[Federal Register Volume 69, Number 187 (Tuesday, September 28, 2004)]
[Rules and Regulations]
[Pages 57816-57820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-21631]



[[Page 57816]]

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 930

[Docket No. FV03-930-5 FIR]


Tart Cherries Grown in the States of Michigan, et al.; Revision 
of Procedures for Handlers To Receive Exempt Use/Diversion Credit for 
New Product and New Market Development Activities

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: The Department of Agriculture (Department) is adopting, as a 
final rule, without change, an interim final rule that provides more 
specific criteria to help handlers take better advantage of exempt use/
diversion credit activities in meeting volume regulation requirements, 
and to help the Cherry Industry Administrative Board (Board) better 
assess the validity of handler requests for such diversion credit.

DATES: Effective: October 28, 2004.

FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Kenneth G. 
Johnson, Marketing Order Administration Branch, Fruit and Vegetable 
Programs, AMS, USDA, Suite 6C02, Unit 155, 4700 River Road, Riverdale, 
MD 20737, telephone: (301) 734-5243, or fax: (301) 734-5275; or George 
Kelhart, Technical Advisor, Marketing Order Administration Branch, 
Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue, SW., 
STOP 0237, Washington, DC 20250-0237; telephone: (202) 720-2491, or 
fax: (202) 720-8938.
    Small businesses may request information on complying with this 
regulation 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 
Agreement and Order No. 930 (7 CFR part 930), regulating the handling 
of tart cherries grown in the States of Michigan, New York, 
Pennsylvania, Oregon, Utah, Washington, and Wisconsin, hereinafter 
referred to as the ``order.'' The marketing agreement and order are 
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. 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.
    This rule continues in effect procedures for handlers to receive 
exempt use/diversion credit in meeting their volume regulation 
obligations as follows: (1) It continues to provide more specific 
criteria to help handlers take better advantage of exempt use/diversion 
credit activities and to help the Board better assess the validity of 
handler requests for diversion credit; (2) it continues to clarify the 
current definitions of ``new product development'' and ``new market 
development'' activities eligible diversion credit, and adds ``market 
expansion'' to the definition of ``new market development''; (3) it 
also continues to specify an industry-wide limit for market expansion 
activities totaling 10 million pounds per crop year. This limitation 
reflects the Board's concern that these activities should be developed 
gradually. The limitation will be allocated on a pro rata basis among 
the handlers who request diversion credit for market expansion 
activities and are approved by the Board; and (4) handlers requesting 
diversion credit under these provisions will have to provide evidence 
to the Board that they have been actively involved in the development 
of the new product, new market, or market expansion activity, or have 
financially supported the development efforts. This is to assure that 
the handlers initiating such efforts are the ones who earn the 
resulting diversion credits.
    Handler diversion is authorized under Sec.  930.59 of the order 
and, when volume regulation is in effect, handlers may fulfill 
restricted percentage requirements by diverting cherries or cherry 
products rather than placing tart cherries in an inventory reserve. 
Volume regulation is intended to help the tart cherry industry 
stabilize supplies and prices in years of excess production. The volume 
regulation provisions of the order provide for a combination of 
processor owned inventory reserves and grower or handler diversion of 
excess tart cherries. Reserve cherries may be released for sale into 
commercial outlets when the current crop is not expected to fill 
demand. Under certain circumstances, such cherries may also be used for 
charity, experimental purposes, nonhuman use, and other approved 
purposes.
    Section 930.59(b) of the order provides for the designation of 
allowable forms of handler diversion. These include: uses exempt under 
Sec.  930.62; contribution to a Board approved food bank or other 
approved charitable organization; acquisition of grower diversion 
certificates that have been issued in accordance with Sec.  930.58; or 
other uses, including diversion by destruction of the cherries at the 
handler's facilities. Section 930.62 provides that the Board, with the 
approval of the Secretary, may exempt from the provisions of Sec. Sec.  
930.41 (Assessments), 930.44 (Quality control), 930.51 (Issuance of 
volume regulations), 930.53 (Modification, suspension, or termination 
of regulations), and 930.55 through 930.57 (Reserve regulations) 
cherries which are diverted in accordance with Sec.  930.59, which are 
used for new product and new market development, which are used for 
experimental purposes, or which are used for any other purpose 
designated by the Board, including cherries processed into products for 
markets for which less then 5 percent of the preceding 5-year average 
production of cherries were utilized.
    When applying to the Board to receive exemptions for cherries or 
cherry products used for exempt purposes, the handler must detail the 
nature of the product or market, how it differs from the current, 
existing products and/or markets, and the estimated short and long term 
sales volume for the exemption. In addition, in order to obtain 
diversion credit for cherries used for exempt purposes, the application

