[Federal Register Volume 68, Number 104 (Friday, May 30, 2003)]
[Rules and Regulations]
[Pages 32325-32328]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13520]



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  Federal Register / Vol. 68, No. 104 / Friday, May 30, 2003 / Rules 
and Regulations  

[[Page 32325]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 982

[Docket No. FV03-982-1 FIR]


Hazelnuts Grown in Oregon and Washington; Establishment of Final 
Free and Restricted Percentages for the 2002-2003 Marketing Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

SUMMARY: The Department of Agriculture (USDA) is adopting, as a final 
rule, without change, an interim final rule establishing final free and 
restricted percentages for domestic inshell hazelnuts for the 2002-2003 
marketing year under the Federal marketing order for hazelnuts grown in 
Oregon and Washington. The final free and restricted percentages are 
18.4392 and 81.5608 percent, respectively. The percentages allocate the 
quantity of domestically produced hazelnuts that may be marketed in the 
domestic inshell market. The percentages are intended to stabilize the 
supply of domestic inshell hazelnuts to meet the limited domestic 
demand for such hazelnuts and provide reasonable returns to producers. 
This rule was recommended unanimously by the Hazelnut Marketing Board 
(Board), which is the agency responsible for local administration of 
the marketing order.

EFFECTIVE DATE: June 30, 2003.

FOR FURTHER INFORMATION CONTACT: Teresa L. Hutchinson, Northwest 
Marketing Field Office, Marketing Order Administration Branch, Fruit 
and Vegetable Programs, AMS, USDA, 1220 SW. Third Avenue, suite 385, 
Portland, OR 97204; telephone: (503) 326-2724, Fax: (503) 326-7440; or 
George J. 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, Fax: (202) 720-8938.
    Small businesses may request information on complying with this 
regulation by contacting Jay Guerber, Marketing Order Administration 
Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence SW., 
STOP 0237, Washington, DC 20250-0237; telephone: (202) 720-2491, Fax: 
(202) 720-8938, or e-mail: [email protected].

SUPPLEMENTARY INFORMATION: This rule is issued under Marketing 
Agreement No. 115 and Marketing Order No. 982, both as amended (7 CFR 
part 982), regulating the handling of hazelnuts grown in Oregon and 
Washington, 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.''
    USDA is issuing this rule in conformance with Executive Order 
12866.
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. It is intended that this action apply to all 
merchantable hazelnuts handled during the 2002-2003 marketing year 
(July 1, 2002, through June 30, 2003). This rule will not preempt any 
State or local laws, regulations, or policies, unless they present an 
irreconcilable conflict with this rule.
    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 608c(15)(A) of the 
Act, any handler subject to an order may file with 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 exempted therefrom. A 
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 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.
    This rule continues in effect marketing percentages that allocate 
the quantity of inshell hazelnuts that may be marketed in domestic 
markets. The Board is required to meet prior to September 20 of each 
marketing year to compute its marketing policy for that year, and 
compute and announce an inshell trade demand if it determines that 
volume regulations would tend to effectuate the declared policy of the 
Act. The Board also computes and announces preliminary free and 
restricted percentages for that year.
    The inshell trade demand is the amount of inshell hazelnuts that 
handlers may ship to the domestic market throughout the marketing 
season. The order specifies that the inshell trade demand be computed 
by averaging the preceding three ``normal'' years' trade acquisitions 
of inshell hazelnuts, rounded to the nearest whole number. The Board 
may increase the three-year average by up to 25 percent, if market 
conditions warrant an increase. The Board's authority to recommend 
volume regulations and the computations used to determine the 
percentages are specified in Sec.  982.40 of the order.
    The quantity to be marketed is broken down into free and restricted 
percentages to make available hazelnuts which may be marketed in 
domestic inshell markets (free) and hazelnuts which must be exported, 
shelled, or otherwise disposed of by handlers (restricted). Prior to 
September 20 of each marketing year, the Board must compute and 
announce preliminary free and restricted percentages. The preliminary 
free percentage releases 80 percent of the adjusted inshell trade 
demand to the domestic market. The purpose of releasing only 80 percent 
of the inshell trade demand under the preliminary percentage is to 
guard against an underestimate of crop size. The preliminary free 
percentage is expressed as a percentage of the total supply subject to 
regulation (supply) and is based on the preliminary crop estimate.
    The National Agricultural Statistics Service (NASS) estimated 2002-
2003 hazelnut production at 18,000 tons for the Oregon and Washington 
area. The majority of domestic inshell hazelnuts are marketed in 
October, November, and December. By November, the marketing season is 
well under way.

