[Federal Register Volume 69, Number 15 (Friday, January 23, 2004)]
[Proposed Rules]
[Pages 3272-3278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1404]


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

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 985

[Docket No. FV04-985-1 PR]


Marketing Order Regulating the Handling of Spearmint Oil Produced 
in the Far West; Salable Quantities and Allotment Percentages for the 
2004-2005 Marketing Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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

[[Page 3273]]

SUMMARY: This rule would establish the quantity of spearmint oil 
produced in the Far West, by class, that handlers may purchase from, or 
handle for, producers during the 2004-2005 marketing year, which begins 
on June 1, 2004. This rule invites comments on the establishment of 
salable quantities and allotment percentages for Class 1 (Scotch) 
spearmint oil of 766,880 pounds and 40 percent, respectively, and for 
Class 3 (Native) spearmint oil of 773,474 pounds and 36 percent, 
respectively. The Spearmint Oil Administrative Committee (Committee), 
the agency responsible for local administration of the marketing order 
for spearmint oil produced in the Far West, recommended this rule for 
the purpose of avoiding extreme fluctuations in supplies and prices to 
help maintain stability in the spearmint oil market.

DATES: Comments must be received by February 23, 2004.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this rule. Comments must be sent to the Docket Clerk, 
Marketing Order Administration Branch, 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]. 
Comments should reference the docket number and the date and page 
number of this issue of the Federal Register and will be 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: Susan M. Hiller, Northwest Marketing 
Field Office, Fruit and Vegetable Programs, AMS, USDA, 1220 SW Third 
Avenue, suite 385, Portland, Oregon 97204; telephone: (503) 326-2724; 
Fax: (503) 326-7440; 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; 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 
Avenue, 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 Order 
No. 985 (7 CFR part 985), as amended, regulating the handling of 
spearmint oil produced in the Far West (Washington, Idaho, Oregon, and 
designated parts of Nevada and Utah), hereinafter referred to as the 
``order.'' This 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 rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. Under the marketing order now in effect, salable 
quantities and allotment percentages may be established for classes of 
spearmint oil produced in the Far West. This proposed rule would 
establish the quantity of spearmint oil produced in the Far West, by 
class, which may be purchased from or handled for producers by handlers 
during the 2004-2005 marketing year, which begins on June 1, 2004. 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. 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 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.
    Pursuant to authority in Sec. Sec.  985.50, 985.51, and 985.52 of 
the order, the Committee, with all of its eight members present, met on 
October 8, 2003, and recommended salable quantities and allotment 
percentages for both classes of oil for the 2004-2005 marketing year. 
The Committee unanimously recommended the establishment of a salable 
quantity and allotment percentage for Scotch spearmint oil of 766,880 
pounds and 40 percent, respectively. For Native spearmint oil, with six 
members in favor, one opposed, and one abstention, the Committee 
recommended the establishment of a salable quantity and allotment 
percentage of 773,474 pounds and 36 percent, respectively.
    This rule would limit the amount of spearmint oil that handlers may 
purchase from, or handle for, producers during the 2004-2005 marketing 
year, which begins on June 1, 2004. Salable quantities and allotment 
percentages have been placed into effect each season since the order's 
inception in 1980.
    The U.S. production of Scotch spearmint oil is concentrated in the 
Far West, which includes Washington, Idaho, and Oregon and a portion of 
Nevada and Utah. Scotch spearmint oil is also produced in the Midwest 
states of Indiana, Michigan, and Wisconsin, as well as in the states of 
Montana, South Dakota, North Dakota, and Minnesota. The production area 
covered by the marketing order currently accounts for approximately 65 
percent of the annual U.S. sales of Scotch spearmint oil.
    When the order became effective in 1980, the United States produced 
nearly 100 percent of the world's supply of Scotch spearmint oil, of 
which approximately 72 percent was sales from the regulated production 
area in the Far West. During the period from 1981 to 1990 the Far West 
sales declined to an average of 67 percent of the world's Scotch 
spearmint oil. Sales from the Far West continued to decline during the 
period from 1991 to 2000 to an average of 44 percent of the world's 
Scotch spearmint oil. It is estimated for 2003 that the Far West will 
decline to 30 percent of the world's Scotch spearmint oil sales.
    The steady decline in world sales for the Far West region is 
directly attributed to the increase in global production. Other factors 
that have played a significant role include the overall quality of the 
imported oil and technological advances that allow for more blending of 
lower quality oils. Such factors have provided the Committee with 
challenges in accurately predicting trade demand for Scotch oil. This, 
in turn, has made it difficult to balance available supplies with needs 
and to achieve the Committee's overall goal of stabilizing producer and 
market prices.
    The marketing order has continued to contribute to price and 
general market stabilization for Far West producers. The Committee, as 
well as spearmint oil producers and handlers attending the October 8, 
2003, meeting estimated that the 2003 producer price of Scotch oil 
would average $9.50 per pound, which represents the fourth price 
increase since 1999. However, this producer price is below the cost of 
production for

