[Federal Register Volume 69, Number 70 (Monday, April 12, 2004)]
[Rules and Regulations]
[Pages 19082-19085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-8213]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 982

[Docket No. FV04-982-1 FIR]


Hazelnuts Grown in Oregon and Washington; Establishment of 
Interim Final and Final Free and Restricted Percentages for the 2003-
2004 Marketing Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: The Department of Agriculture (USDA) is adopting, as a final 
rule, without change, an interim final rule establishing interim final 
and final free and restricted percentages for domestic inshell 
hazelnuts for the 2003-2004 marketing year under the Federal marketing 
order for hazelnuts grown in Oregon and Washington. The interim final 
free and restricted percentages are 6.8393 percent and 93.1607 percent, 
respectively, and the final free and restricted percentages are 8.2303 
percent and 91.7697 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 unanimously recommended by the Hazelnut Marketing Board 
(Board), which is the agency responsible for local administration of 
the marketing order.

EFFECTIVE DATE: May 12, 2004.

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 2003-2004 marketing year 
(July 1, 2003, through June 30, 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. 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 
hazelnut production at 35,000 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.
    At its August 28, 2003, meeting, the Board adjusted the NASS crop 
estimate down to 33,717 tons by deducting the average crop 
disappearance over the preceding three years (4.64 percent or 1,624 
tons) and adding the undeclared carryin (341 tons) to the 35,000 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.

[[Page 19083]]

The Board computed the adjusted inshell trade demand of 2,306 tons by 
taking the difference between the average of the past three years' 
sales (3,127 tons) and the declared carryin from last year's crop (821 
tons).
    The Board computed and announced preliminary free and restricted 
percentages of 5.4720 percent and 94.5280 percent, respectively, at its 
August 28, 2003, meeting. The preliminary free percentage was computed 
by multiplying the adjusted trade demand by 80 percent and dividing the 
result by the adjusted crop estimate (2,306 tons x 80 percent / 33,717 
tons = 5.4720 percent). The preliminary free percentage thus initially 
released 1,845 tons of hazelnuts from the 2003 supply for domestic 
inshell use, and the preliminary restricted percentage withheld 31,872 
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 crop 
estimates that are current at the time 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 13, 2003, and reviewed and approved an 
amended marketing policy and recommended the establishment of interim 
final and final free and restricted percentages. The interim final free 
and restricted percentages were recommended at 6.8393 percent free and 
93.1607 percent restricted. Final percentages, which included an 
additional 15 percent of the average of the preceding three-years' 
trade acquisitions for desirable carryout, were recommended at 8.2303 
free and 91.7697 percent restricted effective May 31, 2004. The final 
free percentage releases 2,775 tons of inshell hazelnuts from the 2003 
supply for domestic inshell use.
    The interim and final marketing percentages are based on the 
Board's final production estimate and the following supply and demand 
information for the 2003-2004 marketing year:

------------------------------------------------------------------------
                                                                 Tons
------------------------------------------------------------------------
Inshell Supply:
    (1) Total production (crop estimate)...................       35,000
    (2) Less substandard, farm use (disappearance; 4.64            1,624
     percent of Item 1)....................................
    (3) Merchantable production (Board's adjusted crop            33,376
     estimate; Item 1 minus Item 2)........................
    (4) Plus undeclared carryin as of July 1, 2003,                  341
     (subject to regulation)...............................
    (5) Supply subject to regulation (Item 3 plus Item 4)..       33,717
Inshell Trade Demand:
    (6) Average trade acquisitions of inshell hazelnuts for        3,127
     three prior years.....................................
    (7) Less declared carryin as of July 1, 2003, (not               821
     subject to regulation)................................
    (8) Adjusted Inshell Trade Demand (Item 6 minus Item 7)        2,306
    (9) Desirable carryout on August 31, 2004 (15 percent            469
     of Item 6)............................................
    (10) Adjusted Inshell Trade Demand plus desirable              2,775
     carryout (Item 8 plus Item 9).........................


