[Federal Register Volume 78, Number 145 (Monday, July 29, 2013)]
[Rules and Regulations]
[Pages 45441-45447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-18160]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Rules 
and Regulations  

[[Page 45441]]



DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1435

RIN 0560-AH86


Sugar Program; Feedstock Flexibility Program for Bioenergy 
Producers

AGENCY: Commodity Credit Corporation and Farm Service Agency, USDA.

ACTION: Final rule.

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

SUMMARY: This rule amends regulations that specify the methods that the 
Commodity Credit Corporation (CCC) can use to dispose of its sugar 
inventory and establishes the new Feedstock Flexibility Program (FFP). 
Through FFP, the Secretary is required to purchase sugar and sell it to 
produce bioenergy as a means to avoid forfeitures of sugar loan 
collateral under the Sugar Program. The FFP regulations are required by 
the Food, Conservation, and Energy Act of 2008 (the 2008 Farm Bill) 
amendments to the Food Security and Rural Investment Act of 2002 (the 
2002 Farm Bill), and as further amended by the American Taxpayer Relief 
Act of 2012.

DATES: Effective date: July 29, 2013.

FOR FURTHER INFORMATION CONTACT: Barbara Fecso; telephone (202) 720-
4146. Persons with disabilities who require alternative means for 
communications (Braille, large print, audio tape, etc.) should contact 
the USDA Target Center at (202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION:

Background

    Under the Sugar Program, domestic sugar beet or sugarcane 
processors may borrow from CCC, pledging their sugar production as 
collateral for any such loan, and then satisfy their loans either by 
repaying the loan on or before loan maturity or by transferring the 
title for the collateral to CCC immediately following loan maturity, 
also known as ``forfeiture'' of collateral (as specified in 7 CFR 
1435.105). The Farm Service Agency (FSA) administers the Sugar Program 
for CCC. The regulations for sugar loans in 7 CFR 1435 parts A and B 
are not changing. CCC is required to operate the Sugar Program, to the 
maximum extent practicable at no cost to the Federal government, by 
avoiding forfeitures to CCC. If domestic sugar market conditions are 
such that market rates are less than forfeiture level, current law 
requires CCC to use FFP to purchase sugar and sell such sugar to 
bioenergy producers to avoid forfeitures.
    This final rule amends the Sugar Program regulations to implement 
FFP and to establish appropriate methods for the disposition of sugar 
inventory that CCC has acquired other than through FFP. CCC may acquire 
sugar through forfeiture of CCC sugar loans or through sugar purchases 
to reduce the cost of the Sugar Program under the cost reduction 
options provided by section 1009 of the Food Security Act of 1985 (7 
U.S.C. 1308a, Pub. L. 99-198). Implementation of FFP is required by the 
amendment by section 9001 of the 2008 Farm Bill (Pub. L. 110-246) to 
section 9010 of the 2002 Farm Bill (7 U.S.C. 8110, Pub. L. 107-171), 
and as further amended by section 701(f)(9) of the American Taxpayer 
Relief Act of 2012 (Pub. L. 112-240). Regulations implementing FFP are 
in 7 CFR part 1435, ``Sugar Program,'' in new subpart G, ``Feedstock 
Flexibility Program.'' Regulations implementing sugar disposition 
methods are in 7 CFR part 1435 in new subpart E, ``Disposition of CCC 
Inventory.''
    FFP addresses sugar surpluses sooner than the current Sugar Program 
by permanently removing such sugar from the market for human 
consumption. The current Sugar Program removes surplus sugar from the 
market near the end of the crop year as sugarcane and sugar beet 
processors forfeit sugar loan collateral to CCC. The acquired inventory 
can be stored for resale to the market upon improvement in market 
prices. Under FFP, CCC may remove surplus sugar from the market earlier 
in the year, as FFP requires CCC to avoid sugar loan forfeitures. FFP 
also requires the surplus sugar to be used to produce bioenergy, which 
precludes CCC's resale of inventory into the market for human 
consumption.
    Current law provides USDA authority for these programs through the 
2013 sugar crop year (which runs from October 1, 2013 to September 30, 
2014). Recent indications in the sugar market suggest that forfeitures 
may occur in crop year 2012. However, if sugar prices remain below the 
forfeiture level, CCC may be required to use FFP to purchase sugar 
before August 1, 2013, the first date that 2012-crop loans can be 
forfeited to CCC. The last year in which sugar loan forfeitures 
occurred was 2005. The methods specified in this rule for both 
purchases under FFP and disposition of CCC sugar inventory are not 
expected to be used in most years.
    CCC published a proposed rule in the Federal Register on October 
19, 2011 (76 FR 64839-64844), with respect to the 2008 amendments that 
would establish FFP and restrict CCC sugar inventory disposition 
outlets to non-food use under non-emergency shortage conditions. CCC 
received six comments on the proposed rule. The comments and responses 
are discussed later in this document. As explained below, no major 
changes are being made in response to comments, because CCC has 
determined, based on the evenly balanced opposing and supporting 
comments for specific changes, that the proposed rule equitably 
balances the conflicting interests of sugar producers and sugar users. 
CCC has made other changes from the proposed rule in this final rule 
clarifying the types of sugar eligible for FFP and eliminating the 
eligibility requirement that the eligible bioenergy producers' facility 
be located in the United States.