[[Page 3274]]

most producers as indicated in a study from the Washington State 
University Cooperative Extension Service (WSU), which estimates 
production costs to be between $13.50 and $15.00 per pound.
    This low level of producer returns has caused a reduction in 
acreage. The Committee estimates that the acreage of Scotch spearmint 
has declined from about 10,000 acres in 1998 to about 4,372 acres 
currently. Based on the reduced Scotch spearmint acreage, the Committee 
estimates that production for the current season (the 2003-2004 
marketing season) will be about 565,261 pounds.
    The Committee recommended the 2004-2005 Scotch spearmint oil 
salable quantity (766,880 pounds) and allotment percentage (40 percent) 
utilizing sales estimates for 2004-2005 Scotch oil as provided by 
several of the industry's handlers, as well as historical and current 
Scotch oil sales levels. Between June 1, 2003, and September 30, 2003, 
143,124 pounds of Scotch oil were sold, a level dramatically below the 
most recent five-year average for this four-month period of 448,084 
pounds. Handlers are estimating that sales for the 2003-2004 marketing 
year may range from a low of 600,000 pounds to a high of 750,000 
pounds. With 354,053 pounds carried in to the current marketing year 
and an estimated 565,261 pounds being produced, the total available 
supply for 2003-2004, including the 650,000 pounds already sold, is 
919,314 pounds.
    The recommendation for the 2004-2005 Scotch spearmint oil volume 
regulation is consistent with the Committee's stated intent of keeping 
adequate supplies available at all times, while attempting to stabilize 
prices at a level adequate to sustain the producers. Furthermore, the 
recommendation takes into consideration the industry's desire to 
compete with less expensive oil produced outside the regulated area.
    Although Native spearmint oil producers are facing market 
conditions similar to those affecting the Scotch spearmint oil market, 
unlike Scotch, over 90 percent of the U.S. production of Native 
spearmint is produced within the Far West production area. Also, unlike 
Scotch, most of the world's supply of Native spearmint is produced in 
the U.S.
    The current, flat market contributed to the Committee's 
recommendation for a salable quantity of 773,474 pounds and an 
allotment percentage of 36 percent for Native spearmint oil for the 
2004-2005 marketing year. The supply and demand characteristics of the 
current Native spearmint oil market are keeping the price relatively 
steady at about $9.50 per pound--a level the Committee considers too 
low for the majority of producers to maintain viability. The WSU study 
referenced earlier indicates that the cost of producing Native 
spearmint oil ranges from $10.26 to $10.92 per pound.
    The Committee estimates that 853,820 pounds of Native oil is 
expected to be produced this year. With current sales approximating the 
five-year average of about 1,021,702 pounds, the current season's 
salable quantity of 808,993 pounds coupled with the June 1, 2003, 
carry-in of 163,617 pounds will likely produce a surplus of oil, adding 
to the nearly 1.4 million pounds already in reserve. The Committee is 
estimating that about 865,000 pounds of Native spearmint oil, on 
average, may be sold during the 2004-2005 marketing year. This 
estimate, combined with the information available regarding current 
supply and price, helped lead the Committee to its recommendation for a 
2004-2005 salable quantity of 773,474 pounds. When considered in 
conjunction with the estimated carry-in of 130,610 pounds of oil on 
June 1, 2004, the recommended salable quantity results in a total 
available supply of Native spearmint oil next year of about 904,084 
pounds.
    The Committee's method of calculating the Native spearmint oil 
salable quantity and allotment percentage continues to primarily 
utilize information on price and available supply as they are affected 
by the estimated trade demand. The Committee's stated intent is to make 
adequate supplies available to meet market needs and improve producer 
prices.
    The Committee believes that the order has contributed extensively 
to the stabilization of producer prices, which prior to 1980 
experienced wide fluctuations from year to year. According to the 
National Agricultural Statistics Service, for example, the average 
price paid for both classes of spearmint oil ranged from $4.00 per 
pound to $11.10 per pound during the period between 1968 and 1980. 
Prices since the order's inception have generally stabilized at about 
$9.88 per pound for Native spearmint oil and at about $13.04 per pound 
for Scotch spearmint oil. However, the current prices for both classes 
of oil are below the average due to several factors, including the 
general uncertainty being experienced through the U.S. economy and the 
continuing overall weak farm situation, as well as an abundant global 
supply of spearmint oil. As noted earlier--although lower than what 
producers believe to be viable--prices currently appear to be stable at 
about $9.50 for both classes of oil.
    The Committee based its recommendation for the proposed salable 
quantity and allotment percentage for each class of spearmint oil for 
the 2004-2005 marketing year on the information discussed above, as 
well as the data outlined below.

