[Federal Register Volume 71, Number 69 (Tuesday, April 11, 2006)]
[Rules and Regulations]
[Pages 18164-18168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-3417]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 982

[Docket No. FV06-982-1 FIR]


Hazelnuts Grown in Oregon and Washington; Establishment of Final 
Free and Restricted Percentages for the 2005-2006 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 final free and 
restricted percentages for domestic inshell hazelnuts for the 2005-2006 
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 11.4388 and 88.5612 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 other 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 Date: May 11, 2006. This rule applies to all 2005-2006 
marketing year restricted hazelnuts until they are properly disposed of 
in accordance with applicable marketing order requirements.

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, 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 
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 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.''

[[Page 18165]]

    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 2005-2006 marketing year 
(July 1, 2005, through June 30, 2006). 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 free and restricted percentages which 
allocate the quantity of domestically produced hazelnuts which may be 
marketed in domestic inshell markets (free) and hazelnuts which must be 
exported, shelled, or otherwise disposed of by handlers (restricted). 
The Board met and, after determining that volume regulation would tend 
to effectuate the declared policy of the Act, developed a marketing 
policy to be employed for the duration of the 2005-2006 marketing year. 
Using statistical compilations and a well defined procedure, the Board 
estimated inshell trade demand and total available supply for the 
coming marketing year and subsequently used those estimates as the 
basis for computing and announcing the free and restricted marketing 
percentages for the year.
    The Board determined that, for the 2005-2006 marketing year, 
projected inshell trade demand is 3,095 tons and projected total 
available new supply is 27,057 tons. Using those estimates, the Board 
voted unanimously at their November 15, 2005, meeting to recommend to 
USDA that the final free and restricted percentages for the 2005-2006 
marketing year be established at 11.4388 and 88.5612 percent, 
respectively.
    The Board's authority to recommend volume regulation and use 
computations to determine the allocation of hazelnuts to individual 
markets is specified in Sec.  982.40 of the order. Under the order's 
provisions, free and restricted market allocations of hazelnuts are 
expressed as percentages of the total supply subject to regulation and 
are derived by dividing the computed inshell trade demand by the 
Board's estimate of the total domestically produced supply of hazelnuts 
that will be available over the course of the marketing year.
    Inshell trade demand, the key component of the marketing policy, is 
the quantity of inshell hazelnuts necessary to adequately supply the 
needs of the domestic market for the duration of the marketing year. 
The Board determines the inshell trade demand for each year and uses 
that estimate as the basis for setting the percentage of the available 
hazelnuts that handlers may ship to the domestic inshell market 
throughout the marketing season. The order specifies that the inshell 
trade demand be computed by averaging the preceding three years' trade 
acquisitions of inshell hazelnuts, allowing adjustments for abnormal 
crop or marketing conditions. The Board may increase the computed 
inshell trade demand by up to 25 percent, if market conditions warrant 
an increase.
    Prior to September 20 of each marketing year, the Board follows a 
procedure, specified by the order, to 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 any potential underestimate of crop size. The preliminary free 
percentage is expressed as a percentage of the total supply subject to 
regulation where total supply is the sum of the estimated crop 
production less the three-year average disappearance plus the 
undeclared carry-in from the previous marketing year.
    On or before November 15 of each marketing year, the Board must 
meet again to recommend interim final and final free and restricted 
percentages and to authorize permitted outlets for restricted 
percentages. Interim final percentages release 100 percent of the 
inshell trade demand (effectively releasing the 20 percent held back 
during the preliminary stage). Final percentages may release an 
additional 15 percent for desirable carryout and are effective 30 days 
prior to the end of the marketing year, or earlier as recommended by 
the Board.
    On August 23, 2005, the National Agricultural Statistics Service 
(NASS) released an estimate of 2005 hazelnut production for the Oregon 
and Washington area at 28,000 dry orchard-run tons. NASS uses an 
objective yield survey method to estimate hazelnut production which has 
historically been very accurate.
    On August 25, 2005, the Board met and estimated total available 
supply for the 2005 crop year at 27,057 tons. The Board arrived at this 
estimate by using the crop estimate compiled by NASS (28,000 tons) and 
then adjusting that estimate to account for disappearance and carry-in. 
The order requires the Board to reduce the estimate by the average 
disappearance over the preceding three years (1,075 tons) and to 
increase it by the amount of undeclared carry-in from previous years' 
production (132 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.
    Undeclared carry-in consists of hazelnuts that were produced in a 
previous marketing year but were not subject to regulation because they 
were not shipped during that marketing year. Undeclared carry-in is 
subject to regulation during the current marketing year and is 
accounted for as such by the Board.
    As provided by the order, the Board computed inshell trade demand 
to be 3,095 tons by taking the average of the past three years' sales 
(2,775 tons), increasing the three year average by 15 percent to 
encourage increased sales (416 tons), and then reducing that quantity 
by the declared carry-in from last year's crop (96 tons). Declared 
carry-in is product regulated under the order during a preceding 
marketing year but not shipped during that year. This inventory must be 
accounted for when estimating the quantity of product to make available 
to adequately supply the market.
    The Board computed and announced preliminary free and restricted 
percentages of 9.1511 percent and 90.8489 percent, respectively, at its 
August 25, 2005, meeting. The Board