Sugar Program Background

    Administration of the current Sugar Program requires CCC to balance 
domestic supply with demand so that U.S. sugar prices are no less than 
levels specified in the 2008 Farm Bill and to maintain an adequate 
domestic sugar supply. This rule does not change CCC's management of 
sugar loans, sugar marketing allotments, or import tariff-rate quotas 
(TRQs). Specifically, this rule introduces purchases and sales of sugar 
for bioenergy production under FFP as a proactive means for CCC to 
avoid forfeitures. FFP is expected to be unnecessary in most years, as 
USDA's long term projections indicate a generally strong domestic sugar 
market in the future.

[[Page 45442]]

Sugar Inventory Disposition

    This rule adds a new subpart E, ``General Disposition of CCC 
Inventory,'' to 7 CFR part 1435 to implement the 2008 Farm Bill 
requirements and the 2012 amendments to the 2002 Farm Bill. Subpart E 
applies to sugar in inventory that CCC owns, such as sugar obtained 
from forfeited loan collateral. CCC does not expect to regularly use 
these methods, as it is legislatively required to operate FFP to avoid 
forfeitures.
    As specified in Subpart E, CCC will dispose of sugar held in CCC 
inventory in ways that do not increase the domestic supply of sugar for 
human consumption, except in conditions of emergency sugar shortages. 
CCC may, under non-emergency conditions, dispose of sugar held in 
inventory through sales under FFP (new subpart G), through the 
Processor Sugar Payment-in-Kind (PIK) Program (7 CFR part 1435 subpart 
F, which is not changing), through buybacks of Certificates of Quota 
Eligibility (CQEs), which are issued under 15 CFR part 2011 to TRQ 
holding countries and authorize sugar to enter the United States under 
the TRQs, or through other applicable CCC disposition authority in such 
a way as not to increase the domestic supply of sugar for human 
consumption. Under the PIK disposal option, CCC would swap sugar 
inventory for retired sugarcane or sugar beet acreage. CCC disposed of 
473,000 tons of sugar inventory under a similar PIK Program in fiscal 
year (FY) 2001 and FY 2002. Under the CQE option, CCC would allow 
traders to swap CQEs for sugar inventory. CCC disposed of 116,000 tons 
of sugar inventory under CQE swaps in FY 2002 and FY 2003. Both methods 
reduce sugar in the domestic supply for human consumption. The 
announcements of the use of such methods to dispose of sugar held in 
inventory will be placed on the FSA Commodity Operations Web site at 
http://www.fsa.usda.gov/FSA/webapp?area=home&subject=coop&topic=landing.
    If there is an emergency shortage of sugar for human consumption in 
the domestic market, the Secretary may use applicable CCC authority to 
dispose of sugar inventory, including sales for human consumption.
    As amended by the 2008 Farm Bill, section 9010 of the 2002 Farm 
Bill specifies that an emergency shortage of sugar for human 
consumption in the United States market is one ``caused by a war, 
flood, hurricane, other natural disaster, or other similar event.'' CCC 
did not propose to define ``emergency shortage'' in the proposed rule, 
and noted that the ``similar event'' clause provides flexibility to 
respond to shortages caused by manmade events. In the background 
section of the proposed rule, CCC requested comments on whether CCC 
should define ``emergency shortage'' in the rule, either by listing the 
specific types of events that cause a shortage or by specifying a 
formula based on price or stock levels that constitute a shortage. As 
discussed in more detail later in this document, the comments received 
were not in agreement on whether there should be a specific definition 
or what that definition should be. Therefore, CCC has retained the 
language of section 9010 in the final rule that specifies the causes of 
an emergency shortage, but has not adopted a specific formula for what 
constitutes a shortage. CCC therefore retains flexibility to make a 
determination whether particular circumstances constitute an ``other 
similar event'' that has caused an emergency shortage, and whether a 
particular price or stock level constitutes a shortage. There were no 
comments received on any other sugar disposition provisions specified 
in the proposed rule. Consequently, CCC did not make any substantive 
changes to those provisions.