(1) Class 1 (Scotch) Spearmint Oil

    (A) Estimated carry-in on June 1, 2004--269,314 pounds. This figure 
is the difference between the estimated 2003-2004 marketing year trade 
demand of 650,000 pounds and the 2003-2004 marketing year total 
available supply of 919,314 pounds.
    (B) Estimated trade demand for the 2004-2005 marketing year--
650,000 pounds. This figure represents the Committee's estimate based 
on the average of the estimates provided by producers at six Scotch 
spearmint oil production area meetings held in September 2003, as well 
as estimates provided by handlers and others at the October 8, 2003, 
meeting. Handler trade demand estimates for the 2004-2005 marketing 
year ranged from 600,000 to 750,000 pounds. The average of sales over 
the last five years was 827,522 pounds.
    (C) Salable quantity required from the 2004-2005 marketing year 
production--380,686 pounds. This figure is the difference between the 
estimated 2004-2005 marketing year trade demand (650,000 pounds) and 
the estimated carry-in on June 1, 2004 (269,314 pounds).
    (D) Total estimated allotment base for the 2004-2005 marketing 
year--1,917,200 pounds. This figure represents a one-percent increase 
over the revised 2003-2004 total allotment base. This figure is 
generally revised each year on June 1 due to producer base being lost 
due to the bona fide effort production provisions of Sec.  985.53(e). 
The revision is usually minimal.
    (E) Computed allotment percentage--19.9 percent. This percentage is 
computed by dividing the required salable quantity by the total 
estimated allotment base.
    (F) Recommended allotment percentage--40 percent. This 
recommendation is based on the Committee's determination that a 
decrease from the current season's allotment percentage of 45 percent 
to the computed 19.9 percent would not adequately supply the potential 
2004-2005 market.
    (G) The Committee's recommended salable quantity--766,880 pounds. 
This figure is the product of the

[[Page 3275]]

recommended allotment percentage and the total estimated allotment 
base.
    (H) Estimated available supply for the 2004-2005 marketing year--
1,036,194 pounds. This figure is the sum of the 2004-2005 recommended 
salable quantity (766,880 pounds) and the estimated carry-in on June 1, 
2004 (269,314 pounds).