[[Page 57817]]

must also contain an agreement that the proposed exempt use diversion 
is to be carried out under the supervision of the Board, and that the 
cost of any such supervision that is needed is paid by the applicant. 
The fees for such USDA or Board supervision as previously stated, will 
be the current hourly rate of $41.00, which is subject to change, under 
USDA's inspection fee schedule (7 CFR 54.42).
    The information that is provided allows the Board to assess the 
request for exemption and render a determination concerning its 
approval or disapproval. Any information received by the Board, which 
is of a confidential, and/or proprietary nature is protected from 
disclosure pursuant to Sec.  930.73 of the order.
    Each handler that is granted an exemption must submit to the Board 
an annual progress report, due May 1 of each year. The progress report 
shall include the results of the exemption activity (comparison of 
intended activity with actual activity) for the year in its entirety, 
the volume of exempted fruit, an analysis of the success of the 
exemption program, and such other information the Board may request.
    For the purposes of regulation concerning exempt uses and diversion 
credit, assisting handlers in obtaining exempt use/diversion credit 
under Sec.  930.162, and assisting the Board in properly administering 
these provisions, the terms ``new product development'', ``new market 
development'', ``development of export markets'', and ``experimental 
purposes'' are defined. Previously, ``new product development'' was 
defined as the production or processing of new tart cherry products or 
foods or other products in which tart cherries or tart cherry products 
are incorporated which are not presently being produced on a commercial 
basis. New product development could also include the production or 
processing of a tart cherry product using a technique not presently 
being utilized commercially in the tart cherry industry. For example, a 
handler might ask for an exemption for a product such as ground meat in 
combination with raw tart cherries to form a leaner meat product. When 
a new product is commercially viable, which is defined as the time when 
total industry utilization for the product exceeds 2 percent of the 5-
year average production of tart cherries, the product is no longer 
eligible for a new product development exemption and diversion credit.
    ``New market development'' previously meant the development of 
markets for cherry products which are not commercially established 
markets and which are not competitive with commercial outlets presently 
utilized by the tart cherry industry (including the development of new 
export markets). For example, a handler might seek to establish sales 
of cherry preserves to India or China, currently undeveloped markets. 
New markets become commercially established when the total industry 
utilization in the market exceeds 2 percent of the 5-year average 
production of tart cherries. When the new markets become commercially 
viable they are no longer eligible as an exempt use outlet and 
diversion credit.
    ``Development of export markets'' is defined as the sale of 
cherries or cherry products, including the development of sales for new 
or different tart cherry products or the expansion of sales for 
existing tart cherry products, to countries other than Canada and 
Mexico. An example of development of sales for new or different tart 
cherry products could be a handler seeking to establish sales of dried 
cherries in Germany, which is primarily a hot pack market (canned tart 
cherries). No quantity limitations are specified for the development of 
export markets. The Board did not want to put any constraints on 
handlers seeking to establish export markets. Moreover, the optimum 