Subpart G--Feedstock Flexibility Program

    New subpart G specifies how CCC will operate FFP. Through FFP, CCC 
will buy sugar as needed to avoid forfeitures of sugar loan collateral 
and sell that sugar to bioenergy producers. Bioenergy, as defined in 
section 9001 of the 2008 Farm Bill, amending section 9010 of the 2002 
Farm Bill, means fuel grade ethanol and other biofuel.
    As amended by the 2008 Farm Bill, section 9010 of the 2002 Farm 
Bill requires the Secretary to estimate, by September 1 of each year, 
the likelihood of sugar forfeitures for the following crop year, and 
announce the quantity of sugar to be made available for purchase and 
sale for bioenergy production. In addition, CCC will make quarterly 
announcements of revised estimates of such quantity. CCC's purchase and 
sale plans will be affected by the large degree of uncertainty in 
USDA's sugar market projections made early in the year. As specified in 
this rule, CCC will update the estimated quantity of sugar to be made 
available for purchase and sale under FFP not later than January 1, 
April 1, and July 1 of each year. Any FFP purchases expected in 
calendar year 2013 for the 2012 crop will be announced in the quarterly 
updates in FY 2013.
    The 2008 Farm Bill amendments specify that the only commodities 
eligible to be made available for purchase under FFP are ``raw or 
refined, or in-process sugar'' that would otherwise have been marketed 
for human consumption in the United States or could otherwise have been 
used for the extraction of sugar marketed for human consumption.
    Applicable law requires that the entity selling sugar to CCC be 
located in the United States. The 2008 Farm Bill amendments do not 
require that the sugar buyer's bioenergy facilities be located in the 
United States. CCC nevertheless initially proposed to limit eligible 
buyers to those bioenergy producers who would use the purchased sugar 
to produce bioenergy in their facilities in the United States. This 
restriction was initially proposed to benefit the American taxpayer, 
who is paying for FFP, and CCC indeed received one (favorable) comment 
related to such proposed restriction. However, section 9010 of the 2002 
Farm Bill, as amended, expressly provides that the sale of sugar to 
bioenergy producers must be conducted in a manner that ensures the 
Sugar Program is operated at no cost to the Federal Government by 
avoiding forfeitures to CCC. To restrict eligible buyers to those 
bioenergy producers whose production facilities are located in the 
United States may restrict the pool of sugar buyers, potentially 
increasing the cost to the Federal Government and the likelihood of 
forfeitures to CCC. Such a result would be contrary to the interests of 
the American taxpayer. Consequently, the final rule does not adopt this 
restriction. Ultimately, CCC estimates that few if any prospective 
buyers would seek to use the sugar to produce bioenergy at facilities 
outside the United States, as it is not expected to be cost-effective 
to transport over longer distances sugar that must be used for 
bioenergy production.
    Any biofuel producer that wishes to participate in the 
Environmental Protection Agency's (EPA's) Renewable Fuel Standard (RFS) 
program must comply with EPA regulations, in 40 CFR part 80; however, 
participation in RFS is not a requirement for participation in FFP. 
Assuming all of the applicable RFS requirements are met, EPA has 
confirmed that ethanol produced from U.S. sugarcane would qualify for 
an advanced fuel RIN, and that ethanol produced from U.S. sugar 
produced from U.S. sugar beets would qualify for a conventional RIN, 
subject to certain grandfathering provisions.
    CCC will invite sugar producers to sell sugar for FFP and shortly 
thereafter

[[Page 45443]]

invite bioenergy producers to bid on purchasing sugar for bioenergy 
production. The terms and conditions of the sugar purchase and sale 
contracts will be outlined in the dual invitations. The invitations 
will be placed on the FSA Commodity Operations Web site at http://www.fsa.usda.gov/FSA/webapp?area=home&subject=coop&topic=landing. 
Alternatively, CCC may negotiate contracts directly with sellers or 
buyers, if CCC determines that such negotiation, compared to other 
means, either will reduce the likelihood of forfeited sugar or reduce 
costs of removing sugar from the market. CCC may employ several 
contracting strategies to discover the most cost-effective strategy to 
manage FFP.
    The 2008 Farm Bill amendments require that purchasers of sugar 
under FFP take possession within 30 days after the date of purchase 
from CCC. CCC will therefore attempt, when possible, to identify a 
bioenergy producer (sugar buyer) before CCC purchases sugar, and 
require the buyer to take possession of the sugar within 30 days of 
purchase. Since the law prohibits CCC, to the maximum extent possible, 
from paying storage fees for FFP sugar, CCC will structure the FFP 
contracts so that CCC does not pay any storage fees. Specific terms and 
conditions will be outlined in the invitations to sell and buy sugar 
for the FFP. For instance, potential sugar buyers will have the 
opportunity to discuss and arrange storage and load out terms with the 
sugar seller prior to placing bids. As specified in subpart E, sugar 
acquired by CCC through methods other than FFP, such as sugar loan 
forfeitures, may also be sold for bioenergy production through FFP.
    Since the value of sugar required to be sold for bioenergy 
production will likely be less than the market price for sugar used for 
human consumption, there is an incentive for FFP sugar sold to 
bioenergy producers to leak into the domestic human consumption market. 
Therefore, CCC will require proof from each FFP bioenergy producer that 
the sugar is used in the bioenergy facility for the production of 
bioenergy. Bioenergy producers, at minimum, will be required to permit 
CCC access to the bioenergy facility to verify compliance; however, CCC 
may also require a performance bond or a similar instrument to assure 
that the purchased sugar is used to produce bioenergy. Specific terms 
and conditions of any such bond or instrument will be specified in the 
invitations to sell and buy sugar for the FFP.
    As noted above, CCC is not specifying the precise contracting 
method or language in the rule in order to maintain maximum flexibility 
in achieving program goals in the most cost effective way.

Discussion of Comments

    The comments CCC received in response to the proposed rule were 
from a representative of all sugar producers, a representative of sugar 
beet processors, a representative of companies that use sugar and 
sweeteners to manufacture foods and beverages, and three members of the 
general public. Half of the comments offered specific suggestions to 
amend the provisions in the proposed rule; the rest generally opposed 
or supported the Sugar Program. There was not a consensus on any of the 
suggested changes. There was general support for many of the provisions 
in the proposed rule, including how eligible forms of sugar for FFP are 
defined and CCC's proposed flexible approach to how purchases will be 
made if needed. Two commenters recommended terminating the Sugar 
Program, which CCC does not have authority to do; another comment 
generally supported FFP. The other comments offered specific 
suggestions to amend the rule or provided specific suggestions on how 
the rule should be implemented. The following provides a summary of the 
issues in the comments and CCC's responses, including changes being 
made to the final rule in response to the comments.