[[Page 32326]]

    At its August 29, 2002, meeting, the Board adjusted the NASS crop 
estimate up to 19,887 tons by deducting the average crop disappearance 
over the preceding three years (5.23 percent) and adding the undeclared 
carryin (2,828 tons) to the 18,000 ton production estimate. 
Disappearance is the difference between orchard-run production (crop 
estimate) and the available supply of merchantable product available 
for sale by handlers. Disappearance consists of (1) unharvested 
hazelnuts, (2) culled product (nuts that are delivered to handlers but 
later discarded), or (3) product used on the farm, sold locally, or 
otherwise disposed of by producers. The Board computed the adjusted 
inshell trade demand of 3,133 tons by taking the difference between the 
average of the past three years' sales (3,563 tons) and the declared 
carry-in from last year's crop (430 tons).
    The Board computed and announced preliminary free and restricted 
percentages of 12.6012 percent and 87.3988 percent, respectively, at 
its August 29, 2002, meeting. The Board computed the preliminary free 
percentage by multiplying the adjusted trade demand by 80 percent and 
dividing the result by the adjusted crop estimate (3,133 tons x 80 
percent/19,887 tons = 12.6012 percent.) The preliminary free percentage 
thus initially released 2,506 tons of hazelnuts from the 2002 supply 
for domestic inshell use, and the preliminary restricted percentage 
withheld 17,381 tons for the export and shelled (kernel) markets.
    Under the order, the Board must meet again on or before November 15 
to recommend interim final and final percentages. The Board uses 
current crop estimates to calculate interim final and final 
percentages. The interim final percentages are calculated in the same 
way as the preliminary percentages and release the remaining 20 percent 
(to total 100 percent of the inshell trade demand) previously computed 
by the Board. Final free and restricted percentages may release up to 
an additional 15 percent of the average of the preceding three years' 
trade acquisitions to provide an adequate carryover into the following 
season (i.e., desirable carryout). The order requires that the final 
free and restricted percentages shall be effective 30 days prior to the 
end of the marketing year, or earlier, if recommended by the Board and 
approved by USDA. Revisions in the marketing policy can be made until 
February 15 of each marketing year, but the inshell trade demand can 
only be revised upward, consistent with Sec.  982.40(e).
    The Board met on November 15, 2002, and reviewed and approved an 
amended marketing policy and recommended the establishment of final 
free and restricted percentages. The Board decided that market 
conditions were such that immediate release of an additional 15 percent 
for desirable carryout would not adversely affect the 2002-2003 
domestic inshell market. Accordingly, no interim final free and 
restricted percentages were recommended. Final free and restricted 
percentages were recommended at 18.4392 and 81.5608 percent, 
respectively. The final free percentage released 3,667 tons of inshell 
hazelnuts from the 2002 supply for domestic use.
    The final marketing percentages are based on the Board's final 
production estimate and the following supply and demand information for 
the 2002-2003 marketing year:

------------------------------------------------------------------------
                                                                 Tons
------------------------------------------------------------------------
Inshell Supply:
(1) Total production (crop estimate).......................       18,000
(2) Less substandard, farm use (disappearance; 5.23 percent          941
 of Item 1)................................................
(3) Merchantable production (Board's adjusted crop                17,059
 estimate; Item 1 minus Item 2)............................
(4) Plus undeclared carryin as of July 1, 2002, (subject to        2,828
 regulation)...............................................
(5) Supply subject to regulation (Item 3 plus Item 4)......       19,887
Inshell Trade Demand:
(6) Average trade acquisitions of inshell hazelnuts for            3,563
 three prior years.........................................
(7) Less declared carryin as of July 1, 2002, (not subject           430
 to regulation)............................................
(8) Adjusted Inshell Trade Demand (Item 6 minus Item 7)....        3,133
(9) Desirable carryout on August 31, 2003 (15 percent of             534
 Item 6)...................................................
(10) Adjusted Inshell Trade Demand plus desirable carryout         3,667
 (Item 8 plus Item 9)......................................


------------------------------------------------------------------------
                  Percentages                       Free      Restricted
------------------------------------------------------------------------
(11) Final percentages........................      18.4392      81.5608
(Free percentage = Item 10 divided by Item 5)   ...........  ...........
 x 100........................................  ...........  ...........
(Restricted percentage = 100 minus the free
 percentage)..................................
(12) Final free in tons (Item 10).............        3,667  ...........
(13) Final restricted in tons (Item 5 minus     ...........       16,220
 Item 10).....................................
------------------------------------------------------------------------

    In addition to complying with the provisions of the order, the 
Board also considered USDA's 1982 ``Guidelines for Fruit, Vegetable, 
and Specialty Crop Marketing Orders'' (Guidelines) when making its 
computations in the marketing policy. This volume control regulation 
provides a method to collectively limit the supply of inshell hazelnuts 
available for sale in domestic markets. The Guidelines provide that the 
domestic inshell market has available a quantity equal to 110 percent 
of prior years' shipments before allocating supplies for the export 
inshell, export kernel, and domestic kernel markets. This provides for 
plentiful supplies for consumers and for market expansion, while 
retaining the mechanism for dealing with oversupply situations. The 
established final percentages will make available an additional 534 
tons for desirable carryout. The total free supply for the 2002-2003 
marketing year is 4,097 tons of hazelnuts, which is the sum of the 
final trade demand of 3,563 tons and the 534 ton desirable carryout. 
This amount is 115 percent of prior years' sales and exceeds the goal 
of the Guidelines.

Final Regulatory Flexibility Analysis

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA), the Agricultural Marketing Service (AMS) has considered the 
economic impact of

[[Page 32327]]