(2) Class 3 (Native) Spearmint Oil

    (A) Estimated carry-in on June 1, 2004--130,610 pounds. This figure 
is the difference between the estimated 2003-2004 marketing year trade 
demand of 842,000 pounds and the revised 2003-2004 marketing year total 
available supply of 972,610 pounds.
    (B) Estimated trade demand for the 2004-2005 marketing year--
865,000 pounds. This figure is based on input from producers at the 
five Native spearmint oil production area meetings held in September 
2003, from handlers, and from Committee members and other meeting 
participants at the October 8, 2003, meeting. The average estimated 
trade demand provided at the five production area meetings was 875,400 
pounds, whereas the average handler estimate was 885,000 pounds. The 
Committee discussed several estimates below these figures to take into 
consideration a general lack of 2004 contract offers to date.
    (C) Salable quantity required from the 2004-2005 marketing year 
production--734,390 pounds. This figure is the difference between the 
estimated 2004-2005 marketing year trade demand (865,000 pounds) and 
the estimated carry-in on June 1, 2004 (130,610 pounds).
    (D) Total estimated allotment base for the 2004-2005 marketing 
year--2,148,539 pounds. This figure represents a one percent increase 
over the revised 2003-2004 total allotment base. This figure is 
generally revised each year on June 1 due to producer base being lost 
due to the bona fide effort production provisions of Sec.  985.53(e). 
The revision is usually minimal.
    (E) Computed allotment percentage--34.2 percent. This percentage is 
computed by dividing the required salable quantity by the total 
estimated allotment base.
    (F) Recommended allotment percentage--36 percent. This is the 
Committee's recommendation based on the computed allotment percentage, 
the average of the computed allotment percentage figures from the five 
production area meetings (36.5 percent), and input from producers and 
handlers at the October 8, 2003, meeting.
    (G) The Committee's recommended salable quantity--773,474 pounds. 
This figure is the product of the recommended allotment percentage and 
the total estimated allotment base.
    (H) Estimated available supply for the 2004-2005 marketing year--
904,084 pounds. This figure is the sum of the 2004-2005 recommended 
salable quantity (773,474 pounds) and the estimated carry-in on June 1, 
2004 (130,610 pounds).
    The salable quantity is the total quantity of each class of 
spearmint oil, which handlers may purchase from, or handle on behalf of 
producers during a marketing year. Each producer is allotted a share of 
the salable quantity by applying the allotment percentage to the 
producer's allotment base for the applicable class of spearmint oil.
    The Committee's recommended Scotch and Native spearmint oil salable 
quantities and allotment percentages of 766,880 pounds and 40 percent 
and 773,474 and 36 percent, respectively, are based on the Committee's 
goal of maintaining market stability by avoiding extreme fluctuations 
in supplies and prices and the anticipated supply and trade demand 
during the 2004-2005 marketing year. The proposed salable quantities 
are not expected to cause a shortage of spearmint oil supplies. Any 
unanticipated or additional market demand for spearmint oil, which may 
develop during the marketing year, can be satisfied by an increase in 
the salable quantities. Both Scotch and Native spearmint oil producers 
who produce more than their annual allotments during the 2004-2005 
season may transfer such excess spearmint oil to a producer with 
spearmint oil production less than his or her annual allotment or put 
it into the reserve pool.
    This proposed regulation, if adopted, would be similar to 
regulations issued in prior seasons. Costs to producers and handlers 
resulting from this rule are expected to be offset by the benefits 
derived from a stable market and improved returns. In conjunction with 
the issuance of this proposed rule, USDA has reviewed the Committee's 
marketing policy statement for the 2004-2005 marketing year. The 
Committee's marketing policy statement, a requirement whenever the 
Committee recommends volume regulations, fully meets the intent of 
Sec.  985.50 of the order. During its discussion of potential 2004-2005 
salable quantities and allotment percentages, the Committee considered: 
(1) The estimated quantity of salable oil of each class held by 
producers and handlers; (2) the estimated demand for each class of oil; 
(3) prospective production of each class of oil; (4) total of allotment 
bases of each class of oil for the current marketing year and the 
estimated total of allotment bases of each class for the ensuing 
marketing year; (5) the quantity of reserve oil, by class, in storage; 
(6) producer prices of oil, including prices for each class of oil; and 
(7) general market conditions for each class of oil, including whether 
the estimated season average price to producers is likely to exceed 
parity. Conformity with the USDA's ``Guidelines for Fruit, Vegetable, 
and Specialty Crop Marketing Orders'' has also been reviewed and 
confirmed.
    The establishment of these salable quantities and allotment 
percentages would allow for anticipated market needs. In determining 
anticipated market needs, consideration by the Committee was given to 
historical sales, as well as changes and trends in production and 
demand. This rule also provides producers with information on the 
amount of spearmint oil that should be produced for next season in 
order to meet anticipated market demand.