------------------------------------------------------------------------
                  Percentages                       Free      Restricted
------------------------------------------------------------------------
    (11) Interim final percentages (Item 8           6.8393      93.1607
     divided by Item 5) x 100.................
    (12) Final percentages (Item 10 divided by       8.2303      91.7697
     Item 5) x 100............................
    (13) Final free in tons (Item 10).........        2,775  ...........
    (14) Final restricted in tons (Item 5       ...........       30,942
     minus 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 469 
tons for desirable carryout effective May 31, 2004. The total free 
supply for the 2003-2004 marketing year is 3,596 tons of hazelnuts, 
which is the sum of the final trade demand of 3,127 tons and the 469 
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 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

[[Page 19084]]

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 17 handlers subject to regulation 
under the order. Average annual hazelnut revenue per producer is 
approximately $36,133. This is computed by dividing NASS figures for 
the average value of production for 2001 and 2002 ($27,100,000) 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 1993-2002, the percentage going to each of these 
markets was 13 percent (domestic inshell), 43 percent (export inshell), 
and 44 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 United States. On 
average, 77 percent of domestic inshell hazelnuts are shipped during 
the period October 1 through November 30, primarily to supply the 
holiday nut market.
    The current volume control procedures have helped the industry to 
improve its marketing situation 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 adjusted inshell trade demand (2,306 tons) and the larger 2003 
crop were key market factors leading to the Board's recommendation for 
the 8.2303 percent final free percentage. The 35,000 ton hazelnut 
production for 2003 is 15,500 tons more than in 2002, and 14,500 tons 
less than the production level in 2001, the largest crop in the last 
ten years.
    Although the domestic inshell market is a relatively small 
proportion of total sales (13 percent of average shipments over the 
last ten years, and 11 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 domestic kernel market and 
inshell exports are both expected to continue to be good outlets for 
U.S. hazelnut production.
    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 
1993 and 2002, from a low of 15,400 tons in 1998 to a high of 49,500 
tons in 2001. Production in the shortest crop year and the biggest crop 
year was 49 percent and 159 percent, respectively, of the 10-year 
average tonnage of 31,220. Since low production years typically follow 
high production years (a consistent pattern for hazelnuts), lower 
production is expected in 2004.
    The coefficient of variation (a standard statistical measure of 
variability; ``CV'') for hazelnut production over the 10-year period is 
0.39. In contrast, the coefficient of variation for hazelnut grower 
prices is 0.12, less than one third of 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 hazelnut cost of production study from Oregon State 
University estimated cost of production per acre 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 that typical cost level twice between 1995 
and 2002. 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 
fluctuates, the 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 the 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 an 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 hazelnut crop during the 2003-2004 marketing year. 
However, without any regulations in effect, the Board believes that the 
industry would oversupply the inshell domestic 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 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 2002-2003 season, 87 percent of the kernels were 
marketed in the domestic market and 13 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 new markets and expand demand, 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 5,249 tons, 40 percent of total 
average exports of 12,478 tons. The largest share went to Germany. In 
1995, 70 percent of export shipments went to

[[Page 19085]]

Europe. Recent years have seen a significant shift in export 
destinations, however, with Europe's share declining to 30 percent of 
inshell shipments (3,321 tons) in the 2002-2003 season. Inshell 
shipments to Asia have increased dramatically in the past few years, 
growing to 55 percent of total exports of 10,979 tons in the 2002-2003 
season. Hong Kong is the largest export destination, followed by China. 
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, USDA has not identified any 
relevant Federal rules that duplicate, overlap or conflict with this 
rule.
    Further, 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 28 and November 13, 2003, were public 
meetings and all entities, both large and small, were able to express 
their views on this issue. Finally, interested persons were invited to 
submit information on the regulatory and informational impacts of this 
action on small businesses.
    An interim final rule concerning this action was published in the 
Federal Register on January 16, 2004. 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 
March 16, 2004. Two comments were received during that period. However, 
because the comments did not address the substance of the interim final 
rule, they are not being considered in this finalization.
    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 (69 FR 2493, January 16, 2004) 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 69 FR 2493 on January 16, 2004, is adopted as a final rule 
without change.

    Dated: April 6, 2004.
A.J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 04-8213 Filed 4-9-04; 8:45 am]
BILLING CODE 3410-02-P