[Federal Register Volume 70, Number 76 (Thursday, April 21, 2005)]
[Rules and Regulations]
[Pages 20695-20698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-8027]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 982

[Docket No. FV05-982-1 FIR]


Hazelnuts Grown in Oregon and Washington; Establishment of Final 
Free and Restricted Percentages for the 2004-2005 Marketing Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: The Department of Agriculture is adopting, as a final rule, 
without change, an interim final rule establishing final free and 
restricted percentages for domestic inshell hazelnuts for the 2004-2005 
marketing year under the Federal marketing order for hazelnuts grown in 
Oregon and Washington. This rule continues in effect the final free and 
restricted percentages of 6.4921 and 93.5079 percent, respectively. The 
percentages allocate the quantity of domestically produced hazelnuts 
which may be marketed in the domestic inshell market (free) and the 
quantity of domestically produced hazelnuts that must be disposed of in 
approved outlets (restricted). Volume regulation is intended to 
stabilize the supply of domestic inshell hazelnuts to meet the limited 
domestic demand for such hazelnuts with the goal of providing producers 
with reasonable returns. This rule was recommended unanimously by the 
Hazelnut Marketing Board (Board), which is the agency responsible for 
local administration of the marketing order.

DATES: Effective May 23, 2005.

FOR FURTHER INFORMATION CONTACT: Barry Broadbent, Northwest Marketing 
Field Office, Marketing Order Administration Branch, Fruit and 
Vegetable Programs, AMS, USDA, 1220 SW Third Avenue, Suite 385, 
Portland, Oregon 97204-2807; 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.''
    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. It is intended that this action apply to all 
merchantable hazelnuts handled during the 2004-2005 marketing year 
(July 1, 2004 through June 30, 2005). 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 which 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. At the same time, the Board computes and announces preliminary 
free and restricted percentages for that marketing 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. The Board may increase the computed inshell trade 
demand by up to 25 percent, if market conditions warrant an increase. 
The Board may also modify the inshell trade demand to account for 
abnormalities due to crop or marketing conditions. 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.
    Volume regulation under the order utilizes free and restricted 
percentages to allocate 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.
    On August 24, 2004, the National Agricultural Statistics Service 
(NASS) released an estimate of 2004 hazelnut production for the Oregon 
and Washington area at 44,000 dry orchard-run tons. On August 26, 2004, 
the Board met and estimated total available supply for the 2004 crop 
year at 44,954 tons. The Board arrived at this estimate by using the 
crop estimate compiled by NASS (44,000 tons) and then adjusting that 
estimate to account for disappearance and carry-in. The order

[[Page 20696]]