Disposition of Sugar Inventory

    Comment: CCC should leave ``emergency shortage'' undefined. Leaving 
the term undefined would give CCC the flexibility needed to operate the 
program successfully and that linking the term to a price formula is 
not authorized by the 2008 Farm Bill amendments. Defining the term in 
this inventory disposal regulation might automatically, and 
inappropriately, lead to the same definition being applied to the 
administration of the TRQs as required by 7 U.S.C. 1359kk.
    Response: The 2008 Farm Bill amendments specify some of the 
potential causes of an emergency shortage, but do not define an 
emergency shortage in terms of either price or a supply disruption. 
Based on a lack of consensus of commenters, this rule does not define 
the term. (See below, other commenters suggested that this term be 
defined.) CCC also wishes to maintain flexibility to determine whether 
particular events and their consequences give rise to an emergency 
shortage of sugar for human consumption in the United States market.
    Comment: CCC should define the term ``emergency shortage'' because 
market participants deserve to have a clear picture of CCC's thinking 
on this issue. Emergency shortage should be defined the same way it is 
used when CCC decides to increase the sugar TRQ. The definition should 
define an emergency shortage in terms of the effects, not the cause 
(for example, supply disruptions and price spikes). A specific 
percentage price increase above the loan forfeiture would be a useful 
way to measure what price constitutes an emergency shortage. Also, CCC 
should consider declarations of force majeure, plant closures, 
slowdowns, and temporary shutdowns in production lines as emergencies. 
CCC should consider establishing a benchmark of ``adequate supplies at 
reasonable prices,'' as already specified in the Harmonized Tariff 
Schedule of the United States, to determine if a shortage exists.
    Response: The 2008 Farm Bill amendments specify some of the causes 
that can give rise to an emergency shortage, but do not define what 
constitutes a shortage in terms of its effects. Other commenters 
suggested that this term be left undefined. Based on a lack of 
consensus of commenters, this rule does not define the term. CCC will 
use discretion to determine when an emergency shortage exists, and not 
define a specific formula or price level in the rule. The 2008 Farm 
Bill amendments require a triggering event before CCC can declare an 
``emergency shortage.'' From past experience with sugar shortages 
caused by disasters, CCC recognizes that it must be flexible to 
mitigate the unforeseen consequences of disastrous events. However, CCC 
would consider food manufacturing plant closures and similar events as 
events that could give rise to an emergency shortage.
    Comment: CCC should not limit eligible causes of emergency 
shortages to only the natural causes specifically mentioned in the 2008 
Farm Bill amendments, since the amendments also include references to 
``other natural disaster, or other similar event.'' However, the 2008 
Farm Bill amendments are clear that the triggering event must be 
``similar''--it does not give CCC complete discretion to consider any 
event or market condition as the cause of an emergency shortage. The 
courts have repeatedly upheld the principle of ejusdem generis--that 
where general words follow specific ones, the general words must be 
construed to include only objects similar to those specified. The final 
rule should use the 2008 Farm Bill

[[Page 45444]]

amendments language, but in implementation, it must be clear that mere 
high prices or low ending stocks do not constitute a similar event to 
war or hurricane. An eligible manmade event causing a shortage of sugar 
must be similar to a war, that is, an extreme event that results in 
massive loss of life, property destruction, or a severe disruption of 
international trade--not merely low ending stocks or high prices. 
Similarly, an ``other natural disaster'' cause of sugar shortage must 
be on the order of a flood or hurricane that causes death and 
destruction, and not a more localized event such as a tornado or hail 
storm.
    Response: CCC has decided not to define the ``emergency shortage'' 
or its causes in the regulation as there was no consensus among 
commenters. CCC also wishes to maintain flexibility to determine 
whether particular events and their consequences give rise to an 
emergency shortage of sugar for human consumption in the United States 
market. The final rule uses the specific language from the 2008 Farm 
Bill amendments to specify what constitutes a cause of an emergency 
shortage.

