * * * *
    Heifer. A female dairy cow that has not given birth.
* * * * *
    Milking cow. A female dairy cow that has given birth and is being 
used for milk production.
* * * * *

    3. The heading ``Subpart A--General Indemnity'' is added 
immediately before Sec. 50.2.

    4. Section 50.2 is revised to read as follows:


Sec. 50.2  Applicability of this subpart; cooperation with States.

    (a) The provisions of this subpart apply to all payments made by 
the Department for the destruction of animals because of tuberculosis, 
except as specifically provided in subpart B of this part.
    (b) The Administrator cooperates with the proper State authorities 
in the eradication of tuberculosis and pays Federal indemnities for the 
destruction of cattle, bison, captive cervids, or swine affected with 
or exposed to tuberculosis.

    5. A new subpart B is added to read as follows:

 Subpart B--Dairy Cattle and Facilities in the El Paso, Texas, 
Region

Sec.
50.17   Payment.
50.18   Identification and disposal of cattle.
50.19   Report of salvage proceeds.
50.20   Claims for payment.
50.21   Schedule of payments.
50.22   Claims not allowed.


Sec. 50.17  Payment.

    (a) Eligibility for payment. Owners of dairy operations, including 
owners of dairy cattle and other property used in connection with a 
dairy business or fluid milk processing plant, are eligible to receive 
payment from the Department under this subpart in connection with a 
buffer zone depopulation program due to tuberculosis, provided the 
owners meet all applicable requirements of this subpart and the dairy 
cattle herd is within the area circumscribed by the following 
boundaries: Beginning at the point where the Hudspeth-El Paso County 
line intersects U.S. Highway 62; then west along U.S. Highway 62 to the 
El Paso Toll Bridge; then southeast along the Rio Grande River to the 
Fort Hancock-El Porvenir Bridge; then northeast along spur 148 to 
Interstate 10; then northwest along Interstate 10 to the Hudspeth-El 
Paso County line; then north along the Hudspeth-El Paso County line to 
the point of beginning.
    (b) To be eligible for payment, each of the owners of dairy cattle 
and other property within the area described in paragraph (a) of this 
section must sign and adhere to an agreement with APHIS to do the 
following:
    (1) Cease all dairy cattle operations within the described area and 
dispose of all sexually intact cattle on the dairy operation premises 
no later than 2 years after all eligible owners have signed their 
respective agreements;
    (2) Conduct no dairy farming or other dairy activity, including the 
rearing of breeding cattle, but not including the grazing or feeding of 
steers and spayed heifers intended for terminal market, within the area 
described in paragraph (a) of this section until the described area and 
the adjoining area of Mexico have been declared free of bovine 
tuberculosis, as determined epidemiologically by APHIS, but in any 
event for a period of not less than 20 years after all eligible owners 
have signed their respective agreements.
    (3) Allow a covenant to be placed on their properties where dairy 
operations have been conducted that will prevent the establishment of 
any breeding cattle operations (not including the grazing or feeding of 
steers and spayed heifers intended for terminal market) on the premises 
until the described area and the adjoining area of Mexico have been 
declared free of bovine tuberculosis, as determined epidemiologically 
by APHIS, but in any event for a period of not less than 20 years after 
all eligible owners have signed their respective agreements.
    (4) Maintain responsibility for all cattle on the premises used in 
the dairy operation until those animals are removed from the premises;
    (5) Make all arrangements for the removal of sexually intact cattle 
from the premises;
    (6) Notify APHIS officials of the intended removal of all sexually 
intact cattle from the premises and provide APHIS officials with the 
opportunity to monitor and evaluate the removal operations; and
    (7) Such other terms, provisions, and conditions as agreed by each 
owner and APHIS.
    (c) Amount of payment for cattle and other property. Upon approval 
of a claim submitted in accordance with Sec. 50.20 of this subpart, 
owners eligible for payments under paragraph (a) of this section will 
receive payments for cattle and other property, the amount of which is 
determined by the following rates:
    (1) For milking cows, an amount not to exceed $2,922 per animal; 
and
    (2) For heifers, an amount not to exceed $834 per animal.
    (d) Any dairy cattle added to a premises after the date an owner 
has signed the agreement required under paragraph (b) of this section 
will not be included in the rate calculation in paragraph (c) of this 
section and must be disposed of within 2 years after all eligible 
owners have signed their respective agreements.
    (e) Amount of payment for certain other property. In addition to 
the amounts paid under paragraph (c) of this section, amounts will be 
paid as follows:
    (1) For expenses in relocating equipment of a reverse osmosis plant 
in El Paso County, TX, an amount equal to the costs of relocating the 
plant's equipment, not to exceed $675,000.
    (2) In conjunction with the permanent closure of a fluid milk 
processing plant in El Paso County, TX, an amount not to exceed 
$950,000, with payment to be made in the same manner and at the same 
times, on a pro rata basis, as payments are made to such owners for 
their dairy cattle and other property.

(Approved by the Office of Management and Budget under control 
number 0579-0193)


Sec. 50.18  Identification and disposal of cattle.

    (a) All dairy cattle disposed of under this subpart must travel 
from the premises of origin to their final destination with an approved 
metal eartag, supplied by APHIS or the State representative, bearing a 
serial number and attached to each animal's left ear.
    (b) Dairy cattle disposed of under this subpart must be shipped 
under permit either:
    (1) Directly to slaughter at a Federal or State inspected 
slaughtering establishment; or
    (2) Under permit directly to a livestock market and, under the 
supervision of an APHIS representative or State representative, through 
a livestock market pen that is dedicated to and marked exclusively for 
use for animals moved to slaughter, and then directly to slaughter at a 
Federal or State inspected slaughtering establishment.