requires the Board to reduce the estimate by the average disappearance 
over the preceding three years (1,584 tons) and to increase it by the 
amount of undeclared carryin from previous years' production (2,538 
tons.)
    Disappearance is the difference between the estimated orchard-run 
production and the actual supply of merchantable product available for 
sale by handlers. Disappearance can consist of (1) unharvested 
hazelnuts, (2) culled product (nuts that are delivered to handlers but 
later discarded), (3) product used on the farm, sold locally, or 
otherwise disposed of by producers, and (4) statistical error in the 
orchard-run production estimate.
    The Board computed the adjusted inshell trade demand of 2,064 tons 
by taking the average of the past three years' sales (2,952 tons) and 
reducing it by the declared carry-in from last year's crop (888 tons). 
Declared carry-in is product regulated under the order during a 
preceding marketing year but held in inventory for future sale. 
Undeclared carry-in is product that was produced in a previous 
marketing year but was not subject to regulation at that time. 
Undeclared carry-in is subject to regulation under the order and is 
accounted for as such by the Board.
    The Board computed and announced preliminary free and restricted 
percentages of 3.6726 percent and 96.3274 percent, respectively, at its 
August 26, 2004, meeting. The Board computed the preliminary free 
percentage by multiplying the adjusted trade demand by 80 percent and 
dividing the result by the adjusted crop estimate (2,064 tons x 80 
percent/44,954 tons = 3.6726 percent). The preliminary free percentage 
thus initially released 1,651 tons of hazelnuts from the 2004 supply 
for domestic inshell use, and the preliminary restricted percentage 
withheld 43,303 tons for the export and shelled (kernel) markets.
    Under the order, the Board must meet again on or before November 15 
to recommend interim final and final percentages. The Board uses 
current crop estimates to calculate interim final and final 
percentages. The interim final percentages are calculated in the same 
way as the preliminary percentages and release the remaining 20 percent 
(to total 100 percent of the inshell trade demand) previously computed 
by the Board. Final free and restricted percentages may release up to 
an additional 15 percent of the average of the preceding three years' 
trade acquisitions to provide an adequate carryover into the following 
season (i.e., desirable carryout). The order requires that the final 
free and restricted percentages shall be effective 30 days prior to the 
end of the marketing year, or earlier, if recommended by the Board and 
approved by USDA. Revisions in the marketing policy can be made until 
February 15 of each marketing year, but the inshell trade demand can 
only be revised upward, consistent with Sec.  982.40(e).
    The Board met on November 3, 2004, and reviewed and approved an 
amended marketing policy and recommended the establishment of final 
free and restricted percentages. The NASS crop production estimate was 
44,000 tons. However, based upon industry information, the Board 
reduced the estimate to 37,425 tons. The Board also decided that market 
conditions were such that the immediate release of an additional 15 
percent for desirable carryout will not adversely affect the 2004-2005 
domestic inshell market. No interim final free and restricted 
percentages were recommended. The Board recommended final free and 
restricted percentages of 6.4921 and 93.5079 percent, respectively. The 
final free percentage releases 2,507 tons of inshell hazelnuts from the 
2004 supply for domestic use.
    The final marketing percentages are based on the Board's final 
production estimate (which is lower than its initial estimate) and the 
following supply and demand information for the 2004-2005 marketing 
year:

------------------------------------------------------------------------
                 Total available supply                        Tons
------------------------------------------------------------------------
(1) Production forecast (crop estimate).................          37,425
(2) Less disappearance (three year average; 3.60 percent           1,347
 of Item 1).............................................
(3) Merchantable production (Item 1 minus Item 2).......          36,078
(4) Plus undeclared carryin as of July 1, 2004 (subject            2,538
 to regulation).........................................
(5) Available supply subject to regulation (Item 3 plus           38,616
 Item 4)................................................
 
                  Inshell trade demand
 
(6) Average trade acquisitions of inshell hazelnuts                2,952
 (three prior years domestic sales).....................
(7) Less declared carryin as of July 1, 2004 (not                    888
 subject to 2004-2005 regulation).......................
(8) Adjusted inshell trade demand (Item 6 minus Item 7).           2,064
(9) Desirable carryout on August 31, 2005 (15 percent of             443
 Item 6)................................................
(10) Adjusted inshell trade demand plus desirable                  2,507
 carryout (Item 8 plus Item 9)..........................
------------------------------------------------------------------------


 
               Percentages                     Free         Restricted
------------------------------------------------------------------------
(11) Final percentages (Item 10 divided           6.4921         93.5079
 by Item 5) x 100.......................
(12) Final free tonnage (Item 10).......           2,507  ..............
(13) Final restricted tonnage (Item 5     ..............          36,109
 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 make available an additional 443 tons for 
desirable carryout. The total free supply for the 2004-2005 marketing 
year is 3,395 tons of hazelnuts, which is the sum of the final trade 
demand of 2,952 tons and the 443 ton desirable carryout. This amount is 
115 percent of prior years' sales and exceeds the goal of the 
Guidelines.