this action on small entities. Accordingly, AMS has prepared this final 
regulatory flexibility analysis.
    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 the 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.
    Small agricultural producers are defined by the Small Business 
Administration (13 CFR 121.201) as those having annual receipts of less 
than $750,000, and small agricultural service firms are defined as 
those having annual receipts of less than $5,000,000. There are 
approximately 750 producers of hazelnuts in the production area and 
approximately 20 handlers subject to regulation under the order. 
Average annual hazelnut revenue per producer is approximately $36,500. 
This is computed by dividing NASS figures for the average value of 
production for 2000 and 2001 ($27,369,500) by the number of producers. 
The level of sales of other crops by hazelnut producers is not known. 
In addition, based on Board records, about 95 percent of the handlers 
ship under $5,000,000 worth of hazelnuts on an annual basis. In view of 
the foregoing, it can be concluded that the majority of hazelnut 
producers and handlers may be classified as small entities.
    Board meetings are widely publicized in advance of the meetings and 
are held in a location central to the production area. The meetings are 
open to all industry members 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.
    Currently, U.S. hazelnut production is allocated among three market 
outlets: domestic inshell, export inshell, and kernel markets. Handlers 
and growers receive the highest return on domestic inshell, less for 
export inshell, and the least for kernels. Based on Board records of 
average shipments for 1992-2001, the percentage going to each of these 
markets was 13 percent (domestic inshell), 41 percent (export inshell), 
and 46 percent (kernels).
    The inshell market can be characterized as having limited demand 
and being prone to oversupply and low grower prices in the absence of 
supply restrictions. This volume control regulation provides a method 
for the U.S. hazelnut industry to limit the supply of domestic inshell 
hazelnuts available for sale in the continental U.S. On average, 78 
percent of domestic inshell hazelnut shipments occur from October 1 
through November 30, primarily to supply holiday nut demand.
    Many years of marketing experience led to the development of the 
current volume control procedures. These procedures have helped the 
industry solve its marketing problems by keeping inshell supplies in 
balance with domestic needs. Volume controls fully supply the domestic 
inshell market while preventing an oversupply of that market.
    The estimated inshell trade demand (3,133 tons) and the high level 
of carryin (2,828 tons) were key market factors leading to the 18.4392 
percent final free percentage. Hazelnut production in 2002 was only 
2,500 tons more than in 1998, which was the shortest crop in the last 
ten years. Even if carryin had been zero, the amount that handlers 
typically ship into the domestic inshell market (i.e., average trade 
acquisitions of 3,563 tons) equals about 18 percent of the supply 
(19,887 tons subject to regulation). Although the domestic inshell 
market is a relatively small proportion of total sales (13 percent of 
average shipments over the last ten years, and 10 percent of average 
shipments for the last two years), it remains a profitable market 
segment. The volume control provisions of the marketing order are 
designed to avoid oversupplying this particular market segment, because 
that would likely lead to substantially lower grower prices. The other 
market segments, export inshell and kernels, are expected to continue 
to provide good outlets for U.S. hazelnut production.
    Since high production years typically follow low production years 
(a consistent pattern for hazelnuts), higher production is expected in 
2003.
    Recent production and price data reflect the stabilizing effect of 
the volume control regulations. Industry statistics show that total 
hazelnut production has varied widely over the 10-year period between 
1992 and 2001, from a low of 16,500 tons in 1998 to a high of 49,500 
tons in 2001. Production in the shortest crop year and the biggest crop 
year was 48 percent and 153 percent, respectively, of the 10-year 
average tonnage of 32,240. The coefficient of variation (a standard 
statistical measure of variability; ``CV'') for hazelnut production 
over the 10-year period is 0.36. In contrast, the coefficient of 
variation for hazelnut grower prices is 0.16, less than half the CV for 
production. The considerably lower variability of prices versus 
production provides an illustration of the order's price-stabilizing 
impacts.
    Comparing grower cost of production to grower revenue in recent 
years highlights the financial impacts on growers at varying production 
levels. A recent study from Oregon State University (OSU) estimated the 
cost of production per acre of hazelnuts to be approximately $1,340 for 
a typical 100-acre hazelnut enterprise. Average grower revenue per 
bearing acre (based on NASS acreage and value of production data) 
equaled or exceeded the OSU estimate twice between 1995 and 2000. 
Average grower revenue was below typical costs in the other years. 
Since 1995, the highest level of revenue per bearing acre was $1,552 
(1997) and the lowest was $561 in 1996. Without the stabilizing impact 
of the order, growers may have lost more money. While crop size has 
fluctuated, volume regulations contribute to orderly marketing and 
market stability, and help to moderate the variation in returns for all 
producers and handlers, both large and small.
    While the level of benefits of this rulemaking is difficult to 
quantify, the stabilizing effects of volume regulations impact both 
small and large handlers positively by helping them maintain and expand 
markets even though hazelnut supplies fluctuate widely from season to 
season. This regulation provides equitable allotment of the most 
profitable market, the domestic inshell market. That market is 
available to all handlers, regardless of size.
    As an alternative to this regulation, the Board discussed not 
regulating the 2002-2003 hazelnut crop. However, without any 
regulations in effect, the Board believed that the industry would 
oversupply the inshell domestic market. Although the 2002-2003 hazelnut 
crop is much smaller than last year, the release of 18,000 tons on the 
domestic inshell market would cause producer returns to decrease 
drastically, and completely disrupt the market.
    Section 982.40 of the order establishes a procedure and 
computations for the Board to follow in recommending to USDA the 
preliminary, interim final, and final quantities of hazelnuts to be 
released to the free and restricted markets each marketing year. The 
program results in plentiful supplies for consumers and for market 
expansion while retaining the mechanism for dealing with oversupply 
situations.
    Hazelnuts produced under the order comprise virtually all of the 
hazelnuts