supply formula, which is used by the Board to calculate the desirable 
volume of tart cherries that should be available for sale, does not 
apply to product that can be diverted or used in exempt outlets. Thus, 
the Board felt that handlers in meeting their restricted percentage 
obligations during volume regulation seasons, should be free to move 
exempted/diverted cherries to export markets without constraints.
    ``Experimental purposes'' is defined as the use of cherries or 
cherry products in preliminary and/or developmental activities intended 
to result in new products, new applications and/or new markets for tart 
cherry products, such as a handler working with cereal companies to 
develop a cereal using dried cherries. Any exemption for experimental 
work must be limited in scope, duration, and volume based on 
information supplied by the applicant at the time a request for 
exemption is made. In no case, shall an individual exemption for 
experimental purposes last longer than 5 years or exceed 100,000 pounds 
raw product equivalent of tart cherries.
    To improve the administration of the exempt use/diversion credit 
procedures, the Board recommended that the previous definitions of what 
constitutes new product development and new market development be 
clarified, and that a definition for market expansion should be 
included in the definition of ``new market development'' in Sec.  
930.162(b). It also recommended that an industry-wide limit for market 
expansion activities be established totaling 10 million pounds per crop 
year to be allocated pro rata among the approved handler applicants.
    Under the recommended procedures, handlers applying for exempt use/
diversion credit would have to provide the Board evidence that they 
have been actively involved in the development of the new product, new 
market, or market expansion activities, or have financially supported 
the development efforts. A definition of the term ``involvement'' has 
been added to the provisions specifying these conditions in Sec.  
930.162(c)(5).
    The Board believes that these changes will provide handlers better 
guidance in making marketing decisions and in earning exempt use/
diversion credits, and help the Board in assessing handler applications 
and in determining when handlers have satisfactorily accomplished 
diversion and rightfully earned credits against their restricted 
percentage obligations during a crop year with volume regulation 
percentages. No changes were recommended in the definitions of the 
terms ``development of export markets'' or ``experimental purposes''.
    These issues were discussed at the Board's January 2003 meeting, 
they were then reconsidered at an April 2003 meeting, and a final 
recommendation was reached at the Board's June 26, 2003, meeting.
    There have been differences of opinion between industry members and 
the Board concerning the existing provisions. The Board developed the 
recommended changes to provide handlers with clearer and more detailed 
guidelines to help them better understand the procedures when applying 
for such credits, and to provide the Board members on the New Product/
New Market (NPNM) subcommittee with more specific guidance on granting 
and denying applications for such diversion credits.
    The Board believes that it is important to expand the demand for 
tart cherries to better keep supplies in line with market needs. To 
accomplish this, the Board thinks that the development of new markets 
and products and that the expansion of current markets for tart 
cherries and tart cherry products should be encouraged to the fullest 
extent possible. The changes to the exempt use/diversion credit 
procedures continued in effect by this rule are expected to help the 
tart cherry industry