Feedstock Flexibility Program

    In the proposed rule, CCC requested comment on how CCC should 
calculate a sugar market surplus, particularly for the required 
September 1 estimate, when uncertainties are greatest. CCC also 
requested comments on appropriate methods to estimate the likelihood of 
forfeitures and to determine the quantity of sugar to be purchased in 
each quarter. In comments on the proposed rule, both sugar producers 
and sugar users supported estimating a surplus based on comparing 
stocks to stock levels that have resulted in forfeitures in the past. 
Sugar producers supported a generally flexible approach with no 
specific numerical trigger for implementing FFP, while sugar users 
supported an unspecified numerical threshold above the stock level that 
triggered forfeitures in the past. In the absence of a consensus on a 
specific formula for determining that forfeitures are likely, CCC 
retained the flexible language from the proposed rule that does not 
specify a formula CCC will use to determine the quantity of sugar 
likely to be forfeited.
    In the proposed rule, CCC asked for comments on whether the 
regulations should specify one particular method of contracting for FFP 
purchases. There was a consensus that FFP should have the flexibility 
to determine the most appropriate approach if and when the program is 
needed.
    Comment: The option provided in the proposed rule that CCC declare 
a sugar market surplus to be any stocks level appearing in USDA's World 
Agricultural Supply and Demand Estimates (WASDE) report that are over 
and above the stock level expected to result in forfeitures should be 
used.
    Response: The WASDE stock levels will certainly be considered in 
analyzing whether a surplus exists. In the absence of a consensus on 
any specific formula as to what level represents an expectation of 
forfeitures, CCC has not specified a formula for what constitutes a 
surplus in this rule.
    Comment: The level of stocks that produced forfeitures in the past 
may not lead to forfeitures in the future. Stocks can be, and have 
been, somewhat higher than the traditional ideal level of 14.5 percent, 
or even 15.5 percent, without leading to forfeitures. Use some 
projected stock level above the level that has triggered forfeitures in 
the past to predict surpluses.
    Response: In the absence of a consensus on any specific formula as 
to what level represents an expectation of forfeitures, CCC has not 
specified what constitutes a surplus in this rule.
    Comment: CCC should not use any numerical stipulation to specify 
the likelihood of forfeitures or for determining quantities to 
purchase.
    Response: There is no formula specified in the rule for what 
constitutes a surplus. CCC will use objective criteria based on market 
data to justify its determination of forfeiture risk and quantities to 
purchase.
    Comment: We support CCC's FFP sugar purchase strategy of staggering 
CCC purchases for biofuel as the market unfolds, rather than one single 
purchase.
    Response: CCC is required by applicable law to estimate the 
quantity to be made available for purchase and sale under FFP 
quarterly, but will take a conservative approach early in the year, as 
discussed in the background section of the proposed rule.
    Comment: CCC should wait until the end of the FY, when forfeitures 
could occur, to make any purchases for FFP.
    Response: CCC will make quarterly estimates of the quantity of 
eligible sugar that will be made available for purchase and sale under 
the FFP, and announce by press release the quantity, if any, and timing 
of availability of FFP purchases and sales. If the projected surplus is 
large, CCC will need to make purchases before the end of the FY to 
achieve the goal of avoiding sugar loan forfeitures. CCC's purchases 
will be more conservative earlier in the year than later, due to the 
greater level of uncertainty early in the year. CCC cannot wait to make 
FFP purchases only when forfeitures would occur, for example, in August 
for FY 2013, because a principal goal of FFP is to prevent forfeitures.
    Comment: We support CCC's proposal that to be eligible for FFP, 
sugar must be processed and located in the United States from 
domestically-grown sugarcane and sugar beets. Also, only biofuel 
facilities within the U.S. should be eligible to purchase sugar.
    Response: CCC clarifies the language in 7 CFR part 1435, subpart G 
that to be eligible for FPP, the sugar seller must be located in the 
United States. As specified in this rule, eligible sugar for FFP 
purchase must have been processed in the United States from 
domestically-grown sugarcane and sugar beets. However, eligible buyers 
are not required to use the purchased FFP sugar in U.S. facilities. 
Section 9010 of the 2002 Farm Bill, as amended, expressly provides that 
the sale of sugar to bioenergy producers must be conducted in a manner 
that ensures the Sugar Program is operated at no cost to the Federal 
Government by avoiding forfeitures to CCC. To restrict eligible buyers 
to those bioenergy producers whose production facilities are located in 
the United States may restrict the pool of sugar buyers, potentially 
increasing the cost to the Federal Government and the likelihood of 
forfeitures to CCC. Consequently, the final rule does not adopt this 
restriction.
    Comment: CCC needs to take a flexible approach to contracting to 
arrive at the most cost-efficient way to manage FFP. We support the 
approach in the proposed rule that FFP tender offers will include both 
a seller and buyer of sugar for bioenergy production to minimize FFP 
costs. We also support the strategy of pre-qualifying bioenergy 
producers willing to buy FFP sugar.
    Response: CCC will generally employ competitive procedures to 
minimize CCC costs. Since commenters supported a flexible approach, CCC 
will not specify a specific purchase method in the rule.
    Comment: CCC should evaluate offers in light of the forfeiture 
equivalent price so that sellers do not earn substantially more for 
selling surplus sugar to FFP than they would by forfeiting sugar to 
CCC. CCC must structure the contracting procedure to minimize the 
chance for FFP sugar sellers to receive more than they would if they 
forfeited sugar under loan.
    Response: CCC has the authority to limit bid acceptance; no 
modification of the rule is necessary to address this comment. The 
terms of CCC's sugar purchase compared to the terms of forfeiture will 
determine if CCC can