[[Page 32328]]

produced in the U.S. This production represents, on average, less than 
4 percent of total U.S. production for other tree nuts, and less than 4 
percent of the world's hazelnut production.
    During the 2001-2002 season, 78 percent of the kernels were 
marketed in the domestic market and 22 percent were exported. 
Domestically produced kernels generally command a higher price in the 
domestic market than imported kernels. The industry is continuing its 
efforts to develop and expand other markets with emphasis on the 
domestic kernel market. Small business entities, both producers and 
handlers, benefit from the expansion efforts resulting from this 
program.
    Inshell hazelnuts produced under the order compete well in export 
markets because of quality. Based on Board statistics, Europe has 
historically been the primary export market for U.S. produced inshell 
hazelnuts, with a 10-year average of 5,436 tons out of total average 
exports of 12,132 tons. Recent years have seen a significant shift in 
export destinations. Inshell shipments to Europe totaled 4,526 tons in 
the 2001-2002 season, representing 17 percent of exports, with the 
largest share going to Germany. Inshell shipments to Southwest Pacific 
countries, and Hong Kong in particular, have increased dramatically in 
the past few years, rising to 73 percent of total exports of 25,868 
tons in the 2001-2002 season. The industry continues to pursue export 
opportunities.
    There are some reporting, recordkeeping, and other compliance 
requirements under the order. The reporting and recordkeeping burdens 
are necessary for compliance purposes and for developing statistical 
data for maintenance of the program. The information collection 
requirements have been previously approved by the Office of Management 
and Budget under OMB No. 0581-0178. 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 
all Federal marketing order programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies. This rule does not 
change those requirements. In addition, as noted in the initial 
regulatory flexibility analysis, USDA has not identified any relevant 
Federal rules that duplicate, overlap or conflict with this rule.
    Further, as mentioned earlier, the Board's meetings were widely 
publicized throughout the hazelnut industry and all interested persons 
were invited to attend the meetings and participate in Board 
deliberations. Like all Board meetings, those held on August 29, and 
November 15, 2002, were public meetings and all entities, both large 
and small, were able to express their views on this issue.
    An interim final rule concerning this action was published in the 
Federal Register on March 12, 2003. The Board's staff mailed copies of 
this rule to all Board members. In addition, the rule was made 
available through the Internet by the Office of the Federal Register 
and USDA. That rule provided for a 60-day comment period that ended May 
12, 2003. No comments were received.
    A small business guide on complying with fruit, vegetable, and 
specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/fv/moab.html. Any questions about the compliance 
guide should be sent to Jay Guerber at the previously mentioned address 
in the FOR FURTHER INFORMATION CONTACT section.
    After consideration of all relevant material presented, including 
the Board's recommendation, and other information, it is found that 
finalizing the interim final rule, without change, as published in the 
Federal Register (68 FR 11733, March 12, 2003) will tend to effectuate 
the declared policy of the Act.

List of Subjects in 7 CFR Part 982

    Filberts, Hazelnuts, Marketing agreements, Nuts, Reporting and 
recordkeeping requirements.

PART 982--HAZELNUTS GROWN IN OREGON AND WASHINGTON

0
Accordingly, the interim final rule amending 7 CFR part 982 which was 
published at 68 FR 11733 on March 12, 2003, is adopted as a final rule 
without change.

    Dated: May 23, 2003.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 03-13520 Filed 5-29-03; 8:45 am]
BILLING CODE 3410-02-P