(Approved by the Office of Management and Budget under control 
number 0579-0193)


Sec. 50.19  Report of salvage proceeds.

    A report of the salvage derived from the sale of each animal for 
which a claim for payment is made under this subpart must be made on a 
salvage form acceptable to APHIS that must be signed by the purchaser 
or by the selling agent handling the animals. If the cattle are

[[Page 48752]]

sold by the pound, the salvage form must show the weight, price per 
pound, gross receipts, expenses if any, and net proceeds. If the cattle 
are not sold on a per-pound basis, the net purchase price of each 
animal must be stated on the salvage form and an explanation showing 
how the amount was arrived at must be submitted. In the event the 
animals are not disposed of through regular slaughterers or through 
selling agents, the owner must furnish, in lieu of the salvage form, an 
affidavit showing the amount of salvage obtained by him or her and must 
certify that such amount is all he or she has received or will receive 
as salvage for the animals. The original of the salvage form or the 
affidavit of the owner must be furnished to the veterinarian in charge 
within 3 months of destruction of the animals, if such document is not 
already in his or her possession. Disposal of cattle by burial, 
incineration, or other means must be supervised by an APHIS or State 
representative, who will prepare and transmit to the veterinarian in 
charge a report identifying the animals and showing their disposition, 
or be documented by an affidavit of the owner that identifies the 
animals and describes their disposition. The owner must provide a copy 
of the affidavit to the veterinarian in charge within 3 months of 
destruction of the animals. The salvage form, disposal certificate, or 
affidavit will be for information purposes only and will have no effect 
on the amount of any payment due.

(Approved by the Office of Management and Budget under control 
number 0579-0193)


Sec. 50.20  Claims for payment.

    Claims for payment, other than for reimbursement of relocation 
expenses of the reverse osmosis dairy plant, must be presented on 
payment claim forms furnished by APHIS.\3\ On the claim form, the owner 
must certify that the animals or other property are, or are not, 
subject to any mortgage. If the owner states that there is a mortgage, 
the claim form must be signed by the owner and by each person holding a 
mortgage on the cattle or other property, who must agree that the 
person specified on the claim form may receive any payment due. The 
APHIS veterinarian in charge or the official designated by him or her 
will record on the claim form the amount of payment that appears to be 
due to the owner, and the owner will be furnished a copy of the APHIS 
payment claim form. The veterinarian in charge or official designated 
by him or her will then forward the APHIS payment claim form to the 
appropriate APHIS official for further action on the claim. The 
Department will not pay any costs arising from the holding of the 
cattle pending slaughter, or for trucking and other transportation 
costs, yardage, commission, slaughtering charges, or for any other 
costs related to having the cattle slaughtered. The owner of the 
reverse osmosis plant must submit copies of the relevant documentation 
for relocation of equipment to the veterinarian in charge.

(Approved by the Office of Management and Budget under control 
number 0579-0193)


Sec. 50.21  Schedule of payments.
---------------------------------------------------------------------------

    \3\ Claim forms may obtained from the veterinarian in charge. 
The location of the veterinarian in charge may be obtained by 
writing to National Animal Health Program VS, APHIS, 4700 River Road 
Unit 43, Riverdale, MD 20737, or by referring to the local telephone 
book.
---------------------------------------------------------------------------

    (a) The Department will make payment, other than for reimbursement 
of relocation expenses of the equipment of the reverse osmosis plant, 
at 90-day intervals. The first payment will be made no earlier than 30 
days after all owners eligible for payment have signed their agreements 
required under Sec. 50.17(b). The Department will determine the amount 
to be paid to each owner in each payment by multiplying the total 
agreement amount for that owner by a fraction that is arrived at by 
dividing the initial census number of dairy cattle for the respective 
owner into the number of dairy cattle that have been removed from the 
owner's herd during that payment period. From this amount, 10 percent 
will be withheld until all animals in the herd have been disposed of 
and the requirements of this subpart have been met. The payments to 
other property owners will be determined by multiplying the total 
agreement amount for that other property times the same ratio as for 
the herd related to that other property, minus 10 percent. The 
Department will make payment for reimbursement of relocation expenses 
of the reverse osmosis plant within 30 days after the relocation of the 
plant is completed and the owner of the plant has submitted to APHIS 
all documentation of the costs of the relocation.
    (b) The Department will not make final payments until the premises 
used for dairy operations have been without sexually intact cattle for 
at least 30 days and until APHIS has inspected the premises and has 
found them to be free of manure, except for non-solid areas such as 
lagoons, and free of all feedstuffs that are not in barns, containers 
or feeders.


Sec. 50.22  Claims not allowed.

    The Department will not allow claims for payment if the claimant 
has failed to comply with any of the requirements of this subpart, or 
there is substantial evidence, as determined by the Administrator, that 
the claimant has been responsible for any attempt to obtain payment 
funds for such cattle or other dairy property unlawfully or improperly.

    Done in Washington, DC, this 19th day of July 2002.
Bill Hawks,
Under Secretary for Marketing and Regulatory Programs.
[FR Doc. 02-18701 Filed 7-25-02; 8:45 am]
BILLING CODE 3410-34-U