[[Page 18166]]

computed the preliminary free percentage by multiplying the adjusted 
trade demand by 80 percent and dividing the result by the total 
available supply subject to regulation (3,095 tons x 80 percent/27,057 
tons = 9.1511 percent). The preliminary free percentage initially 
released 2,476 tons of hazelnuts from the 2005-2006 supply for domestic 
inshell use, and the preliminary restricted percentage withheld 24,581 
tons for the export and 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 qtotal 100 percent of the inshell trade demand) previously computed 
by the Board. Final free and restricted percentages may release up to 
an additional 15 percent of the average of the preceding three years' 
trade acquisitions to provide an adequate carryover into the following 
season (i.e., desirable carryout). The order requires that the final 
free and restricted percentages shall be effective 30 days prior to the 
end of the marketing year, or earlier, if recommended by the Board and 
approved by USDA. Revisions in the marketing policy can be made until 
February 15 of each marketing year, but the inshell trade demand can 
only be revised upward, consistent with Sec.  982.40(e).
    The Board met on November 15, 2005, and reviewed and approved an 
amended marketing policy and recommended the establishment of final 
free and restricted percentages. The Board decided that market 
conditions were such that it would not be necessary to release 
additional domestic inshell hazelnuts to ensure adequate carryout. 
Accordingly, no interim final free and restricted percentages were 
recommended. The Board recommended final free and restricted 
percentages of 11.4388 and 88.5612 percent, respectively, and that 
those percentages be effective immediately. The final free percentage 
releases approximately 3,095 tons of inshell hazelnuts from the 2005-
2006 supply for domestic use.
    The final marketing percentages are based on the Board's final 
production estimate and the following supply and demand information for 
the 2005-2006 marketing year:

------------------------------------------------------------------------
                                                               Tons
------------------------------------------------------------------------
Total Available Supply:
    (1) Production forecast (crop estimate).............          28,000
    (2) Less disappearance (three year average; 3.84               1,075
     percent of Item 1).................................
    (3) Merchantable production (Item 1 minus Item 2)...          26,925
    (4) Plus undeclared carry-in as of July 1, 2005                  132
     (subject to regulation)............................
    (5) Available supply subject to regulation (Item 3            27,057
     plus Item 4).......................................
Inshell Trade Demand:
    (6) Average trade acquisitions of inshell hazelnuts            2,775
     (three prior years domestic sales).................
    (7) Add: Increase to encourage increased sales (15%              416
     of average trade acquisitions).....................
    (8) Less: Declared carry-in as of July 1, 2005 (not               96
     subject to 2005-2006 regulation)...................
    (9) Adjusted inshell trade demand (Item 6 plus Item            3,095
     7 minus Item 8)....................................
------------------------------------------------------------------------


 
                                               Free         Restricted
------------------------------------------------------------------------
Percentages:
    (10) Final percentages (Item 9               11.4388         88.5612
     divided by Item 5) x 100...........
    (11) Final free tonnage (Item 9)....           3,095  ..............
    (12) Final restricted tonnage (Item   ..............          23,962
     5 minus Item 11)...................
------------------------------------------------------------------------

    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 approximately 416 
additional tons to encourage increased sales. The total free supply for 
the 2005-2006 marketing year is estimated to be 3,095 tons of 
hazelnuts. That amount is 112 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 firms are defined as 
those having annual receipts of less than $6,500,000. There are 
approximately 700 producers of hazelnuts in the production area and 
approximately 18 handlers subject to regulation under the order. 
Average annual hazelnut revenue per producer is approximately $64,000. 
This is computed by dividing NASS figures for the average value of 
production for 2003 and 2004 ($44,863,000) 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 83 percent of the handlers 
ship under $6,500,000 worth of hazelnuts on an annual basis. In view of 
the foregoing, it can be concluded that the majority of hazelnut 
producers

[[Page 18167]]