Initial 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 this rule on small entities. Accordingly, AMS has 
prepared this initial 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.
    There are 8 spearmint oil handlers subject to regulation under the 
order, and approximately 84 producers of Class 1 (Scotch) spearmint oil 
and approximately 97 producers of Class 3 (Native) spearmint oil in the 
regulated production area. Small agricultural service firms are defined 
by the Small Business Administration (SBA) (13 CFR 121.201) as those 
having annual receipts of less than $5,000,000, and small agricultural 
producers are defined as those whose annual receipts are less than 
$750,000.
    Based on the SBA's definition of small entities, the Committee 
estimates that 2 of the 8 handlers regulated by the order could be 
considered small entities. Most of the handlers are large corporations 
involved in the

[[Page 3276]]

international trading of essential oils and the products of essential 
oils. In addition, the Committee estimates that 16 of the 84 Scotch 
spearmint oil producers and 15 of the 97 Native spearmint oil producers 
could be classified as small entities under the SBA definition. Thus, a 
majority of handlers and producers of Far West spearmint oil may not be 
classified as small entities.
    The Far West spearmint oil industry is characterized by producers 
whose farming operations generally involve more than one commodity, and 
whose income from farming operations is not exclusively dependent on 
the production of spearmint oil. A typical spearmint oil-producing 
operation has enough acreage for rotation such that the total acreage 
required to produce the crop is about one-third spearmint and two-
thirds rotational crops. Thus, the typical spearmint oil producer has 
to have considerably more acreage than is planted to spearmint during 
any given season. Crop rotation is an essential cultural practice in 
the production of spearmint oil for weed, insect, and disease control. 
To remain economically viable with the added costs associated with 
spearmint oil production, most spearmint oil-producing farms fall into 
the SBA category of large businesses.
    This proposed rule would establish the quantity of spearmint oil 
produced in the Far West, by class, that handlers may purchase from, or 
handle for, producers during the 2004-2005 marketing year. The 
Committee recommended this rule to help maintain stability in the 
spearmint oil market by avoiding extreme fluctuations in supplies and 
prices. Establishing quantities to be purchased or handled during the 
marketing year through volume regulations allows producers to plan 
their mint planting and harvesting to meet expected market needs. The 
provisions of Sec. Sec.  985.50, 985.51, and 985.52 of the order 
authorize this rule.
    Small spearmint oil producers generally are not as extensively 
diversified as larger ones and as such are more at risk to market 
fluctuations. Such small producers generally need to market their 
entire annual crop and do not have the luxury of having other crops to 
cushion seasons with poor spearmint oil returns. Conversely, large 
diversified producers have the potential to endure one or more seasons 
of poor spearmint oil markets because income from alternate crops could 
support the operation for a period of time. Being reasonably assured of 
a stable price and market provides small producing entities with the 
ability to maintain proper cash flow and to meet annual expenses. Thus, 
the market and price stability provided by the order potentially 
benefit the small producer more than such provisions benefit large 
producers. Even though a majority of handlers and producers of 
spearmint oil may not be classified as small entities, the volume 
control feature of this order has small entity orientation.
    Instability in the spearmint oil subsector of the mint industry is 
much more likely to originate on the supply side than the demand side. 
Fluctuations in yield and acreage planted from season-to-season tend to 
be larger than fluctuations in the amount purchased by buyers. Demand 
for spearmint oil tends to be relatively stable from year-to-year. The 
demand for spearmint oil is expected to grow slowly for the foreseeable 