[[Page 45445]]

expect to pay more or less under FFP than the forfeiture proceeds. In 
2000, a year in which forfeitures previously occurred, CCC limited 
acceptable offers to less than the forfeiture proceeds, resulting in 
CCC paying less, and in some cases substantially less, for sugar 
purchased by processors than the proceeds later retained from 
forfeiture. However, the storage cost restriction and other FFP 
requirements may affect CCC's terms of purchase and CCC's determination 
of an acceptable offer.
    Comment: CCC should include an audit clause in the contract to 
purchase sugar for bioenergy production to avoid fraud and misuse and 
to ensure the sugar does not enter the human consumption chain.
    Response: As specified in this rule, each bioenergy producer that 
purchases sugar through FFP must provide proof to CCC that the sugar is 
used by such producer for the production of bioenergy.
    Comment: The rule language is not consistent. The language in the 
example specified in Sec.  1435.602(e), ``Eligible commodity to be 
purchased by CCC,'' is inconsistent with the proposed rule text in the 
rest of that paragraph. The example indicates that CCC would only 
consider a percentage of the refined sugar expected to be made from a 
sugar bearing product, when the other language in the same paragraph 
stated that all of the expected sugar to be made from the product would 
be considered in evaluating a bid.
    Response: CCC has corrected the language so that the example is 
consistent with the rest of the regulatory text in that section.

Summary of Changes

    In summary, as discussed above, CCC is making minor changes to the 
regulatory text in response to comments, including a correction and 
several clarifications. Sugar buyers and sugar producers had opposing 
comments on both sugar disposition and FFP, with buyers generally 
wanting CCC to take actions that would keep prices as low as possible, 
and sellers wanting CCC to take actions to support prices as high as 
possible. Given these irreconcilable opposing interests and lack of 
consensus on approach, CCC has made no substantive changes in response 
to comments, because the evenly balanced comments reflect that the 
proposed rule, to the extent possible within the requirements of 
applicable law, balances the different stakeholder interests.
    CCC has made other changes from the proposed rule, not in response 
to comments, to clarify its evaluation of the types of sugar eligible 
for FFP and the location of eligible bioenergy producers. CCC has also 
determined that it should not limit eligible bioenergy producers to 
those with production facilities in the United States. Such a 
limitation was determined to unnecessarily limit competition for CCC 
sugar and may increase program costs.

Effective Date

    The Administrative Procedure Act (5 U.S.C. 553) provides generally 
that before rules are issued by Government agencies, the rule must be 
published in the Federal Register, and the required publication of a 
substantive rule is to be not less than 30 days before its effective 
date. One of the exceptions is when the agency finds good cause for not 
delaying the effective date. CCC finds that there is good cause for 
making this rule effective less than 30 days after publication in the 
Federal Register because this rule allows CCC to prevent sugar in the 
U.S. market from being forfeited to CCC. The margin between the raw 
sugar market price and the raw sugar price level encouraging forfeiture 
fell in 2012 from 13.8 to 1.6 cents per pound. Therefore, to avoid 
possible forfeitures for crop year 2012, this final rule is effective 
when published in the Federal Register.

Executive Orders 12866 and 13563

    Executive Order 12866, ``Regulatory Planning and Review,'' and 
Executive Order 13563, ``Improving Regulation and Regulatory Review,'' 
direct agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). Executive Order 13563 emphasized the importance 
of quantifying both costs and benefits, of reducing costs, of 
harmonizing rules, and of promoting flexibility.
    The Office of Management and Budget (OMB) designated this rule as 
significant under Executive Order 12866 and, therefore, OMB reviewed 
this rule. A summary of the cost-benefit analysis of this rule is 
provided below and is available at http://www.regulations.gov and from 
the contact listed above.

Summary of Costs and Benefits

    Predicting conditions months into the future is a process that 
involves inevitable uncertainty, with variables subject to change. 
Current baseline projections developed by USDA indicate that FFP 
authorities may be necessary only once during the 10-year baseline 
period. The analysis estimated a 76.9 percent chance of FFP being 
activated in FY 2013.
    FSA assumes that 300,000 tons of CCC sugar loan collateral will be 
forfeited in FY 2013 if FFP is not implemented. FFP is expected to cost 
CCC an estimated $54.5 million more than using the least-cost surplus 
management option. The total cost associated with FFP is $92.3 million 
(300,000 tons x 2,000 lbs x 15.38 cents per lb = $92.3 million). 
Despite this cost, FFP has at least one benefit that is not available 
with other sugar supply reduction methods. Specifically, FFP will allow 
the generation of Renewable Identification Numbers (RINs), which will 
help gasoline and diesel blenders meet their Renewable Fuels Standard 
(RFS) mandates in 2014.
    The current baseline projections indicate that there are no sugar 
loan forfeitures or CCC purchases of sugar for ethanol expected from FY 
2014-2023, because projected raw cane and refined beet sugar prices are 
above the minimum prices that would result in forfeitures. More 
specifically, FFP is projected to be unneeded after FY 2013 because the 
domestic market is no longer projected to be in surplus, and the world 
market is projected to affect domestic prices above rate levels 
specified in the 2008 Farm Bill.
    Expected growth in U.S. beet and cane sugar production over the 
next decade is projected to be very modest--less than 5 percent over 
the projections period. Sugar use is projected to grow about 0.7 
percent a year, or 7 percent over the decade. Mexican imports are 
expected to average 12.8 percent of U.S. domestic sugar use. TRQ sugar 
imports from U.S. commitments made to member states of the World Trade 
Organization (WTO) and under existing trade agreements are expected to 
average 1.444 million short tons, raw value (STRV) annually. World raw 
sugar prices (Intercontinental Exchange No. 11, nearby futures) 
forecasts by the Organization for Economic Co-operation and Development 
(OECD) are used in the analysis, which average 21.58 cents per pound 
through the projection period, which is above the U.S. Sugar Program's 
support rate of 20.9 cents per pound.