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 producers 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 1995-2004, the percentage going to each of these markets 
was 11 percent (domestic inshell), 49 percent (export inshell), and 38 
percent (kernels). Other minor market outlets make up the remaining 2 
percent.
    The inshell hazelnut market can be characterized as having limited 
and inelastic demand with a very short primary marketing period. On 
average, 76 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 
correspondingly low producer prices in the absence of supply 
restrictions. This volume control regulation provides a method for the 
U.S. hazelnut industry to limit the supply of domestic inshell 
hazelnuts available for sale in the continental U.S. and thereby 
mitigate market oversupply 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.
    Although the domestic inshell market is a relatively small portion 
of total hazelnut 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 
producer prices. The other market segments, export inshell and kernels, 
are expected to continue to provide good outlets for U.S. hazelnut 
production. Adverse weather conditions have negatively impacted 
production in the other hazelnut producing regions of the world, 
creating lower than normal world supplies. As a result, it is expected 
that the demand and producer price for U.S. hazelnuts will remain above 
average for some time.
    In Oregon and Washington, low hazelnut production years typically 
follow high production years (a historically consistent pattern), and 
such was the case in 2005. The 2004 crop of 37,500 tons was 15 percent 
above the 10-year average (1995-2004) for hazelnut production. The 2005 
crop is estimated to be 14 percent below the average. It is predicted 
that the 2006 crop will follow this pattern and will be larger than the 
current crop year. This cyclical trait also leads to inversely 
corresponding cyclical price patterns for hazelnuts. The intrinsic 
cyclical nature of the hazelnut industry lends credibility to the 
volume control measures enacted by the Board under the order.
    Recent production and price data reflect the stabilizing effect of 
volume control regulations. Industry statistics show that total 
hazelnut production has varied widely over the 10-year period between 
1995 and 2004, from a low of 16,500 tons in 1998 to a high of 49,500 
tons in 2001. Production in the smallest crop year and the largest crop 
year were 47 percent and 151 percent, respectively, of the 10-year 
average of 32,685 tons. Producer price, however, has not fluctuated to 
the extent of production. Prices in the lowest price year and the 
highest price year were 90 percent and 150 percent, respectively, of 
the 10-year average price of $959 per ton. The coefficient of variation 
(a standard statistical measure of variability; ``CV'') for hazelnut 
production over the 10-year period is 0.36. In contrast, the 
coefficient of variation for hazelnut producer prices is 0.19, about 
half of the CV for production. The lower level of variability of price 
versus the variability of production provides an illustration of the 
order's price-stabilizing impact.
    Comparing revenue to cost at the producer level is useful in 
highlighting the impact on producers 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 producer 
revenue per bearing acre (based on NASS acreage and value of production 
data) equaled or exceeded that typical cost level only three times from 
1995 to 2004. Average producer revenue was below typical costs in the 
other years. Without the stabilizing influence of the order, producers 
may have lost more money. While crop size has fluctuated, volume 
regulations contribute to orderly marketing and market stability by 
moderating 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 2005-2006 hazelnut crop. However, without any 
regulations in effect, the Board believes that the industry would tend 
to oversupply the inshell domestic market. Even though the 2005-2006 
hazelnut crop is much smaller than last year's crop and 16 percent 
below the ten-year average, the unregulated release of 27,057 tons on 
the domestic inshell market would oversupply that small, but lucrative 
market. The Board believes that any oversupply would completely disrupt 
the market, causing producer returns to decrease dramatically.
    Section 982.40 of the order establishes a procedure and 
computations for the Board to follow in recommending to USDA 
establishment of preliminary, interim final, and final percentages 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 3 percent of total U.S. production of all tree nuts, and less 
than 6 percent of the world's hazelnut production.
    Last season, 68 percent of the domestically produced hazelnut 
kernels were marketed in the domestic market and 32 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

[[Page 18168]]

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. Recent years, though, have seen a significant shift in 
export destinations. Last season, inshell shipments to Europe totaled 
4,304 tons, representing just 22 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 68 percent of total exports of 19,881 
tons in 2004. 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.
    AMS is committed to compliance with the Government Paperwork 
Elimination Act (GPEA), which requires Government agencies in general 
to provide the public the option of submitting information or 
transacting business electronically to the maximum extent possible.
    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 25, and November 15, 2005, 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 January 12, 2006. 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. A 60-day comment period ending March 13, 2006, was provided 
to allow interested parties to respond to the rule. 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 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 (71 FR 
1921, January 12, 2006) 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 71 FR 1921 on January 12, 2006, is adopted as a final rule 
without change.

    Dated: April 5, 2006.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
[FR Doc. 06-3417 Filed 4-10-06; 8:45 am]
BILLING CODE 3410-02-P