future because the demand for consumer products that use spearmint oil 
will likely expand slowly, in line with population growth.
    Demand for spearmint oil at the farm level is derived from retail 
demand for spearmint-flavored products at retail such as chewing gum, 
toothpaste, and mouthwash. The manufacturers of these products are by 
far the largest users of mint oil. However, spearmint flavoring is 
generally a very minor component of the products in which it is used, 
so changes in the raw product price have no impact on retail prices for 
those goods.
    Spearmint oil production tends to be cyclical. Years of large 
production, with demand remaining reasonably stable, have led to 
periods in which large producer stocks of unsold spearmint oil have 
depressed producer prices for a number of years. Shortages and high 
prices may follow in subsequent years, as producers respond to price 
signals by cutting back production.
    The significant variability is illustrated by the fact that the 
coefficient of variation (a standard measure of variability; ``CV'') of 
northwest spearmint oil production from 1980 through 2002 was about 
0.24. The CV for spearmint oil prices was about 0.13, well below the CV 
for production. This provides an indication of the price stabilizing 
impact of the marketing order.
    Production in the shortest marketing year was about 49 percent of 
the 23-year average (1,870,783 pounds from 1980 through 2002) and the 
largest crop was approximately 165 percent of the 23-year average. A 
key consequence is that in years of oversupply and low prices, the 
season average producer price of spearmint oil is below the average 
cost of production (as measured by the Washington State University 
Cooperative Extension Service).
    The wide fluctuations in supply and prices that result from this 
cycle, which was even more pronounced before the creation of the 
marketing order, can create liquidity problems for some producers. The 
marketing order was designed to reduce the price impacts of the 
cyclical swings in production. However, producers have been less able 
to weather these cycles in recent years because of the decline in 
prices of many of the alternative crops they grow. As noted earlier, 
almost all spearmint oil producers diversify by growing other crops.
    In an effort to stabilize prices, the spearmint oil industry uses 
the volume control mechanisms authorized under the order. This 
authority allows the Committee to recommend a salable quantity and 
allotment percentage for each class of oil for the upcoming marketing 
year. The salable quantity for each class of oil is the total volume of 
oil that producers may sell during the marketing year. The allotment 
percentage for each class of spearmint oil is derived by dividing the 
salable quantity by the total allotment base.
    Each producer is then issued an annual allotment certificate, in 
pounds, for the applicable class of oil, which is calculated by 
multiplying the producer's allotment base by the applicable allotment 
percentage. This is the amount of oil for the applicable class that the 
producer can sell.
    By November 1 of each year, the Committee identifies any oil that 
individual producers have produced above the volume specified on their 
annual allotment certificates. This excess oil is placed in a reserve 
pool administered by the Committee.
    There is a reserve pool for each class of oil that may not be sold 
during the current marketing year unless the Secretary approves a 
Committee recommendation to make a portion of the pool available. 
However, limited quantities of reserve oil are typically sold to fill 
deficiencies. A deficiency occurs when on-farm production is less than 
a producer's allotment. In that case, a producer's own reserve oil can 
be sold to fill that deficiency. Excess production (higher than the 
producer's allotment) can be sold to fill other producers' 
deficiencies.
    In any given year, the total available supply of spearmint oil is 
composed of current production plus carry-over stocks from the previous 
crop. The Committee seeks to maintain market stability by balancing 
supply and demand, and to close the marketing year with an appropriate 
level of carryout. If the industry has production in excess of the 
salable quantity, then the reserve