Final Regulatory Flexibility Analysis

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

[[Page 20697]]

this action on small entities. Accordingly, AMS has prepared this final 
regulatory flexibility analysis.
    The purpose of the RFA is to fit regulatory actions to the scale of 
business subject to such actions in order that small businesses will 
not be unduly or disproportionately burdened. Marketing orders issued 
pursuant to the Act, and the rules issued thereunder, are unique in 
that they are brought about through group action of essentially small 
entities acting on their own behalf. Thus, both statutes have small 
entity orientation and compatibility.
    Small agricultural producers are defined by the Small Business 
Administration (13 CFR 121.201) as those having annual receipts of less 
than $750,000, and small agricultural service firms are defined as 
those having annual receipts of less than $6,000,000. There are 
approximately 750 producers of hazelnuts in the production area and 
approximately 18 handlers subject to regulation under the order. 
Average annual hazelnut revenue per producer is $39,025. This is 
computed by dividing NASS figures for the average value of production 
for 2002 and 2003 ($29,268,500) by the number of producers. The level 
of sales of other crops by hazelnut producers is not known. In 
addition, based on Board records, about 89 percent of the handlers ship 
under $6,000,000 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 main 
market outlets: Domestic inshell, export inshell, and kernel markets. 
Handlers and growers receive the highest return for sales in the 
domestic inshell market. They receive less for product going to export 
inshell, and the least for kernels. Based on Board records of average 
shipments for 1994-2003, the percentage going to each of these markets 
was 11 percent (domestic inshell), 43 percent (export inshell), and 34 
percent (kernels). Other minor market outlets in total make up the 
remaining 12 percent.
    The inshell hazelnut market can be characterized as having limited 
and inelastic demand with a very short primary marketing period. On 
average, 78 percent of domestic inshell hazelnut shipments occur 
between October 1 and November 30, primarily to supply holiday nut 
demand. The inshell market is, therefore, prone to oversupply and low 
grower prices in the absence of supply restrictions. Volume regulation 
provides a method for the U.S. hazelnut industry to limit the supply of 
domestic inshell hazelnuts available for sale in the continental U.S. 
and to prevent oversupplied market conditions.
    Many years of marketing experience led to the development of the 
current volume control procedures. These procedures have helped the 
industry solve its marketing problems by keeping inshell supplies in 
balance with domestic needs. Volume controls ensure that the domestic 
inshell market is fully supplied while protecting the market from the 
negative effects of oversupply.
    The relatively high level of production in 2004 and the large 
carryin from previous year's production were key market factors leading 
to the relatively low 6.4921 percent final free percentage. Hazelnut 
production was originally estimated by NASS to be 44,000 tons, which 
would have made it the third largest crop on record. The Board revised 
the forecast to 37,425 tons after harvest was completed, a level that 
is still 21 percent above the prior 10-year average. Even if carryin 
had been zero, the amount of production that handlers typically ship 
into the domestic inshell market (i.e., average trade acquisitions of 
2,952 tons) equals only about 8.1 percent of supply (the 36,078 tons 
subject to regulation).
    Although the domestic inshell market is a relatively small 
proportion of total sales (11 percent of total shipments), it remains a 
profitable market segment. The volume control provisions of the 
marketing order are designed to avoid oversupplying this particular 
market segment, because that would likely lead to substantially lower 
grower prices. The other market segments, export inshell and kernels, 
are expected to continue to provide good outlets for U.S. hazelnut 
production.
    Recent production and price data reflect the stabilizing effect of 
the volume control regulations. Data from NASS shows that total 
hazelnut production has varied widely over the 10-year period between 
1994 and 2003, from a low of 15,500 tons in 1998 to a high of 49,500 
tons in 2001. Production in the shortest crop year and the biggest crop 
year were 50 percent and 160 percent, respectively, of the 10-year 
average tonnage of 31,035. Grower price has not fluctuated to the 
extent of production. Prices in the lowest price year and the highest 
price year were 93 percent and 115 percent, respectively, of the 10-
year average price of $898 per ton. The considerable lower variability 
of price versus production provides an illustration of the order's 
price-stabilizing impacts.
    Comparing grower revenue to cost is useful in highlighting the 
impact on growers of recent product and price levels. A recent hazelnut 
production cost 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 only twice from 1994 to 2003. Average grower revenue 
was below typical costs in the other years. Without the stabilizing 
impact of the order, growers may have lost more money. While crop size 
has fluctuated, volume regulations contribute to orderly marketing and 
market stability and help 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 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 2004-2005 hazelnut crop. However, without any 
regulations in effect, the Board believes that the industry would tend 
to oversupply the inshell domestic market. The 2004-2005 hazelnut crop 
is larger than last season and much larger than expected due to the 
cyclical nature of hazelnut production. Generally, a large crop one 
season is followed by a reduced crop the following season, and a small 
crop is followed by a large crop the following season. The unregulated 
release of 38,616 tons on the domestic inshell market would oversupply 
that small market and would cause producer returns to decrease 
dramatically, thereby disrupting the market.
    Section 982.40 of the order establishes a procedure and 
computations for the Board to follow in recommending to USDA release of 
preliminary, interim final, and final quantities of hazelnuts to