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further the Board's objectives and help producers and handlers 
accordingly.
    This rule continues to specify revised definitions for ``new 
product development,'' and ``new market development,'' continues to add 
the concept of ``market expansion'' to the definition of ``new market 
development,'' and continues to add a new condition of participation in 
obtaining exempt use/diversion credit for new product development, new 
market development, and market expansion referred to as 
``involvement''.
    As previously stated, ``new product development'' was previously 
defined as the production or processing of new tart cherry products or 
foods or other products in which tart cherries or tart cherry products 
are incorporated which are not presently being produced on a commercial 
basis. New product development can also include the production or 
processing of a tart cherry product using a technique not presently 
being utilized commercially in the tart cherry industry. Once total 
industry utilization for the product exceeds 2 percent of the 5-year 
average production of tart cherries, the product will no longer be 
eligible for a new product development exemption.
    This action continues to add to the definition of ``new product 
development'' the following clarification: (1) New product development 
can also include an end product of the processing of raw tart cherries 
created by handlers at pack time either for resale or for re-
manufacturing which has not previously been manufactured by handlers in 
the industry (for example, dried tart cherries (dehydrated) were 
marketed as a new product after first undergoing processing as a five 
plus one product (25 pounds of cherries topped with 5 pounds of 
sugar)); or (2) a processed, value-added, item that includes tart 
cherry products as an ingredient which has never been marketed to 
consumers either by a handler within the industry or by a food 
manufacturer. For example, during the 2002-03 crop year, a new cookie 
with a tart cherry filling was sold in retail markets for the first 
time.
    As previously mentioned, language within Sec.  930.162(b)(1) 
provides a volume limit of 2 percent of the five year average of 
production of tart cherries. Once this total industry utilization for a 
new product exceeds this amount, the product is no longer considered 
under development and is not eligible for a new product development 
exemption and diversion credit. This limitation remains the same. 
However, an additional limitation recommended by the Board for new 
product and new market development continues to limit the duration of 
any diversion credit to three years from the first date of shipment of 
the new product. The Board believes that limiting the eligibility of 
the exemption for 3 years from the first date of shipment of the new 
product provides a handler time to adequately develop the market for 
the product. After 3 years, regardless whether markets have been 
developed for the new product or not, the product will no longer 
qualify for an exemption and diversion credit.
    Continuing to add such references and volume limitations to the 
current definition of ``new product development'' clarifies what new 
product activities can qualify for exempt use/diversion credit and how 
long such credit can be obtained by the handler once the Board approves 
the handler's application and sales and shipments of the product are 
made.
    Under the order, ``new market development'' was previously defined 
as the development of markets for tart cherry products which are not 
commercially established markets and which are not competitive with 
commercial outlets presently utilized by the tart cherry industry 
(including the development of new export markets). For instance, a 
handler who developed a new market for tart cherries that is also an 
export market would get credit for either the new market development or 
development of the export market but could not get credit for both. A 
new market becomes commercially established, when total industry 
utilization in the market exceeds 2 percent of the five year average 
production of tart cherries, and is not eligible for exempt use/
diversion credit.
    This action also continues to clarify the definition of ``new 
market development'' by adding to that definition a proviso that ``new 
market development'' should be a geographic area into which tart 
cherries or products derived from them have not previously been sold. 
Included within the revised ``new market development'' definition are 
``market expansion activities'', which are defined as activities that 
incrementally expand the sale of either tart cherries or the products 
in which tart cherries are an ingredient. Such activities include, but 
are not limited to: (1) Expansions of the geographic areas in which 
products are marketed; (2) product line extensions; (3) significant 
improvements to or revisions of existing products; (4) packaging 
innovations; (5) segmentation of markets along geographic, demographic, 
or other definable characteristics; and (6) product repositionings.
    Examples of these activities follow: (1) Expansions of the 
geographic areas in which products are marketed would include shipping 
tart cherries to the Ukraine and then on to Uzbekistan; (2) product 
line extensions would include taking tart cherry pie and making it an 
apple-cherry-berry pie; (3) significant improvements to or revisions of 
existing products would include using non-sugar sweeteners or reduced 
sugar content in processed tart cherry products; (4) packaging 
innovations would include using square containers instead of round 2.5 
pound poly bags; (5) an example of segmentation of markets along 
geographic, demographic, or other definable characteristics would 
include tart cherry juice concentrate marketed specifically to 
consumers who suffer with arthritis or gout; and (6) product 
repositionings would mean that retailers would move pie-fill out of the 
dessert category to be used as a topping. These examples are intended 
to provide guidance of potential marketing opportunities and not to 
limit the marketing creativity of the handlers in the tart cherry 
industry.
    To earn new market development or new product development exempt 
use/diversion credits for cherries or cherry products a handler must 
demonstrate involvement in the activity for which credits are sought. 
To demonstrate involvement for the purpose of earning market 
development or new product development diversion credits, the 
requesting handler must either (1) be or have been involved in 
development of the product or the market for which the credits are 
sought or (2) have had financial involvement in these processes. This 
involvement must be demonstrated and established to the satisfaction of 
the NPNM subcommittee by the handler requesting the diversion credits.
    This action also continues a conforming change to Sec.  930.162(a) 
to be consistent with a formal rulemaking order amendment completed in 
2002. Language within Sec.  930.162(a) previously stated, in summary, 
that tart cherry juice and juice concentrate products are not eligible 
for exempt use/diversion credit in domestic markets but such products 
for export can receive exempt use/diversion credit. This language was 
no longer correct because juice and juice concentrate shipped into 
domestic markets can now receive exempt use/diversion credit as 
provided by the 2002 order amendment.