[[Page 3277]]

pool absorbs the surplus quantity of spearmint oil, which goes unsold 
during that year, unless the oil is needed for unanticipated sales.
    Under its provisions, the order may attempt to stabilize prices by 
(1) limiting supply and establishing reserves in high production years, 
thus minimizing the price-depressing effect that excess producer stocks 
have on unsold spearmint oil, and (2) ensuring that stocks are 
available in short supply years when prices would otherwise increase 
dramatically. The reserve pool stocks grow in large production years 
and are drawn down in short marketing years.
    An econometric model was used to assess the impact that volume 
control has on the prices producers receive for their commodity. 
Without volume control, spearmint oil markets would likely be over-
supplied, resulting in low producer prices and a large volume of oil 
stored and carried over to the next marketing year. The model estimates 
how much lower producer prices would likely be in the absence of volume 
controls.
    The Committee estimated the available supply during the 2004-2005 
marketing year for both classes of oil at 1,940,278 pounds, and that 
the expected carry-in will be 399,924 pounds. Therefore, with volume 
control, sales by producers for the 2004-2005 marketing year would be 
limited to 1,540,354 pounds (the recommended salable quantity for both 
classes of spearmint oil).
    The recommended salable percentages, upon which 2004-2005 producer 
allotments are based, are 40 percent for Scotch and 36 percent for 
Native. Without volume controls, producers would not be limited to 
these allotment levels, and could produce and sell additional 
spearmint. The econometric model estimated a $1.71 decline in the 
season average producer price per pound (from both classes of spearmint 
oil) resulting from the higher quantities that would be produced and 
marketed without volume control. The Far West producer price for both 
classes of spearmint oil was $9.20 for 2002, which is below the average 
of $10.97 for the period from 1980 through 2002, based on National 
Agricultural Statistics Service data. The surplus situation for the 
spearmint oil market that would exist without volume controls in 2004-
2005 also would likely dampen prospects for improved producer prices in 
future years because of the buildup in stocks.
    The use of volume controls allows the industry to fully supply 
spearmint oil markets while avoiding the negative consequences of over-
supplying these markets. The use of volume controls is believed to have 
little or no effect on consumer prices of products containing spearmint 
oil and will not result in fewer retail sales of such products.
    The Committee discussed alternatives to the recommendations 
contained in this rule for both classes of spearmint oil. The Committee 
discussed and rejected the idea of recommending that there not be any 
volume regulation for Scotch spearmint oil because of the severe price-
depressing effects that would occur without volume control.
    The Committee also considered various alternative levels of volume 
control for Scotch spearmint oil, including leaving the percentage the 
same as the current season, increasing the percentage to a less 
restrictive level, or decreasing the percentage. After considerable 
discussion the Committee unanimously supported decreasing the 
percentage to 40 percent.
    The Committee discussed and rejected the idea of recommending that 
there not be any volume regulation for Native spearmint oil. The 
immediate result would be to put an excessive amount of Native reserve 
pool oil on the market, causing depressed prices at the producer level. 
With the current price for Native spearmint oil lower than the 10-year 
average, and sales at the lowest level since 1987, the Committee, after 
considerable discussion, determined that 773,474 pounds and 36 percent 
would be the most effective salable quantity and allotment percentage, 
respectively, for the 2004-2005 marketing year. The dissenting 
Committee member felt that the recommended allotment percentage should 
have been lower, since the recommended salable quantity will likely be 
too high for market conditions, since demand has been flat.
    As noted earlier, the Committee's recommendation to establish 
salable quantities and allotment percentages for both classes of 
spearmint oil was made after careful consideration of all available 
information, including: (1) The estimated quantity of salable oil of 
each class held by producers and handlers; (2) the estimated demand for 
each class of oil; (3) the prospective production of each class of oil; 
(4) the total of allotment bases of each class of oil for the current 
marketing year and the estimated total of allotment bases of each class 
for the ensuing marketing year; (5) the quantity of reserve oil, by 
class, in storage; (6) producer prices of oil, including prices for 
each class of oil; and (7) general market conditions for each class of 
oil, including whether the estimated season average price to producers 
is likely to exceed parity. Based on its review, the Committee believes 
that the salable quantity and allotment percentage levels recommended 
would achieve the objectives sought.
    Without any regulations in effect, the Committee believes the 
industry would return to the pronounced cyclical price patterns that 
occurred prior to the order, and that prices in 2004-2005 would decline 
substantially below current levels.
    As stated earlier, the Committee believes that the order has 
contributed extensively to the stabilization of producer prices, which 
prior to 1980 experienced wide fluctuations from year-to-year. National 
Agricultural Statistics Service records show that the average price 
paid for both classes of spearmint oil ranged from $4.00 per pound to 
$11.10 per pound during the period between 1968 and 1980. Prices have 
been consistently more stable since the marketing order's inception in 
1980, with an average price of $13.04 per pound for Scotch spearmint 
oil (1918-2002) and $9.88 per pound for Native spearmint oil.
    During the period of 1999 through 2002, however, large production 
and carry-in inventories have contributed to prices below the 23-year 
average, despite the Committee's efforts to balance available supplies 
with demand. Prices have ranged from $8.00 to $10.00 per pound for 
Scotch spearmint oil and between $9.10 to $9.20 per pound for Native 
spearmint oil.
    According to the Committee, the recommended salable quantities and 
allotment percentages are expected to achieve the goals of market and 
price stability.
    As previously stated, annual salable quantities and allotment 
percentages have been issued for both classes of spearmint oil since 
the order's inception. Reporting and recordkeeping requirements have 
remained the same for each year of regulation. These requirements have 
been approved by the Office of Management and Budget under OMB Control 
No. 0581-0065. Accordingly, this rule would not impose any additional 
reporting or recordkeeping requirements on either small or large 
spearmint oil producers and handlers. All reports and forms associated 
with this program are reviewed periodically in order to avoid 
unnecessary and duplicative information collection by industry and 
public sector agencies. The USDA has not identified any relevant 
Federal rules that duplicate, overlap, or conflict with this rule.