[[Page 20698]]

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 5 percent of the world's hazelnut production.
    Last season, 79 percent of the kernels were marketed in the 
domestic market and 21 percent were exported. Domestically produced 
kernels generally command a higher price in the domestic market than 
imported kernels. The industry is continuing its efforts to develop and 
expand other markets with emphasis on the domestic kernel market. Small 
business entities, both producers and handlers, benefit from the 
expansion efforts resulting from this program.
    Inshell hazelnuts produced under the order compete well in export 
markets because of quality. Based on Board statistics, Europe has 
historically been the primary export market for U.S. produced inshell 
hazelnuts, with a 10-year average of 5,255 tons out of total average 
exports of 14,048 tons. Recent years have seen a significant shift in 
export destinations. Last season, inshell shipments to Europe totaled 
5,526 tons, representing 24 percent of exports, with the largest share 
going to Germany. Inshell shipments to Southwest Pacific countries, and 
Hong Kong in particular, have increased dramatically in the past few 
years, rising to 70 percent of total exports of 23,319 tons in 2003. 
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 26, and November 3, 2004, were public 
meetings and all entities, both large and small, were able to express 
their views on this issue.
    An interim final rule concerning this action was published in the 
Federal Register on December 21, 2004. Copies of this rule were mailed 
by the Board's staff to all Board members. In addition, the rule was 
made available through the Internet by the Office of the Federal 
Register and USDA. A 60-day comment period ending February 22, 2005, 
was provided to allow interested parties to respond to the rule.
    Two comments were received during the comment period in response to 
the interim final rule. Both commenters opposed the action as a 
restriction of free trade that artificially inflates prices.
    USDA disagrees with the commenters. As previously stated, the 
marketing of domestic inshell hazelnuts is regulated by USDA upon the 
recommendation of the Board to balance the supply of such hazelnuts 
with the demand. The Board believes that equilibrium in the supply and 
demand of domestic inshell hazelnuts benefits consumers and improves 
returns to producers. USDA guidelines stipulate that the domestic 
inshell hazelnut market has at least 110 percent of the prior years' 
sales are available to supply consumers' needs and facilitate market 
expansion. In order to ensure that the supply is not unduly restricted, 
the Board recommended releasing 115 percent of the estimated trade 
demand of inshell hazelnuts to the domestic market. Even with 
regulation, hazelnuts generally trade at price levels below that of 
walnuts, almonds, and pistachios, all of which compete in the 
marketplace with hazelnuts.
    One of the commenters expressed concern that taxpayer dollars were 
used to cover Board costs. Taxpayer dollars are not used to fund the 
Board. Funds generated from assessments on the handlers of hazelnuts 
are used to pay these costs.
    Accordingly, no changes will be made in the finalization of the 
interim final rule based on the comments 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 information and recommendation submitted by the Board and other 
available information, it is hereby found that finalizing the interim 
final rule, without change, as published in the Federal Register (69 FR 
76385, December 21, 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 76385 on December 21, 2004, is adopted as a final 
rule without change.

    Dated: April 15, 2005.
Kenneth C. Clayton,
Acting Administrator, Agricultural Marketing Service.
[FR Doc. 05-8027 Filed 4-20-05; 8:45 am]
BILLING CODE 3410-02-P