The Regulatory Flexibility Act and Effects on Small Businesses

    The Agricultural Marketing Service (AMS) has considered the 
economic

[[Page 57819]]

impact of this action on small entities and has prepared this final 
regulatory flexibility analysis. The Regulatory Flexibility Act (RFA) 
allows AMS to certify that regulations do not have a significant 
economic impact on a substantial number of small entities. However, as 
a matter of general policy, AMS' Fruit and Vegetable Programs 
(Programs) no longer opts for such certification, but rather performs 
regulatory flexibility analyses for any rulemaking that would generate 
the interest of a significant number of small entities. Performing such 
analyses shifts the Programs' efforts from determining whether 
regulatory flexibility analyses are required to the consideration of 
regulatory options and economic or regulatory impacts.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and 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 approximately 40 handlers of tart cherries who are 
subject to regulation under the order and approximately 900 producers 
of tart cherries in the regulated area. Small agricultural service 
firms have been defined by the Small Business Administration (13 CFR 
121.201) as those having annual receipts less than $5,000,000, and 
small agricultural producers are those whose annual receipts are less 
than $750,000. A majority of the tart cherry handlers and producers may 
be classified as small entities.
    Pursuant to a unanimous recommendation of the Board, this rule 
continues to specify revised definitions for ``new product 
development'' and ``new market development,'' the addition of the 
concept of ``market expansion'' to the definition of ``new market 
development,'' the addition of a condition of handler participation in 
obtaining exempt use/diversion credit for new product development, new 
market development, and market expansion referred to as 
``involvement'', and to specify an industry-wide limit on market 
expansion activities for exempt use/diversion credit.
    The rule continues to provide more specific criteria to help 
handlers take better advantage of exempt use/diversion credit 
activities and to help the Board better assess the validity of handler 
requests for diversion credit. It continues to clarify the definitions 
of ``new product development'' and ``new market development'' 
activities eligible for exempt use/diversion credit, and adds ``market 
expansion'' to the definition of ``new market development''. It also 
continues an industry-wide limit for market expansion activities 
totaling 10 million pounds per crop year. This limitation reflects the 
Board's concern that these activities should be developed gradually. 
The limitation would be allocated on a pro rata basis among the 
handlers who requested diversion credit for market expansion activities 
and were approved by the Board. Handlers requesting exempt use/
diversion credit under these provisions would have to provide evidence 
to the Board that they have been actively involved in the development 
of the new product, new market, or market expansion activity, or have 
financially supported the development efforts. This is to assure that 
the handlers initiating such efforts are the ones earning the diversion 
credits.
    With regard to alternatives, the Board discussed leaving the exempt 
use/diversion credit procedures unchanged. However, the Board 
determined that this course of action would not be satisfactory and 
recommended adding specific guidelines for consideration when reviewing 
handler applications for exempt use/diversion credit activities.
    The principal demand for tart cherries is in the form of processed 
products. Tart cherries are dried, frozen, canned, juiced, and pureed. 
During the period 1998/99 through 2002/03, approximately 91 percent of 
the U.S. tart cherry crop, or 240.6 million pounds, was processed 
annually. Of the 240.6 million pounds of tart cherries processed, 55 
percent was frozen, 30 percent was canned, and 15 percent was utilized 
for juice and other products.
    Based on National Agricultural Statistics Service data, acreage in 
the United States devoted to tart cherry production has been trending 
downward. Bearing acreage has declined from a high of 50,050 acres in 
1987/88 to 36,900 acres in 2002/03. This represents a 26 percent 
decrease in total bearing acres. Michigan leads the nation in tart 
cherry acreage with 70 percent of the total and produces about 75 
percent of the U.S. tart cherry crop each year.
    The 2003/04 crop is moderate in size at 222.1 million pounds. The 
largest crop occurred in 1995 with production in the regulated 
districts reaching a record 395.6 million pounds. The price per pound 
received by tart cherry growers ranged from a low of 7.3 cents in 1987 
to a high of 46.4 cents in 1991.
    This action will not impose additional costs on handlers, 
regardless of size, because the changes are intended to clarify and 
improve the Board's current procedures on approving exempt use/
diversion credit requests. The recommended changes are intended to 
assure that all exempt use/diversion credit requests are handled in a 
more consistent and equitable manner.
    The Board's meetings were widely publicized throughout the tart 
cherry industry and all interested persons were invited to attend the 
meeting and participate in Board deliberations on all issues. Like all 
Board meetings, the January 23, April 24, and June 26, 2003, meetings 
were public meetings 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.
    This action will impose no additional reporting or recordkeeping 
requirements on either small or large tart cherry handlers. 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.
    USDA has not identified any relevant Federal rules that duplicate, 
overlap, or conflict with this rule.
    An interim final rule concerning this action was published in the 
Federal Register on June 22, 2004. The Board's staff mailed copies of 
the rule to all Board members and tart cherry handlers. In addition, 
the rule was made available through the Internet by the Office of the 
Federal Register and USDA. That rule provided a 60-day comment period 
that ended August 23, 2004. 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 (69 FR 34549) will tend to effectuate the declared 
policy of the Act.

[[Page 57820]]

List of Subjects in 7 CFR Part 930

    Marketing agreements, Reporting and recordkeeping requirements, 
Tart cherries.

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

0
Accordingly, the interim final rule amending 7 CFR part 930 which was 
published at 69 FR 34549 on June 22, 2004, is adopted as a final rule 
without change.

    Dated: September 22, 2004.
A. J. Yates,
Administrator, Agricultural Marketing Service.
[FR Doc. 04-21631 Filed 9-27-04; 8:45 am]
BILLING CODE 3410-02-P