[[Page 3278]]

    The Committee's meeting was widely publicized throughout the 
spearmint oil industry and all interested persons were invited to 
attend the meeting and participate in Committee deliberations on all 
issues. Like all Committee meetings, the October 8, 2003 meeting was a 
public meeting and all entities, both large and small, were able to 
express views on this issue. Finally, interested persons are invited to 
submit information on the regulatory and informational impacts of this 
action on small businesses.
    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.
    A 30-day comment period is provided to allow interested persons the 
opportunity to respond to the proposal, including any regulatory and 
informational impacts of this action on small businesses. This comment 
period is deemed appropriate so that a final determination can be made 
prior to June 1, 2004, the beginning of the 2004-2005 marketing year. 
All written comments received within the comment period will be 
considered before a final determination is made on this matter.

List of Subjects in 7 CFR Part 985

    Marketing agreements, Oils and fats, Reporting and recordkeeping 
requirements, Spearmint oil.

    For the reasons set forth in the preamble, 7 CFR Part 985 is 
proposed to be amended as follows:

PART 985--MARKETING ORDER REGULATING THE HANDLING OF SPEARMINT OIL 
PRODUCED IN THE FAR WEST

    1. The authority citation for 7 CFR part 985 continues to read as 
follows:

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

    2. A new Sec.  985.223 is added to read as follows:

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

Sec.  985.223  Salable quantities and allotment percentages--2004-2005 
marketing year.

    The salable quantity and allotment percentage for each class of 
spearmint oil during the marketing year beginning on June 1, 2004, 
shall be as follows:
    (a) Class 1 (Scotch) oil--a salable quantity of 766,880 pounds and 
an allotment percentage of 40 percent.
    (b) Class 3 (Native) oil--a salable quantity of 773,474 pounds and 
an allotment percentage of 36 percent.

    Dated: January 16, 2004.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 04-1404 Filed 1-22-04; 8:45 am]
BILLING CODE 3410-02-P