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601, 
FSA has determined that there will not be a significant economic impact 
on a substantial number of small entities. The entities that would be 
affected by this rule are sugar producers and sugar

[[Page 45446]]

bioenergy producers. The sugar producers are not small businesses 
according to the North American Industry Classification System and the 
U.S. Small Business Administration. There are currently no commercial 
bioenergy producers in the United States who use sugar solely as a 
feedstock, although sugar may be blended with other feedstocks 
currently used in the manufacture of bioenergy. The bioenergy producers 
in the United States who use other commodities as a feedstock and that 
might be expected to purchase sugar as a feedstock are not small 
businesses.

Environmental Review

    The environmental impacts of this rule have been considered in a 
manner consistent with the provisions of the National Environmental 
Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations of the Council 
on Environmental Quality (40 CFR parts 1500-1508), and FSA regulations 
for compliance with NEPA (7 CFR part 799). The changes to the Sugar 
Program required by Title IX of the 2008 Farm Bill identified in this 
rule are considered non-discretionary. Therefore, CCC has determined 
that NEPA does not apply to this rule and no environmental assessment 
or environmental impact statement will be prepared.

Executive Order 12372

    This program is not subject to Executive Order 12372, 
``Intergovernmental Review of Federal Programs,'' which requires 
consultation with State and local officials. See the notice related to 
7 CFR part 3015, subpart V, published in the Federal Register on June 
24, 1983 (48 FR 29115).

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, ``Civil 
Justice Reform.'' This rule would not preempt State and or local laws, 
and regulations, or policies unless they present an irreconcilable 
conflict with this rule. The rule will not have retroactive effect. 
Before any judicial action may be brought regarding the provisions of 
this rule, the administrative appeal provisions of 7 CFR parts 11 and 
780 must be exhausted.

Executive Order 13132

    This rule has been reviewed under Executive Order 13132, 
``Federalism.'' The policies contained in this rule will not have any 
substantial direct effect on States, the relationship between the 
Federal government and the States, or the distribution of power and 
responsibilities among the various levels of government. Nor would this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Executive Order 13175

    This rule has been reviewed for compliance with Executive Order 
13175, ``Consultation and Coordination with Indian Tribal 
Governments.'' The policies in this rule do not have Tribal 
implications that preempt Tribal law.

Unfunded Mandates

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA, Pub. L. 
104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, or Tribal governments or the 
private sector. Agencies generally must prepare a written statement, 
including a cost benefit analysis, for proposed and final rules with 
Federal mandates that may result in expenditures of $100 million or 
more in any 1 year for State, local, or Tribal governments, in the 
aggregate, or to the private sector. UMRA generally requires agencies 
to consider alternatives and adopt the more cost effective or least 
burdensome alternative that achieves the objectives of the rule. This 
rule contains no Federal mandates under the regulatory provisions of 
Title II of the Unfunded Mandates Reform Act of 1995 for State, local, 
and Tribal government or the private sector. Therefore, this rule is 
not subject to the requirements of sections 202 and 205 of UMRA.

Paperwork Reduction Act

    We anticipate that in the next 3 years fewer than 10 sugar 
producers will participate in FFP by selling their sugar to CCC. In 
addition, FSA estimates that in each of the next 3 years, fewer than 10 
bioenergy producers will participate in FFP by buying sugar from CCC. 
Each of these will use a different form to collect different types of 
information. Therefore, the Paperwork Reduction Act exemption specified 
in 5 CFR 1320.3(c) applies because fewer than 10 sugar producers or 10 
bioenergy producers are expected to need to complete the respective 
forms for selling or buying sugar for FFP.

E-Government Act Compliance

    CCC is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.

List of Subjects in 7 CFR Part 1435

    Loan programs-agriculture, Penalties, Price support programs, 
Reporting and recordkeeping requirements, Sugar.

    For the reasons discussed above, CCC amends 7 CFR part 1435 as 
follows:

PART 1435--SUGAR PROGRAM

0
1. Revise the authority citation for part 1435 to read as follows:

    Authority: 7 U.S.C. 1359aa-1359jj, 7272, and 8110; 15 U.S.C. 
714b and 714c.


0
2. Add subpart E to read as follows:
Subpart E--Disposition of CCC Inventory
Sec.
1435.400 General statement.
1435.401 CCC sugar inventory disposition.

Subpart E--Disposition of CCC Inventory


Sec.  1435.400  General statement.

    This subpart will be applicable in the event that raw, refined, or 
in-process sugar is owned and held in CCC inventory (accumulated under 
the program authorized by section 156 of the Federal Agriculture 
Improvement and Reform Act, as amended) as specified in subpart B of 
this part.


Sec.  1435.401  CCC sugar inventory disposition.

    (a) CCC will dispose of inventory in the following manner, if CCC 
has not determined there is an emergency shortage of sugar for human 
consumption in the domestic market:
    (1) By sale to bioenergy producers under the Feedstock Flexibility 
Program as specified in subpart G of this part,
    (2) By transfer to sugarcane and sugar beet processors under the 
Processor Sugar Payment-In-Kind Program as specified in subpart F of 
this part,
    (3) By the buyback of certificates of quota eligibility (CQEs), or
    (4) By the use of any other authority for the disposition of CCC-
owned sugar for nonfood use or otherwise in a manner that does not 
increase the net quantity of sugar available for human consumption in 
the United States.
    (b) CCC may use any of its authority for the disposition of CCC-
owned sugar, if CCC has determined there is an emergency shortage of 
sugar for human consumption in the domestic market caused by war, 
flood, hurricane, or other natural disaster, or similar event, as 
determined by CCC.

0
3. Add subpart G to read as follows:
Subpart G--Feedstock Flexibility Program
Sec.
1435.600 General statement.
1435.601 Sugar surplus determination and public announcement.

[[Page 45447]]

1435.602 Eligible sugar to be purchased by CCC.
1435.603 Eligible sugar seller.
1435.604 Eligible sugar buyer.
1435.605 Competitive procedures.
1435.606 Miscellaneous.
1435.607 Appeals.

Subpart G--Feedstock Flexibility Program


Sec.  1435.600  General statement.

    (a) The provisions of this subpart will be applied when CCC 
determines that buying sugar is necessary to avoid forfeitures of sugar 
pledged as collateral for CCC sugar loans.
    (b) This subpart will be applicable to:
    (1) Any sugar seller who contracts with CCC to sell sugar, and
    (2) Any bioenergy producer who contracts with CCC to purchase sugar 
for the production of bioenergy.


Sec.  1435.601  Sugar surplus determination and public announcement.

    (a) CCC will estimate by September 1 the quantity of sugar that 
will be made available for purchase and sale under FFP for the 
following crop year.
    (b) Not later than January 1, April 1, and July 1 of the fiscal 
year, CCC will re-estimate the quantity of sugar that will be made 
available for purchase and sale under the FFP for the crop year.
    (c) CCC will announce by press release the estimates in paragraphs 
(a) and (b) of this section, which will reflect CCC's forecast of sugar 
likely to be forfeited to CCC and any uncertainty surrounding that 
forecast.


Sec.  1435.602  Eligible sugar to be purchased by CCC.

    (a) CCC will only purchase raw sugar, refined sugar, or in-process 
sugar for FFP that is eligible to be used as collateral under the CCC 
Sugar Loan Program, as specified in Sec.  1435.102.
    (b) Raw sugar, refined sugar, or in-process sugar purchased 
directly from any domestic sugar beet or sugarcane processor that made 
the raw sugar, refined sugar, or in-process sugar will be credited 
against the processor's sugar marketing allocation. (The definition for 
``marketing'' in Sec.  1435.2 applies to this subpart.)
    (c) CCC will only purchase sugar located in the United States.
    (d) CCC will evaluate an offer to sell sugar to CCC based upon 
CCC's estimate of the reduction in refined sugar supply available for 
human consumption due to the purchase. For example, if processing thick 
juice (an in-process sugar) would yield 70 percent sugar for human 
consumption, then CCC will only consider 70 percent of the volume of 
the thick juice in evaluating the per unit sales price.
    (e) CCC will only purchase the sugar if such purchase would reduce 
the likelihood of forfeitures of CCC sugar loans, as determined by CCC.


Sec.  1435.603  Eligible sugar seller.

    (a) To be considered an eligible sugar seller, the sugar seller 
must be located in the United States.
    (b) [Reserved]


Sec.  1435.604  Eligible sugar buyer.

    (a) To be considered an eligible sugar buyer, the bioenergy 
producer must produce bioenergy products, including fuel grade ethanol 
or other biofuels.
    (b) [Reserved]


Sec.  1435.605  Competitive procedures.

    (a) CCC will generally issue tenders for bids, before entering into 
contracts with any eligible sugar seller or buyer, with the intent of 
selecting the bid(s) that represents the least cost to CCC of removing 
sugar from the market.
    (b) CCC may, at times, negotiate contracts directly with sellers or 
buyers, if CCC determines that such negotiation will result in either 
reduced likelihood of forfeited sugar under the CCC sugar loan program 
or reduced costs of removing sugar from the market, which will reduce 
the likelihood of forfeitures of sugar to CCC.


Sec.  1435.606  Miscellaneous.

    (a) As a sugar buyer, a bioenergy producer must take possession of 
the sugar no more than 30 days from the date of CCC's purchase.
    (b) CCC, to the maximum extent practicable, will not pay storage 
fees for the sugar purchased under this program. A bioenergy producer 
must assume any storage costs accrued from date of contract to date of 
taking possession of the sugar.
    (c) Each bioenergy producer that purchases sugar through FFP must 
provide proof as specified by CCC that the sugar has been used in the 
bioenergy factory for the production of bioenergy and permit access for 
USDA to verify compliance.


Sec.  1435.607  Appeals.

    (a) The administrative appeal regulations of parts 11 and 780 of 
this title apply to this part.
    (b) [Reserved]

    Signed on July 24, 2013.
Juan M. Garcia,
Administrator, Farm Service Agency, and Executive Vice President, 
Commodity Credit Corporation.
[FR Doc. 2013-18160 Filed 7-26-13; 8:45 am]
BILLING CODE 3410-05-P